Boise Cascade Company (BCC) Q3 2014 Earnings Report, Transcript and Summary

Good morning. My name is Kate, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Boise Cascade Third Quarter 2014 Conference Call. [Operator Instructions] Before we begin, I 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 these results anticipated, please refer to the Boise Cascade's recent filings with the SEC. It's now my pleasure to introduce to you Mr. Wayne Rancourt, Senior Vice President, CFO and Treasurer of Boise Cascade. Mr. Rancourt, you may begin your conference.

Thank you, Kate. Good morning, everyone. I'd like to welcome you to Boise Cascade's Third Quarter 2014 Earnings Call and Business Update. Joining me on today's call are Tom Carlile, our CEO; Tom Corrick, Head of our Wood Products operations; and Nick Stokes, Head of our Building Materials Distribution operations. Turning to Slide 2. I'd point out the information regarding our forward-looking statements. There is an appendix in the back that includes reconciliations from our GAAP net income to EBITDA for those that are interested. And with that, I will turn the call over to Tom Carlile.

Good morning. Thank you for joining us for our earnings call today. I'm on Slide 3. Both of our businesses performed well in the third quarter as demand continued to improve modestly with economy and housing slowly recovering. We reported $983 million of sales in the third quarter, up 12% compared to third quarter 2013. Our net income was $32.3 million or $0.82 per share. Similar to the second quarter, Wood Products generated strong sales volume growth in Engineered Wood Products. Wood Products plywood sales and earnings benefited from strong pricing in our acquisition last September of 2 plywood operations in the Carolinas. Distribution sales grew more modestly with gross margin expansion contributed to solid earnings leverage. The tone of the business remains good as we start the fourth quarter. The pace of recovery in housing has been slower than we would have expected 12 or 18 months ago. However, the trajectory is still favorable, and the consensus for 2014 is for growth in residential construction to move toward 1.2 million starts. Our expectation is for a return to long-term trend levels of 1.4 million to 1.5 million U.S. housing starts as the economy continues to grow and employment continues to improve. With that overview, I'll ask Wayne to cover the detailed financial results.

Thank you, Tom. Turning to Slide 4. Wood Products third quarter sales, including sales to our Building Materials Distribution segment, were $356 million, up 26% compared with last year's third quarter. The sales growth was driven primarily by plywood and EWP sales volume and price increases. Improved lumber, particleboard and byproduct sales also contributed to the positive revenue comparison. Wood Products' third quarter EBITDA was $51.3 million, more than double the EBITDA in the year-ago quarter. Overall, the increase in EBITDA was due primarily to higher plywood, EWP and lumber sales prices and higher plywood and EWP sales volumes. The improvement in EBITDA included $5.1 million related to the acquired plywood operations. Building Materials Distribution sales increased 7% to $773 million for the third quarter compared with the same quarter in the prior year. The sales increase was driven by a 4% increase in sales volume and a 3% improvement in sales prices. BMD reported EBITDA of $23.5 million. The earnings result was 17% better than last year's third quarter when BMD posted EBITDA of $20.1 million. The earnings improvement resulted from the combination of higher sales activity and higher gross margins. As Tom mentioned, total company net income was $32.3 million for the quarter or $0.82 per share. Our effective tax rate for the quarter was 36%. Turning to Slide 5. Our third quarter plywood sales volumes in Wood Products were up 15% with the impact of the September 2013 plywood plant acquisition. However, our plywood sales volumes declined from the second quarter. We continue to sell a portion of the production from the acquired plywood facilities as high-strength veneer, which doesn't show up in the plywood sales data. Also we have migrated additional internally produced veneer in Oregon, Louisiana and the Carolinas into our EWP production as demand for EWP improves. Finally, our plywood sales volumes in Wood Products include plywood we purchased from third parties for resale into the home center channel as part of balancing our sales mix. Those purchases in resale volumes have declined significantly since the first quarter this year. Our $335 average net sales price per plywood was up 11% from third quarter 2013. With strengthening demand for plywood and more veneer flowing into engineered wood production, we are continuing to see strong operating rates in our veneer and plywood operations. Turning to Slide 6. Our third quarter sales volumes for LVL and I-joists were up 20% and 12%, respectively, compared with the year-ago quarter. We continue to experience demand in the third quarter above what would be indicated by solely looking at the housing start data. Production statistics reported to APA indicate that others produced at similar levels. We believe some of the demand we experienced in third quarter may be the continued reaction to price increases we announced in second quarter, transportation disruption being felt generally in the truck and the rail area and longer lead times on mill order files during July and August. Our LVL and I-joist sales price realizations improved 5% and 8%, respectively, from the year-ago quarter and were up 2% and 3%, respectively, from second quarter 2014. We believe we will be able to further increase prices and operating margins on Engineered Wood Products in 2015 as our capacity utilization rates move higher with increased housing starts. On Slide 7. BMD's third quarter sales were $773 million, up 7% compared with the year-ago quarter. BMD sales of EWP increased 13%. General line product sales increased 10%, and commodity sales increased 3%. As I mentioned earlier, gross margins improved by 40 basis points compared with last year's third quarter, which together with the sales growth drove the improved EBITDA performance of $23.5 million. It was encouraging to see BMD's EBITDA margin back at 3% in the quarter. On Slide 8. We've set out the key elements of our working capital. Company net working capital, excluding tax-related items and accrued interests, decreased $20.5 million during the third quarter. Inventory levels and accounts payable each declined by over $20 million during the quarter in BMD while Wood Products inventories were up by $9 million. 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. On Slide 9. We generated $40.1 million of cash in third quarter and ended the quarter with total available liquidity of $498.2 million. Our cash balance and borrowing capacity have us very well positioned to support the additional growth in both businesses in the year ahead. Tom, I will pass back to you to wrap up.

Thank you, Wayne. As I mentioned earlier, the consensus estimate for 2014 total U.S. housing starts is slightly over 1 million, which would be up about 9% from the 2013 level. 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 opportunities the market presents. While we expect seasonally lower demand in the fourth quarter, I am cautiously optimistic about the overall housing activity for the remainder of the year and 2015. We also expect to see additional operating improvements from our Boise Improvement Cycle management process in manufacturing. EWP sales, volumes and prices are on an upward trend as housing recovers, and we expect further revenue and earnings growth in our Distribution business. In addition to the leverage we'll get from our existing businesses, we will continue to seek out favorable opportunities to grow the company and ways to create additional shareholder value. Thank you again for joining us on the call this morning and your support as investors. We would welcome your questions at this time. Operator, would you please open the phone lines?

[Operator Instructions] Our first question comes from the line of George Staphos with Bank of America Merrill Lynch.

I guess the first question I had, do you think that LVL relative to I-joist demand is seeing any incremental pickup perhaps relative prior expectations you might have had from multifamily? Or do you think multifamily would be impacting both products equivalently?

George, this is Tom Corrick. I would say that we've certainly put an increased focus into multifamily over the last couple of years, both we and our distribution group. And there's no question we're selling a lot more wood into that segment than we historically have. I would say that I don't really see a particular trend that would favor I-joists over the LVL beam products. I think we're seeing both those products move into that segment pretty aggressively, and I think they're pretty equally balanced.

Okay. The second question I had, if we look at the incremental margin in BMD, it was quite good. I think it was 6.5% or 6.6%, which I think is a little bit higher than you normally would target. And I'm guessing that a lot of that was the EWP sales flow-through in the business. Could you affirm that or correct that view in terms of what was driving the incremental margin there?

George, this is Nick Stokes. If you think at both the gross margin level and the statistical information as well as the net return on sales margin, the third quarter had a number of things that contributed to that. Favorable commodity pricing, relatively stable through the quarter with a little bit of uptick after a downward trend. And so no big negatives there. We did have, to your point, a nice mix of segments and products that generated a little more margin. You see the EWP numbers, you see the general line numbers, strong. And quite frankly, we had a little bit of a shift away from direction to warehouse in the quarter. So all those things drive both the gross margin and the return percentages. Certainly, as BMD sales continue to grow over the next little bit, driven by housing, we'll continue to get leverage on fixed costs.

Okay. The last question, at least in this round, I'll turn it over, how would you assess your inventory in BMD and your working capital positioning? Are you at a normal level of inventory for this stage of the cycle for this level of pricing? And what are your expectations for demand and pricing? And how are they affecting your inventory positioning going into 2015?

This is Nick again. I'm very comfortable with our inventory position, given our current level of sales. Certainly, as the fourth quarter rolls through, there is a seasonal component to our business, and we expect those inventories to adjust. Typically, there are some products that we buy in ahead of the season, some of the seasonal products. And I think you'll see our inventories build as they normally do. The second part of your question in terms of the commodity impact and the expectation of pricing there, I would remind everybody that our sales and inventory positions on commodities are really profit motivated. And we've got the ability to react to buy windows, and we take advantage of those when and where they are. Expectations of pricing, you'll have to pick an expert, not us.

Yes. And to echo on Nick's standpoint, you would not see us buying large positions in commodities and trying to bet on prices. We're really trying to make sure we can provide service to our customers. And so you won't see us swing our commodity positions and inventories wildly based on expectations around price.

Our next question comes from the line of Ketan Mamtora with BMO Capital.

Just a couple of quick ones. There have been some discussions about your biggest competitor in plywood looking to restart a mill. There has also been an EWP mill that has started up this year. Can you just comment about what you are seeing out there in terms of potential restarts that could come over the next 12 to 18 months?

This is Tom Corrick again. The 2 restarts you mentioned are the only 2 that we're aware of. In both the EWP universe and the plywood universe, virtually all the capacity in the industry is online and running today, so there's really very little opportunity in either of those segments for significant additional offline capacity to come back on.

Okay. And then can you talk about just the M&A environment right now and if seller expectations have changed over the past 12 to 18 months?

Yes. As we've said in the past, we look to grow our company. And as we think about our capital allocation, growing our company through M&A and internal is the top of our list. I don't think the environment has changed. The valuations are still very strong, and we're cautious when we look at opportunities on the valuation side.

Got you. And then one last one, can you talk about log price trends in the third quarter and what you're seeing in the fourth quarter thus far?

Yes, this is Tom Corrick again. I think that if you look back over the course of the year, particularly on the West Coast, there were some pretty strong increases early in the year that moderated in the second and third quarters. Right now, the South has actually been pretty stable this year. The West is up some but probably not as much as it was earlier in the year. And given the fire situation and firewood that's coming in, things feel pretty stable right now.

Our next question comes from the line of Adam Rudiger with Wells Fargo Securities.

I was wondering if you could provide a few thoughts on the dynamics in plywood pricing. I was wondering if the -- the spread, it looks like to me, between OSB and plywood is pretty elevated right now. So I was expecting that to put a little bit more downward pressure on pricing. But then can you talk about the potential impact, as you mentioned before, about the plywood going into the EWP that might offset that? Can you just talk about those dynamics and how you think those pushes and pulls will -- could impact plywood pricing?

Adam, this is Wayne. When we think about plywood pricing, really if you go back over the last 10 or 15 years, plywood lost a lot of the new home construction market to oriented strand board, and there was a lot of plywood capacity that was permanently shut down during the 2000 to 2009 period. And a lot of that, as you know, on the EWP side was supporting the EWP business. And as housing came off, you had OSB taking share, you had EWP in a major downturn as housing came off from 2 million starts to 554,000. So the industry really had to restructure on the plywood side. And coming out of the downturn, we've actually had really good capacity utilization in plywood since the second half of 2012, and that capacity fundamentally went away. So if you look at where the idle capacity today, it's sitting with Georgia-Pacific, and they've announced some capital improvements, and they announced a potential restart in late '15 of a facility. But right now, it's running high operating rates. As Tom Corrick mentioned, in most of the facilities in the industry, Georgia-Pacific does have idle capacity, but we are continuing, including in our own situation, pulling much more veneer into the engineered wood arena. And we think what's one of the things that is adding to a high-operating environment. And then you had on the West Coast -- and again these are more emotional events in some cases than they are long-term impacts on the industry. But there was a fire that took place at a facility that Swanson owns in Oregon in the July, August time frame that really added to the order files and push prices in August. And if you look at where we are on pricing today, it's down modestly at the beginning of October from where the average was in third quarter. But it's basically in line with where we ended up September. So plywood continues to have very good supply-demand fundamentals, and we think that will carry through into '15.

Okay, that's helpful. And then in response to one of the answers to the previous question about the M&A activity, it sounds like it's been difficult for a while to find acquisitions, and your liquidity is only getting stronger and you've been asked -- I guess, can you comment on any changes for potential events in 2015, where you might look to give some cash back to shareholders?

Well, Adam, as you would expect and hope as we talk with our board at every board meeting and review our capital allocation decisions, our priority remains M&A. We have capital opportunities within our existing businesses. And then at the appropriate time, we'll discuss and make a decision on returning cash to shareholders.

Our next question comes from the line of James Armstrong with Vertical Research Partners.

Coming back to the M&A side, where are you focused on M&A more right now, the Distribution business or the Wood Products business? And additionally, would you be against expanding into OSB if the right opportunity came along?

James, we focus on both businesses and anything that could be accretive to our existing business and add shareholder value. All of those things that you mentioned, we'd consider.

Okay. And then just switching to the Distribution side, while you were going public, you spoke that you could use your balance sheet to grow your distribution business as the market improves. Do you -- are you continuing to do this? And do you believe that you're gaining market share in Distribution as the market recovers?

Yes. I think the biggest thing we pointed to -- and Nick and his team have done a great job this year on working capital management. But we had guided when we did the IPO that on top line revenue, we would expect working capital to be about 10% of the revenue increase. So if you think about top line revenue growth, the $300 million or $400 million, you're looking at $30 million to $40 million on working capital. And that's where we thought we had a real advantage from a balance sheet strength and available bank capacity. And as I say, Nick and his team have done a great job this year on working capital, and we haven't seen quite as much expansion as I would have anticipated. But yes, we are continuing to try to broaden the product line. We're moving in. We've opened a new distribution center in Kansas City to take advantage of a sales presence we had there that we'd been servicing out of Tulsa. And I think you'll continue to see us try to grow the top line revenue in BMD very thoughtfully but aggressively organically. And that's going to be by adding product lines and going into adjacent geographies if we can't find acquisitions at a multiple that makes sense. And we think our balance sheet gives us a real advantage versus some others that we see laterally at our level in the distribution chain, and there are some other dealers in the chain lower than us that we know are constrained in terms of working capital availability. And that will make it more of a challenge for them to grow revenues organically. And we think we're very well positioned to do that.

Okay, that's helpful. And then lastly, as you look in terms of building panels throughout the market, both OSB and plywood, what are you seeing in terms of inventory as we go into the year end? And do you think inventory levels throughout the system are appropriate?

Right now, we don't see anything that's unusual in inventory. I think one of the things, and Tom Corrick touched on this, if you look at where our order files are and lead times are right now for plywood, if you're somebody on the East Coast ordering plywood, just given where order files are, a lot of this stuff is going to roll out and you're probably not actually going to get physical delivery till late November, early December. So when we think about where inventories are, at least on the panel side, we feel pretty good.

Our next question comes from the line of Steve Chercover with D.A. Davidson. Steven Chercover - D.A. Davidson & Co., Research Division: I don't know if you touched on some of these, but what are the operating rates in Engineered Wood presently?

Yes. Basically, through the course of the year, we've been -- actually, the last couple of quarters, probably in the range of 70%, Steve. And seasonally, we're backing down a bit right now, which would be typical because we do not want to overbuild inventory in the wintertime. Steven Chercover - D.A. Davidson & Co., Research Division: Got you. So it's by diverting veneer that you'll get up to the higher operating rates.

Yes. Steven Chercover - D.A. Davidson & Co., Research Division: And did you enjoy the full benefit of the price hikes in the third quarter? Or is there any left to trickle in, in Q4?

There's still some to come. Steven Chercover - D.A. Davidson & Co., Research Division: Can you quantify that in terms of [ph] percent?

Well, if you think about it, when we announced in June, we said that we did a price increase, depending on the product, somewhere around 5% to 6%. And so if you look at our realization change second quarter to third quarter, about half of that showed up in third quarter. And we think the balance of it will show up over fourth quarter and first quarter. Steven Chercover - D.A. Davidson & Co., Research Division: Great. And I guess my other question has been basically covered. But unless something's changed, my understanding is your primary growth objective is to -- is in the veneer-based businesses. And unless people have recalibrated their expectations, it's probably going to come via modest CapEx in lathes and dryers. Is that still appropriate?

Steve, that's clearly one of the options. And we have the assets and ability to build on that, particularly with our acquisition of the 2 plywood plants in the Southeast. So our capital will be focused on further growing our veneer capability out of existing facilities plus looking at other opportunities in the Panel business and the Distribution business. Steven Chercover - D.A. Davidson & Co., Research Division: And at what stage do you think the board might contemplate returning capital to shareholders if you can't find any kind of bigger game on the acquisition front?

Steve, the board is very responsive, and we talk about it every board meeting, yes.

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

I just want to piggyback on your answer to Steve's question just there. So if you're debottlenecking or diverting veneer capacity, wouldn't that have the effect of actually increasing your outputs [ph] in plywood, right, because you're trying to increase your ability to produce more on LVL and I-joist ultimately?

Yes. I mean, what -- you hit on exactly the point. When we think about veneer, that's really the raw material for either plywood or engineered wood. And so if you look at our capital execution over the last 4 to 5 years, it's really been around the dryers in our mills because that is the bottleneck to be able to produce veneer if you look at our production system generally. And so what we've been trying to do with projects in Oregon, projects in Louisiana and one, frankly, that we'll be working on fourth quarter of this year and into the first 2 quarters of next year, at the Chester, South Carolina, facility, it's really around generating incremental internal veneer, not with a view that it's going to go into plywood but feeding the bear on the EWP side because the volume growth in EWP this year been very good despite the slowdown in housing starts or the rate of growth in housing starts. And as we look towards the 1.4 million, 1.5 million number, we've got work to do between now and when we get to those levels to increase veneer production if we want to maintain the high internal self-sufficiency that we enjoy today. And that's really what we're after. So the restarted facility we did in Western Oregon this year, the dryer project we did in Oakdale, Louisiana, the one we're doing in Chester, those are not around trying to increase plywood production. But what we're trying to do is not cannibalize plywood production as we get an increasing demand for veneer in the EWP.

That makes sense. The segue to that question, could you remind us again why you don't think this outsized demand increase in EWP relative to starts is not a function, at least in part, of prebuying? And I guess, the other way to ask the question is -- and you went through a couple of points, which can review it. But where is all this stuff going in terms of demand relative to housing?

Yes, we actually do think -- and Corrick can share some information with you. We do think there's prebuying that has gone on. And as I said, July, August from a transportation and just an operating basis was challenging because the volume increases that we saw in July and August were very strong. And, again, we think that was driven by the announced price increase and people trying to get ahead of that. So we do expect some giveback on second and third quarter as we move into fourth quarter. And so I would like, maybe, Tom, share...

Yes. One thing I would add, as you go back and look at it, about 10% of our third quarter sales in EWP were orders that were made in the second quarter before the price increase that we had extended file on, that under normal service policy would have shipped in the second quarter. So there's clearly some impact there. I think what we can see right now is we can see in the APA data that the production in the industry is up similarly to our sales, and -- but the data we have for our competitors is production-driven, not sales-driven. And so there's always the intermediate impacts of inventory and those sorts of things that we really can't assess right now. We're watching closely. Obviously, 2 quarters in a row, I don't think you can call that a trend. But it's certainly -- demand has been strong in the last 2 quarters for sure.

Okay. But certainly, from your inventory levels, I mean, you're one portion of the universe here. You don't think that you have an outsized inventory build in your EWP products within BMD?

No.

Okay. One ticky-tack question, I noticed that lumber pricing sequentially dropped, if I was reading your appendix detail correctly from 2Q to 3Q. And I thought the broader market, and the indices, anyway, were up. Correct me if any of that was wrong in terms of what I just relayed. And if that was correct, what drove the lumber pricing sequential decline?

Well, that was correct. And basically, if you look at the lumber indices, those are primarily driven around dimension lumber products. And we're not in the dimension lumber business, we're in the appearance [ph] ponderosa pine business primarily. And so very different dynamics in that business than for the dimension producers. Clearly, with the fire sales this year and strong pricing in ponderosa pine, I think on the margin, some of our competitors were producing incrementally into that market this summer.

Our next question comes from the line of Alex Ovshey with Goldman Sachs.

On Distribution, as we were getting to know the business 18 months ago, we were talking about a normalized EBITDA margin in Distribution of 2.75%. And the last 2 quarters have been around 3%, and over the last 4 quarters at 2.4%. So still below that 2.75% number, but obviously housing starts are well below normal levels. And so my question to you guys is as you think about this 18-month stretch in Distribution, has the margin profile been a little bit better than what you expected it to be? Or is it pretty much in line with how you thought it would play out?

It's pretty much in line. When we've been giving guidance, what we've been telling the market, and we still believe, that we will normalize mid-cycle at a margin somewhere around 3% on an EBITDA basis. And when you think about that, what we're really focused on in that business is return on investment. So to Nick's point about the sales mix moving and that changing the gross margin and frankly changing the handling cost if you're handling more EWP and more general line products, you're going to have higher payroll and delivery cost potentially. And what we're really focused on is return on investment. So when we think about that business, we think about gross profit dollars, less operating cost as the numerator of the fraction and investment as the denominator. And so when we are guiding people to that 3% EBITDA margin, we're thinking about what we've seen historically on inventory turns, inventory to payables ratios, et cetera, and what our investment is in the real estate. So if we find over time that we're successful in morphing the business and broadening product lines on things that have slower turns and require more storage, then I would expect our EBITDA percent to go up as a percent of revenue to cover the cost of the investment. And as Nick said, if we move more commodities on a direct basis, I would expect gross margins to drop. I would expect operating expenses to drop. And, frankly, I would expect the inventory levels to drop and the investment levels to drop. So -- and then if you overlay on that what Nick mentioned on seasonal variation, we've got a couple products like decking that are very heavy the second and third quarter. And we would prebuy and inventory those in the first quarter, so that you can get changes in the sales mix depending on the season as well. But, again, we're very much focused on that business on organic revenue growth and appropriate returns on investment. And we've got a culture and a system that we think has been very effective at executing against that top goal.

Got it, Wayne. That's great color. The other question for you guys is there's a lot of discussion about the potential for dropping paper assets into MLP structure. I mean, if you actually look at the history, maybe a better case to be made for Wood Products assets. So the question is have you guys given any thought whether or not it would make any sense for you to consider an MLP structure for any parts of your Wood Products business?

Yes, we've given it a fair amount of thought without spending a bunch of money to look at it. And let me give you a couple of the fundamentals we think about when we think about the MLP issue. One, the way we're built up today between the manufacturing and the wholesale distribution business, we think adds enormous value. And when we think of the flow with customers, there's really not a bright line between the 2 organizations in how they go to market and the way they work together. And one of the potential downsides in the MLP structure is we think we could only drop manufacturing assets, not distribution assets. So you would, by necessity, create a legal barrier between the 2 halves of our business. The other piece that probably makes it less attractive from my standpoint, where we're sitting today, is this has been a historically cyclical business. And particularly coming out of the depths of the downturn we went through in 2009 and '10, we think we're on a trajectory upward, and that's a better platform. But if I had to go out and pitch an MLP-type yield security today, my guess is the yield I would have to promise investors to make that an attractive opportunity would be relatively punitive. And I'm not at all sure that it would execute very successfully in the market. And, again, in terms of our growth, the things we want to do on the M&A front, things we want to do internally, we think we've got better places for the cash today to maintain that flexibility. And we really think if we did an MLP structure, we'd give up a lot on the operating side and a lot on the growth side. So it's one that we're paying attention to. I would liken it to the black liquor tax credit on the paper side. If somebody figures it out and it gets a good response in the market, we can be a fast follower. But we're not out spending a lot of time trying to invent the wheel.

Okay. Yes, great color. And maybe just one last one. On capital allocation, I'm curious what the appetite may be for a variable dividend. And so if an M&A opportunity doesn't come up and share buyback, for whatever reason, may be not as interesting, is there much appetite to just at the end of the year say, "Hey, you know what, x amount of cash is built up, and we'll give that back to our investor base"?

Yes. Tom has touched on this capital allocation question a couple of different times, so let me try to answer the question a little bit differently. And I appreciate the question from everybody because it's one that we -- as Tom said, it gets a lot of focus at the board level. We go through updates every quarter on what we're seeing within quarters on M&A activities, things we're chasing. And we have the exact conversation you're describing of, is the best form to return it to shareholders? Once we've concluded that we want to do that, is the best form going to be share repurchases? Is it going to be initiating a regular dividend at a modest level? Or is going to be some kind of a special dividend? And I would tell you our internal thoughts as well as the feedback we've gotten from investors is in doing a special dividend, where there's not some quantitative metric that the market can look at in terms of setting expectation when it will be paid, the feedback we've gotten from investors is that it's not -- unlikely to get much value into the stock and be beneficial to shareholders. So if you said today in terms of order of preference in returning capital to shareholders, the internal debates are around regular dividend and share repurchase. We're not having a lot of internal debates. It's on the list, but there's not a strong group in either camp around -- there is a camp around dividend and there's a camp around share repurchase. There's not a large constituent in that argument fighting for a special dividend without some kind of formula around it.

[Operator Instructions] Our next question is a follow-up from the line of Ketan Mamtora with BMO Capital.

When I look at BMD sales, I notice that EWP and General Line was up quite nicely. However, Commodity sales were up just 3%. Can you talk about what happened there? And how does that impact your margin?

Yes, this is Nick Stokes again. If you think about the Q3 '13 to the Q3 '14 comparison, I would remind everybody that in the environment that we had in the third quarter of '13, we had just come off a severe quarter-long decline in commodity prices in the second quarter of '13. And if you look at the pricing trends in the third quarter of '13, they were positive and robust. And to some degree, that was a real opportunity for BMD to generate both volumes and profits as much of the supply chain and most importantly, our customers felt it a time to reload. So I think to some degree, you're comparing the third quarter of '14 against that environment, and those dynamics just didn't exist this year. If you think about the volumes associated with that, as I mentioned earlier, the Commodity business generally is lower margin than EWP and the General Line business. But having said that, there's opportunity for profits, and that's how we manage and run it.

Got you. That's helpful. And then can you just update us with where you stand on the fiber supply agreements?

Yes. We have fiber supply agreements that started in 2005, when we sold our timberlands to Forest Capital. That has since been split between Hancock, a timberland investment organization named Molpus and Rayonier. And we've had notice from all 3 of those parties that they're going to terminate that 10-year contract that started in '05 and ends this year. We continue to have a commercial relationship with all of those parties and would expect that into '15. And in a number of cases, we've bought significant volumes outside the contract from those parties on an ongoing basis, even when that contract was in place. So at this point, we're not expecting those contract expirations to have many measurable impact on our pricing or volume availability into '15. And in a number of the regions, you'll see on the balance sheet an increase in our timber deeds. We've done some things within the regions to make sure that as we go into '15 that we are able to wood the mills efficiently and not see degradation in our cost position.

Okay. So the pricing on the contracts that you had up until now was market-based? Or was it derived some other way?

Basically, market-based, and it varied by region of the country. But generally, quarterly resets. And it was one of these "bring your data, we'll bring our data," but it was intended to replicate market.

I'm not showing any further questions at this time. I'd like to turn the call back over to management for closing remarks.

Thank you for your interest today. Thank you for being investors. And if you have any follow-up calls, please give us a call. Have a good day.