威爾豪瑟 (WY) 2013 Q4 法說會逐字稿

Good day. My name is Carmen, and I will be your conference operator today. At this time, I would like to welcome everyone to the 4Q 2013 earnings conference call.

(Operator Instructions)

Thank you. I will now turn the conference over to Kathryn McAuley, Vice President, Investor Relations. Please go ahead.

Thank you, Carmen. Good morning. Thank you for joining us today to discuss Weyerhaeuser's 2013 results. This call is being webcast at www.weyerhaeuser.com, and materials can be found at our website.

Please review the warning statement in our Press Release and on the presentation slides concerning the risks associated with forward-looking statements, as forward-looking statements will be made during this conference call. We will be discussing non-GAAP financial measures. A reconciliation of GAAP can be found in the earnings materials on our website.

On the call this morning are Doyle Simons, Chief Executive Officer, and Patty Bedient, Chief Financial Officer. I will now turn the call over to Doyle. Doyle?

Thank you, Kathy, and good morning, everyone.

Our vision here at Weyerhaeuser is to grow a truly great Company for our shareholders, customers, and employees. 2013 was a very good year, as we made initial progress toward achieving this goal by: doubling net earnings, excluding special items, from $316 million or $0.58 per diluted share in 2012, to $654 million or $1.14 per diluted share in 2013, increasing our dividend by nearly 30%, announcing an agreement to combine our real estate operation with TRI Pointe Homes in a tax efficient reverse Morris Trust transaction, and acquiring approximately 645,000 acres of some of the finest timberland in the country through the purchase of Longview Timber. As a result of our actions in 2013, and our relentless focus on operational excellence going forward, we are well-positioned to fully capitalize on improving markets, and drive value for our shareholders in 2014 and beyond.

Speaking of improving markets, let me just comment on the economic conditions that affect our Company before I discuss our fourth-quarter performance.

First, the housing market. The housing market continued to improve in 2013, with total starts rising to 923,000, an 18% gain from 2012. The housing recovery showed resilience as construction activity increased in the fourth quarter, having adjusted to higher interest rates and market uncertainty caused by fiscal [end fighting] which impacted the second and third quarters. Housing fundamentals remained positive, with low inventories and affordability still well above historic norms.

In addition, prices for existing homes have increased 14% on a year-ago basis, and the additional homeowner wealth is a boost to the economy. The economy has been adding jobs, and as people find employment, they are forming households and adding to the demand for housing. These trends are expected to continue in 2014, and we are planning for over 1.1 million starts, including 780,000 single-family.

I'll comment briefly on global economic additions, since approximately one-third of our revenues come from exported products from our Cellulose Fibers, Timberland, and wood product segments. As the euro zone continues to manage its debt crisis and emerges from recession, the currency has stabilized and strengthened. A stronger euro should improve the relative competitiveness of our Cellulose Fibers business, as well as our Asian log exports.

In Japan, fiscal and monetary reforms have stimulated the economy and increased housing starts, which has improved demand for our products. In China, our export activity picked up in 2013. And while many forecasts of overall economic growth in China have been lowered, the government continues with its objective of moving people from rural to urban settings. This is the driver of construction activity, and the source of China's growing demand for imported wood.

Now I will comment on our fourth-quarter performance. For the fourth quarter of 2013, we reported net earnings of $43 million or $0.07 per diluted share on net sales of $2.3 billion.

We had several special items in the quarter, the largest of which was the previously announced non-cash impairment of a community excluded from the combination of WRECO and TRI Pointe Homes. Charges for special items were partially offset by some unrelated tax adjustments, which Patty will discuss in more detail. Excluding these special items, we reported solid fourth quarter net earnings of $157 million or $0.27 per diluted share, compared with net earnings of $143 million or $0.26 per diluted share for the fourth quarter of 2012.

Let me now turn to our business segments, starting with Timberlands, charts 4 to 6. Timberlands contributed $134 million to earnings in the quarter, up 14% compared with the third quarter 2013, as construction markets in China drove increased demand for Western logs. Our Western fee harvest volumes were up by 17%, due to this stronger demand and a full quarter of harvest from the Longview land. I'm pleased to report that the Longview integration continues to go smoothly, and that we are on track to achieve or exceed our EBITDA and synergy goals.

Turning to market condition. Selling prices for Western logs were generally high in the quarter, while our sales realizations were flat, due in part to a higher percentage of logs exported to China compared with higher value logs to Japan. Southern log price realizations were up modestly. As expected, road and silviculture costs were higher in the quarter, and the contribution from the sale of non-strategic Timberlands declined by $3 million in the quarter.

Wood products, charts 7 and 8. Wood products contributed $58 million before special items to earnings in the quarter, down from $79 million in the third quarter, but above the $38 million of earnings in the fourth quarter of 2012. Special items for the fourth quarter included non-cash impairment charges of $10 million, related to the permanent closure of previously curtailed engineered wood products operation.

Sales volume declined across all product lines in the quarter, due to seasonality and unusually severe Winter weather. OSB prices were lower in the quarter, while lumber and engineered wood sales price realizations were higher.

Adjusted EBITDA in the quarter was $88 million, compared with $110 million in the third quarter. In lumber, EBITDA was down $7 million in the fourth quarter compared with the third quarter, as lower volumes due to seasonally weaker demand, extreme weather conditions, and higher log costs more than offset the benefit from higher prices.

In OSB, EBITDA declined by $15 million compared with the previous quarter, due to 4% lower prices and 11% less volume due to seasonality, as well as extreme Winter weather and capital related downtime. Engineered wood products generated EBITDA before special items of $11 million in the quarter, down from the prior quarter, due to a seasonal decline in sales volumes and again some weather-related production and transportation issues. And finally, EBITDA in distribution improved by $5 million in the fourth quarter, compared with the third quarter, primarily due to increased product margin.

As we discussed in our December 17th Investor Presentation, we are committed to improving the EBITDA in both engineered wood products and distribution by $30 million to $40 million in 2014 compared with 2013.

Cellulose Fibers, charts 9 and 10. Cellulose Fibers contributed $65 million to earnings in the quarter, up $18 million from third-quarter 2013, and up $4 million compared with fourth-quarter 2012. The improvement compared with third-quarter 2013 was attributable to higher pulp price realizations, lower maintenance expenses, and improved productivity due to fewer maintenance outage days. These were partially offset by higher fiber cost, and lower realizations for liquid packaging board.

Fourth-quarter liquid packaging board sales included a smaller proportion of higher value products. We expect a return to our typical mix in the first quarter.

Real estate, charts 11 to 13. WRECO reported strong results, as real estate contributed $71 million to earnings before special items in the quarter. As mentioned earlier, the fourth quarter includes special charges of $349 million, primarily associated with the previously announced impairment. The improvement compared with the prior quarter was attributable to a 40% increase in single-family closings, an 11% increase in average prices, and single-family gross margin of 23%.

I will now turn it over to Patty to specifically address our first quarter outlook.

Thank you, Doyle. Good morning, everybody, and Happy New Year.

Notwithstanding the harsh weather that much of the country has been experiencing, 2014 appears to be off to a good start, with a steadily improving economy and housing starts for 2014 forecasted to increase by approximately 20% over 2013. The outlook for the first quarter is on chart 15, and I'll begin my comments with Timberlands.

Export log volumes to both Japan and China are expected to increase during the quarter. The pricing momentum that we saw in the fourth quarter is carrying over to the first quarter. A higher percentage of Japan volume relative to the fourth quarter, as well as an increased percentage of Douglas fir logs to China, are anticipated to contribute to strong priced realizations.

The robust export markets are also putting upward pressure on domestic log price. Western Fee Harvest is expected to increase slightly compared to the fourth quarter, in order to take advantage of the stronger markets.

By contrast, the pricing dynamic in the South continues to be less robust. Log prices are expected to increase only slightly, while fee harvest volumes are expected to decrease by approximately 5%. Slightly lower road maintenance and silviculture spending in the West will be offset by slightly higher costs in the South.

We expect that the effect of the strong operating earnings for the segment in the first quarter will be largely offset by decreased earnings from non-strategic land sales. In the fourth quarter, we had earnings from non-strategic land sales of approximately $20 million, and we anticipate the first quarter sales will be minimal. As a result, we expect overall first quarter earnings in the Timberland segment will be comparable to slightly higher relative to the fourth-quarter results.

The outlook for fee harvest volume for the full year of 2014 is expected to increase by approximately 10% to 12%, mostly as a result of the Longview Timber acquisition in July of last year. In wood products, with the seasonally softer fourth quarter behind us, and in improving housing market outlook, we expect wood product sales volumes to increase across all product lines in the first quarter. Channel inventories remain low levels.

Lumber sales prices have continued to increase thus far the quarter, and we expect stronger realizations in the first quarter relative to the fourth. By contrast, OSB pricing has been softer thus far, and we expect overall realizations for the full quarter will be slightly weaker compared to the fourth quarter.

Engineered wood products demand is anticipated to decrease, although realizations will be slightly lower due to product mix. Log costs are expected to increase, especially in the West, consistent with our Timberlands outlook.

Increased operating rates should lead to lower unit manufacturing costs. However, the wild card is the severe weather conditions that we've experienced in January, especially in the South. Operating postures and rates are being adversely affected by the extreme cold, and grade recovery decreases due to frozen logs.

Transportation availability is also limited by treacherous road conditions. We do expect these harsh weather conditions to begin to moderate as we move through the quarter, and anticipate that the stronger market conditions will result in higher earnings in the wood product segment in the first quarter compared to the fourth quarter.

Moving to Cellulose Fibers. The year ended with global softwood pulp inventories at approximately 24 days, which is below the normal range of 28 to 32 days. Pulp sales volumes are anticipated to decline slightly, as a result of the timing of shipments. Higher liquid packaging sales realizations and volumes are expected to offset the effect of the pulp sales decrease.

Maintenance spending will be somewhat higher, and labor costs are also expected to increase slightly. We anticipate higher fiber costs in the West. Overall earnings in our Cellulose Fibers segment is expected to be lower in the first quarter compared to the fourth quarter.

In real estate, the first quarter of the year is historically a seasonally weaker quarter for home closings compared to the fourth. This year is no exception. We expect to close approximately 600 homes in the first quarter, down from 1,072 in the fourth quarter; however, this is a 30% increase over the 463 closings in the first quarter of last year.

Margins are anticipated to be around 20% to 21%, which is lower than the fourth quarter, but comparable to the first quarter a year ago. We have 13% more homes in backlog as of December 31st compared to a year ago, at prices 29% higher than a year ago.

The number of actively selling communities at the end of 2013 is 35% greater than the prior year. We expect that selling costs in the first quarter will decrease relative to the fourth quarter, as a result of fewer home closings. Consistent with the normal seasonal pattern, we expect that first-quarter earnings from our single-family home building business will be significantly lower than the fourth quarter, but better than the breakeven results of a year ago.

Our previously announced combination of our real estate business with TRI Points Homes is on track to close in the second quarter of this year. We continue to be excited by the value creation of this powerful combination. The requisite registration statement was filed at the beginning of this month, and we have received clearance under our Hart-Scott-Rodino filing. We continue to work through the remaining steps to close the transaction.

Now I'd like to touch briefly on unallocated items, which are shown on chart 14. Excluding special items, unallocated expense in the fourth quarter increased by $49 million compared to the third.

Almost half of that difference relates to a smaller favorable impact from the elimination of intersegment profit and inventory and LIFO as a result of changes in inventory levels. Amounts in the other category for the fourth quarter, include charges for environmental and litigation reserves, and other miscellaneous items with no single item greater than $5 million.

Now I'll wrap up with some overall financial highlights. We ended the year with a cash balance of approximately $835 million. Capital spending for the fourth quarter was $114 million, bringing our total spending for the full year to $293 million. For 2014, we expect the capital spending will be approximately $390 million, consistent with the guidance we shared during our Investor Meeting in December.

During the fourth quarter, we completed the financing for the Longview Timber acquisition, and we also repaid all third-party WRECO debts. As of year-end we had approximately $4.9 billion in total debt, with no maturities until 2017.

During 2013, we replaced our revolving line of credit with a new agreement with $1 billion of capacity, and the agreement does not expire until June 2018. There our no borrowings outstanding under the line.

As Doyle mentioned, we had significant positive tax adjustments in the quarter, which we have called out as special items in our earnings material. These adjustments follow the completion of examinations by taxing authorities covering multiple years in both the US and Canada. The largest of these relates to the exclusion from income of our alternate fuel mixture credits claimed in 2009.

Looking forward to 2014, we expect our tax rate for taxable REIT subsidiary earnings to be approximately 33% to 35%. And of course, we accrue no taxes on REIT income, as we plan to distribute all taxable income of the REIT to our shareholders.

Now I want to wrap up with an update on our pension and post-retirement plans. During the fourth quarter, we made the decision to close defined benefit pension plans to employees hired after 2013. We replaced those plans with defined contribution plans.

We also made plan amendments to certain of our other post-employment benefit plans. Factoring in these changes, as well as the strong investment earnings, and increased discount rates, the funded status of our plans as of December 31, 2013 improved by approximately $1.45 billion compared to the funded status as of December 2012.

Cash paid for all plans in 2013 totaled $137 million. We expect total spending in 2014 to approximate $110 million. Consistent with last year, we do not expect to contribute any cash to our US qualified plan, which is fully funded.

Our primary contributions will be to our Canadian plans for approximately $55 million, with the remainder going to pay benefits under our supplemental retirement plan, and our other post-employment benefit plans. Neither of which are separately funded.

Now I'll turn the call back to Doyle, and I look forward to your questions.

Thank you, Patty. As I said earlier, 2013 was a very good year for Weyerhaeuser, as we doubled our earnings before special items, significantly increased our dividend, and positioned ourselves for the future through significant transactions. But we still have a lot of runway in front of us.

As we look ahead, we are excited about 2014, and are relentlessly focused on growing shareholder value by driving our performance through operational excellence, and capitalizing on improving markets to increase our cash flow and grow our dividend.

So with that, operator, we will open it up for questions.

(Operator Instructions)

Alex Ovshey, Goldman Sachs.

Morning, Alex.

Hello, Doyle. Good morning, Patty, how are you?

Good morning, Alex. Good, thank you.

Just a couple of questions for you. First, on the cost savings and the distribution in the EWP business where we're targeting $30 million to $40 million for 2014. How should we think about how that flows through the model through the course of the year? Do you start to see that as early as the first quarter?

We'll start to see some improvement in the first quarter, Alex, but it's not -- and it will be all throughout the year. So you can't take the $30 million and $40 million and divide it by four and it's going to be even. It actually will build throughout the year as we gain traction on the initiatives that we outlined in our December 17th presentation.

That's helpful, Doyle. And the, just looking at the price performance of OSB relative to lumber, lumber has been so much more robust over the last six months. Typically, they historically move together. Can you just talk about the supply demand dynamics that you're seeing in OSB relative to lumber that may be driving some of the delta?

Sure. And in terms of -- we'll start with lumber. And in terms of lumber, supply and demand dynamics are favorable. What we've seen, of course, is improvement in demand as housing starts have continue to grow.

And on the supply side of the equation, Alex, while their have been some restarts and everybody's ramping up production, supply and demand are in pretty good balance.

On the other hand, in OSB, as you are very well aware, while we have seen improvement on the demand side, there have been some significant restarts and new facilities that have come online. And that's what's led, in our opinion, to the volatility in OSB pricing over the past few quarters. And I think that will continue, until we see supply and demand getting more in balance.

That make sense, Doyle. And one housekeeping question, the EWP facility that's primarily closed, how much capacity was that?

I don't know that exact figure off the top of my head. I will tell you, Alex, that that is and we'll get back to you with that. That is the last facility that had is that had been curtailed, and now -- so all of our facilities are now either running or have been permanently closed at this point.

Alex, the facility was in Colbert, Georgia. As Doyle said, it was closed for some number of years, but it was about 3 billion cubic feet, and it was a paraland facility.

Very helpful. Thank you very much. I'll turn it over.

Mark Weintraub, Buckingham Research.

Thank you. A couple questions, if I could. First, on the lumber pricing, I noticed that random lengths was up about $35 looking at the composite. Obviously, you're in lots of different geographies et cetera. But why -- your price is only up $9. Was that really just a geography and mix thing, or do you sometimes lock in pricing early in the quarter and maybe that can affect things as well?

Mark, we thought you might ask this question. So here's what's going on. It's very little of locking in prices, actually what happened as we dug into this is, is as you know, random lengths takes into account a variety of grades and widths. But it's mostly two-by-fours, and two-by-tens, and that's normally pretty reflective of what's happening in the overall market.

This quarter mid-widths, which is two-by-six, two-by-eights, which are not included or not generally included in random lengths, but are 40% of our volume of Southern Yellow Pine, were down 9%. So, this is a quarter where random lengths because of the mix and everything was significantly different than what our actual experience was.

Now if you look at it overall, and again, we went back to compare it to year-over-year, we're right on top of random lengths. It's just this happens to be one quarter where the two are out of sync.

Okay, got it. Very helpful. I just wanted also on the pension, so does that mean you ended the year at about $100 million to $200 million underfunded? Am I doing the right math there, Patty?

Well, as you add all of our plans together, so that's a combination of our pension plans, as well as our post-employment benefit plans, they'll total about just under $500 million underfunded. If you look at just the pension plans themselves, it's really the Canadian plans that are under funded.

So you're about right on that number, but the total under funded as we think about all of those. And as I mentioned, we don't fund the supplemental plan or the post-employment plan.

Right.

So, just pension alone, you're pretty much right. But all together, it will be just under $500 million.

Thank you. And then lastly, has there been any further thought on -- I believe you got like $700 million, $730 million of cash from the TRI Pointe transaction, as well as the shares going to shareholders. Has there been any further thought on the use of that money?

Mark, as you know and as we shared with the group in December, as we think about our financial priorities going forward, including the $700 million, first and foremost we're focused on returning cash to shareholders. That will be primarily through a growing dividend going forward, but also through share repurchase where appropriate.

Second, is going to be investing on our business. Again, through high return projects that improve our cost structure and our margins. And we'll also look for opportunities to grow our business, but we'll be very disciplined in doing that through acquisitions that create value.

And then finally, it's maintaining the appropriate capital structure to support a growing dividend, and we shared some of those metrics with you in December.

So, I give you that background just to say look we understand the amount of cash we're getting. We understand the cash on the balance sheet, and we will as we move forward through the TRI Pointe transaction, we'll be making decisions with what to do with the proceeds from that, and exactly whether we're going to do a spin or split and all that.

So what you could anticipate, is we won't make a decision on or probably won't make a decision on the dividend until we have completed the TRI Pointe transaction, and then we'll be back to you at that point in time.

Thanks, Doyle. Very helpful.

George Staphos, Bank of America Merrill Lynch.

Hello, everyone, good morning. How are you doing? Thanks for all the details. Some housekeeping, and I apologize if you answered, been doing a couple calls at once there.

First of all, Patty, did you say what the amount of pension expense will be in the P&L this year? I did catch the funding, but I'm not sure I caught the expense. And then the other housekeeping item, did you mention what was in the rather large tax adjustment in the fourth quarter, what drove that?

Sure. Yes, George, you guys have had a busy week.

So, let me in terms of answering the pension and post-retirement expense. Maybe the way to think about that would be to look at chart 18 that's in the material. I did give you the expense number in my prepared remarks, but as you look at that chart, if you looked at what we had for expense in 2013, in total it's about $100 million. In 2014, the total expense will be just about flat. So, we really won't have any expense to speak of.

Now as you think about the business segment though, we do charge the segment their normal service cost. So overall service cost in the business segments was I think around $60 million in 2013. And that will come down to around $40 million, because the service cost comes down as the discount rate increases, and the discount rate did increase year-over-year.

SAnd that $40 million offset then, will be in the allocated segment, as income in the unallocated segment. Because we want to make sure, from a business perspective, that we are charging the normal service cost into the business segment. So hopefully that's helpful there.

Thank you for that.

On the tax, yes I did speak to that. We had a number of years under examination, both in the US and Canada, that we completed in the fourth quarter. You might recall, in the third quarter filing, in the 10-Q, we said that it was reasonably possible that we would be releasing up to $160 million of FIN 48 or unrecognized tax benefits as result of those examinations. And, that that would be primarily related to the alternative fuel mixture credits. Remember, those go back to 2009.

We had included the credit in the income, and we had provided a FIN 48 reserve for those that now has been resolved, and so that's the reason primarily, the biggest part, of the tax reserves that we released in the quarter.

Okay. Last question and I'll turn it over. Totally different topic.

Doyle, in the past, the Company has had a number of what I'd call incubation like businesses within Cellulose Fibers. Years back, there was talk about carbon replacement products been generated by Weyerhaeuser, obviously you've had the jet fuel venture.

How do you see those playing out over time within Cellulose Fibers? Do you see them as still viable? In an environment where you are pursuing operational excellence, obviously, are there areas perhaps where there's been investment spending that maybe that needs to come down at some point? Thanks. Thanks for the question, George. And I'll tell you at Weyerhaeuser, to your point, innovation has been a core value, and will continue to be a core value going forward. With that said, as we go through the process we're going through on operational excellence, George, we're going to become very focused to where we're innovating, where it adds value to the bottom line.

So we want to make sure that the monies that we spend, the effort that we spend on R&D and innovation, ultimately results in a benefit to our bottom line. So as we move forward, that's part of the process we're in is making sure we have direct alignment, again, between the funds that are being spent, the effort that's being spent on innovation, and how we ultimately drive value for our customers and for our shareholders.

Thank you.

Thank you.

Gail Glazerman, UBS.

Hello, good morning. Just to start, can you just maybe take a step back and give some broader color on what you're seeing in the Wood Product markets? Particularly on two things. One, comparing it to last you were there was clearly a lot of panic and tension. And also, just if you've seen any sort of response, given and any change in your business just given the decline in the Canadian currency over the last month or so?

I'll take your first question, and I'm going to ask Patty to address the Canadian currency situation. But, you cut out or maybe we cut out a little bit when you said comparing it to last year where we saw something. And I --

Yes, last year there was just a lot of panic and tension, a lot of the supply hadn't come back yet. But you had the jump in housing starts towards the end of the year. And I'm just wondering, have you seen your customers may be more cautious relative to last year, given what happened with the price movements? Or given the fact that we did see another late year ramp up in housing activity today feel well-prepared for the housing season that's coming up?

Sure. So let me talk specifics, and then I'll step back.

If you look in terms of specifics, Gail, currently versus the fourth-quarter, lumber prices have continued to improve, and are up probably $25 versus the fourth quarter average. OSB, as I mentioned a little bit earlier in response to a question, we've seen continued pressure there, and those prices are down somewhere probably in the $10 range.

Specifically, regarding customers, I would tell you to your exact point, I think inventories are very lean. Customers are cautiously optimistic. They do remember what happened last year.

But I would tell you, as we talked to our customers, they are confident that we're going to continue to see growth in housing starts. And, in fact, some of our customers biggest concern at this point is will we have the supply to provide them with what they're going to need to service their customers going forward. So that's how we characterize where we are versus where we were a year ago.

And, Gail, to your question about the Canadian currency. As you noted, the Canadian dollar has depreciated here of late. And typically, the effect of that is that it makes it easier for Canadian lumber to come into the United States.

We really haven't seen a lot of impact as a result of that. That would be primarily the SPF that comes across, both from interior BC as well as Eastern Canada. And as we've talked about in the past, from a supply perspective, the interior of British Columbia is dealing with the Canadian pine beetle, and Eastern Canada is dealing with reductions in the allowable cut.

The other piece that of the positive dynamic in that, is that today, the export markets for lumber are much more robust than they were a few years ago when we saw much a weaker Canadian dollar.

So, it is something that we do track very closely, but so far we haven't seen a big impact from that. And we also do have some Canadian production as well. So, we are benefited to the extent that it will come to the fore.

Okay. And just a couple more. Your cancellation rate seems to have moved up a bit in WRECO, I'm just wondering if there's anything out of the usual there?

Yes, Gail good question. We really haven't seen anything that we would say would be a trend. It did move up in the fourth quarter, but we haven't seen anything we would say is really a trend. Year-over-year, the cancellation rate is in line.

I think as we look forward to the first quarter, it's really difficult to tell based on what's going on in the markets because of weather, really severe weather. Which you know well better than we do here in the West, because sitting here in Seattle, which we often complain about the rain, well there are no complaints about our weather this year compared to what the rest of the country is experiencing.

And that does hit for us in our Winchester subsidiary in the Washington, DC, Virginia, Maryland area, as well as even in Houston, which we wouldn't think would be suffering cold weather. But even the South is being hit. But in talking with our real estate folks, there isn't anything that we see that we would say is a trend. Mortgage interest rates are going up a little bit, but it's not a huge, significant thing at this point. But we'll stay tuned to that.

Okay. And just a couple of quick modeling questions. I might have missed it, but can you give us any sort of guidance on what you'd expect the average price in WRECO to do in the quarter? Also, any guidance on the change in pulp downtime costs. And then, just one quick last one after that.

Sure. The average price will increase relative to the fourth quarter. As you look at our backlog, the average price in the backlog is higher than what it has been at the end of other quarters. So we'll enjoy that going into the first quarter.

Margins will come down a little bit compared to the fourth-quarter, really based on mix. To your question about maintenance spending, we'll have a little bit more maintenance spending, really more in the major maintenance area. The actual downtime won't be real significance. I would expect that overall, the increase in maintenance spending would be maybe $4 million to $5 million additional from what we had in fourth quarter.

Okay, And then just quickly, I thought you mentioned your outlook for OSB, your guidance for Wood Products, you're assuming just a slight decline in OSB pricing? I just want to verify that I heard that, and does that imply that you're expecting a pretty healthy recovery through the balance of the quarter?

Well we said that it would be weaker relative to the fourth quarter realization. So, it is one of those things that sitting here in January, it has weakened. We would hope that that would not be the case, weakening further as we go through the rest of the quarter and start to see the Spring building season.

But that's something that we'll have to track. I think January is a difficult month, usually, to forecast for the quarter, because it's a weaker quarter, or weaker month for the quarter. And as you know, again, we are being challenged more this quarter because of the weather impact. So we'll just have to see what happens as we go forward.

Okay, thank you.

Mark Connelly, CLT.

Thank you. I wonder if you can help us think about the magnitude of the profit difference between China and Japan, and how that's going to change? Especially as you sell more Doug Fir to China, which sounds like a good thing. And second question, can you remind us how different Longview's end markets are versus the rest of your Pacific Northwest business?

Well in terms of Longview, I'll take that one first. They do have a high percentage of premium logs as compared to our Western markets. So a good percentage of that will go to the Japan market, as well as they also have though on a species mix a little more whitewood, and that's what you saw in the fourth quarter pricing to China.

The mix was more heavily than our typical mix to whitewood versus Douglas Fir. As I mentioned in my remarks, we will be changing that mix or that mix will change a little bit in the fourth quarter to send more Doug Fir to China.

Now Japan will always compete for the highest value Doug Fir log, because of the fact that they do build housing in the traditional post and beam construction for example. They build housing out of wood, as opposed to China being more of the construction activity use of the wood. But that historical gap between China and Japan has closed a little bit, based upon the strength of the construction activity taking place in China.

And do you think that's going to keep narrowing, Patty?

Well, it's always difficult to tell. Because you've got the activity taking place, and additional supply dynamics as well. But as we sit here today, for the first quarter, certainly continued to see very robust demand coming out of China.

So, I don't see anything that will change it in the near-term, and I think just those both of those economies in the longer-term. But our demand from Japan has been very stable as well. So we like the fact that we've got two very robust markets now that we have the ability to ship wood into.

Thank you, very helpful.

[Heeden] [ Memphora], Deutsche Bank.

Thank you. Just a couple of quick ones. Can you remind us what you have in the form of tax shields at this point, whether NOLs or alternative fuel credits or anything of that kind?

We do have some Cellulosic biofuel credits that we have to apply against our cash taxes. In terms of cash taxes, for example in 2014, we don't expect to pay any additional cash taxes. I don't have the actual amount of the Cellulosic biofuel credits. You'll get a more detailed review of what we have in taxes, obviously, will we file the 10-K, which will be here in the next couple of weeks.

Right. But you do not expect any significant cash taxes in 2014?

Correct.

Got you, thanks. And then on EWP, I saw the prices were up quite nicely year-over-year. Can you just talk a little bit about what you are seeing in that business, in terms of just overall pick up? And then, if you can tell us what the operating rates were on the Wood Product rates in Q4?

Sure. Let me start with the operating rates, and we'll go back to what we saw in pricing. But in terms of operating rates, in lumber and in the fourth quarter operating rates were roughly 85%. A portion of that fall from the third quarter had to do with weather-related items.

In OSB, the operating rates were approximately 89%. And then EOP, we've ramped up production there. If you factor out all the closed facilities and the started up facilities, we're at much higher rates than we've been over the past few quarters in EWP.

In terms of pricing, we've been encouraged by what we've seen in EWP from the standpoint that EWP normally does lag lumber and OSB, as housing has continued to improve over the past year or so. We've started to see -- gain traction in EWP pricing. And while that will be lumpy going forward, we would expect that trend to continue going forward.

Yes, and EWP pricing, in terms of how we price the product, we aren't seeing a significant change in the first quarter. It really is a function -- the lower price realizations is really a function of mix in terms of the actual sale of the products that are going in.

But that business does have a very wide product mix, ranging from TJI's, to solid section, to timber strand and paraland. So it's really a mix that's moving that. Demand continues to be very good.

Got you. Thank you, and that's very helpful. And then just one last one, you mentioned a couple of times about weather. I was wondering if it is possible at this time to sort of quantify what that impact would be in Q1?

No, it's difficult to do for Q1, because we're right in the middle of it. Just to give you a sense, is every leader of every business that we have came to me yesterday and gave me a update on exactly the impact from weather, whether it be in our Timberlands, whether it be in our Wood Products operation, or Cellulose Fiber. All of those are experiencing some impact from weather.

Just for lumber, for example, we've already lost 20 days in our lumber operation, due to either the impact from frozen logs, or impact from roads being closed, or whatever, something freezing in one of our sawmills. So, difficult to give any impact at this point.

We did do that exercise for fourth-quarter. And I can tell you, in our Wood Products operation, which is where the impact was in the fourth quarter, that number was probably somewhere between $3 million to $5 million in the fourth quarter.

And we'll be continuing to monitor the weather impact in the first quarter. As Patty said, we are hopeful that as we move forward through the quarter that the weather improves and we can make up some of the impact we've experienced over the last couple of weeks.

So we'll be running some additional days in lumber, for example, to make up the additional volume that was lost in the additional days that Doyle was talking about. And that's primarily based in the South.

Got you. No, that's very helpful color. Thanks, and good luck in Q1.

Thank you.

Chip Dillon, Vertical Research.

Yes, good morning. Doyle, I know you haven't been out there that long, but have they converted you into a Seahawks yet?

Absolutely, Chip. I'm fan number one. It's an easy thing to root for us. So we're excited about the Super Bowl, and looking forward to the Seahawks prevailing.

Well I think we're going to see 50 degrees at least some point Sunday, so that's a relief. First question is on looking at the land sales. You mentioned in the first quarter when you gave the guidance on the Timberland, it was excluding the land sales.

And I know there's two components, what you sell and what you transfer. And I know the fourth quarter tends to be a big number, and the first quarter is low. In 2013, that swing was about $25 million. Should we see that swing as well where it might go from $30 million in the fourth of last year, to something in the single digits in this quarter?

Well I think the way to think about it, Chip, is we had $20 million in the fourth quarter of 2013. And we really wouldn't see much at all in the first quarter of 2014. So that's about a $20 million swing quarter-to-quarter.

Got you. And then, could you give us some help on the interest expense you think you'd see for the year? And I know that you might have to qualify it, given the WRECO situation, but I know it popped up in the fourth quarter as we expected. But should we annualize that number X what we think we happens to WRECO, or what would you have us do?

Well, Chip, remember that in the fourth quarter, we had a loss on early extinguishment of debt, that was the Longview Timber debt. And we put that loss in interest expense. So be sure that as you look at the fourth quarter interest expense, you back out the $25 million early extinguishment that we called out for you as a special item.

Past that, I think you've got the debt. The interest rates I think are all -- and there's no change really there as well. So I think that that will give you a pretty good guidance in terms of what to put in for the full year of 2014, and we don't have any maturities now coming due in 2014.

Got you. So $350 million to $355 million. And then, on the -- you mentioned real quickly on the tax situation, at least for it the black liquor part, I would imagine that's all non-cash. Is that right?

Yes. We do have in terms of some refunds coming back in 2014. So it wasn't in cash in 2013, but in 2014 as a result of closing out some of those examinations we do expect to get some refunds back. That's one of the reasons why we have no cash taxes due in 2014 on a net basis.

Okay. And then the last thing is, you mentioned in the guidance on the Cellulose segment a little more maintenance. And I know that there are a lot of moving parts as you go to a longer cycle for the mills. Can you give us some idea as to how that will unfold throughout the year? Will there, for example, be very high or very low maintenance quarters that you can identify at this point?

Well, yes. It will be lumpy, because it will depend on what we do in terms of the mills. Probably the biggest lumpiness will occur in our liquid packaging operation, because we do have some capital projects to tie-in later this year.

I don't recall whether that's third-quarter, but I think it is. So you will see some lumpiness through the year. On a year-over-year basis, other than that extended outage at Longview for that capital, it will be pretty steady.

It will be different in terms of the mills, so where we take the maintenance. But the total amount will be up a little bit, because of the liquid packaging extended maintenance outage. Other than that, not much difference.

Okay, thank you.

In 2013, we had one mill that didn't have an outage, so our New Bern mill didn't have an outage in 2014. And we've got two mills that won't take an outage, and then that will continue as we go through a full cycle of implementation.

Paul Quinn, RBC Capital Markets.

Thanks very much. A question and comment. Just on the question, besides EWP and distribution's hard costs savings targets by the end of the year, have you been able to put a more definitive timeline on the $260 million that you identified on the New York Analyst Day in lumber OSB and Cellulose Fibers?

As I mentioned in December, we have set those targets. We will be working forward on those. You will start to see those, some of those bottom line improvements as early as the first quarter of this year, and then we will give you updates on periodic basis, probably on an annual basis as to exactly where we are.

So again, we don't know -- some of it's capital some intensive, some of it's not. We don't know the exact timing. But I can tell you we're focused every day on executing against those specific initiatives and those operational excellence targets that we set forth.

The other part of it that is near-term, just like EWP and distribution, is the SG&A cost savings, which we indicated we would be at a run rate of $75 million lower by the end of this year. And we are confident that we will in fact achieve that.

Is there, just for modeling, is there a range that you can give us for what you expect in 2014?

Well, I think the range would be the things that you've outlined. Specific numbers on the EWP, the specific numbers on distribution, the specific numbers on the SG&A. And then, again, you can -- it's not all going to be backend loaded in the numbers.

As we said, it's going to be two, three, four year process. There will be some lumpiness, but there will be benefits that show up as early as the first quarter, and clearly by the end of 2014 we'll see some benefits.

And again, the ultimate measure, as we said, in December 17th is going to be our relative performance versus the competition. And I'm confident you're going to see that improve going forward.

Paul, the other thing that I would just caution a little bit on modeling, is remembering that the cost target that we've given you. For example, in lumber, our cost targets of lowering our cost net of logs.

As you know very well, the biggest percentage of cost in lumber is the log cost. So log cost is continuing to escalate, which is a good thing for us in terms of our Timberland business. But net-net to the lumber cost if you were just looking at the P&L, the cost net of logs on a per thousand board feet number should be lower, but the absolute number of cost will fluctuate based upon log cost.

Okay, that's helpful. And just a clarification. Patty, you mentioned the Canadian pine beetle. And I just wanted to point out, that as far as I know, the beetles don't have Canadian citizenship or landed immigrant status.

Thank you, Paul.

They are free to flight across the border.

You are exactly right. If there's not, and in fact we do have a few in Colorado, I'm told, and Montana here in the states. So they do cross the border, just like Canadian and US citizens. Thank you for that.

You're welcome. Good luck, thanks.

Thank you.

Joshua Zaret, Longbow Research.

Doyle, in Timberlands and what you call international operations, which I assume is Uruguay, you've shown dramatic revenue growth over the last several years through 2012, and then it fell 15% in 2013, so a couple questions related to that.

One, what caused the downdraft in revenue and earnings? And two, are their plans, if I'm right it's Uruguay, can you tell us where the state of the forest and the converting operations are and their plans to double that revenue in the next whatever years? Thank you.

So I'll try to answer the second part of your question, and then ask Patty to deal with the first. So Uruguay, as you indicated, is the primary component of our international operation. We are focused on continuing to grow trees there.

As you may recall, Josh, we just planted those trees not that many years ago, so we're not in the full harvest mode at this point in time. So as time passes, we'll be able to generate additional revenue and earnings off of those or off of that 300,000, approximate 300,000 acres of land in Uruguay going forward.

And sure, Josh, the revenue and the international segment has fluctuated. It is only Uruguay as we sit here today. It has included some China, it has included some other smaller pieces. So, and the other thing is that from time to time has included some land sales in Uruguay as well.

But as we sit here today, it is purely focused on the Uruguayan operations. And the end product that we produce there is lumber, appearance panel that we -- come out of there. The other thing that has been in international operations is we had a small joint venture in Brazil, which also has now been curtailed since a year ago. So going forward, I think, and especially as paneled markets start to pick up, we will see some of that reversed.

Okay. So it's been consistent growth till last year. So you believe that we'll be back on track? Could it have been land sales that cause that down, or -- ?

It's likely the land sales. I don't have the detail of that in front of me. We would be happy to take it off-line and walk through it with. But there have been some land sales in Uruguay in the past, so there is some lumpiness that comes into that, as well.

All right. Thank you for that answer. Thank you.

Thank you. Okay, if I understand it, that was our last call. Let me just conclude by thanking everybody for your interest in our Company, and as I mentioned earlier, go Seahawks. Take care.

Thanks, everybody.

Thank you again for participating in today's conference. You may now disconnect.