Rayonier Inc (RYN) 2013 Q4 法說會逐字稿

Welcome, and thank you for joining Rayonier's fourth quarter 2013 teleconference call. At this time, all participants are in listen-only mode.

(Operator Instructions)

Today's call is being recorded. If you have objections, please disconnect at this time.

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

Thank you. Good morning.

Welcome to Rayonier's investor teleconference covering fourth-quarter earnings, as well as our announcement regarding our plan to separate the performance fibers business from the forest resources and real estate businesses. Our earnings statements, announcement about our plan to separate, and two sets of 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 federal securities laws. Our earnings release, separation announcement, and 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're also referenced on page 2 of our presentation materials.

With that, we'll start the teleconference with opening comments from Paul Boynton, Chairman, President and CEO. Paul?

Thanks, Hans. Good morning, everyone.

Obviously, we've got some significant and exciting news to share with you on our call this morning. First, we'll discuss our fourth quarter and full-year results, and then we'll get into the announcement we made this morning about separating Rayonier's Performance Fibers business from its Forest Resources and Real Estate businesses. Following our comments, we'll have some time for questions and answers.

First, regarding the quarter and full-year results, I'd like to make a few overall comments before turning it back over to Hans to review our financial results. Then we'll ask Lynn Wilson, Executive Vice President Forest Resources, to comment on our timber results. Following our review of timber, Chris Corr, Senior Vice President of Real Estate, will discuss our land sales results; and Jack Kriesel, Senior Vice President Performance Fibers, will take us through the results of our cellulose specialties business.

Let me start by saying that we had another great financial year in 2013, generating strong cash flow, well above our dividend, increasing pro forma operating income over last year's pro forma amount, and increasing pro forma earnings by 14% per share. We also increased our quarterly dividend by 11% to $0.49 per share, or $1.96 per year.

In addition to achieving strong financial performance, we executed on a number of significant strategic objectives in 2013. In Forest Resources, we increased our ownership in the New Zealand joint venture from 26% to 65%, to gain additional leverage to strong Asian export markets. And we sold our New York timberlands to further focus our portfolio on core regions.

In Performance Fibers, we completed the Cellulose Specialities expansion project at our Jesup mill, and achieved product quality well ahead of expectations. In addition, we sold our wood products business as part of our strategy to exit commodity markets, and focus on our specialty products in our manufacturing operations.

Although our share price has decreased over the past few months due to the challenges we disclosed relative to 2014 prices for Cellulose Specialities, we are pleased with our 2013 financial results, and the strategic actions we completed have positioned our business for long-term growth. We remain committed to growing these businesses and increasing their long-term value for our shareholders. Our plan to separate the business is consistent with that objective.

With that, let me turn it 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 $520 million, while operating income totaled $113 million, and net income was $80 million, or $0.62 per share. There was one special item this quarter, a $2-million accrual for our discontinued operations.

Pro forma income for 2013 and 2012 excludes the operating results and gain on sale of the wood products business, and 2013 also excludes the gain related to the consolidation of the New Zealand joint venture and the $2-million accrual. 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've provided an outline of capital resources and liquidity in comparison to year-end 2012. Full-year cash flow was strong, with pro forma EBITDA of $598 million, and cash available for distribution of $334 million, both about 10% above last year. We closed the year with $200 million of cash. Our debt balance was $1.6 billion. On a net debt basis we finished at a very manageable $1.4 billion.

Our typical variance analyses are provided on pages 4 and 5 of the financial presentation material. However, we're now going to move right into markets and operations on page 8. I would like to turn the teleconference over to Lynn Wilson to cover Forest Resources.

Thank you, Hans. Good morning.

Start with page 8 and the Northern region, which is primarily comprised by our Washington state operations. Delivered saw log prices continued the upward trend, and were 19% higher than last year's fourth quarter, driven by strong domestic and export demand, especially to China.

In the fourth quarter, we again took advantage of the robust export demand by selling 35% of our delivered saw logs into the export market. In 2014, we believe overall demand will continue to grow, driven by improved domestic log markets, and sustained demand from Asia. Based on current market conditions, we expect delivered log prices will increase at least 5% in 2014.

Early 2014 sales results in the Pacific Northwest and New Zealand support our expectations of improving markets. We also anticipate that Pacific Northwest 2014 volumes will be slightly above 2013.

In the Atlantic and Gulf regions on page 9, average pine stumpage prices decreased from the third quarter, mainly due to increased pulp wood thinnings delayed from the previous quarters due to wet weather. Prices were above the same period last year for both saw logs and pulp wood. Pine saw log prices increased 8% from the prior-year quarter, as additional wood products capacity is slowly coming on line, driving increased demand in our key markets.

We anticipate that 2014 pine harvest volume will be slightly higher than 2013. Based on current stumpage sales results in the Atlantic region we anticipate pine prices will be 8% to 12% above 2013, reflecting improving saw log demand. In our Gulf region, we expect that pine saw log prices will be up 10% to 12%, and that overall pine prices will be 3% to 5% above 2013, as higher saw log prices in our Gulf region will be partially offset by mix changes, including an increased level of pulp wood thinnings.

Now let's focus on our joint venture in New Zealand on page 10, in which we own 65% interest. Export prices continued to increase during the quarter, and we ended the quarter at the highest level of 2013. Domestic pricing, although lagging export pricing, also increased from the third quarter and prior-year quarter by 1% and 7%, respectively. In 2014, we believe export demand will continue to drive strong pricing in our New Zealand operations. In addition, full-year 2014 volume will be slightly below 2013, due to the age-class distribution of the New Zealand estate.

Overall, Forest Resources operating income including New Zealand increased 76% in 2013. We are very encouraged by our early 2014 results, and expect this year's operating income to be well above 2013, due to improving demand across all markets.

Now let me turn it over to Chris Corr to cover Real Estate.

Thank you Lynn, and good morning everybody.

Our Real Estate business had a good fourth quarter, with improved operating income, as well as progress made on market catalyst initiatives into certain HBU project areas along the Interstate 95 coastal corridor. Operating income was favorable to both the prior quarter and the prior year, due primarily to large sales of non-strategic timberland, including sales of approximately 21,000 acres adjoining the Okefenokee National Wildlife Refuge in Georgia, and approximately 3,900 acres in Washington. In addition, we completed the sale of our timberland properties in New York.

Page 11 details rural and development sales volume. We sold fewer rural HBU acres in the fourth quarter than we did in the third, mainly due to lower sales activity in Alabama and Georgia. Of note in our development segment, we closed our first sale in the Belfast Commerce Centre Industrial Park.

The purchaser, Caesarstone, is an international quartz countertop manufacturer now constructing its first facility in the US. The sale, totaling 45 acres at $35,000 per acre, with a Phase II option on an additional 19 acres, is meaningful to us because our site won out in a very competitive process.

The industrial park in Bryan County, Georgia, includes 1,100 entitled acres, is mega-site certified, and strategically located less than 20 minutes south of the port of Savannah. It is connected by rail and Interstate 95 to markets up and down the Atlantic seaboard, and west to Atlanta and beyond via a wider transportation network.

Moving ahead, as shown on page 12, rural HBU price was favorable due to increased activity in our Gulf states markets; notably Texas, where we were able to capitalize on sales of HBU land from recent acquisitions. The significant increase in development price per acre is due to the Belfast Commerce Centre sale.

Non-strategic timberland sales volumes were significantly higher than the prior quarter in the same period last year, as seen on page 13, reflecting the sale of 21,000 acres in Georgia, as I mentioned previously. This chart excludes the sale of 128,000 acres in New York, which closed in late December, as we consider it to be a strategic repositioning outside the scope of our core land sales business.

In summary, our fourth-quarter Real Estate operating income was favorable, due to both the same period last year and last quarter. We saw some favorable activity in the market, and we reached key milestones in 2013 on certain market catalyst initiatives. We anticipate that 2014 operating income will be somewhat comparable to 2013.

We expect continued interest in HBU properties as the economy improves, and our project initiatives in the I-95 corridor advance. We also expect demand for timberland to remain strong.

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

Thanks Chris, and good morning.

Performance Fibers finished the year with a solid quarter, driven by improved Cellulose Specialties sales volumes. In addition, we made great progress in customer qualifications of Cellulose Specialties production from our CSE project. One key customer has now approved commercial shipments in the first quarter, and others are near completion. We expect all customers to complete the qualification process in the first half of this year.

On page 14, you see net selling prices for our two Performance Fibers product lines. Cellulose specialties prices were comparable to the previous quarter. However, compared to the same quarter in the prior year, prices were up $90 MT, or 5%, primarily due to the 2013 price increase and improved mix. Prices for commodity viscose and other declined $25 a ton, or 2%, compared to the previous quarter.

Moving on to page 15 and looking at volumes, our fourth quarter cellulose specialties sales volume increased approximately 25,000 tons compared to the third quarter, reflecting the timing of customer shipments and the impact of the extended shutdown for the CSE project during the third quarter. Sales volumes for commodity viscose and other increased from the previous quarter by approximately 13,000 tons, due the higher production related to the CSE project.

Looking forward to 2014, despite lower prices as we've previously announced, we are encouraged by the trends in our key cellulose specialties markets. Acetate demand remained solid, and the weakness in European construction and automotive markets appears to have bottomed. Our year-over-year cellulose specialties sales volumes are expected to increase 30,000 to 50,000 metric tons.

The previously disclosed extended outage for recovery boiler maintenance, which we decided to pull forward from 2015 to 2014, will reduce 2014 production of commodity grades by 35,000 to 40,000 tons. This decision allows us more flexibility in 2015 when we expect markets to improve. The impact on EBITDA of producing 35,000 to 40,000 fewer tons in 2014 is estimated to be $12 million to $14 million. With the addition of production capacity provided by the CSE project, we are well positioned to grow sales volume, margins, and cash flows without significant new investment.

Now let me turn it over to Paul.

Thanks, Jack.

As you've heard, we finished 2013 with a strong quarter and had another great operational and financial year. With that, we'll now turn to our discussion to the planned separation of our businesses that we announced this morning. A presentation regarding the separation of the Performance Fibers business is available on our website at Rayonier.com. We'll use that presentation to guide our discussions.

Beginning almost two years ago, senior Management and our Board of Directors undertook a thorough review of the Company's businesses and strategic alternatives in order to assess options to maximize long-term shareholder value. We concluded that a separation of the Performance Fibers business via a tax-free spinoff was the best strategic path for our shareholders, and we believe now is the optimal time for this separation.

As you can see on page 3, the separation will create two industry-leading public companies: one a leading pure-play forest resources and land Company, with superior timberlands and the best real estate assets among its peers; the other the world's leading producer of high-value cellulose specialities, with best-in-class technology and margins. We believe the separation will create two companies better positioned to increase the long-time value for the shareholders.

On page 4, you will see four boxes that lay out the strategic rationale for the separation. They show that these businesses have different markets, drivers, and value creation strategies. The businesses have distinct investment identities. The separation will provide investors two more-focused investment opportunities.

Each Company will be able to allocate capital more efficiently to suit its own specific strategies and objectives. It gives each Company flexibility in its capital structure. Lastly, as we've operated these businesses for many years in a non-integrated fashion, with separation each Company's Management can focus on the Company's opportunities for growth and long-term profitability. They'll have directly aligned incentives to ensure focus.

The question is why now? Page 5 shows the timeline of key strategic actions the Company has made over the past three years to position these businesses for growth. You'll see that we recently acquired $700 million of high-quality timberlands. During the down-turn, we obtained land use entitlements to position development HBU properties for higher sales values. Of course, we recently completed the CSE project.

We've also sold non-core assets, including the wood products business, and our New York timberlands, enabling us to tighten the focus on our business portfolios. With these actions behind us and with an improving housing market and the economy, you can see why we believe that now is the optimal time to separate the businesses. Now let me turn it over to Hans for a few comments about the financial profiles of each Company.

Thanks, Paul.

Page 6 shows that the separation will result in two financially sound companies, each with good scale and financial flexibility. In connection with the separation, we're planning for Performance Fibers to raise approximately $1 billion in new debt, the proceeds of which will be distributed to Rayonier. On a net-debt basis, we expect that Rayonier will then have low leverage, and maintain its investment-grade rating. With debt of $1 billion, the Performance Fibers Company will have financial flexibility with the capacity to reduce leverage through its strong cash flows. We are targeting a mid-double B rating per Performance Fibers.

Paul?

Thanks, Hans.

Now, why don't you turn to page 7, and we see the Performance Fibers business will be the world's leading producer of cellulose specialities. It has industry-leading technology, product quality, and customer support. We also anticipate that among specialty chemical companies, they will have best-in-class margins and free cash flow.

Building on those advantages, performance fibers will have compelling organic and acquisition growth opportunities. As a refresher regarding the market segments that Performance Fibers serves, and our CSE project to expand capacity to serve those markets, we've included the information shown on pages 8 through 10.

Now I'm going to move on to page 11, where we highlight what Rayonier will look like after separation. Rayonier will be a best-in-class pure-play timber REIT post-separation, with 2.6 million acres of high-quality, geographically diverse timberland, and it will have the best-located, high-value HBU platform amongst its peers.

Also remember that most of the timberlands we've recently acquired have relatively young timber that will reach maturity at a time when we expect the housing market will be much stronger. In 2016, we expect to have an incremental million tons of pine harvest volume above the 2013 level.

Page 12 provides details on our timberland and HBU ownership. As you can see, our timberland properties are located in the highly productive timber-growing regions with strong markets. Likewise, our HBU properties along the Florida, Georgia, coastal I-95 corridor are well-situated for development.

Each Company has distinct value-creation strategies. Page 13 shows that each Company has a growth focus, and it lays out the strategies and capabilities that each Company will employ to create value. Rayonier's strategic focus to maximize shareholder value will be one, to get the most value out of each of its acres; and two, to profitably grow its timberland base. Rayonier will continue to manage the timberland business for long-term value and position its HBU for higher sales values.

The Performance Fibers Company will focus on completing the ramp-up of cellulose specialties sales from its new capacity, and continuing its critical initiatives, maintaining its product-quality leadership, leveraging its manufacturing technology, flexibility, and expertise, and providing world-class customer support. Performance Fibers will also pursue growth in logical adjacent products.

We are confident these strategies will grow EBITDA and long-term value at both companies. Now let me turn it over to Hans for comments about the capital structures, dividend expectations, and 2014 financial outlook for each Company. Hans?

Thanks, Paul.

Page 14 provides some more details around capital structure and expected dividend policies. Both capital structures will be tailored to support each Company's value-creation strategy. As I mentioned before, we expect Performance Fibers to raise about $1 billion in debt, the proceeds of which will be distributed to Rayonier.

We provide a little more detail here about the expected components of Performance Fibers' debt. We anticipate about 40% will consist of bank debt, with the remaining amount coming from longer-term bonds. This will allow Performance Fibers to use its initial cash flows to efficiently reduce debt.

Upon receipt of the $1-billion distribution, Rayonier will have net debt of about $300 million, which will give it the strongest balance sheet of any of the timber REITs, and provide for significant financial flexibility going forward. We expect it to have increasing cash flows, used for dividend growth, timberland acquisitions, or stock buy-backs.

With respect to dividends, we expect both companies will initially pay dividends at levels consistent with their respective peer groups. We'll provide more detail as we get closer to separation.

I'd like to move now over to page 17. The financial summary on page 17 provides 2014 guidance for key financial metrics by business unit. As we expect the separation to be complete around mid-year, we have not provided consolidated Rayonier guidance.

Now I'd like to turn it back to Paul for some final comments.

Thanks, Hans.

As we wrap up this portion of the call, I'd like to take a moment to put the announcement of our separation in a broader perspective. Rayonier's history spans nearly nine decades. As any Company that stands the test of time would say, change has already played an important role in our success. Over the last 87 years, our ability to evolve and adapt to our market place is a key reason we've consistently delivered value to our shareholders.

Looking back to the 1930s, Rayonier first became a public Company and made a landmark decision to expand its business from the Olympic peninsula in Washington state to the US Southeast by building our Fernandina Beach, Florida, mill, a decision which led to a permanent change in the Company's strategic direction and future investments.

In the 1950s, the Company continued strategic evolution by building our mill in Jesup, Georgia, a mill which was at the time the largest of its kind in the world, as we pioneered new applications for cellulose specialities. More recently in 1985, Rayonier became unique amongst forest product companies by restructuring to operate its timber and manufacturing businesses as separate, independent businesses through an MLP structure. We then took bold steps in 1999 when we purchased a million acres of timberland in the southeast, and then again in 2004 when we converted Rayonier to a timber REIT, and then finally last year, when we completed our CSE project at Jesup.

With the strength of our convictions and confidence in our strategy we have pushed forward, resulting in industry-leading shareholder value creation over many years. Each of those strategic decisions played a key role in positioning us for our announcement here today.

It is with this perspective and my confidence in the rigorous analysis that we've done I can say I'm excited about what this separation means for the futures of both Rayonier and our Performance Fibers business. Our long, proud heritage, and the values we've established as a Company will carry through to these organization, and will unlock even greater opportunities to create long-term value for our shareholders.

Thank you, and I look forward to your questions shortly. Hans?

All right, we'd like to open it up to questions now.

(Operator Instructions)

First question comes from Mike Roxland, Bank of America-Merrill Lynch.

Thanks very much. Congratulations on the deal and on a very good quarter, as well.

Thanks, Mike.

Understanding the transformation the Company has gone through, including the sale of wood products business, the CE expansion, what do you -- or the CSE expansion -- why do you think right now is the right time to be spinning Performance Fibers, given the softness in the market?

Really just some of the -- Paul, some of the positives that you mentioned in terms of really focusing the Company, but given the softness that we've seen in terms of the excess capacity, would it make more sense to hold off and try to get even more value for the Company if there's potentially some capacity rationalization down the road?

Yes, Mike. We do think it's the right time -- again, for both sides. First of all, as we mentioned already, if you look at what's happening in our timber and our land side of the business, we see really nice emerging markets there in terms of the housing starts coming back. We see a lot of interest in our real estate, and so we reported the growth that we've had in 2013 and projecting in 2014.

Similarly in CSE, with our CSE now complete, Performance Fibers we think is well positioned. We noted that we've had some price expectation decrease here in 2014, but mid- and long-term views of that business, Mike, are still very strong. Again, we think it's an appropriate time to go ahead and put it out there, because we've got a lot of runway.

Specifically look just in 2014, we are now able to offer up and sell 30,000 to 50,000 tons incremental CSE. We've been locked the last five years without the ability to grow that business, and now that we've completed this CSE expansion we can do that. Yes, there may be a little bit of softness in markets that we talked about over the last year. But again, we think it's a good platform for growth going forward right now.

Got it. Is there anything that gives you concern from a regulatory vantage point as to why this spin would not be consummated?

No. Nothing that we're aware of, no.

Got you. Lastly, on the businesses themselves -- actually, the Performance Fibers business -- as you think about 2014 and the extra capacity in high-alpha pulp, and also the additional capacity that's expected to come in from commodity viscose, are there any steps that you could take to minimize the amount of extra supply in the market?

Would it be fair to say also that if all this extra capacity does come on and commodity viscose is excess capacitized, and the high-alpha pulp remains excess capacitized, as more steps are taken by producers in the high-alpha pulp to reduce capacity you could see cellulose specialties prices decline again in 2015?

I think, Mike, first of all, it is too soon to even talk about 2015 type pricing in any way. We said all along we're going to feather in this capacity. That has been our plan. We're doing that in 2014. We'll be very disciplined.

It's always been the challenge of bringing this new capacity on, and that's why it took us so long, even with many conversations over the years with our customers to expand. We were very deliberate and very patient to bring this new expansion on board, and we'll just be very disciplined in feathering that out into the market. I think that's the prudent thing to do, and that's what our team will follow.

Good luck with the transaction.

Thanks, Mike, appreciate it.

Next question, Chip Dillon, Vertical Research Partners.

Yes, good morning and congratulations. I had -- my first question is just a small one on the tax issue with the spin-off. I understand from other situations that one thing you need to protect, the tax-free nature of the spin, is that you obviously haven't looked to sell, for example, either of the two components. My question is, once the deal is completed, is there a certain period of time with which either side couldn't pursue a merger if it made sense? I say that in terms of either part being acquired by someone else?

There's really no prohibition on the time frame. There's certain rules about if you've had a prior discussion with the parties that comes into play. You have a two-year period. Other than that, no.

Assuming you -- is it safe to assume you haven't had those prior discussions so that technically, if in a hypothetical sense someone did try or pursue or wanted to and it made sense for you to sell -- when I say you, either Company to sell -- they would be free to do so and it would protect the tax free nature of the spin?

Chip, this is Paul. Obviously we're not going to and can't reveal and wouldn't reveal any discussions we've had with any parties. As Hans said, post-separation both entities will be free and able to do whatever they would like to do to pursue the greatest value for their shareholders, and we'll go down that path.

Got you. It was very helpful, you all on the slides gave us some indications on where you saw operating income going in 2014 for each component. It looks like to me all the increase in the remain co will be -- all the increase will be in the timberland segment, if I heard right, because Real Estate is expected to be flat. Is that correct?

Yes, that's correct. As Lynn mentioned, she's off to a very strong start, seeing pretty good pricing across the board. That is correct.

Okay. Then when you look at the -- I guess the key question is, and I'm not sure how you consider corporate expense given the components of it, but how do you see that number for the year in 2013, and how would that be allocated? Would it change much as we go into the post-spin scenario? On one hand, you could argue it might be higher because you have to have two of everything where you now have one, but then there may be some offsetting savings that we don't know about?

Yes, what I would say Chip is certainly we're going to need to have two sets, obviously, with two public companies. Our corporate has typically been around $30 million. However, we've had -- we probably have had probably the most complicated REIT structure in America. Go forward, two businesses separating, we don't think it's going to be two times each Company having $30 million.

We're still working it. I would say roughly we would expect incrementally perhaps another $10 million to $15 million, so maybe $40 million to $45 million in total between the two companies. But we're still working through that.

Would it be roughly split evenly, or would it tilt toward one or the other?

It would tilt towards Performance Fibers. That's clearly where the bulk of the head count is.

Got you. The last question is it's pretty obvious to a number of us in the paper/forest products/packaging world what your comps would be for a competitive dividend for the remaining Company. But are there -- I know that my understanding is that specialty chemical companies don't necessarily -- some of them pay out more than others, I guess. Could you either steer us toward a range of what you consider competitive, or maybe a group of companies that would help us sort of make a guess at that?

Secondly, you mentioned that the primary purpose of the free cash flow was to pay down debt in Performance Fibers. Would that mean that a dividend might take a while to be declared, or would that be something you would expect to do right out of the box?

We expect to -- we likely would come out of the box with a dividend, Chip. It would -- right now we're looking at yields roughly, just to give you a flavor, of about 1.5%. Certainly there's some variation amongst other specialty Company peers, but that's roughly what we're looking at.

That's very helpful. Thank you.

Thanks, Chip.

Next question, Mark Wilde, Deutsche Bank.

Good morning. I'd like to echo my congratulations. I'm glad to see this. Paul, I wondered if you could give us some sense of when you expect to have complete Management teams and Board announcements for us?

Yes, Mark, with this now being public we're all poised and ready to go in that process on both the Board side as well as the Management process. We will certainly have -- our target obviously is to have everything in place prior to separation. As we put it in place and we have information to share, we'll make sure we get it out to everybody.

Have you actually started to do anything in terms of a CEO search for the timberland base?

No, not yet. But we will begin that process.

Okay. I think you're going to be staying with the Performance Fibers business. I'm just kind of curious on that capital spending target you put out there for 2014 of $75 million to $80 million a year. Is that a go-forward number do you think in that business, or could it be lower?

That's probably not a bad go-forward, Mark. I think I had -- we've mentioned before we're going to have some boiler MACT spending that we're going to have to do that's going to come through in 2015; but on a run rate, that's probably not a bad number.

Okay. Then Lynn, I just wondered if you could run you through those comments that you made on where your expectations are for southern timberland or timber pricing in 2014?

Sure Mark, I can do that. We anticipate that pine prices in the Atlantic region will be 8% to 12% above our 2013, reflecting our saw log demand. In our Gulf region, we expect that pine saw log will be up 10% to 12%, and that overall our pine prices in the Gulf will be up 3% to 5% above 2013, because we're going to have -- while we have the higher saw log prices in the Gulf, we do have it partially offset by geographic mix in our Southwest resource units.

I was kind of surprised in the fourth quarter, it seemed like kind of your overall southern volumes were a little lower than I would have expected. Can you address that?

We had some wet weather, and we had some fall-over into first quarter. Some of our operations were hampered because of road accessibility from standing water. We had very strong pricing, but we just had to move some of that into first quarter.

Okay. All right, sounds good. Listen, good luck with the spin.

Thank you, Mark.

Okay. Next question comes from Mark Weintraub, Buckingham Research Group, your line is open. Please check your mute button. Mark Weintraub, your line is open.

Hi, can you hear me?

Yes, good morning, Mark.

Sorry about that, good morning. Just quick follow-up on the boiler MACT spend in 2015. Can you ballpark that for us?

I think the total boiler MACT spend was $40 million to $50 million, Jack. I don't recall the split between.

I don't have those numbers exactly.

We'll get them back to Ed and we'll be able to share those with you guys.

Okay, great. That would be in 2015, 2016. That would -- Paul, maybe somewhat incremental to the $75 million-ish number which you have in 2014, is that the way to think of it?

That's exactly the way to think of it.

Okay. Then is it possible to get a bracket on your expectations on what the cost of debt for the Performance Fibers business might be? I recognize you can't give anything specific, but kind of order of magnitude?

That's a tough one right you now, Mark. We're still looking at mix and duration and so forth. But at that credit rating, on average around 6% debt would be a safe number.

Okay. What would your longer-term capital structure goals for the Performance Fibers business be? You're going to come out of the gate obviously with about $1 billion. How might one think about what your longer-term targets would be?

Yes, Hans you can jump in as well. Obviously we're going to bring that down. That's our first focus, as Hans made in his comments, is to bring that debt level down to what we think is more in range of our peers in the industry, in terms of a multiple.

Moving beyond that, we'll have a lot of different opportunities there, whether again it's adjacent type of opportunities for growth -- again, all uses of cash, whether it becomes share buy-back, dividends, we'll have a lot of options out there for us. The first priority certainly is to bring that debt level down, that $1 billion down to what we would consider kind of the appropriate range with our peers.

Would that be like a two to one debt to EBITDA or what type --?

Yes, that's not bad. What you're seeing right now is relatively low leverage on the number from the peer group, so that 1.5 to 2 times is more or less kind of the ballpark right now that we're seeing.

Okay. One last one if I could. When you were having your pricing negotiations for 2014, obviously that was the focus. Was there any color, was there any metrics that were being put in place for 2015 that can give some comfort to there being more stability for 2015, or really was it just focused on 2014?

Yes, the discussions, Mark, were purely focused on 2014. As stated earlier, it's just too early for 2015 to give any indication.

Fair enough. Thank you.

Thanks, Mark.

Next question from Steve Chercover, D.A. Davidson. Your line is open.

Thanks for taking my questions. First one is, maybe this is just rounding, but if the current net debt's $1.4 billion and the projected debt is $1.3 million, is that due to free cash flow or --?

Yes, that's just what we expect to generate from year end to when we do the deal.

Got it, okay. You indicated that you'd look for some logical adjacent products for Performance Fibers. Do you have any ideas on that front, and would they have similar margins to what you're currently generating?

Yes. Steve, we'll be more forthright on this as we move forward. Obviously our priority again is to bring down that debt level. We do a lot of things very well as a business. If you think about, we've got almost every chemical process that's out there. We do in our operations, we've got some expertise in biochemistry and biopolymers. Basically, we're making a natural polymer.

We think the range of options is pretty wide. But we have not gone down that path to the point that we want to explore or extend any knowledge of that right now. We'll continue to work on that, and we'll share with you as we go along in that exercise.

Okay. My last question might be kind of redundant, but in terms of peers for valuation purposes, can you share who you think you'd look like?

I don't know we can necessarily say who we look like. Probably, when we looked at this, obviously some of our customers, although larger, are specialty chemical companies, like Eastman, Celanese, FMC. Then certainly others that we looked at with our advisors were people like [Albemarle], International Flavor and Fragrances, Valspar, then smaller ones like Taminco and [Amtrol].

Great. Well, I appreciate that. Okay, congratulations. Good luck.

Thanks, Steve.

(Operator Instructions)

Paul Quinn, RBC Capital Markets, your line is open.

Thanks very much, and congratulations on the spin. Just I guess a follow-up question for Lynn on forestry, or just in the US South we've seen independent reports seeing a pick-up in prices, and it sounds like you're pretty bullish on the future. Do you think this is a sustainable run in log price appreciation over the next number of years as the housing recovery unfolds?

Yes, we do, Paul. We're in a position now where we're seeing consistent -- either extension of hours or restarts within our region, and consistent business plans by our key customers. We feel like this is a sustainable growth pattern. We haven't seen any other reason to indicate otherwise at this point in time.

Okay. Then just flipping over to Performance Fibers, and just trying to understand what C line at Jessup is the expected mix is in 2014 between commodity, DP, fluff, and paper pulps?

This is Jack. Paul, the mix on C is -- it's tough to separate it totally, but from a commodity perspective, we're looking at both viscose and fluff on paper, and that will be determined purely on the margin of those opportunities. We will be producing a relatively significant amount of volume of acetate on that line. As indicated earlier, total CS is going up 30,000 to 50,000 tons across the board.

Okay. Then maybe you could just help me out, Jack. I understand the margin difference between each of those commodity grades, especially with the Chinese duties in place, is there a margin in that commodity DP grade?

Paul, it's something we just don't share, what our margins on any specific grade line.

Okay, fair enough. That's all I had. Best of luck.

Thanks, Paul.

Collin Mings, Raymond James and Associates, your line is open.

Good morning, and congratulations on the transaction, guys. A couple of quick follow-up questions. We haven't really talked about it in Q&A, but there was a lot of really positive momentum on the real estate front really over the last six months or so. The deal -- Belfast sitting, I know builders are taking that -- planning to take down some lots in the second half of 2014 in the Jacksonville area. Can Chris maybe talk a little more about the momentum you're seeing in that front?

Yes. Hi, Collin, thanks. I think the way to think about the Belfast sale is it's encouraging, because it came under a year after we secured our entitlements, and our side won out in a very competitive process. Economic development officials in the state of Georgia tell us that Caesarstone looked at 12 states before it looked at Georgia, and another dozen or so sites before it got to Belfast.

That's a good thing. Our site will only show better there next time, because Caesarstone will be under construction, open early 2015, a 265,000-square-foot building with energy and bodies. We've got infrastructure under development there now that will serve another 500 acres. It should just be even more strategically positioned as we continue forward.

Then your comment on residential, we do see that activity around our lands, primarily in St. Johns County. It's an active residential market. Interest is there in a number of parcels, and we see that as good news over the coming months as well.

Okay, great. Then Hans, you talked a little bit just about the capital allocation priorities going forward of kind of Rayonier as the pure-play timber REIT. Can you just maybe talk a little bit more about how you think about the growth profile going forward? Obviously the balance sheet's going to be pretty attractive out of the gate, but what are you seeing in terms of acquisition opportunities? Maybe talk a little bit about just the decision to go ahead and exit New York at this point, too?

Sure, Collin. We are still actively looking for timberland properties. You've seen over the years our history. It's been somewhat lumpy. We have a very disciplined gating process, so a lot of work goes through and very few of the ones that we look at actually make it through the process; but the ones that we do acquire, as you can see, are top quality.

We fully expect to continue that process. There's some things in the works now. We have the regions targeted that we're really most focused on, most interested in, and so that will continue. We'll have plenty of firepower to be able to execute on that.

The decision to exit New York, if you think back a little bit, the first part of that was acquired as part of a larger acquisition, and the second part we acquired six, seven years ago just to give us some mass. At the end of the day, we weren't getting the returns there that we think we can get when we re-deploy that to some of the other regions.

Our expertise is really in pine plantation, and using all the specific cultural expertise that we have here to really optimize yields, and we just couldn't bring that to bear in those New York lands. We're pretty excited about exiting there and being able to re-deploy that in our strategic regions.

Okay, great. Paul, just one bigger-picture question here. Obviously, you acknowledged earlier why you think now makes sense for the announcement; but thinking about just -- I think it's fair to say there's some diverging trend, at least in the near to intermediate term of your different businesses. I mean, is that really -- was there any sort of acceleration?

I know in prior conversations we've had, it seemed like it was more about process of the stabilized Performance Fibers business is how you were thinking about a potential spin-off, and obviously that's been accelerated a little bit. Is that a factor as you and the Board were trying to kind of think about the time line for this?

No, I don't think so, Collin. We look at the -- again, just we spent a couple years with our advisors thinking this thing through. We've given it great deliberation and have again great conversation around it. There's nothing in the timing of that relative to anything immediate one market or the other, other than the fact that we think overall, again with the CSE completion, with the rising and the return of the housing market driving both the forestry side as well as the real estate side, we just thought it was great timing to go ahead and do that.

There's nothing else in there as far as timing, as far as right now versus six months ago or six months forward. Again, overall I think you've got to step back and say long term is this the right thing to do for our shareholders, and I think the answer is absolutely yes, it is. We said we're just going to keep moving forward.

Okay. No, great point. I think we agree this is a positive for shareholders, as well. Thank you and good luck getting everything tied together on this transaction.

Thanks, Collin.

Mark Wilde, Deutsche Bank, your line is open.

Yes, just a few more odds and ends on Performance Fibers. I wondered, Jack, going from the information in your slide deck, it looks like about 66% or 67% of your volume is going into cigarette tow. Is that a good number?

It's close, yes.

Okay. Then I wondered, just kind of going forward strategically, is one of the imperatives for you guys going to be to diversify the mix a bit away from that heavy exposure to tow?

We intend to grow the other CS markets, the ethers market, the high-tenacity rayon, the filtration-type applications. That has been our strategy here to grow those businesses.

Yes, okay. Finally, in the past we've talked about how difficult it is to get qualified in some of these applications, including tow. I'm just hearing from some fronts that maybe some additional players are close to being qualified in tow. Can you comment on that, just generally?

We don't have specific knowledge about progress with any given competitor. But we certainly believe that our competitors make good products, and we'll be working with the various customers to move forward with that. But you look at overall, Performance Fibers has about a third of the CS market, and all others are down in the single-digit type levels. They're going to be inching up, and the market's growing about 50,000 tons a year, so there's room there for people to grow.

Mark, remember also that there really isn't any new entrants into this high-end market. There's certainly folks who continue to move up on their curve in terms of making these products, but the last entrant has been probably six or seven years ago, so they continue to work on it.

Nothing sudden coming at us, but as Jack -- we always expect our competitors will make a good product, and we'll continue to work on that. Our challenge is how do we make a better product, and how do we keep driving that gap between everything that we offer, not only just consistency and quality, but also the service we provide with it.

Okay. All right, that's very helpful. Thanks Paul, and good luck.

Thanks, Mark.

Chip Dillon, Vertical Research Partners, your line is open.

Yes, just had a quick follow-up, thank you. I know you obviously will maintain some flexibility on how you sell your non-high-end viscose grades at Performance Fibers, but could you just tell us what is a rough range of the total tons? It looks like last year you sold between fluff and viscose, I think if I have this right, at 157,000 tons. But of course that was before the conversion.

If you look at the fourth quarter, you were at -- or even the second half, you were somewhere at a 35,000, 40,000-ton rate of those non-high-end grades per quarter. I just was wondering, I guess with the down time, could we see that total be around 100,000 tons or so?

Chip, we're looking for 2014 roughly 100,000 to 125,000 tons of commodity grades, whether that's viscose, fluff, or paper-type applications.

Right. Help me back in that range, right? We've already communicated that our CS should grow 30,000 to 50,000 tons. Then Jack talked about our extended shutdown, which we decided to take this year, is up to 35,000 to 40,000. You net those out, and that leaves you with that range Jack mentioned 100,000 to 125,000.

Perfect. Thank you very much.

Thank you. At this time I have no further questions.

Great. Well, thanks everybody for joining us. As always, please contact Ed Kiker with your follow-up questions.

Okay. Thank you. That does conclude the call for today. You may disconnect your phone lines at this time.