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

Collin Mings - Raymond James Chip Dillon - Vertical Research Ketan Mamtora - BMO Mark Weintraub - Buckingham Research Paul Quinn - RBC Capital Markets George Staphos - Bank of America.

Good morning. My name is Karen and I will be your conference operator today. At this time, I would like to welcome everyone to the Potlatch Fourth 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] I would now like to turn the call over to Mr. Jerry Richards, Vice President and Chief Financial Officer for opening remarks. Sir, you may proceed..

Thank you, Karen, and good morning. Welcome to Potlatch's investor call and webcast covering our fourth 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 fourth quarter results and outlook..

Thanks, Jerry, good morning. Strong performance by each of our three businesses and improved lumber prices drilled solid earnings in 2016. Excluding the Central Idaho timberland sale, our EBITDA increased $21 million or 20% compared to 2015.

Our resource segment managed through weather challenges during 2016 in order to successfully achieve our plan to harvest 4.2 million tons. The segments results benefited from robust cedar log demand and excellent control over log and haul cost.

While Southern pine sawlog prices remained flat this year, we are encouraged by the amount of capital being invested in manufacturing operations in our Southern wood baskets. New mills or restarts our planned or underway and over way to Arkansas, Demopolis Alabama and Louisiana and Newton Mississippi.

It will take time for these capacity additions to absorb the oversupply of sawlogs, and we do not expect meaningful improvement in Southern sawlog prices for several quarters; however, longer than longer term outlook for sawlog price improvement in our wood baskets is improving.

Our wood products mills are operating very well and for the first time we produced 700 million board feet of lumber in 2016. The segments that are quarterly production record in the third quarter and then promptly beat that record in the fourth quarter.

We are seeing the benefits of capital investments made at each of our mills over the past few years as well as productivity and cost initiatives driven by an outstanding workforce. Also our industrial-grade plywood mill continues to generate good returns. Wood products EBITDA increased $30 million this year compared to 2015.

Our Real Estate segment continues to find opportunities to drive shareholder value beyond our regular recurring sales of rural recreational real estate, the segment close several attractive conservation sales this year.

Turning to the balance sheet with lower net debt $125 million this year, we finished the year with $83 million of cash and we repay $42 million of debt that was not due until 2026. We also return $67 million to shareholders in 2016 in the form of dividends and share repurchases.

Our stock price increased 38% in 2016, which narrow the gap between our public equity price and our net asset value. While we traded discount to net asset value, we opted not to purchase any shares in the fourth quarter. We intend to be opportunistic and referred to shares on our stock trades at a deep discount to our net asset value.

Looking ahead to 2017, we anticipate U.S. housing starts to be between 1.2 and 1.3 million units, and we expect repair and remodel markets to remain strong. We expect our harvest and lumber shipment volumes to be flat compared to 2016. We also expect to sell about 20,000 acres in our rural real estate segment this year.

Upside relative to our 2016 results would be driven by higher lumber prices and continued increases in the price of cedar sawlogs. We believe that the softwood lumber trade dispute with Canada will cause lumber prices to be volatile. The U.S.

International Trade Commission made a preliminary ruling earlier this month that Canadian lumber imports have caused injury to the U.S. industry. This means that the U.S. Department of Commerce will continue this investigation into the partition filed by the U.S. Lumber Coalition.

We expect the trade case to result in countervailing and antidumping duties that will take effect in early May and late June. Given that almost half of our EBITDA is directly tied to lumber prices, a favorable outcome to the trade cases important to Potlatch. I’m excited about Potlatch’s prospects and expect 2017 to be another good year.

I’ll now turn it back over to Jerry to talk about the quarter and our forward look.

Jerry?.

Thanks Mike. Beginning with Page 3 of the slides accompanying this call, we reported net income of $14.4 million or $0.35 per diluted share in the fourth quarter. This compares to a net income of $27.6 million or $0.68 per diluted share in the third quarter. EBITDA was $35.1 million in the fourth quarter, compared to $48.8 million last quarter.

The sequential decline in earnings and EBITDA is normal in the fourth quarter and is primarily due to seasonal factors. I’ll now review the results of our operating segments. Information for our Resource segment is displayed on Slides 4 through 6.

Operating income for the segment was $22.7 million in the fourth quarter compared to $33.3 million last quarter. The decrease in earnings is largely due to seasonally sawlog prices and lower harvest volumes.

While down sequentially, the 1.1 million tons that we harvested in the fourth quarter was at the top of the range that we provided on last quarter’s call. I’ll provide more colors as I cover each region. Turning to Slide 5, we delivered 474,000 tons of sawlogs in the North in fourth quarter, which is higher than normal in a fourth quarter.

As we discussed on the third quarter earnings call, we are about 85,000 tons short of our harvest plan through the first three quarters of the year. Our employees and contractors did a good job closing the gap in the fourth quarter. Northern sawlog prices decreased 13% on a per ton basis in the fourth quarter.

About half of this decrease was a result of a seasonally lower a mix of cedar sawlogs in the sales mix. The remainder of the decrease in Northern sawlog price realizations was a result of heavier logs due to higher moisture content and slightly lower prices on a dimensional basis.

Log prices are set on a dimensional basis in Idaho, not based on weight. Demand and prices for cedar sawlog continued to be very strong. The average price for cedar sawlogs increased 6% on the dimensional basis in the fourth quarter compared to the third quarter. I’ll now turn to the South logs on Slide 6.

As discussed on last quarter's earnings call, harvest volumes were below plan through the third quarter due to abnormally wet conditions that interrupted operations. Logging conditions were favorable in the fourth quarter.

As a result, we were able to harvest 617,000 tons in the quarter, which more than made up the short fall relative to the harvest plan. Sawlog prices in the South decreased 7% due primarily to a seasonally lower volume of hardwood logs in the sales mix.

The price of the Southern pine sawlogs in all three of our Southern wood baskets remain flat quarter-over-quarter, and the 2016 average pine sawlog price was equivalent to 2015 prices. Results for the wood product segment are displayed on Slide 7 and 8. Operating income was $8.3 million in the quarter compared to $10.6 million in the third quarter.

This was the segments second highest quarterly earnings in two years and occurred during what is typically a seasonally softer quarter. Our average lumber prices decreased 2% and lumber shipments were 3% higher in the fourth quarter. All of the mills are operating well.

As Mike mentioned, the segment set quarterly lumber production records in both the third and fourth quarters this year. I’ll now shift to our Real Estate segment on Slide 9 and 10. Real Estate's operating income was $6 million in the fourth quarter compared to $5.9 million last quarter.

The segment sold 15% more acres in the fourth quarter as compared to the third quarter. This was offset by a lower average sales price. The current quarter sales mix was more heavily weighted to non-strategic timberland, which has lower selling prices in rural recreational real estate. Real Estate's margin was flat quarter-over-quarter.

Turning to financial highlights on Slide 11, we ended the quarter with cash of $82.6 million. We also have $249 million available on our revolver. Capital expenditures were $4.6 million in the fourth quarter. Total capital expenditures excluding acquisitions were $19.3 million for the year.

Now, I would like to comment on our outlook which is summarized on Slide 12. We plan to harvest 4.2 million tons in 2017, slightly more than half the harvest volumes as planned to occur in the South, which is insistent with the 2016 harvest.

Approximately 90% of the harvest in the north and 47% of a harvest in the south including stumpage is expected to be sawlogs. The quarterly pattern of our harvest was skewed in 2016 by the effect of weather on harvest conditions.

Our 2017 harvest plan assumes a more normal distribution across each of the quarters with slightly lower volumes in the first, second and fourth quarters and higher volume in the third quarter compared to 2016. We expect to harvest between 750,000 and 800,000 tons in the first quarter.

We expect Northern sawlog prices to increase about 1% per ton in the quarter. Higher prices for cedar sawlogs are expected to more than offset the effect of seasonally heavier logs.

We expect Southern sawlog prices to decline 10% to 15% in the first quarter due to seasonally lower percentages hardwood sawlogs in the mix and higher percentage of pine sawlogs in weaker markets. We expect Southern pulpwood prices to increase about 2% in the first quarter relative to the fourth quarter.

As these volumes and prices, we expect resource earnings to be comparable to the $10 million that the segment earned in the first quarter of 2016. Turning to wood products, we expect lumber shipments to be $160 million board feet in the first quarter.

The sequential decline in lumber shipments is due to in large part to three weeks of scheduled downtime at our Warren Arkansas sawmill for boiler maintenance and replacement of pollution control equipment in the first quarter.

The downtime will have a significant effect on wood products financial results in the first quarter due to very high margins for Southern yellow pine lumber. We estimate the lost production and repair maintenance expenses will result in negative effect on EBITDA of about $4 million.

Our forecast assumes that the average lumber price realized will be flat in the first quarter compared to the fourth quarter of 2016. Wood products earnings will be slightly higher than the $1 million of the segment earned in the first quarter of 2016 at these volumes and prices. Shifting to Real Estate, we planned to sell about 20,000 acres in 2017.

We expect that approximately 50% will be rural recreational real estate, 45% HPU and 5% non-strategic. We estimate that land bases will be between 25% and 30% of revenue for the year. In the first quarter, we expect to sell approximately 6,500 acres at an average price of $200,000 per acre.

Approximately 70% of the acres are expected to HPU in the first quarter. We estimate that land bases in the quarter will be just above 30% of revenue.

We expect the corporate expenses will average just over $9 million per quarter in 2017, approximately 40% of these expenses are related to our legacy defined benefit pension plan, which was close to new participants in 2011.

We expect interest expense to be $5 million in the first quarter and $7 million in each of the remaining three quarters of the year. The lower first quarter amount is due to the expected receipt of annual patronage distribution related to our farm credit debt. We estimate an annual tax rate of 10% to 15% in 2017.

We expect the consolidated tax rate to be about 5% in the first quarter. We have budgeted capital expenditures of $27 million for 2017, approximately $15 million is for reforestation cost and logging road construction in our resource segment. Approximately $10 million is planned in our wood products business mostly for maintenance and repair projects.

The wood products spend includes $3 million to install a new stacker at Warren Arkansas sawmill. That project has an estimated IRR of approximately 20%. To summarize, we expect earnings to be lower in the first quarter compared to the fourth quarter.

This is the result of lower lumber shipment volumes due to mill downtime and return in normal seasonally lower harvest volumes. We expect volumes to increase later in the year and a strong lumber and cedar prices will drive another solid year for Potlach. That concludes our prepared remarks. Karen, I would now like to open up the call for Q&A..

[Operator Instructions] And your first question comes from Collin Mings of Raymond James..

First question for me just on the harvest guidance, can you just discuss what's driving the mix shift towards incrementally more sawlogs in the U.S.

South as compared to 2016?.

Yes, Collin this is Eric. I don’t know but it’s a dramatic shift at the end of the day. We had about 39% of our harvest volume and 2016 woods from sawlogs. And that’s not very far different from what we are expecting for 2017. So, I am not sure what you are referring to..

Okay. Just looked like it -- I think in the slide it referenced 47%. So just seemed like an uptick. I was just seeing if there was anything driving that..

Nothing specific Collin, I think it's just overtime. We will see a bit the mix shift though. I think the typical what you would expect in the South is around 50-50. So, I think we are going back to more that norm..

And my numbers were just, not were excluding stumpage Collin. Mine were just around free harvest volumes..

Okay.

And then question just as it relates to potential tax reform, just trying to get a sense of how important are 1031 exchanges as it relates to your real estate pipeline, some of the real estate sales activity that you guys engage in?.

Yes, it’s a good question Collin and certainly overall you weren't asking this question, but we are very encouraged by the tax reform ideas around the table. But specifically on 1031 exchanges, we have used those from time to time in the past. Now that we have move beyond or built in gains window, they are less important to us.

It remains a tool in the tool box, but it's not something that we have used very actively here recently..

And then switching gears a little bit, just during December you guys put out an 8-K just announcing a down-sizing of the Board in conjunction with a retirement.

Any plans to kind of increase the Board again, or are you feeling pretty comfortable with eight members?.

Collin, we have six independent directors, two insiders Eric and myself. But with Boh Dickey, who was a long-time Board member of ours and chaired our audit community, retired this year due to age limitation. We anticipated that and added Linda Breard to our Board over a year ago to take Boh's place.

So, we really are where we intended to be at six independent directors and no plans to change that..

Okay. Just one last question from me and I'll turn it over. Just as it relates to the Ida-Pine mills facility, I guess that was a former plum creek site, but reopening I believe in December.

Any impact, does this have any impact either on your timber business or your mills in Idaho?.

Collin, its Eric. We don’t expect any impact from the opening that mill. It's in Meridian which is outside of Boise, so it's pretty far from our markets. And that also just a remanufacturing mill or plane mill, so no real incremental log demand from that mill..

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

First question is, I just, I’m try, just missed something.

What was the $4 million EBITDA drag that you talked about in the first quarter? Was that tied to a mill project in wood products?.

Yes, Chip. So, at our Warren sawmill, we had an electrostatic participator that’s 26 years old at the mill, pollution control equipment. That needs to be replaced. And while it’s being replaced, we’re going to do some maintenance on our boiler at that facility. So, it's going to force the mill to be down for about 12 days.

It’s going to result in about 10 million feet of loss production. So, the net effect if you include incremental expenses for the repair work in the loss production is going to impact EBITDA Q4 to Q1 of about $4 million..

And then second question is, you mentioned your review that sawlog prices in the South would remain kind of at current levels but that maybe we'd see some progress later in the year.

As you think about your individual wood baskets are you seeing any sort of progress, maybe anecdotal in materials of working down standing inventory that might provide some pricing power, if not later this year, next year?.

Yes. So, Chip we are -- as Mike had mentioned, we are seeing a lot of incremental cap will go into the U.S. South, a lot of mill expansions, a lot of greenfield mills certainly in our three wood baskets. But the force is still growing faster than the rate of which trees are being harvested. So, growth to drain is still putting timber on the stump.

So, our view is we won’t prices Southern new pine prices increase this year. There is a possibility that could start to happen next year, things get more in balance..

And then last question is, you all had talked about or actually implemented a plan a little over a year ago where you would in essence arbitrage the markets given when your stock was -- had a 2 in front of it. Now obviously it's a different story with a 4 in front of it. Just remind us how much you have sort of left on your authorization..

Yes, that’s real quick Chip. We spent about 10% of our 60 million authorizations, so we have 50 million of dry powder left..

Okay. Got you.

And again just to be clear, you're ready to exercise that if the spread gets to a certain level in terms of your view of what the private market value is and whatever that market value is -- sorry, the stock price is at that time?.

Yes. I think it’s fair to say again keep the powder dry until our discount widens and be very opportunistic going forward with that share repurchased authorization..

And your next question comes from the line of Ketan Mamtora with BMO..

First question, can you talk a little bit about what you’re seeing on the M&A side? And how willing will you guys be to take up leverage for the right kind of opportunity?.

Well, the timberland M&A market was pretty active in 2016. They were setting aside the Weyerhaeuser, plum creek transaction, there were dozens of kind of smaller deals in that kind of $50 million to $500 million range. We are evaluated several of those and elected not to purchase any of them in 2016. So, I think the market has been pretty robust.

We expect to continue with the kind of the maturing of some of the TIMO funds and need to for some of their investors to liquidate, and we expect to be more property on the market. Our debt enterprise level today is in the low 20% range.

We feel like with we've got an untapped revolver of $250 million, which actually has an accordion on it we could expand, if needed. So, I think for the right opportunity, we'd certainly look for to continue to grow the Company..

Thanks for that. On that debt to TEV metric, so you said it's right now in the low 20% range.

Would you be open to take it up to kind of mid-30% range, or is that some number that you have in mind?.

Yes, so in terms of upper limit on that debt to total enterprise value, I think that one, Ketan where again to Mike's point, the level of additional debt we would take on really depends on the opportunity.

Something that starts with, what it's specifically that we would be acquiring? What is the cash flow stream? And then what's our comfort level in terms of supporting that debt? So, we haven't provided any public guidance, and quite frankly, there is not hard great line that we think about on that upper limit..

Okay. Thanks for that. And then switching to kind of wood products, obviously have had some very strong production of quarters in lumber, hitting the upper limit on your capacity.

Are you guys starting to think about kind of increasing production there or if you have any debottlenecking projects that you guys are thinking about?.

Yes, Ketan, this is Eric. Yes, we are always looking at debottlenecking projects in each of our facilities, and we've taken our production from I don’t know 625 million feet back in 2015 to 690 million, 700 million feet where we're at today.

So, we are constantly looking for opportunities to grow and expand our wood products business and usually that involves incremental projects down at the mills. So, the answer of your question is, yes..

And do you have anything kind of specific in the next 12 to 24 months that you're all thinking about?.

Well, what Jerry mentioned on the call was the new stacker that we're putting in at our Warren sawmill, it's about a $3 million project with about a 20% IRR. The payback is going to come from reduced headcount, increased production volume, increased great deal. So every year we try to identify a project or two like that and implement it..

Okay, that’s helpful. And then last question. In the past you have talked about the next move in dividend being linked to increase in Southern log prices.

Has there been any change in thinking around that or any update?.

I don’t think so. We -- this year, we generated our cash available for distribution was in access of our dividend this year by between $8 million and $10 million. And we think our dividend is very sustainable, but we are reluctant to institute an increase in the dividend until we can see a pathway for increased Southern sawlog prices.

And to the degree that we think those are still several quarters away, I would be I think management will be reluctant to recommend our Board that we raise the dividend until we can see a improvement in those..

And your next question comes from Mark Weintraub of Buckingham Research..

Thank you.

With interest rates having crept up some of late and as you mentioned the TIMOs having property that's going to be coming to market the next year or so, are you sensing at all any change in the opportunities that might present themselves this year or next 12, 18 months? Or does it feel like the market in terms of the valuations is probably going to remain at the types of levels which up until now you've been very circumspect to get too aggressive on? Clearly you have found some, but in general you've been circumspect..

I think these timberland valuations continue to be quite strong regardless of the region of the country look at. It's very hard to create shareholder value at these kind of full prices that you have to pay for timberland to win. These auctions we've seen no softening of that.

Timberland prices vary, but that's largely to do with the stocking and the quality of the timberland. But for well stock, good quality southern timberland I think deal metrics that are out there still very strong..

And then second, have you seen -- you've been talking about new capacity coming on, et cetera.

Are there any specific projects that you can point to, recent projects that over the next 12 to 18 months, whatever the time frame is, that might be particularly beneficial to some of your wood baskets?.

Yes, Mark. There is clearly some plans that are starting up that will impact our wood baskets -- mill down in down -- was expecting to start in the latest was August of 2017. There is a mill that we were constructed and is started up in 2016. It's going to consume all most 1 million tons of sawlogs a year.

We expect that to be beneficial to our Mississippi operations..

We were delivering logs there today..

Yes, we just started delivering logs there today. There is the Two Rivers mill in Demopolis, Alabama. That's not going to get up and running until third quarter of this year. That Two will consume nearly a million tons a year. So, yes, there's many examples, the Winston plywood in Louisville, Mississippi consumes 700,000 or 800,000 tons a year.

So, all those mills will pressure the wood basket and eventually we'll see some price movement..

Great that's really helpful.

Has the Winston one started up, or is that yet to start up?.

No, I think it's started up..

It started in spring of '16 and it's on a startup curve..

[Operator Instructions] Your next question comes from the line of Paul Quinn of RBC Capital Markets..

Just to dive into the guidance on the Q1 price outlook for the US south, that decrease of 10% to 15%. You mentioned lower mix with less hardwoods and also just a higher percentage of pine sawlogs. Maybe you could just break those out.

The mix issue, how much of the 10% to 15% is related to that as opposed to lower pricing expectation for pine sawlogs?.

Yes, Paul. So, there is a number of factors at play here driving that Southern sawlog price going from Q4 to Q1. So, hardwood is going to drop from about 10% of the mix in Q4 to 3% of mix in Q1 that just normal seasonality in the South.

And in addition to that hardwood prices are coming down a little bit as well in our key market and Arkansas prices are going to go from that 84 bucks to turn down to 69. So back to your question of what's going on with the pine sawlog pricing, in each of those markets or each of tiers pricing is relatively stable.

What's happening is that we are having a mix shift a little bit out of Arkansas which tends to be a little bit higher pricing over into Alabama and Mississippi, which tends to be I don’t know 2 bucks a ton lower in pricing.

So, prices are well, they are stable in each of those markets for each of those tier logs, and we are having a little bit of mix shift this year into those old states..

Okay.

So that idea that pricing on a regional basis is pretty flat is consistent with your idea that timberland values are going to hold at current levels?.

Yes..

All right. And then just flipping over to softwood lumber because it's topical, what's the current status in negotiations right now? We've got a new U.S. government in. I guess there's not formal discussions between Canadian and U.S.

governments at this point, but is the industry still talking? Are you hopeful for some kind of agreement in 2017?.

I think it’s a foregone conclusion that tariffs are going to be implemented later this spring. We view those as interims step to a negotiated agreement that establishes a quota on Canadian lumbers. And I think the industry is united in that and it's really important because it's one that allows the U.S.

producers to invest and grow our lumber business here where is plenty of logs available, their housing starts to improving, there is a good demand for the product. But we need to do that without being impaired by unfairly trading Canadian imports. And the quota is really the only thing that solves that.

I think that -- while I can't predict the timing of it, but I don’t think that it's going to happen soon. There is a couple of reasons for that, the U.S. Trade representative the President, Trump has nominated Robert Lighthizer has to go through a conformation we expect that’s a time.

As you know BC has its elections in May with the premier there running for the office. We think she has been very opposed to the quotas. The U.S. has suggested we expect it's going to take time toward through that after that election process in May in BC. And I think just in general, I don’t see any quick solution to this.

The Canadians are going to want wait and see what the tariffs look like later this spring. So, we will continue to push for negotiated agreements as we go through the year, but expect it will take time. And those reasons expect pricing to be really volatile..

Understood.

Where is your position on quota versus tariff?.

Like the softwood lumber coalitions united and its opinion that a quota is the only the long-term solution to this dispute..

And your next question comes from the line of George Staphos of Bank of America..

I want to pick up on that last topic. So to the extent that you are expecting volatile lumber prices over the course of the year. What ultimately gives you confidence that it sounds like prices would be up in 2017.

You said the year would be driven by amongst I think lumber prices or is that just a stamen of fact and you are not necessarily taking a view on what lumber price will be in 2017?.

Yes, George. It's Eric. So, if you take a look at what the pundits are forecasting for 2017, every single one anticipates higher prices, in the ranges anywhere from up 6% to 7% all the way up 19%.

I think most people have an expectation that this duty will go into place or under the soft number remote go into place to restrict Canadian exports into the U.S. And together, we’ll drive price is higher and most likely it’s not going to happen until the second half of the year.

And our view is consistent with kind of what the pundits are thinking, although maybe not quite as aggressive..

Understood. And I was really referring to the first half of the year before the duties came in.

Are you seeing any change in the flow of wood realizing it’s early in the year from Canada on finish products were not really?.

This year?.

Yes..

Okay. I don’t know that I've seen any data come out for January, and I haven’t heard anything from the field. Last year, the Canadian shipments to the U.S. were up I don’t know some 15%, 20%. So, Canadians are pushing a lot more lumber into the U.S..

I think the only thing that we have seen George and it's perhaps in that, but it is meaningful to parts of our lumber business and that is, there is less in low grade lumber, economy grade lumber, if you will be shifted from Canada into United States, and I think probably with the risks that they have the duties are going to be applied retroactively.

They don't want it on a low grade lumber and our quota is related to that. And so we’ve seen, the prices of low grade lumber in the U.S. increased dramatically, and that’s very meaningful for our state business because about 20% of what we've produced is low grade lumber out of very small logs..

Thanks Mike. That's actually very helpful. I think the last conference call and I think it’s a number that you’ve used in the past as well was I think 12 million tons of incremental wood demand coming into Southern wood baskets overtime.

Is that still the number? Or has there been a change in that at least from your vantage point?.

Yes, that’s a number that we’ve been using, George. It’s in the 12 million to 13 million ton range. It’s not going to happen overnight. Some of these projects like the Sun Paper mill in Arkadelphia are going to take until 2019 perhaps to get started up. But, yes, it’s 12 million to 13 million tons..

Yes. Understand. Just want to say if there is any kind of sequential of change one way or another. The last question I had and this call just a reasonable explanation for this. But it seems like the inventory figure popped up a bit more than I would have expected fourth quarter versus third quarter.

Was there anything behind that that you'd either callout in the past? Or that was just factors specific in the quarter at it rose? Thank you..

Inventory of what?.

Just on your balance sheet looking at the cash flow statement, it was a sequential change if I look at it correctly on working capital.

And as I look at the year as well, this year you had about $15.5 million of inventory on the cash flow statement negative cash drop well over so much number in 2015?.

So, George, this is Jerry. So, your observation is spot on, and we ended the year with relatively high inventories and most of that increase came in the formal logs. I think if you were to look at the end of 2015, we actually were light on the log inventories.

And I could remember Q1 or Q2 earnings call talking about, actually it's probably Q1 running out of logs in our Northern region. So, we cautiously built those inventories little higher this year and expect that that will flip and turn into cash, first half of the year as we work through the seasonality..

And there are no further questions at this time. I would like to turn the call back over to management for any closing remarks..

Thank you, Karen. And thank you all for your interest in Potlatch. We look forward to catching up on next quarter's call..

This does conclude today's conference call. Thank you for joining us today. And all participants may now disconnect..