Plum Creek Timber Company, Inc. (PCL)

PCL 
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Industry: Consumer Services
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Plum Creek Timbe (PCL)

Q4 2010 Earnings Call

January 31, 2011 5:00 pm ET

Executives

David Lambert - Chief Financial Officer and Senior Vice President

Rick Holley - Chief Executive Officer, President and Executive Director

John Hobbs - Vice President of Investor Relations

Analysts

John Tumazos - Independent Research

Peter Ruschmeier - Barclays Capital

Daniel Cooney - Keefe, Bruyette, & Woods, Inc.

Joshua Zaret - Longbow Research LLC

Joshua Barber - Stifel, Nicolaus & Co., Inc.

Mark Wilde - Deutsche Bank AG

George Staphos

Richard Skidmore - Goldman Sachs Group Inc.

Steven Chercover - D.A. Davidson & Co.

Chip Dillon - Crédit Suisse AG

Mark Weintraub - Buckingham Research Group, Inc.

Gail Glazerman - UBS Investment Bank

Presentation

Operator

Good afternoon. My name is Zerona, and I will be your conference operator today. At this time, I would like to welcome everyone to the Plum Creek Earnings Conference Call. [Operator Instructions] Mr. John Hobbs, Vice President of Investor Relations, you may begin your conference.

John Hobbs

Thank you, Zerona. Good afternoon, ladies and gentlemen, and welcome to the Year-End 2010 Conference Call for Plum Creek. I'm John Hobbs, Vice President of Investor Relations for the company. Today, we have on the line Rick Holley, President and CEO; and David Lambert, Senior Vice President and CFO.

This call is open to all investors and members of the media. However, the Q&A portion of the call is intended for the professional investment community only. We ask that other participants please follow up with any questions by calling me at 1 (800) 858-5347. I encourage you to visit our website, www.plumcreek.com. There you will find our press release and supplemental financial statements for the full year and fourth quarter of 2010.

Before we begin, I'd like to take this time to remind everyone that certain of our statements today will be forward-looking, involving known and unknown risks, uncertainties and other factors that may cause actual results or performance to differ from those expressed or implied. These risks and factors are routinely detailed in our filings with the Securities and Exchange Commission. Following today's prepared remarks, we'll open up the call for your questions.

Now, I'll turn the call over to Rick.

Rick Holley

Good afternoon and Happy New Year. Despite a challenging economic environment, with near-record unemployment and a very weak housing market, Plum Creek had a good year in 2010. Performance in our timber resource segments, our Manufacturing segment and our non-timber resource businesses all improved in 2010, as we were able to take advantage of marketplace anomalies.

During the first half of the year, unusually wet weather in the South and inventory restocking of both log yards and the finished products supply chain helped boost prices and income in our timber resource and Manufacturing businesses. In addition, we were able to take advantage of the disruption in medium density fiberboard and plywood markets caused by the Chilean earthquake to incrementally add to our Manufacturing earnings.

In our Real Estate segment, we completed the final phase of our three-year Montana conservation transaction. While total real estate income declined $98 million from 2009, all of the reduction is due to the smaller size of the final phase of the Montana conservation transaction. Income from the final phase was $125 million lower than the phase completed in 2009. We continue to hold our most valuable real estate, in such states as Florida and Georgia, off the market. We'll patiently wait for the value of these properties to rebound when the overall real estate market recovers.

Throughout 2010, we continued to manage our assets with an eye on long-term value. We invested $71 million in our businesses, using $65 million to replant trees and improve forest productivity, which will increase the future harvest and cash flow from this asset. Given the weak markets and continued depressed prices for our sawlogs, we reduced our sawlog harvest more than 500,000 tons from our initial plans. Although this decision impacted our cash flow and earnings for 2010, it also allows us to plant, we're going to harvest these trees in the future and capture significantly more values as markets and prices recover.

We're also focused on strengthening our investment-grade balance sheet by refinancing upcoming debt maturities at attractive rates. During the year, we reduced our total debt by nearly $100 million, and in November, completed a $575 million 10-year bond offering at 4.7%. We used the proceeds from this attractively priced offering to prepay $213 million of notes maturing in 2011. The average coupon on the notes retired was 7.71%. In addition, we prepaid in full a $250 million term credit agreement scheduled to mature in 2012. The remaining $94 million of 2011 debt maturities will be funded with our line of credit. Both Moody's and S&P reaffirmed our investment-grade credit rating and upgraded our outlook to positive during the course of the year.

We also renewed our line of credit for $600 million at favorable rates, which provides the company with ample liquidity. We continue to manage our portfolio of timberlands, selling some nonstrategic lands at attractive prices and using the proceeds to repurchase our stock at attractive values. During 2010, we sold 24,000 acres, that generated marginal cash flow, for $32 million. We used the proceeds to repurchase 1.4 million shares of our common stock at $36.37 per share. Over the last five years, we've repurchased $24 million shares, or 13% of our shares, at compelling values in attractive long-term investment and are saving $40 million annually in dividends in attractive short-term investment.

Importantly, our cash flow from operations was $449 million, which more than covered our annual dividend payment of $272 million. We ended the year in excellent financial shape with $252 million of cash, an additional $434 million available under our line of credit.

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