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| PCL > SEC Filings for PCL > Form 10-Q on 4-Nov-2009 | All Recent SEC Filings |
4-Nov-2009
Quarterly Report
Forward-Looking Statement
This Report contains forward-looking statements within the meaning of the Private Litigation Reform Act of 1995. Some of the forward-looking statements can be identified by the use of forward-looking words such as "believes," "expects," "may," "will," "should," "seeks," "approximately," "intends," "plans," "estimates," "projects," "strategy," or "anticipates," or the negative of those words or other comparable terminology. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those described in the forward-looking statements, including those factors described under the heading "Risk Factors" in our filings with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and Securities Act of 1933, as amended, including, but not limited to, our Annual Report on Form 10-K for the year ended December 31, 2008. Some factors include changes in governmental, legislative and environmental restrictions, catastrophic losses from fires, floods, windstorms, earthquakes, volcanic eruptions, insect infestations or diseases, as well as changes in economic conditions and competition in our domestic and export markets and other factors described from time to time in our filings with the Securities and Exchange Commission. In addition, factors that could cause our actual results to differ from those contemplated by our projected, forecasted, estimated or budgeted results as reflected in forward-looking statements relating to our operations and business include, but are not limited to:
• 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 the company and its management will not be realized. Forward-looking statements speak only as of the date made, and neither the company 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 2008 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 27, 2009.
Organization of the Company
In management's discussion and analysis of financial condition and results of operations (Item 2 of this form), when we refer to "Plum Creek," "the company," "we," "us," or "our," we mean Plum Creek Timber Company, Inc. and its consolidated subsidiaries. References to Notes to Consolidated Financial Statements refer to the Notes to the Consolidated Financial Statements of Plum Creek Timber Company, Inc. included in Item 1 of this Form 10-Q.
Plum Creek Timber Company, Inc., a Delaware Corporation and a real estate investment trust, or "REIT", for federal income tax purposes, is the parent company of Plum Creek Timberlands, L.P., a Delaware Limited Partnership (the "Operating Partnership"), and Plum Creek Ventures I, LLC, a Delaware Limited Liability Company ("PC Ventures"). Plum Creek conducts substantially all of its activities through the Operating Partnership and various wholly-owned subsidiaries of the Operating Partnership.
The Operating Partnership has borrowed and has currently outstanding $2.018 billion principal amount (excluding unamortized discount) of debt, including $458 million of publicly issued notes. PC Ventures
has borrowed and has currently outstanding $783 million in principal amount of debt from an entity (the Timberland Venture) in which a subsidiary of the Operating Partnership has an equity interest. PC Ventures has a preferred partnership interest in the Operating Partnership. Interest payments for this borrowing are funded by distributions to PC Ventures directly from the Operating Partnership. PC Ventures has no other activities.
As a result of this structure, "Interest Expense (Note Payable to Timberland Venture)" discussed below is not applicable to the Operating Partnership. Unless otherwise specified, all other discussion and analysis below are applicable to Plum Creek and the Operating Partnership.
Recent Events
Manufactured Products Restructure. As a result of the continuing decline in demand for wood products, during the first nine months of 2009, we announced the permanent closure of two lumber mills and indefinitely suspended production at a third. We have also reduced production at our MDF and plywood facilities. The table below provides information on the status of our current manufacturing operations, by facility, and expected production for 2009.
2009 Estimated
Production
Product and Facility (in millions)
Operating
Lumber - board feet
Columbia Falls, MT 53
Meridian, ID (Remanufacturing) 68
Plywood - square feet (3/8")
Columbia Falls, MT 72
Evergreen, MT 75
MDF - square feet (3/4")
Columbia Falls, MT (Thick Line MDF) 57
Columbia Falls, MT (Thin Line MDF) 75
Indefinitely Curtailed
Lumber - board feet
Evergreen, MT 9
Evergreen, MT (Remanufacturing) 8
Permanently Closed
Lumber - board feet
Pablo, MT 16
Fortine, MT 10
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A period-to-period comparison for our Manufactured Products Segment is included in the following results of operations discussion.
Results of Operations
Third Quarter 2009 Compared to Third Quarter 2008
The following tables and narrative compare operating results by segment for the
quarters ended September 30 (in millions):
Quarter Ended September 30,
2009 2008 Change
Operating Income (Loss) by Segment
Northern Resources $ 3 $ 12 $ (9 )
Southern Resources 21 29 (8 )
Real Estate 20 73 (53 )
Manufactured Products (1 ) (4 ) 3
Other 4 7 (3 )
Total Segment Operating Income 47 117 (70 )
Other Costs and Eliminations (9 ) (17 ) 8
Other Operating Income (Expense), net - (1 ) 1
Operating Income $ 38 $ 99 $ (61 )
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Northern Resources Segment. Key operating statistics for the segment are as follows:
Quarter Ended September 30, 2009 Quarter Ended September 30, 2008
Harvest Tons Average Sales Harvest Tons Average Sales
(millions) Realization (millions) Realization
Sawlog ($/Ton Delivered) 0.632 $ 56 0.828 $ 74
Pulpwood ($/Ton Delivered) 0.691 $ 38 0.725 $ 45
Total 1.323 1.553
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Revenues decreased by $32 million, or 34%, to $63 million in the third quarter of 2009 compared to the third quarter of 2008. This decrease was due primarily to lower sawlog harvest volumes ($15 million), lower sawlog prices ($12 million) and lower pulpwood prices ($4 million). Sawlog harvest volumes were 24% lower compared to the third quarter of 2008 due primarily to harvest deferrals as a result of weak demand and recent timberland sales. We intend to realize the harvest of these deferred timber volumes once log prices improve. Sawlog harvest levels for all of 2009 are expected to decrease by approximately 37% compared to the 3.4 million tons harvested during 2008 due primarily to harvest deferrals as a result of weak demand and recent timberland sales. Pulpwood harvest levels for all of 2009 are expected to decrease by approximately 16% compared to the 2.6 million tons harvested during 2008 due primarily to harvest levels in 2008 that were temporarily increased to capture favorable pulpwood prices and recent timberland sales.
Sawlog prices were 25% lower in the third quarter of 2009 compared to the third quarter of 2008 due primarily to the decline in housing starts as a result of the recession in the U.S. Pulpwood prices declined in the third quarter of 2009 by 15% compared to the third quarter of 2008 as a result of the global recession which has reduced the demand for paper and packaging materials.
Northern Resources Segment operating income was 5% of its revenues for the third quarter of 2009 and 13% for the third quarter of 2008. This decrease was due primarily to weaker sawlog prices and lower sawlog harvest volumes. Segment costs and expenses decreased by $23 million, or 28%, to $60 million
due primarily to lower harvest volumes and lower log and haul rates per ton. Log and haul rates per ton decreased 17% ($8 million) from the third quarter of 2008 due primarily to lower fuel costs.
Southern Resources Segment. Key operating statistics for the segment are as follows:
Quarter Ended September 30, 2009 Quarter Ended September 30, 2008
Harvest Tons Average Sales Harvest Tons Average Sales
(millions) Realization (millions) Realization
Sawlog ($/Ton Stumpage) 1.250 $ 22 1.425 $ 25
Pulpwood ($/Ton Stumpage) 2.014 $ 9 2.089 $ 10
Total 3.264 3.514
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Revenues decreased by $22 million, or 19%, to $94 million in the third quarter of 2009 compared to the third quarter of 2008. This decrease was due primarily to lower sawlog harvest volumes ($7 million), lower sawlog prices ($7 million), lower pulpwood prices ($6 million) and lower pulpwood harvest volumes ($2 million). During the fourth quarter of 2008, we contributed 454,000 acres of timberlands in our Southern Resources Segment to Southern Diversified Timber, LLC ("the Timberland Venture"). Excluding the 0.249 million tons of sawlogs harvested in the third quarter of 2008 related to the Timberland Venture properties, sawlog harvest volumes increased by 6% due primarily to a temporary increase in demand as a result of unseasonably wet weather and limited stumpage availability in certain log markets. Excluding the 0.256 million tons of pulpwood harvested in the third quarter of 2008 related to the Timberland Venture properties, pulpwood harvest volumes increased by 10% due primarily to unseasonably wet weather which increased pulpwood demand in certain markets. Sawlog harvest volumes for all of 2009 (excluding the 0.690 million tons of sawlogs harvested during 2008 from the Timberland Venture properties) are expected to decrease by 8% compared to the 4.9 million tons harvested in 2008 due primarily to continuing the deferral of harvests as a result of weak demand. Pulpwood harvest volumes for all of 2009 (excluding the 0.667 million tons of pulpwood harvested during 2008 from the Timberland Venture properties) are expected to decrease by 6% compared to the 7.3 million tons harvested in 2008 due primarily to the temporary increase in harvest levels in 2008 to capture favorable pulpwood prices.
Sawlog prices on a stumpage basis (and on a delivered basis) were 13% lower in the third quarter of 2009 compared to the third quarter of 2008 due primarily to the decline in housing starts as a result of the recession in the U.S. Pulpwood prices declined in the third quarter of 2009 by 5% on a stumpage basis (lower by 12% on a delivered basis) compared to the third quarter of 2008 as a result of the global recession which has reduced the demand for paper and packaging materials.
Southern Resources Segment operating income was 22% of its revenues for the third quarter of 2009 and 25% for the third quarter of 2008. This decrease was due primarily to weaker sawlog and pulpwood prices. Segment costs and expenses decreased by $14 million, or 16%, to $73 million. This decrease was due primarily to lower harvest levels and lower log and haul rates per ton. Log and haul rates per ton decreased 13% ($6 million) due primarily to lower fuel costs.
Real Estate Segment.
Quarter Ended September 30, 2009 Quarter Ended September 30, 2008
Acres Revenues Revenue Acres Revenues Revenue
Property Sold (millions) per Acre Sold (millions) per Acre
Small Non-Strategic 5,545 $ 5 $ 970 14,800 $ 17 $ 1,145
Conservation 43,695 15 350 39,880 41 1,035
Higher and Better Use / Recreational 10,440 22 2,115 15,640 50 3,220
Development Properties 515 5 9,190 10 - 13,130
Subtotal 60,195 48 70,330 108
Revenue from Non-Cash Exchange 20,600 25 1,205 - - -
Total 80,795 $ 73 70,330 $ 108
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Revenues decreased by $35 million, or 32%, to $73 million in 2009. Revenues for the third quarter of 2009 include a non-cash exchange valued at $25 million. Excluding the non-cash exchange, revenues decreased $60 million, or 56%, to $48 million in 2009. This decrease is due primarily to lower revenues from sales of conservation properties ($26 million), a decrease in the number of acres of higher and better use / recreational properties and small non-strategic properties sold ($27 million), lower prices from higher and better use / recreational properties ($12 million), offset in part by increased revenue from development properties ($5 million). During the third quarter of 2009, we completed a non-cash exchange with the State of Washington. We recognized $25 million of revenue which represents the fair value of the lands we received. No operating income was recognized in the transaction as the book value of the timberlands we disposed of approximated the exchange value of $25 million.
The number of acres of higher and better use / recreational and small non-strategic properties sold during the third quarter of 2009 decreased compared to the third quarter of 2008 due primarily to a decrease in the demand for rural real estate. The demand for rural real estate fell due to the decline in consumer discretionary capital (e.g., declining home values and stock market losses), declining consumer confidence and the inability of buyers to secure debt financing. Our average sales price per acre for higher and better use / recreational lands decreased approximately 35% compared to the third quarter of 2008 due primarily to selling more lower valued recreational properties. In the latter part of 2008, we changed our focus, and began to list more of our lower valued recreational properties as demand and price for properties with a higher value per acre significantly weakened due to the recession. Conservation sales vary significantly from period to period and are primarily impacted by government and not-for-profit funding, the limited number of conservation buyers, and the timing of our transactions. Additionally, the price per acre for conservation properties can vary significantly due to the geographic location and the rationale for the conservation designation. The lower price per acre for conservation properties in the third quarter of 2009 reflects that nearly all of the acres sold were in Maine and were either associated with the approval of our Concept Plan for the Moosehead Lake region or were properties with diverse ecological value but relatively low timber value.
Real Estate Segment operating income was 27% of its third quarter revenues for 2009 compared to 67% for 2008. This change was due primarily to the non-cash exchange, as the book value of the timberlands we disposed of approximated the exchange value of $25 million, and selling lower value conservation and higher and better use / recreational properties. Real Estate Segment costs and expenses increased by $18 million to $53 million in the third quarter of 2009 due primarily to the non-cash exchange during 2009 ($25 million).
Manufactured Products Segment. Key operating statistics for the segment are as follows:
Quarter Ended September 30, 2009 Quarter Ended September 30, 2008
Sales Volume Sales Realization Sales Volume Sales Realization
Lumber 40,590 MBF $ 448 74,100 MBF $ 384
Plywood 41,479 MSF $ 361 62,112 MSF $ 396
Fiberboard 34,282 MSF $ 596 44,371 MSF $ 610
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Revenues decreased by $39 million, or 38%, to $65 million in the third quarter of 2009 compared to the third quarter of 2008. This decrease was due primarily to lower lumber sales volume ($11 million), lower plywood sales volume ($9 million), lower MDF sales volume ($6 million) and lower plywood prices ($2 million). Additionally, freight charges (which is a component of both Revenues and Cost of Goods Sold) decreased by $4 million compared to the prior period due to significantly lower sales volume.
Lumber sales volume declined 45% during the third quarter of 2009 due primarily to the weak demand for lumber as a result of declining housing starts. Housing starts for all of 2008 were 905,000 homes compared to average annual starts of 1.7 million earlier in the decade. Housing starts for 2009 are now forecasted to be approximately 550,000. As a result of the weak outlook for housing starts, we have permanently closed two lumber mills during 2009 and have curtailed production at one other lumber mill.
Plywood sales volume was 33% lower during the third quarter of 2009 due primarily to weakness in specialty markets, such as recreational vehicle, transportation and concrete forming applications. The decline in these markets is due primarily to weak economic conditions in the U.S. Plywood sales prices were 9% lower during the third quarter of 2009.
MDF sales volume decreased by 23% in the third quarter of 2009 compared to the third quarter of 2008. MDF demand has weakened considerably and is expected to remain weak until the housing market recovers. The weaker demand was due primarily to the significant decline in housing starts and increased competition from foreign MDF manufacturers.
The Manufactured Products Segment operated at approximately break-even for the third quarter of 2009 compared to a $4 million operating loss for the third quarter of 2008. Included in the third quarter of 2009, was a $4 million pension settlement charge resulting from the headcount reductions at our manufacturing operations. See Note 12 of the Notes to Consolidated Financial Statements. Manufactured Products Segment costs and expenses decreased by $42 million, or 39%, to $66 million for the third quarter of 2009. This decrease was due primarily to lower lumber, plywood and MDF sales volume, partially offset by higher pension expense.
Other Costs and Eliminations. Other costs and eliminations (which consists of corporate overhead and intercompany profit elimination) decreased operating income by $9 million during the third quarter of 2009 and by $17 million during the third quarter of 2008. The decrease in expenses of $8 million was due primarily to lower share-based compensation expense ($5 million), reduced depreciation on information technology assets ($1 million) and higher legal and other advisory costs incurred in the third quarter of 2008 related to the Timberland Venture transaction in 2008 ($1 million).
The decrease in share-based compensation expense is due to a decrease in the fair value of our value management plan awards in the third quarter of 2009. We adjust the fair value of our liability associated with our value management plan quarterly based on our relative total shareholder return compared to the performance of several peer groups.
Equity Earnings from Timberland Venture. On October 1, 2008, we contributed 454,000 acres of timberlands to Southern Diversified Timber, LLC ("SDT") in exchange for a common and preferred interest. Both interests are accounted for under the equity method of accounting. During the third quarter
of 2009, we recorded our share of equity earnings from SDT of $14 million, which includes amortization ($2 million increase in equity earnings) of the difference between the book value of the company's investment and its proportionate share of SDT's net assets. We received cash distributions of $28 million from SDT during the third quarter of 2009.
Interest Expense, net (Debt Obligations to Unrelated Parties). Interest expense, net of interest income, for debt obligations to unrelated parties decreased $13 million, or 37%, to $22 million in the third quarter of 2009. This decrease was due primarily to lower borrowings outstanding compared to the third quarter of 2008 ($8 million) and lower interest rates on our variable rate debt ($5 million). During the fourth quarter of 2008, we paid down approximately $420 million of debt, consisting of $219 million of debt principal payments and a $201 million reduction of outstanding borrowings on our line of credit. During the first nine months of 2009, we paid down approximately $203 million of debt, consisting of $108 million of scheduled debt principal payments and $95 million of debt principal prepayments. A portion of the scheduled debt payments in 2009 was funded by an increase of $33 million on our line of credit. As of September 30, 2009, the weighted-average interest rate for the borrowings on the line of credit was 0.67%.
Interest Expense (Note Payable to Timberland Venture). On October 1, 2008, we borrowed $783 million from SDT (a related party) for a ten-year term at a fixed annual interest rate of 7.375%. During the third quarter of 2009, we recorded $14 million of interest expense related to the note.
Benefit for Income Taxes. The benefit for income taxes was $3 million for the third quarter of 2009 compared to a benefit for income taxes of $5 million for the third quarter of 2008. The decrease in the tax benefit of $2 million is due primarily to lower losses in our manufacturing business in the third quarter of 2009 compared to the third quarter of 2008.
Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008
The following tables and narrative compare operating results by segment for the nine months ended September 30 (in millions):
Nine Months Ended September 30,
2009 2008 Change
Operating Income (Loss) by Segment
Northern Resources $ (2 ) $ 33 $ (35 )
Southern Resources 64 103 (39 )
Real Estate 234 141 93
Manufactured Products (23 ) (24 ) 1
Other 13 17 (4 )
Total Segment Operating Income 286 270 16
Other Costs and Eliminations (36 ) (47 ) 11
Other Operating Income (Expense), net - 2 (2 )
Operating Income $ 250 $ 225 $ 25
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Northern Resources Segment. Key operating statistics for the segment are as follows:
Nine Months Ended September 30, 2009 Nine Months Ended September 30, 2008
Harvest Tons Average Sales Harvest Tons Average Sales
. . .
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