Boise Cascade Company (BCC) Q4 2013 Earnings Report, Transcript and Summary

Good morning. My name is Kevin, and I'll be your conference facilitator today. At this time, I would like to welcome everyone to the Boise Cascade Fourth Quarter 2013 Conference Call. [Operator Instructions] Before we begin, I'll remind you that this call may contain forward-looking statements about the company's future business prospects and anticipated financial performance. These statements are not guarantees of future performance and the company undertakes no duty to update them. Although these statements reflect management's expectations today, they are subject to a number of business risks and uncertainties. Actual results may differ materially from those expressed or implied in this call. For a discussion of the factors that may cause actual results to differ from the results anticipated, please refer to Boise Cascade's recent filings with the SEC. It is now my pleasure to introduce you to Wayne Rancourt, Senior Vice President, CFO and Treasurer, Boise Cascade. Mr. Rancourt, you may begin the conference.

Thank you, Kevin. Good morning, everyone. I'd like to welcome you to Boise Cascade's fourth quarter 2013 earnings call and business update. Joining me on today's call are Tom Carlile, our CEO; Tom Lovlien, leader of our Wood Products operations; and Stan Bell and Nick Stokes, the leaders of our Building Materials Distribution operations. Turning to Slide 2, I'd point out the information regarding our forward-looking statements. The appendix in the presentation includes reconciliations from our GAAP net income to adjusted net income and EBITDA. Now I'll turn the call over to Tom Carlile.

Good morning. Thank you for joining us on the earnings call today. 2013 was an exciting [ph] year for our company. We completed our IPO in February, successfully acquired 2 plywood operations in the Southeast in September and had good financial performance for the full year. I feel good about how we have positioned our company as we begin 2014. I will begin my comments on the executive summary on Slide 3. Housing starts for 2013 finished at 927,000. The starts were lower than expectations early in 2013 but still represented a 19% improvement over 2012. We expect the housing recovery in the U.S. to push ahead in 2014 with starts around 1.1 million. We believe, over the next few years, U.S. housing starts will return to long-term PRIN [ph] levels of 1.4 million to 1.5 million. Our fourth quarter sales were just shy of $800 million, up 15% from the same quarter in 2012. We earned $9.8 million in the fourth quarter. For the full year, our sales were approximately $3.3 billion, up 18% from 2012. Full year net income was $116.9 million, adjusted for the establishment of deferred taxes as part of our conversion to a C corp. Prior to our IPO, we earned net income of $48.3 million for the year. EBITDA for 2013 was $136 million, up 41% from our performance in 2012. The integration of the new plywood operation in the Carolinas has gone smoothly, and those operations contributed $4.6 million of EBITDA in our Wood Products segment in the fourth quarter, which is in line with our expectations. We have experienced more severe weather in the first quarter of this year than in last year's first quarter. In large parts of the country, the harsh weather has disrupted operation and slowed sales more than we have experienced in many recent winters. Last year's first quarter was also benefited from very strong commodity pricing. We will make -- which will make for a tough quarterly revenue and earnings comparison when we report on our first quarter 2014. That being said, I expect the full year of 2014 to develop favorably compared to 2013, especially for our engineered wood products and our Building Materials Distribution business. Those 2 areas are most closely aligned with single family, new residential construction. Plywood and our pine lumber business should see favorable supply and demand conditions again in 2014. With the general economy gaining strength and existing home values improving, repair and remodel activity is expected to pick up this year. We are coming into the year with good liquidity, and we'll continue to look for ways to grow our company beyond organic growth we expect to capture as housing market recovery moves forward. With that overview, I'll ask Wayne to provide more detail on financial results.

Thanks, Tom. Turning to Slide 4, Wood Products sales were $301 million in the fourth quarter, up 31% compared to the year ago quarter. The sales increase was attributable primarily to increased engineered wood products volumes and prices, as well as higher plywood volumes following the acquisition of the plywood plants on September 30. Wood Products fourth quarter EBITDA was $25.1 million, up 90% from the $13.2 million the business turned in the year ago quarter. The increase in EBITDA was due primarily due to higher EWP and lumber prices, as well as higher plywood sales volumes, offset in part by higher wood fiber costs. BMD sales increased 11% to $615 million in the fourth quarter due to 9% higher volumes and 2% higher prices than in fourth quarter 2012. BMD's fourth quarter EBITDA was $13.4 million, up 66% from the $8.1 million reported in fourth quarter 2012. The combination of gross margin improvement to 11.7% in the quarter compared with 11.5% in the same quarter a year ago and the strong growth in sales resulted in higher gross margin dollars being generated. In addition, the business achieved positive leverage from the increased sales volumes on selling and distribution expenses, as well as on general and administrative expenses. Turning to Slide 5. Our fourth quarter plywood sales volume in Wood Products jumped sharply following the Carolinas acquisition. The $8 million dryer replacement project at our Oakdale, Louisiana plywood facility went very well in the fourth quarter. We expect the new dryer to enable that mill to produce an additional 75 million square feet of dry veneer to support growth in our nearby EWP operation in Louisiana. Our $302 average net sales price for plywood was down less than 1% from fourth quarter 2012 and also essentially flat with third quarter 2013. First quarter 2014 pricing is starting out modestly below the average for fourth quarter 2013 and over 10% below the very strong pricing experienced in first quarter 2013. Our lumber facilities contributed favorably to Wood Products' 2013 earnings performance. The lumber mills, which are located in Eastern Oregon and Eastern Washington, focused primarily on manufacturing ponderosa pine lumber for sales into industrial markets and home centers. Our fourth quarter 2013 lumber price realizations were up 27% compared to the prior year quarter. Turning to Slide 6. Our fourth quarter sales volumes for LVL and I-joist were up 28% and 27% respectively, compared with the year ago quarter. Improving new single-family home construction activity was the primary driver of our stronger sales volumes. Our LVL sales price realizations improved 10% from the year ago quarter and were essentially flat with third quarter 2013. Our I-joist sales price regionalizations increased 13% from fourth quarter 2012 and, again, we're essentially flat sequentially. We believe the pricing dynamics for engineered wood products will continue to improve as industry capacity utilization rates move higher with increased housing starts. Moving to Slide 7. BMD's fourth quarter sales were $615 million, up 11% compared with the year ago quarter. Volume gains drove 9% of the sales increase. The housing market recovery is providing a tailwind for the distribution business and market share growth remains a priority for us. We expect our customers to increase the size of their orders and, in some cases, to convert warehouse purchases to direct truckload and railcar load purchases as activity levels continue to pick up. Direct sales on commodity lumber and panel products typically carry a lower gross margin than our out-of-warehouse sales, but represent opportunities for additional sales volumes and earnings. As we reach the anniversary of the high commodity pricing environment experienced in first quarter 2013, expect our reported sales and earnings growth momentum to slow temporarily in distribution. Comps in second quarter 2014 should be much easier for the business. One can see on the right-hand chart that with the ongoing recovery in new single-family residential construction, engineered wood products represented a modestly larger share of the BMD's overall sales mix in 2013. On Slide 8, we have set out the key elements of our working capital. Company working capital increased about $67 million during 2013, including about $7 million of incremental working capital recorded from our acquisition. BMD's inventory investment increased about $24 million year end to year end, driven by increased sales volumes. Wood Products inventories increased compared to a year ago as our operations in the Pacific Northwest had favorable weather in the fourth quarter of 2013 and were able to add to their log inventories ahead of the normal winter snows. This will give us additional flexibility in early 2014 as we will be able to minimize log purchases during a period when log prices often escalate temporarily in response to limited log availability caused by winter and spring weather. As a reminder, the statistical information filed as Exhibit 99.2 to our 8-K has the receivables, inventory and accounts payable data broken down by segment for those that are interested in more detail. I'm now on Slide 9. As Tom mentioned, we ended 2013 in a good cash position and had over $250 million of availability under our bank credit agreement. As receivables and inventories build again this spring with a normal seasonal pickup in business activity, I would anticipate our borrowing availability under the bank agreement to increase. We increased the lending commitments under the bank line to $350 million in the second half of 2013, which provides us considerable flexibility for organic and acquisition growth. We had historically used cash in the first quarter to fund the seasonal working capital increases, as well as to pay out accrued customer rebates and incentive compensation. I would expect the same to be true this year. And with that, I'll hand it back to Tom to wrap up.

Thank you, Wayne. I'm on Slide 10. The current consensus estimate for 2014 total U.S. housing starts is 1.1 million, up about 20% from the starts experienced in 2013. We believe demographics in the U.S. support a return to residential construction of 1.4 million to 1.5 million total starts per year in the years ahead. We will continue to manage our business to be supportive of our customers and capture the opportunity the market presents. Commodity product pricing has been volatile over the last 18 months, and that could continue to be the case as producers and customers try to predict and react to changes in supply and demand. With that in mind, we will be closely focused on market conditions and we'll be appropriately nimble on production and inventory levels. We are optimistic about the outlook for our company in the coming year based on the improvements we are seeing in the general economy and housing-related data. We will have the full year benefit of our recent acquisition, EWP sales activity should continue its upward trend and I expect further revenue and earnings growth in our distribution business. In addition to the leverage we will get from our existing business, we will continue to look for additional opportunities to create shareholder value. Before we move to the Q&A, I want to talk about our announced leadership change in BMD. Stan Bell, President of our distribution business has elected to retire in a couple of weeks after nearly 43 years with the company. Under Stan's leadership, BMD has grown from 9 locations in the Northwest to be the largest national wholesale building products distributor with 32 locations, 1,800 associates and $2.6 billion of revenue. We will miss Stan and he leaves some big shoes to fill. But Nick Stokes has worked side-by-side with Stan for over 20 years and is ready and capable to lead BMD in the future. I want to thank Stan for his significant contributions to the company and industry, and to congratulate Nick for becoming the new leader of the company's distribution business. Thank you for joining us on the call this morning and your support as investors. We would welcome any of your questions at this time. Operator, would you please open the phone lines?

[Operator Instructions] Our first question comes from Chip Dillon from Vertical Research Partners.

Question is -- I know that this has been very recent, but I know you're acquisition of the plywood mills, I guess, was impacted with a lot of weather in the last few weeks. And I didn't know between that and the other operations if you have some sort of guess as -- in terms of the EBIT or EBITDA impact that you think weather is having so far in the first quarter versus a year ago.

Chip, this is Tom. No, we're not going to try to venture to guess because every time we think we're about out of winter, it happens -- hits us again. And I would say that we have had more disruption days in both manufacturing, in areas like Louisiana and the Southeast, and more disruption days in the distribution business than any time I can remember. So it will have an impact. We're not prepared to make a guess at the impact at this point in time.

Got you. And as a second follow-up to that, when you look at -- you guys, even though you bought back a fair amount of stock last year, you all have a very strong balance sheet. And I didn't know if you thought in terms of your priorities, in terms of buybacks versus acquisitions, and even within acquisitions, if -- my guess is that the obvious places would be probably engineered wood and distribution, and if you had a preference between those 2?

Chip, we are pleased with our balance sheet. We do have an opportunity and a desire to look at a lot of things that are related to our core businesses. We don't have a stated preference. It's what creates value and is fit for our business.

Okay. And then lastly, just looking back at the engineered wood business. In the past, we've seen, and I think we've seen so far, certainly a lot less volatility than we see in plywood, for example, and, of course, OSB and lumber. Would you say we're still in a process of sort of catching up? I know plywood prices have edged down in the last several months, but do you feel the spread relationship is about where it normally is between engineered wood and the inputs? Or is there -- or could we actually see that spread narrow or widen from here?

Now let me try to answer the question this way. The engineered wood business is more of a lift-price business and you work from that with price changes announced in advance. And commodity prices change every hour, and so there's going to be a lot more -- continue to be a lot more volatility in the commodity side. The engineered wood business is operating at a lower rate than, in our case, the plywood business. So we still see further improvement in the engineered wood business as we go forward and the housing continues to grow.

Yes. I think at this point, Chip, the capacity utilization is low enough that you still haven't seen the full margin expansion to where we and others are earning a return on capital that's invested in the EWP business. And we would expect margins to expand and provide a return on capital as capacity utilization improves.

Okay. And again, the capacity we should use is around 27.5% still? Is that what about we should use?

That is correct for LVL, and a portion of that gets used in the manufacturing of I-joists. So the net sales number is something in the high...

In the high-teens for LVL. And then the rest, to Tom's point, would be used for flange for I-joists.

Our next question comes from George Staphos with Bank of America Merrill Lynch.

Congratulations to Stan and Nick, and good luck with your future endeavors. I guess, maybe first question, segueing off Chip's question, can you comment as to whether you have any pricing increases in the market right now for EWP? And if so, could you comment as to what those levels are, if they are?

George, Boise Cascade does not have any announced pricing increases out there at this time.

Okay, fair enough. Second question, could you give us a view on what your operating stance is right now within EWP in terms of, well, operating rates and where you expect you'll run in the first quarter overall?

I think it's safe to say that given the weather disruptions we've seen in the upper Midwest and East Coast and, frankly, down into places that you normally wouldn't expect, like Atlanta, that our shipments on EWP in the first quarter have been impacted pretty severely. But when we talk to builders and we talk to others in the distribution chain, people are pretty upbeat. So if we get any kind of a break in the weather, we would expect March to be a much better month than we've seen in January and February on EWP shipments.

Okay. And that would be one metric, obviously, to consider in terms of future pricing? So if we do see a snapback, the environment potentially becomes more favorable for you in that regard. Would that be fair?

Yes. I mean, we're -- basically, we're seeing the capacity utilization impact out of our Louisiana facility, which ships basically east of Denver. West Coast has been okay from a weather standpoint. But when I've got the production manager in Alexandria, Louisiana sending me photos of 5 inches of snow outside of his flagpole, that's probably not a normal situation, and I think you've seen Atlanta and other places. So we're actually reasonably pleased with the tone considering the weather we've seen.

Understood, understood. I have a bunch of other questions, but I'll just do one now and turn it over. Appreciate the additional details, too, on the P&Ls for each of the segments. It's very helpful. And in looking at it, you showed, from at least our vantage point, very good leverage on SG&A within both businesses. Do you think that you can more or less hold the line on these expenses this year? Or how should we think about your need to invest in SG&A as the business grows the rest of the year? And I'll turn it over.

Yes. I think on where I would expect to see continued lever on the SG&A is particularly around the EWP business' sales volumes' pickup. That has a fair amount of cost associated with getting to market and customer service. So I'd expect -- continue to see leverage there. And as we benefit from the volumes -- additional volumes out of the plywood operations in the Carolinas, that will give us additional expense leverage in the manufacturing business. And clearly, in the distribution business, we'll see selling leverage on selling and distribution and G&A. Where you're going to see variable costs that will follow the revenues will be on the distribution expenses themselves. So to the extent that it includes delivery costs and handling, those will move in line with revenues. But otherwise, we would expect to continue to see selling and general and admin leverage in both businesses as we go through '14.

Right. And as a percent of sales and distro, we should see that flat or down, that would be fair?

Yes.

Our next question comes from Alex Ovshey with Goldman Sachs.

This is actually Usha Guntupalli on behalf of Alex. Would you be able to quantify how much wood fiber inflation you had in the fourth quarter? And what do you expect for first quarter?

What we had in the fourth quarter?

Right. And if -- any color on the first quarter for wood fiber inflation?

I don't have specific numbers for fourth quarter. And the way we typically move logs into inventory, we think about it on a longer period than just the immediate quarter because we -- as I mentioned, we built inventories in the West on our log side and those will flow out in the first quarter. So it doesn't immediately reflect what's happening in the spot market. But if you think about just general log input cost inflation, in the South, we're probably in the mid-single digits, and part of that will be cut and haul costs, as well as what's happening locally on stumpage. In the West, if you looked at it year-over-year, '13 compared to '12, log input costs were up around 12%. And that, again, seasonally, can be fairly volatile and is impacted a lot by what goes on in the dimension lumber markets and what goes on in the export markets to Asia. And that was part of the reason we went ahead and built log decks in the fourth quarter where we had the opportunity, as usually the first 4 months of the year get pretty volatile depending on what happens on snowfall, what happens on exports and then depending on how wet the spring is and we can't get access to some of the higher elevations for harvest. So we've done some things this year to protect ourselves against the potential for log price inflation in the first quarter.

That's helpful. And are you seeing any increased substitution rates for plywood, say, by OSB?

There are substitution opportunities that -- particularly for residential construction. Plywood -- less than 25% of the plywood, I think, we would -- we believe ends up in residential construction, so it's more -- tracks the general economy. We have not seen material substitution over the last 2 or 3 years.

Yes. It's been -- really, where it's happened has been the opposite direction. If you looked at the very tight OSB markets in early '13, we saw builders moving back into plywood, but that would not be a normal condition if you have a normal spread between Plywood and OSB. Most of the substitution effect has taken over -- taken place over the last decade and we would expect OSB to capture the lion's share of the new residential construction increases over the next couple of years.

[Operator Instructions] Our next question comes from Adam Rudiger with Wells Fargo Securities.

I'd like to ask you to elaborate a little bit more on your comments in the release about operating below capacity, given inventory levels in the various distribution channels. I was wondering if that was just kind of a general kind of disclaimer, or was that what that meant relative to year ago production? Does that mean you're going to -- is that -- you're just saying you're going to operate below kind of total capacity, or should we expect that to be below year-ago levels?

I think we'll see -- x the weather thing that we've kind of talked about, I think we will see similar production operating rates in plywood. The place where you will see probably lower operating rates that I touched on earlier is in engineered wood in the first quarter, mostly driven by weather. And that product is heavily dependent on single-family to residential construction.

Okay. On that note, are you going quantify kind of the clients that you saw in January and February that you've mentioned before?

No.

Not at this point.

Okay. And then my second question was you talked about a normal housing-starts environment, 1.4 million, and you think you'll get there in a couple of years. I think last year, when you were starting the whole IPO process, you talked about maybe a $250 million mid-cycle EBITDA at that level. I was wondering if you could update us on what your thoughts were on that, what that figure would be now?

Basically, the same figure, only $20 million higher that we would adjust for the acquisition at Chester and Moncure. So still comfortable in the $110 million to $120 million range for Building Materials Distribution at mid-cycle. And then the number we guided to before on Wood Products increased by $20 million for Chester and Moncure.

The next question comes from Steve Chercover with D.A. Davidson. Steven Chercover - D.A. Davidson & Co., Research Division: The consensus seems to call for housing starts to be up 20% this year. Do you have a sense of how much repair and remodel is going to be up? And what is your split between new res and repair-and-remodel business?

All right. Let me take an attempt at this, Steve. We would -- based on economists that are smarter than us, we think repair and remodel is probably going to be up 4% to 5%. If you ask me to venture an opinion based on what we see internally, probably, the most encouraging thing we've seen is existing home sales appear to be picking up and there are fewer people under water. So the fact that home prices have moved up, typically, what happens is the repair and remodel follows 12 to 18 months after the sales of homes. So if we continue to see the pace of existing home sales go up, we think that will be good news for repair and remodel. If you asked about the balance in our business, it is difficult to sort out how much, particularly in the distribution business, how much of their business is driven by repair and remodel and how much is driven by single-family new sales. As you know, we sell primarily to pro dealers that sell to professional contractors, whether that's repair and remodel or new home construction. And then we also have probably about 25% of the revenues that go either into the industrial channel or home centers like Home Depot, Lowe's and Menards. So in terms of what drives our sales, plywood's going to be more impacted by general economy and repair and remodel. EWP sales are going to be primarily single-family new res. And on BMD, it's going to be a mix because we're focused on basically products that would go into shell of the home or things where we're backing up the home centers on their special order desk. And certainly, when we were at 550,000 or 600,000 starts, Stan and Nick and the team did a very good job of broadening product lines and focusing on other customers that continue to hold revenues up as housing was falling away. So at that point in the cycle, I would have guessed that it probably would have been maybe an even-handed split between new res and repair and remodel. As we come out of this, clearly, a move back towards 1.4 million, more of the revenues are going to be driven by what's going in new residential construction because I would expect that growth rates there to be faster than what happens in R&R. We may get back to a more normal 75-25, but again, that's a guess, trying to look down through the channels and figure out who ProBuild, BMC West and others and Home Depot are serving. Steven Chercover - D.A. Davidson & Co., Research Division: But 75-25 would be the new versus R&R split in a normal environment?

If we're at 1 million, 4 million, 5 million (sic) [1.4 million, 1.5 million] housing starts, I think that's probably about right. But again, we did a lot of things in '08, '09 and '10, to try to expand our footprint to pick up more home center business and pick up more industrial business. And assuming we can be successful with that, we may not be get back to the 75-25 because our hope is that we'll continue to expand the customer base and the product lines as part of the organic growth. Steven Chercover - D.A. Davidson & Co., Research Division: Makes sense. Do you think there's any risk to that 1.1 million consensus following just the January starts? Or it's just one data point out of '12 that was really impacted by the polar vortex.

Steve, it depends on the weather report that I get every day on how I feel about that, to be honest. We hope we get to the 1.1 million. It wouldn't surprise me for the -- to see the consensus come down as it comes out in this coming month or in the months ahead. I still think it'll be a material improvement year-over-year, whether it's 1.50 million or 1.1 million.

Yes. I mean, when we were doing the roadshow pre-IPO, we indicated that we thought we could add about 150,000 to 200,000 starts a year given the destruction that had happened to the infrastructure within the industry, everything from loggers through distribution. And if you take the 781,000 that we did in '12 and look at the 927,000 where we ended up in 2013, it was at the lower end of that range. And we would probably, based on what we see in the economy, based on what we're hearing from others in the industry, we probably, threw out that same 750,000 to 200,000 increment for '14. So if you overlay that on the 927,000, it would get you somewhere in the 1.070 million to 1.1 million-plus range for '14, and that's kind of what we're using for our planning purposes internally this year. Steven Chercover - D.A. Davidson & Co., Research Division: Okay, that's quite reasonable. And one last one. We understand that one of your competitors had some operational issues at an East Coast engineered facility. Do think you can pick up any business? Or the fact that it happened in the dead of winter means that there's not kind of pent-up demand that you could capitalize on?

I would be surprised if we'll see much, if any, change in our shipments as a result of anything that's going on with a competitor.

Our next question is a follow-up question from Chip Dillon with Vertical Research Partners.

Yes. First question, I guess, more for Wayne, is could you update us on where you see the tax rate and the CapEx number coming in for 2014?

Yes. For tax rate, I continue to assume around the 38% rate. And on CapEx, we will probably be around $55 million this year.

And would you now consider that kind of a new normal given your expanded footprint, or is that maybe elevated or low?

I think that's probably a pretty good place to think about because in big buckets, if you think about that being $40 million in the Wood Products business and about $15 million in BMD. That's probably a steady state number, realizing that part of the $40 million will include improvement in the manufacturing operations, and some of that will get targeted at Chester and Moncure as we look at, particularly, taking advantage of the flexibility that Chester gives us.

Okay. And I know you mentioned earlier and I might have missed this, the 2 acquired plywood plants are sure to add to mid-cycle EBITDA by about $20 million. Did -- and I believe the base is $250 million from the roadshow. So I just want to make sure my math is right. So you're saying go from $250 million to $270 million? And how much of that would be corporate expense as a takeaway from what the segments provide?

I would expect $20 million to $22 million in corporate segment.

Okay. All right. And so I'm right on the $270 million then?

So if want to think about a gross number, think about a $290-ish million number for the -- if you took wood and BMD and could get rid of us corporate overhead guys.

Okay. And then I think I recall, maybe Tom, I'm not sure if it was Tom or Wayne, but I think on the call a year ago or last March, maybe it was in the spring, forgive me, but you all were seeing, or at least some of your customers, maybe one drag to the housing activity being the lack of people to do the work, if you will. Like I think in some of the previously hot markets, maybe in the -- like Vegas or Phoenix, there just aren't framers and roofers and other type of folks to actually do the work. And maybe you could just sort of comment on how you think the infrastructure amongst the broader customer base may have improved in the last year. If one makes the assumption that the underlying willingness is there for a lot of houses to be built, do we have the boots on the ground that can actually do the work, or at least has it improved from last year?

Chip, that is continuing to be an issue. As an example, talking to customers at the builder show a couple of weeks ago, everybody's concerned about that, the availability of qualified workers that we would like to hire and our customers would like to hire. It's a challenge. People are doing it, but if housing picked up 25% year-over-year, I think it would be a bigger challenge. If it picks up 15% to 20%, that's kind of what Wayne was saying, is how much can it pick up. And I think everyone's scrambling to do it, may have to pay a little bit more in wages, but they are able to do it.

And that's part of why, when we did the IPO, we said we thought it was $150 million to $200 million. And we know some people had some more robust forecasts. But when we think of the availability of skilled labor and, frankly, the availability of a number of people in the chain to get access to incremental working capital, we think it will be difficult for the industry to come back at a pace that's much faster than that, even if the economy was there and you had the demand from a household formation standpoint.

Our next question is a follow-up question from George Staphos from Bank of America Merrill Lynch.

Guys, one question I had for you. Could you remind us, are there any corporate expense or expense factors overall that we need to be mindful of given Packaging Corp.'s purchase of Boise Inc. and what that might mean for the shared service arrangement? Or is it a non-event for you at this juncture?

George, the shared service arrangement we had with Boise Inc. and now Packaging Corp. is continuing on pretty much unchanged. I think in the valuation that the Packaging Corp. did of the cost, I think they will continue to support that, and we don't anticipate any significant change.

Okay. How long does that agreement run, Tom, could you remind us? Is it another 2 years?

Well, it's kind of a 1-year renewal kind of Evergreen going forward. So -- but there are -- I think there's enough financial incentive in lower cost for both sides. We're going to -- both parties will be working pretty hard to keep it going.

Okay, fair enough. You had mentioned during your comments, I forget the exact phrasing, but that you will be continuing to look in 2014 at moves that could increase shareholder value. And there are obviously the garden varieties, ways that one could do that. Could you provide a bit more clarity in terms of what was behind that comment?

Sure. We continue to look for opportunities to grow our businesses through M&A and other activities. We focus on what we are comfortable that we can execute on, and we always have to focus on valuation and make sure something that we do, do, does add value to the shareholders. And we're very pleased with what we did do in '13 with the acquisition of the 2 plywood plants.

Fair enough. And so the conclusion and then referencing, I guess, what you said earlier, clearly, you view M&A right now, if you could find the right acquisition, as creating more shareholder value than, say, repurchasing shares. Would that be a fair conclusion as well?

That would be the conclusion of our priorities, yes.

Okay. And I guess the last question for now, maybe for Nick and for Wayne, the company's free cash flow generation for the year was at least in line with our forecast. And we know that, given where we are in the cycle, the continued investment that you're going to need to make in BMD will be a hindrance to the company generating more free cash flow. As you sit here today and realizing there's a lot of circularity around this because it's driven by pricing, it's driven by the economy, it's driven by the recovery, when do you think we should be looking at a relatively significant improvement and positive free cash flow for the company as a whole?

Yes. I would expect that to be a better number this year, particularly with the improvement in EBITDA. We are very pleased with the progress we've made on the pension side in '13. So when I think about what are -- what we anticipated for pension funding obligations into '14 and '15, that's a better situation today than it clearly was when we started early in '13. And I think as the growth rate in BMD slows, you will see that the free cash flow generation out of that business pick up substantially, because right now we're funding working capital increases to support continued growth of the business and more and more receivables in inventory, to the extent the inventory's not set off by payables. So I think we will have better free cash flow generations in '14, and I would expect that to pick up significantly as we get into '15 and '16.

Okay. And last question, are there any changes at this juncture in terms of the incremental margin targets you put out in the past for BMD, even with the hiccup in -- earlier in the year, you had a very strong year there and better than our expectations.

Yes. I mean, when I think about incremental margins in BMD, I think it's probably still in that 4% to 4.5% range. And again, a lot of that will depend on the amount we see in directs, in terms of how that shows up in the gross margin versus the expense line. So if we see more directs on commodities, I would expect the gross margin percentage to come down. But the flip side is we won't need as many incremental handlers and people in the yard, so you expect to see that same leverage number on a net basis.

I'm not showing any further questions at this time. I'd like to turn the conference back over to our host.

Thank you, and thanks, everyone, for their questions and your support of the company. If you have any follow-up questions, please feel free to give us a call. Thanks.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.