Potlatchdeltic Corp (PCH) 2012 Q4 法說會逐字稿

Good morning. My name is Stephanie and I will be your conference operator today. At this time I would like to welcome everyone to the Potlatch year-end fourth quarter 2012 earnings conference call featuring Eric Cremers, Executive Vice President 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)

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 teleconference covering our fourth-quarter 2012 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. I would now like to turn the call over to Mike Covey, our Chairman and CEO, who will make some introductory remarks and then I'll review our fourth-quarter results in more detail. Mike?

Good morning, everyone. We're very pleased to report fourth-quarter results and total earnings for 2012 that were both well above our expectations. Our Wood Products division continues to perform exceptionally well bolstered by significantly higher demand and pricing as the housing market recovers. Furthermore, the division finished the year with its best annual performance in nearly a decade. Our Resource segment performed as expected for the quarter and the year with lower earnings driven by our intentional decision to defer harvest volume in order to preserve our trees for better market conditions which we believe are rapidly approaching. Note that we harvested just 3.6 million tons in 2012, roughly 1 million tons lower than our potential of 4.6 million tons.

Earnings from our Real Estate segment were robust for the fourth quarter and solid for the year as a whole, especially considering that we didn't execute any large non-strategic timberland sales. Over the past year we have witnessed numerous industry developments that we feel have set us up for a very strong 2013 and beyond. First and foremost, lumber demand in North America is gaining significant momentum. Demand this year is expected to increase by about 4 billion board feet buoyed by markedly improving housing starts.

Further, repair and remodel activity is also expected to improve as higher housing prices strengthen consumer confidence and spur repair and remodel activities. Several other factors, Chinese demand, the mountain pine beetle in Canada, limited dealer inventories, a still recovering manufacturing base are all contributing to higher lumber prices. As a result, industry experts are forecasting lumber prices to increase roughly 5% to 10% comparing full year 2013 to full year 2012 which will further increase our wood products earnings. As is typical improved lumber pricing eventually finds its way back to the stump.

This past year we sawlog prices in our Northern region continue to move higher along with lumber prices as one would expect, but prices in the South remain at relatively low levels in spite of sharply higher lumber prices. We believe that higher sawlog prices in the South are inevitable but this may take a little more time. Consequently, we are modestly increasing our harvest level in 2013 to 3.8 million tons. Although sawlog prices have begun to improve we continue to believe our shareholders are best served if we patiently wait for even better sawlog prices which we believe is only a matter of time. I'll now turn the call back over to Eric to discuss the quarter, a bit of our outlook for 2013, and then we'll take questions.

Well thanks, Mike. As displayed on Page 3 of the slides accompanying this presentation, we reported net income of $13.9 million or $0.34 per diluted share for the fourth quarter of 2012. This compares to a net loss of $1.5 million or a $0.04 loss per diluted share in last year's fourth quarter and net income of $18.6 million or $0.46 per diluted share from the third quarter of this year. As a reminder our fourth quarter 2011 results were impacted by a $1.2 million pre-tax charge relating to EPA proceedings regarding clean up of one of our properties in northern Idaho and we had no additional charges in 2012.

I'll now review our fourth quarter 2012 results broken down by segment. Operating income and margin trends for our Resource segment are displayed on Page 4. Operating income totaled $10.5 million for the quarter which compares to operating income of $23.6 million for the third quarter and $12.6 million for the fourth quarter of last year. The negative income variance from the prior quarter is primarily attributable to lower harvest volumes related to typical seasonality, particularly in our Northern region. The variance from the fourth quarter of 2011 is primarily the result of our planned harvest deferral that mainly impacted our Southern region.

Page 5 depicts volume and pricing trends in the Northern region of our Resource operations. Comparing Q4 2012 to last year's fourth quarter, sawlog harvest volumes and prices increase 3% and 6%, respectively. The increased volume is attributed to additional chip-and-saw and mixed sawlog production, offset somewhat by less cedar volume in the overall product mix. Comparing Q4 2012 to Q3 2012, sawlog volume decreased 36% which is attributable to typical seasonality. Sawlog prices continued to climb higher on a volume basis in Q4, although due to seasonal factors, when measured on a per ton basis, decreased 4% over the prior period.

Our Idaho sawlogs are sold to our customers on a volume or an MBF basis, but are reported on Page 5 on a per ton basis. Sawlogs harvested during the fourth quarter each year are heavier than in the third quarter due to increased moisture content resulting from wet weather which drags our prices down on a weight or per ton basis. In regard to pulpwood in our Northern region, comparing Q4 2012 to Q4 2011, volume and pricing decreased 67% and 13%, respectively, due to over supplied pulpwood in residual markets. Comparing Q4 to Q3, the 74% volume reduction is related to seasonality as well as an intentional pulpwood harvest reduction due to weak pulpwood pricing.

Page 6 highlights volume and price trends for our Southern region. Comparing Q4 2012 to Q4 2011, sawlog harvest volume decreased 31% while prices increased 6%. The decrease in volume is consistent with our harvest deferral strategy while the price increase was primarily related to product mix differences as hardwood prices were more favorable in 2012. In comparing Q4 to Q3, sawlog harvest volumes and prices declined 13% and 5%, respectively. The lower volume was due to the fact that we harvested more aggressively in Q3 in order to capitalize on favorable market and weather conditions. The decline in prices stemmed from product mix differences between the quarters.

Moving on to review Southern region pulpwood, comparing Q4 2012 to last year's fourth quarter, prices increased 8% due to strong demand but harvest volumes were down 18% due to our planned harvest deferral. Compared to Q3, Q4 harvest volumes were down 18% and overall prices remained flat.

Page 7 highlights revenue trends from our Real Estate segment. Real Estate generated revenues of $19.1 million on 37 transactions during Q4 compared to revenues of $3.2 million in last year's fourth quarter and $2.4 million in Q3. Two large real estate sales constitute the majority of the variance between Q4 and both prior periods. The first is an $11 million conservation sale of Minnesota HBU property of approximately 2,000 acres, known as the Mississippi River North Woods parcel which was discussed on our last call. The second is a central Idaho sale of approximately 3,700 acres of primarily rural and some HBU parcels that generated revenues of approximately $5.1 million.

Real Estate operating income and margin results are depicted on Slide 8. The segment posted operating income of $13.8 million in Q4 which compares to operating income of $2.1 million for Q4 2011 and $1.3 million in the third quarter of 2012. Again, the variance among the quarters is related to the two aforementioned land sales that closed in Q4. Page 9 details our acres sold by product type. We are pleased with the strong demand for our rural recreational and HBU properties as our number of acres sold have improved each year.

Page 10 highlights pricing trends by product type. Our average sale price for rural recreational and non-strategic properties during the quarter remained firm. The well above average sale price for HBU properties was heavily impacted by the large HBU sale in Minnesota.

Moving on to our wood products segment, Page 11 displays operating income and margin trends. Our Wood Products operations continued to exceed our expectations posting operating income of $13.5 million for the fourth quarter of 2012 which compares to a loss of $1.3 million for the fourth quarter of last year and income of $15.2 million in Q3. The $1.7 million decrease compared to Q3 can be largely attributed to less production driven by fewer operating hours in our mills due to the holidays.

Page 12 presents price and volume trends for our Wood Products segment. Lumber prices remained very strong at year-end, up 1% over Q3 and up a remarkable 23% from last year's fourth quarter. Fourth quarter shipments impacted by the holidays were down 2% from Q3 but were up 5% comparing to last year's fourth quarter. As favorable market conditions for wood products remain, we continue to explore opportunities to increase production through measures such as productivity improvements, additional operating hours, and targeted high return capital expenditure projects.

Returning to Page 3, total corporate administration costs excluding net cash interest expense were $11 million for the fourth quarter of 2012, compared to $9 million for the fourth quarter of last year and $10.6 million last quarter. The year-over-year variance is primarily attributed to increased pension expense. The increase in our book tax provision compared to the prior quarter and last year's Q4 is a result of higher net income generated during the quarter and our taxable REIT subsidiary.

Our balance sheet position remains strong with over $80 million of cash and short-term investments on hand at year-end, well in excess of where we began the year despite retiring $22 million in debt during the year. Also notable was a successful completion in Q4 of two land acquisitions financed by a new $12 million term loan. The properties were purchased for approximately $12 million, or roughly $1,258 per acre, and increased our Southern region timberland ownership by a combined 9,300 acres.

The properties were pursued based on their near-term cash accretive value as they both contain mature, harvestable timber, as well as their geographic proximity to our current ownership. One of the tracks contains high amounts of high value hardwoods and the other consists of primarily larger pine sawlogs and both products have firm demand in the area. Combined, though small, we estimate the acquisitions created about $3 million of shareholder value.

Next I'd like to make a few comments about our outlook for 2013. In our Resource operations, we plan to harvest approximately 3.8 million tons in 2013 with 2.1 million tons coming from Idaho, 1.5 million tons in Arkansas, and the remainder from Minnesota. Our anticipated harvest volumes are a continuation of our harvest deferral plan but include an approximate 200,000 ton increase in our Southern region due to the two acquisitions we recently completed. So excluding these two acquisitions, harvest levels are flat comparing 2013 versus 2012.

Regarding pricing expectations for Resource operations, in the Northern region, we anticipate modest price growth for sawlogs, but flat or modestly decreasing pulpwood prices caused by the extremely weak pulpwood markets in the region. In our Southern region we expect both sawlog and pulpwood pricing to remain somewhat subdued in 2013 due to supply and demand imbalance. Logging costs are anticipated to increase modestly over the coming year in both regions, slightly outpacing inflation.

Turning back to our Wood Products segment, we continued to be optimistic about the segment's prospects for 2013. It is now widely expected that housing starts will approach the 1 million level in 2013, a height not seen since 2008 and North American lumber demand is expected to increase by nearly 7% or approximately 4 billion board feet. As such, industry project attractive lumber pricing for the coming year, as well, though this will be partially offset by higher log input costs. Furthermore, although our expectation is for robust lumber demand in prices in 2013, the wood products manufacturing industry remains plagued by very weak residual markets which is serving to offset some of the pricing gains we are realizing in our Wood Products segment.

In our Real Estate segment we expect to sell between 18,000 acres to 20,000 acres in 2013, with 60% of the acres being rural Real Estate, 20% HBU, and 20% non-strategic timberland. We expect pricing to be relatively consistent with past results and for our average selling price per acre to be around $1,400 per acre. We expect the basis of land sold to approximate 20% to 25% of our land sales revenue, though of course it will vary based on the specific acres sold. As is typical we plan to close roughly 25 to 35 transactions per quarter in the coming year. For corporate related items, we expect corporate G&A and net interest expense in 2013 to be comparable to 2012 levels.

Concerning our tax provision, which is always difficult to predict and is generally driven by the earnings of our taxable REIT subsidiary, we expect an annual provision of approximately $12 million for 2013. For depreciation, depletion, and amortization or DD&A, we anticipate $25 million for the year, though the final total will be significantly impacted by the ultimate location and amount of harvest completed. Note that the aforementioned DD&A amount excludes the basis of land sold in our Real Estate segment. In regard to our defined benefit pension plan, we have no obligations for cash funding during 2013.

Capital expenditures are anticipated to total about $24 million during 2013 with approximately $15 million in spending planned for our Resource operations which is primarily used for the construction of logging roads and reforestation expenses. We've earmarked $8.1 million for our Wood Products division this year which is higher than in recent years primarily due to a specific high return project at one of our lumber mills that we expect to substantially increase production of premium products that are in high demand. The project has an estimated 40% IRR. It is important to note that we remain active in the timberland acquisition market and though larger deals are highly competitive and excess returns tend to be bid away, we will continue to diligently pursue acquisitions where shareholder value can be created.

To close, we are very pleased with our 2012 performance that was much stronger than we envisioned at the start of the year. We are organically earning our dividend despite our continued harvest deferral strategy, producing funds available from distribution of $1.30 per diluted share in 2012. From a cash generation standpoint, we expect to earn well in excess of our dividend in 2013 despite only modestly increasing our harvest levels. Our balance sheet is in excellent shape with over $80 million of cash and short-term investments. In addition, we recently closed on a new, undrawn, unsecured $250 million revolver featuring significantly improved terms, greater flexibility, and increased borrowing capacity which further improves our liquidity position. To sum it up, our outlook for 2013 is very positive. Stephanie, I would now like to open up the call to Q&A.

(Operator Instructions)

Gail Glazerman, UBS.

Eric, can you give a little bit of guidance for the first quarter in terms of harvest and price trends and perhaps land sales? I guess you gave it for the year but you didn't really talk much about the quarter.

Harvest and price trends in the first quarter? This year, Gail, they're going to be a little bit higher than where they were last year. Because of the strong pricing we're seeing here in Q1 we will push up a little bit of volume, probably take it out of Q3 and Q4 and move it up to Q1, so maybe 100,000 tons higher than what we did in 2012.

And on the pricing side, of course it's going to vary quite a bit by product category and by region. I think it's fair to say we'll see a little bit of price appreciation in Northern region sawlogs. And in the South, you'll probably see a little bit of price weakness in Southern region sawlogs. Although what I'd tell you is, we're at the time of year where weather can heavily influence prices. We're right on the cusp of weather having an impact down there, so while prices may be flat to slightly lower, there's a possibility that they could actually improve $1 or $2 a ton from Q4.

Okay, and the price decline that you're expecting, is that more of a mix effect and then weather would be additive upon that or is the underlying trend down ex-weather?

Yes, I would say pine sawlogs are basically -- they're relatively flat from Q4 to Q1. We'll have a little bit lower hardwood production in Q1 which will negatively impact prices a little bit. But again, weather can have a big impact, can actually push prices higher in Q1 versus Q4.

Okay, and I guess trends on the coast have been pretty tight. Have you seen that trickle over to Idaho or not like we did a couple years ago or not so much?

No, we're continuing to see it drift over into Idaho. The mills in the region are running hard. They're looking for additional volume, and prices are relatively firm and log yards are, I would say relatively on the low side. So we're continuing to see a bit of an indirect impact in the inland region.

Okay. Just last question, more strategically. Effectively, ex-acquisitions you aren't raising harvest. What do you think it's going to take to firm up the Southern market and encourage you to start reversing the deferral? Is there a certain level of housing starts you have in mind or is there a certain activity or just what specifically are you looking for?

As we look forward, Gail, the outlook for housing starts in 2014 is around 1.2 million units, perhaps it will be a little bit stronger than that. FEA and other forecasters look for increases in Southern log prices to begin in 2014 and even increase more in 2015. We've had the deferral in place for some time now and we will continue to be patient until we see log prices come up. And I think furthermore, we have optimism that given the increase in demand in lumber that Eric mentioned, about 4 billion board feet, and with the West Coast of not having a lot of flexibility to increase capacity either due to high log costs or mills that are already running at full capacity, we fully expect the increased output to come from the US South and that will eventually work its way into higher log prices as demand goes up for logs.

Okay, very helpful, thank you.

Mike Roxland, Bank of America Merrill Lynch.

Congrats on a good quarter and a good year for that matter.

Thank you.

Just a couple quick questions. How much of your lumber production is currently premium products versus commodity?

Premiums are in the eyes of the buyer, so it's hard to answer that. But approximately in our stud product line, we make 2x4 lumber, that goes to, a lot of it to home centers, it's roughly 30% to 50% is in the premium end of things and Southern Pine, where a lot of our lumber is treated our two and better percentage, is probably two-thirds of our mix.

So relatively, would you say for the overall probably about 50% or so of the mix?

Probably. Depends on how you define premium, but in terms of a square edge board that is going to end up at a home center or some other outlet where they value its appearance is probably roughly half of our product mix across all of our lumber facilities.

Got you, now I know that in the last call you mentioned you were looking at projects that would add about 10 million to 15 million board feet in future years. Now is that related to the project you just mentioned or Eric, that you just mentioned in terms of increasing your premium production of lumber or premium products?

No, it really does not, Michael. The project that I mentioned really is the mill is going to have a comparable output year-over-year but it's moving product from a lower grade to an improved grade, so we expect to get a pricing premium on that volume that's going to shift from a lower grade premium to higher grade premium. So the shipments that I spoke of before, roughly 10 million to 15 million board feet is what we expect to get in 2013 compared to 2012. It's outside of that specific capital project that I mentioned.

Okay, got you, so 10 million to 15 million board feet you mentioned last call is the incremental board feet you would get this year versus 2012?

Correct.

Got it and just last question. How much additional flexibility do you currently have in your lumber system? I know that you've added hours and a day or two to certain schedules, but given the increased demand is there any way for you to add shifts, is there any way to increase capacity? And given what appears to be the turn in housing and ultimately how that impacts wood products, have you considered any options for expanding your capacity in lumber?

Mike we're currently running our facilities at about 104% of capacity due to the amount of overtime that we operate the facilities and that's on a two-shift basis. We have no plans to put three shifts at any of our mills, while we could do that we have no plans to do so. We don't think it makes sense, longer term. And beyond the small capital investment that Eric mentioned in our Wood Products division to increase premium output, we don't have any large plans to increase capacity beyond the overtime rates that we're running today.

Got you, good luck in the quarter and the year.

Thank you.

Chip Dillon, Vertical Research.

First question has to do with the comment I think I heard at the end -- Eric did I hear you say that you do have a plan to potentially raise the dividend this year and if so, can you give us an idea of the magnitude or maybe I just misheard you?

No, what I said, Chip, was that we're earning well in excess of our dividend both from 2012 and in 2013. Our current plan has us building cash over the foreseeable future. So we're just now starting to have those kinds of conversations at the Board level about what's the smartest use for that excess cash and you can imagine that the typical corporate finance discussions revolve around acquisitions, capital expenditures, share buybacks, and a dividend increase.

Debt repayment.

Yes, and debt repayment. There's a whole host of alternatives we're exploring.

I think, Chip, to add a little more color. The engine that drives cash flow for us is timber harvest and until we can look to our Southern operations and see higher pricing that sustains and supports higher harvest levels, that's when we'll review with the Board whether to raise the dividend.

Got you. And then one thing I noticed you were saying in your plan for this year that 2.1 million tons of your harvest would be in Idaho. If you could just refresh our memories, I think a significant portion of that is actually done under contract where I understood the sawlog prices you receive is somehow tied to the lumber price and therefore I would think you're seeing some increases in realizations. Is that correct?

Yes, that's correct, Chip. We expect to see Northern region sawlogs improve mid-single-digit percentage over the course of the year.

And that's even though lumber prices look to be up quite a bit more than mid-single digits?

Yes, and I've seen two forecasts in the last week that have lumber prices, the random lengths composite, up 18% to 20% of 2013 compared to 2012. Our own internal forecast does not have composite prices being up 18% to 20% year-over-year. But certainly, there is a lot of excitement and enthusiasm about lumber prices in 2013. Our expectation --

Oh, I totally get that. I just didn't know why the increase in the log price would only be mid-single digits if, let's say lumber, well I know you said your forecast isn't that strong. So it sounds to me, roughly speaking, that maybe for every 2% lumber goes up maybe your log prices in the Northern region might go up 1% for sawlogs. Is that a rough fair rough rule of thumb?

No, there's all kinds of moving pieces involved in the math, Chip, and one example is residuals. Saw mill residuals enter into what the price of the log is and residuals, as I mentioned in the script, they're under pressure. So you can't just look at it and say if lumber does this -- you got to look at the very specific species of lumber that the pricing agreements are tied to and it's a very complex calculation. It's not back-of-the-envelope kind of stuff that you can do.

Okay, and then just one more. In Arkansas, I know it was, gosh I guess a year-and-a-half or so ago that a company in Atlanta who was a big customer there shut down, I guess Crossett. Now that we see panel prices doing quite well, and I know you can't speak for what your customers do, but any inkling that there might be a possible restart and if so, when that happens, if and when it happens, could you remind us as to what the impact on your tonnage per year could be in rough terms?

We have no evidence from Georgia Pacific they plan to restart the plywood facility in Crossett. They have not approached us about plans to do that. And we sold them approximately 400,000 tons when the plant was operating.

Per year?

Per year of plywood logs.

Got you. Okay, well that's very helpful, thank you.

Collin Mings, Raymond James & Associates.

A lot of my questions have already been answered but just quickly, can you guys put a little bit more color around the acquisitions you guys made in Arkansas? I know in the prepared remarks you made a few comments, but maybe characterize the land you acquired in context of your portfolio that's already there?

Well, to restate they're very small. It's a little less than 10,000 acres in two separate deals. In one case it was a land owner trying to sell a multi-generational holding of a piece of timberland in advance of the capital gains increase by year-end and we were well positioned to execute that quickly. The land is all in basically, our backyard. It's very tributary to our Warren sawmill and to the customer base we have in south central Arkansas. It's a mixture of pine sawlogs and hardwood sawlogs, very typical with kind of our traditional Southern ownership. Not quite as much plantation for us; it's more natural pine but we'll seamlessly integrate that and log it, convert it into pine plantations, and manage it going forward.

Okay, and then just also as far as on the land sale in Idaho, can you put a little bit more color on that transaction as well?

Yes, that transaction, Collin, was for around $5.1 million in the quarter. It was about 3700 acres, about nearly $1,400 an acre, and it was an individual that already owned acreage in Idaho that wanted to expand his ownership in the region so we had some adjacent property and he paid us a pretty healthy price for the tract of land.

We're encouraged -- we have a lot of ownership in that area in central Idaho and that's been a market that's frankly been dead for the last few years with just oversupply and weak pricing, so we're encouraged to have a sale that is at a basis above what we purchased the land for. And we think hopefully it's a start of a more active market in that area just North of Boise, Idaho.

Okay, great guys. Again, congrats on the quarter.

Thank you.

Joshua Barber, Stifel Nicolaus.

I know you guys talked about harvest basically being flat for the year. Can you talk about any shifts within that though? Do you think your percentage of sawlogs will be higher in a meaningful way than your percentage of pulpwood or it's just too early to tell or it's just going to be flat?

No, Josh, what we expect is the harvest will be up about 200,000 tons and, as I indicated in the script, that really is going to be driven by those two acquisitions that we just completed in the South that are relatively mature tracks of land and so that incremental 200,000 will be predominantly additional sawlog harvest. So that's kind of how we see it playing out.

Okay. I know you mentioned the Minnesota sale last quarter but it looked like the price was a little bit higher than I'd expected. Could you remind us again why the land there was going for more than $5,000 an acre?

Yes, this was property that was situated along the headwaters of the Mississippi River. It was an excellent tract of land that had the potential to be developed into a planned community with residential and shopping and whatnot. And the State and other conservation interest groups wanted to tie the land up and have it be a conservation outcome. So it was really -- we could have either chosen to pursue the development route or the conservation route with the State and that's what we chose to do.

So State had to bid against Real Estate developers in order to secure it?

That's correct.

Yes.

Last question, but it's good to see that you guys are back on the acquisition path again. But I guess how are you guys thinking about future acquisitions on either the timber side or even perhaps on the lumber wood product side? Would that be something that is of interest, would it have to be something that's specific to your wood basket or would you be content getting an acquisition that perhaps included some wood products as well?

Our acquisition criteria really haven't changed. We intend to add on to our ownership base for the geographic areas where we already have a footprint. That's our first priority and our primary focus and we've always looked at opportunities to acquire manufacturing facilities if they're coupled with timberland but not on a standalone basis. Those criteria haven't changed and to do acquisitions that are accretive. I think the one we just did demonstrates that that the cash flow will generate from the incremental harvest there certainly adds value.

I'm sorry if I missed this. The acquisition was funded with cash or was that used with some debt?

We took out two term loans, medium-term term loans.

Perfect, thanks very much.

Mark Weintraub, Buckingham Research.

Can you give us a sense where your lumber prices today are averaging versus what they averaged in the fourth quarter?

The random lengths is printed up around 14% to 18% this year compared to Q4 and our lumber prices track very closely with that. Having said that, we started to see in the last week weakness in the lumber market that's been manifested by the onset of finally winter weather; Q4 was very mild. The teeth of winter has hit a lot of the building country so prices have begun to take a bit of a breather, but still we expect Q1 lumber prices to be stronger than Q4.

I guess that's really what I was trying to better understand is how closely your prices do tend to track some of the overall indexes. Because, for instance, in the fourth quarter, if I got it right, your price is up a little bit, random lengths was up a fair bit more, and I assume that has a function to do with your species mix.

Well I was going to say random lengths was up 5% in the fourth quarter and we were up just 1% in the forth quarter. Over longer periods of time, we track -- we've got different mills, different locations producing different products. But net-net, if you look at it over a period of time, our composite, if you will, tracks pretty closely to random lengths composite. Now they diverged in the fourth quarter. We didn't get quite the bump that random lengths did and it's because inland lumber prices did not go up as much. They were up 0% to 2% compared to the random lengths composite which was up 5%. So there will be a quarter here, quarter there where we don't track on top of the composite but over time we will.

Okay and so that was more of an aberration in the fourth quarter in your view and in the first quarter you're more tracking again in line with random lengths. Is that fair?

Well we're 3.5 weeks into the first quarter, so, so far we're tracking with random lengths but we have nine weeks to go.

Understood, okay. And then I know you had talked about in the North that some of your stumpage is tied to lumber pricing and how that can affect you. In the South I know it's less, but don't you have some in the South of your stumpage also tied to lumber pricing and can you walk through how that might play out?

No, we don't have any indexed customers in the South market. It's a different dynamic down there. There's a lot more what I would call non-industrial land owners in the South, so gatewood is readily available. So to approach a mill and try to get them to index to lumber down in the South is a very hard conversation to have. In Idaho, where there's not nearly as much non-industrial landowner wood floating around and so customers are more interested in securing log supplies. So it's an easier conversation to have.

Okay, thank you.

Yes.

(Operator Instructions)

At this time, there are no additional questions.

Thank you, Stephanie and thanks to the call participants. We'll speak to you next quarter.

Thank you. This concludes today's conference. You may now disconnect.