Potlatchdeltic Corp (PCH) 2009 Q2 法說會逐字稿

Good morning. At this time I would like to welcome everyone to the Potlatch second quarter 2009 earnings conference call featuring Eric Cremers, Vice President of Finance and Chief Financial Officer; and Michael Covey, Chairman, President and Chief Executive Officer for Potlatch Corporation. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question and answer session. (Operator instructions). Now I would like to turn the call over to Mr. Eric Cremers for opening remarks. Sir, you may proceed.

Thank you and good morning and welcome to Potlatch's investor teleconference covering our second-quarter 2009 earnings.

Before we begin, let me remind you that this call may contain certain forward-looking statements within the meanings of the US securities laws. These statements include statements about the Company's future business prospects, anticipated performance in upcoming quarters, harvest levels and future dividends. These statements are not guarantees of future performance, and the Company undertakes no duty to update them. Although these statements reflect management's expectations today, they are subject to a number of business risks and uncertainties. Actual results may differ materially from those expressed or implied in this call.

For a discussion of certain factors that may cause actual results to differ from the results anticipated, please refer to Potlatch's recent filings with the SEC. Also, please note that segment information as well as a reconciliation of non-GAAP measures can be found in the supplemental materials on our website, www.potlatchcorp.com, as part of the webcast for this call.

I would now like to discuss our second-quarter results. Despite a challenging economy in the second quarter, we made significant strides in several areas. Our balance sheet has now improved as Clearwater Paper completed a refinancing event in the second quarter, effectively retiring the credit-sensitive debentures from Potlatch's balance sheet.

Further, we recently entered into a $50 million timber deed sale agreement that we expect to close later in the third quarter that will further bolster earnings and cash flow and help delever the balance sheet. Finally, our Wood Products business improved considerably in the second quarter, which I'll talk about more in just a minute.

We reported second-quarter 2009 net income from continuing operations of $3.7 million or $0.09 per fully diluted share, as can be seen on slide three of the slides accompanying this presentation. This compares to net income from continuing operations of $18.9 million or $0.48 per fully diluted share in the second quarter of last year. As a reminder, our financial results have Clearwater Paper operations moved to discontinued operations, including corporate administrative costs directly associated with Clearwater and interest expense for the debt retained by Clearwater.

I would now like to review our second-quarter results broken down by segment. Our Resource segment results for the second quarter of 2009 were weaker than the second quarter of 2008. Operating income in the second quarter totaled $4.5 million compared to $12.2 million in the second quarter of last year. The primary driver behind the negative earnings variance was the planned lower harvest volumes and lower log selling prices, somewhat offset by lower costs.

Slide four highlights volume and pricing trends for the Northern region. Saw log fee volumes were down 47% comparing Q2 '09 to Q2 '08, as we executed on our previously announced plan to scale back our harvest levels to match the lower demand caused by sawmill curtailments in the region. Saw log pricing in the Northern region was down 33% year-over-year but actually increased 2% sequentially. Pulpwood volumes in the Northern region were down 31% year-over-year, and pricing was lower by 7%.

Fortunately, as Mike will discuss in a moment, we are now seeing signs of price stability both in the northern and southern regions.

Slide five highlights volume and pricing trends in the southern region. Saw log fee volumes in the second quarter of 2009 increased 18% over the second quarter of 2008 and increased nearly 4% sequentially. Saw log pricing in the southern region is holding up better than the Northern region with prices down 9% year-over-year and only 4% sequentially. Pulpwood volumes in the southern region were up 1% year-over-year, while pricing fell 6%.

Next I'd like to review our Real Estate business. As shown on slide six, our Real Estate segment closed sales totaling $4.7 million during the second quarter, resulting in operating earnings of $1.5 million. In total, we had 38 real estate transactions in the quarter, coincidentally the same as in Q1.

Slide seven highlights our real estate sales by product type. And as you can see, we sold nearly 3000 acres of rural recreational real estate in the quarter, up from the 2000 acres we sold in Q1.

Slide eight highlights price trends for our Real Estate business, broken down by product type. The second quarter is generally a slow quarter for our real estate business, so in fact we are encouraged by these results. Furthermore, our real estate business continues to be relatively stable; and, while demand for HBU property is relatively soft, the demand for rural recreational real estate and nonstrategic timberland remains relatively firm.

Our Wood Products business showed considerable improvement in the second quarter with an operating loss of just $3 million compared to an $11.2 million operating loss in Q1. Similarly, EBITDA improved over $8 million in comparing Q2 to Q1.

Slide nine highlights price and volume trends in the lumber part of our Wood Products business. And as you can see, lumber prices and volumes improved quarter over quarter. Our improved results in the segment were a direct result of both higher selling prices and lower costs. Note that, beginning this quarter, we will no longer disclose price and volume data for our panel business, due to competitive concerns.

Returning to slide three of the presentation, eliminations and adjustments had a $4.3 million positive impact on operating income during the second quarter compared to a positive impact of $1.6 million in last year's second quarter and a $750,000 positive impact in the first quarter of this year. As is typical in the first half of the year, it gets very challenging to harvest in the Northern region during the winter months, and therefore we typically reduce inventories in the first half of the year and then start building them back up again in the second half of the year. As the inventory level is reduced, the profit associated with that inventory shows up as a positive elimination. The larger positive impact in this year's second quarter versus last year was due to a greater inventory decrease in 2009.

Corporate administration including interest expense totaled $11.6 million for the second quarter compared to $10.8 million in the first quarter and $10.9 million in last year's second quarter. Interest expense net of interest income totaled $4.9 million in the second quarter of 2009 compared to $5.3 million in last year's second quarter and $4.8 million in the first quarter. Our weighted average interest rate at the end of the second quarter was 5.9%.

We booked a $7.9 million tax benefit in the quarter, largely due to nearly $5.8 million of tax benefits associated with renewable electricity generation. This tax credit, referred to as a renewable electricity production credit, is attributable to electricity we generated and sold from renewable energy sources in 2005 to 2009 at our manufacturing facilities. The credit is currently set to expire at the end of 2009 unless Congress elects to extend the credit. We estimate that we will generate an additional $200,000 of tax credits for the remainder of 2009.

EBITDA totaled $7.2 million in the second quarter versus $29.8 million in last year's second quarter and $47.7 million in the first quarter of 2009. Funds from continuing operations for the second quarter totaled $10.3 million versus $26.7 million a year ago and $40.5 million in the first quarter. The Company paid a cash distribution of $0.51 per share during the second quarter for a total of $20.3 million.

Next I'd like to make a few comments about our balance sheet and liquidity. Prior to Potlatch's spinoff of Clearwater Paper in December of 2008, Clearwater agreed to make all remaining payments due to holders of the credit-sensitive debentures. During the second quarter Clearwater completed a $150 million high-yield offering and deposited $106 million of cash with the credit sensitive debentures' trustee, which is an amount sufficient to satisfy all remaining principal and future interest due on the credit-sensitive debentures. Until the December 1, 2009 maturity date of the debentures, the funds deposited with the indentured trustee will be reflected on Potlatch's balance sheet as restricted cash, and the credit-sensitive debentures will continue to be shown as current installments on long-term debt.

Clearwater's refinancing event is very important to Potlatch, for two reasons. First, Potlatch has now received an amendment to its revolving credit facility, and we will no longer need to include the credit-sensitive debt when calculating our leverage ratios for purposes of complying with the credit tests. Second, our liquidity has now improved $100 million as our amended credit agreement no longer requires us to set aside $100 million of revolver capacity in case Clearwater couldn't refinance. As a result, our balance sheet is in great shape, with debt to capital for our credit agreement now at just 52%, and our interest coverage ratio, or EBITDA divided by interest expense, at a healthy 4.8 times. And with the timber deed transaction that Mike will talk about in just a minute, our leverage ratios are anticipated to improve even more in the third quarter.

I would now like to turn the discussion over to Mike to provide some additional comments about our recent timber deed transaction as well as our outlook.

Thank you, Eric, and good morning.

As Eric just mentioned, we entered into a binding agreement with FIA, an Atlanta-based TIMO, to sell a 50,700-acre timber deed in Arkansas. The transaction is valued at $50.2 million or approximately $990 per acre, and is expected to close in the third quarter. Proceeds from the sale will be used to pay down our revolver. The deed conveys to FIA ownership of the timber that is currently growing on the property, not the land itself. The land parcels in the deed were carefully selected to include pine plantations between ages one and 10 with an average age of just under seven years. The term of the deed cannot exceed 30 years, and when harvesting on a parcel is complete, full ownership reverts to Potlatch, and we will reforest each site.

In total, this transaction represents less than 1% of our current merchantable inventory and is expected to lower our total harvest volume over the next 30 years just 3% to 4%.

The timber deed structure is unique in many respects. First, since the deed is similar to a stumpage sale, the proceeds are treated as good REIT income, and we are not subject to a built-in gains tax, since we retain title to the land.

Second, due to the young age of the trees, we are giving up very little cash flow for literally the next 20 years.

Third, our models indicate that the valuation at almost $1000 per acre for the timber only reflects sawlog pricing that is significantly higher than the current market. This is another example of how the private market can and does look through the current dismal housing market to favorably value an attractive asset class, such as timber.

Finally, the sale of these trees will have no impact on our ability to increase our harvest levels to approximately 5 million tons once the market for timber improves, since we don't plan to fully harvest the trees we are selling in the deed for 20-plus years, anyway. The harvest increase to 5 million tons, which is approximately 30% higher than today's harvest level, coupled with stronger prices for timber, is expected to result in a significant increase in our cash flow and more than support our current dividend of $0.51 per share per quarter.

Our Board of Directors reviews our dividend policy each quarter and carefully weighs the fact that we are not currently earning our dividend from core operations against our significant longer-term prospects. Thus far, the Board has concluded that maintaining our current dividend through this difficult economic period is prudent, given our ability to increase harvest levels substantially going forward. As we expected, our funds available for distribution in the second quarter fell short of the dividend. As always, we will continue to monitor improvements in the economy and in our markets, review our dividend policy each quarter and execute strategic transactions like the timber deed that are in the best interests of our shareholders going forward.

We are cautiously optimistic that our worst markets are behind us. Our decision in May to defer 500,000 tons of our planned 2009 sawlog harvest, coupled with some improvement in the lumber market, appear to have arrested the decline in log prices in our key markets. We have contracts in place for the majority of our remaining timber harvest for 2009 at prices at or above levels we realized late in the second quarter. We are encouraged by the recent new home sales data driven mostly by the West and Midwest markets.

As we discussed last quarter, we expect to see a turnaround in our Wood Products manufacturing business during the second quarter. June was our best month this year and our best since June of 2008. We have significantly reduced cost and improved productivity steadily since early spring following extensive market-related downtime. These improvements coupled with better markets provided positive cash returns and positive operating earnings last month. We don't foresee significant additional cost reductions, and lumber and panel prices have recently given back some of the gains realized in May and June. For the balance of 2009 we expect this business to be at or near cash flow breakeven.

Our Real Estate business continues at a pace of 30 to 40 transactions per quarter with no discernible change in pricing for rural recreational land tracts. We expect this trend and the volume of business to continue for the balance of the year.

That concludes our prepared remarks, and we'll now take questions from caller participants.

(Operator instructions) Gail Glazerman, UBS.

Starting on the dividend, the comments, last quarter you were quite specific, saying that you wouldn't really dip into liquidity to support the dividend. But since then, you've obviously had a couple of positive liquidity events. I was just wondering if you could give your perspective on that?

I think, clearly, we have to see a pathway to fully earn the dividend from operations as we look for the housing recovery to take place. We've said that we would use our -- access our revolver as needed on a quarterly basis, but not on a long-term basis, and I don't think that philosophy has changed from our Board at all. We continue to believe we've got a terrific harvest profile going forward. As we look for a housing recovery, hopefully at this point sometime next year, we think we earn our way out of this.

Okay, and on the timber deed transaction, just a few questions there. Why the fee versus selling outright? Was that a discussion on this piece of land, just to start with that?

It was a discussion point. One of the most attractive reasons for the timber deed for us in this environment was it's treated as good REIT income, and we don't have a tax effect. Had we had a sales transaction and sold the land with it, we would have had to execute a like-kind exchange to defer the tax, or elect to pay taxes. And we didn't think that either of those options were attractive.

Okay. The land sold -- was that mainly core timberland, or can you give a little sense of the characteristics, other than the age class?

Well, as I said, the age class averages between each one and age 10 at a maximum. They're individual tracts throughout our southern Arkansas ownership. All of it would be considered core timberland. On average, it averages seven years of age, but there is no real estate or any other higher-quality aspects to the land, to the timber.

And a reminder -- we did not sell the land. We own the land. We'll continue to collect hunting revenue from it, from leases; we'll continue to have mineral rights. All those things will continue to be enjoyed by the Company.

Okay, and last question, on the electricity tax credit, if I'm not mistaken there's some provision pending in front of Congress that might actually give you credit not only for electricity that you're selling but potentially electricity that you're consuming. Is that something that would qualify under this, assuming it goes forward? Is that something you are tracking?

Yes; that's exactly the benefit that we received in this quarter.

That was for stuff that you used, but not that you sold externally?

Yes. It used to be, you only got the net credit for the two, but now you get -- additionally, you get credit for the stuff that you are producing, consuming on site as well.

Okay, I didn't realize that changed. But this is something that is potentially going to be permanent, though, under current --?

Yes. Hopefully, we'll see. I guess Congress is still debating it now.

George Staphos, Banc of America/Merrill Lynch.

Just following on, on the question on land sales, in terms of characteristics, if you could point to one or two, [either relative] to the [HBU] that you are selling or the development land that you are selling or rural, are there any common traits? Could you give us a bit more color on what you sold during this quarter?

No, but the second quarter, George, was very similar to our first quarter, at 38 transactions, and it was spread pretty consistently around our different regions. We had about 30 transactions in both the first and second quarter in the lake states, and Arkansas we had four or five in each of the quarters. And then Idaho, we had just a handful in each of the two quarters. But it's typical for us that our rural sales tend to be -- it tends to be skewed more towards rural than it does HBU, with about, oh, I don't know -- I'm just glancing at some data here, but maybe a third of the transactions, maybe a little bit less, being HBU, and the rest being rural.

Were there any outliers, Eric, in terms of the transaction that might have skewed the averages that you saw in the quarter, or was it pretty evenly distributed in terms of the values that you got per acre?

Well, there's always a pretty wide distribution of pricing that we get on the real estate; it's so site-specific. I would say the basis of the land that we sold in this most recent quarter was on the high side, in comparison to a typical quarter. But just glancing at some data, we had some HBU sales that were as high as $4000 an acre and some HBU sales that were as low as $1300 an acre. So there's just the distribution curve, and that seems to be typical each quarter.

You might also look to slide eight in our presentation materials, George. In the second quarter, our better-quality HBU sites averaged about $2200 an acre, and the rural recreational real estate was about half of that, at $1100. As you look at the slide, it's been pretty typical.

Right, Mike, I was trying to get more at the change in value relative to the geography, but this is helpful as well.

You mentioned that there's been no discernible trend into the third quarter, and realizing that land values are lumpy and transactions are lumpy. But would you say that you've seen stabilization in terms of returns that are being demanded by investors, or is it too hard to say at this juncture what might transpire in the next couple of three quarters?

I think it's early to say. The character of most of our land purchasers tend, I think, not to be financial investors as much as they do adjacent landowners, and people that are just looking for rural property for personal use and enjoyment, rather than investors. So I think it would be premature for us to say that there's some kind of investor expectation that's changed.

Mark Weintraub, Buckingham Research Group.

On the timber deed transaction, what's the profit that you're going to book on that?

Well, the book value of that property is around $7 million, so it should be in the low 40s.

Okay. And, what was the limiting factor on the size or the amount of acreage that you chose to include in the transaction? Because certainly, it seems like a win-win as much as you are getting very good values, and FIA is obviously eager to be putting some of its money to work. So what were the limiting factors on the size of the transaction you mutually decided upon?

Well, we have been in discussions with FIA about this for some time. They have raised a fund that's specifically targeted at high-growth plantations in the South and in the West and other high-growth areas. They have a fund that they needed to invest geographically, I think, so they could not concentrate all of it in one state or one geography. That was one limiting factor.

We felt that $50 million was a meaningful size for both parties. We also -- the 50,000 acres just kind of fell out naturally in southern Arkansas as to what we easily had that we could identify that -- with an average age class of seven years, which was the desire of FIA. We do have more that would have fit, but I think that we just felt that $50 million was a decent-sized transaction for both parties.

And would you potentially have acreage in other regions that would fit the types of criteria that FIA would be looking for? Is this something that -- and obviously, I understand that nothing is being announced or anything like that. But is this something that could be looked into in the Lake states or in the Idaho-type areas, or is it really an Arkansas situation where it would have made sense?

Well, in the case of this specific fund that FIA raised, it really only made sense where we had faster growth plantations, and that was really the South for us. Timber growth rates in Idaho, for the most part, are either slower or longer-term. And in the Lake states the growth rates just aren't as attractive in this kind of a fund.

And then just lastly, if markets, housing markets and stumpage markets, continued to be in a depressed state in the year ahead, what might be some of the levers that you would be most likely to think about pulling to continue to generate the near-term cash needs until business gets better, and then the harvest levels can kick up, and etc.?

I think, as Eric mentioned, we have taken some significant steps with the completion of the financing from Clearwater Paper and the removal of these limitations on our credit agreement. We've got lots of liquidity, if we choose to use that in the near-term.

I think, secondly, we've said for several quarters, Mark, that we believe in this market that we are timber sellers, we are not buyers, and that we continue to think there's a demand for nonstrategic timber assets for us, that we would continue to sell if we think pricing is favorable. So I think those would be the things we look to.

And there are some other things we might look at doing with our balance sheet as well, Mark. If you look at this most recent quarter, our receivables went up about $10 million. The IRS owes us a tax refund of about $10 million now, which we'll get over the next, I don't know, month or two. So there's an opportunity there. We've also got Prescott, the facility that we closed. It's been written off; it's not operating, but there are some folks that approached us interested in buying it. So there's some other things that we could do to generate cash in this interim period as well that won't impact core operations.

Terrific, one very quick one, too. So would you be expecting to build log decks this quarter and so that we would have a negative elimination, either this quarter or next quarter? How does that play out?

We do typically build in the back half of the year. I think you'll see a smaller elimination in this coming quarter.

[Mike Wachlin], Banc of America.

Last quarter in the press release and even on the call, you mentioned that you were seeing soft HBU sales. From the press release it sounds as though that interest in HBU has picked up, even if just a little bit. Are you currently seeing any improvement in HBU interest?

No. And I think, to be candid, I don't think so. It has been steady. We had 30-some transactions, I think 38 transactions in the last two quarters in a row. But we certainly don't sense that there's, all of a sudden, renewed interest in HBU or development type of property. I'd consider it to be steady-state.

And then I know that you mentioned that you're targeting, still, your goal of 5 million tons in terms of what you intend to harvest. What type of housing starts do you think you'd need to see to get to that harvest level?

That's a tough question to answer because it's so dependent on your specific -- your manufacturing base and your region. But it's probably up around near 1 million starts, something like that.

I think it's difficult to answer because there's been so much change in capacity, and it's unknown what's going to happen with Canada around pine beetle and currency issues. There are just lots of moving targets that affect that. But clearly, we need activity that's roughly double or more than what it's at today.

So that's something that still could be a couple years away?

I don't know when it's going to happen.

I think most people are talking about starts being up in the 800,000, 900,000 range next year and then moving up to 1.1 million, 1.2 million in the following year. So it could be towards the back half of next year or maybe into 2011.

Last question -- obviously, you and your competitors are deferring harvest with the hopes that pricing will stabilize or even improve later on. How do you think all that extra harvest is going to impact an eventual recovery?

The way I think of it -- everybody talks about all this harvest deferral that we are going through. People have to remember that there was over-harvesting, if you will, going back to the 2006-2007 time frame for a very, very robust housing market. In the not-too-distant future you are going to start to feel the effects, as Mike mentioned, from that mountain pine beetle. That's going to impact supply quite a bit.

And if you just look at the North American market, I've heard estimates that British Columbia is anywhere from 5% to 15% of North American volume. So that alone could have a very meaningful impact, much more so than what we're talking about from the various deferrals that have taken place. So I think it's too early to say that the volume getting deferred now is going to have a meaningful impact -- meaningfully impact prices in the near-term.

I also think, particularly in the US South, most of the timberland is owned by nonindustrial private landowners, small individuals. I think it's unknown what their practices are currently. The TIMOs and financial owners of timberland, like ourselves and others, don't collectively own that much timber.

Chip Dillon, Credit Suisse.

Let me just verify -- on the deed sale, I think you said, just so I get this right, that it only accounts for 1% of the current merchantable timber, but it would basically offset about 3% to 4% of your otherwise harvest levels, based on your current ownership for the next 30 years. Is that right?

Yes. If you add up what our planned harvest was going to be over the next 30 years, before this transaction versus now after this transaction, the total cumulative harvest level has come down about 3% or 4%.

But most of that is kind of back-end loaded, so you might say, obviously, like 1% or something early years, and maybe upper-single digits the later years. Is that right?

Well, yes, there's certainly smoothing things you can do with your harvest profile curve, but that 30 years captures the full harvest cycle.

Gotcha.

Just to be clear, the trees on average are seven years old today. They range between age one and age 10. So there's really -- technically, there's almost no merchantable inventory. The small amount that there is, is just kind of associated mature trees that happen to be on an isolated tract or two. So near-term, it has almost no impact.

And when we look at transactions across the years, in the South or in Arkansas, in particular, is it fair to say -- I know no two transactions are alike. But if you are cutting an operating -- I'm sorry -- involving an operating, ongoing forest situation, I would imagine the average age, as opposed to seven years in your case, is, what, maybe 12 or 13, just because I understand that the typical rotation in the South is 25 years?

Yes. You know, we've -- I can't talk to what the average of a typical transaction is. But we did take a close look at comparing this transaction to the sale that we had in the first quarter for $1750 an acre. And that acreage, roughly 50% of it, 52%, was 15 years or less, whereas, as we mentioned, this timber deed is -- the average age is under seven years. The stocking levels are what's the real driver of the difference in values between the two. And the transaction we had in the first quarter was stocked about four to five times the stocking level of what's in this timber deed. Roughly 50 tons per acre is what got sold in the first quarter, whereas this is just around 10 tons per acre.

So it's that age in stocking difference is what really drives the valuation difference between the first-quarter transaction and this timber deed. There's also the effect of the land, which has got an impact as well. We gave away title or sold title to the land in the transaction in the first quarter, whereas, obviously, in this one, this timber deed, we are retaining title to the land.

And so, when you say $50 a ton for the other one, that included the land, did you say, embedded in that, or was that trying to strip that out?

No; that was roughly 50 tons per acre.

50 tons per acre; I'm sorry. Yes, got you. Okay.

Whereas the deed is just 11 tons per acre.

Got you, and last question -- and when you look at -- I think you said this in your prepared remarks, but you sort of indicated that, obviously, the log prices are depressed and given the housing market, etc. But if you looked at what you were -- is there sort of a guess as to what -- I know it's years in the future, but what -- I think you alluded in this, what you're selling these trees for now upfront, I guess per thousand or per ton or however you look at it, relative to where prices are either now or where they've been? (multiple speakers) [the log for logs]?

Yes, we also did an analysis of what we thought the value of that timber was worth on a present value basis to us. And if we do that analysis and we assume pricing at where we were about two years ago for sawlogs, that present value is still below what we are selling this timber deed for.

So you're better off today than you would have been if you had sold them -- if the logs had existed two years ago?

That's correct.

(Operator instructions) Steve Chercover, DA Davidson.

Clearly, we are all quite interested in this timber deed, and I had a couple more questions. First of all, was it an unsolicited transaction?

Well, as I said before, FIA had raised a fund as part of their normal investor activities, and they approached us with any interest that we had in working with them. I'm sure they approached others as well.

Okay, and given that the net present value is probably better today than even using sawlog prices from two years ago, I assume you would be amenable to additional deals of a similar nature?

Yes, we're very happy with it. As I said, I think we sized it at $50 million as kind of a comfort level for both parties. But we think there's other property, particularly in the South, that suits this.

Who has the obligation to reforest it when it's all said and done?

Potlatch does.

Okay, and does this say anything or do you have any comments on what raw dirt might be down in Arkansas? Assuming the land was suitable for farming thereafter, would it be worth $800 an acre or something?

We hear prices for raw dirt down in Arkansas, and it's, I don't know, $600, $700, $800 an acre kind of range. Our net present value of that dirt down there that we're eventually going to get title to is, because it's tied up for the next 20 to 30 years, is lower than that, but it's still a couple of hundred dollars an acre.

I think that covers it, thanks very much.

Peter Ruschmeier, Barclays Capital.

I had some follow-ups, as well, on the timber deed. I'm curious from a tax perspective, I'm not aware that there's a precedent for this type of structure, and I was curious if you could elaborate on that. And if there's not, I'm curious if there's anything you did specifically to get comfort level from a tax perspective that this is in fact good REIT income.

We researched it, Peter, and it's good REIT income. It's considered stumpage sale, and we're retaining title to the dirt. So it's just like selling timber straight out.

Okay, that's helpful. I guess I'm frankly surprised, possibly, by the valuation of -- that you're getting here. I was curious if you could share with us, since these lands were fairly recently harvested, certainly over the last, presumably the last five years or so, what kinds of cash flows may have come off these lands, looking backward? So, at 50 tons per acre, what kind of cash flow per acre did that generate, looking backward to the last couple of years?

I don't have the cash flow model in front of me, Peter. What I can tell you is that over the next five to six years, there's little to no cash flow coming off that land. We would have run into some thinning five, six years out that would have provided a little bit of revenues, but virtually none here in the near-term. So I'm assuming, looking back, it would have been similar.

Okay. And then maybe a question, as well, on the Energy Bill. I'm curious on your thoughts as you've looked at the progress of the Energy Bill. Mike, have you had conversations with energy players? And how are you posturing? I know you are growing for a saw timber rotation, but how much pulpwood might you be able to free up for that source of demand, if it were to evolve?

Well, we continue to be active on -- the industry continues to be active on the energy issues through the national Trade Association, the National Alliance of Forest Owners, who has worked aggressively on the Waxman-Markey Bill and others and with the Senate as well to make sure that timber and timberland gets fair treatment in the energy picture for both renewable electricity as well as biofuels and cellulosic ethanol opportunities and other things.

We think that we'll grow pulpwood or any other kind of a tree at any size that suits the best market, and that's what we are seeking in these bills, is free and open access to any markets, no matter what they are. And we think that currently, with the language out of the Farm Bill that has been inserted in the latest bill that's in Congress, we feel pretty good about where it's at.

And can you share -- how much of your current pulpwood harvest today might be in fact going to those end market energy uses? And, how, given your outlook, do you think that's going to ramp up any time soon based on your conversations, or do you think it's really much more of a three to four years out situation?

Well, we have some pulpwood today going to energy applications in the Lake states, but you need one of these facilities to be cited approximate to your lands to be able to benefit from that, and we really don't have -- we're in discussions with energy investors in virtually every region in the country. But from where we sit today, I would tend to think that, until there's certainty from Congress and bricks and mortar get installed that we're still two to three years out from seeing significant market opportunities from this.

Very helpful, thanks very much, guys.

[John Curran], private investor.

I'm looking at your slide 11, under Wood Products. You've increased your lumber shipments pretty substantially, about 20% quarter-over-quarter, and your unit price has also increased. You show about a 25% increase in value quarter-to-quarter also. Could you comment on what you see happening there?

Well, you've really got two different things happening here. One is, prices have moved up, and you've got -- costs have come down significantly. You can't see costs coming down on that slide, but hose log costs and other input costs have dropped considerably, which is what has allowed a turnaround in our performance of our Wood Products business.

We also had a number of facilities curtailed in the first quarter, running less than 40 hours per week per shift. And, for the most part, we're back at full capacities at most facilities.

Thank you.

(Operator instructions). [Mark Marbart], [Ramsey].

Just two quick questions -- on the stocking that you referred to, I guess that refers to the density, so -- is my assumption. So the five times, I mean, that just seems like such a dramatic difference between the sale in the first quarter and the second quarter. Why is that so different?

It's just, the age of the trees is dramatically different. In the forward, that transaction, the trees were significantly older than what we're talking about in the timber deed.

So, that 11 tons per acre in 20 years would be more in line with -- would be a lot higher?

Oh, sure, yes. You get biological growth, for sure.

Okay, so the 11 tons per acre, if you're just trying to think about this on a profit per acre when you're doing the NPV, that's not sort of the right number to use, because that's not a harvest -- that's not what you're going to harvest. What would be a number that you would harvest against that's --?

Well, the trees on average now, as we said, are seven years old. They're going to be grown until at least -- no later than 30 years old, in total. And the biological growth of those trees over time could easily be in the 5% to 8% range per year, and that's about as much guidance, I think, as we can give on that question.

Okay, that's helpful. And then, have you ever disclosed the differences in profitability between Arkansas and Idaho, or given any guidance on that? With the sawmills shutting down in Idaho and the different terrain that you have up there, how are we able to get a little bit closer to how much less profitable an Idaho dollar is, versus an Arkansas dollar?

We don't break out our results by region. They're consolidated into one reported P&L.

Alright, thank you.

(Operator instructions) And there are no further questions at this time. I would like to hand over the call back to the floor for any closing remarks.

We don't have any additional remarks. Thank you and we'll talk to you next quarter.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect.