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PLUM CREEK TIMBER COMPANY INC. Reports Operating Results (10-Q)

August 05, 2009 | About:
10qk

PLUM CREEK TIMBER COMPANY INC. (PCL) filed Quarterly Report for the period ended 2009-06-30.

Plum Creek Timber is the second largest private timberland owner in the United States with approximately 7.8 million acres of timberlands located in 19 states. Their timberlands are well diversified not only by species mix but also by age distribution. Growth rates vary depending on species location age and forestry practices. They manage their timberlands in two business segments: the Northern Resources Segment and the Southern Resources Segment. PLUM CREEK TIMBER COMPANY INC. has a market cap of $5.45 billion; its shares were traded at around $33.45 with a P/E ratio of 16.9 and P/S ratio of 3.4. The dividend yield of PLUM CREEK TIMBER COMPANY INC. stocks is 5%. PLUM CREEK TIMBER COMPANY INC. had an annual average earning growth of 7.9% over the past 5 years.

Highlight of Business Operations:

Northern Resources Segment operating loss was $7 million for the second quarter of 2009 compared to operating income of $7 million for the second quarter of 2008. This decrease of $14 million was due primarily to weaker sawlog prices and lower harvest volumes. Segment costs and expenses decreased by $25 million, or 37%, to $42 million due primarily to lower harvest volumes and lower log and haul rates per ton. Log and haul rates per ton decreased 12% ($3 million) from the second quarter of 2008 due primarily to lower fuel costs.

Revenues decreased by $55 million, or 46%, to $66 million in the second quarter of 2009 compared to the second quarter of 2008. This decrease was due primarily to lower MDF sales volume ($18 million), lower plywood sales volume ($11 million), lower lumber sales volume ($7 million), lower lumber prices ($3 million) and lower plywood prices ($2 million). Additionally, freight charges (which is a component of both Revenues and Cost of Goods Sold) decreased by $6 million compared to the prior period due to significantly lower sales volume.

The Manufactured Products Segment operated at essentially break-even for the second quarter of 2009 compared to an $11 million operating loss for the second quarter of 2008. This increase in operating performance was due primarily to a $10 million lumber assets impairment charge we recorded in the second quarter of 2008. See Note 6 of the Notes to Consolidated Financial Statements. Manufactured Products Segment costs and expenses decreased by $66 million, or 50%, to $66 million for the second quarter of 2009. This decrease was due primarily to lower lumber, plywood and MDF sales volume and by the lumber assets impairment charge recorded during the second quarter of 2008.

Other Costs and Eliminations. Other costs and eliminations (which consists of corporate overhead and intercompany profit elimination) decreased operating income by $11 million during the second quarter of 2009 and by $16 million during the second quarter of 2008. The decrease of $5 million was due primarily to lower share-based compensation expense ($3 million), reduced depreciation on information technology assets ($1 million) and higher legal and other advisory costs incurred in the second quarter of 2008 related to the Timberland Venture ($1 million) transaction in 2008.

Interest Expense, net (Debt Obligations to Unrelated Parties). Interest expense, net of interest income, for debt obligations to unrelated parties decreased $11 million, or 32%, to $23 million in the second quarter of 2009. This decrease was due primarily to lower borrowings outstanding compared to the second quarter of 2008 ($6 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 six months of 2009, we paid down approximately $163 million of debt, consisting of $138 million of debt principal payments ($33 million during the second quarter of 2009) and a $25 million reduction of outstanding borrowings on our line of credit ($5 million during the second quarter of 2009).

Benefit for Income Taxes. The benefit for income taxes was $3 million for the second quarter of 2009 compared to a benefit for income taxes of $8 million for the second quarter of 2008. The decrease in the tax benefit of $5 million is due primarily to higher losses in our manufacturing business (resulting in a tax benefit of $5 million) in the prior period. In the second quarter of 2008, the losses were higher in our manufacturing business primarily as a result of a $10 million lumber assets impairment charge during the quarter. See Note 6 of the Notes to Consolidated Financial Statements.

Read the The complete ReportPCL is in the portfolios of Jean-Marie Eveillard of Arnhold & S. Bleichroeder Advisers, LLC, Tom Gayner of Markel Gayner Asset Management Corp.

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