Operator: Good day, ladies and gentlemen and welcome to the Plum Creek Q1 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call maybe recorded.
I would now like to introduce your host for today's conference John Hobbs, Vice President of Investor Relations. Sir, you may begin.
John B. Hobbs - VP, IR: Thank you, Samia. Good afternoon, ladies and gentlemen, and welcome to the first quarter 2013 conference call for Plum Creek. I'm John Hobbs, Vice President of Investor Relations. Today we have on the line Rick Holley, CEO and David Lambert, Senior Vice President and CFO.
This call is open to all investors and members of the media. However, the Q&A portion of the call is intended for the professional investment community only. We ask that other participants please follow-up with any questions by calling me at 1-800-858-5347. I encourage you to visit our website, www.plumcreek.com. There you will find our press release and supplemental financial statements for the first quarter of 2013.
Before we begin, I'd like to take this time to remind everyone that certain of our statements today will be forward-looking, involving known and unknown risks, uncertainties, and other factors that may cause actual results or performance to differ from those expressed or implied. These risks and factors are routinely detailed in our filings with the Securities and Exchange Commission. Following today's prepared remarks, we'll open up the call for your questions. Rick?
Rick R. Holley - President and CEO: Good afternoon. We started our 2013 with a strong first quarter. Each of our business segments reported improved operating profit compared to the same period last year. Northern sawlog prices were up sharply over the past six months, helping drive improved results in our Northern Resources business segment. Southern sawlog markets are showing encouraging early signs of improvement as well. Our manufacturing business continues to perform very well serving less volatile specialty and industrial markets. It is expected to post one of its best years ever in terms of both earnings and cash generation. Overall, we are on track to grow adjusted EBITDA of our non-real estate business segments by $50 million this year.
Now, I'll turn it over to David to cover our first quarter details as well as our guidance for second quarter of 2013. David?
David W. Lambert - SVP and CFO: Thanks, Rick. Our first quarter results of $0.35 exceeded our initial expectations, despite real estate sales coming in $2 million below the low end of our expectations. Robust West Coast log markets and growing demand and prices for our lumber and panel products were the hallmarks of the quarter.
Northern Resources $11 million operating profit was excellent more than doubling the fourth quarters' $5 million profit; much stronger sawlog prices drove the sequential improvement in profitability.
Northern sawlog prices improved sharply throughout the first quarter, averaging $77 per ton, up $9 per ton or 13% from the fourth quarter. Sawlog demand was strong as domestic sawmills in the Pacific Northwest have ramped up lumber production significantly over the past year. The latest statistics available show West Coast lumber production up nearly 12% year-over-year through the end of February.
Domestic sawmills were bidding aggressively for Douglas-fir logs to maintain their log decks. As our Oregon forests are approximately 80% Douglas-fir, we directed the vast majority of our first quarter harvest to these domestic customers and limited our export sales to lower valued species. As a result, our first quarter export volume was 28,000 tons; down about 30,000 tons from the fourth quarter.
Export markets on the West Coast remained active. These customers compete effectively for lower-valued species such as hemlock during the first quarter. Our export prices were up about 10% from the fourth quarter's level and we expect them to strengthen further in the second quarter. Pulpwood markets in the Lake States and the Northeast continue to show resilience. Pulpwood prices edged up on average $1 per ton during the first quarter. The second quarter is always a seasonally weak period for the northern resources segment, as thawing spring weather turns logging roads muddy and limits access the timberlands.
The second quarter harvest reflects these conditions and we expect to harvest roughly 800,000 tons down nearly 30% from the 1.1 million tons harvested in the first quarter. About 70% of this harvest should be sawlogs. We expect the strong prices in the northern sawlog markets to continue throughout most of the second quarter. We expect our average prices will increase another $2 to $3 per ton. We would expect to see some seasonal moderation in northern sawlog prices during the third quarter as harvesting conditions improve and more timber comes to market from non-industrial landowners during the summer months. Pulpwood prices have moderated in the Northeast and as a result, we expect northern pulpwood prices to take a breather from their advances and decline $1 per ton.
The Southern Resources $24 million operating profit was unchanged from the fourth quarter's results. The impact of improving sawlog prices was offset by a planned reduction in pulpwood. Our average Southern sawlog price increased $1 per ton, sawlog demand in several Southern timber baskets improved the sawmill selectively increased lumber production. 1.3 million ton sawlog harvest was unchanged from the fourth quarter level. Average pulpwood prices from 6% during the quarter. As planned our pulpwood harvest was approximately 300,000 tons or 15% lower than the fourth quarter's harvest.
We expect to see slowly improving sawlog prices in the U.S. South as the year progress. Similar to the first quarter, we expect price increases to be realized in timber baskets where mills have expanded production by adding shifts. This lumber demand continues to grow we'd expect more and more mills to increase production. We expect sawlog prices to increase $1 per ton in the second quarter.
In general, our Southern pulpwood customers are entering the quarter with adequate log inventories. Continued steady demand should result in pulpwood prices being flat to up $1 per ton during the second quarter. Overall, we expect our Southern harvest to be similar to the first quarter's level with the comparable sawlog pulpwood mix of approximately 43% sawlogs and 57% pulpwood. As always, we will continue to adjust our harvest plans in response to market conditions, deferring harvest in weaker markets to protect value and temporarily increasing harvest in attractive markets to capture value.
In our real estate segment, we completed $78 million of sales during the first quarter, just below our initial expectations of $80 million to $85 million. These results included a $53 million large non-strategic timberland sale of approximately 36,000 acres in Texas and Oklahoma at a price of $1,475 per acre. The balance of the sales consisted of approximately 5,700 acres of small non-strategic lands capturing $1,230 per acre approximately 1,000 acres of conservation properties that captured about $2,600 per acre and about 7,600 acres of recreational lands that captured a bit more than $2,000 per acre.
As consumer confidence has improved, we have noticed growing interest in rural land from families and individuals. Ultimately, we expect that interest to translate into purchases and higher prices for rural properties. We expect second quarter segment revenue to be seasonally slow with stronger closings in the second half of the year.
Second quarter sales are expected to be between $45 million and $50 million and we would expect land basis to be roughly 35% of sales. Our outlook for the year hasn't changed and we continue to expect sales to fall between $250 million and $300 million. And we estimate that land basis will be in the range of 30% to 35% of sales.
Our Manufacturing segment had another great quarter posting the $10 million operating profit, up $3 million from the fourth quarter. We experienced price improvement across all of our product lines compared to the fourth quarter lumber prices were up 9% and plywood prices were up 10%. With our thin MDF production line running at full capacity and demand for thick MDF continuing to grow our MDF production volumes increased 10%. Lumber production increased 12% and plywood production increased to more modest 2% over the last quarter.
As we noted in our press release, we reopened our Evergreen sawmill in late March and expect to run the mill profitably at one shift for approximately 40 million board feet on an annual basis. Since 2009, our lumber production has consisted exclusively of pine boards, a product that trades at a premium to framing lumber. The restart of our Evergreen mill will reintroduce stud lumber into our lumber product mix. At full production, our product mix will be approximately 75% pine boards and 25% stud lumber. So this move will reduce our reported average lumber price.
For modeling purposes, you should anticipate lumber sales volumes will be about 40 million board feet per quarter and average prices will decline about 5%, based on our anticipated mix of lumber products from both our mills. We expect continued strengthening in our manufacturing segment, and expects second quarter profits will continue to grow.
Our second quarter interest and tax expenses are expected to be similar to the first quarters. Looking at the quarter in the year, we expect our second quarter results to be between $0.20 and $0.25 per share. The second quarter outlook is below the published consensus estimate for the period we attribute this primarily to differences in the timing of real estate activity, which typically is much stronger in the second half of the year. Our expectations for 2013 are unchanged. We continue to expect net income to be between $1.25 and $1.50 per share. Rick?
Rick R. Holley - President and CEO: We are encouraged by the trends we are seeing in each of our businesses today, residential construction and repair remodel markets are the drivers of near-term demand growth. I'm sure it won't be a straight line there will (evitably) be temporary disruptions and dislocations in the market as the supply chain adjust to higher levels of demand. That said, trends are positive and very encouraging.
In the medium-term, by that mean over the next 18 to 36 months we see even more demand (placing in Southern forest). Lumber mill owners like Georgia-Pacific, West Fraser and Klausner have made significant investments or making significant investments today to improve efficiency and expand production in our southern operations. It is not surprising to see this capital flowing into the region. The South has arguably the lowest cost softwood logs in North America, if not the world. As these mills are upgraded, expanded and in some cases built on greenfield sites, we expect that new demand will translate directly and even more robust sawlog price improvement. Just as we expect sawlog values to increase, we also expect pulpwood values to improve as well. Over the course of the next of the past five years or so, Southern pulp and paper producers have enjoyed access to the lowest cost softwood fiber on the globe. As lumber production in the South increases, residual ship supplies will increase. However, we expect this to be more than offset by resurgent demand for wood fiber from OSB producers, as well as new demand from wood pellet plants currently under construction.
Over the course of the past few months, permitting and construction of several industrial scale pellet mills have commenced, including mills from well-capitalized companies like Drax, which is building mills on both Louisiana and Mississippi and the firm German Pellets Group, which is constructing mills in Texas and Louisiana.
The investments we are witnessing today in both wood pellet mills and lumber and panel mills are the leading indicators of increasing log demand in the U.S. South for years to come. Discipline to capital allocation remains our top priority. We continue to evaluate a variety of investment opportunities to generate excess returns for our shareholders. Last quarter, we discussed our recent investment in aggregate production, some 144 million tons to South Carolina.
I'm pleased to say the first three months of this investment is performing well and is on track to meet our goals for the year. We've also remained active in the timberland markets. During the first quarter, we acquired an $18 million timber deed in Mississippi that will add incremental volume to our harvest in that state for eight years and provide our investors with attractive above cost of capital returns.
Additionally, as you saw last week we acquired a little more than 46,000 acres of well managed timberlands in the Southeast. These productive lands are intermingled with our timberlands along the Georgia and Alabama state line. We are uniquely positioned to efficiently integrate these lands into our operation. The land is above average quality in terms of productivity and the property is well stocked with a growing harvest profile. The acquisition will generate above cost of capital returns, be cash accretive in year one and provide increasing cash flows as the harvesting grows over time.
We are well-positioned to benefit from the market recovery, we remain very, very excited about the future prospects for the Company. Now we'll open it your questions.
Operator: Anthony Pettinari, Citi.
Anthony Pettinari - Citi: In southern sawlogs you referenced pockets of strength in geographies where lumber production is picked up, and I guess across the business your log prices were up $2 a ton or 6%. I was wondering in those southern markets or maybe micro markets where mills are being capitalized and really ramping production, can you give us any collar where some of those prices were up in the quarter. You talked about those regions being maybe leading indicators, I'm just trying to get a sense of maybe how much log prices are moving in some of those micro markets.
David W. Lambert - SVP and CFO: From a general standpoint we saw greater strength on the eastern seaboard than we did in the western part of our southern ownership during the quarter. A lot of appetite for small chip-n-saw logs and some better price pension. They were up about $1 per ton as a whole for the quarter not the two that you referenced, but in some markets we saw greater traction in that.
Anthony Pettinari - Citi: You almost doubled your earnings year-over-year, but your free cash flow in the quarter was more flattish and I am wondering as you look at the full year and think about potentially increasing EPS maybe double digits assuming you hit the midpoint of your guidance would you expect full year free cash to kind of keep pace with the earnings growth or are there items that we should be modeling for the remainder of the year from a cash perspective that might impact your cash generation?
David W. Lambert - SVP and CFO: We discussed in our call last time we are expected to have lower real estate sales this year than we did last year in growing cash flow from non-real estate activity. So, net-net we don't see quite the same improvement in overall free cash flow, but we are seeing significant growth in kind of the manufacturing in timber cash flows this year.
Anthony Pettinari - Citi: But you would still expect free cash flow to rise year-over-year. Is that fair?
David W. Lambert - SVP and CFO: I think EBITDA is down slightly as a result of lower basis on our real estate sales this year than it was in 2012. Consistent with the guidance we had provided on the last call.
Operator: Mark Wilde, Deutsche Bank.
Mark Wilde - Deutsche Bank: I'm just curious; you had better than expected first quarter, wood products prices were better than any of us. I think, expected back in January. You are seeing kind of – you had a nice pop in solar prices, but you held your guidance for the full year. Can you help us understand that?
Rick R. Holley - President and CEO: Well, I think, it's still earlier in the year, Mark, and I think we are bit optimistic that the second half will continue to show some improvement and we'll start to see some even increased improvement in Southern sawlog prices, but it's really too early to call. So, I think at this point in time, we are going to stay within our guidance range of $1.25 to $1.50. It's pretty broad range in any case. But I think we are very comfortable in the range, but we just want to see the trend that we've seen continue and I know there is a lot of uncertainty over the second half in Southern sawlog prices giving wood deferrals and how much production capacity will come online to meet the demand of the growing market. So, again, we are pretty optimistic, we are going to continue to see improvement in the second half, and if we do, we'll adjust guidance as we go.
Mark Wilde - Deutsche Bank: Rick, I wanted to just moving over to real estate, if you can update us on that joint venture with the Rockefeller Group, what kind of progress you've made there. Also just what you're seeing in terms of real estate inquiries and pipeline, in general, I thought last week (indiscernible) had some pretty constructive things to say on that count?
Rick R. Holley - President and CEO: The Rockefeller Group is evaluating two projects that we have in the Southeastern United States currently and we are supposed to hear back from them in the next month or so with their full evaluation. They seem pretty excited. So, I think, hopefully, it will be net-net positive for both themselves at Plum Creek and we'll keep you posted on that. The pipeline, as David mentioned, in his comments, the inquiries are up. There is a lot more activity today, especially in markets like Florida and Georgia and even Montana the lights are on again. So markets where it was pretty dark last year the lights are on and they're starting to see some activity, and I think as we go through the next couple of years that should translate in a much better pricing than we've seen, in which case we start to see price recovery in those high end markets will start to move some of that products. So we're feeling lot better now than we would have a year ago on that.
Mark Wilde - Deutsche Bank: You had either some developments or perspective developments as I recall in both Florida and Georgia. Has there been any more movement on that front?
Rick R. Holley - President and CEO: In Alachua County Florida, where the University of Florida is, we've made a lot of progress on there if you go to envision Alachua, there is a lot of information on that website about our project and we'd make great strides, it's going to be a terrific project. Currently, we're working with the State of Florida and others try to find some anchor tenants to come in with some industrial commercial development large-scale ones to kind of partner with the University of Florida. So, we feel very good about where that project is and our ability to do something very special there.
Mark Wilde - Deutsche Bank: Then finally Rick, could you just remind us about how you think about the different wood products operations that you're involved in, some others have kind of monetized into a strengthening market. Just want to get a sense of how core each of those wood products operations as the Plum Creek.
Rick R. Holley - President and CEO: You're talking about our Manufacturing business?
Mark Wilde - Deutsche Bank: Yeah, exactly.
Rick R. Holley - President and CEO: We clearly, the MDF businesses are doing very, very well. We just increased capacity of one of our lines there. So we'll continue to perform there. We like our position in the plywood business very well with both plants. So, I think really long-term with those businesses that are well-positioned. As you know even in the weakest part of the market, a few years ago they were all cash flow and earnings positive. Our lumber business, we're in the board business, which is a nice niche value-added and we reopen the basically the studmill here recently just to capture what's going on in the market today which continue to go in the next few years. So, I think we feel very good about what we have. We don't plan to expand outside of that footprint. We are not going to add manufacturing capacity anywhere else in the country.
Operator: Gail Glazerman, UBS.
Gail Glazerman - UBS: Can you talk a little bit more I guess about the activity you are seeing and the incremental start-ups you are seeing in the south. I mean, how pervasive is this like how much of your acreage would it be as sounds like it is kind of isolated, I guess, on the Atlantic side. What do you think are the hurdles? If you look at what the sawlog prices are and you look at where lumber prices are you would certainly see a lot of incentive out there what do you think holding your customers back?
David W. Lambert - SVP and CFO: Well, I think what's holding some of the customers back is especially some of those – the smaller producers that might have one or two mills is the – they have tough times over the last few years and I think it is – they are not from Missouri but they say show me, they really want to see the second half continue to improve in the first half and I think if that happens you are going to see them out in another 20% or 30% in some cases the second ship of capacity. They are just really hesitant to get ahead of themselves and hire back employees into a lot of other things that they had to cut back on in the past years. So I think that's one of the pacing items. Some of the larger manufacturers like West Fraser as I mentioned in Georgia-Pacific they've made fairly large announcements to some capacity expansions, improvement of mills that they are going to do. So, they are going to go ahead and do what they understand the business, they feel very good about the turnaround in the economy and they are going to try to capture those values. On the wood pallet manufacturing Drax has announced those two plants and they are getting those permitted. Currently in that, German companies already has run – started construction on one and getting another one permitted. So, there is activity finally going on at wood pellet manufacturing which we've heard about for years, but now it's really happening and that's going to put some pressure on pulpwood prices as these markets recover.
Rick R. Holley - President and CEO: One of the things a lot of people talked about in these wood baskets is harvest deferrals and there is probably some of that, by some of the small non-industrial landowners and perhaps even from some of the team owners and clearly some of the large industrials. But really to bring all that wood to market is that the pacing item or the (indiscernible) going to be contractor capacity. Now, you guys probably your entire peers talk about it, that's going to be a real pacing item we expect to bring wood to the marketplace. So, I think, when you see capacity expansion and you start to see continued improvement demand, that's going to equate into higher sawlog prices even if there is a little wood on the sideline it has been deferred.
Gail Glazerman - UBS: Just shifting to the Northwest, do you have any concerns about the affordability of current log prices. I know a couple of years ago, we saw a rally, but it seems to peter out because the customers really couldn't pass it on. Are you more confident that at these levels it's sustainable or something that you can build on?
Rick R. Holley - President and CEO: Well, I think the Southern sawmill guys are making a lot of money right now and the guys in the Northwestern are not making much margin. They are probably net cash flow positive, but not making a lot of money at these log prices. The California market is improving, so a lot of that product is shift even as green lumber to California and as that improves that will help them because it will get their cost down, but they are not making a lot of money. So, I think there is the inability of them to pay a whole lot more for sawlog prices from where they are today. But again, most of them have doubled capacity, they've added second shift to kind of average their cost down and they are competing against the Chinese for some of that wood right now, so that's the price they we have to pay to get the logs to run, so.
Gail Glazerman - UBS: Then just one last question. There was a lot of noise in a couple of popular periodicals last week about Congress kind of reviewing the tax code and one of the items that they're looking at, where is the re-tax treatment? Is there any insights that you can offer, particularly as it pertains to timber REITs in that discussion?
Rick R. Holley - President and CEO: I don't think so and nothing other than what you've heard maybe from some of the other companies, but we stay very close to it. The REIT world has a very large association NAREIT that look after that. REITs have been around in the tax code since the 1960s. I think Congress is going to look at everything, any kind of revamping of the tax code, it means everything is up for grabs, but I think the whole REIT industry and the way it was structured and the way it's worked over time, it's gone very well and I think it's probably in good stead, but we don't lose sleep over, but we pay attention to it.
Operator: Steve Chercover, D.A. Davidson.
Steve Chercover - D.A. Davidson: So there haven't been a lot of timberland transactions in the last year or two. But they seem to be back to -- I'm going to call it prerecession levels, maybe a little bit lower. What's your sense of the roadmap going forward? Do you think there is a lot of upside?
Rick R. Holley - President and CEO: I think we talked about in the downturn that we saw cash flows from timber dropped 40%, timberland value has only dropped 10% to 15%. We've probably got most of that back or some of it back now. I think because you start to see this market recover and we start to see higher sawlog prices in the south that means improved cash flows and when we buy timberlands, we buy based on cash flow, not other value aspects. So I think you can see some upside in timberland values, as we start to see this housing recovery. I think it will be above when they settle down above their peak in the past. So I think there is some upside.
Steve Chercover - D.A. Davidson: I just wanted to ask is perhaps the risk to that assessment that you and your peers kept a lot of logs on the stump is it possible that I guess the pent up supply is equal to or greater than the pent up demand?
Rick R. Holley - President and CEO: I don’t think so. We have some statistics on Southern inventories and Southern sawlog inventories for the whole region were slightly up above where they were couple of years ago but I think they are like 252 billion tons versus 248 billion tons up slightly and that's still below the peak which was about 290 billion tons in the kind of the early 90s. So, there is excess inventory in different pockets and some people differed because I said it going to be hard to bring a lot of timber back to market in any point of time just because the contractor capacity is so constrained everywhere not just in the south but the northwest, the northeast as well. So, I think U.S. contractors will be able to move wood regardless of whether they had deferrals or not. So, I really don't think there is that much on the sideline in any case but I don't think it will all back to market just because of the constraints.
Operator: C. A. 'Chip' Dillon, Vertical Research.
C. A. 'Chip' Dillon - Vertical Research: First question is on the prior timber deeps that you acquired about a year and half ago or so. How much depletion and/or EBT was there in quarter from that?
David W. Lambert - SVP and CFO: Let me try to help you that ship from this year – in the first quarter we had about 2.9 million of cash flow from that timber deed and it generated about $200,000 of operating income.
C. A. 'Chip' Dillon - Vertical Research: Then on the deed you just acquired and actually I guess on both of them, do they -- I guess on the balance sheet that would show up as timber and timberlands net or is there another place that would be on the balance sheet?
David W. Lambert - SVP and CFO: It shows up in timber and timberlands.
C. A. 'Chip' Dillon - Vertical Research: Then if you could talk a little bit about the land you acquired in Georgia and Alabama. It seems like that's one your larger acquisitions in the past years and, a, I see you have like kind exchange escrow entry in this quarter. Was there any kind of tax benefit from that? And secondly, can you just talk a little bit about the maturity level of that stand?
David W. Lambert - SVP and CFO: Let me start with at least we did do a 1031 exchange on the property that we had sold in the first quarter and those proceeds were used to purchase this new property early in the second quarter, so that will all lift, and so that's already been completed. We just did that to maintain the ultimate flexibility. With respect to the lands are in great areas Georgia and Alabama are the number one and number two states as far as consuming sawlogs in the south, very good markets, very good site in silvicultural aspects. And so we think these are going to be exceptional acquisitions for us.
C. A. 'Chip' Dillon - Vertical Research: Then the last question is could you just talk a little bit about how you see the supply chain as it impacts Plum Creek and maybe others, are you -- I know that you all have done a good job of keeping your contractors busy during the downturn. And are you either finding any challenge in your situation in getting folks to cut down the trees or maybe more of the point are you sensing that some of the -- some other owners may have trouble. Is it just maybe some non-industrial owners would increase their supply. So, maybe they are not having a challenge, but I had always heard that there was -- it was hard to find loggers in the last few years.
Rick R. Holley - President and CEO: Think about it this way when production capacity went down 40% that was 40% less contractors were needed. Some of them stayed on the sidelines, (indiscernible) thing to do and they'll come back to work and some of them went out of business permanently. Some of those larger contractors can expand capacity as markets improve. The other thing to remember, Plum Creek predominately has delivered log model, which means for all the wood we deliver at least 80% probably, we actually deliver it. We have our higher contractors to cut it to our customers. Whereas many others, actually on a stumpage basis, so they don't have contractors in place, so that's going to be a real competitive advantage for us, over half of our contractor capacity or core contractors today where we've actually gone out and committed to long periods of time with them. Now that said, even though we took care of them in the downturn, we realized as markets improve we're going to have to pay more log and haul costs are going to go up in the future, there is just going to be a cost of doing business, but at least we feel we're very well positioned into any market recovery with respect to at least having access to quality contractors.
Operator: George Staphos, Bank of America Merrill Lynch.
George Staphos - Bank of America Merrill Lynch: I want to come back to the land purchases in the south, and I just wanted to confirm, could you remind us where those purchases at all within your guidance previously and if they weren't recognized that you kept guidance where it was because of all the other issues that you – or factors that you consider I think in your answer to Mark earlier?
David W. Lambert - SVP and CFO: The large non-strategic sale that occurred was in our guidance. Purchases, that's not part of our guidance.
Rick R. Holley - President and CEO: So, neither the timber deed that we did in the first quarter or the recently announced timber acquisitions were in our guidance. So, as we fully integrate those, we'll certainly adjust our guidance in the quarters ahead.
George Staphos - Bank of America Merrill Lynch: But said differently, that's again, realizing there is always some uncertainty that's tailwind for you at this juncture in terms of achieving your objectives for the year.
Rick R. Holley - President and CEO: Yes, sir.
George Staphos - Bank of America Merrill Lynch: The second thing again on these lands, you ultimately gauge the attractiveness of them based on the ultimate cash flows, were these lands – just were they opportunistic purchases or have your expectations for cash flow in the south and these areas gone up recently because what you are seeing in the market. How would you begin to answer that question?
Rick R. Holley - President and CEO: Well, I think, the way to answer this, we look at everything that comes to market and we found this particular opportunity. We worked on it throughout the early part of the year and I wouldn't say it's opportunistic, but in essence it is. It came to market and we took advantage of what we thought was a very good property and very good market, that's really will add no incremental overhead to manage it because we already have people in place there, so just worked out really well for us because we are in the middle of our ownership.
George Staphos - Bank of America Merrill Lynch: Have your expectations for cash flow within these regions moved up measurably would you say over the last year or so?
Rick R. Holley - President and CEO: Yeah. Certainly over the last year, so much of it is the timing of when we'll see sawlog prices in the south improve, but we've certainly factor some of that into any investment we make and obviously we're factoring those cash flow improvements in nearer today than we would have year ago. So, yes, we are more optimistic now than we were a year ago.
George Staphos - Bank of America Merrill Lynch: I appreciate the color. The last question, I'll turn it over. You mentioned you expect Southern pulpwood price to be up I think $1 sequentially per ton and mentioned that your customers log decks appear to be relatively flow at this juncture. To the extent that you have visibility into this, are log decks full because your customers perhaps over anticipated what their demand would be or just because it was fairly easy accessing forest and so it's fairly easy building up log decks were some other reason entirely different than those. Thanks guys. Good luck in the quarter.
Rick R. Holley - President and CEO: I think it's really the latter, even the weather returned in the south at fairly normal patterns. I think people took advantage in the marketplace of some dry weather in pretty good logging conditions in the first quarter and built up log deck. So, I think they are just in good shape not because their business are backing off just because they saw opportunities to build inventory.
Operator: Joshua Barber, Stifel.
Joshua Barber - Stifel Nicolaus: Most of my questions have been asked and answered already. Just curious with some of the larger parcels of timberland potentially on the block in the next year or two, as always seems to be rumored at some point. Would you guys think at some -- using shares or some sort of equity capital to be able to expand your presence that I guess it's been a while since you were really able to take a lot of advantage of that, but do you expect that to be in advantage in your acquisitions going forward?
David W. Lambert - SVP and CFO: Let's not say it's an advantage, but today, we would certainly be willing to use their equity for the right acquisition, but it's all about relative value. What we believe our equity is worth, we will use it vis-a-vis whatever the transaction would be. Also, we want to maintain investment grade balance sheet, so we saw a very large acquisition. We will clearly have to use other source of capital which will be your equity to consummate it, to keep our balance sheet in good shape. We're willing for the right opportunity use our equity, but it's got to be on a relative basis a really good opportunity.
Joshua Barber - Stifel Nicolaus: Do you believe any of the price impact in the West Coast in the first quarter in particular had anything to do with Canadian supplier or any of the Canadian rail lumber shortage, railcar shortages and that's starting to ease now into the quarter, do you expect that to partially be impacting your thinking on pricing.
Rick R. Holley - President and CEO: I don't believe so because if you look at their numbers like BC they weren't able to really increase their production, but they did increase their shipments into the United States based on the market. So we didn't feel that.
Joshua Barber - Stifel Nicolaus: One last just quick maintenance question. Could you remind us when the Montana mill comes on line?
Rick R. Holley - President and CEO: It started up in last March, so the first shipments really happened just here in early April.
Operator: Mark Weintraub, Buckingham Research.
Mark Weintraub - Buckingham Research Group: In the acquisition, the Southeast acquisition you noticed that you are anticipating better than cost of capital returns. Can you – order of magnitude, what would you see as your cost of capital at this point?
David W. Lambert - SVP and CFO: Our cost of capital over time as you know will go up and down with the cost of borrowings, but it's been between 7% and 8%, so it returns on higher than that on this acquisition.
Mark Weintraub - Buckingham Research Group: As we look forward, there has been talk about more money flowing into the TIMOs et cetera and they're having a healthy appetite. And at the same time you are also getting more optimistic on the cash flows, et cetera. Difficult question to answer I'm sure, but do you anticipate you're going to be more a buyer or a seller of land over the next couple of years?
Rick R. Holley - President and CEO: We hope the opportunity to be more of a buyer of land. So obviously it's dependent, Josh mentioned a minute ago, some large parcels coming on market, I'm not sure which ones is our, but we hope some come to market we would really love to buy more timberland for the right values because we think we operated pretty well and create a lot of value. So, we hope to be in that buyer.
Operator: Thank you and at this time I am not showing any further questions on the phone. I'd like to turn the call back to management for any further remarks.
Rick R. Holley - President and CEO: Well thanks everybody and we will talk to you next quarter.
Operator: Ladies and gentlemen, thank you for your participation in today's conference. This does conclude today's program. You may now disconnect. Everyone have a great day.