Boise Cascade Company (BCC) Q4 2014 Earnings Report, Transcript and Summary

Good morning. My name is Danielle, and I will be your conference facilitator today. At this time, I would like to welcome everyone to Boise Cascade's Fourth Quarter 2014 Conference Call. [Operator Instructions] Before we begin, I remind you that this call may contain forward-looking statements about the company's future business prospects and anticipated financial performance. These statements are not guarantee of future performance, and the company undertakes no duty to update them. Although these statements reflect management's expectations today, they are subject to a number of business risks and uncertainties. Actual results may differ materially from those expressed or implied in this call. For a discussion of the factors that may cause actual results to differ from the results anticipated, please refer to the Boise Cascade's recent filings with the SEC. It is now my pleasure to introduce to you Wayne Rancourt, Executive Vice President, CFO and Treasurer of Boise Cascade. Mr. Rancourt, you may begin your conference.

Thank you, Danielle. Good morning, everyone, and I'd like to welcome you to Boise Cascade's Fourth Quarter 2014 Earnings Call and Business Update. Joining me on today's call are Tom Carlile, our current CEO; Tom Corrick, who will be taking over as CEO in early March; Dan Hutchinson, Head of our Wood Products operations; and Nick Stokes, Head of our Building Materials Distribution operations. Turning to Slide 2. I would point out the information regarding our forward-looking statements. The appendix of the presentation includes reconciliations from our GAAP net income to adjusted net income and to EBITDA. Now I'd like to turn the call over to Tom Carlile.

Good morning. Thank you for joining us on our earnings call today. I'm on Slide 3. Both of our businesses had seasonally weaker performance in the fourth quarter of 2014 but turned in a very good incremental performance for the full year. We did see a slowdown in Engineered Wood Products sales volumes in both businesses in the quarter beyond the typical seasonal weakness. The fourth quarter slowdown followed the strong shipments in the second and third quarter of '14 as customers accelerated purchases in response to increasing prices and extended order files. Housing starts in 2014 did not improve nearly as much as anticipated at the beginning of the year. But even with modest growth in housing, we're able to leverage earnings during the year. Sales for the company were up 8% for the fourth quarter and 9% for the full year. Our net income in the fourth quarter was $15.7 million or $0.40 per share, up 60% compared to prior year. For the full year, our net income was $80 million, up 66% compared to 2013 adjusted net income. Our reported earnings per share for 2014 were $2.03. As most of you know, we have 3 major legs in our earnings platform. The first leg, plywood, had another strong year in 2014, with average prices essentially equal to 2013 levels and the benefit of additional volume from our late 2013 acquisition of 2 plants in the Carolinas. The second leg, Engineered Wood Products, continued to recover in 2014 with better sales volumes and prices. Lower OSB costs used in manufacturing our I-joists also helped our EWP earnings performance. Our third major leg, Building Materials Distribution, successively grew its top line in 2014 while remaining focused on profitability and efficient working capital utilization. In addition to the major drivers, pine lumber and particleboard also had good incremental earnings performance in 2014. As I'm sure you all know, I will be retiring as CEO effective March 6. It has been my pleasure to serve as Boise Cascade's CEO since 2009. I will continue to serve on the Board of Directors. Tom Corrick, who previously led the Wood Products business and has 32 years with Boise Cascade, will be taking over the reins as CEO. Besides Tom Corrick, I want to acknowledge Nick Stokes and Dan Hutchinson for the efforts they have made as new leaders in the Building Materials Distribution and Wood Products business. The company has maintained a strong focus on fixation planning, and I'm very pleased to let the leadership transition in both businesses. We have also made good progress in adding new members to our Board of Directors as Madison Dearborn representatives have transitioned off of our board. I would expect changes to the board to be completed in the near future. I have been extremely pleased with the quality of the individuals who we've been able to attract as new board members. I appreciate the support I've received from our employees, customers, suppliers, investors, the analyst community and our Board of Directors. Boise Cascade is in good hands with Tom Corrick and the rest of the leadership team. My time with the company has been a great experience. With that overview, I'll ask Wayne to cover the detailed financial results.

Thank you, Tom. Turning to Slide 4. Our Wood Products fourth quarter sales, including sales to our Building Materials Distribution segment, were $317 million, up 5% compared with last year's fourth quarter. The sales growth was driven primarily by plywood and EWP sales price increases, offset partially by sales volume decreases in plywood and EWP. Improved lumber particleboard and byproduct sales also contributed to the positive comparison. Wood Products fourth quarter EBITDA was $34.2 million, up 36% from the year-ago quarter. The increase in EBITDA was due primarily to higher plywood and EWP sales prices, offset partially by higher log costs. Building Materials Distribution sales increased 9% to $669 million for the fourth quarter compared with the same quarter in the prior year. The increase in sales was driven by a 7% increase in sales volumes and a 2% improvement in sales prices. BMD reported quarterly EBITDA of $13 million, down 3% from last year's fourth quarter. The EBITDA margin compression in the fourth quarter 2014 compared to the prior-year quarter resulted primarily from lower gross margins on commodity lumber products. Fourth quarter gross margins were in line with the full year 2014 average gross margins, which were up 50 basis points from the gross margins reported in 2013. You may recall the major commodity price drops that occurred in second quarter 2013 and squeezed gross margins. As Tom mentioned, total company net income was $15.7 million for the quarter or $0.40 per share. Our effective tax rate for the quarter dropped to 32%, which reflected the benefit of tax extender legislation passed by Congress late in the year. Turning to Slide 5. Our fourth quarter Wood Product -- excuse me, our fourth quarter plywood sales volumes in Wood Products were down 4% compared to the same period a year ago. Our reported plywood sales volumes in Wood Products include plywood we purchased from third parties for resale into the home center channel. Those purchase and resale volumes have declined significantly since the first quarter of 2014, which is responsible for the majority of the negative volume comparison. Our $330 average net sales price for plywood was up 9% compared to fourth quarter 2013. Sequentially, plywood prices were down $5 from our third quarter average wood prices, declining slowly throughout fourth quarter. Plywood prices for the first 6 weeks of 2015 has started out lower than our fourth quarter average, but we are seeing some firming as we move toward the end of winter. As a reminder, a $10 move in average plywood price realization translates to about a $4 million change in EBITDA per quarter for our Wood Products business if all else is held constant. Turning to Slide 6. Our fourth quarter sales volumes for LVL and I-joists were down 1% and 10%, respectively, compared with the year-ago quarter. We believe the weaker demand in the fourth quarter reflects the pull forward in orders we experienced in second and third quarter 2014 in reaction to our price increase announcement as well as extended order files. The full year of 2014 sales volume increase for our Engineered Wood Products is in line with what we would have expected based on the improvement we saw in housing start activity. Our LVL and I-joist sale price realizations improved 3% and 7%, respectively, from the year-ago quarter. Our LVL realization declined 2% sequentially from third quarter of 2014. I-joists realizations were flat sequentially. The slightly lower LVL net prices in the fourth quarter compared to third quarter were a function of customer mix issues and were not an indication of price changes in the marketplace. We expect to see improved net price realizations on Engineered Wood Products in 2015 as our capacity utilization moves higher with increased demand from new residential construction. And we see the full year impact of price increases implemented in 2014. Moving to Slide 7. BMD's fourth quarter sales were $669 million, up 9% compared with the year-ago quarter. By product area, BMD sales of general line products increased 14%, EWP sales increased 7%, and commodity sales increased 6%. As I mentioned earlier, gross margins for BMD declined by 50 basis points compared with last year's fourth quarter, primarily as a result of lower gross margins on commodity lumber products. In 2014, full year EBITDA margin for BMD of 2.4% reflects the potential earnings power of this business in the current demand environment. We believe we can add roughly $1 billion in the organic revenue growth as housing gets back to 1.4 million to 1.5 million starts. And we continue to target mid-cycle EBITDA margins in that business around 3%. On Slide 8, we have set out the key elements of our working capital. Company networking capital, excluding tax items and accrued interest, decreased $2.4 million during the fourth quarter. In 2014, the businesses managed inventory growth very well relative to our increase in sales. As a reminder, the statistical information filed as Exhibit 99.2 to our 8-K this morning has the receivables, inventory and accounts payable data broken down by segment for those that are interested in more detail. I'm now on Slide 9. We used $6.5 million of cash in fourth quarter and ended the quarter with total available liquidity of $430 million. The decline in liquidity compared to the end of second -- at the end of September resulted from lower bank credit line availability with the seasonal decline in accounts receivable and inventory. During 2014, we generated $45.3 million of cash and strengthened our balance sheet position. For those of you modeling our 2015 earnings, I'll quickly cover a few key areas impacting cash flow. You should assume noncash pension expense of approximately $7 million in 2015, which is $6 million higher than the pension expense we reported in 2014. We currently expect to contribute $15 million of cash to our pension plan during the year. Since the vast majority of our pension benefits are frozen, we will be exploring reporting our legacy pension expense in our corporate segment beginning in 2015 rather than allocating it to Wood Products, BMD and our corporate segment. We will be reviewing our organic growth and other capital allocation opportunities with the Board of Directors next week. Our base capital plans for 2015 are similar to 2014 spending level of $61 million. If the guidance for 2015 capital spending changes, we will communicate appropriately. At this point, I expect our book tax rate for 2015 to be between 36% and 38%. First quarter is progressing as expected, with seasonally weaker demand and winter weather sporadically disrupting construction activity in individual markets. In any given year, we would normally expect our strongest revenues and earnings in the second and third quarters. Plywood prices reported by Random Lengths for the first 6 weeks of 2015 are above the year-ago levels. However, the first 6 weeks are below the average levels we experienced in the fourth quarter. We currently expect Wood Products to report improved earnings in first quarter 2015 compared to the year-ago quarter and probably similar to fourth quarter -- or of last year. Based on January and early February activity, we anticipate BMD's EBITDA in the first quarter '15 to be below the fourth quarter of '14 and closer to the $8 million earned in the first quarter of '14. I would now like to turn the call over to Tom Corrick to discuss his new role and the longer-term outlook for the company.

Thank you, Wayne. Before I cover the outlook on Slide 10, I would like to thank our employees for a very good performance in 2014. I would also like to publicly congratulate Tom Carlile on his retirement and thank him for his leadership of Boise Cascade during the depths of the housing downturn and the first part of the recovery. I look forward to working with Tom and our other board members as well as Dan, Nick, Wayne and the rest of our management team in moving ahead on our business strategies. You should not expect major directional changes from what we have been discussing the last 2 years. We have been consistent since our original IPO roadshow meetings in saying that we thought we could deliver a mid-cycle EBITDA performance of $250 million with 1.4 million to 1.5 million housing starts. We bumped that figure up to $270 million after purchasing the 2 plywood facilities in the Carolinas. Generating $196.6 million of EBITDA in 2014, with housing starts only recovering to 1 million starts, gives us confidence that we are on the path to perform in line with our guidance. Our priorities remain to focus on operational excellence while pursuing organic and strategic growth. As Wayne mentioned, we generated $45 million of cash in 2014, and we have good liquidity. Our priorities are no different than what has been described in the past. We want to grow organically and pursue acquisitions that we believe will provide a favorable return to our investors. If we generate cash beyond what we can reinvest in growing the business constructively, we will look to return cash to our shareholders through share repurchases or establishing a dividend. Our outlook for 2015 is for another year of modest improvement in housing starts. The Blue Chip consensus estimate for 2015 total U.S. housing starts now stands at 1.16 million, which would be up about 16% from the 1 million starts experienced in 2014. We are planning for 1.1 million starts this year and not expecting acceleration in the slow pace of the recovery. We are well prepared to respond if demand proves to be better or worse than forecast. We do believe demographics in the U.S. support a return to residual construction of 1.4 billion to 1.5 billion (sic) [1.4 million to 1.5 million] total starts per year in the years ahead. We will continue to manage our business to be supportive of our customers and capture the opportunities the markets present. Looking forward to the -- on the upcoming year, we expect to see additional operational improvements from our Boise Improvement Cycle management process in manufacturing. We also expect EWP sales volumes and prices to continue on an upward trend as housing recovers. And we should benefit from further revenue and earnings growth in our distribution business. However, we recognize we face a tough challenge to repeat the incremental EBITDA performance we generated in 2014. Much will depend upon key product pricing and where demand plays out relative to industry supply for key commodities that we produce and distribute. Finally, we continue to seek out ways to deploy cash effectively to raise our mid-cycle guidance or otherwise create shareholder value. We are evaluating accelerating organic growth opportunities in our Wood Products business as well as potential options for returning excess cash to shareholders. Value-adding acquisitions have been difficult to identify over the last year, but we will continue to identify and pursue good opportunities in the year ahead. Thank you, again, for joining us on our call this morning. We would welcome any questions at this time. Operator, would you please open the phone lines?

[Operator Instructions] And our first question comes from Mark Wilde from BMO Capital Markets.

I want to just add my congratulations to Tom. I think it's really impressive what's happened here over the last 10 years and particularly the way you guys managed through the downturn. So again, congratulations, and enjoy retirement. I wanted to just follow up on those last comments that Tom Corrick made about kind of accelerating looking at growth opportunities in Wood Products as well as the return of cash to shareholders. Can you put a little more color on that, Tom?

Sure. We're evaluating. We've -- as I think you're well aware, Mark, we've been looking at opportunities to continue to produce low-cost internal veneer relative to our EWP business. And we had a number of opportunities identified in that arena that we're evaluating. So we're continuing to look at those opportunities as well some cost savings opportunities. Relative to returning cash to shareholders, we've had an ongoing dialogue with the board that I know will be continuing at this next board meeting, and we'll update you based on what happens in that meeting.

Okay. And just to follow back on the veneer, Tom, would that more likely be at like an existing location? Or would that be kind of adding kind of new locations to the portfolio?

We're looking at existing locations, Mark.

Okay. And a couple of other questions. I wonder...

Another issue I'd add there is this really focuses on taking older pieces of equipment and replacing them with more modern pieces of equipment. So it's very much an incremental activity in our -- in the operations of the plywood and veneer plants.

Okay. All right, that's helpful. Another question along those lines, Tom. I wondered if you could just update us on kind of what you see out there in terms of new supply and plywood because I think Georgia Pacific has talked about restarting a mill, and then I see that the guys you bought the Carolina mills from, Atlas, are rebuilding and expanding a mill that burned down a few years ago. And I don't know if there's anything else out there that I might have missed.

Those are the 2 things that we know about, Mark. We've not heard anything from Georgia Pacific since they made their original announcement. And the Winston project that Atlas is pursuing, really you probably know as much from their news releases as we do. So -- but those are the only 2 things that we're aware of. Outside of that really, all the idle capacity in the industry is controlled by Georgia Pacific.

Okay. And then, Wayne, just a question for you on kind of log costs in the fourth quarter. You called them out as a source of headwind in the fourth quarter. I wondered if you could just talk about what you saw versus what some of us have seen kind of published in Timber Mart-South that showed some pretty big year-over -- or quarter-to-quarter increases in both North Carolina and Louisiana during the fourth quarter.

Yes. We're seeing relatively modest increases in stumpage prices in the south and not much change in our delivered log costs, probably mid-single digits on the West Coast. There was less pressure than there has been coming out of Asia, and we don't really expect that to change. If you -- and that was a little complicated. But our wood costs -- and the other thing that can impact our wood costs, and we saw this in third and fourth quarter, is as we ramp up EWP, our recoveries are generally lower for trying to maximize veneer production for EWP. Our wood cost recoveries go down. So -- and that drives up our consumed cost of logs, not that the log price is changing, but the amount of wood we use in the EWP is higher than what it would be going into plywood.

Okay, all right. And just the -- just one final thing on that. I think you said mid-single digits in terms of your log costs out west in 2015. Is there any potential with kind of log exports slowing that we could actually see...

Well, Mark, that was in '14. A lot of '15 will depend, frankly, on what happens on the economic activity on the Pacific Rim.

Yes, okay. Do you see any potential that, that -- those costs may actually be down a bit in '15?

I would not expect them to be down if we get the increment in housing starts because I think we'll see more dimension lumber come on.

And your next question comes from Chip Dillon from Vertical Research partners.

Congratulations, Tom Carlile, and I wish you the best. First question is, you mentioned in the '15 guidance that I think you said pension expense would go from, I think, $1 million to $7 million. I might have missed that. Is that right?

Yes.

Okay. And the cash contribution you mentioned would be $15 million in '15. What was it in '14?

$12 million.

$12 million. Okay, got you. That's helpful. And then you -- when we look at -- one other little nitpick here, do you happen to have -- I know you usually put this in the K, the lumber volumes in the fourth quarter or for the year?

Can you follow up with me after -- yes, we've got lumber volumes for the year relative to '13 were up 6% for the full year.

Okay, that's good enough. And then when you look at the guidance for the first quarter, if I heard you right, you sort of said -- and I know things can change because it's just midway through the quarter, but the Wood Products income looks to be, I guess, up versus a year ago's first quarter and comparable to the fourth quarter and while Building Materials would be about flat. And if I think about that, does -- was there any other major change that would -- you would expect to see? Because that would look like maybe a roughly $10 million -- I'm sorry, yes, about -- a roughly $6 million, I would suppose, EBIT improvement year-to-year from the first quarter since that's what it looks like the fourth was versus the first.

Yes. As I said, I think the way to think about Wood Products -- and to your point, there's still 6 weeks to go. But for guidance, somewhere between fourth quarter '14 and first quarter '14 is probably where we think first quarter of this year will come out for wood. And as I said, the pension expense will be an increment, but other than the guidance we've given on BMD to be close to last year's EBITDA, and we've kind of bookended wood for you, we'll see how the next 6 weeks of winter goes.

Got you, got you. Well, and then as you look at the situation with -- of pricing, you mentioned that engineered wood looks to be up in '15 from what you can see based on the flow-through of what happened in '14 and maybe some enhancement. How does plywood look year-over-year? Has that been kind of dragged down a little bit in your experience? Maybe you're starting to see some influence maybe from OSB. Or do you still -- do you think that pricing could still stay flat or even rise from '14?

Well, Chip, I think we obviously saw a pretty significant price increase last summer when the fire occurred at the Swanson mill in Springfield, Oregon. And basically, from that fire, we had very significant increases in pricing and then a kind of a steady decline, particularly in the fourth quarter, in plywood pricing. We're well above last year at this point this year in terms of where plywood prices are. Market supply seems pretty stable, but it's a commodity. And there are a lot of factors that can push that price either way pretty quickly. I think if there's one unit too many, you tend to have pretty -- it's a -- you tend to have volatile pricing downward. And if there's one unit too few, you tend to see volatile pricing upward. So it's really hard to get a sense other than the supply-demand situation as we look at it between the fact that more veneers will be going into EWP. We also see some growth in the general economy and some plywood going into the growth of new res despite demand situation looks good to us going forward.

Okay. I know, Tom Carlile, you mentioned probably a couple of years ago, right around the time of the IPO or shortly after, you were talking about how there was -- in one example, I think, you gave was foundation builders in Phoenix are -- in terms of the supply constraints. And as you talked to people out in the field, is it your sense -- you mentioned the demographics look good for the 1.4 million to 1.5 million starts eventually. But do you see that -- is it still a demand issue? Or could we actually be seeing a supply -- continued supply constraints that might be the culprit, at least in the near term, like this year, keeping these numbers near historically low levels on the starts?

Yes. Chip, I think Tom Corrick is more familiar being out in the field recently than I have been. But I think there could be supply constraints at a -- if we have a significant increase year-over-year. Tom, what's -- what are you hearing out in the field?

I think that the supply challenges become pretty significant. We've -- I think we've said routinely that we believe that challenges become very significant when starts increase more than 150,000 a year. Two big issues that I think really play into that. One is labor and whether it's staffing up a mill or getting a framing crew, finding people to drive trucks in the distribution yard. And the second piece is transportation to a degree we get a significant increase in demand. That said, it's -- we saw a lot of pressure last summer even at 100,000 starts in terms of transportation from our mills to our customers.

And your next question comes from Adam Rudiger from Wells Fargo Securities.

Congratulations to both Toms. I wanted to ask a little bit more about the pull forward in demand related to the price increases. Do you think that's over with and that -- can you -- you mentioned seasonal weakness in the first quarter that you've typically expected. But can you talk about maybe what the volumes in EWP and LVL are for what you're -- what we should roughly expect or any trends so far this quarter? I'm just trying to get a sense of what the volume impact might be in the first quarter.

Yes. First off, Adam, it's fair to say that the fourth quarter and the first quarter, there's -- building activities significantly reduced compared to the second and third quarter. So we're always going to see that downturn in both the fourth and first quarters. I would tell you that it's based on talking to customers that I think inventories were very much in line at the end of the year across the system on EWP. If you look at the total year, our growth was actually a little better than our primary competitors who report publicly. And I would expect that that would continue going forward. But again, the great driver on sales is going to be housing starts. I would finally add that we certainly saw nothing in the fourth quarter that looked like customers moving from buying from us to competitors.

Okay, that's helpful. And then it wasn't a big deal, but any comment on the decline in plywood volume?

Yes. The plywood volume decline was primarily as a result of not having the home center business that we had in late '13. We had some that we were buying plywood from outside third parties and putting it into VMI programs for home centers. And we didn't have that activity in the last quarter of '14.

And your next question comes from Bill Hoffmann from RBC Capital Markets.

Just a follow-up. Tom, you mentioned from a strategic standpoint, you're still looking at acquisitions, also some share buybacks, et cetera, and just sort of like to get your thoughts as you move forward. One, we talked about valuations in Wood Products being difficult, but if we're still kind of in a slow cycle recovery, I would expect that it would be better to buy now as opposed to later. And then the second thing is just from a standpoint of using the balance sheet, maybe some of your thoughts on whether you would be more aggressive using the balance sheet to grow.

Well, I -- a starting point on that question, Bill, I think just as I -- we always joked on the IPO roadshow that 3 people in the room are all ex-internal auditors. And so I think we're going to be very thoughtful as we approach acquisition alternatives. And if we don't see them being beneficial long term to our shareholders, we're probably not going to proceed with them. Our -- the space that we're most interested in, which is plywood and veneer assets and, to a lesser degree, fill-in and BMD, frankly, there have been very few opportunities out there. And we continue to look, but you can only buy when somebody's willing to sell. But we're going to continue to evaluate those opportunities. We've got great liquidity and good financial flexibility. I think we have a good plan to execute against what we see in the opportunities that we're interested in.

Got it. And how about using the balance sheet maybe just for dividend or shareholder return purposes then if there aren't those kind of activities?

Well, I mean, that's -- as many of you know, we've been having those conversations with our board since last April. And clearly, '14 was another good year, and we expect '15 to be another good year. And we will have that conversation again with our board. If you look at where we are on debt levels, we're well inside the 2.5x to 3x that we think about on a gross debt basis for leverage. So we've got capacity to do it off of our balance sheet, and I would expect that we have that conversation again next week. But we'll see what the board thinks, but certainly, as the management team, we are aware that we have more liquidity on our balance sheet than we need.

Providing [indiscernible].

Acquisition opportunities.

Yes.

And your next question comes from Steve Chercover from Davidson. Steven Chercover - D.A. Davidson & Co., Research Division: Congratulations to both Toms. So I was just wondering, did seasonal downtime have any impact whatsoever on the margins in Wood Products? We know that log prices were high.

I think, Steve, really if you look at the numbers and you look at our EWP volumes and pricing and just take the math that's involved there, you'll see a $35 million decline in EWP revenue. And that really was the primary driver in the difference between the third and fourth quarters. Steven Chercover - D.A. Davidson & Co., Research Division: Okay. And...

But we do...

Go ahead, Wayne.

We do systemically try to schedule capital projects in fourth quarter and first quarter. And part of that, if you look at the sequential decline in plywood prices only being $5, if you think about Thanksgiving, Christmas, other holiday events, we're very thoughtful in terms of how much product we're putting into the marketplace relative to demand. And we continue to try to be pretty disciplined in that regard. And in first quarter, we will have some production disruptions in our Eastern region as we put our new dryer into the Chester, South Carolina facility. That dryer is currently expected to come up late first quarter, early second quarter. But again, we're trying to time that when market demand for our product is lower so that we can minimize any price impacts. Steven Chercover - D.A. Davidson & Co., Research Division: It's amazing how managing supply can be beneficial in the short and long run.

Yes, it turns out that's a good thing. Steven Chercover - D.A. Davidson & Co., Research Division: Exactly. So Wayne, you indicated that rising economic activity in North America will offset the decline in Chinese log demand. Do you have any view on how resins might play out given the decline in energy prices?

Steve, we're seeing -- our contracts for resin are tied to underlying chemical costs that go into making those resins. And we are seeing a decline in resin costs right now. Steven Chercover - D.A. Davidson & Co., Research Division: Great. And, well, a couple of questions on Canada because I'm a part-time hoser. You said the acquisition landscape is -- people -- not a lot of deals out there because people have got inflated views of their assets. But would the surging dollar versus the loonie make Canadian acquisitions perhaps more attractive and/or probable?

Certainly more attractive. And again, I think that for us, the key is going to be we certainly wouldn't make an acquisition based on a financing issue like currency. It needs to be core to our strategy and long-term value enhancing. Again, I think we'll continue to look at it. We've -- certainly, there's opportunities in both manufacturing and distribution in Canada. But at this point, I don't think we specifically focus in that direction. Steven Chercover - D.A. Davidson & Co., Research Division: Yes, I understand, but it's always about the product, not the geography. And then finally, I recognize you're not really a player in dimension lumber, but you certainly distribute it. Do you have any views on the expiry of the softwood lumber agreement and how that might play out?

No idea at all.

Your next question is from Alex Ovshey from Goldman Sachs.

It's actually Usha Guntupalli on for Alex. Congratulations to both Tom Carlile and Tom Corrick.

Thank you.

Great. Quick question on the Engineered Wood products. So could you tell us what your current utilization rate is? And based on your outlook for 2015, how do you see margins ramping in that business?

Well, we -- I think similar to the industry, we operated in the range of somewhere between 65% and 70% capacity utilization in 2014. Historically, anything for the industry above 85% is challenging to do just due to seasonal patterns for the industry in terms of higher demand in the summertime than the wintertime. Certainly, within the framework of the sorts of increases we see next year, we'll see continued capacity utilization increases but still well inside the capability of the industry.

That's helpful. And just a follow-up. Would you be able to comment how much veneer you expect to be used in EWP versus plywood for '15?

If you call me offline, I can help you work through some conversions on cubic feet of 3/8" veneer into 1 foot of LVL cubic production. But let's do that offline.

Okay, that's helpful. I guess one more then. So you talked about the fiber costs. But outside of fiber, are there any cost inputs where you expect a lot of movement year-on-year, whether it's energy, fuel or chemicals for 2015?

Not that -- no, we don't think so.

And your next question comes [indiscernible] from Brookstone [ph] Capital.

So you guys have been talking for a couple of quarters now about the M&A pipeline being tough because multiples are high. I guess I was wondering as part of your evaluation process of the capital structure, are you potentially looking at sort of taking the other side of that and seeing if you could go back into the private market and get a really high-value valuation on a buyout? Have you had any of those kind of potential conversations or approaches? Would just be curious given the robust financing environment and your completely unlevered balance sheet, it seems like you might be a right candidate for that.

I mean, I think your observation is fair. Obviously, we're seeing a significant change on our stock price this morning. But when we think about acquisitions, we are looking at what we think the businesses will generate over the cycle, what we think the growth opportunities are and appropriate multiples. And I would be -- probably on things that are being looked at by other strategic players, we're fully prepared to be competitive. If -- in a couple of cases that we worked on where private equity can get involved and particularly, if they're willing to make aggressive adjustments to EBITDA and get to an adjusted EBITDA number. In a couple of cases, we've put EBITDA multiples on that we think are appropriate, and we've seen private equity guys, frankly, put debt multiples in excess of what we thought the total valuation would be. And that's to Tom Corrick's point, we're trying to be disciplined, look at assets in veneer and EWP that fits strategically and where we can get synergies. But we're not going to overpay for assets. And it's part of the reason, frankly, we've been disciplined on share repurchases. We've also looked at expectations for us, and we want to make sure if we do share repurchases, we do it in a way that is rewarding for the shareholders that remain invested in the company because by definition, when we do a share repurchase, it's giving money to someone who's leaving the party. And we want to make sure that if we do, we do it in a way that adds values for long-term shareholders of the company.

I guess you keep mentioning your conversations with the board, again, for the past several quarters. Is there reluctance from the board to lever up the balance sheet? And if so, what would be driving that given that you're basically running unlevered and private competitors are substantially more levered than you are and are financing themselves at rock-bottom rates?

Yes. And the discussion with the board has been around -- if you were ticking the 3 often priorities, first priority is get the organic growth and take advantage of the internal investment opportunities that we have. And as Tom Corrick mentioned, we're going to talk to the board about that next week. There are some things we've identified, and we're feeling better about the ongoing housing recovery that we may accelerate some of those, and we'll come back to you if we do. Second, the board has said, if there are opportunities to grow the company, and we've knocked on a lot of doors and, as Tom Corrick explained, it takes a willing seller. But we continue to knock on a lot of doors trying to acquire assets. And the board has said, before you give your capital back, if you have an opportunity to add value in one of the 2 previous categories, the organic growth and acquisitions, do that first. And the fact that we've been, in my mind, underlevered a couple of quarters, the board has asked us to be patient strategically. And as I say, we intend to have that conversation again next week because obviously, we improved the balance sheet by $45 million. We improved our EBITDA considerably. So those leverage metrics and our balance sheet are better than they were when we had that conversation in July and November. And so we're going to have a conversation with the board again. But it's really in that context.

And I would add as well that the recovery obviously in housing has been neither robust and, at times, had some fairly significant fluctuations to it. Really, 2014 was the first year that we've generated positive cash flow as a company since the downturn. And we're really at the point of change, the tipping point in terms of where we think the economy and where, frankly, a cash flow on our balance sheet is going. So I think we're having this conversation internally at the right time.

Would you be willing to finance some of this organic growth that you're exploring with debt? I mean, given that the rates are so low, how could it not be accretive to do it with debt?

Yes. The question is, if we went and issued $150 million of new debt, for example, if we did that to fund a capital plan, the capital plan's not going to play out in full in '15 and '16. And so part of it, we would get -- unless you did a debt offering with the view of doing an accelerated share repurchase or something, we're quite comfortable, as Tom Corrick said, with our internal cash flow generation and our balance sheet that we can fund anything we want to do on the organic side. Plus, today, we could do $100 million acquisition off our balance sheet without batting an eye. So it's really is, to Tom Corrick's point, the $45 million that we generated in '14, the conversation with the board is, how do we avoid continuing to pile up cash? Because we really -- outside of organic growth opportunities, we don't have good uses internally in terms of paying down debt. We're going to put a modest amount in a pension plan, but we need to find a good mechanic for returning cash to shareholders if we can't find acquisitions.

Right. Yes, I mean, this seems like, again, from a shareholder perspective, understanding that more markets are fickle, it would just seem that it would be great for you to actually advantage of this high yield of -- and just general debt market environment and use that for the benefit of the shareholder.

And if I had a good use of proceeds other than shrinking the market capital and liquidity of the company, we would probably be inclined to do that. But at $40 a share, which we were trading at, there would not have been a lot of appetite to lever up the balance sheet and buy back stock.

[Operator Instructions] Your next question comes from George Staphos from Bank of America.

This is actually John Babcock sitting in for George. I just wanted to ask you quickly. You talked a little bit earlier about some opportunities for cost savings within the firm, and I'm just wondering if you could elaborate on that a little bit.

Well, really 2 areas. The first is that we've had a continuing focus particularly in the manufacturing side of our business with our -- what we call the Boise Improvement Cycle, but it's kind of a classic total quality process improvement process, very formalized, very carefully measured that I would believe has been providing significant improvements in performance over the last several years. And we think that you can see that in our numbers for sure. In addition, some of the organic opportunities that we're evaluating right now, particularly in the regions where we don't see big growth opportunities and relatively high log costs, we're focused on projects that would allow us to reduce the unit wood cost in our product and generate higher realizations from grade improvement.

Okay, great. And then otherwise, on top of that, I was just wondering, in both plywood and EWP, have you guys seen any differences in demand on a regional basis? Or has it been pretty consistent across the country?

I would say that it's really very much in line with what you've just seen, for example, with the Census Bureau in terms of housing starts. Obviously, weather plays a role. We're probably not selling a lot of EWP in Boston this week. But I don't see anything regionally that is unusual at this point. We're obviously carefully watching the impact of oil on particularly the Texas and Oklahoma markets and Louisiana. But to date haven't seen anything happen there.

Okay, great. Then just quickly on that last point there, I was just wondering, as it kind of pertains to freight, in particular, we have seen a fair bit of news around the West Coast port shutdown. To what extent has that directly or indirectly impacted you guys at this point, both in 4Q and then also at 1Q as well?

I don't believe the port issues have had a material impact on our -- on the company.

We have a follow-up from Mark Wilde from BMO Capital Markets.

Yes. Excuse me if I've kind of missed something earlier. But can you just explain the kind of apparent mismatch between engineered wood volumes in the fourth quarter in Wood Products versus what you reported in the distribution business? Because you're up in distribution and down in the manufacturing, so if you could clarify that.

Yes, Mark. I think the real issue is Nick and his guys have been aggressively managing inventories. So part of that is seasonally, they see a lot less demand in the fourth quarter. And Nick, who's in the room could tell you, he's been doing a good job of making sure that his guys are getting the terms they need to get. So I suspect that as volume and activity picks back up in first quarter, you'll see Wood Products volume and the BMD pick up. And frankly, they will probably add inventory in the first quarter that will be above what their sales rate would indicate to get prepped for April and May.

Yes, okay. All right, that helps. Just a couple of other questions on the acquisition front. I'm curious if you would do anything outside of sort of plywood, veneer, EWP, you'd look at any other sort of adjacent products.

We've not spent a lot of time in that arena, Mark, but obviously, that's a place we'll spend some time over the next year really thinking that through. And but at this point, those adjacencies are not clear to us. And I think that would be a real focus over the next 12 months or so to see if that make sense or if we need to stay in the arena of things we really know and understand.

Okay. And I guess another one along those lines. Would just be the question of whether you want to backward-integrate into OSB or whether over time, it just makes more sense to buy OSB on the market and not worry about the few times that the price spikes up.

Well, again, I -- if you look at OSB, I think if we went into OSB, and that would be an adjacency we actually understand, it would be because we saw a fundamentally good opportunity in that business. We work hard to transfer things at market between our businesses. And so I don't think that integratively, EWP would certainly enjoy the benefits of higher OS -- or offset the impact of higher OSB cost. Frankly, we are well hedged on OSB price anyway with plywood because when OSB prices tend to run higher, then we see similar sorts of improvement in plywood as well.

I'm not showing any further questions in queue at this time. I would now like to turn the call back to Wayne Rancourt for any further remarks.

No. This is Tom Corrick, and we want to thank you for participating on the call. Just as a summary statement, I think we're very, very pleased with the performance of the company in 2014 and are looking forward to a good year in 2015 as well.

Appreciate it. Thanks, everyone. We'll talk to you next quarter.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a great day.