Louisiana-Pacific Corporation (LPX) Q1 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the First Quarter 2013 Louisiana-Pacific Corp. Earnings Conference Call. My name is Erica, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Sallie Bailey, Executive Vice President and Financial Officer. Please proceed.

Great. Thank you, Erica, and good morning. Thank you for joining our conference call to discuss LP's financial results for the first quarter of 2013. I am Sallie Bailey, LP's Chief Financial Officer, and with me today are Curt Stevens, LP's Chief Executive Officer; as well as Mike Kinney and Becky Barckley, our primary Investor Relations contact. I'll begin the discussion with a review of the financial results for the first quarter of 2013. This will be followed by some comments on the performance of the individual segments and selected balance sheet items. After I finish my comments, Curt will discuss the general market environment in which LP has been operating, provide his perspective on our operating results for the first quarter of 2013 and give some thoughts on the outlook for 2013. As we have done in the past, we have opened up this call to the public and are doing a webcast. The webcast can be accessed at www.lpcorp.com. Additionally, to help with the discussion, we've provided a presentation with supplemental information that should be reviewed in conjunction with the earnings release. I'll be referencing these slides in my comments this morning. We've also filed an 8-K this morning with some supplemental information and we have filed our 10-Q. I want to remind all the participants about the forward-looking comment on Slide 2 of the presentation. Please also be aware of the discussion of our use of non-GAAP financial information, included on Slide 3 of the presentation. The Appendix attached to the presentation has some of the necessary reconciliations that have been supplemented by the Form 8-K filing we made this morning. Rather than reading these 2 statements, I incorporate them into this earnings call by reference. The first quarter of 2013 is LP's best quarter since 2006. On sales of $538 million, we generated net income of $65 million and a net income margin of 12%. We also had healthy cash flow from operations. We generated $17 million of cash from operations in the first quarter which compared to a use of $64 million in the first quarter of 2012. The last time we generated cash from operations in the first quarter was 2006. This is our third quarter of positive GAAP earnings per share and reflective of the recovery of the housing market, as well as our focus on maintaining cost discipline. With that, let me go into the details. Please refer to Slide 4 of the presentation for a discussion of the first quarter 2013 results, compared to the fourth quarter of 2012 and the first quarter of 2012. We reported net sales of $538 million for the first quarter of 2013, a 49% increase from the net sales reported for the first quarter of 2012. In the first quarter of 2013, we recorded net income of $65 million or $0.45 per diluted share. In the first quarter of 2012, we reported a net loss of $11 million or $0.08 per diluted share of $362 million of net sales. The adjusted income from continuing operations for the quarter was $59 million or $0.41 per share, compared to an adjusted loss of $9 million or $0.06 per share in the first quarter of 2012. Adjusted EBITDA from continuing operations was $121 million in the quarter compared to $21 million in the first quarter of 2012. Moving to Slide 5 and a review of our business unit results, starting with OSB. OSB recorded operating income of $98 million in the quarter, compared to breakeven in the first quarter of 2012. For the quarter, we reported adjusted EBITDA of $109 million as compared to $11 million in the first quarter of 2012. For the quarter, we have 12% increase in volume and our average sales price was 82% higher. Sales volumes increased due to increased housing starts. We also increased the percentage of value-added sales and industrial sales from the quarter. But I do want to note that in our typical seasonality, we sold about 60 million feet less than we produced in the first quarter and we sold about 50 million feet more than we produced in the fourth quarter of 2012. The increase in selling price favorably impacted operating results and adjusted EBITDA from continuing operations by approximately $124 million for the quarter as compared to the corresponding period in 2012. Offsetting this increase was a higher cost associated with our purchases from our Peace Valley joint venture, a joint venture sold to us at market price. Adjusting for the Peace Valley purchases, our increase in sales price resulted in $113 million increase in our adjusted EBITDA and operating income. Also offsetting the favorable impact of improved volume and pricing were costs associated with bringing Clarke County back online and higher raw material costs. Moving onto Slide 6, which reports the results of our Siding business. This segment includes our SmartSide and CanExel siding products and commodity OSB produced in our Hayward mill. The Siding segment reported net sales of $134 million in the first quarter of 2013, an increase of 18% from $113 million reported in the first quarter of 2012. The Siding segment reported operating income of $21 million, compared to $17 million in the first quarter of 2012 and adjusted EBITDA of $25 million, an increase of $4 million compared to the first quarter of 2012. For the quarter, SmartSide average sales prices were up 1% and volumes increased 21%. Volumes increased in our SmartSide siding line due to increased housing starts and continued penetrations in several key focus markets including retail, repair and remodel markets and sheds. Additionally, increased volume was driven by customers buying ahead of announced price increase which went into effect on April 1. CanExel prices showed a decrease of 1% and volume was down 14%. Sales volumes decline in our CanExel siding lines due to the severe winter weather experienced in Québec, in Eastern Canada during the quarter. Please turn to Slide 7 of the presentation, which shows the results of our Engineered Wood Products segment. This segment includes I-Joist, Laminated Strand Lumber, Laminated Veneer Lumber and other related products. This segment also includes the sale of I-Joist and LVL products produced by the Abitibi joint venture or under our sales arrangement with Murphy Plywood. The Engineered Wood product segment's operating loss increased slightly in the first quarter of 2013 from the first quarter of 2012. For the first quarter of 2013, EWP adjusted EBITDA from continuing operations was similar to the first quarter of 2012 at about breakeven. Volumes of I-Joist were up 35%, while volumes of LVL and LSL were up 13% compared to the same quarter last year, primarily due to increases in domestic demand. I-Joist, LVL and LSL sales are closely correlated with U.S. housing starts. Pricing was up 5% in I-Joist and essentially flat in LVL and LSL due to changes in mix in both product lines, with individual product pricing remaining relatively flat. The 5% price increase for I-Joist was not nearly enough to offset the dramatic increase in raw materials, OSB and lumber. Moving now onto Slide 8 of the presentation. For the quarter, South American operating income increased to $6 million, compared to operating income of $3 million in the first quarter of 2012. For the first quarter, South America's adjusted EBITDA from continuing operations was $9 million as compared to $6 million reported for the first part of 2012. Volumes in Chile and Brazil were essentially flat as compared to the same quarter last year. Pricing was up 7% in Chile and up 3% in Brazil. In local currency, pricing in Chile increased 3% and then increased 16% in Brazil. These changes in pricing are related to product mix, as well as price increases in several product lines. While there's no slide for our other building products group -- segment, let me make a few comments. These results are from our Molding business, U.S. Green Fiber joint venture and various other non-operating facilities. Overall, we are showing a loss of $1 million in the first quarter of 2013, which is comparable to the first quarter of 2012. For the quarter, sales were $9 million, which is slightly below the first quarter of 2012. Total selling, general and administrative expenses were $35 million in the first quarter of 2013 as compared to $31 million in the same quarter of 2012. The increase in SG&A expense is primarily due to the expense associated with our systems upgrade project, as well as higher marketing expenses. General, corporate and other expenses, net, were $23 million for the first quarter of 2013, compared to $20 million in the first quarter of 2012. This increase is primarily due to our systems upgrade project. We have a $700,000 foreign exchange loss in the quarter, compared to $100,000 loss in the same quarter last year. Net interest expense was $7 million in the quarter, compared to $8 million in the first quarter of 2012. This reduction is primarily related to the refinancing of our public debt last May. Moving on to Slide 9 of the presentation. At the end of the first quarter of 2013, we had cash, cash equivalents, investments and restricted cash of $574 million, working capital of $889 million, net cash of $175 million. Capital expenditures for the 3 months were $13 million and receipt from our joint ventures were $7 million. As we discussed during last quarter's conference call, we are planning to spend approximately $70 million to $75 million for capital expenditures in 2013. The acquisition of the remaining 50% interest in our Peace Valley joint venture will also use approximately $75 million in cash. With that, I'd like to turn the call over to Curt for his comments.

Thanks for that review, Sallie. I'd like to make a few comments on our performance this last quarter, give you an update on the actions that we are taking to respond to the improved housing market and provide some comments on what I see for the rest of the year. Before I do that, let me just talk about our safety performance in the first quarter. We had very good performance with a rolling total incident rate of 0.45. The EPA recently reported their safety awards for 2012 and LP had a virtual sweep including the safest company in our industry. However, on a sadder note, we were tragically reminded late last month that we can never let upon our safety focus. In our Ponta Grossa Brazil mill, we were at nearly 1 million safe hours, almost 4 years, when one of our employees was fatally injured when he failed to lock out the machine he was working on. A very sad occurrence for all of us at LP and a reminder that when it comes to safety, we must remain vigilant. As Sallie reflected in her comments, we had a very good first quarter as housing starts continued to improve, leading to higher demand for all of our products, which translated into solid financial results. The current estimates for housing starts for 2013 are 1 million. In fact, we achieved this rate in March of this year, and then for next year at 1.3 million. This is still quite a bit short of the 50-year average of 1.5 million starts but certainly an improvement over the last 6 years. As Sallie just reviewed, overall sales increased by almost 50%. We earned $0.45 per diluted share and had over $120 million in adjusted EBITDA. Higher OSB prices, record shipments of our SmartSide strand products and another strong quarter in South America contributed to this improved performance. Let me update you on the status of our efforts to support this improving housing market with additional volumes. In OSB, as we mentioned in our last call, we should complete the purchase of Canfor's 50% interest in Peace Valley this quarter, as we continue to work through the regulatory process to split the timber licenses. We are looking forward to finalizing this transfer for lots of reasons: it is a great operation; we will increase our return on 50% of the sales from a 4% margin to market margins; and finally, it sure will make talking about OSB cost of sales a lot easier for Sallie. We did move to a 24/7 shifting pattern at Peace Valley in Q1. We recently added a fourth shift in our Maniwaki, Québec mill. And in the next few months, we will be executing on a capital project that will allow our Swan Valley, Manitoba mill to operate at full production. As planned, we did begin operating the Clarke County mill last month. And as expected, most of the current effort is targeted at addressing the many, many issues that arise when a mill that hasn't run for 5 years is put back on line. We will be in a position, assuming demand continues to increase, to start up our Dawson Creek, British Columbia Mill with limited production of radiant barrier and flooring for the West Coast market this summer. In Siding, the project to rebuild the press in Two Harbors, while at the same time increasing capacity, was completed in Q1 on time and on budget. This did take the mill off-line for about 30 days during the quarter. The good news is that we're already seeing the benefits from better tolerance control and higher volumes. In Hayward, we continue to fill up the production on the second line with Siding products as demand increases and we subsequently reduced our OSB shipments. In South America, efforts continue in our search for a site to accommodate a third mill in Chile. In parallel, we are also looking at options to incrementally add capacity at our existing mills to satisfy the market demand. In Engineered Wood, we've increased production in all of our plants and are evaluating when to bring additional equipment and/or shifts back online. Other actions that we are taking to address potential bottlenecks of higher activity include: we've increased the number of owner-operated trucks that we manage through our New Waverly Transportation division by about 20%; we continue to work with the Canadian rail companies to increase the amount of equipment and service to satisfy higher demand. In Q1, we struggled getting our products to market due to the inability of the Canadian railroads to meet their commitments. This will be an ongoing issue for our industry and for other rail shippers. In a cooperative effort with our sales force, customers and our credit department, we are working to make sure that our channel partners have the ability to increased their inventory levels to support enhanced building activity. My outlook for the remainder 2013 is for steady growth in single-family housing starts and somewhat erratic growth in the multi-family segment. With March total starts at an annualized rate of 1 million, we are increasingly confident that building activity will be strong through the rest of this year and into next year as household formations increase. To meet this demand, the industry needs to make progress on credit availability, development of building lots and address the shortage of skilled and unskilled labor. Housing is probably the bright spot in the economy, as the GDP forecast stands at less than 2% for 2013. Reasons for slower economic growth remained the same and include the turmoil in Washington, D.C. around the budget, the deficit and tax policy; concern tied to cost and implementation issues in the Affordable Health Care Act; political tensions around the world, North Korea, Syria, Iran and Afghanistan and more; lower job growth and consumer confidence on a roller coaster. In summary, I now believe that 1 million housing starts in 2013 is possible, and LP is ready to support this level of activity. But because of the headwinds I just discussed, we do have a plan B that can be immediately implemented if activity slows. As I've often said, LP has to remain agile in a fast-changing world. With that, let me turn it over to Sallie for questions.

Thank you, Curt. Erica, we're ready for questions if we could go to the queue.

[Operator Instructions] And our first question comes from the line of Mark Connelly with CLSA. Mark W. Connelly - Credit Agricole Securities (USA) Inc., Research Division: Curt, 2 things. Obviously, lots of bullishness about housing, but we're also hearing that housing trends are changing. Can you give us a sense of what you're seeing in terms of changes in footprint? And we've also heard lately that there's actually been a small shift away from engineered components, and I'm wondering if that's a real shift or just mix. And then one bigger question, strategically, you've tried several times over the years to find a complementary business. Sidings is getting better, but would it still be your preference to find a second big business, if you can find one?

Well those are a lot of questions, Mark. Let me just talk on the housing trends. What we are seeing, as I mentioned, we're seeing erratic growth in multi families. It goes way up, and it goes way down, and goes way up and it comes way down. Multi family is important to us but it's not nearly as important as single family, so there's a lot less of our products in multifamily. On the single-family side, we did see a decline in the square footage from 2010 to 2011, but then that recovered between '11 and '12, back up to where it was. So really, we haven't seen a smaller footprint. But clearly, the mix between single-family and multifamily affects the product. You asked a question in Engineered Wood, we are not seeing a decline in the percentage of raised wood floors. Now there are areas of the country, Texas in particular, that does have a significant amount on slab and there you wouldn't use Engineered Wood. But on raised wood floors -- I think it's really mix where it happens. The raised wood floors I think interior wood was 52% of the market and it's been about that for the last several years. So there hasn't been a big change there. As far as we like to diversify into another product as profitable as OSB, we would, but I don't know what it is. The diversification that we have achieved is taking our strand-based technology and moving it into alternative products, like the Siding and our Laminated Strand Lumber, and then diversifying geographically with our investments in South America. Mark W. Connelly - Credit Agricole Securities (USA) Inc., Research Division: So for now -- no, no, no. So for now that will remain the focus, it's trying to keep moving with these trends and then -- and continue to expand geographically? Rather than using your balance sheet strength to look for something new?

I think that is the focus right now. We still have a lot of facilities that aren't running near capacity and we want to take advantage of that as the market comes back.

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

First question is could you just talk a little bit about your cost experience in the quarter? I know you normally take more downtime in the fourth quarter, which I would assume would have a greater cost impact. And yet if I got those numbers right, it looks like your shipments were about 8% less in the first quarter than the fourth, even though you produced more looking at that swing you gave us. And yet the cash cost of goods sold, looked like they were pretty flat from fourth to first. So I was just wondering -- so the unit cost, obviously, went up. So maybe if you could just help us with that a little bit.

Sure, Chip. Let's start with reminding everybody that at LP, we operate at an FOB destination instead of FOB shipping. And so that has a lot to do with the seasonality that we see in our production versus our sales numbers. And if we look just specifically at your question around the cost of production, our cost of production really didn't increase very much from the fourth quarter to the first quarter. It's probably about 5% higher than the first quarter of 2012, and that would have been related to some of the input Cost. But on the cost of sales side, what you're really seeing there is the impact of the Peace Valley joint venture and that we only get 50% of the EBITDA right now coming out of that. And that did in fact -- we did see quarter-over-quarter that's probably almost a 20% increase in our cost of sales. And most of that is attributed to Peace Valley. A bit of that is going to be attributed to the higher -- to the cost associated with starting up Clarke County.

And -- okay. Got you. And can you update us on where -- sort of how that cost can you give us some are specifics on the costs of starting up Clarke County and sort of where you today? I know you've told us it will probably take several quarters to get that up to full speed. But how does it look now that you're in the process? How do you sort of see that ramping up? Will it be at 50%, for example, of capacity by summer? Or can you give us some specifics there?

Well what we said when we started -- when we were talking about starting a mill up, it would be $8 million to $10 million in capital and personnel costs and that's still a pretty good estimate. We started ramping that up -- or we started making some hiring decisions in November of last year. So we had virtually full staffing on board at the end of the first quarter. So we had a lot of those expenses in the first quarter. And the numbers are somewhere in the $4 million to $5 million range, about half of that probably happened in the first quarter. As I said in my comments, we did start up with production in April. And right now, we're troubleshooting, we are producing some product. I would expect that we're going to be -- I think the numbers that we have given is we expect to be at kind of 50% to 60% of capacity, sometimes towards the end of the summer.

Okay. And then the last question is you mentioned the seasonality between production and sales in the fourth and first quarter. Where do you see that in the second quarter? In other words, where do you see your sales relative to where production is?

Here's what happens. Let me just be very clear. So on the fourth quarter, we take the downtime and the shipments that we make in the fourth quarter generally happen in the first part of December. They reach the customer. And so that is a -- considered a sale. In the first quarter, anything we ship by rail in the last 2 weeks of the quarter still are inventory. Even though it's sold, it hasn't reached a customer yet so we don't recognize it. But -- so what you're really looking at is the difference of in-transit between the end of each quarter. So we would not anticipate much difference in the in-transit between Q2 and Q3 at the end of the month -- at the end of the quarter.

Great, or 3 or 4?

Or 3 or 4. So it's really the change in the in-transit that...

Part of the book end quarters.

And it was just more extreme than normal when we look at the fourth and the first?

Well I really think you have to consider is demand has been ramping up so much. So I think you're noticing the swing is probably more than you have in the last 6 years.

One last thing is what exacerbated that was my comments on the Canadian railroad. We had a lot of material that was sold but we couldn't get cars to ship it from Canada.

Got you. And then lastly, did you -- and you might have mentioned this, Curt, what sort of a good guess as to when the Peace Valley deal closes?

We hope to close it this quarter.

Your next question comes from the line of Gail Glazerman with UBS.

Curt, can you give a little bit more color on some of the capacity news that you were discussing? The change at Swan Valley, exactly what are you doing and what will that add? And I guess once you make all those changes what would be your operating rate assuming you're kind of running that? Would you have anything kind of less in your pocket?

Well what we are doing -- what we did in the first quarter is we ran 24/7 on our U.S. operations. In Canada, we were limited in Swan Valley, we have -- this is probably more detail than you want, but we have got to increase the stack heights so that we can meet all the environmental requirements to run that 24/7. So that's what we're doing there and we have to wait for the weather to accommodate that construction project. So we ran at about -- in Q1, the running mills, ran at about 83% of capacity. And then the only one that's not, that we haven't talked much about is Chambord. And what we did say of Chambord when we get to 1,000,001 kind of housing starts we're going to have to think about that one. So that's the only one that's not currently running and that's about a 450-million-square foot mill.

Okay. That's helpful. And can you maybe give a little bit more color? I guess you referenced some mix shift in OSB in the quarter, exactly kind of what that is? And was that a positive or negative impact just given how strong commodity prices were in the quarter?

I'm not...

Well yes, we did, we saw -- Gail, we saw more value-added in the quarter because we're continuing to increase our value-added. And so on a relative basis, you just do the percentages, you look at these percentage change in price. And you compare that to your commodity price, the percentage changes will be less on the value-added. So but the gross margin -- that doesn't mean the gross margin is less. So on a cash basis, it's good for the company, but on these realizations to the commodity, you're not going to see that same level of price realization.

Okay. And just, I guess, sticking with OSB and pricing, can you give a little bit perspective on what you think has starts the recent selloff? And do you think supplies suddenly caught up with demand? Or would you expect that to kind of bounce back in the near term?

I hate to do this, but I'm going to blame it on the weather. We had very severe winter in Canada and then we had a late winter in the northern tier of the U.S. In fact, last week we had, what, 19 inches of snow in Minnesota. So there wasn't much building going on in Minnesota. So I think part of it was a backup due to those weather considerations. The other piece of that, and I mentioned this, we're working closely with our customers. Customers are somewhat constrained because most of them are working on asset-based lending facilities on how much they can bring in and so they really need to get the flow-through because they don't have the ability to carry extra inventory. So I think it was related to that. We did have, in Q1, we had the highest Q1 OSB prices, at least since I've been in LP, for 15 years. So it's -- it was a high number and I think that some of the buyers were looking for an opportunity to pull back on the purchases so they could affect the price. And that's what we've seen over the last 4, 5 weeks. I would expect that as the weather improves, that all of our discussions with the builders is there's a lot of pent-up demand for that product and going to flow pretty quickly. And that we are going to be in a position where there's going to be tightness between available supply and demand.

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

If I remember right, you were also going to add a shift at Peace Valley, did that happen?

It did. I think I said that, yes.

Okay. Great. So when we take into account all the actions that you've taken and everything you're going to take x to possibility as Chambord, how much production of OSB do you think is, if you could -- let's say, next year kind of if we keep Chambord to the side? How much do you think you'll be able to produce?

Well, next year, if we have the ability to run 24/7, we could do about 1.3 billion, 1.4 billion per quarter. So I'd give you 4.2 billion roughly without Chambord.

So 5.2 billion without Chambord?

4.2 billion without Chambord. Oh, I'm sorry, I take that back. Yes, it would be about 5 with Peace Valley. I would -- didn't include Peace Valley. I'm sorry.

Okay. Great. And just also you mentioned at Clarke -- there have been some costs at Clarke County in the first quarter. Are there going to be similar types of costs in the second quarter related to Clarke County? Or does that start going away? And are there -- what other types of start up costs as you are ramping up your system might we be seeing in the short term?

Well, there will be costs associated -- I mean, Clarke County's production cost will be higher in the second quarter than what it will be when it's running. So but again you will absorb some of that $4 million that I talked about in the cost production.

Okay. And then lastly, just to make sure I understand, so how do you -- how did the OSB product that had gotten into -- onto the rail but haven't been delivered to the customer? Had the customer actually taken ownership of them prior to the end of the quarter? Can we just take the average profitability of the OSB system which was order of magnitude $130 per thousand board feet and times that by the $60 million and that was kind of -- was it accumulated in inventory that's going to show up in the second quarter?

You could do a part of that. The difficulty that we always have is when we disadvantage the customer by not delivering, they get the lower of the price of the order or when they actually get it. So in a declining market, we'll get a little bit of a hiccup there. So this rail situation has been problematic for us. But the customer, themselves do not own the inventory until it delivers to their site.

Your next question comes from the line of Graham Meagher with TD Securities.

I guess just thinking about the operating costs. If you could provide your -- a little bit of an outlook on fiber and resin and specifically, on labor as you're ramping up production in some of these mills?

Sure. In terms of fiber, we're really seeing, I'd say plus or minus, we're seeing costs that are pretty similar with where they were last -- in the -- towards the end of last year. So we're not seeing huge increases in our wood quarter-over-quarter. In terms of resins, as you recall, we talked about higher costs. And in particular, in our Siding business, we are seeing the impact of higher costs associated with our resins and wax. And quarter-over-quarter and while we don't expect that those will continue to increase consecutively, we have seen higher increases when you compare them to the prior year quarter. And labor, we haven't seen huge increases in our labor cost at this point.

Your next question comes from the line of Steve Chercover with D.A. D. Steven Chercover - D.A. Davidson & Co., Research Division: First of all, what level of capacity utilization do you need to get Engineered Wood profitable? And where do you think you are now?

Well it was an interesting quarter for Engineered Wood because we did see increased demand with housing coming back. And unfortunately, the cost of sales in I-Joist really overshadowed an improvement in profitability in both LVL and LSL. If you think about an I-Joist, when we had OSB pricing going up by 102% and lumber going up significantly, we just couldn't catch up with price increases quickly enough to offset the raw materials costs. So other than I-Joist, I actually was pretty pleased with the Q1 performance in Engineered Wood that it is coming back. So I do think... Steven Chercover - D.A. Davidson & Co., Research Division: So what do you think that the ingredients in the LVL sandwich are doing now? And will that help in the second quarter?

I think that there is increasing demand for both LVL and LSL. And as I said in my comments, we are adding production in both of those. Really the struggle for us has been in the I-Joist. Steven Chercover - D.A. Davidson & Co., Research Division: Yes. Sorry, I misquote, Curt. But yes, so -- but it looks like OSB and lumber prices are coming down. So...

And that will benefit EWP, but frankly it hurts me more in OSB, than it helps me in EWP. And Brian doesn't like that, he runs our EWP business. Steven Chercover - D.A. Davidson & Co., Research Division: So I guess, it just depends which pocket is bigger. And then with respect to Plan B, you didn't really articulate it but does that mean you might slow up some of the restarts?

Yes. That is -- it's that plus, we also have -- we have developed a cadre of customers that are export. But the export isn't willing to pay a North American price yet. But what it does allow us to do is move volume off profitably to make the supply/demand balance more favorable. Steven Chercover - D.A. Davidson & Co., Research Division: And final question. Good to see that we continue to ramp up in South America, so the third plant in Chile, what's the timeframe for that and -- just if I remember it correctly, is it St Michel Wood probably be the next machine to go down there?

No. It won't -- it probably won't be the St Michel. We actually have equipment available in a variety of configurations, and so I think that's the -- the discussion that we are having is what size expansion do we do and at what timeframe do we do that. So I would expect that we'll have a recommendation from our South American leadership sometime this summer, which would mean another 18 months to put the equipment in place. Steven Chercover - D.A. Davidson & Co., Research Division: But the 2 that you brought down, and one was from Colorado and other one was originally from Houlton, Maine, wasn't it?

No. It's from Chilco, Idaho. It was the first one and the second one, you're right, it was from Colorado. But we also have Silsbee, we have Athens that are permanently curtailed in the St Michel mill which you mentioned. The St Michel mill is about a 460-million-square foot mill which is probably too big of a bite to go down there and we have some other thoughts on redeploying that. We also need more siding capacity and so we need to think about what equipment we want to use for that. Steven Chercover - D.A. Davidson & Co., Research Division: Okay. Well, just is -- Canada seems to be the CanExel market, but do you think the LP SmartSide siding would be good for the Canadian market or you would ship it from St Michel?

Well I'm not sure we would start it up at St Michel because we are still working with a buyer on some of the other facilities there. I think what we would probably do is redeploy that equipment summer else into a wood basket that's logistically appropriate. The problem with St Michel is there's no rail siding there, and that makes it problematic for shipping.

Your last question comes from the line of Paul Quinn with RBC Capital Markets.

Just a question on -- I guess, realization is where we missed. And it sounds like it's really from its effect on FOB destination versus shipping. Any idea of how you could quantify that and whether that's regular practice with the rest of the industry?

First, I don't think the realization is related to that. That's really just the sales volume versus production volumes is more of what that this. On the realization side, there's a couple of things to remember. First of all, we sell a whole series of products into all different markets. As Sallie talked about, I think in the first quarter, our value-added products are about 45% of our sales versus the commodity at 55%. If we just look at a commodity index and our commodity pricing, we're pretty close from a realization in that 90% to 95% range. When you get into the value added and a rising market in particular, there's a couple of things: one, the value-added pricing doesn't respond as quickly; and the second part of that is generally you sell this at a level and then there's an adder to it. But you don't get the market accelerator on the adder, the adder remains the same. So for instance, if we sell TechShield at Random Lengths plus $50, the plus $50 doesn't change. So you don't get an increase on that. The other piece of our realization as I just talked about with Steve on plan B. When we do see a supply demand imbalance, we do use our export market as a relief valve. And so when we sell in the export market, it's profitable business but it's not at the same pricing that we see in the domestic market, but the advantage to us is by tightening up that supply-demand, it gets reflected in the Random Lengths pricing, and so we're better off from that perspective. So those are kind of the elements of it, so it would be whatever we get, the increase we don't get on the adder. The slower response on some of the value-added products, as an example, 20 on our flooring products. The flooring products lagged the commodity index and Random Lengths pretty significantly in the first quarter. And we're the leading seller of flooring products. So those are kind of the elements of it. I can assure you that we spent a lot of time looking at realization. And on a strictly commodity side, we do very well. We're right on top of the index, if these other moving parts on what we decided to from an export standpoint and how the value-added products respond.

Okay. That's helpful. And then just on order files maybe you can comment on recent activity. It seems like from a number of trade publications that sales volumes did pick up in the last week or so. What you're seeing there and what you seeing on your order files going forward?

Well what Randomly Length said is that order files were sporadic depending on who they talk to. Some people have wood available next week, and some didn't have anything available until end of June. So it depends on the strategy for the various producers and various regions. I think it's fair to say that most producers extended order files last week. And we would expect to see that happen again, particularly with weather coming back and there's going to be more flow-through the channel, so they'll need to replenish. What random links said was there were a lot of buyers out there looking to fill back up their inventories.

Okay. And just lastly investors seem nervous with the announced capacity additions coming to the market. You based off your experience with Clarke County startup and all the other was you noticed out there versus what you expect on consensus starts and housing activity and hopefully better weather. Is that a concern to you?

It isn't. And I think, Paul, I've seen of the some of the work you've done, if we were going to think about 1.1 billion square feet per 100,000 housing starts. And we're going to go from 750,000 last year to 1.3 million. That's 6 billion square feet of OSB demand and what we've announced to startup is about 1.7 million. And that's going to start up overtime. So I think we're bringing it back in a very rational, rational way to meet the demand.

Well thank you very much. Thanks, everybody. Erica, if you could please provide the replay number? We'd like to thank everybody for participating on our call. And Mike and Becky are here to follow-up with any other questions you may have. Thank you all, and have a very good day.

The replay number for this call will be (866) 233-1854 or (617) 614-4949 with a replay access code of 23503432. Thank you for your participation in today's conference. This concludes the presentation. Everyone may now disconnect and have a great day.