Boise Cascade Company (BCC) Q1 2016 Earnings Report, Transcript and Summary

Good morning my name is Amanda and I will be your conference facilitator today. At this time I would like to welcome everyone to the Boise Cascade First Quarter 2016 Conference Call. [Operator Instructions] Before we begin I remind you that this call may contain forward-looking statements about the Company's future business prospects and anticipated financial performance. These statements are not guarantees of future performance and the Company undertakes no duty to update them. Although these statements reflect management's expectations today, they are subject to a number of business risks and uncertainties. Actual results may differ materially from those expressed and implied in this call. For a discussion of the factors that may cause actual results to differ from the results anticipated, please refer to Boise Cascade's recent filing with the SEC. It is now my pleasure to introduce you to Wayne Rancourt, Executive Vice President, CFO and Treasurer of Boise Cascade. Mr. Rancourt, you may begin your conference.

Thank you, Amanda. Good morning, everyone. I would like to welcome you to Boise Cascade's first quarter 2016 earnings call and business update. Joining me on today's call are Tom Corrick, our CEO; 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 EBITDA. Now I would like to turn the call over to Tom Corrick.

Thanks, Wayne. Good morning, everyone. Thank you for joining us for our earnings call today. I'm on slide 3. Our first quarter sales of $881 million were up 9% from first quarter 2015 as a result of higher sales volumes. Lower prices for many of the commodity wood products we manufacture and distribute offset a significant portion of the volume driven revenue growth in engineered wood products in our distribution business. Our net income was down 35% from first quarter 2015 primarily due to lower plywood and lumber prices as well as $3.5 million of pretax acquisition-related expenses in our Wood Products manufacturing business. Our Building Materials Distribution business reported a strong quarter despite revenue headwinds from product price deflation. We continued to make progress during the first quarter with our capital allocation efforts aimed at growing shareholder value. We completed the purchase of Georgia-Pacific's engineered lumber mills in Thorsby, Alabama and Roxboro, North Carolina on March 31 for $216 million. The initial integration process has gone very well. The acquired mills will begin producing Boise Cascade branded product over the next several months. We expect to restart laminated veneer lumber production at the Roxboro facility this summer by using veneer from our neighboring plywood operations initially. We plan to further ramp up both Roxboro and Thorsby in 2017. We repurchased 180,100 shares at $14.62 per share in the first quarter. We have 1.1 million shares remaining on the $2 million share repurchase program authorized by our Board in February 2015. Our capital spending program for 2016 is expected to be $85 million to $95 million including capital related to restarting LDL production at Roxboro. Another key component of our capital plan is completing the modernization of our Florien, Louisiana veneer and plywood mill. The new dryer in Florien will be commissioned late this quarter. We plan to increase press capacity at the mill in early 2017 which will allow us to process additional veneer for subsequent EWP production at our Alexandria, Louisiana facility. We also plan to complete the upgrade in the Florien log utilization center in 2017. These projects will allow us to further reduce cost of manufacturing EWP and plywood in our integrated Louisiana operations. The Company has had a very productive start to 2016. I will have Wayne cover the financial results in more detail and then I will come back with a few more comments on the outlook before we take your questions.

Thank you, Tom. I'm on slide 4. Wood Product sales in the first quarter, including sales to our Building Materials Distribution segment, were $303.5 million, down 2% from first quarter 2015. Wood Products reported EBITDA of $17.5 million which included $3.5 million of pretax acquisition-related expenses in the quarter. Wood's EBITDA was down from the $31.7 million reported in the year ago quarter principally because of lower plywood and lumber prices and the impact of acquisition transaction costs. Sharply higher EWP volume helped to partially mitigate the earnings decline in Wood Products. BMD sales in the quarter were $717 million, up 15% from first quarter 2015. Sales volumes were up 19% and pricing was down 4%. BMD's EBITDA increased $10.5 million from the comparative prior year quarter driven primarily by a higher gross margin of $16.9 million including an improvement in gross margin percentage of 100 basis points. BMD's selling and distribution expenses increased by $5.9 million demonstrating good expense leverage on incremental sales during the quarter. The Corporate segment reported negative EBITDA of $5.3 million in the quarter, down from the $6.6 million reported in first quarter 2015 primarily due to lower pension expense. Turning to slide 5, our first quarter plywood sales volume in Wood Products were down 33 million feet or 8% from first quarter 2015 as we shifted additional veneer towards EWP and reduced plywood production. The $261 average net sales price for plywood was down $51 from 2015's first quarter and $7 lower than fourth quarter 2015. The North American industry operating rate for plywood continues to be negatively impacted by imports of plywood from South America and decreased exports from the United States driven by the relative strength of the U.S. dollar. We expect to manage our plywood production to demand again in the second quarter with an emphasis on gaining additional value from using our veneer to produce engineered wood products. Plywood pricing in the first several weeks of the current quarter is in line with the first quarter averages reported by Random Lengths. The upcoming comparison to second quarter 2015 plywood pricing will be difficult as pricing is currently down about $45 from last year's second quarter. Turning to slide 6, our first quarter sales volumes for LVL and I-joists were up 26% and 23% respectively compared with first quarter 2015. LVL pricing was up 2% while I-joist sales price realizations improved 4% from first quarter 2015. On slide 7 I will cover the purchase price allocation for the acquired EWP mills and the acquisition's expected impact on depreciation and interest expense. The Thorsby LVL operation is currently manufacturing Georgia-Pacific branded product at a monthly run rate of approximately 265,000 cubic feet. Roxboro is currently manufacturing GP branded I-joists at a monthly run rate of approximately 1.5 million lineal feet. We believe we will be able to produce Boise Cascade branded LVL beginning in June at Thorsby and in July at Roxboro. Boise Cascade branded I-joists production at Roxboro is likely to begin by early fourth quarter. As shown on the preliminary purchase price allocation table, we have allocated $10 million to accounts receivable, $17 million to inventories, $149 million to property and equipment, $6 million to intangibles related to customer relationships and $34 million to goodwill. The depreciation on the newly acquired fixed assets will be approximately $2.5 million per quarter initially and will increase to about $3 million per quarter as we restart the idled portion of the Roxboro facility. Amortization of the customer relationship intangible is not expected to be material to quarterly results. Goodwill will not be amortized for book accounting purposes; however, it is deductible on a straight-line basis over 15 years for tax purposes. We used approximately $90 million of cash from our balance sheet together with $130 million of new debt to fund the acquisition and related transaction cost. In conjunction with the acquisition financing, we entered into a six-year interest rate swap to convert $75 million of floating rate LIBOR exposure to a fixed interest rate. Our incremental interest expense is expected to be about $700,000 per quarter. While we do not expect the acquisition to be immediately accretive, we do expect the new mills to generate positive EBITDA as we move into the third quarter. And we will begin realizing operating freight and distribution synergies by the fourth quarter. The acquisition is expected to be earnings accretive in 2017. Moving to slide 8, BMD's first quarter sales were $717 million, up 15% from first quarter 2015. By product area, BMD's sales of commodity products increased 12%, general line products increased 14% and EWP increased 25%. The gross margin percentage for BMD in first quarter was up 100 basis points compared to first quarter 2015, driven primarily by upward trending dimension lumber prices in the second half of the quarter and stronger margin contribution within our general line products. On slide 9 we have set out the key elements of our working capital. Company net working capital, excluding tax items and accrued interest, increased $65.4 million during the first quarter. About $26 million of the increase resulted from the acquisition. The working capital uses came from accounts receivable and inventories increasing with higher sales activity. Wood Products provided extended payment terms to a number of its EWP customers in March which also contributed to the increase in receivables. BMD negotiated extended payment terms with several vendors which helped limit the cash impact of their normal seasonal inventory build in the first quarter. 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 10. Our cash balance decreased by $103.3 million in first quarter and we ended the quarter with total available liquidity of $370.1 million. We're quite pleased with the level of financial flexibility and expect to manage our balance sheet toward our gross debt to EBITDA target of 2.5 times during 2016 and 2017. As Tom mentioned, we purchased 180,100 shares in the first quarter for $2.6 million following our yearend earnings release. We plan to continue to be opportunistic on share repurchases with appropriate consideration of our share price, the business outlook and our balance sheet. Our effective tax rate in the first quarter was 37.2%. I would expect the full-year rate to fall between 36% and 38%. And with that Tom, I will turn it back over to you.

Thank you, Wayne. The current consensus estimate of 1.23 million for 2016 U.S. housing starts is in line with our current planning. We're seeing improvement in housing starts with job and housework formations progressing as the U.S. economy continues to grow. We continue to believe that demographics in the U.S. will support a return to a normalized housing start level of 1.4 million to 1.5 million starts. I'm very pleased with the early integration efforts related to the newly acquired EWP facilities and the favorable reaction from our customers. I want to thank our employees throughout the organization, including our newest employees at Thorsby and Roxboro and at our sales office in Atlanta for keeping a sharp focus on our customers and working safely and effectively. The acquisition is a major step forward for the Company. We still face challenging conditions in the plywood markets with the combination of North American industry production and imports running ahead of demand and keeping near term pressure on pricing. In addition, a private equity firm has been working in Mississippi to construct new plywood capacity at the site of a previously closed plywood plant. They are communicating that production will be available in the third quarter for the market which we believe is also putting pressure on pricing. We're shifting more of our internally produced veneer into EWP where it makes economic sense to do so and working to balance plywood production to demand. We may need to further limit our plywood production depending upon how market conditions develop. Our operating effectiveness efforts in Wood Products continue to show good progress. Productivity in our facilities is one key driver of earnings growth that is within our control and we will continue to pursue a combination of process improvements and targeted capital reinvestment to drive down costs. The Building Materials Distribution team delivered a strong first quarter for revenue and earnings growth as well as doing a great job of managing working capital. I'm very pleased with the momentum Nick and his associates have established and expect them to take full advantage of market opportunities this year. Obviously, I have been disappointed with our share price performance, but I also remain very optimistic that Boise Cascade is increasingly well-positioned in the marketplace to serve our customers and grow successfully. I'm confident that good execution on our strategy will lead to good returns for our owners. 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] Our first question comes from the line of Chip Dillon from Vertical Research Partners. Your line is open.

First question is just I guess more for Wayne on the working capital. You mentioned, I mean I know this year it went up $95 million, I think last year in the first quarter it went up $54 million. And I think you said something about customers helping them out. And I guess for the year last year you had a build of about $47 million not counting cash and short term debts. What should we see net working capital do through the balance of this year? Meaning last year it was roughly flat back nine months. Will it tend to go down this year because it built so big in the first quarter?

Well, I think part of the numbers you are seeing are the acquisition brought in $26 million on a net basis between receivables, inventory and payables. So I would factor that out. And then the two things that moved this year is we did do dating on EWP. We tried to essentially encourage people to take rail shipments early in February/March to get inventories out into the field as opposed to relying on trucks in second quarter where we have got jammed a couple times in the last few years. But normally what we see is as a major working capital build in distribution starting usually in February and running through May and then it tends to level out and then the working capital comes back down in October, November, December as we get into a seasonally slow period. So I think the bulk of the working capital build has probably taken place for the year. And as a general rule we think about $0.10 on the dollar on sales increase for BMD. So if they were to go up $100 million on revenues we would normally expect about a $10 million working capital build. And that is probably the best guidance I can give you in terms of thinking through the full year.

And then second question is you gave us great detail on what the two plants that you bought from GP have been producing. And I know there is some ramp involved. But as we think about next year can you just give us some rough range in terms of what you think both doors being Roxboro would be producing, just some ballpark area relative to those GP numbers you gave us?

Sure. So I think, Chip, there is two elements. One is what the mills will do based on housing growth. So this year we're thinking that starts are going to be somewhere in the 1.2 million area, maybe a 1.23 million. Next year we would expect somewhere in the 1.3 million to 1.35 million. And with that I would expect the Thorsby to ramp to somewhere in the 3.5 million cube range. And Roxboro, we will get a little bit of production this year by using veneer from our neighboring plywood plants in North Carolina and South Carolina. But we really won't start to ramp the wood yard at Roxboro until the spring of 2017. So, as a bit of the back of the envelope guess my thought is we will probably be a couple million cubes of LVL out of Roxboro in 2017 and then that will continue as we get into the back half of 2017 and into 2018 to ramp up. And we will obviously get some incremental I-joist production out of Roxboro. And then the offset to that is how quickly we can start to realize synergies and balance the three mills between Alexandria, Louisiana, Thorsby, Alabama and Roxboro. Because the major advantage on the acquisition is we can truck ship a greater proportion of our EWP and it gives us much better access to the Eastern Seaboard. I would tell you right now looking at what we're seeing on customer demand and I'm not expecting much of a ramp back in Louisiana. But again, part of our premise was that we would shift production east into Alabama and Roxboro. So stay tuned on the production rates and we will keep you filled in. But to the extent we can shift stuff further east and ramp those facilities up there is clearly economics to do so.

And the last thing is I know it is early days, but certainly we have seen this 10% jump in the real. And I know the Chilean peso has been a little bit less robust. But have you seen any change in the tone of the imports either in volume or pricing or aggressiveness in recent weeks on the plywood side?

Yes, I will jump in on this Chip and then let Dan Hutchinson, if he has got more detail. I think the run rates, if you look at total exports from Brazil; they are up about 23% in first quarter over what they were in first quarter of 2015. And year to date the U.S. has gotten about 24% of those. And I wouldn't tell you this is a trend that we're banking on yet; we don't have the April numbers. But if I look at the March data, there was 31 million cubes that came into the U.S. and that was down from 36.4 million cubes that came in in February. So I do think that modest strength in the real has helped in terms of the balance between the U.S. and Europe and where it is going, they've increased shipments into Belgium and a couple other countries. So I won't say that we have reached a plateau, but I was encouraged by the March number and we will wait and see what happens when we get the April data, but it seems to be less pressure at the moment.

The only thing I would add, Wayne, is that I think it is going to take, like you say, a little while to see what it really does to the volume. But as the currencies move, as the U.S. currency gets weaker, obviously the pricing that the Brazilians have to ask for is changing. I think we are seeing some stabilization on pricing.

Our next question comes from the line of Mark Wilde from BMO Capital Markets. Your line is open.

I would like to start off just with your engineered wood volumes, they were better than we would've expected in the first quarter. Maybe you can give us a little sense of what else is behind that. And then any kind of read you have got on where the market is likely to go over the next three to six months would be helpful.

What I would say about that is when you look at total housing starts the level of EWP sales is a bit surprising. But if you really dig into those numbers what you see is that multi-family is flat and single-family is up about 22%. And that is the big driver of square footage constructed and that is frankly where a lot of EWP ends up. So, I don't see a huge - obviously a little bit better, but I think it is well within that range of variability that we see quarter to quarter relative to demand in terms of the product that we sold.

Okay and is there any read from just sort of packages that you might be asked to spec on right now in terms of where volume may be headed?

Are you talking EWP specifically or in general?

Yes, EWP in particular.

It is anecdotal at best, but our drafting and engineering group in our distribution centers are very busy. Builders have a lot of work on the books and we're asking - and they are asking us to spec all that stuff out. So again that is not data, that is opinion, but it feels pretty good.

Okay and then just related, wide width lumber prices have been moving up pretty sharply. Is that something we might look at to kind of figure out what you might be doing from a pricing standpoint on EWP? Or are there other factors you are looking at like operating rates in the EWP space?

I think there are any number of factors there. Certainly the environment we're in where wide dimension lumber prices were really low would make it very difficult. But I certainly haven't heard any issues related to supply in the field. So I still think the landscape is maybe not as robust as it needs to be yet.

Okay, all right. And Wayne, any inventory gains in the first quarter when we think about the distribution business?

Well, we don't write up any of our inventories, but we definitely had a tailwind on gross margin because lumber prices were rising throughout the quarter. So while we had top-line revenue pressures because of the deflation component of lumber pricing compared to a year ago, certainly the pattern of the lumber price increases helped. If you look at like week five the lumber composite was at $3.05 and by the end of the quarter it was pushing and the $3.50 range. So, that clearly helps on the gross margin, but as I said, they did get top-line pressure.

Okay. And then just finally in distribution as well, I know Weyerhaeuser closed some distribution facilities I think in the fourth quarter and I think I saw more recently that BlueLinx was closing four facilities. Can you talk about what benefit if any that may have for Boise Cascade?

Certainly we're aware of those changes in terms of the competitive landscape and uniquely involved in conversations in those geographies for both product lines and customer opportunities that previously our competitors had. And I would tell you it is a damn good thing for us.

Our next question comes from George Staphos from Bank of America. Your line is open.

I just want to piggyback then on Mark's question. So if I'm not mistaken you saw some modest improvement in EWP pricing in the quarter. I'm guessing that is not driven by any new initiatives, but just some tail on either mix from last year or prior actions. But could you provide a little bit more specificity on that?

I think you got it; I think it is really mix. If you remember some previous conversations, we have gotten out of the UK business and we have dramatically reduced our exposure in Canada. And both of those exchange rate issues, as we sell less volume there, have a positive impact on net sales price.

Now you mentioned managing and I'm paraphrasing probably poorly, but you mentioned managing your production stance relative to demand as the year progresses. You also mentioned the new mill that is going to be coming up in plywood. Given what you are seeing right now in terms of single-family driving EWP and therefore demand for veneer and your ability to flex that capacity, do you think you would have to adjust further your operating stance based on housing that new capacity coming in or do you think you can manage relatively well given the world as it exists today?

We will just continue to do what we have been doing which is to put as much of the high-strength veneer as we can into engineered wood products because I think that demand is looking very good. And we will make week-to-week decisions about the remaining plywood business.

Yes, maybe just to add to Dan's comment. I think the one affirmative change that will be coming as we bring up Roxboro, the intent is to use veneer out of Chester, South Carolina to help bring up the backend of the Roxboro mill on LVL. And clearly that shift of getting Chester's veneer production into LVL out of Roxboro will be very beneficial to that mill.

So, maybe this is getting too close to home, guys and I appreciate if you can't comment further. But given what you are seeing in terms of current demand, given that other element you mentioned, Wayne, do you think you will be able to manage your existing veneer production without having to take further downtime as you feed the GP mill and manage against that other capacity that is coming in? And if you can't comment we understand, just wanted to ask one more time.

Well, again, I think we're going to - as Wayne said, we will change the direction of some of Chester's veneer into Roxboro, that will be helpful. And then we will just evaluate it as we did in the first quarter and take plywood production out when it makes sense.

From a cost standpoint the fuller we can run our mills, as long as we have got a home for the veneer that is generating cash and earnings, we have got a big incentive to run those mills because obviously it spreads the fixed cost. So again, what we're going to try to do is run full if the market allows and take as much of the veneer into EWP as makes sense.

I have some cash flow questions, maybe to switch gears a little bit. You mentioned your capital spending at $85 million to $95 million. Are there any constraints on your CapEx relative to the new term loan arrangement that you have got? Secondly, I thought our heard you say, Wayne, there are some tax implications from the Georgia-Pacific mills and the goodwill and the amortization that you have built in there. If I heard that correctly can you provide a little bit more clarity? If not can you just correct that comment? And the payment terms that you are extending at greater duration, if you will, to your customers, is that a function of any factoring strategies? Is that a function of trying to get product into distribution - not distribution but into your customers' hands through rail as opposed to having that issue with trucking that you mentioned in the past? Can you provide some clarity in terms of what is going on there in terms of the increased terms?

Let me tackle the terms issue first. That is the last two years we have had challenges just supplying product to our customers on a timely basis in the summertime because trucks were not available and they needed product quickly. And so, this year for a very specific temporary period of time we have pre-positioned product into the field using terms and using rail. And that program is behind us in terms of shipping product and will soon be behind us in terms of terms. So that was a very specific frankly logistics issue. I will let someone else field the other question.

Yes, on the goodwill amortization, it will not amortize for book, but we can straight-line amortize it for tax over 15 years. So if you think about it for tax purposes we will get a deduction of a little more than $2 million a year.

And then the last one, the capital spending in relation to the term loan?

The term loan, assuming we have the right availability and stuff really doesn't have any constraints on our CapEx. And then in downside scenarios we basically agreed to a $50 million spending level kind of in any case which if you think about maintenance capital in our Wood Products business plus basically maintenance capital in the Distribution business, we wanted to make sure that in any condition we were able to maintain our facilities. But as a general rule there is no limits on CapEx in the term loan.

[Operator Instructions] Our next question comes from the line of Steve Chercover from D.A. Davidson. Your line is open.

So, going back to Mark Wilde's question about the margins in BMD, so you said specifically it was not an inventory gain, it was just the rising prices. So, if things stabilize here and assuming that we have got some seasonally better leverage, should we expect them to stay in this ballpark?

Steve, this is Nick. If you look at the impact of the trajectory of pricing in the first quarter of this year and you contrast that against the trajectory of the fourth quarter of last year and, more importantly, the trajectory of the first quarter in 2015 you will see that the gross margin swings around pretty good based on the pricing of commodities to include steel. Add the seasonal mix to it and you get a little bit of variation quarter to quarter. As you think about the outlook for the second and the third quarter of 2016, the pricing trajectory is anybody's guess. Certainly our expectation is it will be really close to how it has been over the last little bit. The mix gets a little bit better seasonally. And I guess in terms of the guidance I would just urge you to look at the last few quarters and calibrate the seasonality and calibrate the lumber and plywood and steel commodity pricing trajectory, not the absolute values, but the changes.

And then I saw that a plywood mill in coastal Washington, to be specific, Hoquiam, has just changed hands and is restarting. So I was just wondering where you aware of it? Was it attractive or not? And is the restart kind of incorporated into your expectations for plywood?

Yes, we were aware of it, we were not interested and I don't think it is going to have a significant impact.

It is not particularly large, Steve.

We have a follow-up question from Mark Wilde from BMO Capital Markets. Your line is open.

Okay, I have got a couple. Wayne, can we go back to the two GP mills and can you just help us think about the sort of quarter-to quarter financial impact as you ramp these up? And then also whether there is any impact as you go from like the GP brand to the Boise Cascade brands?

Sure. So one of the reasons that I commented that we won't expect to see much impact in the second quarter is we did write up the inventories. The purchase accounting requires us to essentially take all of the profit margin out of the existing inventory. So anything they had sitting on the ground in finished goods or in VMI we wrote up to basically net sales realization taking into account selling costs. So that first turn on the inventories in call it April/May is not going to produce essentially any EBITDA because of the accounting treatment. So we will get some minimal EBITDA in second quarter. If you offset that with $2.5 million in depreciation and then the incremental interest expense, I'm not expecting a lot of earnings benefit in 2Q. By 3Q we will be in essence manufacturing GP branded product and Boise branded product at Thorsby. We will have a similar situation by late third quarter in Roxboro. And as we get more volume through those two mills I would expect them to start contributing EBITDA in excess of the depreciation and interest costs. And particularly as we get into the fourth quarter and we start getting the synergy benefits I would expect it to be accretive. If you look at our Q that we filed this morning, we do give you some pro formas to look at the net income and sales impact which is based on the run rate that GP had in first quarter 2015 and 2016. And Mark, I will be happy to work with you off-line on kind of that, but it is basically a run rate in the high teens on an EBITDA basis. And again, we will load in more volume and we will reallocate Alexandria and we would expect this to be accretive as we go into 2017. And certainly if housing move towards 1.3 million it will be very additive.

Okay and then, Wayne, just that kind of transition from the GP brands to the Boise brands, what is the impact there, if any?

And, Dan, feel free to chime in on this. I'm not expecting any disruption talking to the guys on the sales and marketing side and the production side. We have got to qualify Boise product and have it tested so that it is certified in the market but in terms of needing to have big gaps in timing on production. I don't think we're going to see any meaningful reductions as we go through that process. We will have capital spending that will go on particularly at Roxboro to bring up the front end of the LVL but that is likely to be late fourth quarter and into the first quarter of 2017. So again, I'm expecting positive EBITDA contribution in the third quarter and the fourth quarter of this year as we ramp those up. And not expecting big gaps in the production timing.

Maybe this was your question - as we transition product from Alex to Thorsby as an example, one of the or to Roxboro, we have always said that that will be a more profitable product in some cases just because of the logistics. So that is a positive, but - if that was your question.

Okay. And just the brand itself, I mean do you get more for Boise branded product versus GP?

That is a really tough question to get at because the markets, I mean pricing is so specific market to market and the relative presence of each brand in each market. You can come to a lot of different conclusions depending upon how you want to analyze the data, Mark.

Okay. Right, then the last question I had, it seems like there is a lot of engineered wood products that are produced up in Canada. So, as the Canadian dollar has been rising does that have any meaningful effect on the market?

Yes, I mean it has some effect if you are in the northern border states I guess. Obviously, given the advantage of the Canadian currency over the U.S. dollar, there is some pricing pressure on some of that product coming south, although it is not huge.

Where you see it is not on the beam side, it is concentrated towards the Northeast on the I-joist side where the Canadian producers are producing solid sawn and shipping over the border. But I don't really think it is material. There is a pretty limited supply of 2x3 available for that type of product.

Our next question comes from the line of George Staphos from Bank of America. Your line is open.

I was wondering if you could talk a bit about in legacy Boise on the Wood Products side - I know at times in the past there have been some cranky dryers that you have been trying to get running at a greater throughput and with less maintenance. Where do you stand in that regard in terms of getting those dryers to work as you would like? Thank you.

Cranky dryers, I had not heard that expression before.

It is a very technical term, Dan.

I think we have talked about it on other calls, but we put together an improvement process we call [indiscernible] and because dryers tend to be the bottleneck in a plywood facility we have obviously prioritized those as being very high. And we have had a lot of success. And I would add to that we have spent I think by the end of this summer something like $65 million on dryers over the last five years or so. So, clearly we feel like we have made progress on those where we haven't rebuilt them, but we have made real progress on those where we have. So we have got better dryer throughput.

And I would add there, George, we had I think last summer a bit of a conversation about some challenges with the dryer in Chester and that dryer is running quite well now.

Yes, that is the one I was really referring to, but I didn't want to mention any mill for sensitivity reasons.

It's running better.

Running better as opposed to being cranky, so there you go. Is there a way that you can put any kind of statistic in terms of operating efficiency on the dryers where they stand now versus a year ago? Recognizing again that we will have to - it will be a moot point if supply/demand doesn't behave itself. Thank you, good luck in the quarter, guys. The question was, can you put a statistic on the operating--?

Yes, I don't have the numbers in front of me, but the way we think about it is throughput per hour on a dryer. And the throughput per hour on the dryer in Chester is improving.

To just put a little color to it, system wide we're close to 2 billion feet that we dry. And I think the dryer that we were talking about is 125 million feet and it wasn't running as well as we wanted it to. So I mean, you can pretty quickly get to this sort of relatively small percentage impact that has, George.

If you look at the price declines at Chester on plywood, the mill has made enough operating improvements that they have covered almost half the price decline with operating improvements.

Right. And again, Wayne mentioned it earlier also, have and will continue to shift that production into EWP and we've made some substantial improvements there.

Thank you. At this time I'm showing no further questions. I would now like to turn the call back over to Tom Corrick for any closing remarks.

No, we're done for today. I really appreciate everybody's participation and we're looking forward to continued growth in the housing market this year and I think performance in line with the first quarter going forward.

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