Accounting Policies (Policy) | 12 Months Ended |
Dec. 31, 2014 |
PLUM CREEK TIMBER CO INC [Member] | |
General | General. Plum Creek Timber Company, Inc. (“Plum Creek,” “the company,” “we,” “us,” or “our”), a Delaware Corporation, is a real estate investment trust, or “REIT”, for federal income tax purposes. Plum Creek Timber Company, Inc. is also the parent company of its wholly-owned subsidiary Plum Creek Timberlands, L.P. (“the Partnership”), a Delaware Limited Partnership. At December 31, 2014, the company owned and managed approximately 6.6 million acres of timberlands in the Northwest, Southern and Northeast United States, and owned seven wood product conversion facilities in the Northwest United States. Included in the 6.6 million acres are approximately 775,000 acres of higher value timberlands, which are expected to be sold and/or developed over the next fifteen years for recreational, conservation or residential purposes. In addition, the company has approximately 225,000 acres of non-strategic timberlands, which are expected to be sold in smaller acreage transactions over the near and medium term. In the meantime, all of our timberlands continue to be managed productively in our business of growing and selling timber. |
Basis of Presentation | Basis of Presentation. The consolidated financial statements of the company include the accounts of Plum Creek Timber Company, Inc. and its subsidiaries. Intercompany transactions and accounts have been eliminated in consolidation. All transactions are denominated in United States dollars. |
Use of Estimates | Use of Estimates. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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. |
Concentrations Disclosure | Customer Concentrations. Annual revenues from the company’s largest customer accounted for 7% of total annual revenues in 2014, 2013, and 2012. If market conditions for wood products were to deteriorate, the loss of this customer could have a significant effect on the company’s results of operations. |
|
Product Concentrations. Sales of the company’s timber and wood products are dependent upon the economic conditions of the housing, repair and remodeling, industrial, and pulp and paper industries. Sales of the company’s timberlands are dependent upon the general economic conditions in the United States, interest rates and the availability of buyer financing from financial institutions, not-for-profit organizations and government sources. As a result of these product concentrations, a prolonged decline in these markets could have a significant impact on the company’s results of operations. |
Revenue Recognition | Revenue Recognition. |
|
Resources Revenue. Timber sales revenues are recognized when legal ownership and the risk of loss transfers to the purchaser and the quantity sold is determinable. The company sells timber under delivered log agreements as well as through sales of standing timber (or “stumpage”). For delivered sales, revenue, which includes amounts billed for shipping and handling (logging and hauling of timber), is recognized when the log is delivered to the customer. Stumpage is sold using pay-as-cut or, less frequently, using timber deed sale agreements. Under a pay-as-cut sales contract, the purchaser acquires the right to harvest specified timber on a tract, at an agreed upon price per unit. The sale and any related advances are recognized as revenue as the purchaser harvests the timber on the tract. Under a timber deed sale, the buyer agrees to purchase and harvest specified timber on a tract of land over the term of the contract (usually 18 months or less). Unlike a pay-as-cut sales contract, risk of loss and title to the trees transfer to the buyer when the contract is signed. The buyer also pays the full purchase price when the contract is signed. Revenue from a timber deed sale is recognized when the contract is signed. |
|
Manufacturing Revenue. Revenues generated from the sale of lumber, plywood, medium density fiberboard (“MDF”) and related by-products (primarily wood chips), and amounts billed for shipping and handling are recognized at the time of delivery. |
|
Real Estate Revenue. Revenue from the sale of real estate is recognized when the sale has been consummated, the buyer’s initial and ongoing payments are adequate, the risks and rewards of owning the property have transferred to the buyer, and the company has no continuing involvement with the property. For all of our real estate sales, the company receives the entire consideration in cash at closing. Also at closing, the risks and rewards of ownership transfer to the buyer and the company does not have a continuing involvement in our properties after they are sold. Therefore, real estate revenue is recognized at closing. |
|
Revenue from real estate development projects is generally recognized under the full accrual method of accounting because sales generally do not commence until the project is completed. Broker commissions and closing costs of our Real Estate Segment are included in Cost of Goods Sold. |
|
The company will occasionally sell timberlands to a single buyer under a multi-period contract covering a series of prescheduled closings and/or options. Under these multi-period contracts, once title and risk of loss have transferred to the buyer for individual properties, the properties sold cannot be returned for a refund. However, deposits for future closings under multi-period contracts may be refunded under certain circumstances. The company treats each closing under a multi-period arrangement as a separate sale. Revenue in connection with a multi-period contract is generally recognized at closing equal to the lesser of the non-refundable consideration received or an allocation of total consideration based on fair value. |
|
Revenue generated from real estate sales includes the sale of higher value timberlands, non-strategic timberlands and large blocks of timberlands. In some of these transactions, the company sells timberlands that qualify for like-kind (tax-deferred) exchange treatment under the Internal Revenue Code. Substantially all of these sales involve a third party intermediary, whereby the third party intermediary receives proceeds related to the property sold and then reinvests the proceeds in like-kind property. The proceeds are recorded as revenue when the third party intermediary receives them. See “Like-Kind Exchanges”. |
|
Energy and Natural Resources Revenue. Overriding royalties earned in connection with aggregate mineral rights are recognized as revenue when the underlying aggregates are sold and the company is entitled to its share of the gross selling price. Additionally, royalties from aggregates leases and oil and gas leases are recognized as revenue when the underlying minerals are sold and the company is entitled to its share of the gross selling price. Generally, the mineral owners and lessees make payments to the company based on a percentage of the gross sales price of the minerals they sell. For overriding royalty and lease agreements with varying royalty percentages, revenue recognition is based on the relative-selling-price method, which may result in the deferral of revenue to future periods. |
|
Also, included within oil and gas royalties are lease bonus payments, which are typically paid upon the execution of a lease. Lease bonus payments are initially recorded as deferred revenue and are generally recognized as revenue over the period the lessee is entitled to explore for oil and gas. Certain of the company’s leases are also subject to minimum annual payments. In some cases, lessees must make minimum annual or quarterly payments which are generally recoupable over certain time periods. These minimum payments are recorded as deferred revenue when received. The deferred revenue attributable to the minimum payment is recognized as royalty revenue when the lessee recoups the minimum payment through production. The deferred revenue is also recognized as revenue upon the expiration of the lessee’s ability to recoup the payments. |
Cash and Cash Equivalents | Cash and Cash Equivalents. All highly liquid investments purchased with an original maturity of three months or less are considered to be cash equivalents. Substantially all of the cash and cash equivalents are invested in money market funds. |
Accounts Receivable | Accounts Receivable. Accounts receivable is presented net of an allowance for doubtful accounts of $0.2 million at both December 31, 2014 and December 31, 2013. Accounts are deemed past due based on payment terms. The allowance for doubtful accounts represents management’s estimate and is based on historical losses, recent collection history, credit ratings of individual customers and existing economic conditions. Delinquent accounts are charged against the allowance for doubtful accounts to the extent and at the time they are deemed uncollectible. |
Like-Kind Exchanges | Like-Kind Exchanges. Plum Creek may enter into like-kind (tax-deferred) exchange transactions to acquire and sell assets, principally timberlands. These transactions may include both forward (timberlands sold, followed by reinvestment of proceeds to acquire timberlands) and reverse (timberlands purchased, followed by receipt of proceeds from timberland sales) like-kind exchanges. The company uses a qualified escrow and/or trust account to facilitate like-kind exchange transactions. Funds from forward like-kind exchange transactions are restricted from being used until the funds are either successfully reinvested in timber and timberlands or the exchange fails and the proceeds are distributed to the company. |
Inventories | Inventories. Logs, work-in-process and finished goods are stated at the lower of cost or market using the average cost method. A separate lower of cost or market analysis is prepared for each product line (i.e. lumber, plywood and MDF). Net realizable value is determined based on actual selling prices at the end of the accounting period. Losses on firm purchase commitments for logs are recorded when the related manufactured finished products are expected to be sold at a loss based on current product prices. Supplies inventories are stated at cost. Costs for manufactured inventories include raw materials, labor, supplies, energy, depreciation and production overhead. Cost of log inventories include timber depletion, stumpage, associated logging and harvesting costs, road costs and production overhead. |
Timber and Timberlands | Timber and Timberlands. Timber (including timber deeds and logging roads) and timberlands are stated at cost less accumulated depletion for timber previously harvested and accumulated road amortization. The company capitalizes timber and timberland purchases along with reforestation costs and other costs associated with the planting and growing of timber, such as site preparation, growing or purchases of seedlings, planting, fertilization, herbicide application and the thinning of tree stands to improve growth. The company presents timber and timberland purchases and the capitalized costs described above under Investing Activities on the Consolidated Statements of Cash Flows. A timber deed, also called timber cutting rights, allows the company to harvest timber on timberlands it does not own over a specific time period (currently less than 10 years). The company capitalizes timber deed acquisitions. The company presents timber deed acquisitions under Operating Activities on the Consolidated Statements of Cash Flows. Timber carrying costs, such as real estate taxes, insect control, wildlife control, leases of timberlands (other than lease payments for the purchase of standing timber, in which case the payments are capitalized) and forest management personnel salaries and fringe benefits, are expensed as incurred. Costs of major roads are capitalized and amortized over 30 years. Costs for roads that are built to access multiple logging sites over numerous years are capitalized and amortized over 6 years. Costs for roads built to access a single logging site are expensed as incurred. |
|
Costs attributable to timber harvested, or depletion, are charged against income as trees are harvested. Depletion rates are determined annually based on the relationship between net carrying value of the timber plus certain capitalizable silviculture costs expected to be incurred over the harvest cycle and total timber volume estimated to be harvested over the harvest cycle. The depletion rate does not include an estimate for either future reforestation costs associated with a stand’s final harvest or future volume in connection with the replanting of a stand subsequent to its final harvest. Net carrying value of the timber and timberlands is used to compute the gain or loss in connection with timberland sales. |
Minerals and Mineral Rights Policy | Minerals and Mineral Rights. Minerals and mineral rights are stated at cost less accumulated depletion. The company capitalizes the cost of obtaining minerals and mineral rights. The cost of minerals (primarily coal assets) are charged against income (depletion expense) using the units-of-production method, based on estimated recoverable reserves. |
The costs of mineral rights are charged against income (depletion expense) as the company recognizes royalty income from the sale of the products extracted from the quarries. Depletion rates are determined annually based on the relationship between the net carrying value of the mineral rights over the estimated remaining tons of mineral reserves. |
The company evaluates its minerals and mineral rights for potential impairment whenever circumstances indicate the book basis of an asset group may not be recoverable. The company considers each of its mineral rights and coal assets to be a separate asset group based on identifiable cash flows. |
Real Estate Held for Development and Sale, Policy | Higher and Better Use Timberlands / Real Estate Development. We estimate that included in the company’s 6.6 million acres of timberlands are approximately 775,000 acres of higher value timberlands, which are expected to be sold and/or developed over the next fifteen years for recreational, conservation or residential purposes. Included within the 775,000 acres of higher value timberlands are approximately 500,000 acres we expect to sell for recreational uses, approximately 200,000 acres we expect to sell for conservation and approximately 75,000 acres that are identified as having development potential. In the meantime, all of our timberlands continue to be managed productively in our business of growing and selling timber. Some of our real estate activities, including our real estate development business, are conducted through our wholly-owned taxable REIT subsidiaries. |
|
Costs associated with a specific real estate development project are capitalized when management estimates that it is probable that a project will be successful. Both external and internal expenditures directly associated with the specific real estate project are capitalized. The company will capitalize improvements and other development costs, including interest costs and property taxes, during the development period. General real estate development costs not related to a specific project and costs incurred before management has concluded that it is probable that a project will be successful (e.g. investigatory costs) are expensed as incurred. For real estate development projects with multiple parcels, the company determines the cost of the individual lots sold by allocating the historical cost of the land, timber, development and common construction costs on a relative sales value. |
|
Properties developed by the company will generally be low-intensity development limited to activities associated with obtaining entitlements. Capitalized real estate development costs, including the book basis in the related timber and timberlands associated with these developments, were $12 million and $13 million at December 31, 2014 and 2013, respectively. Substantially all of these properties are expected to be sold beyond one year and are included in Other Assets (non-current). |
|
The company also incurs development costs on some timberlands that are currently still managed for timber operations. These consist of larger and more complicated projects needing more invested capital. These projects have a longer timeframe and are not expected to be sold or developed in the near term. The capitalized development costs for these projects and the book basis of the related timber and timberlands were $37 million and $36 million at December 31, 2014 and December 31, 2013, respectively, and are included in Timber and Timberlands. |
|
The book basis of timberlands that are considered held for sale are presented in the Consolidated Balance Sheet as Assets Held for Sale. The total book basis for assets held for sale was $98 million at December 31, 2014 and $92 million at December 31, 2013. Generally, timberlands that are under contract to sell or are listed for sale through an independent broker or by a taxable REIT subsidiary and are expected to be sold within the next year are considered assets held for sale. The book basis of timberlands that do not meet the held for sale criteria is included in Timber and Timberlands. |
|
The company evaluates its real estate development projects for potential impairment whenever circumstances indicate the book basis of an asset group may not be recoverable. The company considers each of its real estate development projects to be a separate asset group based on identifiable cash flows. |
Accounting for Equity Method Investments | Accounting for Equity Method Investments. In 2013, the company and MeadWestvaco Corporation ("MWV") formed a limited liability company ("MWV-Charleston Land Partners, LLC") for which the company made a capital contribution, in cash, of $152 million and MWV contributed real estate development properties. The company accounts for this interest under the equity method of accounting. Earnings are recognized as Earnings from Unconsolidated Entities in the Consolidated Statements of Income. See Note 18 of the Notes to Consolidated Financial Statements. |
|
In 2008, the company contributed 454,000 acres of timberlands located in its Southern Resources Segment to a timberland venture in exchange for a $705 million preferred interest and a $78 million common interest. The company accounts for these interests under the equity method of accounting. Earnings are recognized as Earnings from Unconsolidated Entities in our Consolidated Statements of Income. See Note 18 of the Notes to Consolidated Financial Statements. |
Property, Plant, and Equipment | Property, Plant and Equipment. Property, plant and equipment are recorded at cost. Replacements of major units of property are capitalized, and the replaced units are retired. Replacement of minor components of property and repair and maintenance costs are charged to expense as incurred. |
|
The company evaluates its property, plant and equipment for potential impairment whenever circumstances indicate the book basis of an asset group may not be recoverable. The company considers each of its manufacturing facilities to be a separate asset group based on identifiable cash flows. |
|
All property, plant and equipment other than manufacturing machinery (for lumber, plywood and MDF) are depreciated using the straight-line method over the estimated useful lives of the related assets. Manufacturing machinery and equipment are depreciated on either a straight-line basis or a units-of-production basis, which approximates a straight-line basis. Useful lives are 19 years for land improvements, 20 to 45 years for buildings, and 3 to 20 years for machinery and equipment. Leasehold improvements are depreciated over the lease term or estimated useful life, whichever is shorter. The cost and related accumulated depreciation of property sold or retired are removed from the accounts and any gain or loss is recorded. Depreciation expense, excluding impairment charges, was $21 million, $24 million, and $22 million for the years ended December 31, 2014, 2013, and 2012, respectively. |
Grantor Trusts | Grantor Trusts. The company has a grantor trust that was established for deferred compensation and deferred Plum Creek shares. See Note 12 of the Notes to Consolidated Financial Statements. Deferred compensation assets, which include money market and mutual fund investments, are classified as “trading securities” and are carried at market value. Realized gains and losses and changes in unrealized gains and losses and a corresponding amount of compensation expense are recorded in the Consolidated Statements of Income. |
|
Plum Creek maintains another grantor trust, which the company uses to fund its non-qualified pension plan obligation. See Notes 12 and 14 of the Notes to Consolidated Financial Statements. Money market and mutual fund investments held by this trust are classified as “available for sale securities.” The investments are carried at market values on the company’s Consolidated Balance Sheets. Realized gains and losses are recognized in the Consolidated Statements of Income; changes in unrealized gains and losses are recorded as other comprehensive income or loss, unless an other than temporary impairment has occurred, in which case an impairment loss is recognized in the Consolidated Statements of Income. |
Shipping and Handling Costs | Shipping and Handling Costs. Costs incurred for the transportation of timber and manufactured products are included in Cost of Goods Sold. |
Accounting for Share-Based Compensation | Accounting for Share-Based Compensation. All share-based payments to employees are recognized in the income statement based on their fair values. The company uses the grant date fair values (the closing market price for its common stock) to value stock awards of restricted stock units and common stock. The company also grants share-based awards that are classified and accounted for as liabilities. These awards are valued using a Monte Carlo simulation. |
Other Operating Income | Other Operating Income (Expense), net. The company will recognize gains and losses from miscellaneous asset sales, insurance recoveries, litigation settlements and other items which are reported in our Consolidated Statements of Income as Other Operating Income (Expense), net. See Note 21 of the Notes to Consolidated Financial Statements. Other Operating Income (Expense), net consists of the following for the years ended December 31 (in millions): |
|
| | | | | | | | | | | | |
| | 2014 | | 2013 | | 2012 |
Realized Gains from Grantor Trust Investments | | $ | 2 | | | $ | 1 | | | $ | 1 | |
|
Gain on Insurance Settlements | | 13 | | | 1 | | | — | |
|
MDF Fire Impairment Loss | | (2 | ) | | — | | | — | |
|
Loss on Early Termination of an Equipment Lease | | — | | | (5 | ) | | — | |
|
Other | | 2 | | | 1 | | | — | |
|
Total Other Operating Income (Expense), net | | $ | 15 | | | $ | (2 | ) | | $ | 1 | |
|
| | | | | | |
Reclassifications | Reclassifications. Certain prior year amounts have been reclassified to conform to the 2014 presentation. The reclassifications had no impact on operating income or net income. |
New Accounting Pronouncements | New Accounting Pronouncements. There were no new accounting standards adopted by the company during 2014 that had a material impact on the company's financial condition, results of operations or cash flows. |
PLUM CREEK TIMBERLANDS L P [Member] | |
General | General. Plum Creek Timberlands, L.P. is a Delaware Limited Partnership and a wholly-owned subsidiary of Plum Creek Timber Company, Inc. (“Parent”), a Delaware Corporation and a real estate investment trust, or “REIT”. References herein to “the Operating Partnership,” “we,” “us,” or “our” relate to Plum Creek Timberlands, L.P. and all of its wholly-owned consolidated subsidiaries; references to “Plum Creek” or “Parent” relate to Plum Creek Timber Company, Inc. and all of its wholly-owned consolidated subsidiaries. |
|
At December 31, 2014, the Operating Partnership owned and managed approximately 6.6 million acres of timberlands in the Northwest, Southern and Northeast United States, and owned seven wood product conversion facilities in the Northwest United States. Included in the 6.6 million acres are approximately 775,000 acres of higher value timberlands, which are expected to be sold and/or developed over the next fifteen years for recreational, conservation or residential purposes. In addition, the Operating Partnership has approximately 225,000 acres of non-strategic timberlands, which are expected to be sold in smaller acreage transactions over the near and medium term. In the meantime, all of our timberlands continue to be managed productively in our business of growing and selling timber. |
Basis of Presentation | Basis of Presentation. The consolidated financial statements of the Operating Partnership include the accounts of Plum Creek Timberlands, L.P. and its subsidiaries. The Operating Partnership is 100% owned by Plum Creek. Plum Creek has no assets or liabilities other than its direct and indirect ownership interests in Plum Creek Timberlands, L.P. and its interest in Plum Creek Ventures I, LLC (“PC Ventures”), a 100% owned subsidiary of Plum Creek. The Parent has no operations other than its investment in these subsidiaries and transactions in its own equity, such as the issuance and/or repurchase of common stock and the receipt of proceeds from stock option exercises. Intercompany transactions and accounts between Plum Creek Timberlands, L.P. and its subsidiaries have been eliminated in consolidation. All transactions are denominated in United States dollars. |
Use of Estimates | Use of Estimates. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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. |
Concentrations Disclosure | Customer Concentrations. Annual revenues from the Operating Partnership’s largest customer accounted for 7% of total annual revenues in 2014, 2013, and 2012. If market conditions for wood products were to deteriorate, the loss of this customer could have a significant effect on the Operating Partnership’s results of operations. |
|
Product Concentrations. Sales of the Operating Partnership’s timber and wood products are dependent upon the economic conditions of the housing, repair and remodeling, industrial, and pulp and paper industries. Sales of the Operating Partnership’s timberlands are dependent upon the general economic conditions in the United States, interest rates and the availability of buyer financing from financial institutions, not-for-profit organizations and government sources. As a result of these product concentrations, a prolonged decline in these markets could have a significant impact on the Operating Partnership’s results of operations. |
Revenue Recognition | Revenue Recognition. |
|
Resources Revenue. Timber sales revenues are recognized when legal ownership and the risk of loss transfers to the purchaser and the quantity sold is determinable. The Operating Partnership sells timber under delivered log agreements as well as through sales of standing timber (or “stumpage”). For delivered sales, revenue, which includes amounts billed for shipping and handling (logging and hauling of timber), is recognized when the log is delivered to the customer. Stumpage is sold using pay-as-cut or, less frequently, using timber deed sale agreements. Under a pay-as-cut sales contract, the purchaser acquires the right to harvest specified timber on a tract, at an agreed upon price per unit. The sale and any related advances are recognized as revenue as the purchaser harvests the timber on the tract. Under a timber deed sale, the buyer agrees to purchase and harvest specified timber on a tract of land over the term of the contract (usually 18 months or less). Unlike a pay-as-cut sales contract, risk of loss and title to the trees transfer to the buyer when the contract is signed. The buyer also pays the full purchase price when the contract is signed. Revenue from a timber deed sale is recognized when the contract is signed. |
|
Manufacturing Revenue. Revenues generated from the sale of lumber, plywood, medium density fiberboard (“MDF”) and related by-products (primarily wood chips), and amounts billed for shipping and handling, are recognized at the time of delivery. |
|
Real Estate Revenue. Revenue from the sale of real estate is recognized when the sale has been consummated, the buyer’s initial and ongoing payments are adequate, the risks and rewards of owning the property have transferred to the buyer, and the Operating Partnership has no continuing involvement with the property. For all of our real estate sales, the Operating Partnership receives the entire consideration in cash at closing. Also at closing, the risks and rewards of ownership transfer to the buyer and the Operating Partnership does not have a continuing involvement in our properties after they are sold. Therefore, real estate revenue is recognized at closing. |
|
Revenue from real estate development projects is generally recognized under the full accrual method of accounting because sales generally do not commence until the project is completed. Broker commissions and closing costs of our Real Estate Segment are included in Cost of Goods Sold. |
|
The Operating Partnership will occasionally sell timberlands to a single buyer under a multi-period contract covering a series of prescheduled closings and/or options. Under these multi-period contracts, once title and risk of loss have transferred to the buyer for individual properties, the properties sold cannot be returned for a refund. However, deposits for future closings under multi-period contracts may be refunded under certain circumstances. The Operating Partnership treats each closing under a multi-period arrangement as a separate sale. Revenue in connection with a multi-period contract is generally recognized at closing equal to the lesser of the non-refundable consideration received or an allocation of total consideration based on fair value. |
|
Revenue generated from real estate sales includes the sale of higher value timberlands, non-strategic timberlands and large blocks of timberlands. In some of these transactions, the Operating Partnership sells timberlands that qualify for like-kind (tax-deferred) exchange treatment under the Internal Revenue Code. Substantially all of these sales involve a third party intermediary, whereby the third party intermediary receives proceeds related to the property sold and then reinvests the proceeds in like-kind property. The proceeds are recorded as revenue when the third party intermediary receives them. See “Like-Kind Exchanges”. |
|
Energy and Natural Resources Revenue. Overriding royalties earned in connection with aggregate mineral rights are recognized as revenue when the underlying aggregates are sold and the Operating Partnership is entitled to its share of the gross selling price. Additionally, royalties from aggregates leases and oil and gas leases are recognized as revenue when the underlying minerals are sold and the Operating Partnership is entitled to its share of the gross selling price. Generally, the mineral owners and lessees make payments to the Operating Partnership based on a percentage of the gross sales price of the minerals they sell. For overriding royalty and lease agreements with varying royalty percentages, revenue recognition is based on the relative-selling-price method, which may result in the deferral of revenue to future periods. |
|
Also, included within oil and gas royalties are lease bonus payments, which are typically paid upon the execution of a lease. Lease bonus payments are initially recorded as deferred revenue and are generally recognized as revenue over the period the lessee is entitled to explore for oil and gas. Certain of the Operating Partnership's leases are also subject to minimum annual payments. In some cases, lessees must make minimum annual or quarterly payments which are generally recoupable over certain time periods. These minimum payments are recorded as deferred revenue when received. The deferred revenue attributable to the minimum payment is recognized as royalty revenue when the lessee recoups the minimum payment through production. The deferred revenue is also recognized as revenue upon the expiration of the lessee’s ability to recoup the payments. |
Cash and Cash Equivalents | Cash and Cash Equivalents. All highly liquid investments purchased with an original maturity of three months or less are considered to be cash equivalents. Substantially all of the cash and cash equivalents are invested in money market funds. |
Accounts Receivable | Accounts Receivable. Accounts receivable is presented net of an allowance for doubtful accounts of $0.2 million at both December 31, 2014 and December 31, 2013. Accounts are deemed past due based on payment terms. The allowance for doubtful accounts represents management’s estimate and is based on historical losses, recent collection history, credit ratings of individual customers and existing economic conditions. Delinquent accounts are charged against the allowance for doubtful accounts to the extent and at the time they are deemed uncollectible. |
Like-Kind Exchanges | Like-Kind Exchanges. The Operating Partnership may enter into like-kind (tax-deferred) exchange transactions to acquire and sell assets, principally timberlands. These transactions may include both forward (timberlands sold, followed by reinvestment of proceeds to acquire timberlands) and reverse (timberlands purchased, followed by receipt of proceeds from timberland sales) like-kind exchanges. The Operating Partnership uses a qualified escrow and/or trust account to facilitate like-kind exchange transactions. Funds from forward like-kind exchange transactions are restricted from being used until the funds are either successfully reinvested in timber and timberlands or the exchange fails and the proceeds are distributed to the Operating Partnership. |
Inventories | Inventories. Logs, work-in-process and finished goods are stated at the lower of cost or market using the average cost method. A separate lower of cost or market analysis is prepared for each product line (i.e. lumber, plywood and MDF). Net realizable value is determined based on actual selling prices at the end of the accounting period. Losses on firm purchase commitments for logs are recorded when the related manufactured finished products are expected to be sold at a loss based on current product prices. Supplies inventories are stated at cost. Costs for manufactured inventories include raw materials, labor, supplies, energy, depreciation and production overhead. Cost of log inventories include timber depletion, stumpage, associated logging and harvesting costs, road costs and production overhead. |
Timber and Timberlands | Timber and Timberlands. Timber (including timber deeds and logging roads) and timberlands are stated at cost less accumulated depletion for timber previously harvested and accumulated road amortization. The Operating Partnership capitalizes timber and timberland purchases along with reforestation costs and other costs associated with the planting and growing of timber, such as site preparation, growing or purchases of seedlings, planting, fertilization, herbicide application and the thinning of tree stands to improve growth. The Operating Partnership presents timber and timberland purchases and the capitalized costs described above under Investing Activities on the Consolidated Statements of Cash Flows. A timber deed, also called timber cutting rights, allows the Operating Partnership to harvest timber on timberlands it does not own over a specific time period (currently less than 10 years). The Operating Partnership capitalizes timber deed acquisitions. The Operating Partnership presents timber deed acquisitions under Operating Activities on the Consolidated Statements of Cash Flows. Timber carrying costs, such as real estate taxes, insect control, wildlife control, leases of timberlands (other than lease payments for the purchase of standing timber, in which case the payments are capitalized) and forest management personnel salaries and fringe benefits, are expensed as incurred. Costs of major roads are capitalized and amortized over 30 years. Costs for roads that are built to access multiple logging sites over numerous years are capitalized and amortized over 6 years. Costs for roads built to access a single logging site are expensed as incurred. |
|
Costs attributable to timber harvested, or depletion, are charged against income as trees are harvested. Depletion rates are determined annually based on the relationship between net carrying value of the timber plus certain capitalizable silviculture costs expected to be incurred over the harvest cycle and total timber volume estimated to be harvested over the harvest cycle. The depletion rate does not include an estimate for either future reforestation costs associated with a stand’s final harvest or future volume in connection with the replanting of a stand subsequent to its final harvest. Net carrying value of the timber and timberlands is used to compute the gain or loss in connection with timberland sales. |
Minerals and Mineral Rights Policy | Minerals and Mineral Rights. Minerals and mineral rights are stated at cost less accumulated depletion. The Operating Partnership capitalizes the cost of obtaining minerals and mineral rights. The cost of minerals (primarily coal assets) are charged against income (depletion expense) using the units-of-production method, based on estimated recoverable reserves. |
The costs of mineral rights are charged against income (depletion expense) as the Operating Partnership recognizes royalty income from the sale of the products extracted from the quarries. Depletion rates are determined annually based on the relationship between the net carrying value of the mineral rights over the estimated remaining tons of mineral reserves. |
The Operating Partnership evaluates its minerals and mineral rights for potential impairment whenever circumstances indicate the book basis of an asset group may not be recoverable. The Operating Partnership considers each of its mineral rights and coal assets to be a separate asset group based on identifiable cash flows. |
Real Estate Held for Development and Sale, Policy | Higher and Better Use Timberlands / Real Estate Development. We estimate that included in the Operating Partnership’s 6.6 million acres of timberlands are approximately 775,000 acres of higher value timberlands, which are expected to be sold and/or developed over the next fifteen years for recreational, conservation or residential purposes. Included within the 775,000 acres of higher value timberlands are approximately 500,000 acres we expect to sell for recreational uses, approximately 200,000 acres we expect to sell for conservation and approximately 75,000 acres that are identified as having development potential. In the meantime, all of our timberlands continue to be managed productively in our business of growing and selling timber. Some of our real estate activities, including our real estate development business, are conducted through our wholly-owned taxable REIT subsidiaries. |
|
Costs associated with a specific real estate development project are capitalized when management estimates that it is probable that a project will be successful. Both external and internal expenditures directly associated with the specific real estate project are capitalized. The Operating Partnership will capitalize improvements and other development costs, including interest costs and property taxes, during the development period. General real estate development costs not related to a specific project and costs incurred before management has concluded that it is probable that a project will be successful (e.g. investigatory costs) are expensed as incurred. For real estate development projects with multiple parcels, the Operating Partnership determines the cost of the individual lots sold by allocating the historical cost of the land, timber, development and common construction costs on a relative sales value. |
|
Properties developed by the Operating Partnership will generally be low-intensity development limited to activities associated with obtaining entitlements. Capitalized real estate development costs, including the book basis in the related timber and timberlands associated with these developments, were $12 million and $13 million at December 31, 2014 and 2013, respectively. Substantially all of these properties are expected to be sold beyond one year and are included in Other Assets (non-current). |
|
The Operating Partnership also incurs development costs on some timberlands that are currently still managed for timber operations. These consist of larger and more complicated projects needing more invested capital. These projects have a longer timeframe and are not expected to be sold or developed in the near term. The capitalized development costs for these projects and the book basis of the related timber and timberlands were $37 million and $36 million at December 31, 2014 and December 31, 2013, respectively, and are included in Timber and Timberlands. |
|
The book basis of timberlands that are considered held for sale are presented in the Consolidated Balance Sheet as Assets Held for Sale. The total book basis for assets held for sale was $98 million at December 31, 2014 and $92 million at December 31, 2013. Generally, timberlands that are under contract to sell or are listed for sale through an independent broker or by a taxable REIT subsidiary and are expected to be sold within the next year are considered assets held for sale. The book basis of timberlands that do not meet the held for sale criteria is included in Timber and Timberlands. |
|
The Operating Partnership evaluates its real estate development projects for potential impairment whenever circumstances indicate the book basis of an asset group may not be recoverable. The Operating Partnership considers each of its real estate development projects to be a separate asset group based on identifiable cash flows. |
Accounting for Equity Method Investments | Accounting for Equity Method Investments. In 2013, the Operating Partnership and MeadWestvaco Corporation ("MWV") formed a limited liability company ("MWV-Charleston Land Partners, LLC") for which the Operating Partnership made a capital contribution, in cash, of $152 million and MWV contributed real estate development properties. The Operating Partnership accounts for this interest under the equity method of accounting. Earnings are recognized as Earnings from Unconsolidated Entities in the Consolidated Statements of Income. See Note 16 of the Notes to Consolidated Financial Statements. |
|
In 2008, a subsidiary of the Operating Partnership, Plum Creek Timber Operations I, LLC (“PC Member”), contributed 454,000 acres of timberlands located in its Southern Resources Segment to a timberland venture in exchange for a $705 million preferred interest and a $78 million common interest. The Operating Partnership accounts for these interests under the equity method of accounting. Earnings are recognized as Earnings from Unconsolidated Entities in our Consolidated Statements of Income. See Note 16 of the Notes to Consolidated Financial Statements. |
Property, Plant, and Equipment | Property, Plant and Equipment. Property, plant and equipment are recorded at cost. Replacements of major units of property are capitalized, and the replaced units are retired. Replacement of minor components of property and repair and maintenance costs are charged to expense as incurred. |
|
The Operating Partnership evaluates its property, plant and equipment for potential impairment whenever circumstances indicate the book basis of an asset group may not be recoverable. The Operating Partnership considers each of its manufacturing facilities to be a separate asset group based on identifiable cash flows. |
|
All property, plant and equipment other than manufacturing machinery (for lumber, plywood and MDF) are depreciated using the straight-line method over the estimated useful lives of the related assets. Manufacturing machinery and equipment are depreciated on either a straight-line basis or a units-of-production basis, which approximates a straight-line basis. Useful lives are 19 years for land improvements, 20 to 45 years for buildings, and 3 to 20 years for machinery and equipment. Leasehold improvements are depreciated over the lease term or estimated useful life, whichever is shorter. The cost and related accumulated depreciation of property sold or retired are removed from the accounts and any gain or loss is recorded. Depreciation expense, excluding impairment charges, was $21 million, $24 million, and $22 million for the years ended December 31, 2014, 2013, and 2012, respectively. |
Grantor Trusts | Grantor Trusts. The Operating Partnership has a grantor trust that was established for deferred compensation and deferred Plum Creek shares. See Note 10 of the Notes to Consolidated Financial Statements. Deferred compensation assets, which include money market and mutual fund investments, are classified as “trading securities” and are carried at market value. Realized gains and losses and changes in unrealized gains and losses and a corresponding amount of compensation expense are recorded in the Consolidated Statements of Income. |
|
The Operating Partnership maintains another grantor trust, which the Operating Partnership uses to fund its non-qualified pension plan obligation. See Notes 10 and 12 of the Notes to Consolidated Financial Statements. Money market and mutual fund investments held by this trust are classified as “available for sale securities.” The investments are carried at market values on the Operating Partnership’s Consolidated Balance Sheets. Realized gains and losses are recognized in the Consolidated Statements of Income; changes in unrealized gains and losses are recorded as other comprehensive income or loss, unless an other than temporary impairment has occurred, in which case an impairment loss is recognized in the Consolidated Statements of Income. |
Shipping and Handling Costs | Shipping and Handling Costs. Costs incurred for the transportation of timber and manufactured products are included in Cost of Goods Sold. |
Accounting for Share-Based Compensation | Accounting for Share-Based Compensation. All share-based payments to employees are recognized in the income statement based on their fair values. The Operating Partnership uses the grant date fair values (the closing market price for Plum Creek’s common stock) to value Plum Creek stock awards of restricted stock units and common stock. Plum Creek also grants share-based awards that are classified and accounted for as liabilities. These awards are valued using a Monte Carlo simulation. |
Other Operating Income | Other Operating Income (Expense), net. The Operating Partnership will recognize gains and losses from miscellaneous asset sales, insurance recoveries, litigation settlements and other items which are reported in our Consolidated Statements of Income as Other Operating Income (Expense), net. See Note 19 of the Notes to Consolidated Financial Statements. Other Operating Income (Expense), net consists of the following for the years ended December 31 (in millions): |
|
| | | | | | | | | | | | |
| | 2014 | | 2013 | | 2012 |
Realized Gains from Grantor Trust Investments | | $ | 2 | | | $ | 1 | | | $ | 1 | |
|
Gain on Insurance Settlements | | 13 | | | 1 | | | — | |
|
MDF Fire Impairment Loss | | (2 | ) | | — | | | — | |
|
Loss on Early Termination of an Equipment Lease | | — | | | (5 | ) | | — | |
|
Other | | 2 | | | 1 | | | — | |
|
Total Other Operating Income (Expense), net | | $ | 15 | | | $ | (2 | ) | | $ | 1 | |
|
| | | | | | |
Reclassifications | Reclassifications. Certain prior year amounts have been reclassified to conform to the 2014 presentation. The reclassifications had no impact on operating income or net income. |
New Accounting Pronouncements | New Accounting Pronouncements. There were no new accounting standards adopted by the Operating Partnership during 2014 that had a material impact on the Operating Partnership's financial condition, results of operations or cash flows. |