Louisiana-Pacific Corporation (LPX) Q1 2011 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the First Quarter Louisiana-Pacific Corp's Earnings Conference call. My name is Marissa [ph], and I'll be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Curt Stevens, Executive Vice President of Administration and Chief Financial Officer. Please go ahead.

Thank you, and thank all of you for joining us this morning to discuss our financial results for the first quarter 2011. As the moderator said, I'm Curt Stevens, the CFO, and with me today are Rick Frost, our CEO; as well as Mike Kinney and Becky Barckley, who are our primary Investor Relations contact. As I usually do, I'll begin the discussion with a review of the financial results for the quarter followed by some comments on the performance of the individual segments and then selected balance sheet items. Rick will then take over to discuss the general market environment in which we operated in the first quarter, his perspective on the most recent operating results and some thoughts on the outlook for the remainder of the year. As we have done in the past, this call is also opened up to the public, and we're doing a webcast, and the website can be accessed at our public website. Additionally, to help with the discussion, we have provided a presentation with supplemental information that we'll be reviewing with my comments. I will reference the slides in the presentation as I go through it. We did file an 8-K this morning with some supplemental information, and we intend to file our Form 10-Q right after this conference call. Before I get on with my comments, I do want to remind the participants about the forward-looking statement comments that's included on Slide 2 of the presentation and the discussion around our use of non-GAAP financial information that's included on Slide 3. There is an appendix attached to the presentation with some of the reconciliations and that's been supplemented by the Form 8-K filing that we made this morning. I'm not going to reread these statements, but I will incorporate them without [ph] reference. Starting with Slide 4 of the presentation for a discussion of the overall Q1 2011 results compared to the same quarter last year and to the prior quarter. We reported today a net loss for the first quarter of $23 million or $0.18 per diluted share on sales from continuing operations of $332 million. For the same period last year, we also reported net loss of $23 million or $0.18 per diluted share on sales from continuing operations just under $300 million. Adjusted EBITDA from continuing operations was a positive $10 million in the quarter compared to $3 million in Q1 of 2010. There was movement in the tax rate of continuing operations between the quarters. The effective tax benefit rate in Q1 of this year was 23%. The primary difference between this and the U.S. statutory rate of 35% and the effective rate applicable to our earnings relate to state income taxes, the effect of foreign tax rates and increases of valuation allowances attributed to net operating loss carry forwards in various jurisdictions. In Q1 of 2010, the tax benefit rate was 31%, the statutory rate blended for the various foreign jurisdictions in which we operate. Slide 5 of the presentation is a brief discussion of some special charges we had in the quarter. As part of our ongoing review of long-lived assets held for sale, in this case, all the properties were assets held for sale. We did adjust downward the carrying values by $5.5 million to be more reflective of the value expected to derive from these assets in the future. Also in the quarter, we did settle with one of our vendors that resulted in about an $800,000 recovery of past costs. With that, let me talk about our segments. On Slide 6 is our OSB segment, with an operating loss of $9 million in the quarter compared to $5 million operating loss in Q1 of 2010. For the quarter, we had an increase in volume of 18%, but we had a lower average sales price of 5%. The decline in sales price accounted for approximately $7 million reduction in both the sales and the adjusted EBITDA. Offsetting this decrease were reductions in manufacturing costs due to the higher production volumes. Adjusted EBITDA from continuing operations in the OSB segment for the quarter was slightly positive at $300,000 compared to a positive $4 million in Q1 of last year. Slide 7 of the presentation is our Siding segment. This includes our SmartSide and CanExel Siding products and some OSB produced at our Hayward mill. For the first quarter, Siding had operating income of $4.7 million, significantly better than the $8.5 million recorded the same quarter last year. Adjusted EBITDA from continuing operations in this segment was $17.1 million compared to $13.8 million in Q1 of 2010. For the quarter, sales were up 18% and the unit volume is better by 18% in SmartSide and down slightly in CanExel compared to the same quarter. For the quarter, SmartSide average sales price were up 2% due to product mix, then the individual [ph] product pricing remaining relatively flat. As a side note, we did implement a sales price increase that took effect on April 1 in SmartSide offset rising zinc borate and paper-related [ph] costs. CanExel prices showed an increase of18% but this was largely due to these products primarily being sold in Canada and the strength in Canadian dollar increase to U.S. equivalent sales. Engineered Wood, at Slide 8 in the presentation. As a reminder, this is our I-Joist Laminated Strand Lumber produced in Houlton, Laminated Veneer Lumber plus other related products. This also includes the sale of I-Joist and LVL products produced by the Abitibi JV or under a sales arrangement with Murphy Plywood. For Q1, EWP recorded a loss of $5.5 million compared to a loss of $6.6 million in Q1 of last year. Adjusted EBITDA for continuing operations in this segment was a negative $1.2 million compared to a loss of $3.1 million in Q1 of 2010. Volumes in I-Joist were down very significantly in the quarter of 35%, while volumes of LVL/LSL were down 8% compared to the same quarter last year. We attribute this decline in volume to lower housing starts as housing starts in Q1 were 10% lower than the prior year, and where those housing starts were in Texas principally is a slab-on-grade building technique that doesn't use much I-Joist. Pricing at both I-Joist and LVL were up 8% and 9%, respectively. These were as a result of increases we've put in place last year to offset higher raw material costs. While there's no [ph] slide for other building products, let me make a few comments. This category includes our Moulding business, our Chilean and Brazilian operations and the U.S. GreenFiber Cellulose joint venture plus our surplus property. Overall, we were nearly $3 million positive in the first quarter as compared to a little over breakeven in the first quarter of last year. Adjusted EBITDA increased to over $6 million. Order sales were $46 million, up 11% from the $41 million recorded last year. Q1 was a good quarter in both Moulding and [ph] South America, while the U.S. GreenFiber results were down due to higher raw materials cost, primarily waste paper and pricing pressures from alternative installation products. Our SG&A cost, total SG&A was down about $2 million compared to the same quarter last year, and the same was true for our general, corporate and other expenses down about $2 million. Slide 9 of the presentation is the balance sheet. A couple of things I comment here. Cash, cash equivalents, investments and restricted cash was at $362 million. Working capital was $585 million, a slight increase compared to the end of the year. Net cash was down, but it was down due to the, our usual seasonal build in inventory and accounts receivable. The inventory increased with respect [ph] was about a third in logs, about a third in finished goods, and a third in our South American operations as we ramped up production. Our accounts receivable, just as a reminder, we run about 19 day sales outstanding, but at the end of the year, we typically only have 7 days of sales in AR as we don't ship much product during the holidays. Much of this increase in working capital will come back to us in the next few quarters, particularly the loss. On the capital side, we were very parsimonious. We only had about $3 million worth of capital and $2 million of that was for working capital piece value [ph]. Book value per earnings [ph] share was $9.07. A couple of other comments. I think in the fourth quarter, we did say we expected a Canadian tax refund. We did not receive that in Q1 of this year, so it shows up in the receivables, but subsequently, we have received that refund. And then our auction rate securities, we did get bids from various parties on our portfolio, and as a result, we rolled out those securities by about $3.5 million in the quarter. And as you know, we are pursuing litigation against the principal issues of those instruments and hope to have some success in the future. With that, let me turn it over to Rick.

Well, good morning, everyone, and thank you for your interest in our call. We appreciate you listening in. Curt, I want to thank you for that comment of calling me parsimonious. Most of the operating guys just called me cheap. It's already almost mid-May, which seems astounding that the first 4 months of this year have flown by so quickly. It's beautiful here in Nashville today, we're going to see almost 90 degrees, and the Preds [Nashville Predators] have Vancouver in town for Game 6 tonight in a win-or-go-home situation. Before I get started, I would share with you that today's call reminds me of the timing of the last investor conference that I spoke at up in Montréal. The February starts number had just come out about 30 minutes before I was supposed to stand up and talk about the housing market for about an hour, and February starts where I think the lowest, second lowest in recorded history at that time. So this morning's Wall Street Journal front-page article on housing isn't the best way to start my comments off. I will begin my prepared remarks with a few comments on the building products market for Q1, make a few observations about each one of our business segments for Q1, and then end my relatively brief comments with a few current and forward-looking statements. I guess to make an understatement, Q1 provided disappointing building products activity. Unadjusted Q1 starts single-family and multi-family together were almost 10% less than Q1 of 2010, and the March 2011 adjusted rate was only at the 549,000 level. Unadjusted single-family starts were down 21% from Q1 of last year at 89,000 units. Cited explanations for the low-level activity have been all over the board: severe weather, cautious lenders, uncertainty about the future and unemployment, holding back the turnaround in single-family housing, but in general, I'd say it's hard to find much good news about single-family new residential construction as of yet this year. Q1 of 2011 was without the advantage of the Home Buyer's Tax Credit that was in place last year during Q1, and we started out the month of January with actually quite a bit of optimism, but that quickly faded as we've progressed through the year. So with that as the Q1 backdrop, I'll now make a few comments on LP's Q1 performance. Customarily, I'd start with safety and I'll do that again. After again winning the APA award for being the safest company in our industry in 2010, we are off to a totally remarkable start in 2011 with a Q1 TIR of 0.20, which is over 50% better than last year's results. In terms of continuous improvement, our Lean Six Sigma teams performed well in Q1 with over 5.8:1 return so far this year, and we look at these efforts that's going a long way at offsetting the raw materials increases that we are sustaining this year in mostly energy-related areas. Sales and marketing within unadjusted housing starts down almost 10% for Q1, LP specialty product sales dollars were up almost 9%, and our sales force was able to capture about 280 new wins during Q1. At this level of housing, the wins are becoming more difficult. For OSB in Q1, LP's OSB operated at an effective capacity of about 67% and an overall capacity of 53%. We did sell 18% more volume in Q1 than a year ago but at an average sales price of 5% less. We entered January with random print in a $200 per thousand range, but prices began to drop through February and March to the current random blueprint levels. The strengthening of the Canadian dollar to the U.S. dollar has not particularly been our friend for the Canadian production that we have to sell in the U.S., and as well, we did experience some weather-related shipping issues with the Canadian railroads, which caused some inventory problems north of the border. Siding continues to be our bright spot in this poor building market, with SmartSide sales volume up 18% in Q1 of this year compared to Q1 of last year. Our strategy of segmenting this product category is producing positive results. We're growing this product line and adding resources to this business to promote and support the growth. We've divided the Siding market into 5 segments: the Retail Big-box segment, the Shed Nonresidential, the Remodeling segment, the Multi-family segment and the Single-family New Construction segment, and we are pursuing growth in each area in an individually tailored manner. Engineered Wood Products with new residential starts so far in the tank, as Curt mentioned, and with Engineered Wood so heavily tied to new starts, volumes of I-Joist and LVL were down and the improvements in losses quarter-to-quarter come from improvements in pricing to offset raw materials from last year and absolutely great cost control by our operations. As well, we were able to move a bit more volumes offshore. In South America, we continue to be pleased with our progress. Both Chilean and Brazilian operations were profitable in Q1. The Chilean rebuilding activity created by last year's earthquake has begun now in earnest, and both of our Chilean plants are running at full production on an annualized basis that should be somewhere around 240 million feet this year. In Brazil, we produced at an annualized rate of about 200 million square feet in Q1. Only about 10% of that production is currently going into Brazilian housing and about 25% is going into specialty exports to Asia and the rest is for general use in Brazil. We may be at a point by midyear where we decide to start the second thermal oil line at our Brazilian mill to increase the production capacity. Looking at Q2 and the rest of the year, it's again disappointing not to be able to see significant housing activity increase. A quick review of the revised forecast from the many forecasting services shows all revisions have occurred in a downward direction, and since it's at this time of reporting, it's about 622,000 single- and multi-family for the year, and another 40,000 to 50,000 in manufactured housing. Q2 has started off very differently than a year ago, to say the least, when the month of April was quite robust for both OSB and Engineered Wood. As of yet, we have not felt nor experienced any spring bump in the construction activity. Our logic going into this year was that the first half of the year would be slower than the last half, and the second half of this year would be stronger. The first assumption is proving true, and our visibility in the second half is not currently very clear. One other item on our last call, I did offer some capital guidance for the year but said that I would adjust that amount as the year unfolded. I have done so based upon how this year has started out. I am reducing our capital spending number to about $25 million plus the $22 million to $25 million for the completion of the Brazilian mill purchase. And with that, let me turn it back over to Curt for the question-and-answer period.

Thank you, Rick. Marissa [ph], if you could give the Q&A instructions?

[Operator Instructions] You do have your first question from the line of Gail Glazerman from UBS.

Rick, I was wondering if you could give some perspective on the 18% growth in OSB volumes relative to the 20-ish percent decline in multi-family -- in single-family starts in the first quarter? Was that kind of a mix shift, share gain, inventory build on the part of customers?

Yes, I think that some wood went into the channel. We were certainly optimistic going into the year. We had put a few more logs in our log back and we had produced thinking that there would be greater takeaways. I think that our customers had the same sense of enthusiasm earlier in the year, and I think they took a little more wood plus the channel was built -- drained down quite a bit in the month of December. So that's the way I'd think about it.

Okay, thank you. And can you talk a little bit more about what you're seeing in inflation? I think last quarter, you gave us some guidance that you had expected 2011 inflation to be somewhere in 2010? Has that changed at all?

This is Curt, Gail. If you look at our raw materials, our raw materials were up about $6 million over the first quarter of last year, so you take first quarter 2011 volume and apply the pricing differential. But half of that was logs, and of that, I would guess that maybe 2/3 of the log increase was related to the Canadian currency or more so than inflation. So where we saw the inflation is I mentioned zinc borate. We did get a price increase in zinc borate in our Siding business, so that was about $1 million. And then we continue to struggle with anything that's related to energy, so MDI was up a little bit, our PF was up a little bit, and then wax was up. But overall, about a $6 million impact, and I'd say a third of that was currency.

Okay, that's helpful. And Curt, can you give us some guidance for the tax rate for the balance of the year?

Yes. As you know, when you put your tax rate into effect in the first quarter, what you need to do is look out what you expect your year end tax rate to be. On the first quarter, the 23% benefit of [ph] rate, if the year plays out the way that we have forecasted, it would continue to be at that 23%.

Okay. And then just last question on the asset sales, anything eminent related to the write-down that you took or so kind of on the wait-and-see?

We do have a contract for the Saint-Michel facility, which we've had for some period of time, and Mike Kinney who's running that sale assures me that we're going to get money about every quarter. I haven't seen it yet, so it's not in my forecast. And then we continue to look at options for at least the front-end portion of two close deal [ph] with the mills [ph] looking at bio-energy. We're still pursuing that but right now, it's kind of difficult for people to come up with a lot of capital for that. So I'm not anticipating anything, and if it does come, I will be pleasantly surprised.

And your next question comes from the line of Mark Wilde from Deutsche Bank.

Curt, you talked a little bit about the Canadian dollar in terms of its impact on your variable inputs. Do you have a number for its overall impact in the quarter?

Well, typically, what we look at on an annualized basis, every penny is about $1.3 million, and so that's a pretty good proxy for it. So you will look either sequentially or go back to January of last year. January of last year was about 95. We had about a $0.10 swing, was a pretty big swing. Now what we're doing to offset that is our largest customer in 2010 was actually a Canadian customer. So we're trying to keep as much of our product in Canada that we produce in Canada. Now that doesn't always work, but the Canadian housing market has actually been pretty steady for the last couple of years. [indiscernible] Offsetting that, that's -- if you had ask to me that about three years ago, it would have been a $4 million number for cash [ph].

Okay. Second question. Rick, can you talk about sort of the different elements of impact from kind of storms and flooding that we might be seeing in terms of what it might be doing for wood costs and the OSB mills that it's knocked out and anything that might be doing for you on the demand side?

Yes, I'll tell you a couple of wags [ph] at that. I think overall, the impact in terms of probably your reference point around if there's like hurricanes, the price of OSB jumps, we have seen surprisingly little impact from the different weather occurrences and tragedies that have occurred around overall, which means that number one, it's early on the back-end of those; but number 2, the distribution channel has been able to handle that. So the overall impact has been relatively small. In terms of the impact on us specifically, we lost 10 days at the Hanceville mill due to a power outage, and then we lost about 4 or 5 days up in Maniwaki due to some weather-related stuff up there, but that's been the only impact on our inability to produce.

Okay, does that have any impact on kind of wood costs, wood supply just tempered and knocked down or maybe getting salvaged and still at lower prices?

It's very early for that. We just got the power restored back to our Hanceville plant last Friday, so in terms of any residual impact on Timber, we wouldn't be able to feel that probably for 3 months or so. It's certainly -- most of these storms were not very wet, so there hasn't been anything related to the ground beating [ph] weather than it should be this time of the year, and we'll have to look at the salvage. But it's too early to tell on that.

Okay. Then another thing that was a little bit of a head-scratcher here a month or two ago was one of your competitors in the business made the decision to move ahead with completing a partially completed OSB. Any thoughts on, given the pretty miserable look ahead for single-family housing, what might have sparked that decision?

I got a bald spot on the side of my head from scratching it.

Okay, all right. And I guess final question. Just given the outlook for housing, has it -- and on the demand side -- has it made you think more about sort of trying to find some supply-side alternatives to turn this business around?

Well, I think what we're trying to do is we've certainly turned up the gas and trying to get more board overseas, and so in particular, if we can get more Canadian board overseas, that's probably the single largest lever that we've got. We will continue to try to produce to the demand of our specific customers and then continue to be what we call very agile in terms of not making more than our customers need. But I don't anticipate that we would have any announcements of it [ph] of a short-term nature in terms of just adjusting in the individual mill's supply or production to the market at that time. I'm not looking at shutting anything else down right now on.

And your next question comes from the line of Peter Ruschmeier from Barclays Capital.

Maybe following up on the last question. Rick, I'm curious, can you quantify the amount of offshore OSB volumes in the quarter, and do you have kind of a visibility of how much you think that might be able to scale up in the coming quarters?

Well, I'd like to knock your socks off with that number. It's still pretty small, but we're trying to -- I think I made the comment on the last call that we had put about 5 million feet into China all of last year. I think we're currently at about the 2 million to 2.5 million level with hopes of maybe -- per month, with hopes of going up to 4 million feet per month over time. So there's a chance that we could do 8x, 8x, 10x more in this year to Asia than we did last year. But again, we're at the front end of that, so I can't make that promise at this point in time. I'll keep you posted.

Are there markets outside of China that you're finding interesting?

Not particularly. We have a few from our South American operations. We're looking at Turkey and a little bit to India. But basically, we're trying to solve our West Coast Canadian problem and so Asia is illogical [ph] there.

Very good. Curt, you mentioned that the Canadian tax refund has finally come in but it's more of a 2Q event. Can you remind us the amount of that tax refund

It was CAD $11 million.

CAD $11 million. Okay. And then on the OSB operating rates, I just want to clarify. The 66% utilization rate, I believe that's how much you ran as a percent of those facilities that were running. Will [ph] the 53% is if you had all facilities running?

That's correct. To get to the different denominator, I would have to put the Chambord mill in there and the Clarke County mill in there, which are both currently indefinitely curtailed.

Okay. And then just lastly if I could, the 18% volume gain in SmartSide, you mentioned you're breaking that down between Retail business, the sheds, the remodel, the multi-family, single-family construction. Can you provide some clarity on where that demand is coming from on those segments? And is it really a market-based phenomenon, or are you actually gaining share in that segment in the SmartSide?

We're actually making very good penetration in each one of those segments. The Retail business has been good for us. We've had tremendous success in the central part of the us United States in our SmartSide line. And I think what's happening there is as we're getting more and more people to try this product, we get repeat customers. And we're also now about 15 years beyond the debacle of the Intersil issue, and people are starting to forget that when they see the merits of this new redesigned product. So penetration's remarkable for us right now. We're very happy with that in each one of those segments.

Do you foresee more CapEx required in that business, or do you think you have enough of a footprint to work with?

Got about 80%, 90% capacity in front of what our current run rate is. You remember that we did put some improvements into that business right before housing went in the tank and we fully converted our Hayward mill. So we're only running one line at Hayward right now on Siding, the other on OSB, but the Hayward mill is ready to convert to Siding when the need comes, and then we're currently running our smaller, 3 smaller mills on 3 shifts. So we've got about 300 million to 400 million feet of capacity, 300 million feet of capacity in front of that business right now without money.

And your next question comes from the line of Steve Chercover from D.A. Davidson. Steven Chercover - D.A. Davidson & Co.: So first of all, is it your sense that there's a lot of inventory on the ground given that production for OSB was up 18% and the offtake wasn't really there?

I don't know what a lot means, but they're certainly more than there was at this time last year. So the channel -- our customers add a little bit more on the ground than what they did a year ago. I mean it's not just charter bought full [ph], near as I can tell, but you kind of look at the way the market's performing, and that tells you that they've got enough to cover their needs.

Steve, I'd say that at the end of the quarter, there was more on the ground, but I think they've all been adjusting through April and May and that's why you see pricing come off as hard as it did. Steven Chercover - D.A. Davidson & Co.: And so are you going to adjust your production plans from where you might have thought at the beginning of the year?

We do it every day.

We do it every week. Steven Chercover - D.A. Davidson & Co.: Okay, and then -- I apologize, I should probably know this, but on the notes receivable, the $533 million, is there a direct offset for that in long-term debt? And how come the number went up from 2009 back up to the current levels?

There was a change in the account literature. We had to take an off-balance sheet transaction that was for the Southern Timberland, and we had to add that back onto the balance sheet. So that was a big increase. It was always reported and disclosed, but it wasn't an off-balance sheet transaction but a change in accounting rules [ph]. Steven Chercover - D.A. Davidson & Co.: Okay. Well I thought there was something along those lines, but there is a direct offset in terms of the debt, right?

It's not a direct offset. There's about $45 million greater assets than there is a liability. Steven Chercover - D.A. Davidson & Co.: That's what I thought. But the obligation shows up in your long-term debt?

Correct. Shows up as a recourse. Steven Chercover - D.A. Davidson & Co.: It's within that $760 million?

Yes, it is. Steven Chercover - D.A. Davidson & Co.: Okay, thanks. Just I guess one other quick question. You gave us a little bit of an update on South America. Do you think that in Chile, are they in full-blown reconstruction mode following the earthquake? Obviously, it took some time to just sift [ph] through the mess?

Steve, they're getting there. There was a bit of a lull after the earthquake when the new administration down there has slowed everything down for a period of about 6 months to reset the dial on some of the problems that they thought they might be having around corruption. And that dial has been reset, and I think the expectation for this year is to do about 100,000 homes in which the government's going to participate. So we're right on the front end of that. As you remember, there were about 400,000 to 500,000 structures that were damaged or destroyed, so we're right on the front end of that. So we feel pretty good about the takeaways in South America for a couple of years. Steven Chercover - D.A. Davidson & Co.: And does it surprise you that Brazil was still such so undeveloped from a pure housing demand?

No. I guess if you had to ask me that about 6 to 9 months ago, it was surprising me because of the difficulty that we've actually had in penetrating building product systems down there. But we're pretty sensitized to that now. We've changed our strategy from one of conversion to one of adaptation, meaning that we're looking instead of converting their building practices. We're looking where our products can fit into existing building practices and putting most of our effort there, and then it's just going to take a little while. The bigger the country, the harder to get over the inertia. Building products has never been a really fast-moving trendsetting type of an industry anyway, and so changing building practices are slow. But we are encouraged in that we're up to about 10% of our product is going into building the way we build up here where a couple of years ago that was nothing, and we have a strategy to improve that every year. In the meantime, we're doing relatively well in terms of exports and then just general use of OSB for other purposes like furniture stock and concrete form, et cetera. We'll keep you posted on that in terms of our penetration.

And your next question comes from the line of Bill Hoffman from RBC Capital.

Just a quick question on the Canadian plants. You talked about keeping more of that product in-market up there. I mean it sounds to us like the Canadian markets are slowing down as well, so could you just address that strategy and also maybe what you're seeing about other offshore opportunities out of Canada?

Well, from last year's robust activity, I was just up there a couple of weeks ago talking to some of our larger customers, and at least in the first quarter, it did slow down a little bit. But over the course, the projections are that the underlying demand up there is somewhere around 175 to 180. I think projections for next year, the consensus is about 162 but the variation is not all that great. So I think the first quarter was run over [ph] with weather and transportation problems, and I don't really know how much is going to slow down yet this year because of projections are for about 172 for this year. What was the second part of your question?

Well, I was just trying to get a sense of how much product comes into the U.S. out of Canada right now and...?

Well, we have 2 mills on the West that are players into the U.S. and basically the Western U.S. market, which is our very large mill: the piece value joint venture that we have with Canfor with the capacity of about 750 million feet, and then a relatively small mill called Dawson Creek. Both of those we are trying to keep as much of that volume as we can in Canada, and then what we're trying to do as I said earlier is see if we can use those 2 mills because of the freight logical nature of their location to go to Asia. The piece value mill was built to put volume into the Western part of the United States down into California, which has not been a very good market, so anything that we can either keep in Canada or push to Asia we think will benefit us.

Okay, thanks. And then just a final question. In the Engineered Wood Products, you also mentioned just talking about seeking some offshore opportunities. I'm just wondering if you could expand on that a little bit and what you see as potential there?

Yes, we've had considerable success so far in Australia, mainly, and so we have some good customers in Australia, which are taking product predominantly out of our Golden, British Columbia mill. And that's mainly LVL. That's allowing us to run that plant a little bit more full. It has allowed us to make a little bit more plywood to shift to plywood opportunistically in the trail of the Japanese problem that they've had.

And your next question comes from the line of Alex Ovshey from Goldman Sachs.

A couple of questions. First on the housing market, a number of analysts out there are saying that there's more like that we'll see a recovery in multi-family starts before we see one in single-family because vacancies are much closer to normal and single-family homeownership rate is still declining here. The first part of that question is based on what you're seeing out in the market. Would you agree that it's more likely to see multi-family come back first, and how do we think about the impact on your business from a recovery in multi-family relative to single-family? How much OSB goes into multi-family or a unit of multi-family relative to a unit of single-family?

Multi-family definitely is up much more from year-to-year. I think it's up somewhere around the neighborhood of 28% from this time last year. That's a good thing. Multi-family uses about, what is it, a half as much product as a single-family start, so that's the downside of that. Multi-family is very good and we've been having some recent successes and wins for our Siding business. Multi-family also uses Engineered Wood Products.

That's very helpful. And then second question is, we've been seeing the square footage of the single-family house have trended lower over the last number of years. How do you think about that dynamic over the next 3 to 5 years in terms of just the size of the single-family? How do you see that changing over [ph] the next couple of years?

There's two different key items [ph] that I read on that. One is that that will continue to stay at about the level it is now because at least in the near-end recovery of housing, you're going to see more starter homes because that's where the greatest pent-up demand is going to be. So you're seeing about somewhere around a 9% reduction in the amount of square feet for a start. The other camp says that more of the houses that are going to be built in the next couple of years are going to be houses that are built from the wealth effect, if you will, the money that's been made in the stock market over the last couple of years. And so that will actually offset and drive the average start for home up, which is not necessarily a good thing since that means that there's fewer homes being built. I don't know exactly how that's going to sugar out but I don't anticipate it -- my own opinion is I don't anticipate a drop in more than another 50 to 60 feet and then it's going to turn around and slowly start back up.

And your next question comes from the line of Mark Connelly from PLCA [ph]. Mark Connelly - Credit Agricole Securities (USA) Inc.: A couple of things. In your release you talked about enhancing customer relationships, and my question is, in the current market, is there a lot of switching going on? I mean, your customers aren't that busy. I'm curious if they're spending their free time shopping around or not. So I'm curious, has that become more or less important? And then the second question on Engineered Wood Products. If I leave aside I-Joist, Engineered Wood Products wasn't doing all that great in the bull market. Now it's not doing great in the bear market, and my question is, do you think it's going to look materially different as we get into the bull market? Obviously, it would be better now. But this was the piece of the business overall that lagged the most when things were good, so I'm just curious if you think it's going to look materially different, actually [ph].

Yes, when things were good right before they fell off, actually it was when Engineered Wood was starting to come to its own. If you go back probably to 13 years to 15 years before that, it was always a segment of the business which was fighting with overcapacity. Amazingly enough, all of the forecasts that we have going forward say that there's actually going to be a shortage of LVL and LSL going forward and that the corresponding pondent's [ph] beliefs on what's going to happen to pricing have also been very positive. So we think that there's more and more conversion and acceptance of Engineered Wood Products in terms of the quality of that material, and so from our point, vantage point, it's way too early to give up on Engineered Wood Products because when this market comes back, our belief is that they're going to be even more important than they were. Mark Connelly - Credit Agricole Securities (USA) Inc.: Okay, that sounds promising. Can you just talk about the customer relationship a little bit and whether you see builders putting things out to bid or shifting around their suppliers in OSB when they're this quiet to begin with?

Yes, I think to deal with that, with any degree of respect, you almost have to build, divide the different business segments, and so let me run through them. I think our most important area of customer relationships is in our Siding business, and where we can match customer service with a high-quality product that has a value proposition, we are not seeing switching. What we're doing is we're gaining market penetration there. We're gaining share. In the last couple of quarters, you've seen double-digit growth. Those people, once they take our product are not switching back. Engineered Wood Products I would tend to kind of agree with you in terms of we appear to be switching customers. We'll win one from someone else and then they'll win one from us. And so some of the barriers there that we thought were tremendously important like software and the fact that it's more technical so it's harder to change out, that hasn't proved to be true. It seems to be a price game to a large degree right now in Engineered Wood Products. And then in OSB, other than your contractual volume, the relationships are critically important in the value-added products. Our value-added products are of course a radiant [ph] barrier, the market-leading tax shield, plus our flooring products, and so customer relationships are more important in the value-add and less important in the commodity. Did I answer your questions? Mark Connelly - Credit Agricole Securities (USA) Inc.: Yes, that's helpful, I appreciate it.

And the next question comes from the line of Mike Roxland from Bank of America Merrill Lynch.

Just a quick question as it relates to exports . I'm not sure you're seeing the impact today, but how much OSB I guess are you currently selling to Japan, and given the expectations that [ph] you're currently exporting will increase as Japan looks to rebuild?

We don't do much in Japan. We do not have the certification to get into Japan. There is another one of our competitors which has been in that market for quite a while and they seem to be satisfying most of that market. Our bet is that Japan's not going to be a real game-changer and we're putting our efforts on China.

Got you. Any improvement in China in terms of how you've seen building codes change? We've heard stories over the last year or so about increased building with wood like in Shanghai as the code actually changes. Have you seen that impact?

Currently, as I look through as many of the lumber statistics and what's being published in lumber right now because that's obviously leading the way over there only about 2% I think of the homes over there that are using -- of the wood frame construction is at about 2%, and that's mostly single-family rural and up to 6-story multi-family. The expectations are over the next couple of years that that may actually move to about 8%. Right now, of the wood that's going, say, from North America over to China, near as we can tell, about 49% of it's going into wood, some wood remanufacturing in some form or another which would mean for specialty products, and then probably either being used there or shipped back out, and about 48% of it's still being used for concrete form. So the opportunity there with as large a market that it is, is if we actually do see them grow this from 2% wood construction to 8% wood construction, that's quite large and may actually help takeaways from this country quite a bit.

Got you. And then just last question going back to North America for a second. Obviously, housing has turned out to be worse than expected. When the year began, you have higher resin costs. Also, you have the Canadian dollar, which has been a headwind. Is there anything else that you can do from a production vantage point to improve domestic profitability?

Well, the things that we can control I think we're hitting a pretty good look at. And I talk every quarter about our Six Sigma, being a Six Sigma company and like last year, we had 30% of our employee population participate in improvement -- project improvement teams. And that accounted for about $18 million of improved results last year. So in terms of efficiency, in terms of driving down costs, in terms of working on usage, that's where we have our people employed, but I don't see any other big levers other than if the supply-demand relationship can be changed much as it has in Canada where more and more of their lumber is going overseas. I think that that's helped buoy the lumber price in North America.

The only comment I would add to that is we did see, with housing starts down 9% to 10% quarter-over-quarter, we did see our adjusted EBITDA go from $3 million to $10 million. That's after offsetting the $6 million increase in raw materials costs. So I think that we've demonstrated with those results that we are doing the things that we can control and we do need some help from the market to increase profitability.

Is there a particular target you have in mind for 2011 with respect to the Six Sigma project?

Well, yes, but I wouldn't want to share that with you. I'll tell you what we do every quarter. We have stated early on that we expect at least 3:1 returns. Currently, last year, we produced a little bit over 5:1 returns, and this year through the first quarter we're 5.8:1. So we haven't run out of projects, which is good.

And you have your last question from the line of Paul Quinn from RBC Capital Markets.

Just a couple of easy questions. One is on, you've just seen definite idled capacity in North America. I've got it somewhere at 20%, 25% to 30% of total capacity. What's your current estimate of the percentage of this stuff [ph] that comes back to the marketplace?

Well, it depends on where housing starts go, Paul. If housing starts go back up to the 1.2 to the 1.5, you're going to need it all.

I think that's the chart we showed in the presentation. If you go look at the website, there's a chart that looks at that. So we'll need the $25 billion. If you think about it, it's about 1 billion square feet per 100,000 housing starts. So if we go from basically 550 to 1.2, you're adding 7 billion feet to a market that's roughly $17 billion now, of which is the [ph] $24 billion.

Okay. And then just on overseas shipment volumes, I think, Rick, you said 2010, you shipped 5 million square feet into China?

And we want to multiply that by 8 or tenfold going forward here?

Well, that's the opportunity that we're looking at right now. I'm not willing to promise that to you but that's what we're trying to do.

I'd now like to turn it back to Mr. Stevens for closing remarks.

Well, thank you very much for participating on the call with us. And as is our practice, Mike and Becky are available for follow-up discussions. Thank you.