Rayonier Inc (RYN) 2012 Q1 法說會逐字稿

Welcome, and thank you for joining Rayonier's first-quarter 2012 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.

And 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 first-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 Safe Harbor provisions of federal securities laws. Our earnings release, as well as our Form 10-K, filed with the SEC lists some of the factors which may cause actual results to differ materially from the forward-looking statements we may make. They're also referenced on page 2 of our presentation material.

With that, let's start our teleconference with opening comment from Paul Boynton, President and CEO. Paul?

Thanks, Hans. I'm going to make a few overall comments before turning it back over to Hans to review our financial results. Then I'm going to ask Lynn Wilson, Senior Vice President of our US Forest Resources, to comment on our timber results.

Following our review of Forest Resources, Charlie Margiotta, Senior Vice President of Real Estate, will discuss our land sales results. And then Jack Kriesel, Senior Vice President of Performance Fibers, will take us through the cellulose fibers business.

We're pleased to report earnings per share of $0.42, as the results from each of our business unit exceeded our expectations for the quarter. Our operating cash flow continues to be strong, with cash available for distribution of $0.71 per share, substantially above our $0.40 per share dividend.

Now, in addition to good financial performance this quarter, we also achieved operational milestones that lay the groundwork for improved performance over the course of the year. Our Forest Resources team quickly completed the operational integration of 320,000 acres of highly productive forest we acquired last year, giving us additional flexibility to take advantage of attractive local markets throughout our footprint, and to defer harvest in less robust areas.

We also completed major maintenance shutdowns at our two Performance Fibers mills, investing in a number of high-return projects. For example, in Fernandina we completed tie-ins required for a new turbine generator, which will allow us to achieve 100% energy self-sufficiency, and allow us the sale of green power back to the grid later in the year.

In Jesup, we successfully completed over 250 electrical and mechanical tie-ins, and installed some of the key equipment required for the conversion of our Absorbent Materials line to Cellulose Specialties. This paves the way for the completion of this project during next year's shutdown.

Our balance sheet and cash flows are strong, as recognized by Moody's in their recent upgrade to Baa1, as well as our successful issuance of $325 million of 10-year bonds at a very attractive coupon.

So, overall, we're off to a very positive start for the year.

And with that, let's turn it over to Hans and review the financials.

Thanks, Paul. Let's start on page 3 with the overall financial highlights. As Paul noted, we kicked off 2012 with a very solid first quarter. Sales totaled $356 million, while operating income totaled $84 million and net income was $53 million or $0.42 per share. There were no special items this quarter. However, in the fourth quarter of 2011, we had a $6.5 million non-cash charge for estimated future cleanup costs at our former Port Angeles mill site. This charge has 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 cash flow was strong, with EBITDA of $115 million, and cash available for distribution of $87 million. During the quarter, we issued $325 million of 10-year senior notes with a 3.75% coupon. $150 million of the proceeds were used to repay borrowings outstanding under our credit facility. We ended the quarter with approximately $1 billion of debt and $237 million in cash. So, on a net debt basis, we finished at $787 million.

As Paul mentioned, Moody's raised its rating to Baa1 Stable during the quarter, so we feel very comfortable with our current balance sheet and liquidity. Let's now run through the various analyses.

On page 4, we've prepared a typical sequential quarterly variance analysis. In Forest Resources, as expected, operating income decreased. The negative variance primarily results from lower recreational license income, which is largely recognized in the fourth quarter. We also had some price softness in the Northwest, although our volumes there increased.

In Real Estate, our income was comparable. Moving to Performance Fibers, you can see significant price improvement in Cellulose Specialties, reflecting our January 1 price increases. Volumes were unfavorable due to the timing of customer shipments. Input costs were also unfavorable, led by higher energy and chemical costs. Finally, we had a favorable variance, as in the fourth quarter we took a $6 million charge for our write-off of environmental equipment no longer required due to our Cellulose Specialties expansion project.

Our Woods Products business improved by $2 million, which was all price-driven. However, our Other Operations, which is largely log trading, was unfavorable primarily due to foreign exchange losses. Finally, corporate and other expenses were about $2 million higher for the fourth quarter, due to the timing of stock-based incentive compensation accruals associated with the prior CEO's retirement.

Let's move on now to page 5 and the year-over-year variances. Starting with Forest Resources, the year-over-year decline was driven by lower prices in the Gulf states region due to a higher mix of pulpwood, as well as higher logging and transportation costs in the Northwest. The Real estate results in the first quarter were comparable to the prior year. In Performance Fibers, operating income increased by $5 million, reflecting strong price improvement from Cellulose Specialties.

However, volumes were unfavorable, as the first quarter 2011 had unusually high shipments due to the timing of customer orders. Our costs also increased, led by higher chemical and pension expenses. Finally, our Corporate and Other expenses were $4 million above last year; again, due to recognizing the stock incentive compensation expense from Lee Thomas's retirement, as we previously noted.

Moving on now to page 6, on this page, we reconcile from Cash Provided by Operating Activities, which is the GAAP measure, to our Non-GAAP metric of Cash Available for Distribution, or CAD. So you can see our first quarter cash flow was quite strong, with CAD of $87 million, comparable to last year and well above our dividend payout of $49 million.

With that, let me turn the conference over to Lynn Wilson to cover Forest Resources.

Thank you, Hans, and good afternoon. Let's start with page 8 and the Northern region, which is primarily our Washington State operations. As expected, export demand from China was soft in the first quarter, as high log inventories in China reduced prices from fourth-quarter levels. Domestic demand remained steady.

However, prices were on par with first-quarter of 2011. Exported volume accounted for 16% of total volume for the quarter, compared to 32% in the first quarter of 2011. Based upon strong residential completions in the first quarter, and the recent declines in log inventories at the ports, we expect Chinese demand for logs to improve in the second half of 2012. We are poised to take advantage of higher exports with a planned harvest volume increase of approximately 15% for 2012. Overall, we expect delivered log prices in 2012 to be slightly below 2011.

In the Atlantic and Gulf regions on page 9, pine stumpage prices increased from fourth-quarter levels as we capitalized on markets with strong demand and brought volume forward. Prices were slightly below the same period last year, due to product mix, as we sold a higher percentage of pulpwood. Harvest volumes were in line with the prior quarter; however, significantly higher than the first quarter of the prior year. For the full year 2012, pine harvest volume is expected to be comparable to 2011. However, we have the ability to increase harvest levels in response to stronger market demand. Pine prices are expected to be slightly above 2011. Overall, Forest Resources' operating income should be above 2011 due to increased volumes and lower costs.

Now, let me turn it over to Charlie Margiotta to cover Real Estate.

Thanks, Lynn. Overall, Real Estate is off to a good start in 2012, with sales spread across our timberland ownership. Page 10 details rural and development sales volume. While we had approximately 30 transactions in the first quarter, there were two sales to note. First, we completed an 1800-acre conservation sale in Washington state. The second significant sale was a 2100-acre rural recreational transaction in Central Florida, which we were able to close earlier than expected.

Page 11 details per-acre prices. Overall, land prices are stable across our ownership. The first-quarter average price of $2208 per acre was positively influenced by the Florida rural sale we noted on chart 10. We continue to expect rural land sale acres in 2012 to be above 2011, while development sales will continue to be relatively low.

We continue to be disciplined in the sale of our properties to preserve value until markets improve. As mentioned on the last call, we expect nonstrategic timberland acres sold in 2012 to be somewhat below 2011 levels, and at significantly lower per-acre prices, since most sales are likely to be in the Southeast compared to 2011, which included a 6000-acre sale in Washington state at approximately $4000 per acre.

Overall, we expect 2012 operating income to be below 2011, and will be weighted to the second half.

Let me turn the teleconference over to Jack Kriesel.

Thanks, Charlie. Driven by Cellulose Specialties demand and good operations, Performance Fibers continues to report strong earnings. On page 12, we see net selling prices for our two Performance Fibers product lines. Cellulose Specialties prices were up $222 a ton, or 14% compared to the same quarter prior year; and $175 a ton, or 11%, from the fourth quarter of 2011. Overall, 2012 Cellulose Specialties prices should average 12% to 13% above 2011.

As expected, absorbent material prices, which consist principally of fluff pulp, declined $151 a ton, or 17% from the same quarter in the prior year; and $57 a ton or 7% from the previous quarter, as market conditions continued to weaken.

Moving onto page 13 and looking at volumes -- our first quarter's Cellulose Specialties sales volume was approximately 5000 tons below the first quarter of 2011, reflecting the same timing of customer shipments. Absorbent materials sales volume decreased 12,000 metric tons for the same reason. As Paul mentioned, we successfully completed our annual maintenance shutdowns for our Fernandina mill in the first quarter and for our Jesup mill in April. Both mills are now up and operating well.

For the balance of the year we see continued very strong demand for our Cellulose Specialty products, and expect full-year volume to be comparable to 2011. For Absorbent Materials, we believe that the markets have hit bottom, and that we'll see a gradual price improvement over the next two quarters, with some potential softening later in the year. For the full year, volumes should be about 8% below 2011. Overall, we are expecting another record year for Performance Fibers, with the Cellulose Specialty price increases more than offsetting cash costs increases of about 4%, and lower absorbent materials results. Our expansion of Cellulose Specialties capacity at our Jesup mill continues to progress on schedule toward our mid-2013 startup.

As Paul noted, during our annual Jesup shut down, we completed numerous project components as well as the needed piping and electrical tie-ins that will allow us to efficiently start up equipment. As previously noted, we have commitments for 85% of the new capacity and continue to make good progress firming up our sales for the balance.

Now let me turn it back over to Hans.

Thanks, Jack. Now I would like to update some key statistics to assist you in refining your models for Rayonier. So we expect depreciation, depletion, and amortization of $148 million, and the non-cash cost basis of land sold about $6 million, or approximately $154 million in total, consistent with our prior guidance.

Capital expenditures, excluding strategic investments for timberland acquisitions and the Cellulose Specialties expansion, are expected to total about $154 million, slightly above the 2011 spending of $145 million. This increase will primarily occur in Performance Fibers, on cost reduction and efficiency projects, and in silvicultural investments in our newly acquired property. We still expect 2012 spending on the cellulose expansion to range between $200 million and $210 million.

We expect interest expense, net of interest income, of about $50 million. This is net of about $9 million of capitalized interest related to the cellulose expansion project. Finally, our effective tax rate guidance remains in a range between 24% and 26%. When you put all of these elements together, we again anticipate very strong cash flow. We expect EBITDA to be about 10% above 2011.

Cash available for distribution should range between $285 million and $310 million. Operating income is expected to be about 10% above 2011. However, because of the effective tax rate changes discussed last call, we expect EPS to be comparable to 2011. We are maintaining that full-year guidance, despite being somewhat ahead of plan in the first quarter, as most of that upside was driven by timing.

Overall, we still anticipate the 2012 earnings will be weighted more heavily to the back half of the year, reflecting both Performance Fibers shutdowns occurring in the first quarter; our expectations around real estate closings; and the timing of timber volumes, particularly exports in the Northwest.

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

All right, thanks. As you've heard we're off to a good start in 2012, and we expect to build momentum over the course of the year, with growth in operating income of 10% compared to the prior year. We are also pleased with the progress we've made on our strategic initiatives. We are on pace to complete our 190,000-ton Cellulose Specialties expansion by mid-2013. And as Jack stated, we have substantial commitments for this new volume. This project, along with our investments in product quality and technical expertise, demonstrates our commitment to maintaining our global leadership in this high-value market.

We remain committed to our strategy of expanding our timberland ownership over time, with a very disciplined acquisition approach of seeking only properties that enhance our holdings and generate attractive returns. In short, we're confident that we are well-positioned to drive cash flow and value creation in 2012.

With that, I'd like to close the formal part of the presentation, and turn the call back to the operator for questions. Thank you.

(Operator Instructions). Michael Roxland, Bank of America.

Thanks very much. Congratulations on the quarter. Just trying to understand your guidance for 2012. If 1Q volumes in Performance Fibers were lower due to timing, yet you still had a record quarter in Performance Fibers, that implicitly means that the remaining quarter should be stronger as well. And I assume the full year would be higher as well, relative to prior guidance. So what do you expect to happen such that you're reaffirming your 2012 guidance?

Well, Mike, I think there are a couple of things here on Performance Fibers. We were lower on a year-over-year basis. We actually did a little bit better, pricewise, from the mix of shipments that went. And so we were a little stronger, I would say, on the price side on Performance Fibers coming out than what we thought back in January. And that's just going to depend on the products that are being shipped and what goes through.

So, really, with respect to the other business units, certainly we've pulled some more volume in, and in the -- Lynn's area. We've recognized some stronger markets and pulled some volume into the quarter. And then, as Charlie mentioned, we have been working on the one sale in Central Florida. It had -- initially thought it would be an early Q2 closing, and we were actually able to complete the transaction in Q1. That's -- again, that's most of the -- I would say most of the Q1 upside is probably more of a timing on some things that we had visibility on back in January.

With respect to Performance Fibers specifically, would you say that the mix -- you will have a lower quality mix, potentially, in 2Q and 3Q, relative to 1Q, such that pricing -- to your point, Hans -- that pricing will be lower?

Let's see, I think -- it's hard to say, exactly, on the mix -- I think if you go back just to the overall guidance for the year, I mean we still are expecting year-over-year to be [about] 12% to 13% up on the CS pricing. I think that's the best way to look at it.

Okay, then just quickly on timberland. Seems like Rayonier acquired some timberland in 1Q. Can you go into -- just provide some color around the land location, species, stocking levels, if you don't mind?

Yes, Mike. Let me ask Charlie to comment on that.

Yes. That was a property, a relatively small property in East Texas that we were actually working on last year. But it closed this year, and it -- predominantly Loblolly pine.

Got you.

Hi, guys, this is George Staphos on Mike's line. One last quick question for Lynn. Lynn, could you give a bit more color in terms of what you're seeing in terms of Asian timber demand? And why it appears you're expecting to improve harvests as the year goes on? Thank you.

Certainly. The consensus outlook for 2012 is that we expect the construction to be flat in China. But we also see that most of the economists are expecting for the government to hold their policies firm on the investment in high-end housing. But what we're seeing is that they're easing the credit for first-time homebuyers. So many of the banks are offering discounts on lending for those first-time homebuyers.

And, in addition, there's still a large push by the government to really apply for available adequate housing. And it's a top policy priority, so it's viewed as essential to address their social issues. And there's currently a shortage of 60 million to 70 million housing units in the urban areas. And the latest census data is suggesting that the urban households are going to grow by 5 million per year; particularly, in the near term, we expect that to pick up.

And then just more recently with our team in China -- both from our New Zealand operations and then the team that's on the ground there -- we're seeing that the port inventories are starting to decline, so Radiata has declined to a one-month supply inventory. As well as we're starting to see volume in ships move out of the Pacific Northwest.

Okay. Thank you very much, Lynn. We'll turn it over.

Chip Dillon, Vertical Research Partners.

Yes, and good afternoon. I know about a year ago, and my numbers may not be -- may be a little rusty, but you -- that's the last I recall seeing the -- an update on how you view your acres that are not core. I would guess that development is still around 200,000 acres. But could you just update us on how you would view the number of acres you consider to be either recreational HBU or -- and, separately, nonstrategic?

Want me to take that, Paul? Yes, I guess the best way -- this is Charlie -- the best way to describe our nonstrategic is the plan going forward is substantially smaller than it was in the last three or four years. I think we've signaled that. You know, you'll always find additional nonstrategic, and we're canvassing the property we bought to be sure it all fits perfectly.

So all I can say is, on an annual basis, we will continue to sell nonstrategic, but at a program level that's smaller. I don't believe we've given out a rural recreational acreage number, except to say that we believe this year's rural recreational land sales would be above last year. And I think -- between last year's acreage and this year, be a reasonable running rate going forward.

Got you. So sort of average the two years of everything that's not development, and that's sort of a perpetual level -- even with the acquisition from last year?

Yes. You know, we had I think it is 15,000 acres two years ago, about 15,000. Let me look at the numbers.

Yes, that's right.

About 15,000?

Yes, we had about 15,000 of rural last year. I think we've guided --

About 15,000 the year before, and we're saying it's going to be up a bit this year. So that sort of 15,000 to 20,000 is a good run rate for us. We've done that for a long time.

Got you. And in that -- is that -- should that be considered something other than nonstrategic? And I guess nonstrategic -- are you done with what you would consider nonstrategic as a separate category? Or should we not even look at it that way?

We are -- it's just a lot smaller program. I think one way to think about is, our rural recreational acres are mostly bought by people who pay a rural recreational price, as opposed to a nonstrategic acre, which is a timberland acre that just doesn't suit us very well and it really is worth more to someone else.

Got you. Got you. And then, just another question on the New Zealand joint venture that you have a 26% interest in. What is that debt on that joint venture, roughly, right now?

I think the debt right now is roughly NZD240 million.

Got you. Got you. And then last question, I know at the last call, I think you had gotten up to ballpark 75%, 80% of the incremental Specialties capacity that you're going to get up and running next year had been presold. Any update on what that -- where you see that number? And then could you tell us -- let's say you throw the switch, middle of next year -- how the transition will work in terms of that 190,000 tons going from -- how much will at first be Specialties? How much will be in the lower end? And then how will that eventually ramp up to be -- all at the high alpha end?

Chip, when you look at the total volume -- the last time we talked about 85% -- about 70% interest in the high CS, and then 15% is in the commodity viscose. Since our last call, we have made good progress with discussions with various customers. But at the current time, we are staying with the 85%. And remember that we plan to not sell out the entire volume, but keep a little bit of that volume in hand to meet our customer demand.

As far as going when the line comes up, mid-2013, the second half of 2013 will largely be sales in the commodity viscose. We're going to use that timeframe to qualify with various customers. And then when you look at 2014, I think it's safe to say that the majority of the volume in 2014 will be into the higher CS value type products.

Got you. Thank you.

Mark Wilde, Deutsche Bank.

Good afternoon, and congratulations on a good quarter. Just curious, first of all, Charlie, any sign of any pickup in any real estate activity in the southeast there? I know you were working on some unique situations maybe around the Savannah area. Anything to report there?

I wish I had better news on the development side. And we continue to make small sales to developers who are well-capitalized, and we continue to get a real solid interest in our industrial properties. I think that'll lead. But we are not seeing -- we are not yet seeing any large, larger greenfield development projects yet. We're optimistic, but not yet. Our rural land sales program has been really steady, and we're starting to see some larger sales there. That's really encouraging.

Okay. And then, Lynn, can you give us just a sort of a bit of a forward look on what you're expecting in terms of not only Southern volume, but where you might see pricing moving through the balance of the year for both pulpwood and saw timber and the South? Because they -- seem to me they're still quite low by any kind of historic standard.

What we're seeing right now, from a volume standpoint and a capacity standpoint, is consistent with 2011. So on the pulpwood side, we still have consistent demand. And sawmills are running at the same capacity, it appears, as 2011. On pricing, we see flat pricing on our grade pine logs. But as far as pulpwood, we're at -- we see that we'll finish the year slightly up across the region. In particular, we've shifted some of our volume to the Gulf states and DC upside on the pulpwood markets from Alabama West.

Okay. And then the final question I have -- and maybe for either for Paul or for Jack -- I think there's been some concern, as some of these players, maybe like Fortress, that are restarting old pulp mills, are talking about coming into some of your markets. I wondered if you could just kind of recap for people, what -- the ways in which you view your business is defensive, and how you might think about the entrance of any new competitors into the higher-end markets.

Yes. Mark, let me take a shot at it. And then Jack, I'm sure, will have something to add to it. First of all, we need to understand that these businesses are related, but they're not interchangeable. And that's the case for several reasons. Number one is the customer intimacy part of it. We have very close working relationships with all of our customers. And that's not only research and development folks, it's technical support folks. And that's something that's not very easily duplicated. And with that, that qualification process at that customer tends to be very lengthy and very extensive. So the customer side of things is a pretty difficult hurdle.

The second part, Mark as you know, we've got great process knowledge. We've got 85 years of doing this, two different facilities running both sulfate and sulfite processes. Again, understanding that and the knowledge we have around that is something we consider our own secret recipe. And, again, hard to duplicate out there in the marketplace. So not anybody just coming in would understand how to do that.

And then the final point I guess I would say is on the capital side. It's a real significant difference from what we are doing in our expansion, to what we see Buckeye doing in their expansion. Where they're investing $1700 a ton, we are at maybe $1600 a ton. And the folks like Fortress and others are in the range of $600 to $800 a ton. It's just a totally different investment process; and, therefore, it's not really apples to oranges when you go make the comparison there. So apples to apples on the comparison there.

So I'd say those things -- and, again, a great example of that -- if you look at our South African competitor, they've been trying to do this for quite some time. And I think it just demonstrates, it's not an easy hurdle to get past these three issues.

Now, let me back up and also say, Mark, is that anytime the viscose market is poor, you're going to turn the attention towards Rayonier and towards our cellular specialties competitors. But you've heard me say before that we manage this PF business with a high degree of paranoia. So our teams are very focused on investments in quality; raising the performance bar all the time; only further leading our position, or creating a leading position in this area. So we feel very comfortable.

Even though we'll see some more pressure like this -- one, it doesn't really compete directly; two, there's significant barriers to get there; and three, we're going to press on and always move the bar a little bit higher.

So, I said a lot there, but I'll turn it back over to Jack, if he's got anything that to add to it.

Just a couple more points -- one is, you know this is not unusual. With the market softens, you see a lot of these swing players come in and try -- they knock on our customers' doors and say that they're going to be there in the long-term, and it doesn't really play out that way. So our customers are very aware of this.

And then, also, if you recall -- at least many of you were at the Jesup meeting we had last fall -- shared with you a chart that showed the pricing of commodity viscose pursing the pricing of CS. And there's just no correlation to it, each other. So I guess those are the only other couple things I would add to it.

Okay, that's really helpful. Just finally on that -- can you give us some sense of how some of these customer contracts may work, just in terms of their duration with key customers, especially in the higher-end business?

For the last half-dozen years or so, we have moved to long-term contracts. And these long-term contracts are typically 3 to 5 years in length. As we are contracting for this new volume, that's the same type of contractual length that we're looking at, 3 to 5 years.

Okay, that's very helpful. Thanks.

Steve Chercover, D.A. Davidson.

Thanks. With the projects, or at least the maintenance already under your belt at Jesup and Fernandina Beach, can you transition any of your fluff into specialty at this time? Or do you have to wait until the Jesup conversion is done?

Yes, for the most part no, we can't make any change into the high-value CS. However, we can, and we do take advantage when the market is right, to produce some commodity viscose on that fluff line.

I'll add to that, Jack, but that's a very small amount.

Yes, very small.

We do it occasionally, and it's just kind of out of spot interest.

And I guess it's not even worth the effort at this time, with the way commodity viscose is?

It's very close to -- either one is a breakeven type scenario for that.

And I was just hoping Lynn could elaborate on the Asian opportunity. I assume it's not going to be nearly as good as last year. But do you think it was mainly an issue with the ports being full? Or is the slowdown biting as well -- or did bite already?

We saw the volume that was delivered in the second half of 2011 really fill the whole supply chain. So we see the fundamentals of the China economy will continue, but we're seeing is, that now that the port and the supply chains are clearing out, that that will continue that flow. And I agree that we won't see the big spike in pricing, we believe, as we did in 2011. But we still think that, overall, there will just be a modest difference between 2011 and 2012, in total, when you look at the full year.

Steve, let me add to that. Again, we have -- we are very optimistic, and are actually confident, in the mid- to long-term view of the Asian fiber supply demand situation, particularly China. There is a net deficit there, so mid-long-term, we're confident. Short-term is harder to gauge exactly where that comes back in. And again, to support Lynn's comment, it's fundamentally coming from the change in the economic positions there in the country.

But we see both statistical data, as well as some anecdotal observations that would support that we see a little bit of change happening now that we should hope to see that flow more in the back half of this year. And again, we already had 16% of our volume off the northwest exported, as Lynn noted, this quarter. And we would expect to see that rise. And most of that is, the majority of that is, going to China.

I appreciate that incremental color. Do you get the same benefits down in New Zealand?

It'll be a similar situation in New Zealand, yes.

Okay, thanks very much.

Josh Barber, Stifel Nicolaus.

Thank you, good afternoon. Most of my questions have been asked. Just a couple of quick ones. Charlie, can you guys talking about your entitlements that you're looking at on the real estate side for the next couple of years? I know you were able to get a bunch of them last year. But what is that process looking like for this year? And how many higher-value acres do you think you can get entitled for the next 18 to 24 months?

Sure. We're predominantly finished. We have a project in -- on what we call our Nassau project, where we have a land use change. And we're drilling down to a portion of that property to get land use agreements so that we could proceed with some industrial, commercial, and possibly residential sales.

But for the most part, our two major industrial projects -- one in Florida and one in Georgia -- are fully entitled. Our Georgia residential property is fully entitled. We have a fully entitled Florida property. So for the most part, with that one exception, we're pretty much finished and really don't intend on entitling a lot more right now.

Okay, that's helpful, thank you. And one other question, Lynn, regarding export sales in the back half of the year. I know your business is primarily China. What's your outlook on Japan right now, especially with the post-earthquake rebuild? And do you think you can get any market share there, if that ends up picking up in the back half of the year?

We've had some modest success in first quarter of 2012 with Japan, and plan to continue that. In first quarter, we had 67% China exports; 23% to Korea; and then 10% to Japan, which was all Douglas fir. But we see that that -- for the total year, we'll still be below the 10%, probably in the 3% to 5% of our total volume, as we ramp up to China, which would be consistent with 2011.

And Josh, I'll add to that. From a New Zealand perspective, we continue to see Korea as a viable market, and a good strong market. In addition, India is an emerging market, and our sales there picked up nicely over the several years, albeit small. But we like the momentum that we see coming out of India.

Great, thanks. That's very helpful. One last question -- how much cash has been spent year-to-date, or, excuse me, project-to-date on Jesup? Has that -- has about $100 million of the $300 million plan been spent?

No, it's -- Josh, I think it's about $85 million through the end of the first quarter, roughly; $85 million, $86 million.

Great. Thank you very much.

Paul Quinn, RBC Capital Markets.

Yes, thanks. And congratulations on a good start. I guess a question for Lynn -- Lynn, you gave the breakdown in Q1 log export sales. Do you have those numbers for 2011 as well?

I do. In 2011, Paul, we had 90% went to China. And for the remainder of the volume, it was split between Japan and Korea.

So, in terms of the way forward, do you see -- I guess you're seeing, just from Q1, China percentage to come down; Korea and Japan to pick up. But predominantly, going forward, do you expect China to be your main market, right?

Yes. Well, we expect, as we ramp up production in second half of the year, that China would be the draw on that volume, Paul.

Okay. And then, second question, just on overall timber land market you guys have been acquiring in the last little while, what's some color or flavor on the market overall? Have you seen transactions accelerate, pieces of property for sale? Or is that moving up as well?

Sure, Paul. Let me ask Charlie to comment on that, since Charlie and team are leading that effort for us.

Yes, maybe just a little data that we hadn't shared before that you might find interesting --in 2011, we looked at over 40 properties, and made offers on 13, or about a third. So we're pretty disciplined about not only what we look at but what we offer on.

And then in 2012, we've looked at 15 properties already and only offered on five, or about a third again. So what that tells us is that there are certainly some properties out there, not many of which meet our criteria. But there is certainly some activity. Of course, in 2011, we had two large transactions of the 40 we evaluated. And in 2012, of the 15 evaluated, we only have purchased one.

So there is certainly activity, but there's also -- we're very disciplined and we have very specific target areas we're trying to fill.

Great, that's all I had. Thanks, guys.

(Operator Instructions). Mark Weintraub, Buckingham Research.

Thanks. Just following up quickly, Charlie -- so, is it right to understand that on -- in 2011 you offered on 13? And on how many of those were you the successful bidder? Was that just the two you were referring to?

We were successful on eight properties. But two of the eight made up 90% of the acres. So it's a little distorted. We bought -- frankly, we bought a couple distressed, small properties here on the Florida-Georgia coast that really sit well at really good prices. But they were very small. So it's a little distorted. We had two relatively large transactions that we've disclosed.

Okay. And curiosity -- do you know -- the 27 or some-odd properties last year that you didn't make the offers on, did many of them change hands? Or were most of those pulled?

Oh, I have to honestly say, once we pass we don't follow it so much. I just don't want to -- it'd be speculation.

And Mark, the only thing I'd also add to that, Charlie mentioned 40 looks last year, evaluated. There's quite a few more than that number that we just flat out passed. Because we knew ahead of time it didn't meet our criteria. So, of the 40, the ones that we said, okay could have some interest here -- and then it really takes a pretty good diligence process to narrow that down.

And then what we offer on, and again, we only offer what we think we can get a good return on. So that gets boiled down pretty quickly, as you can see there. Just so I thought I'd comment. But the numbers starting is much larger than that 40.

Sure. And so, is that -- I mean the numbers you gave were at 15 and five for first part of this year. So it sounds like the pace has picked up a little bit. Is that a fair description?

These are all different sizes; I'd say, a little bit.

Okay.

A little bit, yes.

And then just shifting gears -- we had a lot of conversation on the Asian markets and wood demand. I didn't hear anything about Russian wood, which, you know, there had been a lot of talk about tariffs changing there, potentially again. And that Russia might or might not become an even bigger source from China. Any updated thoughts on the role of Russia and its supply of wood to China?

Sure, Lynn, do you want to --?

Sure. One of the things that we see is that, number one, Russia has not been able to respond or ramp up their production. If you look at year-over-year 2010 to 2011, they were actually flat with their production, even with the increased pricing. And that has to do with their available volume, their own internal policies, as well as -- they really harvested a significant amount of volume near the China border, so the infrastructure just doesn't support them ramping up. So that's one thing that we've seen.

So they did not increase year over year with their production. And in turn, we're seeing that later this year, we should see if they end up changing the taxes on Russian export pine logs and whether there's any change. And that could take make as much as a 10% difference on their delivered log prices, which would be another material impact, because China is a very price-sensitive market. So, from our standpoint, we just don't see a change in Russian supply. And we don't see that they have the ability to ramp up.

And as far as you know, they are not trying to put the infrastructure in place aggressively at this point, to get more wood to China?

Every information that we have says that they are not investing in that infrastructure.

Okay. Thanks very much.

Yes, Mark, I'd just add -- if we see that tariff come down, our expectation, the beneficiary of that would really be Eastern Europe there. So it would kind of cross the border into Finland, and those are the folks probably going to see the benefit of that change, and not so much a large change in the flow to China.

Thank you.

George Staphos, Bank of America.

Thanks, hi. One last quick one. Jack, I was wondering, could you come a bit further in terms of why you think we've hit the bottom, at least for now, on absorbent? What factors are you seeing both in terms of supply and demand? And, later on in the year, what makes you concerned about the fact that we may see a little bit of retracement back in pricing? Thank you.

Well, on the fluff market, some major players -- Weyerhaeuser, GP -- have come out with price increases for April-May. So we're expecting to see that benefit. The reason I say that there could be some retraction, maybe Q4 or so, is that just this week, actually, RISI came out with a new forecast for market pulp NBSK.

And it shows it dropping off, really, over the whole full second half of the year. And then the way typically fluff pulp will be delayed one to two months relative to NBSK. And then the way our contracts are structured in that market, there is a further delay. So that's why potentially there may be some softening in the fluff market that we would see maybe in Q4.

And the drivers behind that, what we're hearing, is that there's just a lot of stockpiling in China of paper pulp. And just the underlying demand is kind of waning at this point in time.

Okay, thank you.

I will now turn the call back to Mr. Vanden Noort for closing comments.

Thanks for all your questions. And for any follow-up, please contact Carl Kraus. Thank you.

This does conclude today's conference. Thank you for attending. You may disconnect at this time.