Potlatchdeltic Corp (PCH) 2011 Q3 法說會逐字稿

Good afternoon. My name is Misty and I will be your conference operator today. At this time, I would like to welcome everyone to the Potlatch third-quarter 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.

(Operator Instructions). Thank you. I would now like to turn the call over to Mr. Eric Cremers for opening remarks. Sir, you may proceed.

Thank you and good morning. Welcome to Potlatch's investor call to discuss our third-quarter 2011 earnings.

Before we begin, let me remind you that this call may contain forward-looking statements with regard to our business and operations. Please review the warning statements in our press release on the presentation slides and in our filings with the SEC concerning the risks associated with these forward-looking statements. Also, please note that segment information, as well as a reconciliation of non-GAAP measures, can be found on our website, www.PotlatchCorp.com, as part of the webcast for this call.

Now I will review our third-quarter results, and then I will turn the call over to Mike Covey, our Chairman and CEO, who will make some remarks regarding our outlook, and then we'll open it up to Q&A.

As you can see on slide three of the supplemental materials, we reported third-quarter 2011 net earnings from continuing operations of $25.6 million, or $0.63 per diluted share. This compares to net earnings from continuing operations of $18.2 million, or $0.45 per diluted share, in the third quarter of last year and $8.4 million, or $0.21 per share, in the second quarter of last year -- or excuse me, this year.

I'd now like to review our third-quarter results broken down by segment. As shown on slide four of the webcast slides, our Resource segment results for the third quarter of 2011 were significantly better than the second quarter of this year and versus the third quarter of last year. Operating income in the third quarter totaled $25.6 million, compared to $7.5 million in the second quarter and $24.3 million in the third quarter of last year.

The primary driver behind the sequential earnings improvement was higher harvest volumes, while the driver behind the year-over-year improvement was due to both volume and pricing. Excluding the impact from the timber deed we executed back in the third quarter of 2009, our Resource segment had its highest quarterly operating income over the past three years.

Slide five highlights harvest volume and pricing trends for the Northern region. Sawlog fee volume was up 13%, comparing the third quarter of 2011 to the third quarter of 2010, and was up over 220% sequentially.

The year-over-year harvest volume improvement is driven by firmer demand from Northern region sawlogs and the sequential improvement is driven by the fact that harvesting activity is limited in the second quarter due to the snow melt in the Northern region.

In addition, as we indicated on our last call, we moved about 100,000 tons of sawlog harvest from Arkansas in the second quarter to Idaho in the third quarter in order to capture better pricing opportunities. In fact, sawlog pricing in the Northern region was up 7% year over year and increased 5% sequentially. Northern sawlogs continue to indirectly benefit from strong Chinese demand, though we are now seeing some weakness in cedar sawlog pricing here in the fourth quarter.

Regarding pulpwood in the Northern region, harvest volume was up 41% year over year and was up 245% sequentially. Pulpwood pricing in the Northern region has recently improved due to a shortage of sawmill residuals in the Pacific Northwest, with pricing up 13% year over year and up 4% sequentially. We expect this pricing trend to continue as we move into Q4 and next year.

Slide six highlights harvest volume and pricing trends in the Southern region. Sawlog fee volumes in the third quarter of 2011 declined 12% from the third quarter of 2010 and increased 39% sequentially. As a reminder, we lowered our second-quarter harvest in the South about 100,000 tons, which explains the sequential increase in harvest volume.

Sawlog pricing in the Southern region increased 1% sequentially, but was 8% lower than the third quarter of last year. We continue to experience weak demand for southern yellow pine sawlogs, and this trend will worsen as we move into Q4 and next year with a major customer having recently idled its plywood facility.

Pulpwood harvest volume in the Southern region was up 19% year over year and was up 27% sequentially. This volume increase was driven by an increase in planned pine Southern plantation thinning and the fact that harvest volumes were lower in the second quarter due to the previously mentioned harvest deferral. Pulpwood pricing in the Southern region was down 18% year over year and fell 2% sequentially as fiber availability is plentiful.

Next, I'd like to review our Real Estate business. As shown on slide seven, our Real Estate segment closed sales totaling $14.8 million during the third quarter, compared to revenue of $19 million in the prior quarter and $32.3 million in last year's third quarter. In total, we had 33 real estate transactions in the quarter, consistent with our historical results.

Slide eight highlights operating income for our Real Estate segment, and as you can see we had $9.9 million of operating income in Q3, compared to $11 million in the prior quarter and $9.8 million in last year's third quarter.

Slide nine highlights our real estate sales by product type. In the third quarter, we sold over 10,200 acres, with a little over 5,900 acres coming from the third and final phase of our previously-announced nonstrategic timberland and rural land sale in northern Idaho.

Slide 10 highlights price trends for our Real Estate business broken down by product type. As shown on the slide, product pricing for all three types of our real estate were stable in Q3.

Turning to page 11, our Wood Products segment generated $2.9 million of operating income in the third quarter, driven by a $2 million gain we booked on lumber hedge activity. As we have noted on past calls, we generally utilize hedges as an insurance policy against our own production to lock in forward pricing, and we will continue to look for hedges that we think are favorable relative to our outlook.

As shown on page 12, lumber prices declined about 2% in the third quarter, although this decline was offset by a 9% increase in higher shipments.

Returning to slide three of the presentation, corporate administration costs totaled $5 million for the third quarter, compared to $5.9 million in the second quarter and $6.5 million in last year's third quarter. Corporate administration costs were a little lower than normal in the third quarter due to a mark-to-market adjustment in our deferred compensation plans, which are directly linked to our stock price.

Net cash interest expense totaled $6.2 million in the third quarter as we continued to benefit from the fixed to floating rate debt swap we put in place a little over a year ago. We booked a $3.2 million tax provision in the third quarter, but it is important to note that this tax provision is non-cash as the TRS income year to date is offset by deductible items for tax which are not expensed for book purposes.

We continue to have a solid balance sheet, and our debt covenants are in great shape as our funded debt to capital is at approximately 55%, well below the covenant requirement that it be less than 70%. Interest coverage is at a very healthy five times, significantly higher than the covenant requirement of greater than 2.75 times. More importantly, our net debt as a percent of our enterprise value is just 17%, which is a relatively conservative amount.

I'll now turn the call over to Mike, who will make a few comments regarding our outlook. Mike?

Thank you and good morning.

As Eric indicated, we reported a strong quarter with EPS of $0.63 per share, our strongest quarterly earnings in two years. We ended the quarter with $81 million of cash and equivalents on our balance sheet and a completely undrawn $150 million revolver.

So on the one hand, we are pleased with our recent quarterly results and the balance-sheet metrics that Eric just reviewed as they exceeded our own internal expectations. On the other hand, the primary demand driver for our industry, housing starts, remains very challenged. Although the backlog of foreclosed home inventory appears to be slowly coming down and Chinese demand for North American wood remains firm, expectations for higher housing starts continue to get pushed off further and further into the future, even with a positive September number released last week, and the mix continues to skew heavily towards multifamily versus single-family starts. So our concerns are increasing.

Looking ahead to the fourth quarter, we expect our Resource segment earnings to decline sequentially for several reasons. First, the fourth quarter will see the typical seasonal slowdown as winter weather moves in and makes harvesting more challenging for our Northern region.

Second, we expect sawlog prices in the Northern region to decline in the fourth quarter, particularly for cedar sawlogs, one of our highest-margin products. Cedar is largely used in outdoor decks and resort-area construction, which is seasonally slow in the winter months. Similarly, we expect sawlog prices in the South to also decline. As Eric indicated, a large customer in Arkansas recently idled its mill, which has negatively impacted log prices in the region by approximately 10%. Partially offsetting sawlog price declines are improved pulpwood prices, which we expect to modestly increase in all regions in Q4.

Regarding the outlook for wood products, we expect the business to operate at slight operating loss in the quarter, though we do not expect it -- although we do expect it to continue to be cash positive. Until we see evidence of meaningfully higher housing starts, we have little reason to expect higher earnings and cash flow from this segment.

Our Real Estate business continues on a remarkably steady pace, and we expect that to continue though we will see a little seasonal slowdown as we move into the winter months. We currently expect to complete about 25 transactions in the fourth quarter of this year with typical size, price, and land bases characteristics, though we do not expect any large one-time land sales this quarter.

It is important to note that, longer term, we are still optimistic about our prospects for several reasons. First, we are still deferring significant sawlog harvest volume given the weak market conditions. We now expect to finish the year having harvested a total of around 4.1 million tons, well below our potential of about 4.6 million tons.

Second, we believe housing starts will eventually recover given population growth and other demographic factors, but it may take several years to get there.

Finally, we expect continued strength in Chinese demand and believe the industry will face supply challenges once the mountain pine beetle supply shock takes effect.

I'm sure many of you have questions about the outlook for our dividend, so let me take the opportunity to address it now. As you know, over the past several years we accelerated the sale of our nonstrategic timberland which we identified back in 2006 to generate cash to cover the dividend to get us to the other side of the housing recovery. At this point in time, with $81 million of cash on the balance sheet, we still expect that to be the most likely outcome.

Further, it is important to note that we still have over 200,000 acres of land that we expect to sell over the next several years, and we may look at accelerating some of that activity. As you are aware, our Board meets quarterly to review and discuss the pace of the housing recovery and the dividend, and it is fair to say that our concern about the anemic housing recovery is increasing. We are in the process of developing our plans for next year and beyond and will discuss these plans on the next call.

Operator, we'll now take questions from the call participants. Thank you.

(Operator Instructions). Gail Glazerman, UBS.

Good morning. Just in terms of those final comments, and maybe you are going to say the Board doesn't -- hasn't given thought, but if you're taking down your harvest for 2011, can you give any early thoughts on whether you think conditions would support increased service next year?

We will -- we are in the process of putting our budgets together for next year and we'll give some harvest-level guidance, as we always do, on the earnings call that covers the fourth quarter in late January.

And in the North, the sawlog price improvement, was that true apples-to-apples price improvement or was there a reasonable mix component in that?

No, there was -- sawlog prices were up across all sawlog categories in the Northern region, so it wasn't driven by just higher cedar pricing. There was a little bit of a skew to cedar, but the price increase was across all product classes.

All right, and can you talk a little bit about what you're seeing in the land markets, I guess both rural and institutional land? With the kind of increased macro uncertainty, did you see that affect interest in rural land activity at all?

No, we've not seen any slowdown in interest in our lands, whether we are talking about small parcels, the typical rural recreational buyer of a 40- or an 80-acre tract, or on the institutional side. We continue to see TIMOs raise ample amounts of money, and they continue to knock on our door inquiring about nonstrategic timber land for sale. So we've really seen no slowdown on that activity.

Okay, and just in terms of the lumber hedge, can you give us some indication of, if prices stayed where they were today, what type of impact you'd expect to see on the new hedges in the fourth quarter?

If hedges -- if prices stay where they are today, effectively that benefit that we took in the third quarter, that will show up as cash as we move into the fourth quarter and into the first quarter of next year. That is assuming prices stay where they are today.

If they -- if cash prices drop, then the benefit will increase and the P&L will improve, and similarly, if prices go the other direction, if they actually increase, then there will be a P&L hit either in the third or the first quarter -- or fourth and the first quarter.

Okay. Thank you.

Michael Roxland, BofA Merrill Lynch.

Just real quick, obviously the volumes in the North were better than we expected, while pricing was also higher. I think to some degree Southern pricing also held up better than we were expecting. However, the aggregate margin in Resources was in line with our expectations. Was there anything from a cost perspective that was a little higher than typical during 3Q?

We saw an increase in our log and hauling costs particularly in the Northern region, partly reflecting higher diesel cost, at least -- certainly year over year, as well as increased hauling rates that we experienced, partly due to the diesel cost but partly just due to the competitive environment for log truck drivers.

And have those persisted into 4Q?

Yes, they have. Although diesel is -- although energy prices, as you know, rolled over a little bit here recently.

So toward the back half of 4Q, you could potentially see an easing in those costs?

We hope so.

Just last question, what type of conditions would you need to see to actually consider lowering the dividend? Obviously you mentioned increasing concerns that you have now because of the -- because the housing outlook and how it keeps getting pushed back further, but what would you need to see and what do you need to consider with your Board to actually determine that the dividend at this point is a little bit too high and that it may be sensible to actually lower it?

Well, we've had a point of view for some time that we need to see a housing recovery to approximately 1 million starts. That's not a scientific estimate, but a housing market that is roughly 1 million starts will lead to what we think are stronger lumber and log prices across the board.

And as that benchmark of 1 million starts gets pushed out, and we certainly think that it is certainly out to at least 2013, if not beyond at this point, then that will cause the Board, I think, along with management, to look at whether or not we can sustain this. So that is the principal benchmark we're looking for.

Thanks very much.

Chip Dillon, Vertical Research Partners.

Good morning. First question is on the log experience out West. It seems like you did benefit, and I would imagine it's mostly indirectly. But you could maybe just help us again from the Chinese demand, and so if you could just confirm that that -- how that works for Potlatch because I know you're not exactly right on the coast there?

And then, secondly, if you could, again let us know what you see as the outlook from Chinese demand, whether this is sort of a lull or if you think it's -- it comes back pretty quickly or if it may take longer to come back?

We benefit indirectly from the Chinese demand situation on the West Coast. As log prices get bid up by Chinese buyers and domestic sawmills on the U.S. West Coast complete for those logs, the overall market increases.

We are a little bit too far away from the coast to export logs economically, but we are not too far away to sell logs to some of the domestic producers on the West Coast where we can transport them down the Columbia River. So that tension in the West Coast market helps float Idaho log prices a bit higher, even though we don't participate directly.

Secondly, in terms of Chinese demand, we expected some seasonal slowness. We really think that's what it is. We still have a lot of faith that the five-year plan that China has in place for housing starts and for lumber-using activities are going to be on pace and continue, and we think Chinese demand will remain strong throughout the period.

And then, I guess the same question is, as you and the Board think about the dividend and the housing outlook, I mean obviously the 200,000 acres come into play, and there are other variables, but is this something that you think you're going to try to make a call on for the year, like early in the year, and then sort of ride with it and then look at it again in 2012? Or is it something that -- and I know you have to look at it every quarter, but in terms of sort of making a big decision about whether to keep it at the current level or to change it, is that something that we would probably see you do more likely early in the year rather than, say, in the second half?

Well, I'm not going to presuppose what the Board eventually decides to do, but clearly we put together annual budgets and take a pretty deep look at not only the plans for 2012, but beyond it, this time of year typically. We will be reviewing that with our Board here before the holiday period, so that's the most likely time that we'll take a deep look at it, but certainly it gets reviewed every quarter.

And this could be related to that, but we've started to see a few more transactions sprout up here and there in the U.S., and it seems to me that with your tax structure and the structures of the other REITs that you guys are sort of in a pole position as acquirers. What are your thoughts about that? I mean, maybe the pricing hasn't come to a level where you feel it's time to go on offense, but is that something that you think could be on the horizon or is that still kind of out there somewhere?

I think it is very much on the horizon. We try to look at every deal that comes to the market, particularly those that fit our geographic footprint. We've commented about the strategic fit of that and the importance of that before.

We have an untapped revolver. We have a debt to enterprise value that I think is at 17%. We feel like we have plenty of ammunition if we were inclined to find an acquisition that made sense.

So with that said, I think timber pricing has rolled over 10% or 15%, at least using Southern timberland prices as a benchmark, and I think with the current state of Southern log prices that we may see that come off a bit more, and that certainly, I think, is favorable for a Company like ours that wants to grow.

And it is not unreasonable to say, let's say you have a situation where there is particularly attractive land from an NPV basis that might not -- that might have a ramp to it in terms of the harvest, which would kind of be a little bit out of sync with your dividend. I guess that could go into thinking, too, or you could reverse it around. You can say you could have some mature land that you think is attractively priced that would make sense to keep your dividend up. I mean, I guess that's in your thinking as well as you look at acquisitions.

It is. (Multiple speakers)

Got you. Thank you.

Steve Chercover, D.A. Davidson.

Good morning. I was hoping you could give us a little bit of color on -- I think the tax adjustment that Eric mentioned went through the basis of real estate sold, and basically you had a negative basis at the end of the quarter. I mean, can you give us guidance on how to think of real estate basis going forward and explain why that adjustment negated any basis in the current quarter?

Well, basis bounces around an awful lot from quarter to quarter, and I've seen it as low as in the low mid-single digits as a percent of sales all the way as high as -- in some cases, exceeded sales revenue -- basis as exceeded selling price breaker.

So you know, it does bounce around an awful lot from quarter to quarter, and I -- on the supplemental materials, we actually recorded basis of real estate sold of around $2.7 million for the quarter. So it was in line, maybe a little bit higher than normal, but typical.

Yes, but then the elimination and adjustment, you know, actually (multiple speakers) gave you a negative total basis.

Well, the eliminations and adjustments has got a number of different items in it, including what happens with log inventories as we move through the quarter. So there's a number of different items in that line.

All right, so as a general rule, should we use 30% or --

No, I think as a general rule it's probably lower than that. It's probably in the 15% range.

And then, could you discuss -- of the 200,000 acres, I assume most of the non-core land has been sold, so these will probably be small tranches like you've done in the last year -- quarter with 33 transactions in Q3. Can you give us a sense -- is it going to be retail and where is it located primarily?

Well, the 200,000 acres that we spoke of, that refers to the total inventory of rural recreational real estate, as well as HP and development property that we really have left, in addition to about 15,000 acres of previously-identified nonstrategic timberland.

And what we commented on was we've not made the decision to accelerate the sale of those smaller parcels, and certainly that is not easy to do if a market can't absorb it, but it is not like we are out of real estate that we plan to sell. We identified in 2006 a little less than 20% of our total portfolio we plan to sell, and we have chipped away at the nonstrategic portion of that and accelerated that.

There is still an awful lot of these smaller tracts that perhaps we could bundle together in some transactions that made sense, and on the other hand, we don't feel any pressure to sell it if we can't get fair value. We'll hold it for longer periods of time.

And it's just scattered across your holdings?

It is scattered all over. There is -- obviously it is skewed to Minnesota and Idaho with less in Arkansas, but there's a good bit of it in both of those states.

That helps. Thank you.

Joshua Barber, Stifel Nicolaus.

Joshua Barber Good morning. Most of my questions have been asked already, but I was wondering if you could comment a little bit more about the closure of the plywood mills in Arkansas and we have seen some others in the last few weeks. Do you think there's any chance that that process accelerates among your customers and just general customers in the South, as the year starts coming to a close, that we'll see additional closures or mills idling?

With an industry that is operating broadly, and I am speaking of both lumber and plywood and perhaps even OSB, an industry that is operating at somewhere between 60% and 70% of capacity, broadly, I'm sure that there are a number of facilities that are struggling to remain cash flow positive, and certainly with the housing recovery, at least from our viewpoint, being pushed off a bit, I think the likelihood of closures probably is more likely than not as we look ahead, especially across the U.S. South where prices are particularly weak.

Do you think there is some potential of some of that coming to the Pacific Northwest, especially as log prices have stayed okay but lumber demand still seems to be pretty anemic?

Certainly West Coast domestic producers are struggling to find margins as they compete for logs with export customers, but I think, generally speaking, the health of the Pacific Northwest industry is a little bit stronger. Lumber prices tend to be a little stronger than they are in the South. Southern lumber is very weak and has not benefited from anything to do with China. They're just -- that hasn't found its way to the South, so I think the Pacific Northwest is in slightly better shape.

And one last question. I don't mean to beat the dividend issue to death, but just a little bit on your comments. With the $80 million or so of cash and investments on the balance sheet, 200,000 acres of land, at what point do you look at that land base and say -- I mean, you don't want to deplete that land base to zero before you act on the dividend or get the cash to levels that start worrying you. So, is there some trigger points that you look at with those levels where it says, hey, you know what, these levels have just gotten slightly too low for us and we're going to have to act on the dividend just given our housing market outlook? Is that -- is there some level that you think about your capital reserves, so to speak?

Yes, you have to consider all the factors that you just described. We're certainly not going to sell real estate unless we can get fair value for it.

It's not realistic to think we could even monetize the 200,000 acres in the near term. That land is spread in small parcels over a number of geographic areas. We certainly don't want to deplete the cash reserves to an unsustainable level. So all those things have to be looked at.

But I'll go back to what I said at the start. And that is the number one benchmark that we've looked at to try to get to the other side of this is the housing recovery, and if we can't see evidence that this housing recovery isn't going to result in higher log prices, higher demand, and higher lumber prices in the next couple of years, then we have to re-think the dividend. That is the number one driver.

Thanks very much.

Mark Weintraub, Buckingham Research.

Thank you. Just following up with just a little bit more on the closures in Arkansas. I think you talked about them having about a 10% impact on pricing. Was -- did you have a lot of business volume that was directly going to that facility as well? And if so, can you give us a sense as to the impact -- I realize there may be other moving parts, too, but the type of impact it might have on your expected volumes, all else equal, in Arkansas?

Well, we already gave guidance that the harvest levels for the year were going to be down about 100,000 tons. That is directly related to the closure of the facility in south Arkansas, the plywood plant, where we were one of the very largest log suppliers to that facility. It was an important part of our business.

We have been able to reposition a portion of the volume to other customers, but we also felt that the harvest deferral at this point was appropriate, as well as the guidance that we provided that log prices were going to be under pressure throughout the South because of this.

And I may be wrong, but I kind of was assuming it was the Crossett facility, which only closed fairly recently. So had they stopped buying wood a lot earlier or do we have to put a multiple on that 100 because that was only for a short period of time during the year?

No, they just announced the closure, which took effect basically at the start of the -- it is the Crossett facility, but the closure took effect roughly at the start of the fourth quarter. So there's roughly 100,000 tons of harvest deferral that we indicated for the balance of the year, all related to activity that we don't expect to complete in Q4.

Not wanting to beat a dead horse, so should -- if I think about the impact for next year, would that be 400,000 tons?

We --

All else equal. I mean, I realize you are going to try and reposition the wood elsewhere.

On an annual basis, we were providing something in the neighborhood of 300,000 to 400,000 tons to that facility, which we have to reposition that wood or we have to leave it standing to grow, and we are in the process of determining which of those makes the most sense.

Okay, great.

We have options. When you think about it, we have a large sawmill in southern Arkansas today that buys a lot of its blogs from other third-party suppliers. So we potentially could back out some of that wood and put some of our own fee logs into that facility. So we just haven't figured out what our plans are going to be for next year yet, but we have some alternatives.

Right, and one point I would just -- if the demand for -- just because you are having facilities close, if the demand for wood hasn't gone down, then presumably the same amount of wood is being purchased, it's just maybe the -- where it's getting purchased is shifting around. Are there places where you might be seeing a pickup in activity which would offset the closure of this particular facility?

Well, we're fortunate that southern Arkansas is a pretty dynamic environment for manufacturing with some world-class operators there. Georgia-Pacific certainly has other facilities they continue to operate. We are a large supplier to them at a number of their locations. West Fraser sawmill operator throughout the South is in our operating area. Weyerhaeuser as well.

So yes, it is a robust market. We have to figure out where to reposition it, but I think, all that said, we expect to see in the near term about a 10% decrease in prices as a result of this closure.

And then, lastly, in the 200,000 acres of land, I think that Eric had mentioned that the TIMOs were showing pretty good interest. Was that more for kind of the nonstrategic type of land as opposed to their rural HBU or conservation? I'm just trying to put together the sensibility you were talking about with the TIMOs and yet your fairly cautious comments on the ability to move the rural HBU conservation lands that you had.

Yes, you're correct. There is a little -- it's a little bit of apples and oranges here. The TIMOs are interested typically in larger tracts, 50 to 1,000 acres or more of nonstrategic timberland or what we would call nonstrategic timberland. We don't have -- most of that we have already divested. What remains is this 200,000 acres roughly that we have that is scattered in small parcels all across our geographic landscape, which is generally not of high interest to the TIMOs.

Thank you.

(Operator Instructions). George Staphos, Merrill Lynch.

Good morning. Thanks for all the details. I just wanted to come back one last time on the dividend question Mike raised and some of the other guys raised, and try to, as best as possible, maybe summarize what you're trying to say and convey.

You mentioned at the beginning that you still think the most likely outcome is that you can maintain the dividend. But then you also mentioned that there are a number of countervailing factors here, the biggest issue being when single-family starts will recover meaningfully. You don't want that to be pushed out a couple of years to the million-start level, yet that's what some of the forecasts are suggesting from your vantage point. So would the summary be, then, while you feel comfortable with the dividend, there is discernibly more risk in the dividend than maybe in the last quarter from the way you look at it and perhaps the way the Board looks at it, and that is why you want to flag it for us on this call?

The underlying message that we have had on the dividend for a long time has been that we felt that in a stronger housing environment we could raise harvest levels up to a sustainable rate of about 4.6 million tons, and at the same time we would capture stronger pricing to do that.

We are not seeing evidence of stronger pricing on the horizon due to the weakness in the housing market. So our ability to raise the harvest levels, obviously, has been put off until we see the housing recover.

So while we're comfortable with the dividend that we have today and the $80 million in cash on hand, that is after we've paid our Q3 dividend, I think we are trying to flag that we are increasingly concerned about the pace of recovery in the economy and we cannot sustain a dividend that we can't earn organically for an indefinite period of time.

I'll leave it there, but thanks very much for the details.

At this time, there no further questions. Gentlemen, are there any closing remarks?

No, thank you. Thanks, Misty, we'll talk to everyone in the next quarter. Thank you.

This concludes today's conference call. You may now disconnect.