Weyerhaeuser Company (WY) Q3 2013 Earnings Report, Transcript and Summary

Good morning. My name is Natalia, and I will be your conference operator today. At this time, I would like to welcome everyone to the Weyerhaeuser Q3 2013 Earnings Call. [Operator Instructions] I would now turn the call over to Ms. Kathryn McAuley, Vice President, Investor Relations. You may begin.

Thank you, Natalia. Good morning. Thank you for joining us on Weyerhaeuser's third quarter 2013 earnings conference call. This call is being webcast at www.weyerhaeuser.com. Please review the statements -- the warning statements on our press release and on the presentation slides concerning the risks associated with forward-looking statements, as forward-looking statements will be made during this conference call. On the call, we will discuss non-GAAP financial measures. A GAAP reconciliation can be found in the earnings materials, which are on our website. Discussing third quarter 2013 this morning are Doyle Simons, Chief Executive Officer; and Patty Bedient, Chief Financial Officer. I will now turn the call over to Doyle. Doyle?

Thank you, Kathy. Good morning, everyone, and thank you for joining us for today. It's been a busy almost 3 months since I joined Weyerhaeuser, and as I've said before, I'm excited to be here. This morning, I am pleased to report solid third quarter earnings of $157 million or $0.27 per diluted share on net sales of $2.2 billion. This is a 34% increase in earnings compared with third quarter 2012 and a 28% increase in adjusted EBITDA compared with year-ago levels. Let me now turn to our business segments, starting with Timberlands, Charts 2 to 4. Timberlands contributed $118 million to earnings in the quarter, up $4 million from second quarter 2013 as the contribution from a partial quarter from the Longview Timberland acquisition mostly offset a smaller-than-expected seasonal decline in earnings from the company's legacy Western operations. In addition, non-strategic Timberlands dispositions were up modestly in the quarter. In the West, log sale realizations were down in both domestic and export markets. Fee harvest from legacy Western lands was seasonally lower and as expected, road and silviculture expenses increased in the quarter. In the South, log sale realizations in the third quarter were flat compared to the second quarter and fee harvest volumes were up modestly. We continue to be excited about our acquisition of the Longview Timberland and are fully engaged in leveraging our silviculture, logistics and marketing expertise to realize the full potential of this outstanding asset. This transaction closed on July 23 and contributed $16 million in earnings and $26 million in EBITDA in the quarter. Going forward, we will be focused on maximizing the earnings and cash flow from all our Timberlands. Wood Products, Charts 5 and 6. Wood Products contributed $79 million to earnings in the quarter, down from $136 million in the second quarter, but above the $59 million of earnings from third quarter 2012. Average sales realizations for OSB declined 26% in third quarter 2013 compared with second quarter 2013, and realizations for lumber fell by approximately 7%. The effect of these lower prices was somewhat offset by higher sales volumes across all product lines and lower log cost in the West. Adjusted EBITDA in the quarter was $110 million. In lumber, EBITDA was down $26 million in the third quarter compared with the second, as lower prices were partially offset by higher volumes and lower log cost, especially in the West. In our lumber operations, we are focused on continuing to drive down our cost structure and improve our margins. In OSB, EBITDA was down by approximately $42 million in the quarter compared to second quarter as significantly lower prices were partially offset by higher volumes and lower fiber costs. We continue to be focused on lowering manufacturing cost and delivering high margin products to our growing customer base in this business. Engineered Wood Products generated EBITDA of $16 million in the quarter compared with $7 million in the second quarter of 2013. This improvement was due to higher prices in volumes and lower costs. We are committed to continuing to improve the operating performance of this business. The Distribution business remained challenged in the quarter as it worked through higher-priced commodity inventory. We expect improved results from this business in the fourth quarter due to our performance improvement initiatives. Cellulose Fibers, Charts 7 and 8. Cellulose Fibers contributed $47 million in the quarter, down from second quarter 2013 as higher-than-anticipated costs associated with the scheduled shutdown of a liquid packaging board facility, higher fiber costs associated with wet weather in the South and higher chemical costs in the quarter more than offset slightly higher pulp realizations due to mix. We are focused on 3 priorities in this business: first, we will continue to drive down our cost through operational excellence; second, we will focus on developing new specialty products to improve our margins; and finally, we will continue to support our growing global customer base. Our ramp up of our new modified fiber facility in Gdansk, Poland is going well. Real Estate, Charts 9 to 11. WRECO reported solid results as Real Estate contributed $33 million of earnings in the quarter, more than double the contribution during the second quarter. Single-family closings increased seasonally by nearly 21% over the second quarter, and margins improved to 22.3% as margins increased due to previously implemented price increases. As Patty will share with you in more detail in just a moment, we expect a very strong quarter in this fourth -- we expect a very strong fourth quarter in this business with closing volume increasing nearly 50% in the fourth quarter compared with the third quarter. In a moment, I will come back with some general comments on markets, but let me now turn it over to Patty to specifically address our fourth quarter outlook.

Thanks, Doyle, and good morning, everybody. The outlook for our fourth quarter earnings is summarized on Chart 13, and I'll begin the outlook discussion with Timberlands. In the West, export realizations are expected to be comparable to the third quarter on higher sales volume, primarily as a result of including a full quarter's operation of the Longview acquisition. Domestic realizations are expected to increase slightly. Lower sales volumes from our legacy Western ownership will be offset by increases from the Longview acquisition. Fee harvest in the West is expected to increase by about 10%, and Longview accounts for most of this increase. Costs are anticipated to be lower in the West due to decreased silviculture spending. In the South, realizations are expected to be slightly lower due to mix. Fee harvest is expected to increase on a seasonal basis. Logging costs are anticipated to increase due to a slightly longer hauling distance this quarter. Silviculture costs will also increase due to the timing of treatment. Sales of non-strategic Timberlands are anticipated to be modestly lower. Overall earnings in the Timberlands segment are expected to be comparable to the results in the third quarter. In Wood Products, the fourth quarter is traditionally one of the weakest earnings quarters of the year as we close out the building season and mills prepare to perform minor maintenance and capital projects during the slower holiday season. As a result, we expect to see lower sales volumes across most product lines and flat to potentially softening prices as we progress through the quarter. We continue to focus on controlling inventories and matching supply with demand while driving further operational improvement. We anticipate that log costs will increase in both lumber and oriented strand board. Earnings in the Wood Products segment are expected to be lower in the fourth quarter compared to the third quarter, but still above the $38 million we earned in the fourth quarter of last year. In Cellulose Fibers, pulp realizations are continuing to move up, and shipment volumes are also expected to increase modestly. Worldwide inventories of softwood pulp are well-balanced and exchange rates are favorable. Maintenance expense should be lower as we have fewer days planned for maintenance outages. We anticipate higher productivity and decreased chemical costs during the quarter. We expect that earnings in the Cellulose Fiber segment will increase significantly during the fourth quarter compared to the third. In Real Estate, we opened 8 new communities in the third quarter, and we expect to end the year with a community count in the mid-80s, which compares to 62 communities at the end of last year. At the end of the third quarter of this year, our backlog of homes sold but not closed was 1,435, an increase of 36% compared to a year ago. Although we have seen some weakness in consumer confidence, driven by the current uncertainty of governmental actions, we continue to believe that we will see improved results as housing recovers. During the fourth quarter, we expect to close over 1,100 homes or approximately 35% higher than the fourth quarter a year ago. The average price per closing is projected to be higher than the third quarter, with gross margins between 21% to 22%. Selling costs will increase as a result of the additional closings. We also expect earnings from land and lot sales to be comparable to the third quarter. Overall, fourth quarter earnings in our Real Estate segment is expected to increase significantly compared to the third quarter. I'd like to touch on unallocated items, and unallocated items are shown on Chart 12. During the third quarter, we had a very large positive adjustment for the elimination of intersegment profit in inventory and LIFO. This is the result of reductions in inventory, primarily in Wood Products. We do not expect the fourth quarter adjustment to be of the same magnitude. Now I'll wrap up with some overall financial comments. I'll be referencing numbers on Chart 14 for these comments. We ended the quarter with a cash balance of approximately $900 million, comparable to the second quarter, excluding cash associated with the financing of the Longview Timberland acquisition. In July, we purchased the equity of Longview Timber for $1.58 billion in cash and assumed debt of approximately $1.1 billion. During September, we issued $500 million of new debt, and earlier this month, we borrowed an additional $550 million under a term loan, which, together with cash on hand, were used to repay the debt assumed in the acquisition. As a result of the early repayment of the assumed debt, we will have a charge for early extinguishment of approximately $24 million in the fourth quarter. Debt repayments for the third quarter, exclusive of the acquisition, totaled $163 million. Fourth quarter maturities are approximately $69 million. After the fourth quarter, we have minimal maturities until 2017. In addition, during the third quarter, we replaced our existing revolving credit agreement with a new $1 billion agreement that does not expire until 2018. There are no borrowings outstanding under this agreement. Capital expenditures, including reforestation for the third quarter were $76 million, bringing our year-to-date expenditures to $179 million. We still anticipate spending for the full year to approximate $300 million. Now I'll turn the call back to Doyle, and I look forward to your questions.

Thank you, Patty. In terms of markets, and specifically housing markets, we continue to be encouraged as long term favorable housing fundamentals remain in place. With that said, the housing recovery appears to have taken a slight pause due to higher home prices, higher interest rates, although still very low by historical standards, slowing job growth and the antics of our government. However, we continue to believe we are in the early stages of a longer-term return to trend levels of housing starts. Forecasters now [Audio Gap] that there will be approximately 950,000 U.S. housing starts in 2013 and somewhere between 1.1 million and 1.2 million starts in 2014. The housing starts long-term average is north of 1.5 million units. So there's still a lot of runway in front of us. We are focused on driving ROI and cash flow to capitalize on the upturn, as well as appropriately positioning our sales for the future. On that note, we will host an investor meeting in New York on December 17. In that meeting, we will address where Weyerhaeuser is today, where we are going and what we are doing to make this a truly great company for our shareholders. We look forward to sharing our thoughts and plans with you at that time. Later this morning, we will put out a notice containing the details of the meeting. Finally, regarding our previously announced process to explore a range of strategic alternatives for WRECO, we are fully engaged in the process, continue to be encouraged by the interest in this business and will be back to you when the process is completed. Until then, as I'm sure you will understand and appreciate, we will not have any further comment on the strategic review. With that, we will now open it up for questions.

[Operator Instructions] We have a question from the line of George Staphos with Bank of America Merrill Lynch.

Doyle, a couple of bigger-picture questions maybe to start. You mentioned driving cash flow and ROI within Weyerhaeuser in the years ahead. Are these going to be the primary metrics that you focus your team on, or are there any other metrics that we should be aware, that you can discuss at this juncture, that you'll be using to gauge the progress of the company? And then you mentioned a couple of times, certainly within Wood Products, and I think also within Cell Fibers, that you are focused on lowering manufacturing costs to paraphrase at this juncture to the point -- to the extent that you can comment where do you see the opportunities to do that?

Good morning, George, and thanks for the question. I would say in terms of your first question, clearly, ROI and cash flow will be key metrics for our company going forward. But I wouldn't say they'll be the sole metric, but clearly, those will be key metrics for our company going forward. We look forward to our conversation on December 17, at which time we will provide hopefully a lot more clarity on, again, where we are, where we're going, how we're going to get there and how we will measure our progress along the way. In terms of Wood Products, one of the things we are focused on throughout the company will be to continue to drive down our cost and specifically, our manufacturing cost. What we're looking forward to doing is delivering high-quality products to our customers, products that our customers want and are willing to pay for and doing that at the lowest possible cost. So that will clearly continue to be a focus for Weyerhaeuser going forward.

Doyle, maybe the follow on and I'll turn it over, do you see the opportunity more driven by process or by needing to maybe put in more investment or some other factors as well? And then just quickly, and I'll turn it over, should we expect that your overall operating profit in WRECO in 4Q is up versus last year's level?

Yes. I'll address the first question, and then I'll ask Patty to address your second question, George. But in terms of opportunity, I think it's all the things you listed. I mean, it will be process, it'll be -- we'll look at opportunities to drive down cost across-the-board. Again, what we're focused on is producing high-quality new products for our customers and doing that at the lowest possible cost. So we'll be looking for opportunities to do that. Some of those opportunities will require some capital. Some of those will not. With that, let me ask Patty to address your second question.

So George, your second question, I think, was profit in WRECO this quarter compared to a year ago, fourth quarter compared to a year ago?

Correct.

Yes, I think that the thing that swings from quarter-to-quarter is that -- and I don't remember fourth quarter a year ago, how much we had in terms of land sales and lot sales in the fourth quarter. Our single-family home-building business will be very strong in the fourth quarter of 2013 compared to 2012. And I think -- as I've mentioned in the comments that at this point, we would expect a comparable amount of land and lot sales, although as you know, they're quite lumpy but comparable to the third quarter, which I think was about $9 million.

Your next question is from the line of Gail Glazerman with UBS.

I guess, just starting on the longer-term -- the near-term outlook for housing, when you talk about consensus numbers of 1.1 million to 1.2 million next year, from kind of what you're seeing from the market and hearing from your customers, how much confidence do you have that consensus has it right?

Yes, as you know, predicting housing numbers is always a little difficult, Gail. I would tell you that when you step back and look at the long-term fundamentals, I continue -- we continue to be very bullish on housing. As I mentioned, there has been a slight pause here due to a lot of factors, but clearly, in my mind, we have and we'll continue to have an upward trend in housing as we start to approach the 1.5 million to 1.6 million average over the next few years. And I don't know exactly what the slope of that line is going to be. I think it has flattened a little bit just because of the issues that I raised. But we'll see how it plays out, but I think, in my opinion, the 1.2 -- 1.1 million to 1.2 million is a pretty good guess at this point in time.

Okay, and I mean, the pause that you're seeing, I mean, how significant was it? I mean, it looks like WRECO buyer traffic was down pretty significantly. Was that seasonal or was that reflective of the uncertainty that we saw rise with interest rates coming up in DC?

I think it was a combination of both, Gail. I think clearly, again, as we had the shut down from the government, as we had prices go up in houses and some other factors, we saw a pause. But again, I think pause is the right term. I don't want to overstate the pause. And again, if you look at the underlying fundamentals, they continue to be strong and in place and I think will drive housing going forward.

Okay. And just a quick question on Engineered Wood. Given what's been going on in terms of the input costs, do you see the recovery as sustainable, or at some point, would you expect to see some price pressure emerge as customers kind of start pressuring you given some of the cost relief of lumber and OSB pricing?

I think in that business, as we mentioned, we saw a nice improvement in the quarter, Gail. Now there will still be seasonal factors that will have an impact. And as Patty outlined, fourth quarter is a slow seasonal quarter. But longer-term, that's a business that we're encouraged by what we're seeing on the pricing front, probably need additional pricing going forward. But more importantly, we're focused on our operations and making sure that we provide, on a cost-effective basis, the products that our customers need.

Your next question is from the line of Anthony Pettinari with Citibank.

In Wood Products, you talked about your expectation for improved distribution performance in 4Q, and I was wondering if you could give us any color on the performance improvement initiatives that are driving that improvement. And then maybe what is the magnitude of earnings improvement you're expecting versus the loss this quarter, and how much of that is really driven by the performance initiatives versus just sort of working through inventory?

Yes, good question, Anthony. And the improvement that we anticipate in the fourth quarter, as you just highlighted, will be driven primarily by 2 factors. One is the fact that we will have worked through most of the high-priced inventory in the fourth quarter. And then secondly, as I mentioned, we have some very specific profit improvement initiatives, including real focus on operational excellence. And again, making sure we have the right cost structure in that business that we also have a very focused effort regarding growing specific product lines that we need to continue to grow in that business to make it a profitable business going forward. So back to your original question, 2 key drivers for the fourth quarter: one, we will have worked through the high-priced product; and secondly, we have a very focused profit improvement effort in place in that business, and I think we'll see the impact from both of those in the fourth quarter.

Okay. But it is safe to say that maybe more of the benefit of the performance improvement initiatives are -- will be seen in 2014, or just in terms of the time frame of completing some of those initiatives?

Sure. Sure, Anthony. Yes, we will see the initial -- I mean, we've been working on it, but we'll see, like I said, some of them in the fourth quarter. But it's not just solely in the fourth quarter. We will continue to build those into 2014 and beyond. So these aren't onetime initiatives. This is an ongoing effort to improve the operations of our distribution business.

Okay, that's helpful. And then just switching to Timberlands. Do you think that this quarter's EBITDA contribution from Longview, adjusting for the fact that you only had 2 months, is representative of what the business could do over the next few quarters? And do you have any updated view on synergies or the time frame to realize those synergies?

Sure. In terms of Longview, like I said, we're excited about that acquisition and are pleased with the results in the third quarter. To your specific question, I think the third quarter adjusted for the things you just said is generally representative. The other thing I would say is as you know, third quarter in the West tends to be, seasonally, a weak quarter, so you should factor that in as you think about this acquisition going forward as well. In terms of synergies, as we've previously stated, we anticipate synergies -- achieving synergy savings of approximately $20 million. And I would tell you we are on track to achieve those synergies by the end of 2014 at a run rate.

Your next question is from the line of Mark Wilde with Deutsche Bank.

I just -- I want to come back to distribution again because you've now got another publicly traded peer out there with the distribution business. They've made $21 million the last 2 quarters. You guys have lost $27 million. I mean, how much of this do you think is maybe just different treatment from an inventory standpoint? And what are the other issues here? Because it's a huge delta.

Yes, Mark, we understand the delta that is in place. I can tell you I think part of it does have to do with -- my guess is, and it's only a guess because I don't know what our competitors do, but I think part of it may have to do, at least in the third quarter, with the treatment of inventory. As I mentioned earlier though, we understand the gap and the opportunities and challenges that we have in that business, and we are focused on improving that business everyday.

Okay. Doyle, do you regard that business as somehow kind of intertwined with your Engineered Wood business, that especially you have to be in Distribution to be successful in Engineered Wood, or not?

Mark, we look each of our businesses individually, and we expect each of our businesses to achieve above cost of capital returns over a cycle.

Okay. And just in Wood Products, you talked a lot about improving cost of things. Are you doing anything just to kind of rethink maybe how Weyerhaeuser has approached markets from the commercial side? In other words, thinking about how you sell, how you go-to-market, whether you're really kind of getting the best dollar you can for everything you produce?

Sure, Mark. As I mentioned in my initial comments on Wood Products, one of our key focuses is delivering products that our customers want and are willing to pay for. And a big part of that is who our customer base is, how we go to market. As you know, we have very -- we produce very high-quality products here at Weyerhaeuser, and I think our customers appreciate that. And we just need to make sure we have got the right customer base in place and that we're delivering quality products that our customers want and are willing to pay for.

All right. And the last question I had is just on the Timberland side. Your log prices were down quite a bit quarter-to-quarter, but I notice that you're export mix skewed to China. I know they typically buy lower-priced logs. I just -- I wondered whether kind of a mix shift in where you were selling contributed to that $10-drop in log -- average log prices.

Well, as you -- we talked about on the quarter outlook for the third quarter on our last call, pricing was projected to be weaker in the third quarter because of the seasonality, and we did see that. And now we're starting to see those prices move up again. In terms of the mix, we do have a higher percentage of the total mix going to China. Part of that is because of the Longview acquisition of just exporting more into China overall. So I think from a mix perspective, China does impact that a little bit, but we did say that pricing would come down somewhat in the third quarter, as it does on a seasonal basis.

Your next question is from the line of Chip Dillon with Vertical Research.

First question is as we look at your -- the company's last couple of years, capital spending has been quite a bit below the depreciation, and that's understandable because of the purchase accounting and -- some of it is at least, and depletion. But I mean, Doyle, as you look at things, do you think something down in the sub-250 range, is something that's sustainable, or could there possibly be opportunities either in the Wood Products business or maybe a requirement for boiler rebuild or something in the Cellulose business that we should keep an eye out? In other words, should we see CapEx remain at about half of depreciation?

Chip, we're -- as I mentioned earlier, I've been spending a lot of time with our senior management team over the past few weeks, and we are right in the middle of that process regarding capital. That's something that we will share with you at the December 17 meeting and probably even get more specific when we release fourth quarter earnings. I can tell you generally, Chip, in terms of our financial priorities going forward, first and foremost, is going to be to return cash to shareholders, primarily through a growing and sustainable dividend. But also, at the appropriate time, share repurchase. Second will be to invest in our businesses through high-return projects and look for opportunistic growth opportunities. And then finally, making sure we maintain the appropriate capital structure for our shareholders going forward. So that's generally how we think about it. But again, we'll be back to you with much more detail in a couple of months.

Okay. And just a quick follow-up. I know that in -- a couple of years ago, the company changed the way they did maintenance in the Cellulose business and found a way, I believe, to cut costs by shifting from annual to, I guess, every 18 months. And I didn't know if that's something that you felt was good and likely to be sustained, or if you think that there could be some tweaking to the way you look at the costs, especially for maintenance in the Cellulose business.

I think -- Chip, thanks for the question. I think that is something that's good and will continue. As you know, we are in the process of phasing that in, and I think we'll start to really see the benefits of that in 2014 and 2015. But I think that is the right approach. It ultimately, over time, will lower your maintenance expense and also a key benefit of that, of course, is you improve your productivity because you're not going down as often in your mill system.

Your next question is from the line of Alex Ovshey with Goldman Sachs.

First question is can you give us an update on the restart of the Alabama engineered wood products facility? How much capital do you think you'll need to put in to get that up and going? And how do you see the trajectory of the volumes out of that facility going into the market?

Sure, Alex, thanks. I think the important thing to keep in mind about our Evergreen mill in Alabama is that we announced that we would be restarting it. But the actual restart is not projected to take place until late spring of 2014, probably around in the May time frame before we'll actually producing significant product at that location. Anytime you're starting up a mill that's been down for more than a year, it certainly takes time to put a workforce in place. And so we're very focused on doing that. From a capital perspective, we will need to put some capital into that mill because it has been down for some period of time. But it's not a huge increment of capital. So I think that as the market continues to recover, especially for engineered wood, we're really looking forward to bringing that capacity online at a time that the market will really need it.

Got it. And then on lumber, as I look at your shipment numbers quarterly relative to what you state is your capacity number for lumber in the 10-K, it seems like you're essentially running at capacity even though housing is well below normal levels. As you think about the medium term, do you expect you will be able to grow your lumber shipments with the market without having to put significant capital into your system? Or will you have to put in a significant capital to be able to do that, given you're essentially running at capacity based on the numbers that are reported?

Alex, I would say we're running somewhere in the low- to mid-90s in terms of operating rates in our lumber operation. And what we're focused on every day is improving our reliability in our lumber operations and doing things to get additional production where it makes sense to do that. So that's the focus of our lumber operation going forward.

Just one more question on pulp. Softwood inventories are in excellent shape, prices are moving up while, on the other hand, hardwood inventories are elevated and prices are moving lower. There seems to be a significant amount of hardwood inventory that -- hardwood capacity that will be coming online over the next 12 months. As you talk to your customers, what kind of impact do you think all this new hardwood capacity that's entering the market, what kind of impact do you think it may have on softwood pricing and your Softwood business?

Well, Alex, it's difficult to know exactly what the impact will be, but our products from a fluff perspective are really focused more in the softwood grade. And in addition to fluff, we have a number of specialty proprietary products in the fluff grade spectrum. So our focus really is on, as Doyle said, is to continue to drive down costs, which is always a good thing. And then really in our product mix, in addition to our products today, to developing new products. In the priorities for the business that Doyle spoke to in his comments, #2 priority was innovation around specialty products, things like the product that we announced, which we call THRIVE, which is a cellulose-based product that has some promise for us going forward in terms of the automotive industry and others. So we're working on all fronts. But difficult to know exactly what that hardwood capacity will be, but it doesn't substitute directly for fluff today.

Your next question is from the line of Mark Connelly with CLSA.

Two questions. How much of the improvement in Engineered Wood was attributable to the lower OSB prices? And second, you commented a little bit on the increased sales from Longview to China. China for you has been relatively low margin. Is there an opportunity to move some of that Longview capacity into higher-margin markets, or is this just going to be a shift a little bit down in the overall mix?

Mark, I'll try to address your first question, and then I'll ask Patty to address your second question. In terms of the improvement in ELP in the quarter, I don't know exactly how much of that was attributable to the lower OSB cost. But as I mentioned, it's a -- it was a -- the improvement was a combination of lower cost and improved revenues in that business.

So Mark, as you think about the Longview acquisition, one of the things that you are not seeing as much of an impact in terms of the overall revenue, and that chart is a revenue chart that's in the web slide, is that we actually did purchase, through third-party purchases from Longview, some logs to go to Japan to round out our inventory needs for Japan, as we do on the marketplace. So that's why you don't see the significant change there. It's not that Longview logs are not going to Japan. They're now going as Weyerhaeuser logs. The other thing that I would say is as the light wood market becomes stronger, we will take advantage of shipping whitewood off, to the extent that we have it, off the coastal lands of Longview to take advantage of both the China market, as well as the Korea market. So the mix will move around, but we will ship the appropriate log to the appropriate market to get the best margin out of that. One of the opportunities for us in terms of driving synergies from that acquisition is that even though we were purchasing logs from Longview, we now have the trees and we have the opportunity to merchandise the cutting of the tree into logs to get that -- pull the highest grade to the highest market for that. So we, as Doyle said, really are very pleased with what we've seen so far.

Your next question is from the line of Paul Quinn with RBC Capital Markets.

A quick question on Japan. How should we look at the effect of the consumption tax increase next April? And how do you expect that to flow through in terms of timing on export log sales to that country and the magnitude of the drop-off once that tax is in?

Sure, Paul. Difficult to know because the consumption tax is just one of the factors that affect the demand. Right now, we're seeing very strong demand. There is projected to be a small move up in the consumption tax, but the Japanese government has also -- proving to be very accommodative to housing financing. So I think that if that consumption tax does move up as it is projected, that we'll also likely we see some potential benefit to the overall housing economy in Japan. So difficult to know, but our own view at this point would be that demand will continue to be strong in 2014. It may have some slight impact from the consumption tax. But it is something that we're monitoring pretty closely.

And then I just had a follow-up question for Doyle. Just you've been there almost 3 months now. What's most impressed you at Weyerhaeuser? Where do you see your biggest challenge?

Thank you for the question. And I would tell you when I showed up at Weyerhaeuser, I spent the first few weeks going around to our facilities, meeting our people and really listening -- learning and listening a lot. Over the past few weeks, as I think I mentioned earlier, I have been spending a lot of time with our senior management team, kind of distilling everything that I learned when I was out visiting our facilities, kind of figuring out where we are, where we need to go and how we're going to get there. And that will be the focus of our Investor Meeting on December 17. And at that point in time, we'll spend a lot of time highlighting, like I said, where we are and what our biggest opportunity -- what our biggest strengths are and what our biggest opportunities are as we move this company going forward. So I look forward -- we look forward to sharing those thoughts with you on December 17.

Your next question is from the line of Evan Wingren with D.A. Davidson. Evan Wingren - D.A. Davidson & Co., Research Division: Given that a lot of your competitors have seen sort of log prices in the south up a little bit this quarter, I noticed that yours were flat. Was that surprising to you, given -- kind of given what we heard about the wet weather in the South as well?

Our log prices in the South, as you mentioned, we did not see much of a movement. There were, in various regions, impacts because of the significant wet weather. I think that's a portion of what you've seen in some of the competitors. Also, there may be some different inventory situations for various competitors as well. What I am encouraged about is, I think when you step back and look at it overall, I believe our pine sawtimber prices this year will be up probably 4% to 5% versus last year, when all is said and done. And probably more encouragingly as we continue to see housing rebound, demand continues to grow, we see the impacts of the Canadian situation, I'm convinced that we will see sawtimber, pine sawtimber prices in the South start to -- continue to increase, maybe even more rapidly as we move into 2014 and beyond. Evan Wingren - D.A. Davidson & Co., Research Division: And kind of moving to Cellulose, the additional 6 days of maintenance you took, could you maybe just give a little more color on that? And maybe how much did that cost you in the quarter, if you could provide that as well?

Yes. Part of the impact in the quarter was due to the additional downtime that we took. And above and beyond the downtime that was scheduled, we had a couple of additional downtimes at our liquid packaging operation that were a result of not coming up quite as well as we had planned in that operation. So that had a impact on the third quarter versus the second quarter as well. Now the good news is the liquid packaging operation is back up and running and running well, and there will be no impact from that shutdown in the fourth quarter. Evan Wingren - D.A. Davidson & Co., Research Division: All right, fair enough. And then on EWP again, I mean, do you have a range that you can provide maybe of what you think utilization rate was in that business during the quarter?

Yes. Overall, there's a lot of different products, as you know, in that business. But overall, the operating rates were in the mid-60s for ELP in the quarter. Evan Wingren - D.A. Davidson & Co., Research Division: And on the pricing side of that, are you seeing momentum sort of heading into the back half of the year, or maybe just sort of what are the trends you're seeing there on pricing, just moving forward?

Yes. As we indicated, prices were up in the third quarter versus the second quarter in ELP. And I think, clearly, the trend is for favorable pricing going forward. Now we've got to factor in the seasonality. And as Patty properly highlighted and as you very well know, the fourth quarter tends to be a slower seasonal period for Wood Products, including ELP. But I think we will see favorable trends in pricing in ELP going forward. Evan Wingren - D.A. Davidson & Co., Research Division: And just one more kind of housekeeping. I sort of missed the extinguishment of debt cost, $24 million. Could you just bring that back real quick?

Sure. So when we acquired Longview Timberlands, that acquisition, we assumed debt in that acquisition and we repaid that debt early, in October. And as a result of repaying it early, there were some prepayment costs associated with that, and we expect that there'll be about $24 million of loss from early extinguishment of debt. That will be in the fourth quarter number. So I just wanted to make sure that you all have that number as you think about putting together your fourth quarter estimates.

Your next question is from the line of Mark Weintraub.

In the past, Weyerhaeuser has indicated their intent over the cycle to pay out roughly 75% of free cash flow in dividends. If as, through actions that you take, an increasing proportion of your cash generation in the future is coming from the more stable timber business, does that lend an upward bias to that 75% number?

Mark, as I mentioned earlier, in terms of our financial priorities, first and foremost is returning cash to shareholders primarily through a growing and sustainable dividend. So one of the things that we'll be continuing to monitor going forward is just exactly what the right payout ratio is in terms of our FAD contribution. So that's something we'll be looking at. But we understand and are committed to -- we understand the importance of and are committed to a growing and sustainable dividend going forward. Okay, as I understand it, there are no additional questions. So let me just close with a couple of comments. Let me start by thanking everybody for joining us this morning and for your continued interest in our company. And also, I just want to say, I look forward to seeing everybody on December 17 in the -- at the meeting that we will be hosting in New York. And as I mentioned earlier, we will be sending out details for that meeting later today. Thank you very much.

This concludes today's earnings call. You may now disconnect.