Jerald Richards - VP and CFO Michael Covey - Chairman and CEO Eric Cremers - President and COO.

John Babcock - Bank of America Merrill Lynch Gail Glazerman - ROE Equity Research Ketan Mamtora - BMO Capital Markets Collin Mings - Raymond James Chip Dillon - Vertical Research Paul Quinn - RBC Capital Market Roger Spitz - Bank of America Mark Weintraub - Buckingham Research Steve Chercover - D.A. Davidson & Co..

Good morning. My name is Victoria and I will be your conference operator today. At this time, I would like to welcome everyone to the Potlatch Third Quarter 2016 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.

I would now like to turn the floor to Mr. Jerry Richards, Vice President and Chief Financial Officer for opening remarks. Sir, you may proceed..

Thank you, Victoria and good morning. Welcome to Potlatch's investor call and webcast, covering our third quarter 2016 earnings. With me in the room are Mike Covey, Chairman and Chief Executive Officer; and Eric Cremers, President and Chief Operating Officer. This call will contain forward-looking statements.

Please review the warning statements in our press release on the presentation slides and in our filings with the SEC concerning the risks associated with these forward-looking statements. Also, please note that a reconciliation of non-GAAP measures can be found on our website at www.potlatchcorp.com.

I will now turn the call over to Mike for some comments and then I will cover our third quarter results and outlook..

Thanks, Jerry, good morning. All three of our businesses delivered solid third quarter results. Our earnings leverage to improved lumber prices was evident in our wood products results and an incrementally higher log prices in Idaho. Lumber prices improved due to stronger demand amid uncertainty over the future impact of the softwood lumber agreement.

The softwood lumber stand still period expired on October 12 without a new agreement. We expect that the U.S. lumber coalition will file trade cases soon taking into account factors that will make the petitions as effective as possible. Absent and negotiated settlement between the U.S.

and Canada, we expect the trade cases to result in counter veiling and anti-dumping duties that will take five to six months -- and this take five to six months after the petitions are filed to become effective.

We believe that field lumber inventories continue to be at relative low levels, and that lumber prices will remain strong in the fourth quarter. This would cap a solid year for our wood products business with EBITDA on pace to improve approximately $25 million year-over-year.

Despite some operational challenges in our resources business principally due to unseasonable rain events in the South, we expect to harvest our planned volume of 4.2 million tons this year. Southern pine saw log prices which would be a catalyst for earnings growth remained flat in a largely over supplied market.

We are encouraged by numerous capacity additions in our market areas, which include a new plywood plant that is operating in Mississippi and new saw mills announced or under construction in Arkansas, Mississippi and Alabama.

The latest announcement of a new 200 million board foot sawmill in Demopolis, Alabama occurred just two weeks ago and the mill is expected to begin production in September of 2017.

It will take time for these capacity additions to absorb the oversupply of saw logs in the market and we do not expect meaningful changes in log prices for several quarters. Our balance sheet remains strong and we have the financial flexibility to execute on a range of capital allocation opportunities.

Paying the meaningful dividend and growing it overtime remains the top priority. Our Board approved $60 million share repurchase authorization earlier this year and we have been very active repaying and refinancing debt. Our stock price is on a nice run and has increased 30% year-to-date and approximately 60% since it hit a 52 week low in mid-January.

While we still trade at a discount to our net asset value we opted to keep our powder dry and did not repurchase any shares this quarter. We intend to continue to be opportunistic and execute against our share repurchase authorization when our stock trades at a deep discount to our net asset value.

We reduced leveraged $43 million this year, which moves us closer to regaining an investment grade rating. Our annual interest expense run rate has dropped approximately $5 million as a result of repaying or refinancing debt this year. Acquisitions represent the one capital allocation lever that we have not pulled this year.

As discussed on prior quarter calls buying our trees through share repurchases has been more attractive than paying robust prices in the private timberland market. Having said that, we are actively looking for smaller bolt-on transactions near our operating areas that can generate attractive returns.

I'm excited about Potlatch's prospects as we execute against our capital allocation strategy and the U.S. housing market continues its recovery. I'll now turn it back to Jerry to discuss the quarter and we’ll take questions after that..

Thanks, Mike. So beginning with page three of the slides accompanying this call, we reported net income of $27.6 million or $0.68 per diluted share in the third quarter. This compares to a net loss of $31.3 million or $0.77 per diluted share in the second quarter.

The second quarter result included a net loss of $36.7 million on the sale of 172,000 acres of Central Idaho timberland that we announced in April. EBITDA for the third quarter was $48.7 million.

This was almost double the EBITDA on the second quarter from recurring operations, due primarily to seasonally higher harvest volumes, stronger lumber prices and increased lumber shipments. I'll now review the results of our operating segments. Information for our resource segment is displayed on slides four through six.

Operating income for the segment was $33.3 million in the third quarter compared to $15.7 million last quarter. The increase in earnings is largely due to seasonally higher harvest volumes and higher sawlog prices. We harvested just under 1.3 million tons in the third quarter, which is below the estimated range that we provided on last quarter's call.

I will provide more colors as I cover each region. Turning to slide five, we delivered 580,000 tons of sawlogs in the north in third quarter, which is about 200,000 tons higher sequentially.

As we discussed on the past two earnings calls it was an unseasonably warm winter in Idaho and hauling activities resumed earlier than normal in the second quarter due to favorable weather conditions and logging roads drying out. As a result our sawlog harvest volume was well ahead of plan in the north in the first half of the year.

We moderated the third quarter harvest because no log inventories in the region were relatively full due to strong second quarter production and salvage wood from timberlands that burned last year.

The shift in the plan temporarily affected logging contractor availability which resulted in our Idaho harvest volume being about 85,000 tons short during the quarter. We expect to make the short fall up in the fourth quarter and meet our harvest volume plan for the year. Northern sawlog prices increased 13% on a per ton basis in the third quarter.

About half of this increase was a result of seasonally lighter logs due to lower moisture content. Log prices are set on a dimensional basis in Idaho, not based on weight. The remainder of the increase was primarily driven by a continued strong demand for cedar sawlogs.

Prices for cedar sawlogs increased 13% sequentially to $282 per ton and constitute a 10% of the Northern sawlog sales mix in the quarter. Moving to the South on slide six, harvest volumes were under plan in the third quarter due to abnormally wet conditions that interrupted operations.

Our team did a good job reducing a shortfall when logging conditions improved in September. Logging conditions remain favorable thus far in the fourth quarter. Sawlog prices in the South increased 14% due primarily to a seasonally higher volume of hardwood logs and the sales mix. Fine sawlog prices were flat sequentially.

Pulpwood prices were down slightly as expected due to excess supply relative to pulp mill demand in the region. Results for the wood product segment are displayed on slide seven and eight. Operating income was $10.6 million in the quarter compared to $4.7 million in the second quarter.

This is the fourth consecutive quarter that results have improved and represents the segment’s highest quarterly earnings in two years. Our average lumber prices increased 5% and lumber shipments were 3% higher in the third quarter. All of the mills were operating well, and the segment set a quarterly lumber production record in the third quarter.

I will now shift to our real estate segment on slides nine and ten. Real estate’s operating income was $5.9 million in the third quarter, up from $5 million earned from continuing operations in the second quarter. The segment sold 14% more acres in the third quarter as compared to the second quarter.

The current quarter sales mix was much more heavily weighted to real estate, which is lower selling prices than the conservation sale that we closed at an attractive price of almost $2,600 per acre in the second quarter. Real estates’ margin increased to 70% in the quarter, reflecting lower land basis relative to the second quarter.

Turning to financial highlights on slide 11, we ended the quarter with cash of $72.9 million; we also have $249 million available on our revolver. We refinanced our $65.7 million, 6% Nez Perce County Idaho tax-exempt bonds in August.

The new interest rate is 2.75% and the bonds mature in 2024.This year we reduced our interest expense run rate by about $5 million per year, by repaying debt, or refinancing at attractive rates. Capital expenditures excluding acquisitions were $5.7 million in the third quarter.

We continue to expect the capital expenditures will be $19 million for the year. Now I’d like to comment on our outlook, which is summarized on slide 12. We plan to harvest between 1 million and 1.1 million tons in the fourth quarter, with roughly half of the volume in the North and the other half in the South.

Sawlogs are expected to comprise approximately 90% of the fourth quarter harvest in the North and approximately 45% of the fourth quarter harvest in the South, including stumpage sales. We estimate stumpage sales will be approximately 50,000 tons in the South in the fourth quarter.

We continue to expect that we’ll harvest 4.2 million tons in total for the full year, recall that our planned harvest line was lowered 200,000 tons due to the Central Idaho timberland sale that closed in the second quarter.

We expect Northern sawlog prices to decrease up to 15% in the fourth quarter due to seasonally heavier logs and a seasonal decline in the percentage of cedar sawlogs in the sales mix to about 5% of Northern sawlogs.

In the South, we expect sawlog prices to decline approximately 7%, due primarily to a seasonal decrease in the volume of hardwood logs in the sales mix. We expect pulpwood prices to be flat in the fourth quarter relative to the third quarter.

At these volumes and prices, we expect resource earnings to be higher than the $16 million that the segment earned in the fourth quarter of 2015. Turning to wood products, we expect lumber shipments to be approximately $170 million board feet in the fourth quarter.

Our forecast assumes that the average lumber price realized will be slightly lower in the fourth quarter. Wood products earnings would be slightly higher than its earnings in the second quarter of 2016 at these volumes and prices. We expect real estate to sell about 7,000 acres in the fourth quarter at an average price of $1,300 per acre.

Approximately 70% of the acres are expected to be real estate in the fourth quarter. We estimate that land basis in the quarter will be 10% to 15% of revenue. We expect that corporate expenses will be $9.5 million and that interest expense will be just over $7 million in the fourth quarter.

We estimate that the consolidated effective tax rate will be an expense of 15% to 20% of pre-tax earnings in the fourth quarter. To summarize, we expect earnings to be lower in the fourth quarter compared to the third quarter, primarily due to seasonally lower harvest volumes, and seasonally lower lumber prices and volumes.

That concludes our prepared remarks. So Victoria, I’d now like to open the call up to Q&A..

Certainly. [Operator Instructions] So our first question comes from the line of George Staphos with Bank of America..

Hey, good morning guys. This is actually John Babcock sitting on the line for George here.

Just quickly on the lumber side of things, I was wondering if you could talk a little bit more about what you saw around the softwood lumber agreements stand still period expiring and how that impacted demand?.

Good morning, John, it’s Mike. I don’t really think that’s the expiration of the agreement the stand still period on October 12, we had any noticeable impact in the market around pricing through the quarter; it’s been strong but relatively stable, not particularly volatile.

The futures market has moved up a bit, but the cash markets has been pretty consistently stable through the expiration of the agreement. And we are -- I think we expect volatility in lumber prices going forward anytime we have uncertainty brought around by the negotiation that’s ongoing over the softwood lumber agreement.

We do not have a forecast on prices yet and we won’t provide that until we prepare our budgets and go through that on our first quarter call..

Okay, great. And then with regards to the timing that you set out the five to six months, I assume that’s really just getting to the preliminary stage of the trade case..

That’s typically, what’s happened in previous trade cases that have been filed that it’s four to six months before a preliminary determination is made, published in the Federal register and then duties begin to be collected by the U.S. government and then there is a final determination following that and obviously an appeal period after that.

But we think it’s four to six months before duties would be assessed and begin to be collected..

Okay, alright that’s all I have for now. Thanks..

Your next question comes from the line of Gail Glazerman with ROE Equity Research. .

Hi, good morning. .

Good morning..

I guess just sticking with the trade case for a moment what’s your sense of the main key sticking points after [inaudible] negotiation for the better part of the year and any sense that there might be a last ditch effort to try resolve something before the election?.

I don’t think negotiations have ceased Gail from our understanding is that the trade representatives in both countries continue to negotiate under the principle that Canadian exports need to be held at or below on agreed to market share percentage in the U.S. that was the framework that Trudeau and Obama outlined.

So I think against that construct there is disagreement about how to get there. The U.S.

I think is very focused on a quota mechanism to address that and I think Canada prefers some variation on the tariff structure that we’ve had in place for the last roughly 10 years and somewhere in the middle there is probably a negotiated settlement and there is nothing to stop either country from reaching a negotiated settlement, while the Trade case is being reviewed or at any time reaching agreement and suspending the trade case.

So we are hopeful that that can happen, but if it doesn’t, we’re going to pursue the remedies we have under U.S. trade law. .

Fair enough. Last quarter you talked about customer log decks being fairly full, I was just wondering if you can give an update on that assessment..

Yeah Gail, so this is Eric. Yeah, you know generally speaking in the South, what we are seeing on the softwood side with pine mills both sawlog mills and pulpwood consuming mills are generally running pretty full right now. And on the hardwood side, it’s not quite that way, it’s mills are generally balanced, but they are not full.

So, little bit different depending upon the species down there. And on the Northern region, we’re heading into to winter time here, so mills are beginning to build their log decks to get through break up and I would say that generally speaking things are balanced to full somewhere in that range.

Not completely full, but they are filling up, which is normal..

Okay. Can you just talk a little bit about what you are seeing in the land markets, I guess some trade publications have talked about maybe seeing a little bit of softening and resistance to values in the South.

Are you seeing or hearing that? And can you give us any sense what type of magnitude do you think things would have to move for you to be more interested in reviewing and kind of maybe returning to more acquisitive stance?.

Yes, so you’re referring to Timberland..

Timberland, yeah..

We really haven't seen a slowdown in activity Gail. Pricing remains firm. There is a lot of money on the sidelines looking to invest in the asset class.

People have an expectation that prices will move higher over the next several years as we continue with this housing recovery that generally gets built into the models that are used to value timberland. And in a low interest rate environment high timberland prices are supported. So we've not seen a rollover in timberland pricing at all. .

Okay. Can you talk a little bit about the cedar market, just what's been going on there? I know I saw a headline a couple of weeks ago about a processor in Idaho complaining about lack of availability and high cost kind of really pushing them obviously it seem pretty healthy pricing and we're able to flex a little bit to that.

Can you just give a little bit more color there?.

So we do produce cedar as you know Gail, and it represents about 10% of our product mix it has for about the past now five-six years and we have another 10 to 15 years of cedar inventory available.

We have seen some mills go down Maries River over at Oregon closed down and they are claiming due to lack of cedar availability largely claiming it was due to not being able to access federal forest. And then we saw real small cedar remanufacturing plant here in Idaho go down. But that was pretty small and was remanufacturing, not a normal mill.

So we have seen some small mill closures. The cedar market remains very, very strong. Cedar is generally used for high end decking, siding and paneling and those markets are showing no signs of going down. So cedar prices are very firm right now and we anticipate and expect that they will stay that way..

Okay, one last one.

Jerry, were there any cost associated with the refinancing in the quarter but I didn't see anything called out, just wanted to double check that?.

Yeah, so Gail as you're pointing out we did refinance the 65.7 million of tax exempt bonds and we've wrote off about $400,000 of deferred loan cost from the old issue. And that did go through interest expense in the quarter. And then the cost that associated with the new issue were capitalized and will be amortized overtime..

Okay, thanks very much. .

And your next question comes from the line of Ketan Mamtora with BMO. Ketan your line is open, if you're on mute please unmute your line and proceed with your question. .

Okay, can you guys hear me now?.

Yes. .

Okay. So just wanted to touch upon capital allocation here. Obviously you all didn’t repurchase any shares this quarter your stock has had a nice run, you talked about some bolt-on opportunities. Can you just provide some color around this in terms of just puts and takes whether it is sort of U.S.

South versus North, you talked about valuations holding up quite well yet Southern log pricing actually continues to go down at least on a reported basis. So just some color around that would be helpful..

Well, maybe to start with the acquisition lever which we haven't pulled this year. I think we made a large acquisition in the South in 2014 buying 200,000 acres in Alabama and Mississippi for $375 million. And we certainly have been happy with that and it's up and functioning and running well.

Our focus has been to improve our balance sheet a bit rather than lever up anymore and pursue more acquisitions. So I think that's probably a reflection of our strategy more than anything is trying to delever a bit in these markets when we've had a little bit of an opportunity to do that.

And be prepared for another opportunity that may come up down the road; markets remain firm. You said pricing continues to go down a bit, I think our characterization would be that Southern pine and sawlog pricing is very flat. I don't think it's changed a bit in several quarters. And we think it's going to be stable for several more.

So I think as Eric said there is a lot of money on the sideline looking at deals, deals have been I think fully priced that we’ve seen that have come to market.

So I think in terms of capital allocation priorities paying down debt, repurchasing shares when the price is attractive and then completing our capital investment plans have been the highest priorities obviously paying the dividend and the Board will review the dividend in the fourth quarter of this year as to whether or not we increase it further..

Got it, that's helpful.

And any secondary impact from Hurricane Matthew on the Alabama land or just from that standpoint, anything that you’ve seen?.

Yeah. No, we’ve not seen any impact from Hurricane Matthew. Now there was torrential downpour in Louisiana that you may have seen and that found its way up into the South Arkansas and that’s what caused us to miss our Southern production by about 100,000 tons.

But as Jerry said, we’ll get that in the fourth quarter and again to reiterate no impact from Matthew..

Got it.

And then just very briefly, can you just talk about your plywood operations this quarter in terms of prices and volumes, how did that do?.

Well in terms of volume, we continue to do very well there, the mill operates very efficiently and productively. So no impact or changed the volume. On the pricing side, we are seeing large numbers of Brazilian imports into the U.S. market, largely competing on the low-end side of things.

And our plywood business tends to be more industrial in nature and to some extent immune from those lower end markets. Now that being said, there is always some overlap, some market areas where you could use one versus the other. And we are seeing a price impact in those markets.

So, I don't know, I’d say maybe a third of our product mixes is somewhat vulnerable to price competition from these imports, but 60% of it or so is immune..

Got it, that’s very helpful. I’ll turn it over. Good luck in the back half of the year..

Thanks..

The next question comes from the line of Collin Mings with Raymond James..

Hey, good morning, guys. .

Good morning. .

Just to start, going back to some of the conversation about the lumber price outlook, maybe just drill down a little bit more into the fourth quarter, just in the prepared remarks you sounded pretty upbeat about the market overall and just though you referenced slight decline kind of in the guidance.

So just maybe talk a little bit more about what you maybe expect between now and year-end as far as lumber pricing?.

Yes, Collin. This is Eric. As I think Jerry mentioned in his opening remarks, we might see a real slight rollover in lumber pricing in Q4, and that’s consistent with what the external pundits are forecasting maybe 1% or 2% rollover in pricing. You know generally speaking markets are well balanced, our order book is solid.

As you know we sell forward our lumber production. So we’re out into the first or second week of November at this stage. And so we feel very good about where lumber markets are at, at this stage of the game. Just the general backdrop here, if you think about it, we’ve got demand, which has remained strong.

Of course the housing market data, there is starts data is volatile from month-to-month. But generally we’re seeing starts increase, we’re seeing strong R&R repair in the model activity, and we’re seeing strong commercial and industrial activity as well.

And with industry wide capacity utilization now moving up from the mid to the upper 80s and supply-chain inventories as Mike had mentioned remained very well, we think, lumber prices are well supported here..

Okay.

And then I guess, to your comments in recognizing the timing aspect of everything, are you actually tracking ahead kind of through this part of the fourth quarter relative to the first, few weeks of the third quarter, I mean as far as pricing quarter-over-quarter, which would be tracking ahead at this point?.

No, I’d say we’re tracking comparable to the third quarter results..

Okay.

And then, switching gears a little bit, just to the real estate front, I think recognizing it was only like just 370 acres, but just the HPU [ph] development pricing was a little bit stronger this quarter than it had been really over the last year or so, anything particular that sold that would be driving that?.

We’re looking here. Collin, we’ll get back to you on that, offline. I think generally speaking though, I mean we probably -- I can’t recall that I think we have something that had commercial value here in near a highway or interchange that goose the number a little bit.

But overall the markets for both recreational real estate and the kind of HPU that we have are relatively stable..

Okay, okay. As far as another topic you want to touch on, given the investment in your mills over the last couple of years.

You guys have spent a lot of time talking about some of the capital improvement projects, and again this quarter record shipments, just how should we think about kind of an annualized basis, what type of shipments or capacity, production capacity you guys have going forward, just given some of the improvements over the last couple of years?.

Well Collin this is Eric. If you go back to 2014, we’ve produced about 660 million feet of lumber that year and this year we are on track to produce about 680 million feet. Now we did have a downtime at our Warren sawmill during the year that costs about 11 million feet of production.

So theoretically we could have done another 10 million, 12 million feet more. But I got to caution you that in any given year we may have some maintenance project or some project install, which causes us to throttle back production.

But I think if you look at 680 run rate that we had in 2016, that’s probably a decent benchmark could be a little bit higher given that we had the Warren downtime be a little bit longer than we would have liked. So I would say somewhere between 680 and 690 on a go forward basis..

Okay, very helpful. And then just one last one from me just going back to the last question as far as capital allocation. Just kind of curious given that there were points during the most recent quarter that the stock price going or may be about a $1 or so above what the average purchase price was during the second quarter.

Just any other thoughts about price sensitivity as far as capital allocation is really the share repurchases is there particular trigger point you are thinking about or was it just the decision to keep dry powder given overall during the quarter it wasn’t may be as compelling of opportunity to buyback stocks that was earlier in the year. .

I guess probably that’s probably more of a later than the former Collin, but we purchased $6 million of stock at $35 in Q2 and the open window period because we don’t have a trading plan in place for the regular purchase of stock.

The open window for us didn’t open until about the 1st of August the stock was over $38 at that point in time and it drifted down a little bit towards start of September when the open window closed again.

So the trading arranged was really between $38 and $36 or $37 in that period of time and I think we felt that and the stock has been on upward trajectory. It had a good run for the year and we felt it was just prudent to keep a bit of a dry wonder and wait for a better opportunity. .

Okay, appreciate that Mike. I will turn it over. .

Thanks. .

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

So good morning, Mike, Eric and Jerry. .

Good morning. .

First question is on the tax rate in the fourth quarter. Normally you guys hit close to zero and maybe that’s a function of conservatism and then maybe a little bit because wood the non-REIT business is seasonally softer.

But I was a little surprised to see was it going to be as high as it is, is there anything that you can point to that would make this unusually high for the fourth quarter?.

Yeah, it’s a good question, this is Jerry. And in terms of the fourth quarter tax rate I mean it’s always driven by our taxable re-subsidiary.

So it’s wood product manufacturing and most of our real estate sales and it’s really a statement that wood products is much stronger this fourth quarter than you might have seen certainly last fourth quarter as a point of comparison.

So I think it’s for us it’s not necessarily a good thing to pay tax, but it is in this case because it means those parts of the -- those businesses are doing much better..

Okay. So that’s really the main factor. Okay, and secondly, because that by the way I noticed in the fourth quarter of ‘14 you guys made $9 million, but you still had a zero tax rate. So -- but I know typically you don’t usually have that strong of a fourth quarter.

I guess the second question is on the corporate expense I know it’s -- it looks like to me you’re guiding to something around $39 million, which should be up $10 million from last year.

Is that pretty much all based on the fact that it’s a better year the stock is up and so compensation is up is that the only factor or are there any other things that we should look at especially as we try to forecast next year’s corporate expense?.

No, absolutely. So Chip this is Jerry again. And I think you kind of hit the nail on the head. When you look at year-over-year corporate expense the two largest factors are the bonus which we had none paid out last year.

We’re kind of back to kind of performing much better in a more normal bonus and then you also touched on the mark-to-market given our stock price. So last year our stock price was going down and that was certainly a benefit in the P&L and this year our stock price has been on a nice run and it’s been an expense.

So those are two big components and then the last item to point out is pension has certainly gone up and that’s a non-cash expense, but as discount rates go down that has pushed up expense as well. .

Okay. And if you were to make a guess I guess next year because I know rates are one of the packaging companies were saying that they were sort of it had been worst, but now it’s only about a 50 basis points decline.

So I mean are you thinking that maybe next year pension if we froze rates where they are would be maybe a few million higher is that a good guess..

Yes that one Chip I am not going to guess at this point we will go through a year-end evaluation as of December 31st and then we’ll talk about pension on our fourth quarter call. .

Okay.

And then I guess a last question I have is you mentioned a number of projects, which is really encouraging in some of your wood baskets any update on the big pulp facility that an Asian company is considering in Arkansas that you’ve heard that in terms of the timing of that?.

Yeah so Chip this is Eric. I mean we continue to hear that they are going to break around sometime in the first half next year, they are still working on their permits and what not and then they expect to start up in 2019 lot of uncertainty regarding the timing obviously, but that’s the latest that we’ve got..

Okay, great. Thank you very much. .

Your next question comes from the line of Paul Quinn with RBC Capital Market. .

Yes, thanks very much and morning guys..

Good morning. .

You get a lot of leverage to lumber in general so ask a couple of softwood lumber questions here, one is just on -- it sounds like you expect that countervailing and anti-dumping what is your assessment of the current negotiations and I guess given your expectation at duties you’re giving low probability to the success in negotiations?.

Well I think it’s impossible for us to handicap where we’re at we are probably too far removed other than to say that the two governments continue to negotiate I think the uncertainly over the U.S. election out may be not the outcome but at least the process has slow things down.

And so maybe after that process is completed it will be reenergized a bit. So, but the U.S.

is certainly on course to file and plans to file a trade case at the appropriate time and we fully expect there will be both countervailing and anti-dumping duties assessed as a part of that and we expect those to hit the market in sometime in second quarter of ‘17..

Okay. And then in term of the timing of that filing some people obviously the U.S.

coalition was in position last week to file its been delayed is that a function of the progress and the negotiations or is that more a function of nobody want us to work during Thanks Giving week?.

Yeah I have heard that about the Things Giving week I find that a little hard to believe, I think it’s a more a function on the U.S. filing its case at the appropriate time that will put our best put forward with the commerce department I think that’s the bigger function rather than a holiday period. .

Okay.

And then you guys referencing that two river sawmill coming up in Alabama when I pull up Demopolis on my map and not been an expert in the U.S., so it doesn’t seem that close to your timberlands and either Mississippi or Alabama what do you expect that to be incremental gain or is that just a sign that you’re pointing out that people are increasing lumber capacity in the U.S?.

Yeah so, this is Eric, Paul. Yeah no that mill is going up in Alabama we expect to deliver some wood to that mill, but anytime you have a mill go up that’s remotely close to your wood basket things change in these micro markets. So we are very optimistic about the activity going in the South and in particular in Alabama with that mill. .

If you look at where Newton, Mississippi which is on I-20 and Demopolis, which is a little bit of South of I-20 and Alabama and you put 50 mile working circles around both of those mills that are coming up for kind of transportation circle for Southern pine log I think a lot of hits -- it doesn’t hit our timberlands completely it certainly has a ripple effect to it.

So we are excited about both of them. .

Fair point, okay. And lastly just on capital allocation, it sounds like you guys because of the way you are doing the share buyback to really frozen out for most of the quarter is there a way to get around that so that you’re not -- you got more opportunity to be able to buyback the shares if they dip down below certain threshold. .

Yeah, so Paul this is Jerry. I mean certainly we have the opportunity when we're in an open window and are not in possession of material inside information to put a trading plan in place. We've not chosen to do that at this point largely because we want to stay in control of the decision of when we do and don't purchase at what price..

Right that's all I had best of luck guys. .

Thanks. .

The next question comes from the line of Roger Spitz with Bank of America..

Thank you and good morning. You mentioned investment grade in your remarks, can you remind us what you've said about how important it would be to get to high [indiscernible] rating.

And given the SLA how does a resolution work into that?.

Yeah so Roger this is Jerry Richards and you're correct we did mentioned investment grade and I would describe it as an aspirational goal and I don’t -- it was something that we were investment grade up until the spring with one of the agencies and it was the softness in the lumber pricing and I think was the key that drove that rating down a notch.

And I think when you ask about softwood lumber agreement again you've heard the comment through this morning, but the broader thing that I think supports us moving back is either one or two things paying some more debt down or lumber prices strengthening.

And certainly if we were to mid-cycle EBITDA level and which is kind of what the rating agency is focused on that certainly would improve our metrics dramatically..

I appreciate that, thank you very much. .

Your next question comes from the line of Mark Weintraub with Buckingham Research..

Thank you. First congrats on the refinancing very good terms on that. The -- couple of questions really follow-ons.

First on you mentioned Board is going to meet meeting contemplate the dividend later this year, historically I think you've referenced that it's a window on the timber resources business that was most important in the decision making as to what would potentially happen with the dividend.

It's kind of interesting this conversation a lot of the upside talk has been focusing on the wood product side the lumber business.

I mean even in the answer to that question you referenced for investment grade you referenced lumber pricing as being kind of the variable play, I mean have you shifted at all in the way you're thinking about that kind of the longer term profitability of the business in the importance that lumber plays in the thinking for dividend and the such like?.

No I think lumber pricing drives log pricing. And I think that's what really gets our focus around lumber and we do have a lot of leverage to it. But we are a timber company we are not pure play, but we're a timber company.

The majority of our EBITDA and earnings stream comes from the timber business both in the North and the South and the catalyst for and then incremental dividend increase from where we're at I think is really going to come from improvement in log prices Southern pine log prices is really where we're at.

We don't have a lot of leverage to pull on incremental harvest volume. And the volatility of the cash flow stream from our wood products business has been extremely evolved and all you have to do is look at the slides to see that. We've been as high as $60 million in EBITDA and I think last year it was three.

The Board is very reluctant to build a dividend commitment around that kind of volatility. So the focus continues to be on timber. .

Okay. And then additionally there was a reference to the cedar harvest and I think you had mentioned you have 10-15 years of inventory. Just want to make sure I understand what's being said there.

So is the amount of cedar that's being produced, are you at a sustainable long-term level or is that a business where there is decline that will take place further into the future? I wasn't quite sure how to interpret those comments..

Yeah so Mark, it's Eric. Yeah cedar is a specie that's very, very hard to reestablish in the forest. So when we clear cut we go in and we replant trees very rarely we go in and replant cedar seedlings. They just don't survive animals like to eat them and the success rate doing that is very low. It's never going to go to zero.

There is always natural regeneration out in the forest. But we think we have enough cedar to harvest at these levels for the next 10 to 15 years. And then it gradually ramps down to some lower level. And I don’t want to speculate and what that lower level is, but it’s maybe I don’t know 3% of our volume kind of range.

But this is a long-term issue not anything short-term. .

Okay, great.

And then lastly there obviously you mentioned a lot of money on the sidelines in the timberland space, there is also have been talk about there could be a fair amount of timberlands come on to the market as some of the TIMOs with their funds getting to expiration dates, are you seeing any evidence of that yet or is you’re not really seeing a lot of new properties come on to the market yet?.

We have seen some and there is others that are rumor to be either close to or ready to go to market and those are coming out of the portfolio that Hancock in Louisiana and Texas multi-spot about the first tranche of that about a year ago and there is another large package on the market now in that same area.

So we’re starting to see some of the TIMOs recycle the timberland as their vintage funds reach a 10 or 15 year period and it comes back on the market and from what we sit I think there is a willing number of buyers and a willing number of sellers and prices have held pretty constant due to that..

Great, thanks very much. .

You bet..

[Operator Instructions] Your next question comes from the line of Steve Chercover with Davidson..

Thanks.

Little bit late in the session, but I wanted to get a sense as well on how these sawmills in Arkansas, Mississippi and Alabama impact you? I heard the comment that you don’t anticipate any tension in log markets for several quarters, but do you think when they are all up and running perhaps 2018 we should start to see that ramp?.

Yeah, Steve this is Eric. We are seeing a fair bit of activity all across the South frankly. In terms of incremental capacity going in and that’s true whether it’s pulpwood or sawlog type mills. I read a force to market study just a couple of days ago and in our market area they anticipated prices rising slowly over the next two years about 10%.

With all this activity that we’re see in place that’s going to drive incremental demand for sawlogs and pulpwood a 10% rise in log prices feels about right to us..

And Mike was pretty clear that ultimately it’s lumber prices that drive log prices, which do in the DCF drives land prices. So that helps to explain why the U.S. wants to limit Canadian imports.

But are you concerned that as log -- sorry as the lumber capacity comes on stream it actually limits the appreciation in lumber and to the detriment of your business..

No, I don’t think so Steve, I think we’re in a multi-year run here with housing starts, the economy slowly is draining higher.

If you take a look at it net-net across North America incremental capacity is coming online to the tune of maybe 700 million to 800 million board feet a year and think about what’s happening to demand right now across North America, it’s going up who knows 3 billion board feet a year.

So 700 million feet of incremental capacity is way below the 3 billion of incremental demand and that’s I think a three year outlook that I recently read a report on. So I don’t think, I don’t anticipate it putting downward pressure on lumber prices anytime soon. .

Sounds like a pretty good backdrop.

And then finally, just to define how big bolt-on acquisitions, would it be safe to say that a bolt-on is below $50 million and anything above that threshold becomes kind of a major deal or where is the threshold?.

Yeah, I think I would characterize more as kind of $25 million in less I think it was a more of a bolt-on and we just take cash and buy it and move on and anything above that we probably access to credit markets. And so I’d say the threshold is $25 million if you want to pick a point..

Great, Thanks. .

And there are currently no further questions. I turn the call back over to the presenters for any closing remarks..

Alright, thank you Victoria and thanks to everybody for your interest in Potlatch and your time this morning. Look forward to chatting with you on the next earnings call..

Again thank you for your participation. This concludes today's call. Participants you may now disconnect..