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 2.0 million acres of timberland and ten wood products conversion facilities in Montana, Washington and Idaho. 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.
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 12 of Notes to Combined Financial Statements.
RESOURCES SEGMENT
GENERAL. The Resources Segment consists of approximately 2.0 million acres of timberland in the Pacific Northwest (the "Timberlands"). The Timberlands are geographically segregated into two regions, the Cascade Region in western Washington, and the Rocky Mountain Region in western Montana, northern Idaho and eastern Washington. At December 31, 1995, the 2.0 million acres of Timberland contained an estimated timber inventory of 10.1 billion board feet ("BBF") of standing timber of which 2.2 BBF and 7.9 BBF were located in the Cascade and Rocky Mountain Regions, respectively.
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 following summarizes the major components of the Resources Segment's operating income:
Operating income from export log sales decreased primarily due to a decrease in sales volume. The decrease in sales volume was due to shifting lower quality export logs to domestic markets, as a result of a weaker Japanese economy, and a planned decrease in harvest levels. Export log revenues represented approximately 10%, 12% and 14% of combined revenues for 1995, 1994 and 1993, respectively. Operating income from domestic log sales decreased in 1995 due to a decrease in sales prices resulting primarily from weaker lumber markets. Operating income in 1994 from domestic log sales increased from 1993 primarily due to increased sales volume and higher prices. The increase in sales volume was due to higher harvest levels as a result of the Montana Timberland Acquisition (see below). Higher prices in 1994 were attributed to timber supply constraints as well as increased wood product demand. Domestic log revenues represented approximately 21%, 22% and 19% of combined revenues for 1995, 1994 and 1993, respectively. In 1995, the Partnership implemented an in-woods chipping operation, which utilizes the small tops of trees and small trees from thinning operations, due to the strength of the pulp markets. Pulp log and wood chip sales contributed an additional $7.0 million to operating income in 1995. Prior to 1995, operating income from pulp log sales was insignificant. Land sales contributed $1.6 million, $1.9 million and $7.7 million to operating income in 1995, 1994 and 1993, respectively. Land sales have declined, primarily due to the Partnership's strategy of deferring land sales until the completion of state and county growth management processes.
CASCADE REGION. The Cascade Region consists of approximately 330,000 acres of timberland. Approximately 38% of the total timber harvest in the Cascade Region (compared to 47% and 49% in 1994 and 1993) was sold for export to Pacific Rim countries, principally Japan. Logs not sold for export were sold to domestic mills owned by third parties, as the Company does not own mills in the Cascade Region. Logs sold for export are generally of higher quality than logs sold into the domestic market. Sales of export logs decreased as a relative percentage of total sales in 1995, as compared to 1994, due to the shifting of lower quality export logs into domestic markets as a result of a weaker export market.
ROCKY MOUNTAIN REGION. The Rocky Mountain Region consists of approximately 1,712,000 acres of timberland. During 1995, 59% of the total timber harvest in the Rocky Mountain Region was sold to the Manufacturing Segment (compared to 58% and 59% in 1994 and 1993, respectively), with the remainder sold to third-party domestic mills.
On November 1, 1993, the Partnership purchased approximately 865,000 acres of timberland and other timber related assets (the "Montana Timberland Acquisition") from Champion International Corporation for approximately $260 million. These timberlands are located in western Montana in close proximity to existing Company assets. Management believes the Montana
Timberland Acquisition provides operating flexibility by allowing Manufacturing to be more self-sufficient from a raw material standpoint.
Simultaneous to the Montana Timberland Acquisition, the Partnership entered into a log sourcing agreement with Stimson Lumber Company ("Stimson") to supply Stimson's Montana mills with 950 million board feet ("MMBF") of logs, at prevailing market prices, over a ten year period ending in 2003. At December 31, 1995, the Partnership had a remaining commitment of approximately 703 MMBF.
TIMBER MANAGEMENT STRATEGY. The Partnership's resource operations involve timber management and harvesting operations, which include road construction and reforestation, as well as wildlife and watershed management. These activities are based on data concerning tree species, site productivity indices as to the type and number of trees by size and age classification, classification of soils, stocking per acre, and information on forest management costs. From this data, coupled with current economic and market conditions, the Partnership develops its annual harvesting plan based upon silvicultural considerations, balancing ecological demands of the forest with a view toward maximizing the value of its timber and timberland assets.
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 100% of its Timberlands. Environmental Forestry attempts to better protect and maintain the ecosystem while providing for a reasonable harvest. As a part of this, the Partnership has adopted a technique, used on a portion of the Timberlands, which prescribes retention of a mix of green and dead trees at the harvest site, including some large trees, snags and downed logs to enrich and protect the soil for successive generations of trees, and to provide habitat for a variety of wildlife species. The Partnership intends to continue to expand as appropriate, this component of Environmental Forestry.
The Partnership's forestry operations encompass a variety of climatic conditions, topographic features and vegetation types. Particular forestry practices vary by geographic region and depend upon factors such as soil productivity, tree size, age and stocking. For instance, harvesting on steep slopes or during wet seasons is often done using cable yarding systems to prevent damage to soils. Harvesting methods include a variety of partial removals such as seed trees, shelterwood, overstory removal and selective harvests, as well as sometimes clear-cutting. The method chosen depends on tree species, terrain, visual concerns and regeneration objectives. Forest stands may be thinned periodically to improve growth and stand quality until they are harvested. Environmental factors, such as length of growing season, also affect the period of time between harvest. This period, called rotation, can be as short as 40 years in the Cascade Region and as long as 80 years in the Rocky Mountain Region.
Different areas within a forest may be planted or seeded in successive years to provide a variety of age classes within the forest. A variety of age classes tends to provide a regular source of cash flow as the various timber stands within the forest reach harvestable age. The timing of harvests of merchantable timber depends in part on maturity cycles and in part on economic conditions. The Partnership will continue to develop its forest management operations to take
advantage of technological, biological and genetic advances to improve timber yields to the greatest extent possible. The Partnership's forestry practices now include thinning of some timber stands, controlled burning, fertilization of timber plantations where cost effective, disease and pest control and reforestation.
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 in the Rocky Mountain Region. During 1995, the Partnership planted over 4.7 million seedlings, mostly in the Cascade Region where about 95% of the reforestation is done by planting. Seedlings, which are from one to three years old when planted, are obtained partially from Plum Creek's nursery in Pablo, Montana.
The Partnership manages its forest inventory with the use of a computerized timber inventory system. The timber inventory is calculated using statistical information obtained by physical measurements, site maps and photo-types. In addition, the system incorporates estimates related to growth which considers species, topographical information, soil types, and other factors, as well as specifications on merchantability. During 1993, 1994 and 1995, the Partnership implemented Geographical Information Systems ("GIS") to further enhance timber management activities. The GIS stores spatial and attribute data related to the Timberlands and provide a wide array of mapping and analytical tools. Various data bases include geographic information, species, volume and diameter specifications for each site.
Forests are subject to a number of natural hazards, including damage by fire, insects and diseases. 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 Timberlands, as well as the Partnership's forest management practices, should help 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.
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 lumber mill and a wood chip plant in Washington, collectively known as the "Conversion Facilities". The 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 the traditional housing related markets. In addition, in order to enhance customer service and
provide prompt deliveries, Marketing has established a network of 39 independent warehouses located strategically throughout the United States.
The lumber remanufacturing facility was constructed in 1994. This plant produces finger-jointed lumber for the home center market. Finger-jointing is an engineered process which produces usable lumber by connecting short pieces of lumber formerly sold as lower value lumber products or relegated to the wood chipper and sold as a lower valued by-product.
RAW MATERIALS. Manufacturing obtains the majority of its raw logs from the Partnership's Timberlands. The Resources Segment provided 73%, 63%, and 51% of Manufacturing's raw log needs in 1995, 1994 and 1993, respectively. The increase in sourcing from the Resources Segment was primarily due to increased harvest levels as a result of the Montana Timberland Acquisition. The price of logs obtained from the Partnership is determined quarterly based upon estimated market prices and terms in effect at the time.
Manufacturing has and will continue to purchase stumpage and logs from external sources, which include the United States Forest Service ("USFS"), Bureau of Indian Affairs ("BIA"), Bureau of Land Management ("BLM") and state and private timberland owners. At December 31, 1995 and 1994, Manufacturing had 75 MMBF and 100 MMBF, respectively, of timber under contract from external sources which may be harvested over the next three years. The USFS harvest plan, which includes volume from the recent salvage legislation, is expected to provide for a 1996 harvest of 350 MMBF in the geographic area of the Conversion Facilities. However, due in part to legal challenges and changes in public policy, the USFS will most likely sell less than that 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 545 MMBF of timber is expected to be made available annually from other sources. 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".)
PRODUCTS AND MARKETS
LUMBER. Manufacturing produces a diverse line of lumber products, including boards and studs which are manufactured at two studmills, three random-length lumber mills and a lumber remanufacturing plant. For the years ended December 31, 1995, 1994 and 1993 these mills produced 433 MMBF, 388 MMBF, and 352 MMBF of lumber, respectively. Production increased in 1995 and 1994 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 combined revenues for 1995, 1994 and 1993.
The Manufacturing Segment targets its lumber sales towards domestic lumber retailers, such as retail home center chains, for use in repair and remodeling projects. Value-added products 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. In 1995, 61% of Manufacturing's lumber products were sold into retail markets, 18% to industrial and remanufactured product markets, 17% to stocking distributors and 4% to export markets. These amounts compare to 62%, 20%, 12% and 6% for these same markets, respectively, in 1994.
PLYWOOD. Manufacturing produces high-grade plywood which is primarily sold into specialized industrial markets. Plywood products are manufactured at the Company's two plywood facilities. For the years ended December 31, 1995, 1994 and 1993 the plywood plants produced 294 million square feet ("MMSF") (3/8" basis), 290 MMSF, and 289 MMSF of plywood, respectively. Plywood product revenues represented 18%, 17% and 18% of combined revenues in 1995, 1994 and 1993, respectively. 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 1993 and 1994, automated layup lines were installed in the plywood plants. These lines have increased productivity, enhanced wood recovery and produced a superior product for the industrial markets served.
During 1995 and 1994, 71% and 80%, respectively, of Manufacturing's plywood products were sold in specialty industrial markets, including carpet strip, recreational boat, recreational vehicle and fiberglass-reinforced panel markets. The decrease in sales to industrial markets was the result of relative weakness in the industrial markets as a result of high field inventory levels and extended downtime in the recreational vehicle and recreational boat markets during model year changes. Manufacturing's plywood products are generally of higher quality and value than commodity construction grade products, which makes them more valuable in these specialty niche markets.
MEDIUM DENSITY FIBERBOARD. Manufacturing produces MDF products which are primarily sold to distributors, commercial store fixture producers, furniture manufacturers and molding manufacturers. During 1995, the manufacturing process was redesigned to produce MDF2, a higher quality MDF product that can be machined and finished more efficiently. For the years ended December 31, 1995, 1994 and 1993 the plant produced 102 MMSF (3/4" basis), 123 MMSF, and 106 MMSF of MDF, respectively. The decrease in production in 1995 was the result of downtime associated with issues encountered during the start-up of new high-energy refiners for our new MDF2 product and deterioration in demand. The increased production volume in 1994 was due to improvements in the production process. The 1993 production was down slightly due to a February fire at the plant which caused production delays.
The Manufacturing Segment supplies high quality MDF to markets primarily in North America and Pacific Rim countries. In 1995, the Manufacturing Segment sold approximately 50% of its MDF directly to domestic industrial manufacturers or fabricators, 30% to stocking distributors, 14% into overseas export markets, primarily Pacific Rim countries, and 6% to retail and other markets. These amounts compare to 47%, 32%, 17% and 4% to the same markets, respectively, in 1994.
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 297 thousand
bone dry tons ("MBDT"), 288 MBDT and 257 MBDT of chips in 1995, 1994 and 1993, respectively. Residual wood chip sales volume has increased annually due to increased lumber and plywood production and increased chip recoveries.
Manufacturing also produces wood chips at its Cle Elum, Washington chip plant. The chip plant produced 38 MBDT, 54 MBDT and 76 MBDT in 1995, 1994 and 1993, respectively. The decrease in production in 1995 resulted from production curtailments for approximately five months due to log supply shortages. The decrease in production in 1994 was caused by halting production for three months due to log supply shortages in the chip market.
SEASONALITY
Domestic log sales volumes 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. Revenues from export log sales are affected in part by variations in inventory 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, industrial and repair and remodeling markets is slower, and higher in the spring and summer quarters when these markets are more active. Working capital varies with seasonal fluctuations. Log inventories increase 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. In July 1990, the United States Fish and Wildlife Service ("USFWS") listed the Northern Spotted Owl ("Owl") as a threatened species throughout its range in Washington, Oregon and California under the federal Endangered Species Act ("ESA").
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. These Guidelines were rescinded in response to an industry lawsuit, but continue to serve as the basis for USFWS enforcement of the ESA. The Guidelines impose several requirements, including the restriction and preclusion of harvest activities in areas within a 1.8 mile radius (approximately 6,600 acres) of known nest sites or activity centers for pairs of Owls or territorial single Owls ("Activity Areas"). Under the Guidelines, at least 40% in the aggregate of the area within Activity Areas has to be maintained as suitable Owl habitat. In addition, 70 acres immediately around nest sites have to be preserved.
In June 1992, the Washington State Forest Practices Board (the "Board") adopted temporary regulations related to all forest practice applications ("FPAs") which require that FPAs comply with the Washington State Environmental Policy Act ("SEPA") for all activities within the 500 acres of habitat surrounding nest sites or activity centers. In November 1995, the Forest Practices Board adopted a final Owl rule that will take effect in July 1996. Until the final rule takes effect, the temporary rule will govern. Under the final rule, restrictions substantially similar to those contained in the Guidelines would apply in designated Owl special emphasis areas ("SEAs"). Outside of SEAs, only 70 acres surrounding Activity Areas would be protected during the breeding season only. As a result, the final rule will result in the same level of regulation on areas within SEAs and fewer restrictions on the Partnership's activities in areas outside of SEAs due to the Owl. Approximately 60% of the Partnership's lands in the Cascade Region are within SEAs.
In February 1995, the USFWS announced that it is proposing to draft a special rule ("Special Rule") to redefine private landowner obligations with regard to Owls under the ESA. The final Washington state Owl rule is expected to form the basis for the Special Rule in Washington state.
On July 16, 1993, the Clinton Administration proposed a new forest policy (the "Forest Plan") that would substantially reduce harvest from public lands in Owl forests and provide for the conservation of the Owl and numerous other species. In December 1994, the Forest Plan was approved by a Federal District Court.
IMPACT OF REGULATIONS ON PARTNERSHIP. Under the Guidelines issued by the USFWS in 1990, approximately 111,000 acres of the 330,000 acres in the Partnership's Cascade Region lie within Activity Areas. Compliance with the ESA and SEPA is causing delays and in some cases modification of Partnership FPAs in Owl Activity Areas and may cause denials of future Partnership FPAs.
In October 1995, the Partnership formally applied for a multi-species, 50 year permit under the ESA from the USFWS and the National Marine Fisheries Service ("NMFS") that would cover the Partnership's forest management on 170,000 acres within SEAs in the Cascade Region (the "Planning Area"). As a part of the permit application, the Partnership prepared a habitat
conservation plan ("HCP") that would govern the Partnership's management activities in the Planning Area. The Partnership expects to receive the permit in the second quarter of 1996, following completion of the public review process. There are, however, no assurances that the permit will ultimately be issued by the USFWS and NMFS.
The permit, if issued, would authorize the incidental take in the Planning Area of the Owl, Marbled Murrelet, Grizzly Bear and Gray Wolf, which are currently listed under the ESA, as well as numerous other species should they become listed during the term of the permit. In addition, as an incentive to the Partnership to create additional wildlife habitat in the Planning Area, the permit may extend for an additional 50 years if wildlife habitat exceeds levels authorized in the HCP. The permit thus would provide long-term certainty and predictability to the Partnership's harvest activities. Under the ESA, the permit may allow impacts on species incidental to normal management activities in exchange for mitigating measures agreed to by the landowner in the HCP. The restrictions in the HCP would replace restrictions for Owls under the final Washington state Owl rule, the Guidelines, the Special Rule, if adopted, and SEPA.
The ESA also prohibits the federal government from causing jeopardy to species listed under the ESA or from destroying or adversely modifying their designated critical habitat. Private landowners are potentially affected by this restriction 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 NMFS, in the case of anadromous fish, to determine that the proposed activity would not cause jeopardy to the listed species or cause direct or indirect adverse modification of its designated critical habitat. If the landowner's proposed activity would cause jeopardy, the USFWS or NMFS must propose, where possible, alternatives or modifications to the proposed activity. The Partnership's 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. Thus, access across federal lands to certain of the Partnership's Timberlands in such areas has been, and is likely to continue to be, delayed by the administrative process and legal challenges and may be subjected to restriction under the ESA.
In December 1995, the Company entered into a Grizzly Bear Conservation Agreement with the USFWS, the USFS, and the state of Montana covering 370,000 acres in the Swan Valley in western Montana. Under this agreement, the Company has received a permit that authorizes incidental take of Grizzly Bears in the Swan Valley. Moreover the agreement will facilitate future consultations with the USFWS over road access projects and land exchanges in the Swan Valley.
The ultimate impact of the Owl listing, as well as listings of additional species under the ESA, on the Partnership will depend on (i) the number of Activity Areas actually found on or near Partnership Timberlands, (ii) the availability and amount of suitable habitat within individual Activity Areas, (iii) the outcome of the Clinton Administration's forest policy, (iv) future regulations and restrictions placed on private and public lands, (v) promulgation, interpretation and application of wildlife regulations by both the USFWS (including the proposed Special Rule) and the Washington State Department of Natural Resources, (vi) the outcome of the Partnership's efforts to obtain a multi-species permit from the USFWS and NMFS, (vii) the impact of reduced harvests upon stumpage prices, and (viii) the outcome of litigation.
Although the continuing uncertainty surrounding efforts to conserve the Owl make it difficult to assess the future impact of the Owl listing on the Partnership, at this time the General Partner does not believe that federal and state laws and regulations related to the Owl will have a materially adverse effect on the financial position of the Company, its results of operations or liquidity. There can be no assurances, however, that (i) future interpretation or administration of current laws and regulations, (ii) changes in laws or regulations, (iii) increases in the number of Owls on or near Partnership lands, or (iv) decreases in suitable habitat adjacent to Partnership lands will not adversely affect the operations, financial position or liquidity of the Company.
The General Partner anticipates that increasingly strict laws and regulations relating to the environment, natural resources, forestry operations, and health and safety matters, as well as increased social concern over environmental issues, may result in additional restrictions on the Company causing 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". To win 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. The Partnership's sourcing area may, therefore, be reviewed in 1996.
In October 1995, the USFS issued final regulations implementing the 1990 legislation that could have made it more difficult to obtain sourcing areas. These regulations, 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. 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 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 three states, two of which (Idaho 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 for 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 1995 taxable income is expected to qualify for capital gains treatment.
ENCUMBRANCES
Under the terms of the Senior Notes due 2007, the Senior Notes due 2009 and the Lines of Credit, 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 substantially all 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 includes the related hard rock mineral interests. However, the Partnership did not obtain the hard rock mineral interests to 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.
COMPETITION
RESOURCES SEGMENT. In export log markets, the Partnership competes with other U.S. companies, Chile, New Zealand, Russia, Canada and Scandinavia, all of which have abundant timber resources. Competitive factors generally will include price, species and grade and ability to meet delivery requirements.
In domestic log markets, the Partnership competes with numerous private land and timber owners in the Northwestern U.S. and the states of Idaho, 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 U.S. Government, principally the USFS and the BLM, and the BIA.
Timber supplied from the U.S. Government, Washington and Oregon land is restricted from export, and is sold solely into domestic markets. (See Federal and State Regulations.)
Domestic wood and fiber consuming facilities tend to purchase raw materials within relatively small geographic areas, generally within a 200 mile radius, due to log transportation costs. Competitive factors within a market area generally will include price, species and grade, proximity to wood consuming facilities and ability to meet delivery requirements.
MANUFACTURING SEGMENT. Markets for forest products are highly competitive in terms of price and quality. The Manufacturing Segment competes in domestic lumber markets primarily with other U.S. and Canadian companies. Canadian lumber producers have increased their penetration into the U.S. market due to their low cost advantage and favorable exchange rates. The U.S. and Canadian governments are currently negotiating a timber trade agreement which may result in less favorable exporting conditions for Canadian producers. The lumber market is also subject to competition from substitute products, primarily in shelving, window and door markets. The Manufacturing Segment competes in the Japanese lumber market primarily with Japanese, Canadian, Russian and Scandinavian companies. The domestic plywood market is characterized by numerous large and small producers and is subject to competition from oriented strand board and waferboard, which are less expensive, but generally lower quality substitutes. Significant capacity expansion of oriented strand board production is planned in 1996. The Manufacturing Segment competes in domestic MDF markets primarily with other U.S. and Canadian companies that produce high quality MDF. Significant MDF capacity expansion is planned in this market in 1996. Competition in export markets primarily consists of Japanese, Korean and Malaysian companies.
Competition in the markets for commodity-grade lumber and plywood is primarily based on pricing strategies. Sales in specialty niche industrial markets and retail markets are strongly influenced by product quality, customer service, efficiency of distribution and the ability to supply products in the future, in addition to price. The ability to provide companion products and a variety of substitute products is also used as a marketing strategy for certain products. MDF producers typically compete on a global scale. Accordingly, sales are generally determined by price, product quality and level of customized services the producer can provide, rather than by geographic location.
EMPLOYEES
The Company currently has approximately 350 salaried and 1,500 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. The Company's employees are not unionized. The harvesting and delivery of logs are conducted by independent contractors who are not employees of the Company.
ITEM 2.

ITEM 2. PROPERTIES
The Company believes that its Timberlands and Conversion Facilities are suitable and adequate for current operations. The Conversion Facilities are modern, state of the art operations maintained through on-going capital investments, regular maintenance and equipment upgrades. The Company owns substantially all of the Conversion Facilities. All of the Conversion Facilities are operated at near maximum capacity levels year round. See Item 1. Business for discussion of the location and description of properties and encumbrances related to properties.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
On June 7, 1995, the Company received a Compliance Order ("Order") from the Environmental Protection Agency ("EPA") under the Clean Air Act. The Order alleges that the installation in 1990 of a boiler at the Company's Pablo sawmill did not undergo new source performance review. Work on the boiler project commenced in March of 1989, when the applicable regulation did not require a review. Prior to final installation of the boiler, however, new rules were proposed that required such review. The EPA has taken the position that the new rules applied, and is seeking compliance with the new source performance standards. To help resolve this issue, Plum Creek voluntarily installed both a pollution control device on the boiler and an opacity monitor in December 1995 and is in full compliance with the Order.
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.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.

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 January 31, 1996, there were approximately 53,400 beneficial owners of 40,608,300 outstanding Units.
Trading price data, as reported by the New York Stock Exchange, and declared cash distribution information for 1995 and 1994 are as follows:
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.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
(1) Revenues and fee timber harvest increased in 1995 and 1994 in part due to the November 1993 Montana Timberland Acquisition.
(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 DPIs (on a pre-Unit split basis) for $63.0 million.
(3) Per Unit amounts have been restated for the December 6, 1993 three-for-one Unit split.
(4) Included in 1993 capital expenditures was $255.3 million paid for the timberlands acquired as part of the Montana Timberland Acquisition.
(5) 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.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
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 2.0 million acres of timberland and ten wood products conversion facilities in Montana, Washington and Idaho. 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. "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.
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.
CURRENT MARKET CONDITIONS. Prices for domestic logs in the Cascade Region for 1995 increased from levels experienced in 1994, primarily as a result of strong pulp and paper markets competing for logs in the domestic market during the first three quarters of the year and the diverting of export quality logs to the domestic market during the second half of the year as a result of a weakening Japanese market. At year-end 1995, Douglas-fir prices were holding steady due to a lack of supply, and whitewood prices were declining as a result of falling chip prices. Domestic log prices in the Rockies Region were lower than prices experienced in 1994, as a result of weaker lumber markets, aggressive competition from Canadian lumber producers and a fourth quarter decline in both commodity plywood prices and chip prices. Export log prices for 1995 increased slightly over 1994 prices as a result of the diversion of lower quality export logs to the domestic market and near record high price levels in the first quarter of 1995 due to low inventory levels in Japan and the U.S. west coast. At year end, there was upward price pressure on export logs due to the short supply of logs in both Japan and the U.S. west coast.
Industry composite indices for lumber commodity prices were 18% lower in 1995 than in 1994. The decrease in prices was primarily due to relative weakness in the housing market, aggressive pricing and competition from Canadian lumber producers, and increased competition from substitutes. Industry composite indices for plywood commodity prices and prices for MDF
in 1995 approximately equaled levels experienced in 1994. Commodity plywood prices began declining during the fourth quarter due to a slowing housing market and the significant oriented strand board capacity expansion projected in 1996. MDF prices have fallen significantly as compared to price levels at year-end 1994 due to a decline in demand for ready-to-assemble furniture as a result of lower repair & modeling activity, high end-user inventories, and capacity expansion by Pacific Rim manufacturers. Prices for pulp logs and chips improved significantly during the first and second quarter of 1995 due to strong pulp and paper markets. Prices peaked during the summer and have since retreated due to the oversupply of logs and chips that was brought on by these higher prices.
FINANCIAL CONDITION AND LIQUIDITY
Net cash provided by operating activities was $165.2 million, $155.1 million and $115.3 million for 1995, 1994 and 1993, respectively. 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 1995. Future funding of these benefit plans is contingent on meeting targets as defined in the plans. For further discussion of these benefit plans, see Note 10 of Notes to Combined Financial Statements. On December 31, 1995, the Company had $87.6 million of cash and cash equivalents.
The Partnership has two unsecured revolving lines of credit ("Lines of Credit") with a group of banks that permit the Partnership to borrow up to $135 million for general corporate purposes, including up to $5 million of standby letters of credit issued on behalf of the Partnership or Manufacturing. The Lines of Credit bear a floating rate of interest. One line of credit allows the Partnership to borrow $100 million through October 31, 2000, of which $82.5 million was outstanding at December 31, 1995. The other line of credit allows the Partnership to borrow $35 million through October 28, 1996 (any borrowings outstanding at that time are payable in quarterly installments, at the option of the Partnership, due January 1997 through October 1998), of which $15 million was outstanding at December 31, 1995. As of December 31, 1995, there were letters of credit outstanding in the amount of $0.8 million. Borrowings on the Lines of Credit fluctuate daily based on cash needs. As of January 4, 1996, all borrowings on the Lines of Credit were repaid.
The Company's long-term debt agreements and Lines of Credit contain certain restrictive covenants, including limitations on harvest levels, sale of assets, cash distributions and the amount of future indebtedness. The Company was in compliance with such covenants as of December 31, 1995 and 1994. The First Mortgage Notes limit distributions from the Manufacturing Segment to the Partnership.
The Partnership will distribute $0.49 per Unit for the fourth quarter of 1995. The distribution will equal $25.9 million (including $6.0 million to the General Partner), and will be paid on March 1, 1996 to Unitholders of record on February 15, 1996. The computation of cash available for distribution includes a required reserve 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 or 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 current funds and cash generated from operations.
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 $8.5 million, $7.1 million and $260.5 million for 1995, 1994 and 1993, respectively. Resources Segment capital expenditures included the construction of logging roads and reforestation. Resources Segment capital expenditures for 1993 included $255.3 million of timberlands purchased as part of the Montana Timberland Acquisition, as well as construction of logging roads and reforestation. Capital expenditures for the Manufacturing Segment were $22.2 million, $18.7 million and $24.1 million for 1995, 1994 and 1993, respectively. Manufacturing Segment capital expenditures in 1995 included a project in the MDF plant to produce Super-Refined MDF2, a higher quality MDF product that can be machined and finished more efficiently, adding significant value to the MDF product line, air quality pollution control equipment at the MDF plant, various lumber and plywood value-added projects, and equipment upgrades to meet environmental requirements.
Planned capital expenditures for the Resources Segment in 1996 are $9 million, primarily for logging roads and reforestation. The Manufacturing Segment's 1996 planned capital expenditures are $11 million which includes 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.
RESULTS OF OPERATIONS
The following table compares operating income by segment for the years ended December 31, 1995, 1994 and 1993.
Operating Income by Segment (In Thousands)
1995 COMPARED TO 1994
Resources Segment revenues were $327.0 million and $324.4 million for the years ended 1995 and 1994, respectively. Revenues were $2.6 million higher in 1995, 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 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, as compared to 1994, decreased by 8%. The decrease was attributable entirely to the Rockies Region and was due to weak lumber markets and aggressive competition from Canadian lumber producers.
Resources Segment costs and expenses were $187.8 million and $173.7 million for the years ended 1995 and 1994, respectively. Costs and expenses were $14.1 million higher in 1995 primarily due to the costs relating to higher volumes of pulpwood and chip sales.
Manufacturing Segment revenues were $375.7 million and $372.2 million for the years ended 1995 and 1994, respectively. Revenues were $3.5 million higher in 1995 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% in 1995, as compared to 1994, due to increased production as a result of the 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 our lumber prices
are influenced by commodity prices, we are able to maintain sales volume due to our high concentration of sales in the repair & remodel and industrial markets, which are less impacted by the slow housing market. MDF sales volume decreased by 15% as a result of production downtime associated with weak market conditions and issues encountered during the start-up of new high-energy refiners for our new MDF2 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 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 production costs as a result of downtime.
Other Costs and Eliminations (which consists of corporate overhead, intercompany log profit elimination, and intercompany LIFO elimination) decreased operating income by $3.0 million less in 1995 as compared to 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.
Net other expense decreased by $2.6 million in 1995 as compared to 1994 primarily due to a decrease in fixed asset retirements, a charge in 1994 for the write-off of capitalized debt issue costs as a result of refinancing the lines of credit, and a decrease in the expense for state taxes payable on behalf of non-resident Unitholders.
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 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 $1.90 per Unit for the year ended 1995, compared to $1.62 per Unit in 1994.
1994 COMPARED TO 1993
Resources Segment revenues were $324.4 million and $266.1 million for the years ended 1994 and 1993, respectively. Revenues were $58.3 million higher in 1994, primarily due to increased sales volumes and higher prices for domestic logs, offset in part by lower export log sales volumes and lower land sales. Domestic log sales volume increased by 24% as compared to 1993 primarily due to increased harvest levels. The Company's 1994 fee timber harvest was 559 MMBF which was 101 MMBF higher than 1993, primarily as a result of the Montana Timberland Acquisition. Domestic log prices increased in 1994 by 8% as compared to 1993. The higher prices were primarily the result of increased demand for wood products as well as from log shortages in the Northwest caused in part by legal challenges to federal timber sales and changes in federal timber policy. In addition, 1994 land sales were $6.4 million lower than 1993. Land sales declined in 1994, primarily due to the Partnership's strategy of deferring land sales until the completion of state and county growth management processes.
Resources Segment costs and expenses were $173.7 million and $130.9 million for the years ended 1994 and 1993, respectively. Costs and expenses were $42.8 million higher in 1994 primarily due to the increase in the production volumes of domestic logs, higher log and haul costs resulting from longer hauling distances and higher road amortization and timber depletion rates resulting from the additional roads and timber obtained in the Montana Timberland Acquisition.
Manufacturing Segment revenues were $372.2 million and $324.6 million for the years ended 1994 and 1993, respectively. Revenues were $47.6 million higher in 1994 due to sales volume increases and higher prices in all product lines. Lumber, plywood, and MDF prices increased in 1994 by 7%, 7% and 22%, respectively, over 1993. The higher prices were the result of improved domestic wood product demand and the impact of the log supply shortage. Lumber sales volumes were 7% higher in 1994 as compared to 1993, primarily due to increased production. MDF sales volumes increased by 15% in 1994 due to increased production as a result of production improvements.
Manufacturing Segment costs and expenses were $340.1 million and $313.1 million for the years ended 1994 and 1993, respectively. The $27.0 million of higher costs and expenses were primarily due to increased lumber and MDF production volumes and higher log costs (14% and 15% higher for lumber and plywood, respectively) which were the result of improving demand for finished wood products and the log supply shortage.
Other Costs and Eliminations (which consists of corporate overhead, intercompany log profit elimination, and intercompany LIFO elimination) decreased by $1.4 million for the year ended 1994 as compared to 1993, primarily due to a decrease in the cost of employee benefit plans and a decrease in executive incentive compensation paid by the Partnership. Profit resulting from intercompany log sales is deferred until the Manufacturing Segment converts existing log inventories into finished products and sells them to third parties.
Interest expense increased by $10.7 million in 1994 as compared to 1993 due to an increase in average debt outstanding in 1994, as a result of borrowings in November 1993 to finance the Montana Timberlands Acquisition. Net other expense increased by $4 million in 1994 as compared
to 1993 primarily due to an increase in the minority interest elimination as a result of an increase in net income in the Manufacturing Segment, an increase in fixed asset retirements and an increase in the expense for state taxes payable on behalf of non-resident Unitholders.
The income allocated to the General Partner increased by $7.5 million during 1994 compared to 1993 as a result of higher net income and 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 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 $1.62 per Unit for the year ended 1994, compared to $1.30 per Unit in 1993 (1993 per Unit amounts were restated for the December 6, 1993 three-for- one Unit split).
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, and to Canada. Combined export revenues as a percentage of total revenues were 13%, 15% and 17% for 1995, 1994, and 1993, respectively.
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. 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.
OTHER MATTERS
In March 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("FAS 121"). FAS 121 requires that long-lived assets and certain intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If impairment has occurred, an impairment loss must be recognized. Implementation of FAS 121 is required in 1996. The impact of the adoption of this standard is not expected to be material to the financial position, results of operations, or liquidity of the Company.
In October 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"). FAS 123 establishes a fair value based method of accounting for stock-based compensation plans and encourages entities to adopt that method in place of the provisions of Accounting Principles Board Opinion No. 25 ("APB 25"). The Company intends to continue to apply the provisions of APB 25 in recognizing compensation expense related to Unit-based compensation plans.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL INFORMATION
PLUM CREEK TIMBER COMPANY, L. P. COMBINED STATEMENT OF INCOME
See accompanying Notes to Combined Financial Statements.
PLUM CREEK TIMBER COMPANY, L. P. COMBINED BALANCE SHEET
See accompanying Notes to Combined Financial Statements.
PLUM CREEK TIMBER COMPANY, L. P. COMBINED STATEMENT OF CASH FLOWS
See accompanying Notes to Combined Financial Statements.
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 2.0 million acres of timberland and ten wood products conversion facilities in Montana, Washington and Idaho. 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 Washington, Idaho and Montana. 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 which are less cyclical than the traditional housing related markets. The principal markets for lumber and plywood products are in the United States. 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 1994 and 1993 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, net of redeemed Units, plus, in 1993, any unredeemed Deferred Participation Interests ("DPIs") divided into the combined Partnership net income, after adjusting for the General Partner Interest. The weighted average number of Units outstanding was 40,608,300, 40,608,300, and 43,084,327 for the years ended December 31, 1995, 1994 and 1993, respectively.
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.
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.
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. 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 for nonresident Unitholders. Taxes paid for nonresident Unitholders are included in other expense. Marketing, as a separate taxable corporation, provides for income taxes on a separate company basis. Marketing provides for deferred taxes in order to reflect the tax consequences in future years of the difference between the financial statement and tax basis of assets and liabilities at year-end.
UNIT-BASED COMPENSATION PLANS. The Company accounts for Unit-based compensation plans under the provisions of Accounting Principles Board Opinion No. 25 ("APB 25"). In October 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"), which is effective for years beginning after December 15, 1995. FAS 123 establishes a fair value based method of accounting for stock-based compensation plans and encourages entities to adopt that method in place
of the provisions of APB 25. The Company intends to continue to apply the provisions of APB 25 in recognizing compensation expense related to Unit-based compensation plans and disclose in the footnotes in 1996 the impact on net income had FAS 123 been adopted for expense recognition purposes. See Note 10 to Notes to Combined Financial Statements for discussion of the above referenced plans.
NOTE 2. ACCOUNTS RECEIVABLE
Accounts receivable were presented net of allowances for doubtful accounts of $1,316,000 and $1,160,000 at December 31, 1995 and 1994, respectively.
NOTE 3. INVENTORIES
Inventories consisted of the following at December 31 (in thousands):
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, 1995 and 1994 was $46.3 million and $54.9 million, respectively.
NOTE 4. TIMBER AND TIMBERLANDS AND PROPERTY, PLANT AND EQUIPMENT
Timber and timberlands consisted of the following at December 31 (in thousands):
Property, plant and equipment consisted of the following at December 31 (in thousands):
NOTE 5. BORROWINGS
Long-term debt consisted of the following at December 31 (in thousands):
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 semi-annually. 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 semi-annually. The Senior Notes due 2007, the Senior Notes due 2009 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, 1995 and 1994, the premium that would have been due upon early retirement would have approximated $119 million and $57 million, respectively. The two series of senior notes are unsecured. The First Mortgage Notes are collateralized by the property, plant and equipment of Manufacturing and are guaranteed by the Partnership.
The Partnership has two unsecured revolving lines of credit ("Lines of Credit") with a group of banks that permit the Partnership to borrow up to $135 million for general corporate purposes, including up to $5 million of standby letters of credit issued on behalf of the Partnership or Manufacturing. The Lines of Credit bear a floating rate of interest (6.5% and 6.9% as of December 31, 1995 and 1994, respectively). One line of credit allows the Partnership to borrow $100 million through October 31, 2000, of which $82.5 million was outstanding at December 31, 1995. The other line of credit allows the Partnership to borrow $35 million through October 28, 1996 (any borrowings outstanding at that time are payable in quarterly installments, at the option of the Partnership, due January 1997 through October 1998), of which $15 million was outstanding at December 31, 1995. The $15 million was classified as long-term debt due in 2000 due to the Company's intent and ability to finance these borrowings on a long-term basis. As of December 31, 1995, there were letters of credit outstanding in the amount of $0.8 million. As of January 4, 1996, all borrowings on the Lines of Credit were repaid.
The annual principal payments on the Note Agreements and mandatory principal payments under the Lines of Credit are as follows (in thousands):
All principal and interest payments due under the Note Agreements and Lines of Credit are nonrecourse to the General Partner.
The Note Agreements and the Lines of Credit contain certain restrictive covenants, including limitations of harvest levels, sale of assets, cash distributions and the amount of future indebtedness.
The Company was in compliance with such covenants at December 31, 1995 and 1994. The First Mortgage Notes limit distributions from the Manufacturing Segment to the Partnership.
NOTE 6. 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 $615 million and $570 million and was carried at $531 million and $544 million as of December 31, 1995 and 1994, respectively.
NOTE 7. PARTNERS' CAPITAL
The changes in Partners' Capital were as follows (in thousands):
The total number of Units outstanding at December 31, 1995 and 1994 was 40,608,300. At January 1, 1993 there were 1.25 million DPIs (prior to the 1993 three-for-one Unit split) outstanding. The DPIs were redeemed on August 30, 1993.
In accordance with the Partnership Agreement, the General Partner is authorized to make quarterly cash distributions. For the years ended December 31, 1995, 1994 and 1993, the General Partner declared $1.96, $1.67 and $1.38 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 10 to Notes to Combined Financial Statements.
NOTE 8. INCOME TAXES
The provision for income taxes was as follows (in thousands):
Reconciliation of the federal statutory rate to the effective income tax rate was as follows:
NOTE 9. 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. The Company's pension expense was $1.2 million, $1.9 million and $2.1 million for 1995, 1994 and 1993, respectively.
The following table sets forth the funded status of the Company's pension plan at December 31 (in thousands):
The components of the Company's pension cost were as follows (in thousands):
The following assumptions were used in the accounting for the Company's pension plan as of December 31:
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 and $2.7 million as of December 31, 1995 and
1994, respectively. The Company's pension expense for these plans was $0.6 million, $0.8 million and $0.4 million for 1995, 1994 and 1993, respectively.
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 75 percent, depending upon the Company's financial performance. Amounts charged to expense were $2.7 million, $2.0 million and $2.3 million during 1995, 1994 and 1993, 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 10 to Notes to Combined Financial Statements.
NOTE 10. RELATED-PARTY TRANSACTIONS
The General Partner is responsible for all decisions related to 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 $5.6 million and $5.0 million for the years ended December 31, 1995 and 1994, respectively. During 1993, the Company directly paid the costs associated with administering the businesses.
Effective October 1, 1993, the General Partner established a Long-Term Incentive Plan ("LTIP") which provides for granting 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. Costs incurred by the General Partner in administering and funding the LTIP are borne by the Partnership.
The General Partner has granted 1,330,000 UARs, net of forfeitures, which could result in a total of 668,802 Units being earned under the LTIP if all UVTs are met. Units in the executives' accounts will earn additional Units equal to the amount of any subsequent Partnership cash distributions. As of December 31, 1995, two UVTs have been achieved and 167,200 Units have been allocated to the executives' accounts. Total compensation expense with respect to the achievement of these two UVTs will be approximately $4.5 million, of which $1.0 million and $0.8 million was recognized in 1995 and 1994, respectively. The remaining compensation expense will be recognized
over the remaining performance period ending December 31, 1998.
Effective January 1, 1994, the General Partner established a Key Employee Long-Term Incentive Plan ("KLTIP") for certain of its other key employees. The KLTIP provisions are similar to the LTIP described above. The General Partner has granted 380,000 UARs, net of forfeitures, which could result in a total of 191,086 Units being earned under the KLTIP if all UVTs are met. Units in the participants' accounts will earn additional Units equal to the amount of any subsequent Partnership cash distributions. As of December 31, 1995, two UVTs have been achieved and 47,772 Units have been allocated to the key employees' accounts. Total compensation expense with respect to the achievement of these two UVTs will be approximately $1.2 million, of which $0.5 million was recognized in 1995. The remaining compensation expense 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 plan are 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 1995, 1994 and 1993 were approximately $20.7 million, $14.4 million and $7.2 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, 1995, the Company had a payable to the General Partner of $42,000. As of December 31, 1994, the Company had a receivable from the General Partner of $176,000.
NOTE 11. 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, 1995 and 1994, the unrecorded amounts of those contract commitments were approximately $21.5 million and $30.4 million, respectively. During 1993, the Partnership entered into a log sourcing contract to sell approximately 950 million board feet ("MMBF") of logs to a customer over a ten-year period ending in 2003, at prevailing market rates. At December 31, 1995, the Partnership had a remaining commitment of approximately 703 MMBF.
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 $2.2 million, $1.8 million and $1.9 million for 1995, 1994 and 1993, respectively. The following summarizes the future minimum lease payments (in thousands):
NOTE 12. SEGMENT INFORMATION
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 $117.6 million, $118.0 million and $89.7 million for 1995, 1994 and 1993, respectively.
Operating income from the Resources Segment includes land sales of $1.6 million, $1.9 million and $7.7 million, for 1995, 1994 and 1993, respectively. Combined export revenues, primarily to Pacific Rim countries, as a percentage of total revenues were 13%, 15% and 17%, for 1995, 1994 and 1993, respectively.
During 1995 and 1994, net sales to one Resources Segment customer were approximately 10% and 11% of combined revenues, respectively.
NOTE 13. SUBSEQUENT EVENT
On January 23, 1996, the Board of Directors of the General Partner authorized the Partnership to make a distribution of $0.49 per Unit for the fourth quarter of 1995. Total distributions will approximate $25.9 million (including $6.0 million to the General Partner) and will be paid on March 1, 1996 to Unitholders of record on February 15, 1996.
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, 1995 and 1994, and the related combined statements of income and cash flows for each of the three years in the period ended December 31, 1995. 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, 1995 and 1994, and the combined results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Coopers & Lybrand L.L.P. Seattle, Washington January 23, 1996
SUPPLEMENTARY FINANCIAL INFORMATION
Combined Quarterly Information (Unaudited) (In Thousands, Except per Unit)
ITEM 9.

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.

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:
(2) FINANCIAL STATEMENT SCHEDULES
Not applicable.
(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
(B) REPORTS ON FORM 8-K
None.
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.