Oct 27, 2008. /Lesprom.com/. Plum Creek Timber Company, Inc. announced 3Q earnings of $69 million, or $0.40 per diluted share, on revenues of $414 million. Earnings for the 3Q of 2007 were $59 million, or $0.34 per diluted share, on revenues of $407 million. 3Q earnings for 2007 included a $4 million non-cash expense, or $0.02 per diluted share, related to fire losses experienced in Montana during the quarter. Earnings for the first nine months of 2008 were $138 million, or $0.80 per diluted share, on revenues of $1.15 billion. These results include the effect of a $6 million after-tax ($10 million pre-tax) impairment charge related to the company’s lumber manufacturing business recognized during the second quarter. The impairment charge reduced net income by $0.04 per diluted share. Earnings for the first nine months of 2007 were $164 million, or $0.93 per diluted share, on revenues of $1.17 billion. Results for the first nine months of 2007 include a $2 million after-tax gain on the sale of an industrial mineral asset. As a result, income from continuing operations was $162 million, or $0.92 per diluted share. Cash provided by operating activities during the first nine months of the year totaled $225 million. The company ended the third quarter with $175 million in cash and cash equivalents. “We’re pleased to report increased income during the third quarter, reflecting the benefits of Plum Creek’s geographic, resource and business diversity,” said Rick Holley, President and CEO. “While the extended housing downturn has influenced the near-term results of our timber and manufacturing businesses, our rural land sales and non-timber resource businesses continued to perform well during the third quarter. In addition, we temporarily increased pulpwood harvest levels in many markets to serve strong customer demand and capture attractive prices. While we are concerned about the state of the overall economy, we are confident that we can continue to build and deliver value for our shareholders by managing our resources and effectively allocating capital for long-term total returns.” “Plum Creek enters the final quarter of the year in excellent financial shape,” continued Holley. “We have a strong balance sheet, and following our recently completed Southern timberland joint venture we have an untapped $750 million line of credit and cash in excess of $270 million. We will continue to capitalize on this position to make opportunistic investments, in both complementary timberlands and stock repurchases, consistent with our disciplined capital allocation focus. With our broad and diverse portfolio of valuable hard assets and our strong financial position, we are in an excellent position to make operational decisions today that protect and enhance long-term shareholder value, despite difficult economic conditions.” Review of operations The Northern Resources segment reported a $12 million operating profit during the quarter. Segment operating profit for the same period a year ago was $8 million and included the impact of a $4 million non-cash loss resulting from fire damage to Montana timberlands in 2007. The segment’s sawlog harvest volume was similar to the same period of 2007 while prices were approximately 2 percent lower. Northern pulpwood prices have increased approximately 24 percent over the past year due to continued strong demand for pulpwood in the Northeast and Lake States regions. The company increased its pulpwood harvest 14 percent compared to the prior year’s level to serve this customer demand and capture these attractive prices. Operating profit in the Southern Resources segment was $29 million for the third quarter of 2008, down approximately $10 million from the $39 million reported during the third quarter of 2007. As in the Northern segment, weak sawlog markets were partially offset by strong pulpwood markets across the South. Sawlog prices have been under pressure for the past year as lumber mills curtailed production in the face of weakening housing activity. During the third quarter, average sawlog prices declined approximately 4 percent and, as a result, were down approximately 18 percent year-over-year. The company reduced its sawlog harvest approximately 13 percent in response to these market conditions. Pulp and paper mills’ demand for pulpwood remained favorable across the South. Pulpwood prices gained approximately 15 percent over the prior year’s level. In response to the attractive market conditions, the company maintained an accelerated pace of pulpwood production, increasing its pulpwood harvest approximately 13 percent compared to the same period last year. The Real Estate segment reported revenue of $108 million and operating income of $73 million compared to revenue of $94 million and operating income of $61 million for the third quarter of 2007. The differences between the periods are due to the transactional nature of the business. During the third quarter, the company sold approximately 70,000 acres of land. These sales included nearly 15,000 acres of small, non-strategic lands at an average price of $1,150 per acre, nearly 40,000 acres of conservation properties at more than $1,000 per acre, and approximately 15,600 acres of recreation property sold at an average price of more than $3,200 per acre. The Manufacturing segment reported an operating loss of $4 million compared to $2 million of operating income for the third quarter of 2007. The results include a $3 million expense as the company wrote down the value of purchase log commitments. The declines in housing and industrial activity reduced demand for lumber, plywood and medium density fiberboard (MDF). Demand for MDF was particularly weak with sales volume down approximately 30 percent from the same period of last year as customers sought to match supply with weakening demand for products manufactured from MDF such as doors, flooring and millwork. The Other segment, consisting of the company’s non-timber resource businesses, continued to grow, increasing its contribution to operating income to $7 million, up $4 million from the same period of 2007. Acquisitions During the quarter the company acquired approximately 120,000 acres of timberland in three separately negotiated transactions valued at $64 million. The timberlands are located in Oregon, Georgia and Vermont. The Vermont acquisition, valued at $23 million, was the largest transaction, consisting of approximately 86,000 acres of timberlands in northeast Vermont. These mixed hardwood timberlands are subject to an existing conservation easement and complement the company’s existing ownership in New Hampshire and Maine. Subsequent Events: Formation of Southern Timberland Joint Venture and Subsequent Capital Allocation On October 1, the company completed the formation of a previously announced joint venture with The Campbell Group LLC. The transaction valued approximately 454,000 acres of Southern timberlands, contributed into the joint venture by Plum Creek, at $1,725 per acre. Also on October 1, the company received $783 million from the joint venture. Previously, the company announced its plans to utilize half of these proceeds to permanently retire existing debt, and use the balance of the proceeds for general corporate purposes, including the opportunistic repurchase of the company’s common stock. The company has proceeded as planned, and on October 1, permanently retired $75 million of private placement notes and plans to permanently retire other existing private placement notes as they mature over the next twelve months. In the interim, the company paid down $432 million, the entire drawn amount, on its $750 million revolving line of credit. Between October 1 and October 24, the company used a portion of the cash available to repurchase approximately $172 million, or approximately 4.3 million shares, of common stock at an average price of $40.08 per share. Outlook The company expects timber market conditions during the fourth quarter to continue as they have for the past several quarters with sawlog demand continuing to be weak and pulpwood demand remaining relatively strong. In the Northern Resources segment, the company expects to maintain its sawlog harvest at approximately third-quarter levels. The fourth-quarter pulpwood harvest is expected to moderate somewhat from the accelerated third-quarter levels. The Southern Resources harvest is expected to be lower for both sawlogs and pulpwood, primarily due to the harvest attributable to the lands contributed to the joint venture. In addition, the company plans to reduce the pace of its pulpwood harvest from the accelerated levels of the past several quarters. Given the recent financial market turmoil, the company has tempered its expectations for Real Estate segment revenues. During the fourth quarter, the company expects to report rural land sales between $75 and $85 million. The company’s previously announced sale of approximately 310,000 acres of Montana timberlands to the Nature Conservancy and Trust for Public Land is expected to clear its contingencies during the fourth quarter. The sale is expected to close in three phases between December of 2008 and December of 2010. The first phase is now projected to be $150 million and is scheduled to close in December of this year. Once the contingencies are cleared, the company expects to increase its earnings outlook for the fourth quarter to include the earnings benefit from this transaction. Lumber, plywood and MDF sales are expected to decline seasonally during the fourth quarter. As a result, the Manufacturing segment is expected to report lower results during the fourth quarter. The company expects to report income between $0.17 and $0.22 per share for the fourth quarter of the year, excluding the earnings from the Montana conservation sale. “Plum Creek is very-well positioned today. Our diverse asset base and sound balance sheet combine to provide us with the operational and financial flexibility to execute our strategies for long-term value creation. Closing the first phase of the Montana conservation transaction in December will further improve our strong financial position. We remain committed to our strategies for long-term value creation and understand that disciplined capital allocation is key to the company’s continued success,” Holley concluded.