UNITED STATES FORM 10-Q(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE For the quarterly period ended March 31, 2006 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE Commission file number 1-10239 PLUM CREEK TIMBER COMPANY, INC. Organized in the State of Delaware I.R.S. Employer Identification No. 91-1912863 999 Third Avenue. Suite 4300 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. |
Large accelerated filer [ X ] | Accelerated filer [ ] | Non-accelerated filer [ ] |
TABLE OF CONTENTS | ||||
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PART I | ||||
Item 1. | Financial Statements | |||
PLUM CREEK TIMBER COMPANY, INC. | 2 | |||
PLUM CREEK TIMBERLANDS, L.P. | 18 | |||
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 33 | ||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 39 | ||
Item 4. | Controls and Procedures | 40 | ||
PART II | ||||
Item 1. | Legal Proceedings | 40 | ||
Item 1A. | Risk Factors | 40 | ||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 41 | ||
Item 6. | Exhibits | 42 | ||
EXHIBIT INDEX | 42 |
PART IITEM 1. FINANCIAL STATEMENTS PLUM CREEK TIMBER COMPANY, INC. |
Quarter Ended March 31, | ||||||||
---|---|---|---|---|---|---|---|---|
(In Millions, Except per Share Amounts) | 2006 | 2005 | ||||||
REVENUES: | ||||||||
Timber | $ | 214 | $ | 200 | ||||
Real Estate | 61 | 68 | ||||||
Manufacturing | 134 | 129 | ||||||
Other | 5 | 3 | ||||||
Total Revenues | 414 | 400 | ||||||
COSTS AND EXPENSES: | ||||||||
Cost of Goods Sold: | ||||||||
Timber | 121 | 102 | ||||||
Real Estate | 16 | 24 | ||||||
Manufacturing | 123 | 118 | ||||||
Other | 1 | 1 | ||||||
Total Cost of Goods Sold | 261 | 245 | ||||||
Selling, General and Administrative | 26 | 21 | ||||||
Total Costs and Expenses | 287 | 266 | ||||||
Operating Income | 127 | 134 | ||||||
Interest Expense, net | 31 | 27 | ||||||
Income before Income Taxes | 96 | 107 | ||||||
Provision for Income Taxes | 4 | 5 | ||||||
Income from Continuing Operations | 92 | 102 | ||||||
Gain on Sale of Properties, net of tax | -- | 20 | ||||||
Net Income Before Cumulative Effect of Accounting Change | 92 | 122 | ||||||
Cumulative Effect of Accounting Change, net of tax | 2 | -- | ||||||
Net Income | $ | 94 | $ | 122 | ||||
PER SHARE AMOUNTS: | ||||||||
Income from Continuing Operations - Basic | $ | 0.50 | $ | 0.56 | ||||
Income from Continuing Operations - Diluted | $ | 0.50 | $ | 0.56 | ||||
Net Income per Share - Basic | $ | 0.51 | $ | 0.67 | ||||
Net Income per Share - Diluted | $ | 0.51 | $ | 0.66 | ||||
Dividends Declared - per Common Share Outstanding | $ | 0.40 | $ | 0.38 | ||||
Weighted Average Number of Shares Outstanding | ||||||||
- Basic | 184.2 | 183.9 | ||||||
- Diluted | 184.7 | 184.5 |
See accompanying Notes to Consolidated Financial Statements
PLUM CREEK TIMBER COMPANY, INC. |
March, 31, | December 31, | |||||||
---|---|---|---|---|---|---|---|---|
(In Millions, Except per Share Amounts) | 2006 | 2005 | ||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and Cash Equivalents | $ | 419 | $ | 369 | ||||
Restricted Advance from Customer | 32 | 23 | ||||||
Accounts Receivable | 50 | 44 | ||||||
Like-Kind Exchange Funds Held in Escrow | 1 | 30 | ||||||
Inventories | 78 | 75 | ||||||
Deferred Tax Asset | 17 | 17 | ||||||
Other Current Assets | 16 | 16 | ||||||
613 | 574 | |||||||
Timber and Timberlands - Net | 3,942 | 3,961 | ||||||
Property, Plant and Equipment - Net | 229 | 234 | ||||||
Investment in Grantor Trusts | 26 | 26 | ||||||
Other Assets | 16 | 17 | ||||||
Total Assets | $ | 4,826 | $ | 4,812 | ||||
LIABILITIES | ||||||||
Current Liabilities: | ||||||||
Current Portion of Long-Term Debt | $ | 232 | $ | 161 | ||||
Short-Term Debt | -- | 50 | ||||||
Accounts Payable | 36 | 45 | ||||||
Interest Payable | 41 | 30 | ||||||
Wages Payable | 11 | 25 | ||||||
Taxes Payable | 19 | 18 | ||||||
Deferred Revenue | 42 | 35 | ||||||
Other Current Liabilities | 13 | 11 | ||||||
394 | 375 | |||||||
Long-Term Debt | 1,502 | 1,524 | ||||||
Lines of Credit | 495 | 495 | ||||||
Deferred Tax Liability | 40 | 39 | ||||||
Other Liabilities | 47 | 54 | ||||||
Total Liabilities | 2,478 | 2,487 | ||||||
Commitments and Contingencies | ||||||||
STOCKHOLDERS' EQUITY | ||||||||
Preferred Stock, $0.01 par value, authorized shares - 75.0, | ||||||||
outstanding - none | -- | -- | ||||||
Common Stock, $0.01 par value, authorized shares - 300.6, | ||||||||
issued(including Treasury Stock)- 186.4 at March 31, 2006 | ||||||||
and 186.2 at December 31, 2005 | 2 | 2 | ||||||
Additional Paid-In Capital | 2,182 | 2,179 | ||||||
Retained Earnings | 206 | 186 | ||||||
Treasury Stock, at cost, Common Shares - 2.0 | (44 | ) | (44 | ) | ||||
Other Equity | 2 | 2 | ||||||
Total Stockholders' Equity | 2,348 | 2,325 | ||||||
Total Liabilities and Stockholders' Equity | $ | 4,826 | $ | 4,812 | ||||
See accompanying Notes to Consolidated Financial Statements
PLUM CREEK TIMBER COMPANY, INC. |
Three Months Ended March 31, | ||||||||
---|---|---|---|---|---|---|---|---|
(In Millions) | 2006 | 2005 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net Income | $ | 94 | $ | 122 | ||||
Adjustments to Reconcile Net Income to | ||||||||
Net Cash Provided By Operating Activities: | ||||||||
Depreciation, Depletion and Amortization | 31 | 27 | ||||||
Basis of Real Estate Sold | 10 | 18 | ||||||
Deferred Income Taxes | 1 | (1 | ) | |||||
Gain on Sale of Properties | -- | (21 | ) | |||||
Working Capital Changes | 9 | (64 | ) | |||||
Other | (5 | ) | (2 | ) | ||||
Net Cash Provided By Operating Activities | 140 | 79 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Capital Expenditures (Excluding Timberland Acquisitions) | (17 | ) | (10 | ) | ||||
Other | -- | 1 | ||||||
Net Cash Used In Investing Activities | (17 | ) | (9 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Dividends | (74 | ) | (70 | ) | ||||
Borrowings on Line of Credit | 663 | 529 | ||||||
Repayments on Line of Credit | (663 | ) | (529 | ) | ||||
Proceeds from Stock Option Exercises | 2 | 3 | ||||||
Other | (1 | ) | (1 | ) | ||||
Net Cash Used In Financing Activities | (73 | ) | (68 | ) | ||||
Increase In Cash and Cash Equivalents | 50 | 2 | ||||||
Cash and Cash Equivalents: | ||||||||
Beginning of Period | 369 | 347 | ||||||
End of Period | $ | 419 | $ | 349 | ||||
See accompanying Notes to Consolidated Financial Statements
Quarter Ended March 31, | ||||||||
---|---|---|---|---|---|---|---|---|
| 2006 | 2005 | ||||||
Income from Continuing Operations | $ | 92 | $ | 102 | ||||
Gain on Sale of Properties, net of tax | -- | 20 | ||||||
Net Income before Cumulative Effect of Accounting Change | 92 | 122 | ||||||
Cumulative Effect of Accounting Change, net of tax | 2 | -- | ||||||
Net Income available to common stockholders | $ | 94 | $ | 122 | ||||
Denominator for basic earnings per share | 184.2 | 183.9 | ||||||
Effect of dilutive securities - stock options | 0.4 | 0.6 | ||||||
Effect of dilutive securities - restricted stock, restricted stock units, dividend | ||||||||
equivalents and value management plan | 0.1 | -- | ||||||
Denominator for diluted earnings per share - adjusted for dilutive securities | 184.7 | 184.5 | ||||||
Per Share Amounts - Basic: | ||||||||
Income from Continuing Operations | $ | 0.50 | $ | 0.56 | ||||
Gain on Sale of Properties | $ | -- | $ | 0.11 | ||||
Net Income per Share Before Cumulative Effect of Accounting Change | $ | 0.50 | $ | 0.67 | ||||
Cumulative Effect of Accounting Change | 0.01 | -- | ||||||
Net Income | $ | 0.51 | $ | 0.67 | ||||
Per Share Amounts - Diluted: | ||||||||
Income from Continuing Operations | $ | 0.50 | $ | 0.56 | ||||
Gain on Sale of Properties | $ | -- | $ | 0.11 | ||||
Net Income per Share Before Cumulative Effect of Accounting Change | $ | 0.50 | $ | 0.66 | ||||
Cumulative Effect of Accounting Change | 0.01 | -- | ||||||
Net Income | $ | 0.51 | $ | 0.66 | ||||
Antidilutive options excluded for certain periods from the computation of diluted earnings per share because the options’ exercise prices were greater than the average market price of the common shares were as follows for thequarterly periods endedMarch 31(shares in millions): |
Quarter Ended March 31, | ||||||||
---|---|---|---|---|---|---|---|---|
2006 | 2005 | |||||||
Number of options | 0.7 | 0.3 | ||||||
Range of exercise prices | $35.74 to $37.61 | $36.13 to $37.49 | ||||||
Expiration on or before | February 2016 | February 2015 |
Note 3. Timber and Timberlands, Property, Plant and Equipment, and Inventory Timber and timberlands consisted of the following (in millions): |
March 31, | December 31, | |||||||
---|---|---|---|---|---|---|---|---|
| 2006 | 2005 | ||||||
Timber and logging roads - net | $ | 2,670 | $ | 2,686 | ||||
Timberlands | 1,272 | 1,275 | ||||||
Timber and Timberlands - net | $ | 3,942 | $ | 3,961 | ||||
Property, plant and equipment consisted of the following (in millions): |
March 31, | December 31, | |||||||
---|---|---|---|---|---|---|---|---|
| 2006 | 2005 | ||||||
Land, buildings and improvements | $ | 83 | $ | 84 | ||||
Machinery and equipment | 289 | 285 | ||||||
372 | 369 | |||||||
Accumulated depreciation | (143 | ) | (135 | ) | ||||
Property, Plant and Equipment - net | $ | 229 | $ | 234 | ||||
Inventories, accounted for using the lower of average cost or market, consisted of the following (in millions): |
March 31, | December 31, | |||||||
---|---|---|---|---|---|---|---|---|
| 2006 | 2005 | ||||||
Raw materials (logs) | $ | 26 | $ | 21 | ||||
Work-in-process | 4 | 4 | ||||||
Finished goods | 36 | 37 | ||||||
66 | 62 | |||||||
Supplies | 12 | 13 | ||||||
Total | $ | 78 | $ | 75 | ||||
Common Stock | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Shares | Dollars | Paid-in Capital | Retained Earnings | Treasury Stock | Other Equity | Total Equity | ||||||||||||||||
January 1, 2006 | 184 | .2 | $ | 2 | $ | 2,179 | $ | 186 | $ | (44 | ) | $ | 2 | $ | 2,325 | ||||||||
Net Income | -- | -- | -- | 94 | -- | -- | 94 | ||||||||||||||||
Dividends | -- | -- | -- | (74 | ) | -- | -- | (74 | ) | ||||||||||||||
Stock Option Exercises | 0 | .2 | -- | 2 | -- | -- | -- | 2 | |||||||||||||||
Other | -- | -- | 1 | -- | -- | -- | 1 | ||||||||||||||||
March 31, 2006 | 184 | .4 | $ | 2 | $ | 2,182 | $ | 206 | $ | (44 | ) | $ | 2 | $ | 2,348 | ||||||||
Note 6. Employee Pension Plans The components of net periodic benefit cost were as follows for thequarterly periods ended March 31 (in millions): |
Quarter Ended March 31, | ||||||||
---|---|---|---|---|---|---|---|---|
2006 | 2005 | |||||||
Service cost | $ | 2 | $ | 2 | ||||
Interest cost | 1 | 1 | ||||||
Expected return on plan assets | (1 | ) | (1 | ) | ||||
Net periodic benefit cost | $ | 2 | $ | 2 | ||||
Note 7. Share-Based Compensation Plans Plum Creek has a stockholder approved Stock Incentive Plan that provides for the award of non-qualified stock options, restricted stock and restricted stock units, dividend equivalents and value management awards. Under Plum Creek’s Stock Incentive Plan (“the Plan”), as amended in May 2004, there are 12.4 million shares of common stock reserved and eligible for issuance. At March 31, 2006, 3.3 million shares of the 12.4 million reserved shares have been used and, therefore, 9.1 million shares remain available for grants of non-qualified stock options, grants of restricted stock and restricted stock units, or payments of vested dividend equivalents and value management awards. The number of shares to be issued in connection with dividend equivalents and value management awards is not determined until the end of their respective performance periods. New shares are issued for payment under the Plan for awards that pay out in shares or where the participant can elect payment in shares. In addition to the 12.4 million shares that are eligible for issuance under Plum Creek’s Stock Incentive Plan, Plum Creek assumed 3.8 million Timber Company stock options in connection with the October 6, 2001, merger with The Timber Company that were converted to Plum Creek stock options. At March 31, 2006, 0.2 million options of the 3.8 million options remain issued and outstanding. Stock Options. Under the Plan, non-qualified stock options may be granted to any officer, director, employee, consultant or advisor of the company. Each stock option granted allows the recipient the right to purchase the company’s common stock at the fair market value of the company’s common stock on the date of the grant. Generally, the stock options have a ten-year term and vest over a four-year period at a rate of 25% per year. Under the Plan, the exercise price of an option may not be reduced. Presented below is a summary of Plum Creek’s stock option Plan activity (includes the Timber Company stock options assumed and converted in connection with the October 6, 2001, merger with The Timber Company) for the quarter ended March 31, 2006: |
| Shares Subject to Options | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value (Millions) | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at January 1, 2006 | 2,302,130 | $ | 27.34 | |||||||||||
Granted | 419,180 | 35.74 | ||||||||||||
Exercised/surrendered | (142,533 | ) | 16.96 | |||||||||||
Cancelled/forfeited | (38,043 | ) | 19.35 | |||||||||||
Outstanding, March 31, 2006 | 2,540,734 | $ | 29.43 | 7.0 | $ | 19 | ||||||||
Vested or expected to vest, | ||||||||||||||
March 31, 2006 | 2,373,239 | $ | 29.28 | 6.9 | $ | 18 | ||||||||
Exercisable, March 31, 2006 | 1,477,170 | $ | 26.15 | 5.7 | $ | 16 | ||||||||
The table below presents stock activity related to stock options exercised in thequarters ended March 31 (in millions): |
| 2006 | 2005 | ||||||
---|---|---|---|---|---|---|---|---|
Proceeds from stock options exercised | $ | 2 | $ | 3 | ||||
Intrinsic value of stock options exercised | $ | 3 | $ | 4 | ||||
Tax benefit related to stock options exercised | $ | - | $ | 0 | .1 | |||
The weighted-average measurement date fair values of stock option awards granted for the quarters ended March 31 were computed using the Black-Scholes-Merton option valuation model with the following assumptions: |
| 2006 | 2005 |
---|---|---|
Expected term | 6 | 6 |
Risk-free interest rate | 4.5% | 4.1% |
Volatility | 23.1% | 24.0% |
Dividend yield | 4.5% | 4.1% |
Weighted-average measurement date fair values per share | $ 6.09 | $ 6.82 |
The expected term of the options represents the estimated period of time until exercise and is based on the vesting period of the award and the historical exercise experience of similar awards. All participants were assumed to have similar exercise behavior. Expected volatility is based on historical volatility over the approximate expected term of the option. Restricted Stock.Under the Plan, restricted stock of the company may be awarded to certain directors, officers and employees of the company. Restricted stock may not be sold, assigned, transferred, pledged or otherwise disposed of for a period of time from the date on which the restricted stock was granted. The recipients of restricted stock generally have the rights of stockholders of the company with respect to voting and receipt of dividends during the restricted period. Restricted stock generally vest three years from the grant date. Termination of employment prior to the end of the restricted period will generally require the return of the restricted stock to the company. The weighted-average grant date fair values of restricted stock awards granted for the quarters ended March 31, 2006 and 2005 were $36.01 and $37.35, respectively. The fair value of restricted stock is based on the closing price of the company’s common stock on the date of grant. Restricted stock awards activity was as follows for thequarter ended March 31, 2006: |
| Shares | Weighted-Average Grant Date Fair Value | ||||||
---|---|---|---|---|---|---|---|---|
Balance at January 1, 2006 | 72,300 | $ | 34 | .45 | ||||
Granted | 16,200 | 36 | .01 | |||||
Vested | (5,900 | ) | 23 | .66 | ||||
Forfeited | (1,000 | ) | 37 | .97 | ||||
Balance at March 31, 2006 | 81,600 | $ | 35 | .50 | ||||
The total fair value of restricted stock awards that vested during the quarters ended March 31, 2006 and 2005 was less than $1 million each. Restricted Stock Units.Under the Plan, restricted stock units may be awarded to certain directors, officers and employees of the company. No restricted stock units were awarded prior to 2006. The recipients of restricted stock units generally have the right to receive a cash amount equal to any dividends paid on the company’s common stock during the restriction period and upon vesting, the right to receive an equal number of shares of the company’s common stock. Restricted stock units vest over a four-year period at a rate of 25% per year. If employment is terminated prior to vesting, all unvested restricted stock units are forfeited. The company granted and had outstanding 69,825 restricted stock units for the quarter ended March 31, 2006, with a weighted-average grant date fair value of $35.74 per unit. No restricted stock units were forfeited or vested during the quarter ended March 31, 2006. The fair value of restricted stock units is based on the closing price of the company’s common stock on the date of grant. Dividend Equivalents. Under the Plan, dividend equivalents may be granted in connection with stock options. Dividend equivalents represent the right to receive a payment equal in value to the per-share dividend paid over a five-year period by the company multiplied by the number of unexercised stock options. No dividend equivalents were awarded during 2006. For awards granted in 2005 and 2004, each year during the five-year performance period, a participant may be eligible to earn a percentage of the company’s current year dividend plus a percentage of prior year unearned dividends to the extent that the company’s total shareholder return on an annualized basis is at least 5.5% at the end of any such year. The total shareholder return computation consists of the company’s stock price appreciation plus dividends paid. The specific percentage to be applied to any such earned dividends for a given year of the performance period is contingent upon the company’s performance for that year measured against the performance of a peer group of companies. Dividends are earned in whole or in part based on a sliding scale. If the company’s total shareholder return is below the 50th percentile of the peer group, then the percentage amount is zero. If the company’s total shareholder return is at or above the 75th percentile, the full amount of the dividend is earned. If the company’s relative performance is between the 50th and the 75th percentile, dividend equivalents are valued based on a sliding scale between 50% and 100% of the dividends paid during the year. For awards granted prior to 2004, each year during the respective five-year performance period, a participant may earn an amount equal to the company’s current year dividend plus prior year unearned dividends to the extent the company’s total shareholder return on an annualized basis equals or exceeds 13% for 15 trading days out of any 30 trading day period in any given year. Payments related to any earned dividend equivalents are made at the end of the five-year performance period. Amounts earned, if any, are paid in the quarter immediately following the end of the five-year performance period. Unless otherwise specified by the participant, each payment is paid in cash, except that any officer not in compliance with the company’s stock ownership guidelines is required to receive up to half of the payment value in the company’s common stock. If a participant terminates employment prior to the end of the five-year performance period, a cash payment is made for any performance goals achieved in connection with vested stock options through the last day of employment. Payment related to unvested stock options and performance goals achieved after termination of employment are forfeited. At March 31, 2006, 1.7 million dividend equivalents, net of forfeitures, granted to employees, officers and directors of the company were outstanding. Presented below is a summary of outstanding dividend equivalent awards and related fair values, unrecognized compensation expense and maximum valueas of March 31, 2006 (dollars in millions): |
Performance Period | Outstanding Units | Fair Value (A) | Unrecognized Compensation Expense | Maximum Award Value | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2002 to 2006 | 367,549 | $ | 2.0 | $ | 0.4 | $ | 2.8 | |||||||
2003 to 2007 | 406,500 | $ | 3.0 | $ | 1.2 | $ | 3.1 | |||||||
2004 to 2008 | 469,812 | $ | 1.3 | $ | 0.7 | $ | 2.8 | |||||||
2005 to 2009 | 431,500 | $ | 0.8 | $ | 0.6 | $ | 2.8 |
(A) | The estimated fair value includes unrecognized compensation expense. |
The five-year performance period for the 2000 grants ended on December 31, 2004; amounts earned of $3 million were paid (primarily in cash) during the first quarter of 2005. The five-year performance period for the 2001 grants ended on December 31, 2005; amounts earned of $3 million were paid (primarily in cash) during the first quarter of 2006. Value Management Awards. Value management awards provide incentive compensation to participants that is contingent upon company performance over a three-year period measured against the performance of a peer group consisting of forest products companies, the S&P 500 Index and the Morgan Stanley REIT Index over the same period. Value management awards are earned in whole or in part based on a sliding scale. No value management award is earned if the company’s total shareholder return is below the 50th percentile of the peer group. The full value management award is earned if the company’s total shareholder return is above the 75th percentile. A unit has a face value of $100. The value of an award between the 50th and 75th percentile is based on a sliding scale between 0% and 200% of the face value. Amounts earned, if any, are paid in the quarter immediately following the end of the three-year performance period. Unless otherwise specified by the participant, each payment will be paid in cash, except that any officer not in compliance with the company’s stock ownership guidelines is required to receive up to half of the payment value in the company’s common stock. Generally, to be entitled to the payment, a participant must be employed by the company on the last date of the performance period. Value management awards activity was as follows for thequarter ended March 31, 2006: |
| Units | ||||
---|---|---|---|---|---|
Balance at January 1, 2006 | 79,535 | ||||
Grants | 56,940 | ||||
Payments | -- | ||||
Forfeitures | (100 | ) | |||
Balance at March 31, 2006 | 136,375 | ||||
Presented below is a summary of outstanding value management awards and related fair values, unrecognized compensation expense and maximum valueas of March 31, 2006 (dollars in millions): |
Performance Period | Outstanding Units | Fair Value (A) | Unrecognized Compensation Expense | Maximum Award Value | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 to 2006 | 38,160 | $ | 1.1 | $ | 0.3 | $ | 7.6 | |||||||
2005 to 2007 | 41,275 | $ | 1.6 | $ | 1.0 | $ | 8.3 | |||||||
2006 to 2008 | 56,940 | $ | 3.6 | $ | 3.3 | $ | 11.4 |
(A) | The estimated fair value includes unrecognized compensation expense. |
The three-year performance period for the 2002 grants ended on December 31, 2004; amounts earned of $9 million were paid (primarily cash) during the first quarter of 2005. There were no value management award payments during the first quarter of 2006 because no awards had a performance period ending December 31, 2005. Measurement of Compensation Costs for Dividend Equivalent and Value Management Awards.Grants of both dividend equivalents and value management awards represent awards that are classified and accounted for as liabilities under SFAS No. 123(R). As a result, the expense recognized over the performance period for both dividend equivalents and value management awards will equal the fair value (i.e., cash value) of an award as of the last day of the performance period multiplied by the number of awards that are earned. Furthermore, SFAS No. 123(R) requires the quarterly expense recognized during the performance period to be based on the fair value of dividend equivalents and value management awards as of the end of the most recent quarter. Prior to the end of the performance period, compensation costs for dividend equivalents and value management awards are based on the awards’ most recent quarterly fair values and the number of months of service rendered during the performance period. Interim quarterly fair values for dividend equivalent and value management awards are computed based on our historical relative total shareholder return compared to our peer group from the beginning of the performance period to the end of the most recent quarter, and our simulated relative total shareholder return through the end of the performance period. The simulated total shareholder return of Plum Creek and our peer group is computed using a Monte Carlo simulation. The key assumptions used in the simulation of Plum Creek’s and our peer group’s total shareholder return are volatility, beta (the measure of how our stock moves relative to the market as a whole), risk-free interest rate, and expected dividend yield. Additionally, the fair value of dividend equivalents assumes that our current quarterly dividend of $0.40 per share will remain constant through the end of the performance period. Accounting for Share-Based Compensation.The company expenses share-based employee compensation in accordance with the fair value recognition provisions of SFAS No. 123(R),Share-Based Payment. Under the modified-prospective method adopted by the company on January 1, 2006, share-based employee compensation cost is recognized using the fair value method for all employee awards granted, modified, or settled on or after January 1, 2006 (see “New Accounting Pronouncements” in Note 1 of the Notes to Financial Statements). Stock options and restricted stock units vest 25% per year over a four-year vesting period. Compensation cost related to these graded vesting awards is recognized using the straight-line method over the four-year vesting period. Total compensation expense for the above share-based compensation plans (including both awards paid in stock and cash) was $1 million and $2 million for the quarters ended March 31, 2006 and 2005, respectively. For each of the quarters ended March 31, 2006 and 2005, the company recognized less than one million in tax benefits associated with share-based compensation plans. At March 31, 2006, there was $17 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of approximately 3 years. Note 8. Commitments and Contingencies Contingencies.The company is subject to regulations regarding forest and harvest practices and is, from time to time, involved in various legal proceedings, including environmental and regulatory matters, incidental to its business. Moreover, the company is currently in the early stages of several lawsuits related to property damage caused by various sources (“Property Damage Litigations”). The company believes it is more likely than not that the Property Damage Litigations will be resolved favorably. However, the final outcome of any legal proceeding is subject to many variables and cannot be predicted with any degree of certainty. The company believes that there are meritorious defenses for these claims and is vigorously defending these matters. Environmental Contingencies. In connection with the October 6, 2001 merger with The Timber Company, Plum Creek agreed to indemnify Georgia-Pacific for substantially all of the liabilities attributed to The Timber Company. During 2003, Georgia-Pacific provided Plum Creek with information about the existence of mine tailings and approximately 4.5 billion gallons of acidic surface water on approximately 90 acres in Hot Spring County, Arkansas, on former Georgia-Pacific properties (“Arkansas Environmental Issue”). Barite mining and related activities were conducted on the site between 1939 and 1981 in part by lessees of an entity that was acquired by Georgia-Pacific. The site is currently being investigated and no remediation plan has yet been approved. No amounts have been accrued for this potential liability. Furthermore, to the extent Plum Creek is required to indemnify Georgia-Pacific for its share of the remediation costs, Plum Creek may be able to recover a portion of its cost from Georgia-Pacific’s insurance policy, or indemnity obligations of the various lessees that conducted mining operations on the property, or both. Unrecorded Contingencies.The company believes it will be successful in defending the Property Damage Litigations and the Arkansas Environmental Issue. However, if the company is not successful in defending these claims, we believe the aggregate combined losses for the Property Damage Litigations and Arkansas Environmental Issue would range between $0 and $4 million. Other than the Property Damage Litigations and the Arkansas Environmental Issue, management currently believes that resolving pending legal proceedings against the company, individually or in aggregate, will not have a material adverse impact on our financial position or results of operations. However, these matters are subject to inherent uncertainties and management’s view on these matters may change in the future. Were an unfavorable final outcome in one or multiple legal proceedings to occur, there exists the possibility of a material adverse impact on our financial position and the results of operations for the period in which any unfavorable outcome becomes reasonably estimable. Note 9. Segment Information The tables below present information about reported segments for thequarterly periods ended March 31 (in millions): |
Northern Resources | Southern Resources | Real Estate | Manufactured Products | Other(A) | Total(B) | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Quarter Ended March 31, 2006 | ||||||||||||||||||||
External revenues | $ | 92 | $ | 122 | $ | 61 | $ | 134 | $ | 5 | $ | 414 | ||||||||
Intersegment revenues | 23 | -- | -- | -- | -- | 23 | ||||||||||||||
Depreciation, depletion and | ||||||||||||||||||||
amortization | 9 | 13 | -- | 8 | -- | 30 | ||||||||||||||
Basis of real estate sold | -- | -- | 10 | -- | -- | 10 | ||||||||||||||
Operating income | 35 | 50 | 44 | 8 | 5 | 142 | ||||||||||||||
Quarter Ended March 31, 2005 | ||||||||||||||||||||
External revenues | $ | 69 | $ | 131 | $ | 68 | $ | 129 | $ | 3 | $ | 400 | ||||||||
Intersegment revenues | 19 | -- | -- | -- | -- | 19 | ||||||||||||||
Depreciation, depletion and | ||||||||||||||||||||
amortization | 7 | 13 | -- | 7 | -- | 27 | ||||||||||||||
Basis of real estate sold | -- | -- | 18 | -- | -- | 18 | ||||||||||||||
Operating income | 29 | 63 | 43 | 8 | 2 | 145 |
(A) | During the first quarter of 2005, Plum Creek sold its remaining coal reserves for total proceeds of $21 million. The net gain from this sale, after deducting our book basis of $1 million, was $20 million, which has been reported in our income statement as a separate line item below Income from Continuing Operations. |
(B) | Consolidated depreciation, depletion and amortization includes unallocated corporate depreciation of $1 million for the quarter ended March 31, 2006. Certain direct segment costs previously included in corporate and other unallocated expenses were reclassified to conform with the current year presentation. |
A reconciliation of total operating income to income before income taxes is presented below for thequarterly periods endedMarch 31 (in millions): |
Quarter Ended March 31, | ||||||||
---|---|---|---|---|---|---|---|---|
| 2006 | 2005 | ||||||
Total segment operating income | $ | 142 | $ | 145 | ||||
Interest expense, net | (31 | ) | (27 | ) | ||||
Corporate and other unallocated expenses | (15 | ) | (11 | ) | ||||
Income before income taxes | $ | 96 | $ | 107 | ||||
Quarter Ended March 31, | ||||||||
---|---|---|---|---|---|---|---|---|
(In Millions) | 2006 | 2005 | ||||||
REVENUES: | ||||||||
Timber | $ | 214 | $ | 200 | ||||
Real Estate | 61 | 68 | ||||||
Manufacturing | 134 | 129 | ||||||
Other | 5 | 3 | ||||||
Total Revenues | 414 | 400 | ||||||
COSTS AND EXPENSES: | ||||||||
Cost of Goods Sold: | ||||||||
Timber | 121 | 102 | ||||||
Real Estate | 16 | 24 | ||||||
Manufacturing | 123 | 118 | ||||||
Other | 1 | 1 | ||||||
Total Cost of Goods Sold | 261 | 245 | ||||||
Selling, General and Administrative | 26 | 21 | ||||||
Total Costs and Expenses | 287 | 266 | ||||||
Operating Income | 127 | 134 | ||||||
Interest Expense, net | 31 | 27 | ||||||
Income before Income Taxes | 96 | 107 | ||||||
Provision for Income Taxes | 4 | 5 | ||||||
Income from Continuing Operations | 92 | 102 | ||||||
Gain on Sale of Properties, net of tax | -- | 20 | ||||||
Net Income Before Cumulative Effect of Accounting | ||||||||
Change | 92 | 122 | ||||||
Cumulative Effect of Accounting Change, net of tax | 2 | -- | ||||||
Net Income | $ | 94 | $ | 122 | ||||
See accompanying Notes to Consolidated Financial Statements
PLUM CREEK TIMBERLANDS, L.P. |
March, 31, | December 31, | |||||||
---|---|---|---|---|---|---|---|---|
(In Millions) | 2006 | 2005 | ||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and Cash Equivalents | $ | 419 | $ | 369 | ||||
Restricted Advance from Customer | 32 | 23 | ||||||
Accounts Receivable | 50 | 44 | ||||||
Like-Kind Exchange Funds Held in Escrow | 1 | 30 | ||||||
Inventories | 78 | 75 | ||||||
Deferred Tax Asset | 17 | 17 | ||||||
Other Current Assets | 16 | 16 | ||||||
613 | 574 | |||||||
Timber and Timberlands - Net | 3,942 | 3,961 | ||||||
Property, Plant and Equipment - Net | 229 | 234 | ||||||
Investment in Grantor Trusts | 27 | 27 | ||||||
Other Assets | 16 | 18 | ||||||
Total Assets | $ | 4,827 | $ | 4,814 | ||||
LIABILITIES | ||||||||
Current Liabilities: | ||||||||
Current Portion of Long-Term Debt | $ | 232 | $ | 161 | ||||
Short-Term Debt | -- | 50 | ||||||
Accounts Payable | 36 | 45 | ||||||
Interest Payable | 41 | 30 | ||||||
Wages Payable | 11 | 25 | ||||||
Taxes Payable | 19 | 18 | ||||||
Deferred Revenue | 42 | 35 | ||||||
Other Current Liabilities | 13 | 11 | ||||||
394 | 375 | |||||||
Long-Term Debt | 1,502 | 1,524 | ||||||
Lines of Credit | 495 | 495 | ||||||
Deferred Tax Liability | 40 | 39 | ||||||
Other Liabilities | 48 | 55 | ||||||
Total Liabilities | 2,479 | 2,488 | ||||||
Commitments and Contingencies | ||||||||
EQUITY | ||||||||
Partners' Capital | 2,348 | 2,326 | ||||||
Total Liabilities and Partners' Capital | $ | 4,827 | $ | 4,814 | ||||
See accompanying Notes to Consolidated Financial Statements
PLUM CREEK TIMBERLANDS, L.P. |
Three Months Ended March 31, | ||||||||
(In Millions) | 2006 | 2005 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net Income | $ | 94 | $ | 122 | ||||
Adjustments to Reconcile Net Income to | ||||||||
Net Cash Provided By Operating Activities: | ||||||||
Depreciation, Depletion and Amortization | 31 | 27 | ||||||
Basis of Real Estate Sold | 10 | 18 | ||||||
Deferred Income Taxes | 1 | (1 | ) | |||||
Gain on Sale of Properties | -- | (21 | ) | |||||
Working Capital Changes | 9 | (64 | ) | |||||
Other | (5 | ) | (2 | ) | ||||
Net Cash Provided By Operating Activities | 140 | 79 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Capital Expenditures (Excluding Timberland Acquisitions) | (17 | ) | (10 | ) | ||||
Other | -- | 1 | ||||||
Net Cash Used In Investing Activities | (17 | ) | (9 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Cash Distributions | (72 | ) | (67 | ) | ||||
Borrowings on Line of Credit | 663 | 529 | ||||||
Repayments on Line of Credit | (663 | ) | (529 | ) | ||||
Other | (1 | ) | (1 | ) | ||||
Net Cash Used In Financing Activities | (73 | ) | (68 | ) | ||||
Increase In Cash and Cash Equivalents | 50 | 2 | ||||||
Cash and Cash Equivalents: | ||||||||
Beginning of Period | 369 | 347 | ||||||
End of Period | $ | 419 | $ | 349 | ||||
See accompanying Notes to Consolidated Financial Statements
March 31, | December 31, | |||||||
---|---|---|---|---|---|---|---|---|
| 2006 | 2005 | ||||||
Timber and logging roads - net | $ | 2,670 | $ | 2,686 | ||||
Timberlands | 1,272 | 1,275 | ||||||
Timber and Timberlands - net | $ | 3,942 | $ | 3,961 | ||||
Property, plant and equipment consisted of the following (in millions):
March 31, | December 31, | |||||||
---|---|---|---|---|---|---|---|---|
| 2006 | 2005 | ||||||
Land, buildings and improvements | $ | 83 | $ | 84 | ||||
Machinery and equipment | 289 | 285 | ||||||
372 | 369 | |||||||
Accumulated depreciation | (143 | ) | (135 | ) | ||||
Property, Plant and Equipment - net | $ | 229 | $ | 234 | ||||
Inventories, accounted for using the lower of average cost or market, consisted of the following (in millions): |
March 31, | December 31, | |||||||
---|---|---|---|---|---|---|---|---|
| 2006 | 2005 | ||||||
Raw materials (logs) | $ | 26 | $ | 21 | ||||
Work-in-process | 4 | 4 | ||||||
Finished goods | 36 | 37 | ||||||
66 | 62 | |||||||
Supplies | 12 | 13 | ||||||
Total | $ | 78 | $ | 75 | ||||
Note 3. Borrowings See Note 8 of the Notes to Financial Statements for a discussion of the May 2, 2006, issuance by Plum Creek Timberlands, L.P. of $225 million aggregate principal amount of its senior notes. The Operating Partnership has a $650 million revolving line of credit maturing on January 15, 2009. As of March 31, 2006, the weighted-average interest rate for the line of credit was 5.55%. The interest rate on the line of credit is based on LIBOR plus 0.875%, which includes facility fees. This rate can range from LIBOR plus 0.75% to LIBOR plus 1.625% depending on our financial results. Subject to customary covenants, the line of credit allows for borrowings from time to time up to $650 million, including up to $50 million of standby letters of credit. Borrowings on the line of credit fluctuate daily based on cash needs. As of March 31, 2006, we had $495 million of borrowings and $6 million of standby letters of credit outstanding; $149 million remained available for borrowing under our line of credit. As of April 7, 2006, $377 million of the borrowings under our line of credit was repaid. Note 4. Employee Pension Plans Plum Creek Timber Company, Inc. sponsors defined benefit pension plans and a defined contribution pension plan. Substantially all employees of the Operating Partnership are covered by these plans. All of Plum Creek’s activities are conducted through the Operating Partnership. Therefore, all employee pension and retirement plan assets, obligations and costs are allocated to the Operating Partnership. The components of net periodic benefit cost were as follows for thequarterly periods ended March 31 (in millions): |
Quarter Ended March 31, | ||||||||
---|---|---|---|---|---|---|---|---|
| 2006 | 2005 | ||||||
Service cost | $ | 2 | $ | 2 | ||||
Interest cost | 1 | 1 | ||||||
Expected return on plan assets | (1 | ) | (1 | ) | ||||
Net periodic benefit cost | $ | 2 | $ | 2 | ||||
| Shares Subject to Options | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value (Millions) | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at January 1, 2006 | 2,302,130 | $ | 27.34 | |||||||||||
Granted | 419,180 | 35.74 | ||||||||||||
Exercised/surrendered | (142,533 | ) | 16.96 | |||||||||||
Cancelled/forfeited | (38,043 | ) | 19.35 | |||||||||||
Outstanding, March 31, 2006 | 2,540,734 | $ | 29.43 | 7.0 | $ | 19 | ||||||||
Vested or expected to vest, | ||||||||||||||
March 31, 2006 | 2,373,239 | $ | 29.28 | 6.9 | $ | 18 | ||||||||
Exercisable, March 31, 2006 | 1,477,170 | $ | 26.15 | 5.7 | $ | 16 | ||||||||
The table below presents stock activity related to stock options exercised in thequarters ended March 31 (in millions): |
| 2006 | 2005 | ||||||
---|---|---|---|---|---|---|---|---|
Proceeds from stock options exercised | $ | 2 | $ | 3 | ||||
Intrinsic value of stock options exercised | $ | 3 | $ | 4 | ||||
Tax benefit related to stock options exercised | $ | - | $ | 0 | .1 | |||
The weighted-average measurement date fair values of stock option awards granted for the quarters ended March 31 were computed using the Black-Scholes-Merton option valuation model with the following assumptions: |
| 2006 | 2005 |
---|---|---|
Expected term | 6 | 6 |
Risk-free interest rate | 4.5% | 4.1% |
Volatility | 23.1% | 24.0% |
Dividend yield | 4.5% | 4.1% |
Weighted-average measurement date fair values per share | $ 6.09 | $ 6.82 |
The expected term of the options represents the estimated period of time until exercise and is based on the vesting period of the award and the historical exercise experience of similar awards. All participants were assumed to have similar exercise behavior. Expected volatility is based on historical volatility over the approximate expected term of the option. Restricted Stock.Under the Plan, restricted stock of Plum Creek Timber Company, Inc. may be awarded to certain directors, officers and employees of the Operating Partnership. Restricted stock may not be sold, assigned, transferred, pledged or otherwise disposed of for a period of time from the date on which the restricted stock was granted. The recipients of restricted stock generally have the rights of stockholders of Plum Creek with respect to voting and receipt of dividends during the restricted period. Restricted stock generally vest three years from the grant date. Termination of employment prior to the end of the restricted period will generally require the return of the restricted stock to Plum Creek. The weighted-average grant date fair values of restricted stock awards granted for the quarters ended March 31, 2006 and 2005 were $36.01 and $37.35, respectively. The fair value of restricted stock is based on the closing price of Plum Creek’s common stock on the date of grant. Restricted stock awards activity was as follows for thequarter ended March 31, 2006: |
| Shares | Weighted- Average Grant Date Fair Value | ||||||
---|---|---|---|---|---|---|---|---|
Balance at January 1, 2006 | 72,300 | $ | 34 | .45 | ||||
Granted | 16,200 | 36 | .01 | |||||
Vested | (5,900 | ) | 23 | .66 | ||||
Forfeited | (1,000 | ) | 37 | .97 | ||||
Balance at March 31, 2006 | 81,600 | $ | 35 | .50 | ||||
The total fair value of restricted stock awards that vested during the quarters ended March 31, 2006 and 2005 was less than $1 million each. Restricted Stock Units.Under the Plan, restricted stock units of Plum Creek Timber Company, Inc. may be awarded to certain directors, officers and employees of the Operating Partnership. No restricted stock units were awarded prior to 2006. The recipients of restricted stock units generally have the right to receive a cash amount equal to any dividends paid on Plum Creek’s common stock during the restriction period and upon vesting, the right to receive an equal number of shares of Plum Creek’s common stock. Restricted stock units vest over a four-year period at a rate of 25% per year. If employment is terminated prior to vesting, all unvested restricted stock units are forfeited. Plum Creek granted and had outstanding 69,825 restricted stock units for the quarter ended March 31, 2006, with a weighted-average grant date fair value of $35.74 per unit. No restricted stock units were forfeited or vested during the quarter ended March 31, 2006. The fair value of restricted stock units is based on the closing price of Plum Creek’s common stock on the date of grant. Dividend Equivalents.Under the Plan, dividend equivalents may be granted in connection with stock options. Dividend equivalents represent the right to receive a payment equal in value to the per-share dividend paid over a five-year period by Plum Creek multiplied by the number of unexercised stock options. No dividend equivalents were awarded during 2006. For awards granted in 2005 and 2004, each year during the five-year performance period, a participant may be eligible to earn a percentage of Plum Creek’s current year dividend plus a percentage of prior year unearned dividends to the extent that Plum Creek’s total shareholder return on an annualized basis is at least 5.5% at the end of any such year. The total shareholder return computation consists of Plum Creek’s stock price appreciation plus dividends paid. The specific percentage to be applied to any such earned dividends for a given year of the performance period is contingent upon Plum Creek’s performance for that year measured against the performance of a peer group of companies. Dividends are earned in whole or in part based on a sliding scale. If Plum Creek’s total shareholder return is below the 50th percentile of the peer group, then the percentage amount is zero. If Plum Creek’s total shareholder return is at or above the 75th percentile, the full amount of the dividend is earned. If Plum Creek’s relative performance is between the 50th and the 75th percentile, dividend equivalents are valued based on a sliding scale between 50% and 100% of the dividends paid during the year. For awards granted prior to 2004, each year during the respective five-year performance period, a participant may earn an amount equal to Plum Creek’s current year dividend plus prior year unearned dividends to the extent Plum Creek’s total shareholder return on an annualized basis equals or exceeds 13% for 15 trading days out of any 30 trading day period in any given year. Payments related to any earned dividend equivalents are made at the end of the five-year performance period. Amounts earned, if any, are paid in the quarter immediately following the end of the five-year performance period. Unless otherwise specified by the participant, each payment is paid in cash, except that any officer not in compliance with Plum Creek’s stock ownership guidelines is required to receive up to half of the payment value in Plum Creek’s common stock. If a participant terminates employment prior to the end of the five-year performance period, a cash payment is made for any performance goals achieved in connection with vested stock options through the last day of employment. Payment related to unvested stock options and performance goals achieved after termination of employment are forfeited. At March 31, 2006, 1.7 million dividend equivalents, net of forfeitures, granted to employees, officers and directors of the Operating Partnership were outstanding. Presented below is a summary of outstanding dividend equivalent awards and related fair values, unrecognized compensation expense and maximum valueas of March 31, 2006 (dollars in millions): |
Performance Period | Outstanding Units | Fair Value (A) | Unrecognized Compensation Expense | Maximum Award Value | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2002 to 2006 | 367,549 | $ | 2.0 | $ | 0.4 | $ | 2.8 | |||||||
2003 to 2007 | 406,500 | $ | 3.0 | $ | 1.2 | $ | 3.1 | |||||||
2004 to 2008 | 469,812 | $ | 1.3 | $ | 0.7 | $ | 2.8 | |||||||
2005 to 2009 | 431,500 | $ | 0.8 | $ | 0.6 | $ | 2.8 |
(A) | The estimated fair value includes unrecognized compensation expense. |
The five-year performance period for the 2000 grants ended on December 31, 2004; amounts earned of $3 million were paid (primarily in cash) during the first quarter of 2005. The five-year performance period for the 2001 grants ended on December 31, 2005; amounts earned of $3 million were paid (primarily in cash) during the first quarter of 2006. Value Management Awards.Value management awards provide incentive compensation to participants that is contingent upon Plum Creek’s performance over a three-year period measured against the performance of a peer group consisting of forest products companies, the S&P 500 Index and the Morgan Stanley REIT Index over the same period. Value management awards are earned in whole or in part based on a sliding scale. No value management award is earned if Plum Creek’s total shareholder return is below the 50th percentile of the peer group. The full value management award is earned if Plum Creek’s total shareholder return is above the 75th percentile. A unit has a face value of $100. The value of an award between the 50th and 75th percentile is based on a sliding scale between 0% and 200% of the face value. Amounts earned, if any, are paid in the quarter immediately following the end of the three-year performance period. Unless otherwise specified by the participant, each payment will be paid in cash, except that any officer not in compliance with Plum Creek’s stock ownership guidelines is required to receive up to half of the payment value in Plum Creek common stock. Generally, to be entitled to the payment, a participant must be employed by the Operating Partnership on the last date of the performance period. Value management awards activity was as follows for thequarter ended March 31, 2006: |
| Units | ||||
---|---|---|---|---|---|
Balance at January 1, 2006 | 79,535 | ||||
Grants | 56,940 | ||||
Payments | -- | ||||
Forfeitures | (100 | ) | |||
Balance at March 31, 2006 | 136,375 | ||||
Presented below is a summary of outstanding value management awards and related fair values, unrecognized compensation expense and maximum valueas of March 31, 2006 (dollars in millions): |
Performance Period | Outstanding Units | Fair Value (A) | Unrecognized Compensation Expense | Maximum Award Value | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 to 2006 | 38,160 | $ | 1.1 | $ | 0.3 | $ | 7.6 | |||||||
2005 to 2007 | 41,275 | $ | 1.6 | $ | 1.0 | $ | 8.3 | |||||||
2006 to 2008 | 56,940 | $ | 3.6 | $ | 3.3 | $ | 11.4 |
(A) | The estimated fair value includes unrecognized compensation expense. |
Northern Resources | Southern Resources | Real Estate | Manufactured Products | Other(A) | Total(B) | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Quarter Ended March 31, 2006 | ||||||||||||||||||||
External revenues | $ | 92 | $ | 122 | $ | 61 | $ | 134 | $ | 5 | $ | 414 | ||||||||
Intersegment revenues | 23 | -- | -- | -- | -- | 23 | ||||||||||||||
Depreciation, depletion and | ||||||||||||||||||||
amortization | 9 | 13 | -- | 8 | -- | 30 | ||||||||||||||
Basis of real estate sold | -- | -- | 10 | -- | -- | 10 | ||||||||||||||
Operating income | 35 | 50 | 44 | 8 | 5 | 142 | ||||||||||||||
Quarter Ended March 31, 2005 | ||||||||||||||||||||
External revenues | $ | 69 | $ | 131 | $ | 68 | $ | 129 | $ | 3 | $ | 400 | ||||||||
Intersegment revenues | 19 | -- | -- | -- | -- | 19 | ||||||||||||||
Depreciation, depletion and | ||||||||||||||||||||
amortization | 7 | 13 | -- | 7 | -- | 27 | ||||||||||||||
Basis of real estate sold | -- | -- | 18 | -- | -- | 18 | ||||||||||||||
Operating income | 29 | 63 | 43 | 8 | 2 | 145 |
(A) | During the first quarter of 2005, Plum Creek sold its remaining coal reserves for total proceeds of $21 million. The net gain from this sale, after deducting our book basis of $1 million, was $20 million, which has been reported in our income statement as a separate line item below Income from Continuing Operations. |
(B) | Consolidated depreciation, depletion and amortization includes unallocated corporate depreciation of $1 million for the quarter ended March 31, 2006. Certain direct segment costs previously included in corporate and other unallocated expenses were reclassified to conform with the current year presentation. |
A reconciliation of total operating income to income before income taxes is presented below for thequarterly periods endedMarch 31 (in millions): |
Quarter Ended March 31, | ||||||||
---|---|---|---|---|---|---|---|---|
| 2006 | 2005 | ||||||
Total segment operating income | $ | 142 | $ | 145 | ||||
Interest expense, net | (31 | ) | (27 | ) | ||||
Corporate and other unallocated expenses | (15 | ) | (11 | ) | ||||
Income before income taxes | $ | 96 | $ | 107 | ||||
• | the failure to meet our expectations with respect to our likely future performance; |
• | an unanticipated reduction in the demand for timber products and/or an unanticipated increase in supply of timber products; |
• | an unanticipated reduction in demand for higher and better use timberlands or non-strategic timberlands; |
• | our failure to make strategic acquisitions or to integrate any such acquisitions effectively or, conversely, our failure to make strategic divestitures; and |
• | our failure to qualify as a real estate investment trust, or REIT. |
It is likely that if one or more of the risks materializes, or if one or more assumptions prove to be incorrect, the current expectations of Plum Creek and its management will not be realized. Forward-looking statements speak only as of the date made, and neither Plum Creek nor its management undertakes any obligation to update or revise any forward-looking statements. The following discussion and analysis should be read in conjunction with the financial information and analysis included in our 2005 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 28, 2006. Results of Operations The following table and narrative compare operating results by segment for thequarters ended March 31(in millions): |
Quarter Ended March 31, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| 2006 | 2005 | Change | ||||||||
Operating Income by Segment | |||||||||||
Northern Resources | $ | 35 | $ | 29 | $ | 6 | |||||
Southern Resources | 50 | 63 | (13 | ) | |||||||
Real Estate | 44 | 43 | 1 | ||||||||
Manufactured Products | 8 | 8 | -- | ||||||||
Other | 5 | 2 | 3 | ||||||||
Total Segment Operating Income | 142 | 145 | (3 | ) | |||||||
Other Costs & Eliminations | (15 | ) | (11 | ) | (4 | ) | |||||
Operating Income | $ | 127 | $ | 134 | $ | (7 | ) | ||||
1st Quarter 2006 | 1st Quarter 2005 | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Property | Acres Sold | Revenues (millions) | Revenue per Acre | Acres Sold | Revenues (millions) | Revenue per Acre | ||||||||||||||
Small Non-Strategic | 15,050 | $ | 22 | $ | 1,465 | 18,525 | $ | 23 | $ | 1,225 | ||||||||||
Large Non-Strategic | -- | -- | -- | -- | -- | -- | ||||||||||||||
Conservation | 1,815 | 3 | 1,475 | 8,650 | 13 | 1,550 | ||||||||||||||
Higher and Better Use / Recreational | 3,860 | 19 | 4,960 | 9,100 | 24 | 2,600 | ||||||||||||||
Development Properties | 1,075 | 9 | 8,595 | 20 | -- | 23,500 | ||||||||||||||
Conservation Easements | n/a | 8 | 1,300 | n/a | 8 | 427 | ||||||||||||||
Total | 21,800 | $ | 61 | 36,295 | $ | 68 | ||||||||||||||
Revenues decreased by $7 million to $61 million in 2006. This decrease is due primarily to the timing and location of sales of conservation and higher and better use properties ($15 million) offset in part by an increase in the sales of development properties ($9 million). The timing of real estate sales is a function of many factors, including the availability of government and not-for-profit funding, the general state of the economy, the ability to obtain entitlements, the plans of adjacent landowners, our expectation of future price appreciation and the timing of harvesting activities. The company employs an ongoing process designed to identify the long-term best use for each of its properties to guide the investment and management decisions on each property. Currently, our 8.2 million acres includes 6.1 million acres of core timberlands, 420,000 acres of timberlands considered to be non-strategic, and 1.7 million acres of timberlands with higher value for uses other than growing timber. The non-strategic timberlands generally consist of small tracts and are expected to be sold over the next five years. The 1.7 million acres with higher values are further segmented into three categories: conservation (500,000 acres); recreation and higher and better use properties (975,000 acres); and those properties we expect to be developed (225,000 acres) by a taxable REIT subsidiary. The higher value properties, located throughout our ownership, may be sold over approximately the next 15 years. The company’s evaluation of best economic use and future plans for its properties will change as markets for timber and alternative land uses evolve. As these changes occur, additional core timberlands may be categorized as conservation, higher and better use, or development properties. Until these properties are sold, they will continue to be used productively in our business of growing and selling timber. Revenues from development properties increased as the company had sales from four projects during the first quarter of 2006 compared to one project in 2005. Listed below is a summary as of March 31, 2006 of our entitled or developed properties: |
PROJECT STATUS Location (County, State) | Year Sales Begin | Total Acres | Acres Sold(A) | Average Selling Price Per Acre | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Entitled or Developed Projects | ||||||||||||||
Lake, MT | 2006 | 466 | -- | -- | ||||||||||
Flathead, MT | 2006 | 521 | 217 | $ | 8,597 | |||||||||
Adams, WI | 2006 | 40 | -- | -- | ||||||||||
Price, WI | 2006 | 93 | -- | -- | ||||||||||
Langdale, WI | 2006 | 618 | -- | -- | ||||||||||
King, WA | 2006 | 1,900 | -- | -- | ||||||||||
Piscataquis, ME | 2002 | 450 | 386 | $ | 16,231 | |||||||||
Oneida, WI | 2005 | 47 | 16 | $ | 11,250 | |||||||||
4,135 | 619 | |||||||||||||
Projects Entirely Sold | ||||||||||||||
Lake, MT | 2006 | 140 | 140 | $ | 6,200 | |||||||||
Newton, GA | 2006 | 413 | 413 | $ | 12,349 | |||||||||
Butts, GA | 2006 | 305 | 305 | $ | 4,328 | |||||||||
858 | 858 | |||||||||||||
(A) | Acres Sold represents sales since inception of the project. |
| 2006 | 2007 | 2008 | 2009 | 2010 | Thereafter | Total | Fair Value(A) | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
March 31, 2006 | ||||||||||||||||||||||||||
Fixed Rate Debt | ||||||||||||||||||||||||||
Principal due (B) | $ | 157 | $ | 123 | $ | 147 | $ | 200 | $ | 59 | $ | 994 | $ | 1,680 | $ | 1,737 | ||||||||||
Average interest rate | 7.2 | % | 7.1 | % | 7.1 | % | 6.9 | % | 6.9 | % | 6.3 | % | ||||||||||||||
Variable Rate Debt(C) | $ | 50 | -- | -- | $ | 495 | -- | -- | $ | 545 | $ | 545 |
| 2005 | 2006 | 2007 | 2008 | 2009 | Thereafter | Total | Fair Value(B) | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
March 31, 2005 | ||||||||||||||||||||||||||
Fixed Rate Debt | ||||||||||||||||||||||||||
Principal due(B) | $ | 27 | $ | 157 | $ | 123 | $ | 147 | $ | 200 | $ | 753 | $ | 1,407 | $ | 1,508 | ||||||||||
Average interest rate | 7.5 | % | 7.5 | % | 7.4 | % | 7.5 | % | 7.3 | % | 7.1 | % | ||||||||||||||
Variable Rate Debt | -- | -- | -- | $ | 20 | $ | 448 | -- | $ | 468 | $ | 468 |
(A) | The increase in fair value of our fixed rate debt compared to March 31, 2005 was due primarily to the issuance of $300 million in Senior Notes in November of 2005, partially offset by generally higher interest rates at March 31, 2006 compared to 2005 and the repayment of $27 million of fixed rate borrowings during 2005. |
(B) | Excludes unamortized premium of $3 million at March 31, 2006 and $9 million at March 31, 2005. |
(C) | As of March 31, 2006, the weighted-average interest rate on the $495 million borrowings under our $650 million revolving line of credit was 5.55%. The interest rate on the line of credit is based on LIBOR plus 0.875%, which includes facility fees. This rate can range from LIBOR plus 0.75% to LIBOR plus 1.625% depending on our financial results. As of April 7, 2006, $377 million of the borrowings under our line of credit was repaid. The company also has a $50 million one-year term loan agreement due in May of 2006. The term loan was used to finance the acquisition of approximately 35,000 acres of Florida timberlands. As of March 31, 2006, the interest rate for the term loan was 5.27%, which is based on LIBOR plus 0.5%. This rate can range from LIBOR plus 0.4% to LIBOR plus 1.075% depending on our financial results. |
Period | Total Number of Shares Purchased(A) | Average Price Paid per Share (B) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (C) | ||||
---|---|---|---|---|---|---|---|---|
January 1, 2006 through January 31, 2006 | 81 shares of common stock | $37.61 per share | — | $157 million (aggregate for all periods) | ||||
February 1, 2006 through February 28, 2006 | No purchase activity | — | — | $157 million (aggregate for all periods) | ||||
March 1, 2006 through March 31, 2006 | No purchase activity | — | — | $157 million (aggregate for all periods) | ||||
Total | 81 shares of common stock | $37.61 per share | — | $157 million (aggregate for all periods) |
(A) | Represents shares of the corporation’s common stock purchased by the corporation from a deferred compensation benefits trust in a non-open market transaction. The shares of stock were sold by the trust to the corporation in exchange for cash that was used to pay withholding tax associated with employees electing payout of deferred stock compensation from the trust. |
(B) | The average closing price of the corporation’s common stock on the date of the deferred compensation payout for all employees who elected payout of deferred stock compensation from the trust. |
(C) | On October 17, 2002, the corporation issued a press release announcing that its Board of Directors had authorized a $200 million share repurchase program. As of May 4, 2006, the corporation has repurchased approximately two million shares of its common stock for a total cost of $43 million. |
Exhibit Designation | Nature of Exhibit | |
2.4 | Agreement and Plan of Merger by and among Georgia-Pacific Corporation, North American Timber Corp., NPI Timber, Inc., GNN Timber, Inc., GPW Timber, Inc., LRFP Timber, Inc., NPC Timber, Inc. and Plum Creek Timber Company, Inc. (Form 8-K/A, File No. 1-10239, dated July 18, 2000). Amendment No. 1 to the Agreement and Plan of Merger, dated as of June 12, 2001 (Form 8-K, File No. 1-10239, dated June 12, 2001). | |
2.5 | Real Estate Purchase and Sale Agreements between Plum Creek Timberlands, L.P., a wholly owned subsidiary of Plum Creek Timber Company, Inc., and Soterra LLC, a subsidiary of Greif, Inc., each dated March 28, 2005 (Form 8-K, File No. 1-10239, dated March 28, 2005). | |
2.6 | Real Estate Purchase and Sale Agreement between Plum Creek Timberlands, L.P., a wholly owned subsidiary of Plum Creek Timber Company, Inc., and Escanaba Timber, LLC, dated September 30, 2005 (Form 8-K, File No. 1-10239, dated October 3, 2005). | |
3.1 | Restated Certificate of Incorporation of Plum Creek Timber Company, Inc. (Form 10-Q, File No. 1-10239, for the quarter ended March 31, 2002). | |
3.2 | Amended and Restated By-laws of Plum Creek Timber Company, Inc. (Form 10-Q, File No. 1-10239, for the quarter ended March 31, 2002). | |
4.2 | Indenture (including Form of Note and Guarantee), dated as of November 14, 2005, by and among Plum Creek Timberlands, L.P., as issuer, Plum Creek Timber Company, Inc., as guarantor, and U.S. Bank National Association, as trustee, governing the terms of 5.875% Senior Notes due 2015 (Form 8-K, File No. 1-10239, filed November 14, 2005). | |
4.3 | Officer’s Certificate, dated November 14, 2005, establishing the terms and form of 5.875% Senior Notes due 2015 (incorporated herein by reference to Form 8-K filed on November 14, 2005). | |
4.4 | Officer’s Certificate, dated May 2, 2006, reopening 5.875% Senior Notes due 2015 (Form 8-K, File No. 1-10239, filed May 2, 2006). | |
12.1 | Computation of ratio of earnings to fixed charges and computation of ratio of earnings to combined fixed charges and preferred stock dividends. | |
31.1 | Certification of Rick R. Holley, President and Chief Executive Officer, pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended. | |
31.2 | Certification of William R. Brown, Executive Vice President and Chief Financial Officer, pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended. | |
32.1 | Certification of Rick R. Holley, President and Chief Executive Officer, pursuant to Rules 13a-14(b) and 15d-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Certification of William R. Brown, Executive Vice President and Chief Financial Officer, pursuant to Rules 13a-14(b) and 15d-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
SIGNATURESPursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. |
PLUM CREEK TIMBER COMPANY, INC. (Registrant) BY: /s/ David A. Brown —————————————— DAVID A. BROWN Vice President and Chief Accounting Officer (Duly Authorized Officer and Chief Accounting Officer) |
Date: May 4, 2006