PARTNERS' CAPITAL
During 2008, PC Ventures I, LLC (“PC Ventures”), a 100% wholly-owned subsidiary of Plum Creek Timber Company, Inc., borrowed $783 million from an entity in which a subsidiary of the Operating Partnership has an equity interest (the Timberland Venture). See Note 15 of the Notes to Consolidated Financial Statements. PC Ventures used the proceeds from the borrowing to make a $783 million capital contribution to the Operating Partnership in exchange for a Series T-1 Redeemable Preferred Limited Partnership Interest in the Operating Partnership (“Series T-1 Preferred Interest”). The Operating Partnership has no ownership interest in PC Ventures.
The Series T-1 Preferred Interest provides for a return of 7.375% per annum (approximately $58 million) on its contributed capital of $783 million. Distributions are payable on February 15th, May 15th, August 15th, and November 15th each year. The Series T-1 Preferred Interest is redeemable upon liquidation of the Operating Partnership. The Series T-1 Preferred Interest has a preference in liquidation over the Common Partnership Interests (Partners’ Capital) to the extent the Operating Partnership has available assets to distribute to the Series T-1 Preferred Interest.
On November 4, 2013, Plum Creek completed an equity offering, resulting in the issuance of 13.9 million shares of common stock for net proceeds of $607 million. Following the equity offering, Plum Creek made a $607 million capital contribution to the Operating Partnership. The proceeds from this capital contribution were used by the Operating Partnership to pay the cash portion of the timberland acquisition from MeadWestvaco Corporation and the acquisition related transaction fees, with the balance used to pay down approximately $376 million of the Operating Partnership’s outstanding debt. See Notes 2 and 8 of the Notes to Consolidated Financial Statements.
Comprehensive Income
Comprehensive income includes net income, actuarial gains and losses associated with our defined benefit pension plans, unrealized gains and losses on available-for-sale securities and a gain for the effective portion of a derivative transaction designated as a cash flow hedge. Comprehensive income was as follows for the years ended December 31 (in millions):
|
| | | | | | | | | | | | |
| | Pretax Amount | | Tax Expense (Benefit) | | After-Tax Amount |
December 31, 2011 | | | | | | |
Net Income before Allocation to Series T-1 Preferred Interest and Partners | | | | | | $ | 251 |
|
Unrealized Holding Gains (Losses) | | $ | (1 | ) | | $ | — |
| | (1 | ) |
Defined Benefit Plans: | | | | | | |
Actuarial Gain (Loss) | | (31 | ) | | (6 | ) | | (25 | ) |
Reclassification to Net Income | | 2 |
| | — |
| | 2 |
|
Total Comprehensive Income | | | | | | $ | 227 |
|
December 31, 2012 | | | | | | |
Net Income before Allocation to Series T-1 Preferred Interest and Partners | | | | | | $ | 261 |
|
Unrealized Holding Gains (Losses) | | $ | 2 |
| | $ | — |
| | 2 |
|
Defined Benefit Plans: | | | | | | |
Actuarial Gain (Loss) | | (2 | ) | | — |
| | (2 | ) |
Reclassification to Net Income | | 4 |
| | 1 |
| | 3 |
|
Total Comprehensive Income | | | | | | $ | 264 |
|
December 31, 2013 | | | | | | |
Net Income before Allocation to Series T-1 Preferred Interest and Partners | | | | | | $ | 272 |
|
Unrealized Holding Gains (Losses) | | $ | 5 |
| | $ | — |
| | 5 |
|
Defined Benefit Plans: | | | | | | |
Actuarial Gain (Loss) | | 25 |
| | 6 |
| | 19 |
|
Reclassification to Net Income | | 5 |
| | 1 |
| | 4 |
|
Derivative Gain (Loss) on Cash Flow Hedge | | 5 |
| | — |
| | 5 |
|
Total Comprehensive Income | | | | | | $ | 305 |
|
| | | | | | |
The components of accumulated other comprehensive income, net of tax, were as follows at December 31 (in millions):
|
| | | | | | | | | | | | | | | | |
| | Net Unrealized Holding Gain (Loss) | | Defined Benefit Plan Actuarial Net Loss | | Gain on Cash Flow Hedge | | Total |
December 31, 2011 | | $ | 6 |
| | $ | (41 | ) | | $ | — |
| | $ | (35 | ) |
Other Comprehensive Income (Loss) before reclassifications | | 2 |
| | (2 | ) | | — |
| | — |
|
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) (A) | | — |
| | 3 |
| | — |
| | 3 |
|
December 31, 2012 | | $ | 8 |
| | $ | (40 | ) | | $ | — |
| | $ | (32 | ) |
Other Comprehensive Income (Loss) before reclassifications | | 5 |
| | 19 |
| | 5 |
| | 29 |
|
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) (A) | | — |
| | 4 |
| | — |
| | 4 |
|
December 31, 2013 | | $ | 13 |
| | $ | (17 | ) | | $ | 5 |
| | $ | 1 |
|
| | | | | | | | |
(A) Amortization of actuarial gains and losses on the Operating Partnership’s defined benefit pension plans is
included in the computation of pension cost. See Note 11 of the Notes to Consolidated Financial Statements.
Cash Flow Hedge. On December 6, 2013, the Operating Partnership issued an $860 million installment note to MWV Community Development and Land Management, LLC ("MWV CDLM") in connection with the acquisition of certain timberland assets (see Notes 2 and 8 of the Notes to Consolidated Financial Statements). To hedge against interest rate risk, the Operating Partnership entered into several forward treasury lock transactions following the announcement of the acquisition on October 28, 2013. These transactions, which were executed prior to issuance of the installment note, are accounted for as cash flow hedges. These transactions settled on December 6, 2013, the date the installment note was issued, and the Operating Partnership received proceeds of $5 million that are reflected in Other Operating Activities on the Consolidated Statements of Cash Flows. The Operating Partnership recorded a gain of $5 million, the effective portion of the hedge, in Other Comprehensive Income. This gain will be amortized as a reduction to interest expense on the installment note over its term of ten years. The Operating Partnership is not a party to any other derivative arrangements.
