Rayonier Inc (RYN) 2012 Q4 法說會逐字稿

Welcome and thank you for joining Rayonier's fourth-quarter 2012 teleconference call. At this time all participants are in listen-only mode.

(Operator instructions)

Today's conference is being recorded. If anyone has 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 the fourth-quarter earnings. Our earnings statements and presentation materials were released this morning and are available on our website at Rayonier.com. I would like to remind you that in these presentations we include forward-looking statements made pursuant to the Safe Harbor Provisions of 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 Paul Boynton, Chairman, President and CEO. Paul?

Thanks, Hans. I'll make a few overall comments before turning it back over to Hans to review our financial results. Then we will ask Lynn Wilson, Senior Vice President of Forest Resources, to comment on our Timber results. Following our review of Timber, 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 results of our Cellulose Fibers business.

Let me start by saying that we had another great year in 2012, generating strong cash flow, well above our dividend and increasing operating income 13% over last year's pro forma amount. We believe the over 20% total return our shareholders realized last year reflects our disciplined execution of our strategic initiatives along with the priority we place on growing our dividend, which we raised 10% to $0.44 per share beginning in the third quarter, or $1.76 per year.

In late 2012, we acquired 88,000 acres of productive timberland, mainly in Texas, that strengthened our geographic diversity in dynamic end markets. And continue to upgrade the quality of our portfolio. We see great value in our growing timberland base, as we position ourselves well for improved markets in the years ahead. Now, throughout 2012, we executed on specific opportunities in our markets to capture cash flow. While growing the long-term value of our business.

We took advantage of strong regional timber markets to capture higher prices and volumes in the Southeast. And increased volumes from our coastal Washington properties. Volumes from our Gulf states region increased, as we effectively integrated 308,000 acres of timberland we acquired in 2011. We maintained discipline in our land sales program, while we capitalized on regional market opportunities to realize higher prices for recreational properties, and for conservation lands that are prized for their unique environmental attributes.

Continued strong demand for our high-purity cellulose specialties drove another record year in Performance Fibers. Our current volumes are fully committed. And we made good progress on the 190,000 ton Cellulose Specialties expansion project at our Jesup mill, as we are on schedule for completion in mid 2013.

With an improving housing market, growing Asian demand for logs from our Washington timberlands and our New Zealand joint venture, and continued strong demand for our Cellulose Specialty products, we see ongoing operating momentum in each of our businesses, that we anticipate will drive another good year in 2013. Now, this will be a transition year for our manufacturing businesses, as we complete the CSE project and finalize the sale of our Wood Products business. These actions are key elements of our strategy to exit commodity markets and focus on growth in the specialty chemicals sector, led by our high-purity Cellulose Specialties products.

With that, let me turn it back over to Hans to review the financials.

Thanks, Paul. Let's start on page 3 with our financial highlights. Overall, we had a very strong fourth quarter. Sales totaled $434 million while operating income totaled $116 million and net income was $76 million, or $0.59 per share. We did not have any special items this quarter. Last year, however, we had two special items. A fourth-quarter $6.5 million non-cash charge for estimated future cleanup costs at our former Port Angeles mill site. And a third-quarter $16 million benefit from reversing a tax reserve established back in 2009 relating to the alternative fuel mixture credit. Both 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 in comparison to 2011. Our full-year cash flow was strong, with adjusted EBITDA of $560 million. And cash available for distribution of $304 million. In October of 2012, we amended our $450 million revolving credit agreement to provide for improved pricing, additional borrowing capacity, and enhanced flexibility to transfer assets among subsidiaries.

Also in October, the $300 million, 3.75% exchangeable notes were paid in cash, funded from the revolver. We then entered into a $640 million seven-year term note, with delayed draw feature. And borrowed $300 million on this note to replenish our revolver. At year end, we still have $340 million of borrowing capacity under this note. We closed the year with $281 million of cash. Our debt balance was $1.3 billion so on a net debt basis we finished at a very manageable $989 million.

Let's now run through the variance analyses. On page 4, we prepared a sequential quarterly variance analysis. First in Timber, as expected, operating income increased, driven by higher recreational license income, which is largely recognized in the fourth quarter. We also benefited from higher prices in the Southeast. However, increased costs reflect higher depletion, logging and benefit expenses. Real Estate income increased $3 million, mainly due to timing of closings and a significant non-strategic sale in Georgia.

Moving to Performance Fibers, overall, operating income decreased by $8 million. The price unfavorability is primarily due to mix, as well as lower Absorbent Materials prices. Although volumes improved, due to the timing of customer shipments. Our costs were unfavorable $8 million, primarily due to higher wood and production costs. Finally, wood product income increased, driven by higher lumber pricing.

Moving now to page 5 and the year-over-year variances. In Forest Resources, the fourth-quarter and year-to-date variances to last year generally reflect similar drivers of lower prices in the Northwest. Followed by softer Asian demand and higher volumes in our Gulf states and Northern regions. Moving down to Real Estate, fourth-quarter results were $4 million favorable, reflecting more acres sold. However, 2012 full-year results were well below 2011, which benefited from a $6 million property tax settlement and a 6,300 acre non-strategic timberland sale of just under $4,000 an acre.

In Performance Fibers, the fourth quarter and full year benefited from improved prices in Cellulose Specialties, which more than offset slightly lower volumes and higher input and conversion costs. Our Wood Products business improvements compared to 2011 were primarily driven by higher lumber prices, particularly later in the year. Corporate and other expense in the fourth quarter and full year were unfavorable to prior periods, reflecting higher pension, corporate development, and closed facility costs.

Turning now to page 6. On this page we reconcile 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 $304 million, well above our dividend payout which represented 68% of CAD.

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

Thank you, Hans. Good afternoon. Let's start with page 8 and the Northern region, which is primarily our Washington State operations. Average price was slightly below the third quarter due to mix. Overall demand started to increase in the latter half of the fourth quarter, as domestic lumber markets improved. Reflecting a strengthening homebuilding industry and as log inventories at ports in China declined. Volume increased over the prior quarter and were significantly higher than the fourth quarter of the prior year.

In 2013, we believe overall demand will continue to grow. Driven by improving domestic log markets and continued economic growth in China. Early sales results in the Pacific Northwest and our New Zealand operations support our expectations of improving markets. As markets continue to strengthen, we are positioned to maintain the 2012 volume levels in 2013. Overall we expect delivered log prices will be up in 2013.

In the Atlantic and Gulf regions, on page 9, pine stumpage prices increased from the third quarter, as demand for both pulpwood and sawlogs increased. Prices were also higher than the same period last year, as we capitalized on more competitive markets with strong pulpwood pricing. Volumes also increased over the prior quarter, and were significantly higher than the fourth quarter of the prior year. For the full-year we anticipate that 2013 pine harvest volumes will be comparable to 2012. And that pine prices will be slightly above 2012, as sawlog demand and housing starts continue to rise. Overall, Forest Resources operating income should be above 2012, due to stronger demand and higher prices.

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

Thanks, Lynn. Real Estate results for the fourth quarter improved over the third quarter, due primarily to the closing of two conservation sales in Florida and Georgia. Overall, we are seeing an increase in development property inquiries, and strong interest in timberland properties. Page 10 details rural and development sales. Rural acres sold in 4Q were in line with expectations. And the full-year sales were up somewhat over the prior two years on improving markets. We expect 2013 rural and development land sales acres to be above 2012 due to strengthening demand and as we capitalize on land sales opportunity from our recently-acquired timberlands in the Gulf region.

Page 11 details per acre prices. The fourth-quarter price was below prior quarters, due primarily to mix. Note, however, the upward trend in rural prices over the last three years. We expect 2013 prices to show modest improvement, subject to geographic mix. We anticipate 2013 income will be up significantly from 2012, due to overall demand across our ownership. In addition, we are seeing very strong demand for timberland parcels, as evidenced by a sale just completed in January in Washington State that resulted from an unsolicited offer. The 5,500 acre parcel was sold for $20 million, or almost $3,700 per acre, to an adjacent land owner.

In 2012, we made important progress on our objective of achieving mega-site certification for our prime industrial development properties. Our 1,100 acre Belfast Commerce Center property near Savannah, Georgia, situated along I-95, with rail access to the Port of Savannah, is now certified as development-ready for large industrial or commercial uses. And we made significant progress on certification for a prime 1,800 acre site in Nassau County, Florida. These certifications will increase the visibility and attractiveness of these properties for industrial property users and their site selection firms.

Now let me turn it over to Jack to cover Performance Fibers.

Thank you, Charlie, and good afternoon. I am pleased to report that Performance Fibers achieved record annual earnings as a result of good operations, and a strong Cellulose Specialties market. On page 12 you see net selling prices for our two Performance Fibers product lines. Cellulose Specialty prices declined $35 a ton, or 2%, compared to the previous quarter, due to mix. However, compared to the same quarter in the prior year, prices were up $216 a ton, due to the 2012 annual price increase.

As expected, prices for Absorbent Materials, which consist principally of fluff pulp, declined $18 a ton, or 2%, from the previous quarter, and $86 a ton, or 11%, from the same quarter in the prior year, as market conditions continued to weaken. Moving on to page 13, and looking at volumes. Our fourth-quarter Cellulose Specialties sales volume increased approximately 7,000 tons, compared to the third quarter, reflecting the timing of customer shipments. Total year sales volumes were comparable to the prior year. Absorbent Materials sales volume increased from the previous quarter, approximately 7,000 tons, primarily as a result of timing of customer orders. For the full year, sales volumes declined approximately 13,000 tons, due to a production shift from fluff pulp to viscose, to achieve improved margins.

As we look into 2013, we see continued strong demand for our Cellulose Specialty Fibers. We expect 2013 Cellulose Specialties sales volumes to be comparable to 2012. And prices to increase approximately 2% to 3%. In our Absorbent Materials business, annual volumes are expected to decrease 109,000 tons, as a result of the completion of the Cellulose Specialties expansion, or the CSE project.

As Paul mentioned, 2013 is going to be a transition year for Performance Fibers. We are expecting about an 11% increase in per ton costs due to lower production as a result of the CSE project, and higher commodity input prices. Overall, we expect that Performance Fibers operating income will be 5% to 10% below 2012 record results. Primarily due to additional costs and lower volumes from the CSE transition, and weaker Absorbent Material prices.

The CSE project continues to progress for an on-time start-up in mid 2013. As mentioned in our previous call, the cost of the project is expected to exceed our initial engineering estimate of approximately $300 million. Our forecast indicates that we will exceed this by approximately 25% to 30%, primarily due to cost under-estimates identified after detailed engineering was completed for various elements of the project; labor costs incurred to hold our schedule; and higher costs for construction support, labor and field supervision than estimated.

While we are disappointed with the increased cost in this large, complex, and fast-track project, we are pleased that it remains on schedule to produce the volumes we've committed to our customers. We're excited that this project will position us for the growth in the high-purity Cellulose Specialties our customers are demanding, while meeting our initial expected financial returns, despite the higher project costs. We expect the internal rate of return on the project to be within our original 17% to 20% range, as the price differential between Cellulose Specialty and Absorbent Materials has increased.

Now let me turn it back over to Hans.

Thanks, Jack. Now I'd like to provide some key statistics to assist you in developing your 2013 model. Note that these exclude amounts related to Wood Products, as we expect the sale of that business to close in the first quarter. We expect depreciation, depletion and amortization of $161 million, and the non-cash cost basis of land sold of $9 million. Or about $170 million in total. This is about $20 million above 2012, driven primarily by depreciation on the CSE project, and higher depletion on expected non-strategic timberland sales.

Capital expenditures, excluding strategic investments for timberland acquisitions in the CSE project, are expected to total about $142 million, versus 2012 spending of $156 million. This decrease reflects the decline in Performance Fibers, as we focus on completing the CSE project. We expected 2013 spending on the CSE project to range between $130 million and $145 million. We expect interest expense, net of interest income, of about $41 million, which is net of $5 million in interest capitalized for the CSE project.

With respect to income taxes, we expect our effective tax rate to range from 20% to 22%. With a significantly lower rate in the first quarter of the year due to the timing of tax credits. When you put all of these elements together, we again anticipate very strong cash flow. We expect the EBITDA and operating income to be slightly above 2012. CAD should range 5% to 10% above 2012. We expect earnings per share to be slightly above 2012. Overall, we anticipate that 2013 earnings will be weighted more heavily to the first half of the year, and particularly the first quarter, reflecting anticipated realization of tax credits, our expectations around Real Estate closings, and the impact of the CSE on the back half of the year.

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

As you have heard, we had a great year in 2012, and anticipate another strong year in 2013. With slightly improved earnings and EBITDA, even during this transition year for Performance Fibers, as we complete the CSE project to position that business for further growth in high-margin Cellulose Specialties. Beginning in 2013 and beyond, with our deferrals of sawlog harvest in recent years, and holdings of attractive HBU Real Estate properties, we expect Forest Resources and Real Estate to derive substantial benefit as the homebuilding recovery gains momentum.

Our strategy is unchanged. First, we will continue to expand our timberland holdings and optimize their value through exceptional management practices. Second, we will work to monetize properties with higher and better use value than as timberland. And, finally, we will maintain our global leadership in high-purity Cellulose Specialties through investments to increase capacity, improve product quality and technical expertise, and lower cost. We are committed to increasing our dividend over time, funded by operating cash flows. With the strength of our businesses, and strong conservative balance sheet, we will continue to target initiatives to create value and increase cash generation in the years ahead.

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

(Operator instructions)

Michael Roxland, Bank of America Merrill Lynch.

The first question, just on China. I believe you mentioned it on the last call that you started to see a modest increase in demand in China for logs. But in the press release, and even in some of your commentary, you called out weaker Asian demand in 4Q. Did something actually happen in 3Q and 4Q? And what has happened to pricing in China? And is there any research for your New Zealand ops at present which would indicate that China's demand has started to improve?

Hi, Mike, thanks. I'm going to turn it over to Lynn to field the question.

Mike, in the fourth quarter, what we saw is, for the full quarter, we saw softened demand. And what we saw as we were moving towards December with the lower inventories in the ports in China, we saw that increase. And we really didn't see that impact until January. Because as we were selling sales in December, those are sales that we will realize the benefit from in first quarter. In addition, what we have seen is that the market share that Russia had, really decreased in the back half of the year. Really indicated by those statistics that we saw. So both the New Zealand operations and the Pacific Northwest operations benefited by having additional opening at the end of the quarter.

Got you. What statistics? Do you mind sharing what statistics you were looking at?

We've got some statistics, Mike, that we always look at. We see China customs information. And in that data you will see, to the fourth quarter from the third quarter, China softwood log imports dropping off about 12% in that time period. So that is consistent with what Lynn said we saw at the Pacific Northwest. In New Zealand we see healthy and strong volume continue. And in both regions, as noted, we see this tick up in late December and continuing now into pricing. That we think gives us a good indication that the market is going to move back around. Charlie, I don't know if you have anything to add to that or not?

I think we do have concrete evidence in New Zealand where we sell direct that prices have moved, say, $5 to $8 a cubic meter over the last 60 days into China.

Got you. Thanks for all the color there. Just on Performance Fibers, with commodity viscose prices continuing to decline, do you have the flexibility to expedite production of Cellulose Specialties, which comprises 15% out of the 85% of the new volume? And, also, can you talk to the overall profitability of the commodity viscose tonnage that you're going to produce in the second half of this year?

Michael, first of all, the split on the volume were higher than the numbers that you are showing. About 70% of that -- 70%-plus -- is the high value. And about 15% is on the commodity viscose. The change in the commodity viscose pricing really is not impacting our project significantly at all. I don't see any real change in our overall mix structure for 2013. Remember that we have a qualification period that ranges from three to maybe nine months, depending upon the product line. We have to go through that. Once we get the operation up and running and fine-tuned and on our Cellulose Specialties, we will be qualifying with our customers. So we really don't see a shift in 2013. And then recall during our last discussion, we had about a little over 100,000 tons in 2014 of the high value coming on stream for that year.

Got you. And then just last question. On Performance Fibers, can you give us a sense of the quarterly progression for pricing? I know, Jack, you mentioned that prices should be up 2% to 3% for the year. But looking at it on a quarterly basis, I would think that prices would be higher in the first half more rather than the second half because you have commodity prices, or commodity viscose prices, softening. And you're going to be producing more of that tonnage in the second half. So if you can help us think about how pricing should progress through 2013, that would be helpful.

Yes, that's correct. When we do our pricing with our CS, it is on an annual basis. So that is set here at the beginning of the year. And you're correct, as when we're in the second half, as we ramp up the CSE project, we will be producing predominantly viscose pulp. And right now that is in the $900 to $950 price range. So that's going to have a pulldown on the overall average of our business in the second half.

Mike, this is Hans. When we get into the second half, we will do a split off for you and start to show the viscose pricing and whatever is coming off C mills, separate from the base line CS pricing that will give you a little better format for comparability.

Got you, thanks. Good luck in the upcoming quarter.

Chip Dillon, Vertical Research.

First broad question is, you all had a wonderful slide, I think, last quarter that gave us the progress of the project, and how the production and the costs would vary. Are there any major changes to that progression that you gave us going out to, I think, '14 or '15?

Chip, this is Jack. No, not significantly. And, again, when we're looking at our mix going out, we are going to be largely out of viscose by the end of 2015.

Got you, okay. So that is still pretty operative. Next question is, and I must have missed this, but there was some reference in the comments about a cost overrun. And I heard 25% to 30%. Could you just tell us what happened again and what the total change is in the project costs from what it was before to what it is now?

Yes. Again, this is Jack. Let me reiterate a couple things. First of all, remember, this project really was put forth because we needed to meet the demand of our customers for the high-value CSE production. Their growing need was what was really driving this. And because it was such a fast-track project, what we had to do is do our detailed engineering parallel with the construction. And also let me remind you that this is not a simple one-line type project. It involves roughly 20 major projects spread throughout the mill. So when you combine those elements of being fast-track and the complexity of it, what can arise is that you have unexpected costs. And as I mentioned in my talking points, the three buckets of costs are under-estimates, our costs to hold the schedule or the schedule compression, if you will, and then the higher costs associated with more support labor and field supervision.

And then let me emphasize one other point, which Is that the higher costs are in no way associated with any changes in the process design. We modeled this after our B mill, which is a very successful hardwood acetate in the market. So it is a matter of a lot of unknowns that have arisen since we'd done the detailed engineering.

Let me give you a couple of examples of what I'm talking about there. In the under-estimate section, in general you would say that there are a lot more quantities. And that quantity could be with more structural steel, more lineal footage of pipe or concrete. That type of stuff in general. But if you want to look at it even a little bit more specific, the largest area of under-estimate, or overrun, if you will, is in the area of chip supply. And that involves our truck dumps, our railcar dumps, the rail tracks, the conveyors for the systems to get the chips into the process. That was an area where, for example, we didn't realize until the detailed engineering was done, when you attach the specific conveyor to a building, we had to shore up the building significantly more than we anticipated. So it is that type of thing that is making up the majority of these costs overruns.

Chip, I'm just going to add to that. Naturally it is costing us more to complete this project than we originally expected. And, of course, we are disappointed with that. And, as Jack mentioned, it is certainly one of the potential outcomes of a fast-track, concurrent-engineered type of project, which is designed to stay on track to meet the customer demand. With our understanding of these new costs, would we take this project on to our shareholders today? And the answer is absolutely. Again, this project is 85% -- more than 85% -- committed out there to our customers. It has got a return of investment, even today with these higher cost, as Jack indicated, solidly in the 17% to 20% return. And it is right on our strategy of maintaining our leadership position in cellulose specialties. We've got a 2 times market share now. This only reinforces that. So we feel real good about it. Again, it is one of those things that happens when you're trying to meet customer demand. Again, being pretty conservative, we factored that in, and I think we've got a real nice return project going forward.

Got you. And just so I'm clear on the numbers, I know that the original cost was going to be, I believe, $300 million. And so, I think now you are saying probably, looking at what you spent, the $43 million in '11 and what you spent in '12, that the all-in is around $390 million. Is that a good place for us to be in our models?

That's right, Chip. We're looking at $375 million to $390 million.

Okay. And then just one more quick one. That's very helpful. I know in '11, you added quite a bit to your timber base. And I know this recent one, I think, in Texas would not have had an impact. But it was interesting. As your markets get better, I noticed the revenue was, I think, up only a little bit, from $215 million to $230 million in the last two years in the Resources segment. Could you just give us, again refresh our memory, how does the contribution from the 300-plus, I think 300,000 acres you bought in '11, and maybe, for that matter, the recent transaction, how that will flow into the numbers? Is that something that, because of the maturity of the trees, we would wait a bit for? Or should we see it gradually come into the mix?

To take a look at it overall, our new properties really have a younger age class distribution, Chip. So, really, we're going to see more of a benefit as we move towards 2015 and 2016. And we did add a modest amount of volume in 2011 to 2012. And we're actually up overall from '11 to '13 about 12%. We have started to bring in some of the volume.

And that 12%, is that just in the South or is that across the segment?

That's just in the South. In addition to that, we are still conservative on our US housing outlook. So we're remaining conservative on our pricing projection, which guides us to hold off to ramp up our sawlog production more towards that 2015, 2016 window, as well.

Got you. Okay, thank you.

Mark Wilde, Deutsche Bank

I wanted to just start off, can you just help us think about how the strengthening in the lumber markets and in lumber pricing may roll through to you on saw timber stumpage pricing?

Mark, at this point in time, we're still seeing very modest, very close market indications of the lumber transitioning back to the stump. We have not seen a big move or a big spike up. And I think people are very cautious. And, number one, going out and buying out there in the market to see if this is a sustained trend. But what we are seeing is the willingness to pay for volume to run their mill for the shifts that they have running at this time. But we have not seen, in our particular markets, on the sawlog side, a big run-up.

And, Lynn, if you just go back and you look at this historically, what kind of a lead lag would you anticipate as normal?

Historically, we haven't been in this situation before, Mark, so it's very hard to translate this into what we would have seen back in 2008 because of very low inventories, very low cash reserves. And many facilities that are curtailed. So this is unprecedented. And I would be in a tough position to try and translate that back to pre-2008.

Okay. One other question for you, Lynn. Are you now starting to see more impact on just pulpwood pricing from the combination of the OSB market coming back, but also more of these pellet plants actually going into operation? I saw one of your competitors had an announcement out yesterday about commitments from a couple of pellet plants.

In our footprints, we are seeing impact in, more specifically, OSB, and the wood pellet facilities across our Southeast operations. We have 1.8 million acres across the South. We don't have facilities within those announced areas that you are referring to. But we see the overall market starting to rise up because of increased wood consumption, both from biomass-consuming facilities and from OSB facilities adding shifts. A great example is the one in Broken Bow, Oklahoma within our footprint.

Okay. And then, Charlie, just a question on the land sales side. It sounds like most of the uptick we are going to see in 2013 is more conservation or rural land sales rather than HBU type sales. Is that correct?

Probably. But we are cautiously optimistic that, based on serious conversations we are beginning to have with developers, that at some point we will start to see some transactions on the development side. Certainly can't promise them this year. But I can say we've got more than one serious conversation. It's the first time in several years with, in one case, a national builder, to begin to think about buying development land. And then on the rural side, yes, the economy is improving. We are seeing a lot of interest. And then I have to say, that our last two or three years acquisition efforts in the Gulf have proven pretty valuable.

Okay. And then the last question I have is just for Paul Boynton. And that's just, if we just step back a little bit and we think about the impact on your business, if we were to start to see a real move up in the dollar, vis-a-vis other currencies around the world, it just seems like FX is getting to be a bigger and bigger conversation out there, how you think about the impact of that across your business?

Mark, I think, mainly, as we look at currency effects, for the most part, outside of New Zealand operations, it's really in our Performance Fibers business. But we sell in dollars worldwide. So it remains pretty constant to us. And so I don't really see a lot of change as a result of currency factors. We've seen them fluctuate up and down in different markets around the world for years now. But we factor that into our annual pricing. It's one of the factors. But, again, we look across the whole globe and we come up with a set amount, and it is always sold in dollars. So we don't really see, and don't anticipate, a lot of fluctuation coming out of a change in currency.

So, say, if the dollar was stronger against the Euro or the South African rand or the [hey eye] or whatever, you don't think this would make some of your competitors in that CS market maybe a little more aggressive on price?

Possibly, sure. We have seen that through the years. But overall I would say it is a distant set of pressures. We have watched the Brazilian real float really strong, get weak again, come back strong. And again, it pushes to and fro, but the market is an annual pricing type of market. And so a lot of those short-term fluctuations get factored out. And, again, then get folded into an annual discussion.

Okay. That's helpful. Congratulations on a great 2012. Good luck to this coming year.

Steve Chercover, DA Davidson.

First of all, I just want a quick clarification. Does the trading business also get sold along with the sawmills?

This is Charlie. The log trading business is in New Zealand, predominantly. And, no, that is just a completely different business.

Okay. And I know it's pretty well breakeven. So is it safe to say, just as we recalibrate the model, that lumber contributed about $0.05 in 2012?

Yes, we had about $0.06, Steve.

Okay, great. And then Lynn told us that the harvest volumes are going to be pretty flat. That seems maybe a little surprising given that you have added some acreage, although I understand that the trees aren't mature. So you are holding back a bit, it seems, given your statements on conservatism for housing.

Steve, yes, we are holding back. And we are still looking at that price appreciation that is worth waiting for as we move towards 2015 and 2016. But we could change our view as we move into 2014 if we see additional strength in the US housing market, and that translates into lumber and stumpage pricing. In addition, we did, in 2012, bump up by 12% over 2011 mid year. So when we say we are holding, we are still 12% higher than 2011.

Okay. And is it premature to say anything on 2014?

It sure is, yes.

Steve, with a rising housing market, we should expect in the coming years a mix shift that would also move into that equation as we move from less pulp and into more sawlogs.

Very good. Okay, thank you, all.

Paul Quinn, RBC Capital Markets.

Not to beat you up here, but just on the cost overrun on performance fibers -- and I can understand on the labor and the materials side. I'm curious on the costs to hold the schedule, given that there is significant capacity that is coming into the marketplace in 2013. And what were the triggers in the contracts? Was there a break fee to keep that schedule? Because it seems to me that that is something you could have let go longer.

It's Paul. I will take it. Again, we've got a certain schedule that we are committed to with our customers. Again, Jack's already put out there, as we did in the third-quarter call, that we have got 100,000 tons committed into the marketplace in 2014. With that, our customers are counting on it. It is what they have planned on and they have contracted to. And therefore we can't let our schedule slip because it is sold. So keeping on track and keeping that time line is real important to it. And so, therefore, we added, as Jack mentioned, second shifts, as well as overtime for a lot of folks to make sure that we get this up and running in mid 2013. So, again, it is independent of anything else out there in the marketplace.

Okay. And then on that 100,000 metric tons that is committed to the marketplace in '14, have you settled on price on that? Or is that still in negotiation that has to happen?

Again, that is an annual negotiation that we will have through the course of this year.

Okay. Then just on the guidance of 2% to 3% price increase on specialty, how does that break down between your acetate customers and your ether customers?

There is not much difference there. Again, the range is around 2% to 3%. There may be scenarios a little bit higher, a little bit lower. But in general, that is where we are.

Okay. Just a easy question for Lynn here on timberlands. You mentioned that 12% increase from 2011 harvest levels. Where are we at in terms of 2012 versus the long-term sustainable yield from your timberlands?

Right now we have about 0.5 million to 1.2 million tons upside over the next five years, Paul.

Great, that's helpful. And just last question, on the sale of the wood products business. Number one, congratulations. Just curious on the timing of that. Because it looks like lumber prices are moving up here. So I am curious on the timing. And then also whether you've got a chip supply agreement in place with Interfor.

The sale was a strategic sale for us. We just announced this on Tuesday. We will close it in the first quarter here. So that is the timing. It is a fairly rapid transition. Again, strategic from our standpoint. It's another move to focus our manufacturing and our product into a stable cellulose specialty chemical type marketplace, and further away from the commodity markets. So this, combined with the exiting of the fluff business, helped us in that direction considerably. We have not disclosed, but we are obviously working with our partners at Interfor to help continue to supply them. As well as take some of their residuals out of those facilities, because we use some of them in our facilities. So we will work on those agreements in the transition process here.

Thanks, guys. Great quarter.

Mark Weintraub, Buckingham Research

First, I just want to make sure I understood. On CapEx, if I combine the various spends, you're expecting about $280 million for the year? Is that about right?

Yes, Mark, it would be roughly $270 million to $290 million in that range. So, that's correct, when you combine it all.

Okay, great. And just trying to come back to the question on log pricing, particularly in the South. And lumber has been stronger for a fair length of time at this point. And demand has improved, too. And yet, we have not really seen much reaction in log prices. What is your thought process as to what it will take until we do start seeing log prices react?

Mark, let me take a stab at that, and Lynn can jump on if she wants. As I think about it, we look at it, the sawmillers out there are running at 65% to 70% capacity. We have seen, of course, as you noted, good run up in lumber prices. I think for that to translate back, first, you're going to have to see the volume come through. So they're going to have to probably start adding some more shifts and have more demand. That has got to translate back to the stump first or to the forest first. And then after that, that, I think, will create the tension to move prices up.

We have seen that in isolated localized markets. But we have not, as Lynn said, seen it across the board. And I think, and again, we have always related that back into, we have got to have a sustained movement in the housing market in the US to make that happen. And we have seen a movement. We have seen translation from last year to this year of 17% more housing starts. We have got a range out there for the coming year 2013 that's anywhere from 5% to 18%. But we've translated it out. You really need to get into the 2015 type of timeframe to see that really sustained housing market, up at the 1.3 million to 1.5 million starts. And with that, you will have, then, in the wake of that, a pretty good flow of wood. And you'll see it across the stump. It will happen before then, but that is what it's going to take, we think, to really have it as a sustained market.

Okay. So if I understood you correctly, there can be some gradual improvement as you get to it, but really where wood gets relatively tight is the 1.3 million to 1.5 million start environment. Which presumably might be in a 2015 type of timeframe. Is that fair?

I think overall, I think we'd feel good that it would be definitely there in 2015 when that happens. I think you'll see it well before then, but you'll see it in localized markets, where there is that tension. But the volume has got to flow first. And right now we really haven't seen that volume. We've seen prices of lumber rise, but we haven't seen an increased volume level. For example, in a lot of our areas that we do business in, we have not seen the add of a second shift, for the most part, at any of the lumber mills. So we have seen it a bit, as Lynn said, starting up in the OSBs. And we're seeing some tension there in the pulpwood market. But you really haven't seen that added volume level out into the sawmills.

That's the puzzling part. Because you certainly do read about that there is -- and you can look at the production statistics -- and there is more lumber being produced. And I realize it is about getting to thresholds, et cetera. But that's what's a little bit difficult to understand, is that there are shifts being added, et cetera. And yet it doesn't seem to be showing up. And I guess you're saying that in your particular market, you have not really seen it. Are there examples where there has been a shift or two added? And you have seen that that has translated into higher pricing for logs in your wood basket?

Mark, this is Lynn. Yes we have in the Texas markets, in that East Texas wood basket. We have seen some favorable results because there is localized tension. And the move to add enough shifts in the region to create tension in the stumpage markets, which are the quickest to respond.

And we've seen in the Pacific Northwest some of the mills running harder there, as well. So we're definitely seeing it in spots. It's just, again, really getting that lift off the stump may take a little bit longer.

Okay, thank you

Joshua Barber, Stifel Nicholas.

Could I go back to the Cellulose Specialties expansion for a moment? Costs are up 25% to 30% And you guys are talking about an increased cost base, which is not any different than what you guided to last quarter. Can you talk in broad strokes about year pricing outlook for that business for the next two to three years? Especially given that more supply is coming on and that, presumably, there will be a slightly lower value mix as you guys are incorporating more high-strength viscose and ethers into the next couple of years? I'm just trying to understand now the 17% to 20% ROE, or return on invested capital, still working, with cost up so much over the last year.

Jack, you can jump in, as well. But, first of all, just on the price increase, we have seen, as you look backwards the last three years on average, with what Jack just announced, about 9% type of increase annualized. So real healthy, as you know, over the past several years. Josh, we don't put out price increases going forward beyond the year. We just haven't done that. And, again, this is a discussion that we will start in a handful of months with all of our customers, and finalize at the end of the year. But again, as our perspective on it, our business is solid. As we talked about, 85% of that is already sold, of the new volume. So we feel very good about where this business is going in the future. But it's too hard to give you a call on pricing at this point in time.

The one other thing I might add, Josh, is on the return side, remember, we're comparing the spread between CS pricing and fluff pricing, if we had stayed in fluff. That spread has definitely widened. And particularly if you look at where fluff prices have dropped. We're doing a little bit better on CS pricing than what we expected back when we started the project. But the spread, right now, for example, is at least $200 a ton greater than what we expected. And that's really how that return still stays in that range.

Okay.

And Josh, if you go back to our September investor meeting, that's a good guideline to take a look at the return on this project in that business. I think we are holding true to that. Again, if you look at the pricing in there, and you look at the volume commitments, I would say we're right on track with that. So I'd say that is a good guide to fall back on.

Okay, thanks. When it comes to the sale of the wood products business, as well as the Texas timberland purchase in the fourth quarter, can you talk about what that does to your retests and where you guys are now going forward? And where you expect that to help you by the year end '13?

The acquisition of the timberlands in Texas, obviously, helps the test a little bit. But really not much has changed there from what we've talked about previously, Josh. We're very rigorous in applying the tests. At this point we're in full compliance and so it is not really a material impact.

Okay. And even that combined with the Texas thing would not be enough to make a material impact on that?

Correct.

Okay. Thanks very much. I appreciate it. Good luck, guys.

(Operator instructions) Chip Dillon, Vertical Research.

Yes, I just had a follow-up, I think probably for Charlie. Just on the land sale plans. I think you talked about, with the improving demand outlook, that you are going to up the amount of sales this year. Could you give us some -- and maybe you mentioned this and I missed it, but could you give us an idea of what the range of acres could be? Or any other guidance you want to give us in terms of how the revenues or income and, for that matter, the basis of land being sold? Actually, you've given us that. But either the acres or the revenues would flow for the year, '13 versus '12?

That's a tough one. It is so early in the year. Obviously, the $20 million sale that we completed last week was a great start. I was thinking that rural acres would be up somewhat over '12. Beyond that, it's so early in the year, it is hard to give. We've said our income will be up substantially year over year, but it's really hard to give specific guidance here the third week of January.

Could you see the acres up 20% year to year? Is that reasonable? Or is that probably too strong?

That's probably at the high end.

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

At this time I will turn it back to you for closing remarks.

This is Hans Vanden Noort. We thank everybody for joining us on the conference. And please contact Ed Kiker with follow-up questions. Thank you.

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