Rayonier Inc (RYN) 2010 Q4 法說會逐字稿

Welcome and thank you for joining Rayonier's fourth-quarter 2010 teleconference call.

At this time, all participants are in a listen-only mode. (Operator Instructions). Today's conference is being recorded. If you have any objections, you may disconnect at this time.

Now I will turn the meeting over to Mr. Hans Vanden Noort, CFO. Sir, you may begin.

Thank you and good afternoon. Welcome to Rayonier's investor teleconference covering fourth-quarter earnings. Our earnings statements and presentation materials were released this morning and are available on our website at Rayonier.com.

I'd like to remind you that, in these presentations, we include forward-looking statements made pursuant to the Safe Harbor provisions of the federal securities laws. Our earnings release as well as our Form 10-K filed with the SEC list some of the factors which may cause actual results to differ materially from the forward-looking statements we may make. They are also referenced on Page 2 of our presentation material.

With that, let's start our teleconference with opening comments from Lee Thomas, Chairman and CEO. Lee?

Thanks. I'll make a few overall comments before turning it back over to Hans to review our financial results. Then I'll ask Paul Boynton, our President and Chief Operating Officer, to review the results of each business. When we finish our prepared remarks, we'll invite Lynn Wilson, our Vice President of US Forest Resources, Charlie Margiotta, Senior Vice President of Real Estate, and Jack Kriesel, our Senior Vice President of Performance Fibers, to join us in responding to your questions.

We had a great year in 2010 generating strong operating cash flow well above our dividend, increasing pro forma earnings 49% to $2.24 per share. Our disciplined execution not only drove superior performance in 2010; it also set the foundation for another strong year in 2011. We believe that the 29% total return our shareholders realized last year reflects the increasing value of our businesses and the strategic priority we place on growing the dividend, which we raised 8% to $0.54 per share beginning in the fourth quarter, or $2.16 per year.

Throughout the year, we targeted specific opportunities in our markets to capture cash flow while growing the long-term value of our businesses. We adjusted our harvest plans and product mix to take advantage of tight timber markets in the spring and sold into strong export markets in the Northwest. At the same time, we maintained discipline in our land sales program, focusing on properties with more resilient values such as conservation lands that are prized for their unique environmental attributes.

We had another record year in our Performance Fibers business as strong demand drove pricing higher for both our cellulose specialties and absorbent materials products. As the global leader in high purity cellulose specialties, Our customers are naturally asking us for more volume as they look at their future growth plans. The potential conversion of the fluff pulp line at our Jesup mill that we announced in early January would add 190,000 tons to our current sold-out capacity of 485,000 tons. We believe this may be a compelling opportunity to use the expertise we've built over 85 years to earn attractive returns on a strategic investment while exiting a more commodity-like product line. We are talking to our customers now and doing the final engineering and design work to conclude our analysis by mid-year.

With that, now let me turn it over to Hans for a review of the financials. Hans?

Let's start on Page 3 with our financial highlights. Overall, we had a solid fourth quarter. Sales totaled $315 million while operating income totaled $57 million and net income was $59 million or $0.72 per share. Note that net income includes a $24 million tax benefit from the Cellulosic Biofuels Producers Credit which increased fourth-quarter earnings by $0.29 per share. Without this benefit, net income was $35 million or $0.43 per share.

Earlier this year, we had another special item which was a $12 million gain on sale of a portion of our interest in our New Zealand joint venture. In 2009, we benefited from the Alternative Fuel Mixture Credit which we also consider as a special item. All of these items have been excluded to arrive at the pro forma amounts used for the comparisons throughout this call.

On the bottom of Page 3, we provide an outline of capital resources and liquidity. Our full-year cash flow was strong with adjusted EBITDA of $420 million and Cash Available for Distribution of $384 million. In the fourth quarter, we contributed $50 million to our pension plans but still closed the year with $349 million of cash. Our debt balance was $768 million, so on a net debt basis, we finished at a very manageable $419 million.

Let's now run through the variance analyses. On Page 4, we have prepared our sequential quarterly variance analysis. In timber, as expected, operating income decreased, reflecting lower volumes as we pulled volume forward earlier in the year. This was partially offset by higher recreational license income, which is largely recognized in the fourth quarter.

In real estate, income decreased $30 million, mainly due to the timing of closings. The third quarter included a significant nonstrategic sale and a large conservation sale.

Moving to Performance Fibers, you can see a price increase which reflects a mix change within cellulose specialties. Our volumes declined due to timing of customer shipments as well as some production issues affecting our fluff pulp, which have since been resolved.

Corporate and other expenses were $4 million above the third quarter, primarily due to additional accruals for future remediation costs at some of our closed sites.

Let's move to Page 5 now and look at the year-over-year variances. In Timber, the fourth-quarter and year-to-date variances to last year generally reflect similar drivers of improved prices and lower volumes. For the quarter, logging costs were unfavorable but were relatively consistent on a full-year basis.

Moving down to Real Estate, results were slightly lower due to the timing of closings and, for the full year, lower nonstrategic sales.

In Performance Fibers, the fourth quarter and full year benefited from improved prices in both cellulose specialties and absorbent materials, but this was somewhat offset by higher chemical, wood and transportation costs.

Our Wood Products business generated a $12 million turnaround compared to 2009, driven primarily by higher prices, particularly early in the year.

Finally, in corporate and other expense, for the fourth quarter and full year were unfavorable to prior periods, largely due to the previously noted environmental accruals and higher incentive compensation accruals.

Let's now turn to Page 6 where we reconcile from Cash Provided by Operating Activities, which is a GAAP measure, to our non-GAAP metric of Cash Available for Distribution. Our cash flow remains strong with CAD of $384 million, well above last year and above our dividend payout, which represented only 43% of CAD.

With that, let me turn the conference over to Paul Boynton, President and Chief Operating Officer.

Thanks, Hans.

On Page 8, you'll notice that our prices for Western delivered logs, which represents 90% of our volume in the fourth quarter, remained near third-quarter levels and were up 36% over the prior-year period. 24% of our Western logs were exported in the fourth quarter, compared to 18% in the third quarter. The decrease in stumpage prices from the third quarter reflects locations which were difficult to log and is not indicative of the current market. In fact, strong export demand driven mainly by China continues to serve as price support for the market. We are currently securing prices above third-quarter 2010 levels.

Due to this continued strong export demand, we plan to increase our harvest level 10% to 15% for the year, albeit still below our sustainable harvest level. We expect 2011 prices to be comparable or above 2010.

In the East, on Page 9, pine prices were comparable to third-quarter levels driven by strong pulpwood demand in certain regions. Prices were 15% above fourth quarter 2009. We continue to manage our pine harvest mix to capitalize on stronger markets. As mentioned last quarter, we pulled volume forward in the first half of 2010, allowing us to back off volume in the fourth quarter as market supply increased. 2011 pine harvest volume and price is forecasted to be comparable to 2010.

Let's turn to our Real Estate business. As expected, operating income for the fourth quarter was unusually low due to the timing of closings which occurred earlier in the year. For the full year, rural acres sold were comparable to 2009. Nonstrategic acres sold were about 17% below 2009, a trend that will continue.

Page 10 details acres sold. As indicated, the fourth quarter was unusually low due to transaction timing as closings were concentrated in the third quarter when we achieved record sales volume.

Page 11 shows per-acre sales prices. While volume was reduced, prices per acre for both HBU development and rural sales were solid. Our expectations for 2011 are that both development and rural volume and per-acre prices will be comparable or above 2010.

Now, Page 12 shows nonstrategic acres and prices. The fourth quarter consisted of several small sales in the Southeast. We have largely completed our planned sale of nonstrategic properties and expect 2011 acres sold to be approximately a third of the 2010 level.

As an update to our last call, we are pleased to report the sound defeat in November of the proposed Amendment Four in Florida, which essentially was a no-growth initiative. Another encouraging sign for our entitlement activities was the election of pro-business administrations in both Florida and Georgia.

Now, let's move on to Performance Fibers. As a result of strong demand for cellulose specialties and absorbent materials, Performance Fibers continues to report excellent results.

On Page 13, you'll see net selling prices for our two Performance Fibers product lines. Cellulose specialties prices improved $25 from the previous quarter, primarily due to customer mix. Compared to the same quarter last year, Q4 prices were up $87 due to both improved pricing and mix. As expected, absorbent material prices, which consist princely of fluff pulp, increased $45, or 5%, from the previous quarter and $273 a ton or 43% from the same quarter last year as market conditions strengthened.

Now, moving to Page 14 and looking at volumes, the fourth-quarter cellulose specialties sales volume of 123,000 tons compared to 142,000 tons in the same quarter last year due to timing of customer orders. Absorbent materials volume was 58,000 compared to 72,000 tons in the fourth quarter of 2009 due to both timing of customer orders and production issues which have since been resolved. The full year reflects a 16,000 ton, or 3%, increase in cellulose specialties due to strong demand. Full-year volumes for absorbent materials were down 32,000 tons compared to last year due primarily to optimizing our product mix to meet cellulose specialties demand.

Now, as we look into 2011, we are seeing continued solid demand for our cellulose specialties fibers. In fact, overall cellulose specialties prices should average about 12% to 14% higher than 2010. Acetate tow contract prices will be approximately 17% higher in 2011, and other cellulose specialties price increases will average 13% to 24%. Now, these increases will be partially offset by December 2010 shipments, which were in transit at year-end. Effectively, these shipments reduce the average selling price for the first quarter of 2011. We expect 2011 cellulose specialties sales volumes to be comparable to 2010.

In our absorbent materials business, 2011 volumes are expected to be 10% to 14% higher than 2010 with continued strong prices in the first part of the year.

Now, despite higher anticipated input costs in 2011 due to increased commodity prices, we are anticipating another excellent year for our Performance Fibers business.

Now, as I mentioned in our last teleconference, we've been making good progress toward securing extensions of our long-term cellulose specialties contracts. I'm pleased to report that we've finalized contracts with all of our major customers, extending into 2013 and '14 for over 80% of our cellulose specialties volume.

We continue to look for opportunities to drive our global leadership position in the market by evaluating capital projects that reduce costs, add production and/or differentiate us from the competition. In 2011, we have identified several investments that we expect to exceed 20% IRRs, including a new $22 million turbine generator for our Fernandina mill that will effectively eliminate our outside electricity purchases and allow us to sell back power to the grid, and also a $5 million Fernandina blow heat recovery project that will allow us to increase production, improve energy efficiency, and reduce emissions. In total, we will invest approximately $40 million of capital in projects that provide significant returns, particularly in Fernandina. In fact, we expect increased production in Fernandina of 10% by the end of 2012 as a result of these investments.

Now, let me turn it back over to Hans.

Thanks Paul. Now, I'd like to provide some key statistics to assist you in developing your 2011 model. We expect the depreciation, depletion and amortization of $138 million, and a non-cash cost [basis] of land sold of $4 million, or approximately $142 million in total. This is about $9 million below 2010, driven primarily by our expectation of lower nonstrategic timberland sales.

Capital expenditures, excluding acquisitions, are expected to total about $145 million, slightly above 2010 spending of $138 million. Expenditures will include cost reduction and efficiency projects in Performance Fibers, as previously described, as well as an incremental $6 million in silvicultural investments in our forest resources timberlands.

We expect interest expense, net of interest income, of about $52 million, slightly above 2010. Finally, our effective tax rate is expected to range between 20% and 22% versus 18% in 2010, excluding the Cellulosic Biofuel Producer Credit impact. This increase reflects expectatins of proportionally higher income from our TRS businesses.

When you put all of these elements together, along with the CBPC benefit, we again anticipate very strong cash flow. We expect EBITDA to be 10% to 20% above 2010. CAD should range between $260 million and $280 million. Finally, we expect EPS to be between $2.50 and $2.70 per share, roughly 10% to 20% above pro forma 2010, which excludes the previously mentioned special item gains. We expect first-quarter EPS to be comparable to first quarter 2010. Overall, we anticipate that 2011 earnings will be weighted more heavily to the back half of the year, reflecting the Performance Fibers shutdowns early in the year and our expectations around timing of real estate closings.

Now, let me turn it back to Lee for some summary comments.

As you've heard from Paul and Hans, we expect another strong year in 2011, with growing operating cash flows well above our dividend. This highlights the strategic benefit of our unique business mix and the fundamental improvement we are seeing in our key markets that is occurring independent of a recovery in housing.

In Timber, we are increasing our harvest levels in the Northwest to take advantage of strong export markets, while in the southeast we are opportunistically supplying the stronger pulp wood markets while stepping up our capital investments in silvicultural excellence. We are keeping our long-term perspective in real estate, selling only those properties where we can achieve attractive returns and letting value build on our entitlement projects.

In Performance Fibers, we expect that strong demand for our high purity cellulose specialties products will drive another year of record performance.

Our overall pro forma earnings increase of 10% to 20% and strong operating cash flows should continue to differentiate us as we achieve exceptional results in an economy that still has its challenges. We believe disciplined execution of our strategy will continue to pay off for our shareholders. We remain focused on growing our long-term cash flow to fund dividend increases over time and on prudently investing our strategic capital.

Timberland acquisitions continue to be a top priority for strategic investment, and we are actively seeking properties that meet our criteria. As we've discussed today, our initial work shows that expanding our cellulose specialties capacity may be an attractive investment, and we are on track to complete final analysis in the coming months. We are also considering other effective uses of our strategic capital as we evaluate opportunities to strengthen our businesses and optimize our capital structure to enhance returns. With our strong operating cash flow, conservative balance sheet, and ample liquidity, we remain confident in our ability to drive value creation going forward.

Now, with that, I'd like to close the formal part of the presentation and turn the call back to the operator for your questions.

(Operator Instructions). Mike Roxland, Bank of America Merrill Lynch.

Thanks very much. Congratulations on a very good quarter. Just touching on the export markets that you commented on out of Northwest, we heard some chatter that things may have slowed a little bit in January. I know you mentioned that trends, export trends, continue to be strong. I just want to get a sense of what you're currently seeing.

Lynn?

We continue to see the same strengths in first quarter as we did in fourth quarter, and we are currently in a position to achieve the same pricing and see the same strength moving in first and second quarter.

Got you. So no slowdown as far as you can tell in terms of demand from China?

No, we've actually seen increased orders and increased pricing pressure.

Got you. On the same front, I'm wondering if you've actually seen any residual benefit in the southern US from increased log and lumber sales to China. As prices have increased in the Pacific Northwest, I'd ultimately expect some benefit in the US South. Maybe China will look to less expensive lumber and logs, which could potentially be shipped out of the Gulf. Is that even a possibility?

Yes. We have seen the same pressure. It is still in the beginning stages, and individual lumber mills are seeing orders, which in turn is supporting local logs market pricing, but it is still a small portion of the local markets in the Southeast.

But [as prices] remain elevated in the Pacific Northwest, we are likely to see that further develop in the Southeast with the poor prices down there?

We are hoping that is the trend, but we will wait and see next quarter.

I think along those lines, one of the things that may occur is you've seen an awful lot of shipments out of Canada as well into China. That will, over time, impact the volume of Canadian lumber coming into the US, which potentially would have the effect on a broader scale as far as pricing in the US is concerned.

Got you.

One comment I'll make on the Northwest -- this is Paul -- is keep in mind our property is very coastal. We have the ability to take advantage of the ports perhaps better than some of the others. So, we will and have seen this continued pressure and demand out of China.

Just the last question, just on Timberland acquisitions -- can you talk about where you're currently seeing opportunities to expand your timber base? If I look at your cash flow statement, it looks like you acquired some property in 4Q?

Yes, we've picked up some property, a very small amount, in the fourth quarter. We continue to look and we are optimistic of 2011 that we will start to see more opportunities come available. We have several targeted regions mainly focused in the southeast of the US.

Just a little bit more color on that 4Q, what you actually acquired in 4Q in terms of location.

They were very small one-off properties and we took real good advantage of some opportunities we saw out there. So they were small and located here in this area of Florida.

Thanks. Good luck in the quarter.

Chip Dillon, Credit Suisse.

Good afternoon. The first question is you mentioned that you expected the nonstrategic land sales to be down quite a bit in 2011. Does that -- can you give us some guidance? Maybe I missed it for the full year, what you kind of see in terms of the real estate numbers looking like versus what they did in 2010 because of that.

Let me let Charlie follow-up on that, but let me say, overall, we've given guidance for quite a while that our nonstrategic timberland sales would be going down in terms of volume as we've worked through a lot of what we considered nonstrategic land. So the reduction that you saw in 2010 will continue into 2011. So, that's not anything new; it's a continuing trend that we've talked about for a while. Charlie, do you want to talk overall about the Real Estate business?

Yes. On nonstrategic, we've sold the bulk of what we identified in '08, '09, and '10. Of course we have some left, I think we've given guidance that it will be well down in '11. That's just a fact of going through the program. While you never run out, we are just nearing the end of it. In terms of overall guidance for real estate, we feel both rural and development acres and prices will be flat to up. That's about the best guidance I can give.

But I guess just from a big -- I just want to make sure I am not missing something. It would be responsible to assume that the overall segment sales and income, because of the fact that you have this runoff, will be lower for 2011 than 2010. That's embedded in the $2.50 to $2.70 EPS guidance. Is that (multiple speakers)?

That's correct.

You got it.

Then I might have missed this, but did you give sort of a blended kind of pricing outlook for the specialty cellulose? I know you mentioned cigarette tow. Sort of when you blend it all together, are you saying that maybe your prices will be up 10% or 15% or 20%?

We said 12% to 14%, a blended price of all of it. That ranges from acetate in the 17%, some of the others will go up as high as 24%, but we said the blended was 12% to 14%. That's really impacted to some extent by the shipments that basically were sold in 2010 but don't land until 2011.

Got you. So it would've been higher if everything shipped instantly, so to speak?

That's exactly right.

As a way of thinking about it, if you add it all up against the 470,000 or 480,000 tons, give or take, that's like about an $85 million benefit. How much of that should we expect to be offset at least when we compare to 2010 by the higher costs you talked about?

Chip, Paul. The higher costs we talked about -- obviously we don't have a crystal ball, but we do see commodity costs increasing. As we look at the year, we may be seeing similar or comparable cost increases that we saw from 2009 to 2010, which was in the 4% type of range cash to cash.

Got you. So if I throw in there the fact that pulp is higher, I'm having a hard time not seeing you guys making $300 million of EBIT against the $215 million you did in 2010. I mean I'm not telling you to promise us that, but if things stay as they are, is that a good place to be?

We are not going to promise you anything, but I tell you we are looking for a really good year.

Got you. The last thing is just on the conversion project you've talked about at Jesup. Two questions -- how much fluff would you be -- I guess you'd be giving up all of it, so you might just confirm how you view that capacity. Secondly, sort of how is the timing of that flow in terms of the actual work and the dollars on the CapEx line, and you might just refresh our memories how much we are talking?

Let me let Jack talk about that, but we have used figures for the total project of between $250 million and $300 million. That would be the amount of investment that would be required for that. Jack, why don't you talk a little bit about volumes.

We would phase out our fluff production up until the point we start actually doing -- or finish the conversion, which would be, if we follow the plan, mid 2013. So we look at a reduction of our fluff in that last 2012 timeframe.

Got you. I guess, in terms of the timing of the capital dollars, is it as good a guess as any to sort of split it 50-50 between '12 and '13, or maybe weight it a little bit more toward '12? I would assume, in the $142 million for '11, there's not much in there for this project.

Yes, for 2011, basically, right now, Chip, we have about $3 million to $4 million kind of in that $145 million of capital. The weighting would be heavier to '12 than '11.

Or '13, you mean.

'13, right.

Got you. Okay, thank you.

Peter Ruschmeier, Barclays Capital.

Thank you. Good afternoon, and congratulations on a strong quarter. I was curious on the volume of commitments you have for specialty cellulose. I think you mentioned 80% commitment through 2013/'14. I'm curious on how that compares to commitments historically.

This is Jack. The 80% represents multi-year contracts. Typically, we will have a good percentage of the balance tied up in one-year contracts. So, in essence, we go from year to year with all of our product line tied up in contracts.

But I'd say this is pretty much comparable to what we (multiple speakers) comparable contract approach.

Okay. Then understanding that this could well take until 2013 if you were to proceed to start up, I'm curious on how quickly might the demand ramp up? In other words, is there enough pent-up demand that your customers could take everything you could produce right from the get-go, or would it take a year or two or three to kind of grow into that volume once it's available operationally?

It would take a period of time to grow into it. As a matter of fact, as Paul indicated earlier, discussions are underway with customers. A number of customers would like to go ahead and start talking about what portion of that expansion they would like to take. So, we are in the middle of trying to actually work through some of those figures right now.

Okay. As we try to evaluate what kind of returns you could achieve on a $250 million to $300 million, can you give us any sense? I know you obviously don't segment your profits within Performance Fibers, but I think, if our calculations are right, you've got about 31% EBITDA margin for the year. Can you indicate would those be similar margins on specialty versus fluff? I'm trying to get a sense of the relative profitability of one versus the other to identify what kind of returns we can see.

Well, I would say the kind of returns we would be looking for on the $250 million to $300 million would be in the 15% to 20% return. As you know, we are in the middle of that engineering analysis right now, but at least based on the assumptions that we've looked at, at this point, I'd say it's in that range.

That's very helpful. Maybe lastly, is it possible to comment on what you're seeing out of New Zealand in terms of demand and price, and maybe even mix trends from that business?

It's Paul. We continue to see, and very similar throughout the Northwest, strong demand coming out of New Zealand, again driven by export market into China, into Korea, into India. With that, we are seeing domestic prices holding firm as well and, again, the export market propping up the domestic market. So coming out of 2010, we are going right into 2011 at very similar pricing, so it's going to be a strong year as we look at it right now and improved to 2010. Mix has not changed too much, though, in that timeframe.

Okay. Is it fair to suggest that you're running kind of full at a sustainable cut yield at this point?

Yes, sustainable and full.

Very helpful. Thank you, guys.

Mark Wilde, Deutsche Bank.

Good afternoon. Lee, just a question to kind of start off on this specialty fibers business -- are you looking at other opportunities beyond the capital program to perhaps grow your footprint, grow your position in that business?

Over the course of the last several years, we've really looked at a variety of options, one of which is the one we are analyzing now on the conversion of our fluff line. But over the course of that time, we have looked at other opportunities.

If you move forward on the internal expansion, does that rule out doing anything else?

No, I don't think it does. I think, over time, at least for us, it looks to us like, as the leaders in this specialty market, that it's a good market that continues to grow. It's growing at a steady pace, not an exponential pace, but one that runs in the 2% to 3%, in some categories 4% or 5% a year. So we think there are clearly opportunities over time. This doesn't rule it out at all.

Okay. You mentioned kind of pricing in the cellulose specialties. Can you give us a sense of what fluff pulp pricing is doing right now?

Jack?

Right now, fluff pulp in Q1 looks like it's going to be holding relatively flat. The analysts out there are thinking that later in the year there may be somewhat of a trend down, pull-down by NBSK in hardwood market pulp. But we don't see a huge shift in the overall fluff pricing.

Then I just want to turn to Timber for a couple of minutes. It sounds like you're looking at kind of smaller sized parcels when you're acquiring timberland in the Southeast there. I've heard some reports of perhaps some distressed sales. I don't know if this is from guys who have been speculating on timberland, but are you seeing that and could you talk about it at all?

First, we are really not seeing distressed sales. I will say that we've picked up a couple of small parcels. By that, I am talking about several hundreds to 1000 or so acres that I would characterize as people who needed to sell their property. So, I would say that probably falls to distressed, but I think it was not something we are seeing broadly.

Secondly, we are not necessarily just looking at small parcels. We are looking at parcels, some of which are fairly substantial, so there are parcels that people are putting on the market that are fairly substantial.

Yes, okay. Then also on timberland in the Southeast there, there's a great big pellet plant in southeast Georgia that I think is geared up to ship I think to the Netherlands. Is that kind of stuff having any effect on the market down there yet?

Lynn?

Yes, it is. We are seeing a significant impact in that wood basin. That would be RWE in Waycross, Georgia.

Yes, that's the one.

That one is putting pressure, upward pricing pressure, on all of the pulpwood market and saw chip and saw logs market. Right now, we are achieving prices in the first quarter similar to the fourth quarter, but all of the local mills are positioning themselves as they ramp up to full production on April 1.

So Lynn, can you quantify for us in that part of the world how much incremental demand that is creating, and also what it might be doing to prices so far?

Is it 1 million --

It's 1 million tons additional volume consumption in the region. And so what we're seeing is that pricing -- upward pricing pressure is achieving 10% to 15% higher pulpwood prices in the region because of that facility.

Then I haven't followed this real closely. Have there been a lot of pellet plants proposals out there. I didn't see too many of them where they were actually pouring concrete. Are there many more ramping up in your fiber baskets?

Not at this time. We have others that are proposed to your point but we don't have anybody in active construction at this time. There are utilities and other facilities that are actual serious acquirers of wood fiber at this time, but right now, pellets, that is the one unique location at this time.

Then the last question I have is just about the strength of this export demand going into Asia, up in the Pacific Northwest. It sounds like you guys are kind of ramping up. I've heard that some of the big TIMO's are actually moving their harvest volumes up this year. Do you think that you're going to have a lot of people trying to play catch-up from the last four or five years and pushing more logs into the market, and that will act as any kind of a cap on pricing?

Paul. I think what we're going to see is what we usually see. These baskets are very local, and you are going to see folks kind of metering out the volume as it makes sense to them. It's also got some natural constraints in there in terms of roading, harvestability, logging availability, log availability. So there are some things that will help meter, and I don't think you're going to see some huge ramp up, but certainly folks are going to try and take advantage to the extent, but they're also going to try and capture the price. So I think we're seeing that right now out there in the Northwest. There is certainly a demand, but yet we see the prices continue to go up as people feed the market.

That's very helpful. Thanks a lot guys. Good luck this year.

Mark Weintraub, Buckingham Research.

Thank you. Lee, when you were talking about use of cash, I think you mentioned timberland acquisitions and the possibility on the Jesup conversion. I think you also said something about evaluating other uses, other strategic alternatives or uses. Did I hear that right and what were you referring to?

You did hear it right. I've talked before, we always put our dividends right up at the top when we think about use of cash, so that's clearly one thing we will look at, but we also will look at things like debt. We have a note coming up towards the end of the year. We may use some of that cash to pay down that note as opposed to refinance, things like that, Mark.

Any others that we should know about or are those really kind of the two main things you were focused on?

Those were the main things.

Fair enough. One other question is as you kind of come to the end or towards the end of the program to sell your non-core timberland, are you likely to go through another portfolio assessment and come up with a new list of nonstrategic assets, or was that more of a one-time process?

You know, it was not a one-time process as a matter of fact. We've got a land classification process. Charlie, you may want to mention where we are because we just went through a pretty good review of that. I think it's something periodically we will always go through.

Yes, absolutely right. We'll continue to reassess our land base all of the time. Of course, one of our core strategies is to continually upgrade the land base, so you always have some portion that's not producing the maximum return or the optimum return. Saying that, we did sell a fair portion of it, so the total acres will be reduced, but I don't think that program will ever end. It'll just be reduced in size.

I think when we look at it, we see -- just like the last time, we look at it, we see some properties that, because of changes in growth and demographics, have actually moved into what we would categorize as HBU rural property as an example, just as we see some property, because of its returns, may not be core timberland any longer. But I think we -- with this first big review that we did several years ago, I think we've got an awful lot of the nonstrategic identified, and that's why you'll see those acres going down substantially.

If my math is right, I think you're suggesting you're going to sell order of magnitude 20,000 acres this year, is that about right?

That's probably a little high. (multiple speakers) a third (multiple speakers) of nonstrategic. (multiple speakers)

You're talking about nonstrategic?

Yes, exactly.

Charlie Margiotta 20,000 is probably a little high.

Wasn't it about 60 this -- 2010?

45.

Oh, I'm sorry, so 45, so about (inaudible) 15. And so on kind of a go forward basis, as you say, it's going to tend to be certainly lower than the 45. Is the -- and I realize it's hard to put a fast number on this, but in all likelihood, when you talk about having further programs, would it be a 10,000 to 15,000 type of year in all likelihood?

Representative: It would be subject to acquisitions, so that would be current land-based. That is probably a fair number.

Perfect. Thanks a lot.

Steve Chercover, D.A. Davidson.

Good afternoon and thank you. Most of my questions will follow on other questions, but starting with your potential land acquisitions, given the integrated companies have now basically exited the asset class, where will the land come from? Land is being recycled from TIMO's or presumably from other REITs. Can you give us any color?

I think both of those, but there also is a substantial amount -- as a matter of fact, the largest part of the land in the country is held by private landowners. So I think it will be the first two that you mentioned, but I think particularly of interest to us is private landowners.

Great. Switching to the opportunity at Jesup, can you help us understand? As you ramp up the specialties, can you still produce a little bit of fluff where you're not completely sold out, or can you do any commodity viscose? I know it's not a market you want to get into, but what happens when the capacity is there and the demand hasn't fully reached your potential?

You cannot do fluff, but indeed you can do commodity viscose. We will bring the specialty capacity on as the demand for it is there, and we will bring on some commodity viscose in the interim.

I guess we should hope that market remains as hot as it is, then.

Yes sir.

Finally, I did want to discuss the Chinese opportunity as well. Would you characterize that as embryonic, or just opportunistic on their part? Could this become a 10 billion board foot market in saw and lumber or whatever metric you want to use?

We think that the Chinese demand is driven to -- initially was driven to a large extent by their desire to look for alternative supply from their traditional supply out of Russia. They are still getting a large supply out of Russia, but they diversified. As you know, part of that was because of increased cost for Russian logs, both due to their export duty but also just due to the increased cost of harvesting in Russia. The Chinese have turned over the course of the last 18 months to other supply. We saw it first in New Zealand, and in this past year, we really saw it pick up in the Northwest, including out of Canada. So we think that's a fundamental change, a fundamental change of supply due to diversification.

As to whether that also translates into a permanent demand for lumber, I think that kind of remains to be seen, or as to whether that will be primarily logs that will go to lumber processing in China or Korea or India. But we do think the demand for logs is a fundamental change that's been driven by supply diversification that the Chinese were looking for.

Just to try and handicap how big it could be, if it doubled in 2010, which I think is conservative, do you think it could double for several more years?

I don't think we know, Steve, I really don't at this point.

Thank you very much. Best wishes for 2011.

Dan Cooney, Keefe Bruyette Woods.

Good afternoon. I was hoping maybe on the mill conversion project you guys could talk a little bit about your financing plans for that potential project. I guess, specifically, are you more likely to use a higher degree of leverage in order to kind of minimize the increase in net assets at the TRS?

It's Hans. Right now, it won't make that much difference because we have a significant amount of cash at the TRS as well, as you know. So whether we use cash or the leverage in the investment, when you work it all through the net asset test, it really won't make much difference. So, we'll look at it in terms of the overall leverage of the Company and just make sure we keep our leverage to the levels that we are comfortable with.

Great. Just to clarify on the $1.6 million conservation easement sale, how many acres did that cover and whereabouts was that?

I think that was a powerline sale. That was a powerline up in our -- Bryan County, Georgia property. Isn't that right, Charlie?

(Inaudible question - microphone inaccessible) transmission line on the edge of our property, we didn't sell fee interest. We just sold [$1.6 million] 6-mile powerline easement (company corrected after the call).

Great. Thanks a lot.

Joshua Barber, Stifel Nicolaus.

Good afternoon. Following up a little bit on Dan's question from before, you'd mentioned before potential use of your cash this year being paying off part of that note that's due in December. If you end up paying that off and then expanding the cellulose fibers business, would that put you a little closer to the TRS tests?

We would look at -- we would have to figure out how we're going to fund the expansion. If we decided to go forward with the expansion and refinancing that, no, we would likely issue debt from the TRS again. So if do you think about (inaudible) the test is on a net asset basis, that really won't impact the net asset value at the TRS level.

Do you think you'd need to issue more debt to keep it within the balance, or would that just be a matter of refinancing the current amount that's out?

Well, likely just refinance. Now, we may have some other opportunities that would come up that we would look at. Sometimes in the past we've done some of the timberland acquisitions at the TRS and then done some line-kind exchanges between the TRS and the REIT. So if some of those opportunities presents themselves, we may have to alter or change the plan accordingly. So it's kind of hard to know at this point exactly what we would do. Likely if we go out with additional debt, it's going to be a little longer term, longer maturity debt.

There's just a lot of capacity and a lot of flexibility as far as that's concerned.

Turning just to something else within the fibers business, you'd mentioned before input costs, that you were expecting them to rise quite a bit I'm guessing more on the chemical side. What are you seeing so far in the last few months about those input costs, especially on the caustic side?

Jack?

Yes, what we're seeing on caustic is roughly about a 15% to 20% increase year to year, 2010 to 2011, based on what CMAI is projecting. So it's a relatively significant change, but CMAI is looking at it trailing off in the latter part of the year.

Okay, thanks very much.

(Operator Instructions). Chip Dillon, Credit Suisse.

Hi. One question that is a little off the wall, but is there -- is it allowed or can you buy back stock let's say at the TRS level in the market and hold it in the TRS? I'm asking that so that I would imagine otherwise if you bought it up at the REIT level you would have to use cash up there. is that possible?

Yes, you could buy it with TRS funds, you just would have the REIT paying the TRS dividends. So I guess it is possible, Chip.

Is it actually more -- as long as the TRS is doing so well, is that actually advantageous?

I would say with all the other options we have and that we're looking at, that one hasn't cracked the top five, shall we say.

Then the next question would be -- or last one -- is as we look at the high end of the dissolving pulp market, we've obviously seen or heard about one of the players that had been in the US as a pretty big player in the past in Washington state. I understand that mill is restarting. I know there has been talk about the Bahia mill as well as sort of aiming for that part of the market. Now obviously everyone is focused on the Rayon business, but how do you view either one of these, or just in general the entrance of new competitors at this point?

We take a pretty conservative view when we do projections going forward. We just assume that there will be a good portion of the capacity that comes on that will enter the specialty market. So when we do our projections against what we see is demand in that specialty market, we are assuming they will be in there competing with us.

So even --

Both of the ones you mentioned.

Okay, and you still feel the market stays pretty strong even with them coming on and you all adding the tonnage that you plan to do with Jesup?

We do.

Got you. Thank you.

(Operator Instructions). There are no questions at this time, sir.

Thank you very much. Thank you all for participating in our call.

This completes today's conference. You may disconnect at this time.