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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
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, L.P.
(Exact name of registrant as specified in its charter)
999 Third Avenue, Seattle, Washington 98104-4096
Telephone: (206) 467-3600
Organized in the State of Delaware I.R.S. Employer Identification No.
91-1443693
Securities registered pursuant to Section 12(b) of the Act:
Depositary Units, Representing Limited Partner Interests
The above securities are registered on the New York Stock Exchange.
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section.229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant'S knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of Units held by non-affiliates based on the closing
sales price on February 28, 1997 was approximately $1,317,059,696. For this
calculation, all executive officers and directors have been deemed affiliates.
Such determination should not be deemed an admission that such executive
officers and directors are, in fact, affiliates of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the Part
of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: None.
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PART I
ITEM 1. BUSINESS
GENERAL
Plum Creek Timber Company, L.P. (the "Partnership"), a Delaware limited
partnership organized in 1989, Plum Creek Manufacturing, L.P. ("Manufacturing"),
and Plum Creek Marketing, Inc. ("Marketing"), own, manage, and operate
approximately 2.4 million acres of timberland and twelve wood products
conversion facilities in the northwest and southeast United States. The
Partnership owns 98 percent of Manufacturing, and 96 percent of Marketing. Plum
Creek Management Company, L.P., (the "General Partner"), manages the businesses
of the Partnership, Manufacturing and Marketing and owns the remaining two
percent and four percent of Manufacturing and Marketing, respectively. As used
herein, "Company" refers to the combined entities of the Partnership,
Manufacturing and Marketing.
ACQUISITIONS AND DISPOSITION
On October 18, 1996, the Partnership acquired approximately 529,000
acres (plus approximately 9,000 leased acres) of timberland in Louisiana and
Arkansas, along with two sawmills, a plywood plant and a nursery from Riverwood
International Corporation for a total purchase price of $540 million, plus $11.9
million for working capital (the "Southern Region Acquisition"). See Financial
Condition and Liquidity and Note 2 of Notes to Combined Financial Statements.
On October 11, 1996, the Company consummated the sale to Stimson Lumber
Company ("Stimson") of 107,000 acres of timberland in Northeast Washington and
Northern Idaho and the Company's sawmill near Colville, Washington (the "Newport
Asset Sale") for approximately $141.9 million, plus $8.7 million for working
capital. The Company used the net proceeds from the Newport Asset Sale to pay a
portion of the purchase price for the Southern Region Acquisition. See Financial
Condition and Liquidity and Note 2 of Notes to Combined Financial Statements.
On November 1, 1993, the Partnership purchased approximately 865,000
acres of timberland and other timber related assets located in western Montana
(the "Montana Timberland Acquisition") from Champion International Corporation
for approximately $260 million.
SEGMENT INFORMATION
As used herein, "Resources Segment" refers to the combined timber and
land management business of the Partnership. "Manufacturing Segment" refers to
the combined business of Manufacturing and Marketing. Certain financial
information for each business segment is included in Note 13 of Notes to
Combined Financial Statements.
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RESOURCES SEGMENT
GENERAL. The Partnership owns and manages approximately 2.4 million
acres of timberland in the northwest and southeast United States (the
"Timberlands"). The Timberlands are geographically segregated into three
regions: the Cascades Region in western Washington, the Rocky Mountain Region in
western Montana and northern Idaho, and the Southern Region in Louisiana and
Arkansas. At December 31, 1996, the Timberlands contained an estimated timber
inventory of 8.9 billion board feet ("BBF") of standing timber in the Cascades
and Rocky Mountain Regions (the "Northwest Timberlands") and approximately 5.4
million Cunits in the Southern Region (the"Southern Timberlands").
The Resources Segment grows and harvests timber for sale in export and
domestic markets and sells, on an opportunistic basis, land which is designated
as having a higher and better use than for forest management.
The Cascades Region consists of approximately 311,000 acres of
timberland containing an estimated 2.1 BBF of standing timber. Logs harvested in
the Cascades Region are sold for export to Pacific Rim countries, principally
Japan, and to domestic mills owned by third parties, as the Company does not own
mills in the Cascades Region. Logs sold for export are generally of higher
quality than logs sold into the domestic market.
The Rocky Mountain Region consists of approximately 1,593,000 acres of
timberland containing an estimated 6.8 BBF of standing timber. The Rocky
Mountain Region sells logs to the Manufacturing Segment, with the remainder sold
to third-party domestic mills. Simultaneously with the Montana Timberland
Acquisition, the Partnership entered into a log sourcing agreement with Stimson
to supply Stimson's Montana mills with logs, at prevailing market prices, over a
ten year period ending in 2003.
The Southern Region consists of approximately 538,000 acres (including
9,000 acres of leased land) containing an estimated 5.4 million Cunits of
standing timber. The Southern Timberlands are nearing the end of a process
commenced in 1972 of conversion from unmanaged second growth timber into
plantation forests. The Partnership expects this process to be completed by
approximately 2000. The pine fiber growth from these plantations is expected to
increase substantially over the next 10 to 15 years as a result of this
conversion. The Southern Region sells sawlogs to the Manufacturing Segment and
to third-party domestic mills and sells pulp logs to third-party domestic pulp
and paper manufacturers. As part of the Southern Region Acquisition, the
Partnership entered into a long-term agreement to supply pulp wood fiber to
Riverwood International's West Monroe paperboard plant at prevailing market
prices. The Partnership expects that the agreement will provide the Company with
a secure market for its local mill residuals and a substantial portion of the
pine and hardwood pulp logs harvested from the Southern Timberlands.
DOMESTIC LOGS. The Partnership sells its sawlogs directly to the
Manufacturing Segment and unaffiliated wood products manufacturers and sells its
pulpwood and in-woods chips to unaffiliated pulp and paper manufacturers. The
percentage of logs which are sold as sawlogs or pulp logs varies by region and
is dependent on, among other things, the species mix and quality of
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the inventory harvested and the market dynamics affecting the given region. The
Partnership's customers include numerous operators of conversion facilities.
Domestic sawlog sales accounted for approximately 21%, 21% and 22% of the
Company's combined revenues in 1996, 1995 and 1994, respectively.
In the Cascades Region, approximately 51% of the total volume harvested
in 1996 was sold to unaffiliated domestic wood products manufacturers. The
Partnership also sold 9% of the volume harvested in 1996 to third parties as
pulp logs. Pulp logs generally constitute smaller and lower quality logs which
are not suitable for use by wood products manufacturers.
In the Rocky Mountain Region, the Partnership sells its logs
domestically, virtually all as saw timber. In 1996, approximately 57% of the
timber harvested was sold to the Manufacturing Segment and the remainder was
sold to third-party domestic mills. In addition, a small amount of lower quality
logs is sold to pulp and paper manufacturers when market conditions permit.
The fee harvest in the Southern Region during the period from October
19, 1996 through December 31, 1996 consisted of 55% pulp logs and 45% sawlogs.
Approximately 43% of the total timber harvest in the Southern Region was sold to
the Manufacturing Segment, with the remainder sold to third-party domestic
conversion facilities.
Due to the strength in the pulp and paper markets in 1995, the
Partnership implemented in- woods chipping operations in conjunction with
conventional logging operations wherever feasible, producing wood-chips from
once valueless treetops and other debris that were previously unutilized. Chip
markets are highly susceptible to fluctuations in markets for pulp and paper
because pulp and paper manufacturers are the primary customers. During the first
half of 1996, a decline in chip prices made it uneconomical to continue most of
the Partnership's in-woods chipping operations. However, operations resumed at
reduced levels in the second half of the year.
Domestic wood and fiber consuming facilities tend to purchase raw
materials within relatively confined geographic areas, generally within a
200-mile radius, due to transportation costs. Competitive factors within a
market area generally will include price, species and grade, quality, proximity
to wood consuming facilities, ability to consistently supply logs meeting the
customer's specifications and ability to meet delivery requirements. The
Partnership has a reputation as a stable and consistent supplier of
well-merchandised, high-quality logs. In domestic log markets, the Partnership
competes with numerous private land and timber owners in the northwestern and
southeastern United States and the state agencies of Arkansas, Idaho, Louisiana,
Montana, Oregon and Washington, as well as lesser amounts of foreign imports,
primarily from Chile and New Zealand. In addition, the Partnership competes with
the United States government, principally the United States Forest Service
("USFS"), the Bureau of Land Management ("BLM") and the Bureau of Indian Affairs
("BIA"). Timber supplied from public lands in Washington and Oregon is
restricted from export, and is sold solely into domestic markets.
EXPORT LOGS. Due to its extensive timber holdings, the Partnership
harvests large volumes of Douglas-fir logs, historically a preferred species in
Japan. Approximately 40% of the total 1996 timber harvest in the Cascades Region
was sold for export to Pacific Rim countries, principally
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Japan. Douglas-fir logs sold for export have generally commanded a significant
premium over Douglas-fir sold domestically. Export log revenues accounted for
8%, 10% and 12% of combined revenues for 1996, 1995 and 1994, respectively, and
accounted for 18%, 21% and 24%, respectively, of operating income in such
periods.
The Partnership's export log customers consist of large Japanese
trading companies who resell the logs purchased to Japanese conversion
facilities or wholesalers. Competitors in this market include numerous private
land or timber owners in the United States and Canada, as well as companies and
state-controlled enterprises in Chile, New Zealand, Russia and Scandinavia, all
of which have abundant timber resources. In the export log market, the
Partnership competes based on its long- term relationships with established
customers and its reputation as a reliable supplier of premium grade logs. Other
competitive factors include price, species and grade, and the ability to meet
delivery requirements on a year-round basis.
TIMBER RESOURCE MANAGEMENT. The Partnership's resource operations
involve timber management and harvesting operations, which include road
construction and reforestation, as well as wildlife and watershed management.
The Partnership employs a number of traditional and newly developed harvesting
techniques on its lands based on site specific characteristics and other
considerations. The Partnership practices "Environmental Forestry" on the
Northwest Timberlands which attempts to better protect and maintain the
ecosystem while providing for a reasonable harvest. The Partnership also manages
the Southern Timberlands, which consist primarily of managed plantations, in a
manner consistent with its environmental stewardship approach.
Particular forestry practices vary by geographic region and depend upon
factors such as soil productivity, tree size, age and stocking. Forest stands
are thinned periodically to improve growth and stand quality until they are
harvested. The Partnership actively utilizes pre-commercial and commercial
thinning timber management practices. Pre-commercial thinning occurs when the
timber harvested is not merchantable. The Partnership believes that such
thinning improves the overall productivity of the Timberlands by enhancing the
growth of the remaining trees.
It is the Partnership's policy to ensure that every acre harvested is
promptly reforested. Based on the geographic and climatic conditions of the
harvest site, harvested areas may be regenerated naturally by leaving mature
trees to reseed the area. Natural regeneration methods are widely used on about
70% of the harvested land in the Rocky Mountain Region. During 1996, the
Partnership planted over 4 million seedlings on the Northwest Timberlands,
mostly in the Cascades Region where substantially all of the reforestation is
done by planting. Substantially all of the areas harvested in the Southern
Timberlands are regenerated with seedlings.
Forests are subject to a number of natural hazards, including damage by
fire, insects and disease. Severe weather conditions and other natural disasters
can also reduce the productivity of forest lands and can interfere with the
processing and delivery of forest products. However, damage from natural causes
is typically localized and would only affect a portion of the Timberlands at any
given time. Nevertheless, such hazards are to a large extent unpredictable and
there can be no assurance that losses will be so limited. The size, species,
diversity and checker-board ownership of the Northwest Timberlands, as well as
the Partnership's forest management practices, should help
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to minimize these risks. Consistent with the practices of other large timber
companies, the Partnership does not maintain insurance against loss to standing
timber on the Timberlands, but maintains insurance for loss of logs due to fire
and other occurrences following harvesting.
LAND MANAGEMENT. The Partnership seeks to realize the value of property
that may have a higher and better use than for commercial timberland management
or is otherwise a candidate for sale or exchange. The Partnership identified
approximately 150,000 acres of land located in recreational areas or near
expanding population centers that may optimally be used for conservation,
residential or recreational purposes. Over the next five to fifteen years the
Partnership expects to realize the value of these properties, either through
sales or exchanges. Approximately 21,600 acres of this land were sold or
exchanged during 1996.
MANUFACTURING SEGMENT
GENERAL. The Manufacturing Segment consists of four lumber mills, two
plywood plants, a lumber remanufacturing facility and a medium density
fiberboard ("MDF") facility in western Montana and a wood chip plant in
Washington (collectively known as the "Northwest Conversion Facilities") and a
lumber mill and plywood plant located in Joyce, Louisiana and a lumber mill
located in Huttig, Arkansas, all of which were purchased in connection with the
Southern Region Acquisition (collectively known as the "Southern Conversion
Facilities", and together with the Northwest Conversion Facilities, the
"Conversion Facilities"). The Northwest Conversion Facilities produce a wide
variety of lumber, plywood and MDF products that are sold to Marketing, which
markets and sells the products. Marketing targets the products to retail home
centers and various specialty niche markets which are less cyclical than
traditional housing related markets. In addition, in order to enhance customer
service and provide prompt deliveries, Marketing has established a network of
over 40 independent warehouses located strategically throughout the United
States. The Southern Conversion Facilities produce a wide variety of lumber and
plywood products that are sold to home construction and industrial markets.
LUMBER. Manufacturing produces a diverse line of lumber products,
including boards, studs and dimension lumber which are manufactured at two
studmills, two dimension lumber mills, two random-length lumber mills and a
lumber remanufacturing plant. For the years ended December 31, 1996, 1995 and
1994 these mills produced 461 million board feet ("MMBF"), 433 MMBF, and 388
MMBF of lumber, respectively. Production increased in 1996 primarily due to the
addition of the two dimension lumber mills in the southeast United States,
offset in part by the disposition of the Company's Arden random-length lumber
mill, in October 1996. Production increased in 1995 due to the addition of the
lumber remanufacturing plant, which began operations in late November 1994,
higher productivity due to improved log merchandising specifications and capital
improvements, and additional production shifts. Lumber product revenues
represented approximately 38% of total combined revenues in 1996, 1995 and 1994.
Upgrades at the Pablo mill to allow for more efficient processing of small logs
were begun in 1996. This project will be completed in 1997.
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Lumber products manufactured in the Northwest Conversion Facilities are
targeted towards domestic lumber retailers, such as retail home center chains,
for use in repair and remodeling projects. Value-added products and services
such as consumer appearance boards, pull-to-length boards, premium furring
strips, premium studs and pattern boards, aimed at retail and other specialty
markets, have made the Manufacturing Segment less dependent on the cyclical
housing related market. Lumber products manufactured in the Southern Conversion
Facilities are targeted toward the home construction, industrial and export
markets. In 1996, 54% of Manufacturing's lumber products was sold into retail
markets, 19% to stocking distributors, 17% to industrial and remanufactured
product markets, 4% to export markets and 6% to other markets.
Competition in the Company's lumber markets is primarily based on price
and quality, and to a lesser extent, the ability to meet delivery requirements
on a consistent long-term basis and to provide specialized customer service. The
Partnership competes in domestic lumber markets primarily with other United
States and Canadian companies. Canadian lumber producers have increased their
penetration into the United States market due to their lower wood fiber costs
and favorable exchange rates. During the five-year period ended December 31,
1995, Canadian producers increased their percentage of the North American lumber
markets from 27% to 36%. In 1995, the United States and Canadian governments
announced a five-year lumber trade agreement effective April 1, 1996. This
agreement is intended to reduce the volume of Canadian lumber exported into the
United States through the assessment of an export tariff on annual lumber
exports to the United States in excess of certain levels from the four major
producing provinces. The lumber market is also subject to competition from
substitute products, primarily in shelving, window and door markets. Substitute
products include radiata pine, MDF, particle board, laminates and wire shelving.
Substitution has significantly increased in the past several years due to the
increase in the price of studs and boards in the early 1990's.
PLYWOOD. Manufacturing produces a diverse line of plywood products at
the Company's three plywood facilities. The Northwest Conversion Facilities
produce high-grade plywood which is primarily sold into specialized industrial
markets. The Southern Conversion Facilities produce commodity and specialty
grade panel products used in home construction and furniture. For the years
ended December 31, 1996, 1995 and 1994 the plywood plants produced 334 million
square feet ("MMSF") (3/8" basis), 294 MMSF, and 290 MMSF of plywood,
respectively. The increase in production in 1996 is due to the addition of the
Joyce, Louisiana plywood plant in October 1996. Plywood product revenues
represented 17%, 18% and 17% of total combined revenues in 1996, 1995 and 1994,
respectively. During 1996, the lathe was upgraded at the Evergreen plywood plant
which will increase wood recovery by allowing logs to be peeled to a smaller
core. During 1995, capital improvements were made that expanded production to
include medium-density overlay plywood and scarfed (joined together) plywood to
produce longer lengths for specialty products.
During 1996, 67% of Manufacturing's plywood products was sold in
specialty industrial markets, including carpet strip, recreational boat,
recreational vehicle, fiberglass-reinforced panel, manufactured home and
furniture markets. Manufacturing's plywood products are generally of higher
quality than commodity construction grade products, which makes them more
valuable in these specialty niche markets.
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Competition within the plywood market is based primarily on price and
quality, and to a lesser extent, the ability to offer a full line of products
and to meet delivery requirements on a consistent, long-term basis. The domestic
plywood market is characterized by numerous large and small producers and is
also subject to competition from oriented strand board ("OSB"), a wood product
which is a less expensive and generally lower quality substitute. Due to OSB's
cost advantage, its demand and market share in the residential segment has been
increasing, and this trend is expected to continue. Between 1994 and 1998 the
annual capacity for OSB is expected to nearly double to an industry-wide
capacity of 20 billion square feet ("BSF") (3/8" basis). The quality of OSB
continues to improve and has become widely accepted in many building
applications. However, since OSB does not have the strength, weight and
machinability of plywood, it cannot be used in certain specialty applications.
Some commodity plywood manufacturers, in order to avoid closing their
facilities, have been refocusing their products toward the industrial markets
which has resulted in increased competition in markets that the Company serves.
The Company expects to remain competitive due to its strong customer base, years
of experience in the industrial markets, reputation for high quality products
(including various trademarked products such as MarineTech, RV-X, DuraFloor, and
Ultra-Core), superior wood, and the full line of products that it offers.
MEDIUM DENSITY FIBERBOARD. Manufacturing produces MDF products which
are primarily sold to distributors and door, moulding, fixture and furniture
manufacturers. During 1995, the manufacturing process was redesigned to produce
MDF(2), a higher quality MDF product that can be machined and finished more
efficiently. For the years ended December 31, 1996, 1995 and 1994 the plant
produced 113 MMSF (3/4" basis), 102 MMSF, and 123 MMSF of MDF, respectively.
Production for 1995 was below full capacity due to downtime encountered during
the start-up of new high-energy refiners for the Company's new MDF(2) product
and deterioration in market demand. Production for 1996 was also below full
capacity due to a continued focus on producing high quality MDF(2) during the
extended start-up phase. MDF(2) start-up was completed in the second half of
1996.
The Manufacturing Segment supplies high quality MDF to markets
primarily in North America and Pacific Rim countries. The introduction of
MDF(2), one of the highest quality MDF products available, has expanded the
Partnership's markets to include higher value applications, such as moulding and
kitchen cabinets. In 1996, the Manufacturing Segment sold approximately 58% of
its MDF directly to domestic industrial manufacturers or fabricators, 26% to
stocking distributors, 10% into overseas export markets, primarily Pacific Rim
countries, and 6% to retail and other markets.
MDF producers compete on a global scale, primarily on the basis of
price, quality and the level of service provided. MDF is also subject to
competition from solid wood products and hardboard and particle board products.
Competition in the industry has been increasing as a result of significant
capacity expansion both in the United States and Canada. In 1996, North American
capacity was approximately 1.7 BSF and, by the year 2000, capacity is expected
to increase by an additional 0.9 BSF. Much of the capacity additions will be in
direct competition with MDF(2). Over the same time period demand is also
expected to increase, but at a slower rate. The Partnership believes it is well
positioned to compete based on quality and price. MDF(2) commands a price
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premium over standard MDF due to its superior quality, and the panel's physical
properties and densities. Moreover, because the Company's fiber supply consists
of western softwoods, a slow growth species with a low abrasive content, MDF(2)
has proven to have superior machining qualities over competing MDF products. In
addition, by eliminating wood chips from the MDF manufacturing process (which
substantially reduces raw material costs) and because of the facility's access
to low cost energy sources the Partnership believes it is one of the lowest cost
producers in the market.
CHIPS. Manufacturing's lumber and plywood mills produce residual wood
chips as a by-product from the conversion of raw logs into finished products.
These wood chips are sold to regional paper and pulp mills. The Company's lumber
and plywood facilities produced 333 thousand bone dry units ("MBDU"), 297 MBDU
and 288 MBDU of chips in 1996, 1995 and 1994, respectively. The increase in
volume in 1996 was due to the addition of the Southern Conversion Facilities in
October 1996. In addition, residual wood chip sales volume has increased
annually due to increased lumber and plywood production and increased chip
recoveries. A substantial portion of the Company's chips produced in the Rocky
Mountain Region are sold to a customer under a long-term supply agreement.
Manufacturing also produces wood chips at its Cle Elum, Washington chip
plant. The chip plant produced 6 MBDU, 32 MBDU and 45 MBDU in 1996, 1995 and
1994, respectively. The chip plant was shut down on April 1, 1996 due to weak
chip markets and will not reopen until prices improve. The decrease in
production in 1995 resulted from production curtailments for approximately five
months due to log supply shortages.
RAW MATERIALS. Manufacturing obtains the majority of its raw logs from
the Partnership's Timberlands. The Resources Segment provided 70%, 73%, and 63%
of the Northwest Conversion Facilities raw log needs in 1996, 1995 and 1994,
respectively. The Southern Conversion facilities obtained 75% of their raw logs
from the Resources Segment during the period from October 19 through December
31, 1996. The price of logs obtained from the Partnership is determined
quarterly based upon estimated market prices and terms in effect at the time.
The Timberlands provide a consistent supply of quality logs and preferred
species to the Conversion Facilities, although over time the average log size is
expected to decline, and the species mix is expected to change due to harvest
and growth patterns.
Manufacturing has and will continue to purchase stumpage and logs from
external sources, which include the USFS, BIA, BLM and state and private
timberland owners. At December 31, 1996 and 1995, the Northwest Conversion
Facilities had 84 MMBF and 75 MMBF, respectively, of timber under contract from
external sources which may be harvested over the next three years. The USFS
harvest plan is expected to provide for a 1997 harvest of 300 MMBF in the
geographic area of the Northwest Conversion Facilities. However, due in part to
legal challenges and changes in public policy, the USFS will most likely sell
less volume. Manufacturing is permitted to bid on up to approximately fifty
percent annually of this USFS volume, with the remainder set aside for small
businesses. In addition, approximately 450 MMBF of timber is expected to be made
available annually from other sources. At December 31, 1996, the Southern
Conversion Facilities had 18 MMBF of timber under contract from external sources
which may be harvested over a three
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year period. The amount of timber expected to be available from other sources in
1997 in the geographic area of the Southern Conversion Facilities is 16 MMBF and
200 MMBF from the USFS and other sources, respectively. The geographic area in
which the Conversion Facilities operate may expand or contract from year to year
as the cost of logs and value of manufactured products fluctuate. (For further
discussion of other timber supply issues see "Federal and State Regulations".)
The MDF facility has a consistent supply of sawdust and wood shavings
from internal and external sources. The remanufacturing facility uses short
pieces of lumber, a by-product of Manufacturing's studmill operations.
COMPETITION
Markets for forest products are highly competitive in terms of price
and quality. Many of the Company's competitors have substantially greater
financial and operating resources than the Company. In addition, wood products
are subject to increasing competition from a variety of substitute products,
including non-wood and engineered wood products. Plywood markets are subject to
competition from OSB, and lumber and log markets are subject to competition from
other worldwide suppliers. The Partnership believes it is able to compete
effectively due to its extensive private timber inventory (which includes
several premium species such as Douglas-fir and Ponderosa Pine), its proven
leadership in environmental forestry which has reduced the uncertainty
associated with ever increasing levels of federal and state regulation, its
reputation as a dependable, long-term supplier of quality products, its
innovative approach to providing high quality, value-added products to various
specialty and industrial niche markets and the integration of its timberlands
with its efficient manufacturing processes. See "Resources Segment" and
"Manufacturing Segment."
SEASONALITY
Domestic log sales volumes from the Northwest Timberlands are typically
at their lowest point in the second quarter of each year during spring break-up,
when warming weather thaws and softens roadbeds, restricting access to logging
sites. Log sales volumes from the Southern Timberlands are generally at their
lowest point during the first quarter of each year, as winter rains limit
operations in some areas. Export log sales are affected in part by variations in
inventory, both domestically and in the countries where such logs are sold, as
well as by weather conditions. Winter logging activity in the Pacific Northwest
takes place at lower elevations, where predominantly second growth logs are
found, affecting the volume of higher quality export logs sold during this time
of the year.
Demand for manufactured products is generally lower in the fall and
winter quarters when activity in the construction markets is slower, and higher
in the spring and summer quarters when these markets are more active. In
addition to seasonal fluctuations in demand, prices of manufactured products can
be impacted by weather-related, seasonal fluctuations in supply, as production
can be hampered during severely cold winter months and then rebound when warmer
spring weather arrives. Working capital varies with seasonal fluctuations. Log
inventories increase
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going into the winter season to prepare for reduced harvest during spring
break-up.
FEDERAL AND STATE REGULATIONS
GENERAL. The activities of the Company are subject to various federal
and state environmental laws and regulations which impose limitations on the
discharge of pollutants into the air and water and which also establish
standards for the treatment, storage and disposal of solid and hazardous waste
and govern the discharge of runoff stormwater and wastewater. The General
Partner believes that the Company is in substantial compliance with such laws
and regulations. (See Item 3. Legal Proceedings.)
The activities of the Company are also subject to federal and state
regulations regarding natural resources and forestry operations and the
requirements of the federal Occupational Safety and Health Act and comparable
state statutes relating to the health and safety of the Company's employees. The
General Partner believes that the Company is in substantial compliance with such
laws and regulations.
The Company conducts operations in or near significant environmentally
sensitive areas which include the habitats of numerous species, including a
number of threatened or endangered species. As a result, the Company's
activities in such areas may be subject to restrictions relating to the
harvesting of timber and the construction of roads.
THREATENED AND ENDANGERED SPECIES. The Endangered Species Act ("ESA")
protects species threatened with possible extinction. Protection of endangered
species may include the imposition of restrictions on timber harvesting and road
building activities in areas containing the affected species. A number of
species indigenous to the Timberlands have been listed as threatened or
endangered or have been proposed for such status under the ESA, including the
northern spotted owl, marbled murrelet, gray wolf, red cockaded woodpecker,
mountain caribou, grizzly bear, bald eagle and various salmon species.
In 1990, the United States Fish and Wildlife Service (the "USFWS")
listed the northern spotted owl ("Owl") as a threatened species throughout its
range in Washington, Oregon and California. At the time of the listing, the
USFWS issued suggested guidelines ("Guidelines") to be followed by landowners in
order to comply with the ESA's prohibition against harming or harassing Owls.
The Guidelines recommend several measures, including the restriction of harvest
activities in areas within a certain proximity of known Owl activity centers.
The USFWS also has proposed a rule for the conservation of the Owl on
non-federal land. Such proposed rule has not been adopted but is substantially
similar to the Washington Rule described below.
In May 1996, the Washington State Forest Practices Board (the "Board")
adopted permanent regulations, effective July 1996, to protect habitat for the
Owl (the "Washington Rule"). Under the Washington Rule, designated Owl special
emphasis areas ("SEAs") have restrictions that are similar to but slightly
greater than those contained in the Guidelines. Approximately 60% of the
Partnership's timberlands in the Cascades Region are within SEAs.
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The Washington Rule exempts from its provisions forest practices that are
consistent with a federally approved habitat conservation plan and related
permit.
In June 1996, the Partnership received a permit under the ESA from the
USFWS and the National Marine Fisheries Service ("NMFS" and together with the
USFWS, the "Services") that covers the Partnership's forest management on
170,000 acres within SEAs in the Cascades Region (the "Planning Area").
Substantially all of the areas impacted by Owls are within the Planning Area. As
a part of the permit application, the Partnership prepared a multi-species
habitat conservation plan (the "HCP") that will govern the Partnership's
management activities in the Planning Area during the 50-year life of the
permit. Consistent with government policy (the "No-Surprises Policy"), the
implementing agreement for the HCP provides that no additional costs will be
imposed on or land restrictions required from the Partnership in the Planning
Area, absent extraordinary circumstances, so long as the Partnership is in
compliance with the terms of the HCP. The HCP requires the Partnership to
maintain certain levels of wildlife habitat and to take numerous other
mitigation measures, including the protection of riparian areas.
In consideration for such mitigation, the permit authorizes forestry
practices that are consistent with the HCP even though they may have an adverse
impact on the four listed species currently covered by the plan and permit,
including the Owl. The HCP provides that the Services will amend the permit to
add subsequently listed species without requiring the Partnership to provide
additional mitigation absent extraordinary circumstances. Such circumstances
would include situations where continued activity under the HCP would have a
significant material adverse impact on the species and mitigation on federal
land would not alleviate the concern. As an incentive to the Partnership to
create additional wildlife habitat in the Planning Area, the permit provides
certain additional authorization during a second 50-year period if the wildlife
habitat within the Planning Area exceeds levels set in the HCP. The permit thus
is expected to provide long-term certainty and predictability for the
Partnership's harvest activities in the Planning Area. For lands within the
Planning Area, the HCP management restrictions replace existing state and
federal restrictions for Owls.
In November 1996, a lawsuit was filed by a number of groups in Federal
District Court for the District of Columbia challenging the process by which the
Clinton Administration adopted the No-Surprises Policy. The Partnership is
unable at this time to predict the outcome of the challenge, or what effect, if
any, it might have on the HCP, if successful.
In December 1995, the Partnership entered into an agreement to conserve
grizzly bears (the "Grizzly Bear Agreement") with the USFWS, the USFS, and the
state of Montana covering 83,000 acres of the Partnership's timberlands in the
Swan Valley in western Montana. Under the Grizzly Bear Agreement, the
Partnership has agreed to protect certain habitat and to minimize the impact of
the Partnership's forestry activities on the grizzly bear. In consideration for
this mitigation, the USFWS authorized forestry practices in the Swan Valley that
are consistent with the agreement even though such practices may have an adverse
impact on grizzly bears.
In November 1996, several organizations filed a lawsuit against the
Secretary of the Interior and certain USFWS and Forest Service officials in
Federal District Court for the District
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of Montana challenging the Grizzly Bear Agreement under the ESA and the National
Environmental Policy Act. The Partnership is unable at this time to predict the
outcome of the challenge or what effect, if any, it might have on the Grizzly
Bear Agreement, if successful.
Although the HCP and Grizzly Bear Agreement have been implemented and
are functioning as expected, there can be no assurance that the terms of such
agreements will remain in force or be sufficient to protect against subsequent
amendment of the ESA or additional listings thereunder, or against changes to
other applicable laws and regulations. Any such changes could materially and
adversely affect the Partnership's operations. In addition, legal challenges
such as those described above could disrupt the continued operation of the HCP
and the Grizzly Bear Agreement and thereby reduce the level of certainty the
Partnership anticipates gaining from such plans.
The ESA also prohibits the federal government from jeopardizing species
listed under the ESA or from destroying or adversely modifying their designated
critical habitat. Private landowners are potentially affected by these
restrictions if a private activity requires federal action, such as the granting
of access or federal funding. Where there is such a federal connection, the
federal agency involved must consult with the USFWS or, in the case of
anadromous fish, NMFS to determine that the proposed activity would not
jeopardize the listed species or cause direct or indirect adverse modification
of its designated critical habitat. If the landowner's proposed activity would
have such effects, the USFWS or NMFS must propose, where possible, alternatives
or modifications to the proposed activity.
The Northwest Timberlands are often intermingled with federal land in
or near areas that include the habitats of a number of threatened or endangered
species such as the Owl and the grizzly bear. Access across federal lands may
require federal approval. In the past, the Partnership's access to such areas
has been delayed by administrative processes and legal challenges and has been
restricted under the ESA. The Partnership believes that access to its lands in
the Planning Area and the Swan Valley should be facilitated by the HCP and the
Grizzly Bear Agreement, although no assurance can be given that further such
delays will not occur.
At this time, the Partnership believes that federal and state laws and
regulations related to the environment and the protection of endangered species
will not have a material adverse effect on the Partnership's financial position,
results of operations or liquidity. The Partnership anticipates, however, that
increasingly strict laws and regulations relating to the environment, natural
resources and forestry operations, as well as increased social concern over
environmental issues, may result in additional restrictions on the Partnership
leading to increased costs, additional capital expenditures and reduced
operating flexibility.
LEGISLATION RESTRICTING LOG EXPORTS. Federal legislation currently
prohibits the sale of unprocessed logs harvested from federal lands located in
the western half of the U.S. if such logs will be exported from the U.S. by the
purchaser thereof, or if such logs will be used by the purchaser thereof, as a
substitute for timber from private lands which is exported by such purchaser. In
order to enforce this substitution prohibition, the legislation requires persons
who export private logs and who wish to purchase federal timber to obtain an
approved federal timber "sourcing area".
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To obtain approval it must be shown that the desired federal timber sourcing
area is economically and geographically separate from the area from which such
person exports private logs. In 1991, the Company applied for and obtained an
approved sourcing area for the Partnership's conversion facilities. Under the
legislation, sourcing areas are subject to review and renewal at least every
five years.
In October 1995, the United States Forest Service issued final
regulations implementing the 1990 legislation that could have made it more
difficult to obtain sourcing areas. These regulations, along with regulations
providing for periodic review of sourcing areas, however, have been temporarily
withdrawn pursuant to Congressional action to allow time for further public
comment and for Congress to consider modifications to the export law. Revisions
to the law and regulations have not yet been proposed. Although the uncertainty
surrounding the export regulations makes it difficult to predict the timing or
the outcome of a review, the Company believes that its sourcing area meets the
current statutory test and should be renewed.
In addition, federal legislation prohibits the export of unprocessed
logs harvested from certain state lands. Initially, Washington and Oregon
prohibited the export of all logs harvested from state lands. The legislation
provided, however, that the ban in Washington state on the export of state logs
would become a partial ban beginning January 1, 1996. Pending finalization of
the rules, the full ban is being maintained. Proposals have also been made from
time to time, but to date have been unsuccessful, to either ban or tax the
export of unprocessed logs harvested from private lands.
INCOME TAX CONSIDERATIONS
PARTNERSHIP STATUS. The Partnership is not a taxable entity and incurs
no federal income tax liability. Each partner is required to take into account
in computing his or her federal income tax liability, his or her allocable share
of income, gains, losses, deductions and credits of the Partnership, regardless
of whether cash distributions are made. Distributions by the Partnership to a
partner are generally not taxable.
Publicly traded partnerships will, as a general rule, be taxed as
corporations. However, an exception (the "Qualifying Income Exception") exists
with respect to publicly traded partnerships of which 90% or more of the gross
income for every taxable year consists of qualifying income. Qualifying income
includes income from the processing, refining, marketing or transportation of
timber and land sales. The Partnership's principal sources of income include
income from the sale of timber, the transportation of timber, the operation of
sawmills and the production of plywood and MDF. The Internal Revenue Service
("IRS") has issued two rulings to the Partnership that income from the operation
of sawmills and the production of plywood and MDF is qualified for this purpose.
SECTION 754 ELECTION. The Partnership has made the election permitted
by Section 754 of the Internal Revenue Code (the "Code"). The election requires
a purchaser of depositary units representing limited partner interests ("Units")
to adjust his or her share of the basis in the
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Partnership's properties ("Inside Basis") pursuant to Section 743(b) of the Code
to fair market value (as reflected by his or her Unit cost). A Unitholder's
allocable share of Partnership income, gains, losses and deductions is
determined in accordance with the Unitholder's unique basis under this election.
Such election is irrevocable and may not be changed without the consent of the
IRS. The Section 743(b) adjustment is attributed solely to a purchaser of Units
and is not added to the basis of the Partnership's assets associated with all of
the Unitholders.
FEDERAL INCOME TAXATION - GENERAL. Marketing, organized as a separate
corporation, reports all of its income, gains, losses, deductions and credits
arising from its operations on its own tax return and pays a corporate tax on
any resulting net income. Under current law, Marketing's net income is subject
to federal income tax at rates of up to 35%. Losses realized by Marketing do not
flow through to the Partnership, but are carried back and forward, within
certain limitations, to offset taxable income of Marketing in past or future
years. Distributions, if any, received by the Partnership from Marketing
generally would be characterized as either taxable dividends of current or
accumulated earnings and profits or in the absence of earnings and profits, as a
nontaxable return of capital (to the extent of the Partnership's tax basis in
Marketing's stock) or as taxable capital gain (after the Partnership's basis in
such stock is reduced to zero).
STATE TAX INFORMATION. The Partnership conducts operations in six
states, four of which (Arkansas, Idaho, Louisiana and Montana) have a state
income tax. To simplify the Unitholders' state filing requirements, the
Partnership files composite returns in each of those states and pays the state
income tax due on behalf of non-resident Unitholders. Marketing conducts
operations in approximately 25 states for which it pays state corporate income
taxes.
TAX-EXEMPT ENTITIES. Certain entities otherwise generally exempt from
federal income taxes (such as individual retirement accounts ("IRAs"), employee
benefit plans and other charitable or exempt organizations) may be subject to
federal income tax if their share of Unrelated Business Taxable Income ("UBTI")
exceeds $1,000. For years prior to 1994, all income derived from publicly traded
partnerships was classified as UBTI. For years after 1993, income is classified
as UBTI dependent upon source. Most of the Partnership's income continues to be
classified as UBTI. Regulated investment companies are required to derive 90% or
more of their gross income from qualified sources, such as interest or security
trading income; gross income from the Partnership is not qualifying income for
purposes of this test.
TIMBER INCOME. Section 631 of the Code provides special rules by which
gains from the sale of timber or cut logs, which would otherwise be taxable as
ordinary income, are treated in whole or in part as capital gains from the sale
of property used in a trade or business. The Partnership has elected to apply
the provisions of Section 631. Substantially all of the Partnership's 1996
taxable income is expected to qualify for capital gains treatment.
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ENCUMBRANCES
Under the terms of the Partnership's debt agreements, the Partnership
has agreed not to pledge, assign or transfer the Timberlands, except under
limited circumstances. Under the terms of the First Mortgage Notes of
Manufacturing, the holders of these notes have a first mortgage lien on a
significant portion of the Conversion Facilities. In addition, the Partnership
guarantees the First Mortgage Notes of Manufacturing.
The Partnership's title to the timberlands acquired during the
formation of the Company on June 8, 1989 and in the Southern Region Acquisition
includes substantially all the related hard rock mineral interests. However, the
Partnership did not obtain the hard rock mineral interests to a significant
portion of the 865,000 acres of timberland purchased in the Montana Timberland
Acquisition. In addition, the Partnership does not own oil and gas interests to
any of its Timberlands. The title to the Timberlands is subject to presently
existing easements, rights of way, flowage and flooding rights, servitudes,
cemeteries, camping sites, hunting and other leases, licenses and permits, none
of which materially adversely affect the value of the Timberlands or materially
restrict the harvesting of timber or other operations of the Partnership.
EMPLOYEES
The Company currently has approximately 425 salaried and 1,950 hourly
employees, including employees of the General Partner that manage the businesses
of the Company. The Company believes that its employee relations are good. The
Company's wage scale and benefits are generally competitive with other forest
products companies. Hourly employees (154 employees) at the Huttig, Arkansas
lumber mill participated in the UBC Southern Council of Industrial Workers,
Local Union No. 2346, AFL-CIO under a contract with Riverwood International
Corporation. The Company is currently meeting with union representatives
regarding contract negotiation. The harvesting and delivery of logs are
conducted by independent contractors who are not employees of the Company.
ITEM 2. PROPERTIES
The Company believes that its Timberlands and Conversion Facilities are
suitable and adequate for current operations. The Conversion Facilities are
maintained through on-going capital investments, regular maintenance and
equipment upgrades. The majority of the Conversion Facilities are modern, state
of the art facilities. The Company owns all of the Conversion Facilities.
Substantially all of the Conversion Facilities are operated at, or near, maximum
capacity levels year round. See Item 1. Business for discussion of the location
and description of properties and encumbrances related to properties.
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ITEM 3. LEGAL PROCEEDINGS
In June 1995, the Company received a Compliance Order ("Order") from
the Environmental Protection Agency ("EPA") under the Clean Air Act. The Order
alleges that the startup in 1990 of a boiler at the Company's Pablo sawmill did
not meet new source performance standards ("NSPS"). Work on the boiler project
commenced in March 1989, when NSPS did not apply to boilers of this size. Prior
to final startup of the boiler, however, new rules were proposed that, if
applicable, would have required meeting these standards. The EPA has taken the
position that the new rules applied, and is seeking compliance with NSPS. In
December 1995, the Company voluntarily installed a pollution control device and
an opacity monitor on the boiler at a cost of $700,000 without waiving any
defenses to the EPA claim. The Company believes it is in full compliance with
both the Order and NSPS. On March 12, 1996, the Department of Justice, on behalf
of the EPA, filed suit in federal court seeking civil penalties and injunctive
relief for the alleged violation of NSPS in accordance with the Clean Air Act
which contemplates civil penalties. The Company believes it has meritorious
defenses to the claim. However, due to the inherent nature of litigation, the
Company cannot predict the outcome of the enforcement case. If not resolved
earlier, it is likely that the matter will go to trial in 1997. The General
Partner believes, based upon available information and current EPA enforcement
policies, that the ultimate outcome of this action will not have a material
adverse effect on the Company's financial position, results of operations or
liquidity.
The Company has worked with the State of Washington Department of
Ecology ("DOE") concerning opacity above permitted levels associated with
emissions at the Arden Sawmill that may have occurred prior to the sale of the
mill to Stimson Lumber Company in October of 1996 as part of the Newport Asset
Sale. Prior to the sale of the mill, the Company received a letter from DOE
requesting information concerning such emissions. DOE has not taken any other
compliance actions with respect to this matter. As part of the Newport Asset
Sale, the Company agreed to indemnify Stimson for any liabilities that arise
relating to the period when the Company owned the Arden Sawmill. The Company
believes that this matter will not materially affect the Company's financial
position, results of operations or liquidity.
There is no pending litigation, and to the knowledge of the General
Partner there is no threatened litigation involving the Company which would have
a material adverse effect on the financial position, the results of operations
or liquidity of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED UNITHOLDER MATTERS
The Partnership's Units are traded on the New York Stock Exchange. As
of February 28, 1997, there were approximately 61,000 beneficial owners of
46,323,300 outstanding Units.
Trading price data, as reported by the New York Stock Exchange, and
declared cash distribution information for 1996 and 1995 are as follows:
1996 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
- - ---- -------- -------- -------- --------
High $ 27-3/4 $ 27-5/8 $ 27 $ 27-1/8
Low 23-3/4 23-1/4 22-7/8 25
Cash Distribution per Unit $ 0.49 $ 0.51 $ 0.51 $ 0.51
1995 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
- - ---- -------- -------- -------- --------
High $ 24 $ 26-1/8 $ 26-5/8 $ 25-1/4
Low 19-7/8 21-7/8 23-5/8 21-7/8
Cash Distribution per Unit $ 0.49 $ 0.49 $ 0.49 $ 0.49
Cash distributions are paid from available cash as defined by the
Partnership's partnership agreement. It is the Company's intention to maintain
the distribution into the foreseeable future; however, there can be no
guarantee. In addition, the Company's debt agreements have certain restrictive
covenants limiting the amount of cash distributions.
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ITEM 6. SELECTED FINANCIAL DATA
1996(1) 1995 1994 1993(2) 1992(3)
------- ---- ---- ------- -------
For the year:
(In millions, except per Unit):
Revenues $ 633.7 $ 585.1 $ 578.7 $ 501.0 $ 439.9
Depreciation, Depletion and Amortization 56.9 54.1 54.1 38.8 39.0
Operating Income 165.0 159.0 164.1 126.6 97.8
Net Income 223.6 110.7 112.2 91.4 64.2
Capital Expenditures (4) 19.3 30.7 25.8 29.3 25.6
Net Cash Provided by Operations 171.9 165.2 155.1 115.3 78.0
Net Income per Unit (5) 4.71 2.17 2.36 1.92 1.34
Cash Distributions Declared per Unit (5) 2.02 1.96 1.67 1.38 1.17
At year end (in millions):
Working Capital 153.0 111.5 90.5 51.0 99.7
Total Assets 1,336.4 826.1 826.2 818.7 587.0
Total Debt 780.8 531.4 544.4 569.9 318.5
Partners' Capital (6) $ 491.6 $ 233.9 $ 223.0 $ 192.6 $ 225.3
Operating Data:
Northwest Timberlands Fee Timber
Harvested (MMBF) 577 562 559 458 469
Southern Timberlands Fee Timber Harvested
(thousand Cunits) 127
Northwest Timberlands Non-Fee Timber
Harvested (MMBF) 128 116 71 77 117
Southern Timberlands Non-Fee Timber
Harvested (thousand Cunits) 21
Lumber Production (MMBF) 461 433 388 352 395
Plywood Production (MMSF) (3/8" basis) 334 294 290 289 294
MDF Production (MMSF) (3/4" basis) 113 102 123 106 109
(1) Included in 1996 results of operations was a gain of $105.7 million related
to the Newport Asset Sale. Results include the impact of the Southern Region
Acquisition from October 19, 1996 and the Newport Asset Sale from October 12,
1996.
(2) During 1993, the Company elected to change its method for valuing
inventories from average cost to the last-in, first-out ("LIFO") method. This
change in accounting lowered 1993 earnings by $8.0 million or $0.18 per Unit.
The cumulative effect of the accounting change and pro forma effects on prior
years' earnings have not been included because such effects are not reasonably
determinable. In addition, on August 30, 1993, the Partnership redeemed the 1.25
million Deferred Participation Interests (on a pre-Unit split basis) for $63.0
million. Results subsequent to 1993 include the impact of the November 1993
Montana Timberland Acquisition.
(3) Included in 1992 results of operations was the sale of the 164,000 acre
Gallatin Unit, together with the Belgrade sawmill for $23 million plus the value
of inventory. The sale resulted in a net gain of $15.6 million.
(4) Does not include $560.7 million related to the Southern Region Acquisition
in 1996 or $255.3 million related to the timberlands acquired as part of the
Montana Timberland Acquisition in 1993.
(5) Per Unit amounts have been restated for the December 6, 1993 three-for-one
Unit split.
(6) The Partnership issued 5.7 million Units during 1996 for net proceeds of
$144.3 million.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
EVENTS AND TRENDS AFFECTING OPERATING RESULTS
MARKET FORCES. The demand for logs and manufactured wood products
depends upon international and domestic market conditions, the value of the U.S.
dollar in foreign exchange markets, competition, the availability of substitute
products and other factors. In particular, the demand for logs, lumber, plywood
and MDF is affected by residential and industrial construction, and repair and
remodel activity. These activities are subject to fluctuations due to changes in
economic conditions, tariffs, interest rates, population growth and other
economic, demographic and environmental factors. Additionally, the demand for
logs is impacted by the demand for wood chips in the pulp and paper markets.
CURRENT MARKET CONDITIONS. Prices for domestic logs in the Cascades
Region for 1996 decreased from levels experienced in 1995, primarily as a result
of weak pulp and chip markets. Pulp and paper markets have been weak for the
past year resulting in an excess supply of wood chips. The over-supply has
depressed chip prices and caused downward pressure on the price of domestic logs
in the Cascades Region. However, prices have improved slightly since the third
quarter of 1996 as a result of the robust housing market, the strong export
market and reduced log production due to winter weather. Prices for domestic
logs in the Rockies Region for 1996 have remained relatively flat from those
experienced during 1995. The downward pressure due to weak chip prices and
declining commodity plywood prices has been offset by favorable lumber prices.
Prices have declined since the third quarter of 1996 due to seasonal declines in
building activity and declining commodity plywood prices. Pulp log prices
declined significantly during 1996 in both regions as a result of weakness in
the pulp and paper markets. Domestic and pulp log prices in the Southern Region
increased during the fourth quarter of 1996 as a result of wet weather limiting
supply.
In the export market, 1996 Douglas-fir prices were stable compared to
1995. Japanese demand was strong due to a robust Japanese housing market as a
result of an improving economy, record low interest rates and an upcoming
increase in the Japanese consumption tax. At year end, prices for Douglas-fir
began to soften as a result of importers adjusting to an anticipated decline in
demand following an April 1, 1997 consumption tax increase. Export prices for
whitewoods have declined as compared to 1995 due to ample supply and increased
acceptance of substitute products. However, whitewood prices improved during the
fourth quarter of 1996 due to a temporary supply shortage which resulted from
strong domestic demand and prior production curtailments.
Industry composite indices for lumber commodity prices were 19% higher
in 1996 than in 1995. The increase in lumber prices was a result of the robust
housing market, the reduced supply of Canadian lumber and strength in the repair
and remodel markets in the retail sector. The housing sector has been strong
throughout 1996 due to favorable interest rates and a good economy. As a result,
the backlog of unsold homes has been declining and housing starts have remained
strong. Effective April 1, 1996 the United States and Canada agreed to place a
quota on the amount of duty- free lumber that can be exported to the United
States. Additionally, the cost of manufacturing
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lumber in the Canadian Provence of British Columbia has increased due to higher
stumpage prices and environmental costs. Both the quota and higher costs have
contributed to the upward pressure on the price of lumber. Lumber prices in the
repair and remodel markets continued to improve as a result of supply
limitations caused by a decline in the supply of preferred western species and
numerous mills targeting production toward the housing market sector.
Industry composite indices for plywood commodity prices were 12% lower
than in 1995 primarily due to increased competition from OSB. North American OSB
capacity increased by over 20% in 1996, and capacity is expected to increase by
approximately 50% in 1997 through 2001. In the fourth quarter of 1996, OSB
prices declined to a record five-year low due to seasonal declines in building
activity and increased capacity. This has resulted in an unusually high plywood
to OSB price premium. Prices for the Company's MDF were 16% lower in 1996,
compared to 1995, due to significant capacity expansion during 1996. Between
1995 and 1996, North American MDF capacity increased from approximately 1.5
billion square feet to approximately 1.7 billion square feet and is expected to
expand even faster in 1997. At the same time demand has been reduced as
distributors reduce inventory levels in anticipation of further price declines.
COMPARABILITY OF FINANCIAL STATEMENT PERIODS. As part of its business
strategy, the Company has pursued and will continue to pursue the acquisition of
additional timberlands to increase inventories of fee timber. On November 1,
1993, the Company completed the Montana Timberland Acquisition. In addition, on
October 18, 1996, the Company completed the Southern Region Acquisition. (See
Note 2 to Notes to Combined Financial Statements.) The Company may also, from
time to time, sell timberlands and facilities if attractive opportunities arise.
The Newport Asset Sale was completed on October 11, 1996. Revenues and operating
income generated by the assets sold in the Newport Asset Sale were $61.0 million
and $15.7 million, respectively, in 1996 and were $67.8 million and $14.6
million, respectively in 1995. Accordingly, the comparability of periods covered
by the Company's financial statements is, and in the future may be, affected by
the impact of acquisitions and divestitures.
HARVEST PLANS. The Partnership determines its harvesting plans based on
a number of factors, including age and size of, and species distribution within,
its timber acreage, economic maturity of each harvest area, environmental
considerations and mill requirements both in the Conversion Facilities and at
unaffiliated mills. The timing of harvests of merchantable timber depends in
part on growth cycles and in part on economic conditions. Harvest levels in the
Rocky Mountain Region have averaged approximately 360 MMBF (excluding the
harvest from the timberlands sold in the Newport Asset Sale) over the last three
years. These harvest levels are expected, on average, to remain relatively
stable over the next several years. By the year 2001, the Partnership
anticipates that it will have nearly completed the conversion of slower growing
forests to younger, more productive stands in the Rocky Mountain Region, at
which time it anticipates a moderate reduction in the region's harvest levels.
Harvest levels in the Cascades Region have averaged 155 MMBF over the past three
years. The Partnership expects its harvest levels to decline gradually for the
foreseeable future as the conversion process in the region approaches
completion.
Harvest levels in the Southern Region are expected to increase modestly
between 1997 and 2000 as we complete the conversion of mature second growth pine
timberlands into intensively
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managed pine plantations. Following the completion of the conversion process,
harvest levels should decline and then gradually increase as the Company
benefits from the faster growing, intensively managed plantations.
Since harvest plans are influenced by projections of demand, price,
availability of timber from other sources and other factors that may be outside
of the Partnership's control, actual harvest levels may vary. The Partnership
believes that its harvest plans are sufficiently flexible to permit modification
in response to short-term fluctuations in the markets for logs and lumber.
RESULTS OF OPERATIONS
The following table compares operating income by segment for the years
ended December 31, 1996, 1995 and 1994.
Operating Income by Segment
(In Thousands)
1996 1995 1994
---- ---- ----
Resources ......................... $ 163,306 $ 139,192 $ 150,730
Manufacturing ..................... 22,516 35,567 32,175
Other & Eliminations .............. (20,834) (15,783) (18,771)
--------- --------- ---------
Total ............................. $ 164,988 $ 158,976 $ 164,134
--------- --------- ---------
1996 COMPARED TO 1995
Resources Segment revenues increased by $42.3 million, or 12.9%, to
$369.3 million in 1996, as compared to $327.0 million in 1995. Such increase was
primarily due to a $38.2 million increase in land sales revenue and an $18.3
million increase as a result of the addition of the Southern Timberlands in the
Southern Region Acquisition, offset in part by a decrease of $14.4 million in
revenues from Northwest Timberland pulpwood and chip sales. The increase in land
sales revenue was due to approximately 21,600 acres of higher and better use
land sales in 1996 resulting in revenues of $42.3 million, compared to $4.1
million in 1995. (See Item 1. Business Resources Segment - Land Management.) The
decrease in pulpwood and chip revenues was a result of weak pulp and paper
markets and the over supply of available wood fiber. Domestic log sales volume
in the Northwest Timberlands increased by 5%, compared to 1995, as a result of
increased harvest levels to take advantage of favorable pricing resulting from
strong product markets. Export prices decreased by 8%, compared to 1995, due to
a higher percentage of lower valued logs in the 1996 sales mix.
Resources Segment costs and expenses increased by $18.2 million, or
9.7%, to $206.0 million in 1996 compared to $187.8 million in 1995. Such
increase was primarily due to $10.1
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million of additional costs related to the Southern Region, the increase in land
sales, the increase in Northwest Timberlands domestic log sales volume and
increased costs related to longer hauling distances, offset in part by reduced
pulpwood and chip operations.
Manufacturing Segment revenues increased by $12.2 million, or 3.2%, to
$387.9 million in 1996 compared to $375.7 million in 1995. Such increase was due
to additional revenues of $24.7 million from the Southern Conversion Facilities,
increased lumber sales prices and increased MDF sales volumes, offset in part by
lower MDF sales prices and decreased chip revenues. Lumber sales prices in the
Northwest increased by 6% as compared to the year earlier period as a result of
the robust housing market, strength in the repair and remodel markets and supply
constraints. The U.S. housing market remained unusually strong throughout most
of the summer and fall. Additionally, as a result of the U.S. - Canada trade
agreement, Canada was not able to significantly increase its output to take full
advantage of the improving U.S. housing market. The Partnership also experienced
favorable pricing in the repair and remodel markets due to reduced supply as a
result of a number of mills targeting production toward the home construction
segment. MDF sales volume was restored to normal levels during the second half
of 1996 and was 8% higher than the sales volume for 1995. MDF sales volume was
unusually low during 1995 due to production downtime associated with the
conversion of production processes to manufacture high quality, super-refined
MDF(2) and weak market conditions. MDF prices decreased by 16% as a result of
significant 1996 capacity expansion. However, the Company experienced less
downward price pressure than the industry as a whole due to increasing demand
for its higher quality MDF(2) product. Residual chip prices decreased by 29%
over 1995 due to excess chip inventories throughout the entire industry. The
chip plant was closed during most of 1996 as a result of weak chip markets.
Manufacturing Segment costs and expenses increased by $25.3 million, or
7.4%, to $365.4 million in 1996 compared to $340.1 million in 1995. Such
increase was primarily due to $24.0 million of additional costs related to the
Southern Conversion Facilities and increased MDF sales volumes.
Other Costs and Eliminations (which consists of corporate overhead,
intercompany log profit elimination, and intercompany LIFO elimination)
decreased operating income by $20.8 million in 1996 compared to $15.8 million in
1995. The variance of $5.0 million was primarily due to the release of more
intercompany log profit in 1995 than in 1996 as a result of reducing inventory
levels in 1995. On a combined basis, the Resources Segment's profit on
intercompany log sales is deferred until Manufacturing converts existing log
inventories into finished products and sells them to third parties.
Interest expense increased by $3.3 million as a result of both an
increase in outstanding debt and debt issuance costs related to the October 1996
Southern Region Acquisition. Gain on disposition of assets increased in 1996
primarily as a result of a $105.7 million gain related to the Newport Asset
Sale.
The income allocated to the General Partner increased by $5.3 million
during 1996 compared to 1995 as a result of higher quarterly distributions to
the Unitholders which increased the incentive distribution paid to the General
Partner and an increase in net income. Net income is allocated to
23
24
the General Partner based on two percent of the Company's net income (adjusted
for the incentive distribution paid), plus the incentive distribution. The
incentive distribution is based on a percentage of the quarterly distribution
paid which totaled $2.00 per Unit for the year ended 1996, compared to $1.90 per
Unit in 1995.
1995 COMPARED TO 1994
Resources Segment revenues increased by $2.6 million, or 0.8%, to
$327.0 million in 1995, as compared to $324.4 million in 1994. Such increase was
primarily due to a $21.7 million increase in revenues from pulpwood and chip
sales offset in part by lower export log sales volume and lower domestic log
prices. The increase in pulpwood and chip revenues was due to the addition in
1995 of in-woods chipping operations, which utilize small tops of trees and
small trees from thinning operations, and a significant increase in pulp log
prices and sales volume as compared to 1994 due to strong pulp and paper
markets. Export log sales volume decreased by 18% as compared to 1994 due to the
shifting of lower quality export logs to the domestic market as a result of a
weaker Japanese economy and a planned reduction in harvest levels. Domestic log
prices decreased by 8% as compared to 1994. The decrease was attributable
entirely to the Rocky Mountain Region and was due to weak lumber markets and
aggressive competition from Canadian lumber producers.
Resources Segment costs and expenses increased by $14.1 million, or
8.1%, to $187.8 million in 1995 as compared to $173.7 million in 1994. Such
increase was primarily due to the costs relating to higher volumes of pulpwood
and chip sales.
Manufacturing Segment revenues increased by $3.5 million, or 0.9%, to
$375.7 million in 1995 as compared to $372.2 million in 1994. Such increase was
due to an increase in lumber sales volume and a 60% increase in revenues from
residual chip sales, offset in part by lower lumber prices and lower MDF sales
volume. Lumber sales volume increased by 8% as compared to 1994 due to increased
production as a result of the Partnership's new lumber remanufacturing facility,
higher productivity due to improved log merchandising specifications and capital
improvements, and additional production shifts. Lumber prices decreased by 13%
as compared to 1994 due to a weaker housing market as a result of generally
slower economic conditions, and increased competition from both Canadian imports
and substitute products. While the Partnership's lumber prices are influenced by
commodity prices, it is able to maintain sales volume due to its high
concentration of sales in the repair and remodel and industrial markets, which
are less affected by the slow housing market. MDF sales volume decreased by 15%
as compared to 1994 as a result of production downtime associated with weak
market conditions and operational issues encountered during the start-up of new
high-energy refiners for the Partnership's new MDF(2) product. Residual chip
revenues increased due to a substantial increase in prices over 1994 due to
strong pulp and paper markets.
Manufacturing Segment costs and expenses were $340.1 million for each
of the years ended 1995 and 1994. Increased costs due to increased lumber sales
volumes were offset by lower log costs (14% and 4% lower for lumber and plywood,
respectively) and lower MDF
24
25
production costs as a result of downtime.
Other Costs and Eliminations reduced operating income by $15.8 million
in 1995 as compared to reducing income by $18.8 million in 1994. The variance
was primarily due to lower intercompany profit elimination, offset in part by an
increase in the intercompany LIFO elimination. On a combined basis, the
Resources Segment's profit on intercompany log sales is deferred until
Manufacturing converts existing log inventories into finished products and sells
them to third parties. The 1995 intercompany profit elimination was lower than
the prior year's due to a decrease in log inventory levels, and a lower log
transfer price as a result of a weaker domestic log market. On a combined basis,
the LIFO impact related to price fluctuations on the sale of intercompany logs
is eliminated. The 1995 intercompany LIFO elimination was greater than the prior
year's due to a lower log transfer price, which resulted in a greater decrement
in Manufacturing's separate company LIFO reserve as compared to the combined
LIFO reserve.
The income allocated to the General Partner increased by $6.2 million
during 1995 compared to 1994 as a result of higher quarterly distributions to
the Unitholders which increased the incentive distribution paid to the General
Partner. Net income is allocated to the General Partner based on 2% of the
Company's net income (adjusted for the incentive distribution paid), plus the
incentive distribution. The incentive distribution is based on a percentage of
the quarterly distribution paid which totaled $1.90 per Unit for the year ended
1995, as compared to $1.62 per Unit in 1994.
EXPORT SALES
The Company sells logs and finished wood products for export. These
sales are denominated in U.S. dollars and are generally sold to Pacific Rim
countries, principally Japan, Canada and Europe. Combined export revenues as a
percentage of total revenues were 11%, 13% and 15% for 1996, 1995, and 1994,
respectively.
FINANCIAL CONDITION AND LIQUIDITY
Net cash provided by operating activities was $171.9 million, $165.2
million and $155.1 million for 1996, 1995 and 1994, respectively. The increase
of $6.7 million in 1996 is primarily a result of increased operating income
compared to 1995. In 1994, operating cash flow was reduced by $9.2 million, net
of expense, for the funding of certain employee benefit plans. There was no such
funding in 1996 or 1995. For further discussion of these benefit plans, see Note
11 of Notes to Combined Financial Statements. On December 31, 1996, the Company
had $123.9 million of cash and cash equivalents.
On October 18, 1996, the Partnership acquired approximately 529,000
acres (plus approximately 9,000 leased acres) of timberland in Louisiana and
Arkansas, along with two sawmills, a plywood plant and a nursery in the Southern
Region Acquisition for a total purchase price of $540 million, plus $11.9
million for working capital. The Partnership financed the Southern Region
Acquisition from cash on hand, including proceeds from certain ordinary course
asset dispositions, the proceeds from the Newport Asset Sale, and two new bank
credit
25
26
facilities dated as of October 17, 1996, (the "New Bank Facilities"), consisting
of a five-year $400 million unsecured, revolving credit facility (the "New Line
of Credit") and an 18-month $250 million unsecured bridge facility (the "Bridge
Facility"). The Partnership borrowed $50 million under the Bridge Facility and
$322 million under the New Line of Credit to finance the Southern Region
Acquisition. No further borrowings are permitted under the Bridge Facility. On
October 22, 1996, the Partnership issued 5,600,000 Units for net proceeds of
$141.4 million. On November 5, 1996, 115,000 additional Units were issued by the
Partnership for net proceeds of $2.9 million. The combined net proceeds were
used to repay the Bridge Facility and a portion of the amount outstanding under
the New Line of Credit.
On November 13, 1996, the Partnership issued $200 million of senior
notes (the "New Notes") in a private placement. The New Notes have an average
life of 13 years and bear interest at a weighted average rate of 7.88% annually.
The New Notes are unsecured obligations of the Partnership and the terms of the
New Notes are substantially similar to the terms of its existing senior notes.
The proceeds from the New Notes were used to repay a portion of the outstanding
borrowings under the New Line of Credit. The commitment under the New Line of
Credit was reduced to $225 million in November 1996. See Note 2 and 6 of Notes
to Combined Financial Statements.
As of December 31, 1996, the Partnership had $161.0 million outstanding
under the New Line of Credit. The New Line of Credit permits the Partnership to
borrow up to $225 million for general corporate purposes, including standby
letters of credit issued on behalf of the Partnership or Manufacturing. The New
Line of Credit matures on December 13, 2001 and bears interest at a floating
rate. Borrowings on the New Line of Credit fluctuate daily based on cash needs.
As of January 3, 1997, the Partnership had repaid $126.0 million of the
borrowings under the New Line of Credit.
The Company's loan agreements contain certain restrictive covenants,
including limitations on harvest levels, sale of assets, cash distributions and
the amount of future indebtedness. In addition, the New Line of Credit requires
the maintenance of a required interest coverage ratio. The Company was in
compliance with its debt covenants as of December 31, 1996.
The Partnership will distribute $0.51 per Unit for the fourth quarter
of 1996. The distribution will equal $31.0 million (including $7.4 million to
the General Partner), and will be paid on February 28, 1997 to Unitholders of
record on February 14, 1997. The computation of cash available for distribution
includes required reserves for the payment of principal and interest, as well as
other reserves established at the discretion of the General Partner for working
capital, capital expenditures, and future cash distributions.
Cash required to meet the Partnership's quarterly cash distributions,
capital expenditures and to satisfy interest and principal payments on the
Company's debt will be significant. The General Partner expects that all debt
service will be funded from cash generated by operations. The Partnership
expects to make cash distributions from current funds and cash generated from
operations. It is anticipated that future capital expenditures will be funded
from cash on hand,
26
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cash generated from operations, and borrowings under the New Line of Credit.
The Company is involved in certain environmental and regulatory
proceedings and other related matters. Although it is possible that new
information or future developments could require the Company to reassess its
potential exposure related to these matters, the Company believes, based upon
available information, that the resolution of these issues will not have a
materially adverse effect on its results of operations, financial position or
liquidity.
CAPITAL EXPENDITURES. Capital expenditures for the Resources Segment
were $6.5 million, $8.5 million and $7.1 million for 1996, 1995 and 1994,
respectively, excluding $514.9 million related to the Southern Region
Acquisition in 1996. Resources Segment capital expenditures included the
construction of logging roads and reforestation. Capital expenditures for the
Manufacturing Segment were $12.8 million, $22.2 million and $18.7 million for
1996, 1995 and 1994, respectively, excluding $45.8 million related to the
Southern Region Acquisition in 1996. Capital expenditures in 1996 included the
purchase and installation of various lumber and plywood optimization projects,
as well as replacements and upgrades of other equipment in several of the
Conversion Facilities. Capital expenditures have decreased as compared to 1995
and 1994 due to the completion of major improvements at the majority of the
manufacturing facilities.
Planned capital expenditures for the Resources Segment in 1997 are $12
million, primarily for logging roads and reforestation. The Manufacturing
Segment's 1997 planned capital expenditures are $12 million which includes
various lumber and plywood projects to improve productivity and increase
recovery, as well as replacements and upgrades of equipment in several of the
Conversion Facilities.
EFFECT OF INFLATION
During recent years the Company has generally experienced increased
costs due to the effect of inflation, particularly in the Manufacturing Segment,
on the cost of raw materials, labor, supplies and energy and, in the Resources
Segment, on logging and hauling costs. However, the Company utilizes the LIFO
inventory valuation method for its raw materials, work-in-process and finished
goods inventory which generally matches current costs to current revenues and
thus, tends to reflect the impact of inflation on cost of goods sold.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL INFORMATION
PLUM CREEK TIMBER COMPANY, L. P.
COMBINED STATEMENT OF INCOME
Year Ended December 31,
-------------------------------
1996 1995 1994
(In Thousands, Except Per Unit)
Revenues ....................................... $633,741 $585,074 $578,657
-------- -------- --------
Costs and Expenses:
Cost of Goods Sold ....................... 429,897 388,450 375,782
Selling, General and Administrative ...... 38,856 37,648 38,741
-------- -------- --------
Total Costs and Expenses ............... 468,753 426,098 414,523
-------- -------- --------
Operating Income ............................... 164,988 158,976 164,134
Interest Expense ............................... (50,141) (46,836) (47,410)
Interest Income ................................ 1,291 1,073 889
Gain (Loss) on Disposition of Assets - Net ..... 108,852 (133) (1,074)
Other Expense - Net ............................ (1,777) (3,403)
-------- -------- --------
Income before Income Taxes ..................... 224,990 111,303 113,136
Provision for Income Taxes ..................... 1,391 572 924
-------- -------- --------
Net Income ..................................... $223,599 $110,731 $112,212
General Partner Interest ....................... 27,777 22,487 16,325
-------- -------- --------
Net Income Allocable to Unitholders ............ $195,822 $ 88,244 $ 95,887
======== ======== ========
Net Income per Unit ............................ $ 4.71 $ 2.17 $ 2.36
======== ======== ========
See accompanying Notes to Combined Financial Statements.
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PLUM CREEK TIMBER COMPANY, L.P.
COMBINED BALANCE SHEET
December 31,
------------------------------
1996 1995
(In Thousands)
ASSETS
Current Assets:
Cash and Cash Equivalents............ $ 123,892 $ 87,604
Accounts Receivable.................. 23,697 31,750
Inventories.......................... 53,884 47,366
Timber Contract Deposits............. 5,987 2,320
Other Current Assets................. 15,025 4,949
------------ ------------
222,485 173,989
Timber and Timberlands - Net............ 922,652 467,992
Property, Plant and Equipment - Net..... 172,688 166,152
Other Assets............................ 18,609 17,953
------------ ------------
Total Assets............................ $ 1,336,434 $ 826,086
============ ============
LIABILITIES
Current Liabilities:
Current Portion of Long-Term Debt.... $ 17,400 $ 14,100
Accounts Payable..................... 13,443 15,771
Interest Payable..................... 9,530 7,543
Wages Payable........................ 13,187 11,513
Taxes Payable........................ 5,275 5,122
Workers' Compensation Liabilities.... 1,450 2,318
Other Current Liabilities............ 9,212 6,081
------------ ------------
69,497 62,448
Long-Term Debt.......................... 602,400 419,800
Lines of Credit......................... 161,000 97,500
Workers' Compensation Liabilities....... 8,533 8,405
Other Liabilities....................... 3,356 4,065
------------ ------------
Total Liabilities....................... 844,786 592,218
------------ ------------
Commitments and Contingencies
PARTNERS' CAPITAL
Limited Partners' Units................. 490,105 234,117
General Partner......................... 1,543 (249)
------------ ------------
Total Partners' Capital................. 491,648 233,868
------------ ------------
Total Liabilities and Partners' Capital. $ 1,336,434 $ 826,086
============ ============
See accompanying Notes to Combined Financial Statements.
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PLUM CREEK TIMBER COMPANY, L. P.
COMBINED STATEMENT OF CASH FLOWS
Year Ended December 31,
----------------------------------------
1996 1995 1994
-------- -------- --------
(In Thousands)
Cash Flows From Operating Activities:
Net Income ...................................................... $223,599 $110,731 $112,212
Adjustments to Reconcile Net Income to
Net Cash Provided By Operating Activities:
Depreciation, Depletion and Amortization ..................... 56,945 54,097 54,143
Gain on Property Dispositions - Net .......................... (108,852) (2,986) (419)
Working Capital Changes, net of effect of business
acquisition and disposition:
Accounts Receivable ......................................... 8,053 (4,884) 1,845
Inventories ................................................. (1,052) 7,319 (6,583)
Timber Contract Deposits .................................... 1,663 503 164
Other Current Assets ........................................ (10,579) (936) 1,386
Accounts Payable ............................................ (2,328) 2,540 193
Interest Payable ............................................ 1,987 (138) 4,676
Wages Payable ............................................... (77) 2,089 (645)
Taxes Payable ............................................... (661) (972) 446
Workers' Compensation Liabilities ........................... (868) (292)
Other Current Liabilities ................................... 2,148 (697) (1,560)
Funding of Benefit Plans - Net ............................... 4,375 2,411 (9,198)
Other ........................................................ (2,405) (3,571) (1,545)
-------- -------- --------
Net Cash Provided By Operating Activities ....................... 171,948 165,214 155,115
-------- -------- --------
Cash Flows From Investing Activities:
Southern Region Acquisition ..................................... (555,966)
Proceeds from Newport Asset Sale ................................ 148,676
Additions to Other Properties ................................... (19,280) (30,683) (25,837)
Proceeds from Other Property Dispositions ....................... 7,329 6,777 4,472
Other ........................................................... (1,806) 458
-------- -------- --------
Net Cash Used In Investing Activities ........................... (419,241) (25,712) (20,907)
-------- -------- --------
Cash Flows From Financing Activities:
Cash Distributions .............................................. (110,116) (99,840) (81,790)
Borrowings on Lines of Credit and Bridge Facility ............... 948,250 399,000 368,345
Payments on Lines of Credit and Bridge Facility ................. (884,750) (399,000) (530,846)
Issuance of Long-Term Debt ...................................... 200,000 150,000
Retirement of Long-Term Debt .................................... (14,100) (13,000) (13,000)
Issuance of Limited Partner Units ............................... 144,297
-------- -------- --------
Net Cash Provided By (Used In)
Financing Activities .......................................... 283,581 (112,840) (107,291)
-------- -------- --------
Increase in Cash
and Cash Equivalents ........................................... 36,288 26,662 26,917
Cash and Cash Equivalents:
Beginning of Year ............................................... 87,604 60,942 34,025
-------- -------- --------
End of Year ..................................................... $123,892 $ 87,604 $ 60,942
======== ======== ========
Supplementary Cash Flow Information
Interest Paid ................................................... $ 46,635 $ 46,904 $ 42,734
Income Taxes Paid - Net ......................................... $ 972 $ 952 $ 973
See accompanying Notes to Combined Financial Statements.
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PLUM CREEK TIMBER COMPANY, L. P.
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1. ACCOUNTING POLICIES
BASIS OF PRESENTATION. Plum Creek Timber Company, L.P. (the
"Partnership"), a Delaware limited partnership, Plum Creek Manufacturing, L.P.
("Manufacturing"), and Plum Creek Marketing, Inc. ("Marketing"), own, manage and
operate approximately 2.4 million acres of timberland and twelve wood products
conversion facilities in the northwestern and southeastern United States. See
Note 2 to Notes to Combined Financial Statements. The Partnership owns 98
percent of Manufacturing and 96 percent of Marketing. Plum Creek Management
Company, L.P. (the "General Partner"), manages the businesses of the
Partnership, Manufacturing and Marketing and owns the remaining two percent
general partner interest of Manufacturing and four percent of Marketing. As used
herein, "Company" refers to the combined entities of the Partnership,
Manufacturing and Marketing. "Resources Segment" refers to the timber and land
management business of the Partnership, and "Manufacturing Segment" refers to
the combined businesses of Manufacturing and Marketing.
The Resources Segment grows and harvests timber for sale in export
markets, primarily Pacific Rim countries, and domestic markets, primarily in
Arkansas, Idaho, Louisiana, Montana and Washington. The Manufacturing Segment
produces a wide variety of lumber, plywood and medium density fiberboard ("MDF")
products. The Manufacturing Segment targets these products to retail home
centers and various specialty niche markets as well as housing related markets.
The principal markets for lumber and plywood products are in the United States
and, to a lesser extent, Pacific Rim countries and Europe. MDF markets primarily
consist of North America and, to a lesser extent, Pacific Rim countries.
The combined financial statements of the Company include all the
accounts of the Partnership, Manufacturing and Marketing. All significant
intercompany transactions have been eliminated in combination. Certain financial
statement reclassifications have been made to the 1995 and 1994 amounts
presented for comparability purposes and have no impact on net income.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NET INCOME PER UNIT. Net income per Unit is calculated using the
weighted average number of Units outstanding, divided into the combined
Partnership net income, after adjusting for the General Partner interest. The
weighted average number of Units outstanding was 41,619,803, 40,608,300 and
40,608,300 for the years ended December 31, 1996, 1995 and 1994, respectively.
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32
REVENUE RECOGNITION. Revenues received from the sale of logs, wood
products and by-products, primarily wood chips, are generally recorded as
revenue at the time of shipment. Sales are denominated in U.S. dollars. Sales of
timberlands identified by the Partnership as higher and better use lands (for
use other than for forest management purposes) are included in revenues when the
sale is consummated.
CASH AND CASH EQUIVALENTS. The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents. Substantially all of the cash and cash equivalents are
deposited with one financial institution.
INVENTORIES. Logs, work-in-process, and finished goods inventories are
stated at the lower of cost or market on the last-in, first-out ("LIFO") method.
Cost for manufactured inventories includes raw materials, labor, supplies,
energy, depreciation and production overhead. Cost of log inventories includes
timber depletion, stumpage, associated logging and harvesting costs, road costs
and production overhead. The average cost method is used to value the Company's
supplies inventories.
TIMBER AND TIMBERLANDS. Timber and timberlands, including logging
roads, are stated at cost less depletion for timber previously harvested and
accumulated amortization. Cost of the Partnership's timber harvested is
determined based on the volume of timber harvested in relation to the amount of
estimated recoverable timber. The Partnership estimates its timber inventory
using statistical information and data obtained from physical measurements, site
maps, photo-types and other information gathering techniques. For timberlands
located in the southern United States, estimates of future growth and costs
related thereto are also made. The cost of logging roads is amortized over the
estimated useful life on a straight-line basis.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment is stated
at cost. Improvements and replacements are capitalized. Depreciation is provided
for on a straight-line basis for buildings and on a unit-of-production basis for
machinery and equipment, which approximates a straight-line basis. Maintenance
and repairs necessary to maintain properties in operating condition are expensed
as incurred. The cost and related accumulated depreciation of property sold or
retired are removed from the accounts and any gain or loss is recorded.
INCOME TAXES. The Partnership and Manufacturing are not subject to
federal income tax and their income or loss is included in the tax returns of
individual Unitholders. The Partnership files composite returns in the states in
which it does business, paying taxes on behalf of nonresident Unitholders. State
taxes paid on behalf of nonresident Unitholders are included in other expense.
Marketing, as a separate taxable corporation, provides for income taxes on a
separate company basis.
UNIT-BASED COMPENSATION PLANS. The Company accounts for Unit-based
compensation plans under the provisions of Accounting Principles Board Opinion
No. 25 ("APB 25"). The Company has adopted the disclosure-only provisions of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123") for the year ended December 31, 1996.
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33
The difference between compensation cost under APB 25 and FAS 123 is not
material. See Note 11 to Notes to Combined Financial Statements for discussion
of the above referenced plans.
NOTE 2. ACQUISITION AND DISPOSITION
On October 18, 1996, the Partnership acquired approximately 529,000
acres (plus approximately 9,000 leased acres) of timberlands in Louisiana and
Arkansas, along with two sawmills, a plywood plant and a nursery from Riverwood
International Corporation for a total cash purchase price of $540 million, plus
$11.9 million for working capital (the "Southern Region Acquisition"). The
acquisition was accounted for as a purchase and the operations of the business
acquired have been included in the Company's combined financial statements from
the date of acquisition. The total purchase price of $560.7 million, including
$4.1 million of acquisition costs and $4.7 million of assumed liabilities, was
allocated as follows (in thousands):
Timber and Timberlands $508,834
Property, Plant and Equipment 33,477
Other Assets 18,429
--------
Total Assets Acquired $560,740
========
Total Liabilities Assumed $ 4,745
========
The Southern Region Acquisition was initially financed with the New
Bank Facilities (see Note 6 to Notes to Combined Financial Statements) and cash
on hand, including the proceeds from the Newport Asset Sale (discussed below).
The proceeds from the issuance of Limited Partner Units (see Note 8 to Notes to
Combined Financial Statements) and the Senior Notes due 2016 (see Note 6 to
Notes to Combined Financial Statements) were used to repay a portion of the New
Bank Facilities.
The unaudited combined results of operations of the Company on a pro
forma basis as though the Southern Region Acquisition, the issuance of Limited
Partner Units and borrowings on the New Bank Facilities and Senior Notes due
2016 had occurred as of the beginning of the years ended December 31, 1996 and
1995 are as follows (in thousands, except per Unit):
1996 1995
---- ----
Revenues $771,153 $756,569
Net Income 240,540 122,653
Net Income Allocable to Unitholders 210,080 97,073
Net Income per Unit $ 4.54 $ 2.10
The pro forma financial information is not necessarily indicative of
results of operations that would have occurred had the Southern Region
Acquisition occurred as of those dates or of results which may occur in the
future.
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34
On October 11, 1996, the Company consummated the sale to Stimson Lumber
Company ("Stimson") of 107,000 acres of timberland in northeastern Washington
and northern Idaho and its sawmill near Colville, Washington (the "Newport Asset
Sale") for approximately $141.9 million, plus $8.7 million for working capital
as of the closing date. The Company used the net proceeds from the Newport Asset
Sale to pay a portion of the purchase price for the Southern Region Acquisition.
The sale resulted in a net gain of approximately $105.7 million, net of expenses
of approximately $2.0 million.
NOTE 3. ACCOUNTS RECEIVABLE
Accounts receivable were presented net of allowances for doubtful
accounts of $1,425,000 and $1,316,000 at December 31, 1996 and 1995,
respectively.
NOTE 4. INVENTORIES
Inventories consisted of the following at December 31 (in thousands):
1996 1995
---- ----
Raw materials (logs) ....................... $23,171 $18,967
Work-in-process ............................ 7,227 5,798
Export logs ................................ 1,048 420
Finished goods ............................. 15,034 16,012
------- -------
46,480 41,197
Supplies ................................... 7,404 6,169
------- -------
Total ...................................... $53,884 $47,366
======= =======
Excluding supplies, which are valued at average cost, the cost of the
LIFO inventories valued at the lower of average cost or market (which
approximates current cost) at December 31, 1996 and 1995 was $46.4 million and
$46.3 million, respectively.
NOTE 5. TIMBER AND TIMBERLANDS AND PROPERTY, PLANT AND EQUIPMENT
Timber and timberlands consisted of the following at December 31 (in
thousands):
1996 1995
---- ----
Timber and logging roads - net ............... $824,160 $423,475
Timberlands .................................. 98,492 44,517
-------- --------
Timber and Timberlands - net ................. $922,652 $467,992
======== ========
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Property, plant and equipment consisted of the following at December 31 (in
thousands):
1996 1995
---- ----
Land, buildings and improvements ............. $ 60,173 $ 50,056
Machinery and equipment ...................... 229,513 227,598
--------- ---------
289,686 277,654
Accumulated depreciation ..................... (116,998) (111,502)
--------- ---------
Property, Plant and Equipment - net .......... $ 172,688 $ 166,152
========= =========
NOTE 6. BORROWINGS
Long-term debt and lines of credit consisted of the following at
December 31 (in thousands):
1996 1995
---- ----
Senior Notes due 2007 ................................ $ 138,600 $ 145,200
Senior Notes due 2009 ............................... 150,000 150,000
First Mortgage Notes ................................. 131,200 138,700
Senior Notes due 2016 ................................ 200,000
Lines of Credit ...................................... 161,000 97,500
--------- ---------
Total Long-term Debt ................................. 780,800 531,400
Less: Current Portion ................................ (17,400) (14,100)
--------- ---------
Long-Term Portion .................................... $ 763,400 $ 517,300
========= =========
In October 1996, the Partnership entered into two new bank credit
facilities (the "New Bank Facilities"), consisting of a five-year $400 million
unsecured, revolving credit facility (the "New Line of Credit") and an 18-month
$250 million unsecured bridge facility (the "Bridge Facility") which were used
to finance a portion of the Southern Region Acquisition. On October 28, 1996,
the Bridge Facility was terminated and on November 13, 1996 the commitment under
the New Line of Credit was reduced to $225 million, including standby letters of
credit issued on behalf of the Partnership or Manufacturing. The New Line of
Credit matures on December 13, 2001 and bears interest at a floating rate (7.0%
as of December 31, 1996). The weighted average interest rate for borrowings
under the New Line of Credit during 1996 was 6.0%. Borrowings on the New Line of
Credit fluctuate daily based on cash needs. As of January 3, 1997, the
Partnership had repaid $126.0 million of the borrowings under the New Line of
Credit.
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The New Line of Credit replaced two revolving credit facilities which
allowed the Partnership to borrow up to $135 million and matured through October
2000. The revolving credit facilities bore interest at a variable rate (6.5% as
of December 31, 1995).
On November 13, 1996, the Partnership issued $200 million of senior
notes (the "Senior Notes due 2016") in a private placement. The Senior Notes due
2016 mature in 2006 through 2016 and bear interest at rates ranging from 7.74%
through 8.05%, payable semiannually. The proceeds from the Senior Notes due 2016
were used to repay a portion of the outstanding borrowings under the New Line of
Credit.
On August 1, 1994, the Partnership issued $150 million of senior notes
due in full on August 1, 2009 (the "Senior Notes due 2009") which bear interest
at 8.73%, payable semiannually. The proceeds obtained from the issuance of the
Senior Notes due 2009 were used to refinance a portion of the $260 million line
of credit incurred to finance the November 1, 1993 Montana Timberland
Acquisition.
The Senior Notes due 2007 and the First Mortgage Notes bear interest of
11.125%, payable semiannually. The Senior Notes and the First Mortgage Notes
(collectively, the "Note Agreements") are redeemable prior to maturity subject
to a premium on redemption, which is based upon interest rates of U.S. Treasury
securities having similar average maturity as the Note Agreements. At December
31, 1996 and 1995, the premium that would have been due upon early retirement
would have approximated $99 million and $119 million, respectively. The three
series of senior notes are unsecured. The First Mortgage Notes are
collateralized by a significant portion of the property, plant and equipment of
Manufacturing and are guaranteed by the Partnership.
The annual principal payments on the Note Agreements and mandatory
principal payments under the New Line of Credit are as follows (in thousands):
Note New Line
Agreements Of Credit
---------- ---------
1997 $ 17,400
1998 18,400
1999 18,400
2000 26,950
2001 26,950 $ 161,000
Thereafter 511,700
All principal and interest payments due under the Note Agreements are
nonrecourse to the General Partner.
The Note Agreements and the New Line of Credit contain certain
restrictive covenants, including limitations on harvest levels, sales of assets,
cash distributions and the amount of future
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37
indebtedness. In addition, the New Line of Credit requires the maintenance of a
required interest coverage ratio. The Company was in compliance with such
covenants at December 31, 1996 and 1995.
NOTE 7. FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents approximate fair
value due to the short-term maturities of these instruments. The estimated fair
value of the Company's debt, based on current interest rates for similar
obligations with like maturities, was approximately $842 million and $615
million and was carried at $781 million and $531 million as of December 31, 1996
and 1995, respectively.
NOTE 8. PARTNERS' CAPITAL
The changes in Partners' Capital were as follows (in thousands):
Limited General
Partners Partner Total
--------- --------- ---------
January 1, 1994 ...................... $ 192,925 $ (370) $ 192,555
Net Income ........................... 95,887 16,325 112,212
Cash Distributions ................... (65,784) (16,006) (81,790)
--------- --------- ---------
December 31, 1994 ................... 223,028 (51) 222,977
Net Income ........................... 88,244 22,487 110,731
Cash Distributions ................... (77,155) (22,685) (99,840)
--------- --------- ---------
December 31, 1995 .................... 234,117 (249) 233,868
Net Income ........................... 195,822 27,777 223,599
Cash Distributions ................... (84,131) (25,985) (110,116)
Issuance of Limited Partner Units .... 144,297 144,297
--------- --------- ---------
December 31, 1996 .................... $ 490,105 $ 1,543 $ 491,648
========= ========= =========
The total number of Units outstanding at December 31, 1996 and 1995 was
46,323,300 and 40,608,300, respectively. On October 22, 1996, the Partnership
issued 5,600,000 Units for net proceeds of $141.4 million. On November 5, 1996,
115,000 additional Units were issued by the Partnership for net proceeds of $2.9
million. The combined proceeds are net of issuance costs of $8.6 million. The
combined net proceeds were used to repay the Bridge Facility and a portion of
the amounts outstanding under the New Line of Credit.
In accordance with the Partnership Agreement, the General Partner is
authorized to make quarterly cash distributions. For the years ended December
31, 1996, 1995 and 1994, the General Partner declared $2.02, $1.96 and $1.67 per
Unit, respectively, to be paid to the Partnership's Unitholders. If quarterly
cash distributions exceed $0.21-2/3 per Unit, the General Partner is provided
with an incentive distribution. See Note 11 to Notes to Combined Financial
Statements.
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NOTE 9. INCOME TAXES
The provision for income taxes was as follows (in thousands):
Year Ended December 31,
------------------------------------
1996 1995 1994
----- ----- -----
Current Federal ................... $1,201 $ 464 $ 829
Current State ..................... 190 108 95
------ ------ ------
Total ............................. $1,391 $ 572 $ 924
====== ====== ======
Reconciliation of the federal statutory rate to the effective income
tax rate was as follows:
1996 1995 1994
---- ---- ----
Statutory tax rate ................................................. 35.0% 35.0% 35.0%
State tax net of federal tax benefit ............................... 0.1 0.1 0.1
Nontaxable partnership income ...................................... (34.6) (34.1) (33.6)
Net operating loss carryforward .................................... 0.0 0.0 (0.7)
Other .............................................................. 0.1 (0.5) 0.0
---- ---- ----
Effective tax rate ................................................. 0.6% 0.5% 0.8%
---- ---- ----
NOTE 10. EMPLOYEE PENSION AND RETIREMENT PLANS
PENSION PLAN. The Company's pension plan is a non-contributory defined
benefit plan covering substantially all employees. The salaried employee
benefits are based on years of credited service and the highest five-year
average compensation levels, and the hourly employee benefits are based on years
of service. Contributions to the plan are based upon the Projected Unit Credit
actuarial funding method and are limited to amounts that are currently
deductible for tax purposes.
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39
The following table sets forth the funded status of the Company's
pension plan at December 31 (in thousands):
1996 1995
---- ----
Actuarial present value of benefit obligations:
Vested .......................................... $ 34,704 $ 36,431
Non-vested ...................................... 882 926
-------- --------
Accumulated benefit obligation ...................... $ 35,586 $ 37,357
======== ========
Projected benefit obligation ........................ $ 44,386 $ 46,979
Plan assets, primarily marketable equity and debt
securities, at fair market value ................ 48,300 40,576
-------- --------
Projected benefit obligation in excess of plan assets 3,914 (6,403)
Unrecognized net loss ............................... 2,954 12,554
Prior service cost not yet recognized ............... (1,200) (78)
-------- --------
Prepaid pension cost ................................ $ 5,668 $ 6,073
======== ========
The components of the Company's pension cost were as follows (in thousands):
Year Ended December 31,
--------------------------
1996 1995 1994
---- ---- ----
Service cost ................................ $ 1,910 $ 1,277 $ 1,441
Interest cost on projected benefit obligation 3,103 2,886 2,709
Actual return on plan assets ................ (7,568) (6,210) 432
Net amortization and deferral ............... 4,548 3,273 (2,715)
------- ------- -------
Net pension cost ............................ $ 1,993 $ 1,226 $ 1,867
======= ======= =======
The following assumptions were used in the accounting for the Company's
pension plan as of December 31:
1996 1995 1994
---- ---- ----
Weighted average discount rate ................. 7.5% 7.0% 8.5%
Rate of increase in compensation levels ........ 5.0% 5.0% 5.0%
Expected long-term rate of return on plan assets 8.5% 8.5% 8.0%
The Company adopted two nonqualified defined benefit pension plans for
executives and key management employees effective January 1, 1993 and January 1,
1994, respectively. The projected benefit obligation for these plans was $4.4
million as of December 31, 1996 and 1995. The Company's pension expense for
these plans was $0.9 million, $0.6 million and $0.8 million for 1996, 1995 and
1994, respectively.
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THRIFT AND PROFIT SHARING PLAN. The Company sponsors an employee thrift
and profit sharing plan under section 401 of the Internal Revenue Code. This
plan covers substantially all full-time employees. The Company matches employee
contributions of up to six percent of compensation at rates ranging from 35 to
100 percent, depending upon the Company's financial performance. Amounts charged
to expense were $2.6 million, $2.7 million and $2.0 million during 1996, 1995
and 1994, respectively.
OTHER BENEFIT PLANS. Certain executives and key employees of the
General Partner participate in incentive benefit plans established by the
General Partner which provide for the granting of Units and/or cash bonuses upon
meeting performance objectives. See Note 11 to Notes to Combined Financial
Statements.
NOTE 11. RELATED-PARTY TRANSACTIONS
The General Partner has overall responsibility for the management of
the Company. The General Partner has a two percent general partner interest in
the income and cash distributions of the Partnership, subject to certain
adjustments, and owns two percent and four percent interests in Manufacturing
and Marketing, respectively. The Company reimburses the General Partner for the
actual cost of administering its businesses. Amounts reimbursed to the General
Partner for such costs were $5.7 million, $5.6 million and $5.0 million for the
years ended December 31, 1996, 1995 and 1994, respectively.
Effective October 1, 1993, the General Partner established a Long-Term
Incentive Plan ("LTIP") which authorizes granting up to 2,000,000 Unit
Appreciation Rights ("UARs") to certain executives of the General Partner. When
any of five Unit Value Targets ("UVTs") established by the LTIP are met through
a combination of Unit market appreciation plus Partnership cash distributions, a
percentage of the UARs is triggered and Units are credited to the executives'
accounts. The performance period under the LTIP during which UVTs may be met
ends December 31, 1998, at which time any earned Units will be distributed.
Earned Units generally vest at the end of the performance period. Costs incurred
by the General Partner in administering and funding the LTIP are borne by the
Partnership.
The General Partner has granted 1,382,267 UARs, net of forfeitures,
which could result in a total of 695,085 Units being earned under the LTIP if
all UVTs were met. Units in the executives' accounts will earn additional Units
equal to the amount of any subsequent Partnership cash distributions. As of
December 31, 1996, three UVTs had been achieved and 309,737 Units had been
allocated to the executives' accounts. Total compensation expense with respect
to the achievement of these three UVTs will be approximately $8.3 million, of
which $3.1 million, $1.0 million and $0.8 million was recognized in 1996, 1995
and 1994, respectively. The remaining compensation expense of $3.4 million will
be recognized over the remaining performance period ending December 31, 1998.
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41
Effective January 1, 1994, the General Partner established a Key
Employee Long-Term Incentive Plan ("KLTIP") for certain of its other key
employees which authorizes granting up to 500,000 UARs. The KLTIP provisions are
similar to the LTIP described above. The General Partner has granted 391,334
UARs, net of forfeitures, which could result in a total of 196,786 Units being
earned under the KLTIP if all UVTs were met. Units in the participants' accounts
will earn additional Units equal to the amount of any subsequent Partnership
cash distributions. As of December 31, 1996, three UVTs had been achieved and
77,910 Units had been allocated to the key employees' accounts. Total
compensation expense with respect to the achievement of these three UVTs will be
approximately $2.1 million, of which $0.8 million and $0.5 million was
recognized in 1996 and 1995, respectively. The remaining compensation expense of
$0.8 million will be recognized over the remaining performance period ending
December 31, 1998. Costs incurred by the General Partner in administering and
funding the plan are borne by the Partnership.
The Partnership is required under the Partnership Agreement to
reimburse the General Partner for compensation costs related to the management
of the Partnership, including the purchase of Units associated with these
benefit plans. During 1994, the Partnership paid the General Partner for its
purchase of 496,800 Units at a total cost of $12.8 million, of which $10.5
million was funded from current operations and $2.3 million from funds held by
an employee benefit trust of the Partnership.
Effective January 1, 1994, the General Partner established a Management
Incentive Plan ("MIP") for certain executives of the General Partner. An annual
bonus of up to 100% of the respective executive's base salary may be awarded if
certain performance objectives established by the General Partner are met by the
Company and by the executive. One-half of the bonus will be paid annually in
cash and the remaining half will be converted into Units at fair market value
and will be distributed at the end of three years. Units in executives' accounts
will earn additional Units equal to the amount of any subsequent Partnership
cash distributions. Costs incurred in administering and funding the MIP have
been borne by the General Partner.
Net income is allocated to the General Partner based on two percent of
the Company's combined net income (adjusted for the incentive distribution),
plus the incentive distribution, as provided by the Partnership Agreement. The
incentive distributions paid in 1996, 1995 and 1994 were approximately $23.8
million, $20.7 million and $14.4 million, respectively.
Certain conflicts of interest could arise as a result of the
relationships described above. The Board of Directors and management of the
General Partner have a duty to manage the Company in the best interests of the
Unitholders and, consequently, must exercise good faith and integrity in
handling the assets and affairs of the Company. Related non-interest bearing
receivables and payables between the General Partner and the Company are settled
in the ordinary course of business. As of December 31, 1996, the Company had a
receivable from the General Partner of $168,600. As of December 31, 1995, the
Company had a payable to the General Partner of $42,000.
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NOTE 12. COMMITMENTS AND CONTINGENCIES
A portion of the Company's log requirements is acquired through
contracts with public and private sources. Except for required deposits, no
amounts are recorded until such time as the Company harvests the timber. At
December 31, 1996 and 1995, the unrecorded amounts of those contract commitments
were approximately $14.6 million and $18.2 million, respectively. During 1993,
the Partnership entered into a log sourcing contract to sell logs to a customer
over a ten-year period ending in 2003, at prevailing market rates. The
Partnership has an annual commitment to supply pulpwood and residual chips to a
customer for a twenty-year period ending in 2016, at prevailing market rates.
There are no contingent liabilities which would have a materially
adverse effect on the financial position, the results of operations or liquidity
of the Company.
The Company is subject to regulations regarding harvest practices and
is involved in various legal proceedings, including environmental matters,
incidental to its business. While administration of current regulations and any
new regulations or proceedings have elements of uncertainty, the General Partner
believes that none of the pending legal proceedings or regulatory matters will
have a materially adverse effect on the financial position, the results of
operations or liquidity of the Company.
The Company leases buildings and equipment under non-cancelable
operating lease agreements. The Company's operating lease expense was $2.3
million, $2.2 million and $1.8 million for 1996, 1995 and 1994, respectively.
The following summarizes the future minimum lease payments (in thousands):
1997 ............... $ 3,066
1998 ............... 2,636
1999 ............... 1,676
2000 ............... 1,342
2001 ............... 887
Thereafter 2,121
-------
Total .............. $11,728
=======
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NOTE 13. SEGMENT INFORMATION
YEAR ENDED DECEMBER 31,
(In Thousands)
1996 1995 1994
---- ---- ----
Revenues
Resources .................... $ 369,335 $ 327,043 $ 324,426
Manufacturing ................ 387,875 375,677 372,248
Eliminations ................. (123,469) (117,646) (118,017)
----------- ----------- -----------
$ 633,741 $ 585,074 $ 578,657
=========== =========== ===========
Operating Income
Resources .................... $ 163,306 $ 139,192 $ 150,730
Manufacturing ................ 22,516 35,567 32,175
Other and Eliminations ....... (20,834) (15,783) (18,771)
----------- ----------- -----------
$ 164,988 $ 158,976 $ 164,134
=========== =========== ===========
Depreciation, Depletion and
Amortization
Resources .................... $ 36,160 $ 35,394 $ 36,782
Manufacturing ................ 20,785 18,703 17,361
----------- ----------- -----------
$ 56,945 $ 54,097 $ 54,143
=========== =========== ===========
Identifiable Assets
Resources .................... $ 1,098,203 $ 604,510 $ 617,934
Manufacturing ................ 262,380 244,877 247,415
Eliminations ................. (24,149) (23,301) (39,129)
----------- ----------- -----------
$ 1,336,434 $ 826,086 $ 826,220
=========== =========== ===========
Capital Expenditures
Resources .................... $ 6,470 $ 8,481 $ 7,139
Manufacturing ................ 12,810 22,202 18,698
----------- ----------- -----------
$ 19,280 $ 30,683 $ 25,837
=========== =========== ===========
Revenues include both sales to unaffiliated customers and intersegment
sales. Intersegment sales prices are determined quarterly, based upon estimated
market prices and terms in effect at that time and are eliminated in
combination. Intersegment sales from the Resources Segment to the Manufacturing
Segment were $123.5 million, $117.6 million and $118.0 million for 1996, 1995
and 1994, respectively.
Operating income from the Resources Segment includes land sales of
$35.4 million, $1.6 million and $1.9 million, for 1996, 1995 and 1994,
respectively. Combined export revenues, primarily to Pacific Rim countries, as a
percentage of total revenues were 11%, 13% and 15%, for 1996, 1995 and 1994,
respectively. During 1995 and 1994, net sales to one Resources Segment customer
were approximately 10% and 11% of combined revenues, respectively.
Capital expenditures do not include $514.9 million and $45.8 million in
1996 for the Resources Segment and Manufacturing Segment, respectively, related
to the Southern Region
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Acquisition.
NOTE 14. SUBSEQUENT EVENT
On January 21, 1997, the Board of Directors of the General Partner
authorized the Partnership to make a distribution of $0.51 per Unit for the
fourth quarter of 1996. Total distributions will approximate $31.0 million
(including $7.4 million to the General Partner) and will be paid on February 28,
1997 to Unitholders of record on February 14, 1997.
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45
REPORT OF INDEPENDENT ACCOUNTANTS
To the Unitholders and Directors of the General Partner of Plum Creek Timber
Company, L.P.
We have audited the accompanying combined balance sheet of Plum Creek Timber
Company, L.P. as of December 31, 1996 and 1995, and the related combined
statements of income and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Plum Creek Timber
Company, L.P. at December 31, 1996 and 1995, and the combined results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Coopers & Lybrand L.L.P.
Seattle, Washington
January 21, 1997
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46
REPORT OF MANAGEMENT
The management of Plum Creek Timber Company, L.P. is responsible for
the preparation, fair presentation, and integrity of the information contained
in the financial statements in this Annual Report on Form 10-K. These statements
have been prepared in accordance with generally accepted accounting principles
and include amounts determined using management's best estimates and judgements.
The Company maintains a system of internal controls to provide
reasonable assurance that assets are safeguarded and that transactions are
recorded properly to produce reliable financial records. The system of internal
controls includes appropriate divisions of responsibility, established policies
and procedures (including a code of conduct to foster a strong ethical climate)
that are communicated throughout the Company, and careful selection, training
and development of our people. The Company conducts a corporate audit program to
provide assurance that the system of internal controls is operating effectively.
Our independent certified public accountants have performed audit
procedures deemed appropriate to obtain reasonable assurance that the financial
statements are free of material misstatement.
The Board of Directors provides oversight to the financial reporting
process through its Audit and Compliance Committee, which meets regularly with
management, corporate audit, and the independent certified public accountants to
review the activities of each and to ensure that each is meeting its
responsibilities with respect to financial reporting and internal controls.
/s/ RICK R. HOLLEY
Rick R. Holley
President and Chief Executive Officer
/s/ DIANE M. IRVINE
Diane M. Irvine
Vice President and Chief Financial Officer
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SUPPLEMENTARY FINANCIAL INFORMATION
Combined Quarterly Information
(Unaudited)
(In Thousands, Except per Unit)
1996 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr(2)
- - ---- ------- ------- ------- --------
Revenues ....................... $127,694 $138,744 $173,039 $194,264
Operating Income ............... 27,398 32,750 48,449 56,391
Net Income ..................... 15,915 20,977 36,776 149,931
Net Income Allocable
to Unitholders ................ 10,197 15,158 30,198 140,269
Net Income per Unit(1) ......... $ 0.25 $ 0.37 $ 0.75 $ 3.14
1995 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
- - ---- ------- ------- ------- --------
Revenues ....................... $144,094 $139,372 $152,296 $149,312
Operating Income ............... 40,958 36,655 42,382 38,981
Net Income ..................... 28,392 24,534 30,173 27,632
Net Income Allocable
to Unitholders ................ 23,751 18,644 24,170 21,679
Net Income per Unit ............ $ 0.58 $ 0.46 $ 0.60 $ 0.53
(1) Net income per Unit is computed independently for each of the quarters
presented. Therefore, the sum of the quarterly net income per Unit does
not equal the total computed for the year due to the issuance of Units
during the fourth quarter of 1996. See Note 8 to Notes to Combined
Financial Statements.
(2) Included in fourth quarter 1996 results of operations was a gain of $105.7
million related to the Newport Asset Sale.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Items 10. and 11. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
and EXECUTIVE COMPENSATION, Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT and Item 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS will be filed by amendment to this Form 10-K on Form 10-K/A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) THE FOLLOWING DOCUMENTS ARE FILED AS A PART OF THIS REPORT:
(1) FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL INFORMATION
The following combined financial statements of the Company are included
in Part II, Item 8 of this Form 10-K:
Combined Statement of Income .................................... 28
Combined Balance Sheet .......................................... 29
Combined Statement of Cash Flows ................................ 30
Notes to Combined Financial Statements .......................... 31
Report of Independent Accountants ............................... 45
Report of Management ............................................ 46
Supplementary Financial Information ............................. 47
(2) FINANCIAL STATEMENT SCHEDULES
Not applicable.
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(3) 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. Exhibits designated by a positive sign ("+")
indicates management contracts or compensatory plans or
arrangements required to be filed as an exhibit to this report.
INDEX TO EXHIBITS
Exhibit
Designation Nature of Exhibit
2.1 Asset Purchase Agreement Among Plum Creek Timber Company, L.P., Riverwood
International Corporation and New River Timber, LLC, dated August 6, 1996 (Previously
filed as Exhibit 2 to the Current Report on Form 8-K dated August 7, 1996, filed by
Riverwood Holding, Inc., Commission file no. 1-11113, and incorporated herein by
reference).
2.2 Amendment to Asset Purchase Agreement Among Plum Creek Timber Company, L.P.,
Riverwood International Corporation and New River Timber, LLC, dated October 18, 1996
(Form 8-K, File No. 1-10239, filed October 23, 1996).
2.3 Timberland Purchase and Sale Agreement for Newport Unit Timberlands by and between
Plum Creek Timber Company, L.P. as Seller, and Stimson Lumber Company as Purchaser,
dated as of September 27, 1996 (Form 8-K, File No. 1-10239, filed October 23, 1996).
2.4 Mill Asset Purchase and Sale Agreement By and Between Plum Creek Manufacturing, L.P.
as Seller, and Stimson Lumber Company as Purchaser, dated as of September 27, 1996
(Form 8-K, File No. 1-10239, filed October 23, 1996).
3.1 Amended and Restated Agreement of Limited Partnership of Plum Creek Timber Company,
L.P. dated June 8, 1989, as amended and restated through October 17, 1995 (Form 10-Q,
No. 1-10239, for the quarter ended September 31, 1995).
3.2 Certificate of Limited Partnership of Plum Creek Timber Company, L.P., as filed with the
Secretary of State of the state of Delaware on April 12, 1989 (Form S-1, Regis. No.
33-28094, filed May 1989).
4.1 Form of Deposit Agreement by and among Plum Creek Timber Company, L.P. and The First
National Bank of Boston, dated as of May 1989, (Form S-1, Regis. No. 33-28094, filed May
1989).
4.2 Form of Transfer Application (Form S-1, Regis. No. 33-28094, filed May 1989).
4.3 Senior Note Agreement, dated May 31, 1989, 11 1/8 percent Senior Notes due June 8, 2007,
Plum Creek Timber Company, L. P. (Form 10-Q, No. 1-10239, for the quarter ended June
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30, 1989). Amendment No. 1, consent and waiver dated January 1, 1991 to Senior Note
Agreement, dated May 31, 1989, 11 1/8 percent Senior Notes due June 8, 2007, Plum Creek
Timber Company, L.P. (Form 8 Amendment No. 1, for the year ended December 31, 1990).
Amendment No. 2, consent and waiver dated September 1, 1993 to the Senior Note
Agreement (Form 10-K/A, Amendment No. 1, for the year ended December 31, 1993).
Amendment No. 3, Senior Note Agreement Amendment dated May 20, 1994 (Form 10-K/A,
Amendment No. 1, for the year ended December 31, 1994). Senior Note Agreement
Amendment dated May 31, 1996 (Form 10-Q, No. 1-10239, for the quarter ended June 30,
1996).
4.4 Mortgage Note Agreement, dated May 31, 1989, 11 1/8 percent First Mortgage Notes due
June 8, 2007, Plum Creek Manufacturing, Inc. (Form 10-Q, No. 1-10239, for the quarter
ended June 30, 1989). Amendment No. 1, consent and waiver dated January 1, 1991 to
Mortgage Note Agreement, dated May 31, 1989, 11 1/8 percent First Mortgage Notes due
June 8, 2007, Plum Creek Manufacturing, Inc., now Plum Creek Manufacturing, L.P. (Form
8 Amendment No. 1, for the year ended December 31, 1990). Amendment No. 2, consent
and waiver dated September 1, 1993 to the Mortgage Note Agreement (Form 10-K/A,
Amendment No. 1, for the year ended December 31, 1993). Amendment No. 3, Mortgage
Note Agreement Amendment dated May 20, 1994 (Form 10-K/A, Amendment No. 1, for
the year ended December 31, 1994). Amendment to Mortgage Note Agreement dated June
15, 1995 (Form 10-Q, No. 1-10239, for the quarter ended September 30, 1995). Mortgage
Note Agreement Amendment dated May 31, 1996 (Form 10-Q, No. 1-10239, for the quarter
ended June 30, 1996).
4.5 Senior Note Agreement, dated August 1, 1994, 8.73% Senior Notes due August 1, 2009,
Plum Creek Timber Company, L.P. (Form 10-K/A, Amendment No. 1, for the year ended
December 31, 1994). Senior Note Agreement Amendment dated as of October 15, 1995
(Form 10-K, No. 1-10239, for the year ended December 31, 1995). Senior Note Agreement
Amendment dated May 31, 1996 (Form 10-Q, No. 1-10239, for the quarter ended June 30,
1996).
4.6* Senior Note Agreement, dated as of November 13, 1996, $75 million Series A due
November 13, 2006, $25 million Series B due November 13, 2008, $75 million Series C due
November 13, 2011, $25 million Series D due November 13, 2016. See attached exhibit.
10.1* Revolving Credit and Bridge Loan Agreement dated as of October 17, 1996 among Plum
Creek Timber Company, L.P., Bank of America National Trust and Savings Association, as
Agent, and the Other Financial Institutions Party Hereto. See attached exhibit.
10.2* Amended and Restated Revolving Credit Agreement dated as of December 13, 1996 among
Plum Creek Timber Company, L.P., Bank of America National Trust and Savings
Association, as Agent, NationsBank of North Carolina, N.A., as senior co-agent and the
Other Financial Institutions Party Hereto. See attached exhibit.
10.3+ Plum Creek Supplemental Benefits Plan (Form 10-K/A, Amendment No. 1, for the year
ended December 31, 1994). First Amendment to the Plum Creek Supplemental Benefits
Plan (Form 10-Q, No. 1-10239, for the quarter ended September 30, 1995).
10.4+ Long-Term Incentive Plan, Plum Creek Management Company, L.P. (Form 10-K/A,
Amendment No. 1, for the year ended December 31, 1993). First Amendment to the Plum
Creek Management Company, L.P. Long-Term Incentive Plan (Form 10-Q, No. 1-10239,
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for the quarter ended September 30, 1995).
10.5+ Management Incentive Plan, Plum Creek Management Company, L.P.
(Form 10-K/A, Amendment No. 1, for the year ended December 31,
1993).
10.6+ Executive and Key Employee Salary and Incentive Compensation
Deferral Plan, Plum Creek Management Company, L.P. (Form
10-K/A, Amendment No. 1, for the year ended December 31,
1994).
10.7+ Deferred Compensation Plan for Directors, PC Advisory Corp. I
(Form 10-K/A, Amendment No. 1, for the year ended December 31,
1994).
10.8+* Plum Creek Director Unit Ownership and Deferral Plan. See
attached exhibit.
21 Subsidiaries of the Registrant. (Form 8 Amendment No. 1, for
the year ended December 31, 1990).
27* Financial Data Schedule for the year ended December 31, 1996.
See attached exhibit.
(B) REPORTS ON FORM 8-K
The Partnership filed a current report on Form 8-K dated October 11,
1996, in which it reported the Southern Region Acquisition and the Newport
Asset Sale and related pro forma financial information under Item 2 -
Acquisition or Disposition of Assets and Item 7 - Financial Statements and
Exhibits.
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SIGNATURES
Pursuant to the requirements of Section 13 (or 15(d)) 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, L. P.
(Registrant)
By: Plum Creek Management Company, L.P.
as General Partner
BY: /s/ RICK R. HOLLEY
--------------------------------------
Rick R. Holley
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons, in the capacities and on the
dates indicated, on behalf of, as applicable, Plum Creek Management Company,
L.P., the registrant's general partner, and/or PC Advisory Corp. I, the general
partner of the managing general partner of the registrant's general partner.
By /s/ DAVID D. LELAND Chairman of the Board of January 21, 1997
------------------------ Directors, PC Advisory Corp. I
David D. Leland
By /s/ IAN B. DAVIDSON Director, PC Advisory Corp. I January 21, 1997
------------------------
Ian B. Davidson
By /s/ GEORGE M. DENNISON Director, PC Advisory Corp. I January 21, 1997
------------------------
George M. Dennison
By /s/ CHARLES P. GRENIER Executive Vice President, Plum January 21, 1997
------------------------ Creek Management Co., L.P.
Charles P. Grenier Director, PC Advisory Corp. I
By /s/ RICK R. HOLLEY President and Chief Executive January 21, 1997
------------------------ Officer, Plum Creek Management
Rick R. Holley Co., L.P.
Director, PC Advisory Corp. I
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By /s/ WILLIAM E. OBERNDORF Director, PC Advisory Corp. I January 21, 1997
------------------------
William E. Oberndorf
By /s/ WILLIAM J. PATTERSON Director, PC Advisory Corp. I January 21, 1997
------------------------
William J. Patterson
By /s/ JOHN H. SCULLY Director, PC Advisory Corp. I January 21, 1997
------------------------
John H. Scully
By /s/ DIANE M. IRVINE Vice President and Chief January 21, 1997
------------------------ Financial Officer, Plum Creek
Diane M. Irvine Management Co., L.P. (Principal
Financial and Accounting Officer)
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INDEX TO 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. Exhibits designated by a positive sign
("+") indicates management contracts or compensatory plans or arrangements
required to be filed as an exhibit to this report.
Exhibit
Designation Nature of Exhibit
2.1 Asset Purchase Agreement Among Plum Creek Timber Company, L.P., Riverwood International
Corporation and New River Timber, LLC, dated August 6, 1996 (Previously filed as Exhibit 2 to the
Current Report on Form 8-K dated August 7, 1996, filed by Riverwood Holding, Inc., Commission
file no. 1-11113, and incorporated herein by reference).
2.2 Amendment to Asset Purchase Agreement Among Plum Creek Timber
Company, L.P., Riverwood International Corporation and New
River Timber, LLC, dated October 18, 1996 (Form 8-K, File No.
1-10239, filed October 23, 1996).
2.3 Timberland Purchase and Sale Agreement for Newport Unit Timberlands by and between Plum Creek
Timber Company, L.P. as Seller, and Stimson Lumber Company as Purchaser, dated as of September
27, 1996 (Form 8-K, File No. 1-10239, filed October 23, 1996).
2.4 Mill Asset Purchase and Sale Agreement By and Between Plum Creek Manufacturing, L.P. as Seller,
and Stimson Lumber Company as Purchaser, dated as of September 27, 1996 (Form 8-K, File No.
1-10239, filed October 23, 1996).
3.1 Amended and Restated Agreement of Limited Partnership of Plum Creek Timber Company, L.P.
dated June 8, 1989, as amended and restated through October 17, 1995 (Form 10-Q, No. 1-10239,
for the quarter ended September 31, 1995).
3.2 Certificate of Limited Partnership of Plum Creek Timber Company, L.P., as filed with the Secretary
of State of the state of Delaware on April 12, 1989 (Form S-1, Regis. No. 33-28094, filed May 1989).
4.1 Form of Deposit Agreement by and among Plum Creek Timber Company, L.P. and The First National
Bank of Boston, dated as of May 1989, (Form S-1, Regis. No. 33-28094, filed May 1989).
4.2 Form of Transfer Application (Form S-1, Regis. No. 33-28094, filed May 1989).
4.3 Senior Note Agreement, dated May 31, 1989, 11 1/8 percent Senior Notes due June 8, 2007, Plum
Creek Timber Company, L. P. (Form 10-Q, No. 1-10239, for the quarter ended June 30, 1989).
Amendment No. 1, consent and waiver dated January 1, 1991 to Senior Note Agreement, dated May
31, 1989, 11 1/8 percent Senior Notes due June 8, 2007, Plum Creek Timber Company, L.P. (Form
8 Amendment No. 1, for the year ended December 31, 1990). Amendment No. 2, consent and waiver
dated September 1, 1993 to the Senior Note Agreement (Form 10-K/A, Amendment No. 1, for the
year ended December 31, 1993). Amendment No. 3, Senior Note Agreement Amendment dated May
20, 1994 (Form 10-K/A, Amendment No. 1, for the year ended December 31, 1994). Senior Note
Agreement Amendment dated May 31, 1996 (Form 10-Q, No. 1-10239, for the quarter ended June
30, 1996).
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4.4 Mortgage Note Agreement, dated May 31, 1989, 11 1/8 percent First Mortgage Notes due June 8,
2007, Plum Creek Manufacturing, Inc. (Form 10-Q, No. 1-10239, for the quarter ended June 30,
1989). Amendment No. 1, consent and waiver dated January 1, 1991 to Mortgage Note Agreement,
dated May 31, 1989, 11 1/8 percent First Mortgage Notes due June 8, 2007, Plum Creek
Manufacturing, Inc., now Plum Creek Manufacturing, L.P. (Form 8 Amendment No. 1, for the year
ended December 31, 1990). Amendment No. 2, consent and waiver dated September 1, 1993 to the
Mortgage Note Agreement (Form 10-K/A, Amendment No. 1, for the year ended December 31,
1993). Amendment No. 3, Mortgage Note Agreement Amendment dated May 20, 1994 (Form 10-
K/A, Amendment No. 1, for the year ended December 31, 1994). Amendment to Mortgage Note
Agreement dated June 15, 1995 (Form 10-Q, No. 1-10239, for the quarter ended September 30,
1995). Mortgage Note Agreement Amendment dated May 31, 1996 (Form 10-Q, No. 1-10239, for
the quarter ended June 30, 1996).
4.5 Senior Note Agreement, dated August 1, 1994, 8.73% Senior Notes due August 1, 2009, Plum Creek
Timber Company, L.P. (Form 10-K/A, Amendment No. 1, for the year ended December 31, 1994).
Senior Note Agreement Amendment dated as of October 15, 1995 (Form 10-K, No. 1-10239, for the
year ended December 31, 1995). Senior Note Agreement Amendment dated May 31, 1996 (Form
10-Q, No. 1-10239, for the quarter ended June 30, 1996).
4.6* Senior Note Agreement, dated as of November 13, 1996, $75 million Series A due November 13,
2006, $25 million Series B due November 13, 2008, $75 million Series C due November 13, 2011,
$25 million Series D due November 13, 2016. See attached exhibit.
10.1* Revolving Credit and Bridge Loan Agreement dated as of October 17, 1996 among Plum Creek
Timber Company, L.P., Bank of America National Trust and Savings Association, as Agent, and the
Other Financial Institutions Party Hereto. See attached exhibit.
10.2* Amended and Restated Revolving Credit Agreement dated as of December 13, 1996 among
Plum Creek Timber Company, L.P., Bank of America National Trust and Savings Association,
as Agent, NationsBank of North Carolina, N.A., as senior co-agent and the Other Financial
Institutions Party Hereto. See attached exhibit.
10.3+ Plum Creek Supplemental Benefits Plan (Form 10-K/A, Amendment No. 1, for the year ended
December 31, 1994). First Amendment to the Plum Creek Supplemental Benefits Plan (Form 10-Q,
No. 1-10239, for the quarter ended September 30, 1995).
10.4+ Long-Term Incentive Plan, Plum Creek Management Company, L.P. (Form 10-K/A, Amendment No.
1, for the year ended December 31, 1993). First Amendment to the Plum Creek Management
Company, L.P. Long-Term Incentive Plan (Form 10-Q, No. 1-10239, for the quarter ended
September 30, 1995).
10.5+ Management Incentive Plan, Plum Creek Management Company, L.P. (Form 10-K/A, Amendment
No. 1, for the year ended December 31, 1993).
10.6+ Executive and Key Employee Salary and Incentive Compensation Deferral Plan, Plum Creek
Management Company, L.P. (Form 10-K/A, Amendment No. 1, for the year ended December 31,
1994).
10.7+ Deferred Compensation Plan for Directors, PC Advisory Corp. I (Form 10-K/A, Amendment No. 1,
for the year ended December 31, 1994).
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10.8+* Plum Creek Director Unit Ownership and Deferral Plan. See attached exhibit.
21 Subsidiaries of the Registrant. (Form 8 Amendment No. 1, for the year ended December 31, 1990).
27* Financial Data Schedule for the year ended December 31, 1996. See attached exhibit.
56