UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-10239
PLUM CREEK TIMBER COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 91-1443693
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
999 Third Avenue, Seattle, Washington 98104-4096
Telephone: (206) 467-3600
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
------ ------
The number of outstanding shares of the registrant's common stock as of
May 1,2000 was 68,572,009. The number of outstanding shares of special voting
stock as of May 1, 2000 was 634,566.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PLUM CREEK TIMBER COMPANY, INC.
CONSOLIDATED / COMBINED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
Quarter Ended March 31,
-----------------------
2000 1999
(REIT) (MLP)
------ -----
(In Thousands, Except Per Share / Unit)
<S> <C> <C>
Revenues ............................. $ 58,951 $ 178,221
---------- ----------
Costs and Expenses:
Cost of Goods Sold ............... 16,503 129,395
Selling, General and Administrative 3,449 10,443
---------- ----------
Total Costs and Expenses ......... 19,952 139,838
---------- ----------
Operating Income ..................... 38,999 38,383
Interest Expense ..................... (11,916) (18,525)
Interest Income ...................... 1,507 389
Gain (Loss) on Disposition of Assets-
Net ................................. 49,688 209
Reorganization Costs ................. 0 (2,651)
Other (Expense) Income - Net ......... 133 (53)
---------- ----------
Income before Income Taxes, Equity in
Earnings of Unconsolidated Subsidiaries
and Preferred Stock Dividends and
Cumulative Effect of Accounting
Change ........................... 78,411 17,752
(Provision) Benefit for Income Taxes . 0 (174)
Equity in Earnings of Unconsolidated
Sudsidiaries and Preferred Stock
Dividends ........................ 2,168 0
---------- ----------
Net Income before Cumulative Effect of
Accounting Change ................ $ 80,579 $ 17,578
Cumulative Effect of Accounting Change 0 12,169
---------- ----------
Net Income ........................... $ 80,579 $ 29,747
General Partner Interest ............. 0 8,534
---------- ----------
Net Income Allocable to Common Shareholders/
Unitholders ...................... $ 80,579 $ 21,213
---------- ----------
---------- ----------
Income Allocable to Common Shareholders/
Unitholders per Share before Cumulative
Effect of Accounting Change....... $ 1.16 $ 0.20
---------- ----------
---------- ----------
Cumulative Effect of Accounting Change
per Share/Unit.................... - $ 0.26
---------- ----------
---------- ----------
Net Income per Share/Unit ............ $ 1.16 $ 0.46
---------- ----------
---------- ----------
Dividends Declared Per Share/Unit .... $ 0.57 $ 0.57
---------- ----------
---------- ----------
Weighted average number of Shares/Units
outstanding-Basic and Diluted .... 69,207 46,323
---------- ----------
---------- ----------
</TABLE>
See accompanying Notes to Consolidated / Combined Financial Statements
PLUM CREEK TIMBER COMPANY, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
March 31, December 31,
2000 1999
(REIT) (REIT)
------ ------
(In Thousands, except share data)
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents ........ $ 177,310 $ 115,389
Accounts Receivable .............. 0 828
Investments in Grantor Trusts .... 13,797 13,721
Other Current Assets ............. 845 3,378
---------- ----------
191,952 133,316
Timber and Timberlands - Net ........ 989,871 1,010,524
Property, Plant and Equipment - Net .. 1,171 1,203
Investment in Unconsolidated
Subsidiaries ....................... 96,692 100,202
Other Assets ......................... 4,666 5,511
---------- ----------
Total Assets ..................... $1,284,352 $1,250,756
---------- ----------
---------- ----------
LIABILITIES
Current Liabilities:
Current Portion of Long-Term Debt $ 6,135 $ 6,127
Accounts Payable ................. 917 1,674
Related Party Payables ........... 17,124 26,522
Interest Payable ................. 11,521 9,623
Taxes Payable .................... 3,330 2,034
Liabilities Associated with
Grantor Trust .................. 13,809 13,411
Deferred Income .................. 7,859 8,556
Other Current Liabilities ........ 6,383 6,257
---------- ----------
67,078 74,204
Long-Term Debt ....................... 565,832 565,950
Line of Credit ....................... 77,000 77,000
Workers' Compensation Liabilities .... 225 225
Other Liabilities .................... 361 330
---------- ----------
Total Liabilities ................ 710,496 717,709
---------- ----------
Commitments and Contingencies
STOCKHOLDERS' EQUITY
Preferred Stock, $0.01 par value,
authorized shares - 75 million,
outstanding - none ............... 0 0
Common Stock, $0.01 par value,
authorized shares - 300 million,
outstanding - 68,572,009 ......... 686 686
Special Voting Stock, $0.01 par value,
convertible to common stock,
authorized and outstanding -
634,566 .......................... 6 6
Additional Paid-In Capital ........... 522,244 522,244
Retained Earnings .................... 50,717 9,586
Other Equity ......................... 203 525
---------- ----------
Total Stockholders' Equity........ 573,856 533,047
---------- ----------
Total Liabilities and
Stockholders' Equity ............ $1,284,352 $1,250,756
---------- ----------
---------- ----------
</TABLE>
See accompanying Notes to Consolidated / Combined Financial Statements
PLUM CREEK TIMBER COMPANY, INC.
CONSOLIDATED / COMBINED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
Quarter Ended March 31,
-----------------------
2000 1999
(REIT) (MLP)
------ -----
(In Thousands)
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income ............................ $ 80,579 $ 29,747
Adjustments to Reconcile Net Income to
Net Cash Provided By Operating Activities:
Depreciation, Depletion
and Amortization ................. 10,217 19,129
Cumulative Effect of Accounting
Change ........................... 0 (12,169)
(Gain) Loss on Asset Dispositions-
Net .............................. (49,688) (209)
Equity in Earnings of
Unconsolidated Subsidiaries and
Preferred Stock Dividends ........ (2,168) 0
Preferred Stock Dividends ......... 3,919 0
Working Capital Changes:
Accounts Receivable .............. 828 (3,658)
Inventories ...................... 0 (549)
Timber Contract Deposits and Other
Current Assets................... 2,457 633
Accounts Payable ................. (757) 545
Deferred Income .................. (697) 0
Other Accrued Liabilities......... 3,218 790
Other ............................. 1,835 826
---------- ----------
Net Cash Provided By Operating Activities 49,743 35,085
---------- ----------
Cash Flows From Investing Activities:
Additions to Properties ........... (3,227) (7,799)
Proceeds from Asset Dispositions .. 62,952 896
Advances/Distributions with
Unconsolidated Subsidiaries ...... (7,638) 0
---------- ----------
Net Cash Provided By (Used In)
Investing Activities ................. 52,087 (6,903)
---------- ----------
Cash Flows From Financing Activities:
Cash Distributions ................ (39,448) (35,458)
Retirement of Long-Term Debt ...... (111) 0
Borrowings on Line of Credit ...... 77,000 142,000
Repayments on Line of Credit ...... (77,000) (142,000)
Other ............................. (350) 0
---------- ----------
Net Cash Used In Financing Activities . (39,909) (35,458)
---------- ----------
Increase (Decrease) In Cash and
Cash Equivalents ..................... 61,921 (7,276)
Cash and Cash Equivalents:
Beginning of Period .............. 115,389 113,793
---------- ----------
End of Period ..................... $ 177,310 $ 106,517
---------- ----------
---------- ----------
Supplementary Cash Flow Information
- -----------------------------------
Noncash activities:
Distribution of common stock from
deferred incentive compensation
plan for payment of liability..... $ 1,284
</TABLE>
See accompanying Notes to Consolidated / Combined Financial Statements
PLUM CREEK TIMBER COMPANY, INC.
NOTES TO CONSOLIDATED/COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. Organization and Basis of Presentation
On July 1, 1999, Plum Creek Timber Company, L.P. completed its conversion from
a master limited partnership to a corporation. Plum Creek Timber Company,
Inc., the new corporation and successor registrant, will elect to be treated
for Federal income tax purposes as a real estate investment trust or "REIT."
As of the REIT conversion, Plum Creek Timber Company, L.P. ceased to exist.
In order to qualify as a REIT, substantially all assets and associated
liabilities related to manufacturing operations and harvesting activities and
some higher and better use lands were transferred to several unconsolidated
corporate subsidiaries. The corporation is entitled to approximately 99% of
the economic value of the unconsolidated subsidiaries through a combination of
preferred stock and nonvoting common stock.
Following the REIT conversion, the corporation owns and manages approximately
3.2 million acres of timberlands in the Northwest, Southern and Northeast
United States, and the unconsolidated subsidiaries own and operate eleven wood
product conversion facilities in the Northwest and Southern United States, as
well as approximately 21,500 acres of higher and better use lands.
The consolidated financial statements include all the accounts of the REIT and
its wholly owned subsidiaries. The unconsolidated subsidiaries are accounted
for by the REIT under the equity method of accounting. All significant
intercompany transactions have been eliminated in the consolidation.
The financial statements included in this Form 10-Q are unaudited and do not
contain all of the information required by generally accepted accounting
principles to be included in a full set of financial statements. The
financial statements in the corporation's 1999 annual report on Form 10-K
include a summary of significant accounting policies of the corporation and
should be read in conjunction with this Form 10-Q. In the opinion of
management, all material adjustments necessary to present fairly the results
of operations for such periods have been included. All such adjustments are
of a normal and recurring nature. The results of operations for any interim
period are not necessarily indicative of the results of operations for the
entire year.
Earnings per share (unit) is computed by dividing net income allocable to
common stockholders (unitholders) by the weighted average number of common
shares (units) outstanding for the period. The weighted average number of
shares (units) outstanding was 69,206,575 for the three months ended March 31,
2000 and 46,323,300 for the three months ended March 31, 1999.
In the fourth quarter of 1999, the corporation changed its accounting policy
to capitalize certain timber reforestation costs and other costs associated
with the planting and growing of timber that were previously expensed. The
new capitalization policy was applied retroactively as of January 1, 1999, and
resulted in a restatement of first quarter 1999 results for the cumulative
effect of the accounting change from June 1989 through December 31, 1998. The
cumulative effect of this restatement increased first quarter 1999 net income
by $12.2 million or $0.26 per unit. Furthermore, the first quarter 1999's
operating income was restated to reflect the new accounting method. The
impact of this restatement decreased operating income in the first quarter of
1999 by $0.3 million.
2. Timber and Timberlands and Property, Plant and Equipment
Timber and timberlands consisted of the following (in thousands):
March 31, December 31,
2000 1999
------ ------
Timber and logging roads - net $ 868,271 $ 887,417
Timberlands 121,600 123,107
--------- ---------
Timber and Timberlands - net $ 989,871 $1,010,524
--------- ---------
--------- ---------
Property, plant and equipment consisted of the following (in thousands):
March 31, December 31,
2000 1999
------ ------
Land, buildings and improvements $ 1,184 $ 1,184
Machinery and equipment 699 699
----- -----
1,883 1,883
Accumulated depreciation (712) (680)
----- -----
Property, Plant and Equipment - net $ 1,171 $ 1,203
----- -----
----- -----
In January 2000, the corporation sold approximately 90,000 acres of
timberlands and higher and better use lands near St. Maries, Idaho for
approximately $73 million. The sale resulted in approximately $8.8 million of
operating income (portion of sales proceeds related to higher and better use
land) and $49.7 million of gain on sale of assets.
3. Investment in Equity of Unconsolidated Subsidiaries and Preferred Stock
In connection with the REIT conversion in 1999, substantially all of the
partnership's assets and associated liabilities related to the manufacturing
operations and harvesting activities and some higher and better use lands were
transferred to several unconsolidated corporate taxable subsidiaries in
exchange for preferred stock and nonvoting common stock. The corporation's
equity earnings and preferred stock dividends from the unconsolidated
subsidiaries for the three months ended March 31, 2000, is comprised of the
following (in thousands):
Share of Equity Earnings (Losses) $ (2,720)
Preferred Stock Dividends 3,919
Amortization of difference between carrying
amount and share of underlying equity 969
-----
Total Equity Earnings and Preferred Stock Dividends $ 2,168
-----
-----
Summarized combined financial data for the unconsolidated subsidiaries'
operations as of and for the quarter ended March 31, 2000 are as follows (in
thousands):
Current Assets $ 139,050
Noncurrent Assets 218,298
Current Liabilities 69,948
Noncurrent Liabilities 157,871
Revenues $ 178,910
Gross Profit 14,023
Operating Income 5,443
Interest Expense 4,757
Income Tax Benefit 450
Net Income 1,085
Gross profit includes depreciation and amortization expense of $7.5 million.
The Income Tax Benefit includes a benefit of $0.7 million related to interest
expense that is allowed for tax purposes but eliminated for financial
reporting purposes. For the three months ended March 31, 2000, the
unconsolidated subsidiaries had capital expenditures of $5.5 million and
revenues reported by the corporation that were also included in the revenues
of the unconsolidated subsidiaries amounted to $47.1 million.
4. Borrowings
As of March 31, 2000, we had $77.0 million of borrowings under our revolving
line of credit. Subject to customary covenants, the line of credit allows us
to borrow from time to time up to $225 million, including up to $20 million of
standby letters of credit, through December 13, 2001. As of March 31, 2000,
$148 million remained available for borrowing under the line of credit and we
had no outstanding standby letters of credit. As of April 7, 2000, we repaid
$77.0 million of borrowings on the line of credit.
5. Commitments and Contingencies
In June 1999, the partnership and its general partner settled previously
disclosed unitholder litigation relating to the REIT conversion. The
settlement obligates the former general partner to pay up to $30 million into
a fund for distribution to eligible unitholders if specified five-year
financial targets of the corporation are not met. Payments by the former
general partner, if any, would generally be made following the end of the
five-year period, on or about April 15, 2004, and may be accelerated upon the
occurrence of an extraordinary transaction.
Pursuant to the Securities and Exchange Commission's Staff Accounting Bulletin
No. 79, any payment made by the former general partner under the settlement
will be accounted for as a deemed capital contribution by the former general
partner to the corporation, followed by a non-cash expense of the corporation.
The Staff Accounting Bulletin requires that payments made by a principal
shareholder of a corporation or a general partner of a partnership be expensed
by the corporation or partnership if the entity receives any benefit as a
result of such payment. Therefore, in accordance with Staff Accounting
Bulletin No. 79, the corporation will record a non-cash expense in the
period(s) in which, and to the extent that, it appears probable that a payment
is required. Payments by the former general partner, if any, will have no
impact on the corporation's cash flow.
6. Stock Incentive Plan
During the first quarter 2000, the Board of Directors approved a new Stock
Incentive Plan. The adoption of the Plan is subject to shareholder approval.
If approved, the Plan will replace the Long-Term Incentive and Key Employee
Long-Term Incentive Plans adopted by the partnership in 1998. The total
number of shares of common stock reserved and eligible for issuance under the
Plan is 3,425,000. The Plan provides for the award of non-qualified stock
options, dividend equivalents, restricted stock and value management awards.
The dividend equivalents and value management awards are performance based
plans in which participants are eligible for varying levels of cash and stock
award payments, dependent upon attaining certain performance targets.
7. Segment Information
The table below presents information about reported segments for the quarters
ended (in thousands):
Northern Southern Land
Resources Resources Lumber Panel Sales Total
--------- --------- ------ ----- ----- -----
March 31, 2000
- --------------
External
revenues $ 43,230 $ 10,010 $ 85,088 $ 40,695 $ 11,729 $190,752
Intersegment
revenues 31,889 9,811 41,700
Operating
income 26,767 7,458 2,443 3,042 10,505 50,215
March 31, 1999
- --------------
External
revenues $ 45,021 $ 12,269 $ 79,481 $ 40,286 $ 1,164 $178,221
Intersegment
revenues 33,118 8,102 41,220
Operating
income 27,608 5,825 3,555 4,951 731 42,670
A reconciliation of total operating income to combined income before income
taxes, for the quarters ended March 31, is as follows (in thousands):
2000 1999
---- ----
Total segment operating income $ 50,215 $ 42,670
Operating income recognized by
unconsolidated subsidiaries (5,443)
Interest expense - net (10,409) (18,136)
Gain (loss) on disposition of
assets - net 49,688 209
Corporate and other unallocated
income (expenses) (5,640) (6,991)
------- -------
Income before income taxes and equity
in earnings of unconsolidated subsidiaries,
preferred stock dividends and cumulative
effect of accounting change $ 78,411 $ 17,752
------- -------
------- -------
8. Subsequent Events
On April 25, 2000, the board of directors authorized the corporation to make a
dividend distribution of $0.57 per share. Total dividends will approximate
$39.4 million and will be paid on May 30, 2000, to stockholders of record on
May 17, 2000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Forward-Looking Statements
- --------------------------
This Report contains forward-looking statements within the meaning of the
Private Litigation Reform Act of 1995, which are generally identified by words
such as "may," "should," "seeks," "believes," "expects," "intends,"
"estimates," "projects," "strategy" and similar expressions or the negative of
those words. Forward-looking statements are subject to a number of known and
unknown risks and uncertainties that could cause actual results to differ
materially from those projected, expressed or implied in the statements.
These risks and uncertainties, many of which are not within the corporation's
control, include, but are not limited to, the cyclical nature of the forest
products industry, our ability to harvest our timber, our ability to execute
our acquisition strategy, and regulatory constraints. These risks are
detailed from time to time in our Securities and Exchange Commission filings.
Forward-looking statements speak only as of the date made, and neither the
corporation nor its management undertakes any obligation to update or revise
any forward-looking statements. It is likely that if one or more of the risks
and uncertainties materializes, the current expectations of the corporation
and its management will not be realized.
Overview
- --------
REIT Conversion. On July 1, 1999, Plum Creek Timber Company, L.P., the former
partnership and registrant, converted from a master limited partnership to a
Real Estate Investment Trust (REIT) in the form of a corporation. In order to
qualify as a REIT, substantially all assets and associated liabilities related
to manufacturing operations and harvesting activities and some higher and
better use lands were transferred to several unconsolidated corporate
subsidiaries. Following the transfers, Plum Creek Timber Company, Inc., the
new corporation and successor registrant, is entitled to approximately 99% of
the economic value of the unconsolidated subsidiaries through a combination of
preferred stock and nonvoting common stock. The remaining 1% of the economic
value and 100% of the voting control of the manufacturing and harvesting
subsidiaries are owned by four individuals who are also officers of the
corporation.
The corporation's financial statements reflect the deconsolidation of the
manufacturing and harvesting operations along with some higher and better use
land sales effective July 1, 1999. Therefore, the statement of income and the
statement of cash flows for the quarter ended March 31, 2000, are not
comparable to prior period financial statements. However, in accordance with
Statement of Financial Accounting Standard No. 131, "Disclosure about Segments
of an Enterprise and Related Information," the corporation has the same five
reportable business segments as the former registrant. Furthermore, the
segment disclosure has been prepared on a basis consistent with that of the
partnership.
RESULTS OF OPERATIONS
When we refer to "we," "us" or "our," we mean Plum Creek Timber Company, Inc.
and, where appropriate, its consolidated and unconsolidated subsidiaries and
its predecessor, Plum Creek Timber Company, L.P. When we refer to the
"corporation," we mean Plum Creek Timber Company, Inc. and its consolidated
subsidiaries.
First Quarter 2000 Compared to First Quarter 1999
The following table compares operating income by segment for the quarters
ended March 31:
Operating Income by Segment
(In Thousands)
2000 1999
---------- ----------
Northern Resources $ 26,767 $ 27,608
Southern Resources 7,458 5,825
Lumber 2,443 3,555
Panel 3,042 4,951
Land Sales 10,505 731
------- -------
Total Segment Operating Income 50,215 42,670
Other Costs & Eliminations (5,773) (4,287)
------- -------
Total Combined Operating Income 44,442 38,383
Less Operating Income recognized
by Unconsolidated Subsidiaries (5,443)
------- -------
Operating Income $ 38,999 $ 38,383
------- -------
------- -------
The accounting policies of the segments are substantially the same as those
described in Note 1 of the Notes to Financial Statements in the 1999 annual
report on Form 10-K. For segment purposes, however, inventories are stated at
the lower of average cost or market on the first-in, first-out ("FIFO")
method. Therefore, the difference in computing cost of goods sold under the
LIFO and FIFO methods is included in "Other Costs & Eliminations."
Northern Resources Segment
- --------------------------
Revenues decreased by $3.0 million, or 4%, to $75.1 million in the first
quarter 2000, compared to $78.1 million in the first quarter 1999. This
decline was primarily due to lower log sales volume in the Rocky Mountain
and Cascade Regions, offset in part by higher log prices in the Rocky Mountain
Region and higher log sales volume in the Northeastern Region. Log sales
volume in the Rocky Mountain Region decreased by 19% primarily due to better
harvesting conditions during the first quarter 1999 compared to the first
quarter 2000 and a planned reduction in harvest levels as a result of the sale
of approximately 90,000 acres of timberlands near St. Maries, Idaho in January
2000. Log prices in the Rocky Mountain Region increased by 10% primarily due
to the reduced supply of logs in the region as a result of declining federal
and state timber sales. In the Northeastern Region, sawlog sales volume
increased by 25% and pulp log sales volume increased by 15%, primarily as a
result of shifting volume planned for later in the year into the first quarter
to take advantage of strong log prices.
Northern Resources Segment operating income was 36% as a percentage of its
revenues for the quarter ended March 31, 2000, and 35% for the quarter ended
March 31, 1999. Northern Resources Segment costs and expenses decreased by
$3.3 million, or 7%, to $47.2 million in 2000, compared to $50.5 million in
This decrease was primarily due to lower log sales volume in the Rocky
Mountain and Cascade Regions, offset in part by higher log sales volume
in the Northeastern Region.
Southern Resources Segment
- --------------------------
Revenues decreased by $0.6 million, or 3%, to $19.8 million in the first
quarter of 2000, compared to $20.4 million in the first quarter of 1999.
This decrease was primarily due to lower pulp log sales volume and a $0.8
million decline in chip revenues, offset in part by higher saw log sales
volume. Pulp log sales volume decreased by 16%, primarily due to the overall
8% planned reduction in harvest levels for the year. In-woods chipping
operations were significantly reduced in the first quarter of 2000 primarily
due to weak chip prices. Sawlog sales volume increased by 9%, primarily due
to increased internal log sales as a result of improved lumber production at
our Joyce sawmill.
Southern Resources Segment operating income as a percentage of its revenues
was 38% for the quarter ended March 31, 2000 and 29% for the same period in
This increase was primarily due to sawlogs representing 45% of the
total log sales during the first quarter of 2000, compared to 39% in the first
quarter of 1999. The profit margin on sawlogs is significantly higher than
the margin on pulp logs. Southern Resources Segment costs and expenses
decreased by $2.1 million, or 14%, to $12.4 million in 2000, compared to $14.5
million in 1999. This decrease was primarily due to lower pulp log sales
volume and curtailed in-woods chipping operations.
Lumber Segment
- --------------
Revenues increased by $5.6 million, or 7%, to $85.1 million
in the first quarter of 2000, compared to $79.5 million in the prior year
first quarter. This increase was primarily due to a 23% increase in Southern
lumber sales volume and a 5% increase in Northwest lumber prices, offset in
part by an approximate 45% decline in Northwest chip prices. Southern lumber
sales volume increased primarily due to an approximate 11 MMBF (33%) increase
in production volume at our newly reconfigured sawmill at Joyce, Louisiana.
Northwest lumber prices increased primarily due to a temporary decline in the
supply of boards. Revenues from chip sales in our Northwest region decreased
by approximately $2.4 million, or 40%. This decline was primarily due to the
expiration on December 31, 1999 of a minimum pricing provision under a long-
term chip supply agreement with a major customer.
Lumber Segment operating income was 3% as a percentage of its revenues for the
quarter ended March 31, 2000, and 4% in the first quarter of 1999. Lumber
Segment costs and expenses increased by $6.7 million, or 9%, to $82.6 million
in the first quarter of 2000, compared to $75.9 million in same quarter of
This increase was primarily due to increased lumber sales volume at our
Joyce, Louisiana sawmill and higher log costs at our Northwest lumber
facilities.
Panel Segment
- -------------
Revenues increased by $0.4 million, or 1%, to $40.7 million in
the first quarter of 2000, compared to $40.3 million in the first quarter of
1999. This increase was primarily due to a 10% increase in MDF prices and a
9% increase in MDF sales volume, offset in part by a 5% decline in plywood
prices and $0.8 million decline in chip revenues. MDF prices improved
primarily due to continued growth in demand and a relatively stable supply.
MDF demand is expected to grow by 12% during 2000, with premium grade boards
experiencing the strongest growth. Plywood prices declined primarily due to
weaker demand. The demand for plywood has declined primarily due to a greater
percentage of contractors using oriented strand board for home construction.
OSB now accounts for approximately 75% of the panels used in the housing
market, and this percentage is expected to continue to grow. Plywood chip
prices declined by approximately 45% primarily due to the expiration of a
minimum pricing provision under a long-term chip supply agreement.
Panel Segment operating income was 7% as a percentage of its revenues for the
quarter ended March 31, 2000, and 12% for the same period in 1999. This
decline was primarily due to lower plywood prices, higher plywood log costs,
and lower plywood chip revenues, offset in part by higher MDF prices. Panel
Segment costs and expenses increased by $2.4 million, or 7%, to $37.7 million
in the first quarter of 2000, compared to $35.3 million in the first quarter
of 1999. This increase was primarily due to a 7% increase in log costs for
the plywood operations and higher MDF sales volumes.
Land Sales Segment
- ------------------
Revenues increased by $10.5 million to $11.7 million in
the first quarter of 2000, compared to $1.2 million in the first quarter of
1999. First quarter 2000 land sales revenues included proceeds of $9.7
million for higher and better use lands that were sold as part of the
approximately 90,000 acre sale of timberlands near St. Maries, Idaho. See
Note 2 of the Notes to Financial Statements.
Land Sales Segment operating income was 90% as a percentage of its revenues
for the quarter ended March 31, 2000, and 63% for the same period in 1999.
Land Sales Segment costs and expenses increased by $0.8 million to $1.2
million in the first quarter of 2000, compared to $0.4 million in the same
period of 1999.
Interest expense decreased by $6.6 million, or 36%, to $11.9 million, for the
quarter ended March 31, 2000, compared to $18.5 million for the quarter ended
March 31, 1999. This decrease was primarily due to the transfer of $170.1
million of debt to the unconsolidated subsidiaries in the REIT conversion and
the repayment of borrowings under our line of credit with a portion of the
proceeds from our November 1999 equity offering.
Interest income increased by $1.1 million to $1.5 million for the quarter
ended March 31, 2000, compared to $0.4 million for the quarter ended March 31,
1999. This increase was primarily due to investing the proceeds from the
January 2000 sale of approximately 90,000 acres of timberlands near St.
Maries, Idaho and a portion of the proceeds from our November 1999 equity
offering.
FINANCIAL CONDITION AND LIQUIDITY
Net cash provided by operating activities totaled $49.7 million for the first
three months of 2000 and $35.1 million for the first three months of 1999. As
a result of the REIT conversion, net cash provided by operating activities for
2000 is not comparable with net cash provided by operating activities in 1999.
Fundamental accounting and structural changes include the following:
Substantially all of the working capital changes after the REIT conversion
are reflected on the books of the unconsolidated subsidiaries. However,
the working capital changes of the unconsolidated subsidiaries will
indirectly impact the corporation because these working capital changes
will change the amount of the advance between the corporation and the
unconsolidated subsidiaries.
The corporation's share of equity earnings from the unconsolidated
subsidiaries is not reflected in its net cash provided by operating
activities until the earnings are distributed as either preferred or
common stock dividends. However, cash flow deficits or surpluses of the
unconsolidated subsidiaries will be reflected on the corporation's cash
flow statement as interest-bearing advances.
Net cash provided by operating activities for the first quarter of 2000 was
$14.6 million above the prior year first quarter. This increase was primarily
due to higher net income. After adjusting for the $49.7 million gain from the
sale of timberlands near St. Maries, Idaho in 2000 and the $12.2 million
cumulative effect of the accounting change in 1999, net income increased by
$13.3 million.
We have an unsecured line of credit with a group of banks. Subject to
customary covenants, the line of credit allows for borrowings from time to
time of up to $225 million for general corporate purposes, including up to $20
million of standby letters of credit. The line of credit matures on December
13, 2001 and bears a floating rate of interest. As of March 31, 2000, $77
million was outstanding with $148 million remaining available. As of April 7,
2000, $77 million of the borrowings on the line of credit were repaid.
On January 14, 2000, the corporation sold approximately 90,000 acres of
timberlands and higher and better use lands near St. Maries, Idaho to Crown
Pacific Limited Partnership for approximately $73 million. The sale resulted
in approximately $8.8 million of operating income (portion of sales proceeds
related to higher and better use land) and $49.7 million of gain on sale of
assets. Proceeds from the sale will be used to acquire additional timberlands
or reduce outstanding indebtedness.
Our borrowing agreements contain certain restrictive covenants, including
limitations on harvest levels, sales of assets, cash distributions and the
incurrence of indebtedness. In addition, the line of credit requires the
maintenance of an interest coverage ratio. We were in compliance with these
debt covenants as of March 31, 2000.
We will distribute $0.57 per share with respect to the first quarter of 2000,
payable on May 30, 2000 to shareholders of record on May 17, 2000. Future
distributions will be determined by our board of directors, in its sole
discretion, based on our results of operations, cash flow and capital
requirements, economic conditions, tax considerations, debt covenant
restrictions and other factors, including harvest levels and future
acquisitions.
Cash required to meet our quarterly cash distributions, capital expenditures
and principal and interest payments will be significant. Management believes
that cash on hand, cash flows from continuing operations and borrowings under
our line of credit will be sufficient to fund planned capital expenditures,
distributions, and interest and principal payments for the next twelve months.
CAPITAL EXPENDITURES
The corporation's capital expenditures for the first three months of 2000
totaled $3.2 million. Total 2000 capital expenditures of the corporation are
expected to be approximately $25 million and are primarily for logging roads,
reforestation and other costs associated with the planting and growing of
trees.
The unconsolidated subsidiaries' capital expenditures for the first three
months of 2000 totaled $5.5 million. Total 2000 capital expenditures for the
unconsolidated subsidiaries are expected to be approximately $58 million.
Year 2000 capital expenditures include approximately $47 million toward
construction of a thin-board production line being added to our existing
medium density fiberboard facility in Columbia Falls, Montana. The remaining
$11 million of capital expenditures for the unconsolidated subsidiaries is for
additional equipment and upgrades for our other manufacturing facilities.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
Not Applicable.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
There is no pending or threatened litigation involving the corporation that we
believe would have a material adverse effect on the corporation's financial
position, results of operations or liquidity.
Items 2, 3, 4, and 5 of Part II are not applicable and have been omitted.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) List of Exhibits
Each exhibit set forth below in the Index to Exhibits is filed as a part of
this report. Exhibits not incorporated by reference to a prior filing are
designated by an asterisk ("*"); all exhibits not so designated are
incorporated herein by reference to a prior filing as indicated.
INDEX TO EXHIBITS
Exhibit
Designation Nature of Exhibit
- ----------- -----------------
2.2 Amended and Restated Agreement and Plan of Conversion, dated as
of July 17, 1998, by and among Plum Creek Timber Company, Inc.,
Plum Creek Timber Company, L.P. and Plum Creek Management
Company, L.P. (Form S-4, Regis. No. 333-71371, filed January
28, 1999).
2.3 Agreement and Plan of Merger, dated as of July 17, 1998, by and
among Plum Creek Timber Company, L.P., Plum Creek Acquisitions
Partners, L.P. and Plum Creek Timber Company, Inc. (Form S-4,
Regis. No. 333-71371, filed January 28, 1999).
2.4 Agreement and Plan of Merger, dated as of July 17, 1998, by and
among Plum Creek Timber Company, Inc. and Plum Creek Management
Company, L.P. (Form S-4, Regis. No. 333-71371, filed January
28, 1999).
3.1 Certificate of Incorporation of Plum Creek Timber Company, Inc.
(Form 10-Q, File No. 1-10239, for the quarter ended September
30, 1999).
3.2 Amended and Restated By-laws of Plum Creek Timber Company, Inc.
(Form S-4, Regis. No. 333-71371, filed January 28, 1999).
27* Financial Data Schedule for the quarter ended March 31, 2000.
See attached exhibit.
(b) Reports on Form 8-K
The corporation filed a current report on Form 8-K dated January 11, 2000,
announcing that its medium density fiberboard manufacturing subsidiary will
add a thin-board production line to its existing MDF facility in Columbia
Falls, Montana.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLUM CREEK TIMBER COMPANY, INC.
(Registrant)
By: /s/ William R. Brown
------------------------------
WILLIAM R. BROWN
Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial and Accounting Officer)
Date: May 3, 2000
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This schedule contains summary information extracted from the Financial
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