Louisiana-Pacific Corporation (LPX) Q3 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Louisiana-Pacific Corp. Q3 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Ms. Sallie Bailey, Executive Vice President and Chief Financial Officer of Louisiana-Pacific Corp. Ma'am, you may begin. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Thank you very much, Chanel. Good morning and thank you for joining our conference call to discuss LP's financial results for the third quarter of 2015. 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 contacts. I will begin the discussion with a review of the financial results for the third quarter and first nine months of 2015 to be followed by some comments on the performance of the individual segments and selected balance sheet items. And after I finish my remarks, Curt will discuss the general market environment in which LP has been operating, provide his perspective on our operating results and give some thoughts on the outlook. As we have done in the past, we have opened up this call to the public and are doing a webcast and that webcast can be accessed at www.lpcorp.com. Additionally to help with the discussion, we have provided a presentation with supplemental information that should be reviewed in conjunction with the earnings release. I will be referencing these slides in my comments this morning. We filed an 8-K this morning with some supplemental information as well as our Form 10-Q. I want to remind all the participants about the forward-looking statements comment on slide two of the presentation. Please also be aware of the discussion of our use of non-GAAP financial information included on slide three 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 two statements, I incorporate them with this reference. LP's OSB price in the third quarter was 7% below the third quarter of 2014. This level of OSB pricing continued to negatively impact our financial results. However, even in this environment, all four business segments reported positive adjusted EBITDA in the third quarter and we're reporting the comparable level of adjusted EBITDA on $53 million less in sale for the third quarter of 2015 as compared to the third quarter of 2014 while also absorbing $4.5 million of estimated expense associated with the Swan conversion to a Siding mill and $4 million of foreign exchange loss. And with that, let me go into the details. Moving to slide four of the presentation for a discussion of the third quarter 2015 and first nine months of 2015 consolidated results; we are reporting net sales of $465 million for the third quarter of 2015, a 10% decrease from the net sales of $518 million reported in the third quarter of 2014. In the third quarter, we recorded a net loss of $27 million compared to a net loss for the third quarter of 2014 of $20 million. The adjusted loss from continuing operations for the same quarter was $16 million based upon the normalized tax rate of 35%, which is comparable to the same periods in 2014. Adjusted EBITDA from continuing operations of $11 million in the quarter was $1 million less than the third quarter of 2014. In the first nine months of 2015, we recorded a net loss of $81 million compared to a net loss for the third quarter of 2014 of $33 million. The adjusted loss for a nine-month period was $47 million based upon a normalized tax rate of 35% compared to $28 million for the first nine months of 2014. Adjusted EBITDA from continuing operations was $33 million for the first nine months of 2015 compared to $61 million in the same period of 2014. Moving on to slide five of – and the review of our segment results, beginning with OSB; OSB recorded an operating loss of $11 million on sales of $200 million compared to a loss of $16 million on $233 million of sales in the third quarter of 2014. For the quarter, we reported adjusted EBITDA of $4 million compared to negative adjusted EBITDA of $1 million for the third quarter of 2014. We have a 9% decrease in sales volume, primarily due to the transfer of our Swan Valley facility to the Siding segment. Overall, the company's OSB shipments, including shipments from our Swan, Hayward, and Houlton facilities in the third quarter, were 4% below the third quarter of 2014. Pricing for OSB was lower by 7% compared to the third quarter of 2014. This decrease in pricing resulted in lower operating results by $16 million. For the first nine months of 2015, OSB recorded an operating loss of $58 million on net sales of $601 million compared to a loss of $24 million of $652 million of sales in the first nine months of 2014. For the first nine months, we reported negative adjusted EBITDA of $13 million compared to adjusted EBITDA of $19 million in the first nine months of 2014. Sales volumes were higher by 4% and sales prices were lower by 12%. The impact of the lower sales price on OSB operations was $81 million for the first nine months of 2015 compared to the prior year. Offsetting the reduction in sales prices for both the quarter and the nine-month period was a reduction in the raw material costs related to petroleum-based raw materials as well as the positive impact of the Canadian currency exchange rate. Slide six reports the results of our Siding business. This segment includes our SmartSide and CanExel siding product as well as small amounts of OSB. The Siding segment reported net sales of $158 million in the third quarter of 2015, a decrease of 3% from $163 million reported in the third quarter of 2014. The Siding segment reported operating income of $17 million compared to $21 million in the third quarter of 2014 and adjusted EBITDA of $22 million as compared to $26 million in the same quarter of 2014. For the quarter, SmartSide average sales prices were up 6% and volumes decreased 14%. We believe that the volume decreased in our SmartSide siding line as our customers, especially refinishers, rebalanced their inventories as we came off allocation as well as due to the continued impact of the wet weather in the second quarter of 2015. During the third quarter of 2015, we started the conversion of our Swan Valley OSB mill to a SmartSide mill. During the majority of the quarter, this mill was not operational. We estimate that the expenses incurred at the Swan Valley facility during the third quarter related to the conversion were approximately $4.5 million. We produced and sold 57 million square feet of OSB in this segment during the third quarter of 2015. CanExel prices were down 12% in U.S. dollars but up 11% in Canadian dollars. Canada is CanExel's primary market. Volumes were down 14% in the quarter due to decrease in demand, primarily in Europe, due to the discontinuation of certain prefinished color siding products. The Siding segment reported sales of $495 million for the first nine months of 2015, an increase of 4% from $476 million reported in the first nine months of 2014. Siding segment reported operating income of $79 million and adjusted EBITDA of $95 million for the first nine months of 2015 as compared to $66 million of operating income and $79 million of adjusted EBITDA in the same period of 2014. SmartSide sales prices were up 6% and volumes were down 1% for the nine months of 2015 compared to the same period in 2014. CanExel sales prices were down 6% in U.S. dollars, however up 12% in Canadian dollars, and sales volumes decreased 8%. Please turn to slide seven of the presentation, which shows the results of our Engineered Wood Products segment. This segment includes I-Joist, Laminated Strand Lumber, Laminated Veneer Lumber, OSB produced at our Houlton, Maine facility, plus other related products. This segment also includes the sale of I-Joist and LVL products produced by the Abitibi joint venture under a sales arrangement with Murphy Plywood. The Engineered Wood Products segment reported sales of $74 million in the third quarter of 2015, down from $77 million in the third quarter of 2014. The segment's operating loss in the third quarter of 2015 was $1 million as compared to breakeven in the third quarter of 2014. For the third quarter of 2015, adjusted EBITDA from continuing operations declined by $1 million from the third quarter of 2014 to $3 million. Volumes of I-Joist were up 5%, while volumes of LVL and LSL were down 3% to the same quarter of last year. Pricing was down 1% in both I-Joist and LVL and LSL. During the quarter and the first nine months of 2015, we changed the mix of OSB products at our Houlton operations to manufacture primarily value-added flooring product. The impact of this change improved operating results by $500,000 in the quarter and $2.1 million for the first nine months of 2015. For the first nine months, sales were $211 million, down slightly from the same period in 2014. The segment's operating loss in the first nine months was $7 million as compared to $9 million in the same period of 2014. Adjusted EBITDA declined by $1 million for the first nine months of 2015 compared to the same period in 2014. Turning to slide eight of the presentation; for the quarter, our South American segment recorded sales of $27 million as compared to $36 million in the third quarter of 2014. Operating income was $2 million in the third quarter of 2015 compared to breakeven in the third quarter of 2014. South America's adjusted EBITDA of $4 million for the third quarter of 2015 was $2 million higher than the same period in 2014. Volumes in Chile were up 13% and lower by 4% in Brazil compared to the same quarter last year. The sales volume increase in Chile was primarily due to improved housing demand. In Brazil, the reduction in sales volume was due to reduced industrial demand associated with the economic recession. Pricing was down 15% in Chile and down 23% in Brazil. In local currency, Chile's pricing was flat with the same quarter in 2014 and Brazil's pricing showed an increase of 21%, primarily due to increased exports. For the first nine months, our South American segment recorded sales of $101 million as compared to $115 million in the first nine months of 2014. Operating income was $7 million compared to $9 million in the first nine months of 2014, and adjusted EBITDA declined to $13 million from $15 million in the same period in 2014. Total selling, general, and administrative expenses were $38 million in the quarter of 2015 compared to $32 million in the same quarter of 2014, and $115 million for the first nine months as compared to $109 million for the same period in 2014. For the quarter and the nine-month period, the increase in selling, general, and administrative expenses is primarily related to higher sales and marketing expenses, expenses associated with our corporate initiatives, and compensation expense. We recorded a $4 million foreign exchange loss in the quarter compared to a $1 million loss in the same quarter last year. For the first nine months, we recorded a loss of $6 million compared to a $2 million loss in 2014. This loss was primarily driven by the devaluation of the Brazilian real and the devaluation's impact on the dollar denominated loan. These foreign exchange losses are deductions to our adjusted EBITDA. Interest expense net was flat between the quarters. Please refer to slide nine of the presentation. As of September 30, 2015, we had cash, cash equivalents, investments, and restricted cash of $468 million, working capital of $674 million, net cash of $101 million. In addition to the $468 million of cash on our balance sheet, we had $200 million of availability on our credit facility. Capital expenditures through September 30, 2015, were $67 million. Capital spending for 2015 is expected to be in the range of $120 million to $130 million. We are still completing our 2016 budget, but we expect capital spending for 2016 to be around $100 million for our North American business as we continue to invest in our Siding business. We also plan to invest in our South American business with our third Chilean mill and we anticipate that the third Chilean mill will be funded by cash on hand in Chile as well as local borrowings. With that, I will turn the call over to Curt for his comments. Curtis M. Stevens - Chief Executive Officer & Director: Thank you, Sallie. Good morning and thanks for joining us on the call. Let me first start with LP's safety performance. Year-to-date, our total incident rate for recordable injuries was 0.49 and the rolling 12-month TIR at the end of September was at 0.43. Significant milestones in the quarter included three years recordable free at our Panguipulli mill in Chile, two years injury-free in Clarke County, Alabama, and three mills that celebrated one year without a recordable injury. As I typically do on these calls, I will provide a few comments on our results and the accomplishments in the quarter, discuss the housing market, and give you my views on the rest of 2015 and into next year. After that, we will turn it over to Chanel to take questions. OSB pricing continues to be below the projections from industry experts, like FEA, RISI, analysts and others. Random Lengths North Central was 7% below an already low Q3 2014 pricing level. The good news is that we've seen OSB prices as reported by Random Lengths move from about $184 per MSF 3/8" North Central at the end of July to $253 last Friday, 13 straight weeks of increases that accumulated to 38% better pricing. Our Siding business had a reasonable quarter with $22 million in adjusted EBITDA, despite the negative impact of the inventory drawdowns, particularly at our prefinishing customers, and the costs associated with the Swan Valley conversion. Speaking about the conversion from our Swan Valley OSB mill to SmartSide production, I am pleased to report that we produced our first siding board last Friday and the project is on time and on budget. As you know, this will be critical to the ongoing growth of this important business segment. One other note is we completed that project injury-free, both for our own employees as well as the many contractors that we had on site. EWP was once again a positive EBITDA in the quarter, with volume changes that were consistent with the industry as reported by the APA. In South America, our results were nearly double the same quarter last year, despite ongoing political and economic turmoil in Brazil and much weaker currencies in both Brazil and in Chile. In early October, a vote was taken among the various governmental agencies to approve the environmental permit for our third mill in Chile and the result was positive. We are in the mandatory waiting period provided by statute for any further concerns to be raised. This period will end in late November and assuming nothing is filed, we will be in a position to begin this work in earnest. With the changing government and additional regulations, this process has taken longer and been more complicated than we've experienced in the past. On the housing market, there was mostly good news in the U.S. Census Bureau release on housing on October 20. For September, housing starts came in at a little over 1.2 million, while permits were a bit lower at 1.1 million. This is the sixth month in a row with housing starts over 1 million, with the average over this period of time being 1.161 million. Another positive housing news, household formations continue to significantly exceed the anemic pace of the last several years. In Q1 of this year, household formations were 1.5 million. In Q2, that pace increased to 2.1 million according to Census Bureau data. Over the last few years, there's been a lot of concern about the participation of the Millennial Generation in the housing recovery. So here's a piece of good news; the 2015 National Association of REALTORS' Home Buyer and Seller Generational Trend Report; that's a mouthful, says Millennials now comprise the largest category of homebuyers, 32%, with 68% of those being first-time homebuyers. The NAHB Home Builder Confidence Index in September reached the highest level in over 10 years, which also bodes well for more activity. On the financing side, the average 30-year fixed mortgage rate for the week ending October 16 was at 3.82%, which, interesting, is below the rate it was a year ago. With higher sales of existing homes, this is also good news for repair and remodeling expenditures. So the forecast for future housing activity now stand at the consensus for 2015 is 1.125 million, a 12% increase over the last year. And the consensus forecast for 2016 is 1.307 million, or 16% increase over the forecast for 2015. For LP, we are using a budget assumption of 1.2 million to 1.25 million for 2016 housing starts. In the first half of this year, we did see somewhat weaker demand for our products, probably driven by the very cold weather in the first quarter and wet weather in the second quarter. This led to a drawdown of inventories early in the third quarter with a pickup in activity in August and September. This increased demand reflected in the increasing OSB pricing during the last two months of the quarter and into October. With a more mild fall so far, we are continuing to see demand at higher levels, which should carry over into 2016. Based on discussions with customers, there's a strong belief that 2016 will have a higher level of activity than this year in all areas; new home construction, repair/remodel, light commercial, and industrial. This is good for LP as we focus on these broader segments with value propositions to each. As I look out beyond next year, I believe that we will have several more years of housing growth in front of us, based on demographics and the slow rate of recovery so far. The major constraining factors to a more immediate robust housing recovery remain, labor at all levels, available lots, and access to credit for the first-time homebuyer. I believe that the labor issues faced by the builders will ease either through increased employment or changing construction practices that will reduce the need for labor. The lot shortage is a result of a multitude of factors that may take longer to address: regulations, a shortage of manpower in planning departments, funding for infrastructure, and higher land pricing. On the financing side, we now know there will be no significant changes to Fannie and Freddie until after the 2016 elections. It looks like the Fed is going to delay action until December on raising rates, and banks should get into the practice of making loans again. This is good for our stakeholders, as LP is well-positioned to capitalize on the continued growth in housing, repair and remodeling activities with our product portfolio and focus on growth and innovation to meet our customers' needs. With that, let me turn it over to Chanel for questions.

Thank you. And our first question comes from Paul Quinn of RBC Capital Markets. Your line is now open. Please go ahead.

Hey. Thanks very much, and good morning, guys. Just a question on market-related downtime, I didn't hear the number for Q3, but I note you took like 127 days in Q1, 110 days in Q2. Just wondering what that number was for Q3 and what the plan is for Q4? Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Sure, Paul. In the third quarter, we took about 50 days of downtime, which is about 74 million square feet. And we don't give indications of the fourth quarter.

Okay. And then just turning on to Siding, year-to-date volume is down 1%. You had a very, very strong Q1 and Q2. Sort of where you missed versus my bullish forecast was really on the Siding side. Just wondering why you saw it drop in Q3? Curtis M. Stevens - Chief Executive Officer & Director: Well, as Sallie mentioned in her comments and I said it as well, we look at our customers to find out where we were losing that business. And principally where we lost business in Q3 was to the prefinishers. So our prefinish customers took a lot of product in the first quarter and into the second quarter because they don't have the ability to finish it all within the quarter. So they have to put inventory in place. And then with the wet weather we had in Q2, they didn't have the outtakes in Q2, so they didn't reorder in Q3. But it really is tied to those prefinishers now. Our salespeople have talked to them. There is no reduction in their business, but there was a delay due to the wet weather. So it really is I think focused at that. As we look at October, we are having a pretty good October I think. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Paul, and another way for you to think about it is that as we went on allocation, we did see some inventory going into the channel. And as we've come off allocation, we think that inventory will come back sort of on LP's book versus our customers' book. So there's that dynamic going on as well.

Okay. And last question I had, just on CapEx. You guided $100 million in 2016 on North America. What is it in South America for the new mill? Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Well, we don't really know. What we've said is it depends on the timing, as Curt talked about. But overall we think that mill could cost as much as $50 to $60 (sic) [$50 million to $60 million]. But, I think... Curtis M. Stevens - Chief Executive Officer & Director: Million dollars. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Million dollars; thank you, yes. Thought that went without saying. Depends on how the currency goes. But I think the most important takeaway is that Chile does have cash on their balance sheet as well as the ability to fund that locally. So we will not be paying for that out of our North American cash balances.

Great. That's all I had. Look forward to the higher pricing in Q4. Curtis M. Stevens - Chief Executive Officer & Director: So do we. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: So do we.

Thank you. And our next question comes from George Staphos of Bank of America Merrill Lynch. Your line is now open. Please go ahead.

Thanks, everyone. Appreciate all the details. I guess the first question I had, Sallie, was the pickup in inventory that we see on the cash flow statement in the quarter, was that in any way related to the de-stocking that you had in Siding, i.e., you had more production sitting on your balance sheet than was ultimately taken away by the customers, or were they unrelated there? Sallie B. Bailey - Chief Financial Officer & Executive Vice President: It's mostly logs.

Okay. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: The pickup in the inventory is related to logs.

Okay. And I think you've already covered this, but I just wanted to maybe get one last affirmation. So from your vantage point, the slowdown that you saw in Siding, you don't think you're losing any ability to penetrate the market. You are not seeing any sort of competitive response that is slowing your progressions here. It's purely just timing of customers' inventory relative to your production and things are looking better as we get into the fourth quarter. Curtis M. Stevens - Chief Executive Officer & Director: That's my conclusion, George. If you look at it by segment, our retail business has been pretty good all the way through. Repair/remodeling business is largely where the finished product goes, so repair/remodeling has been off. And then with new home construction, we've seen a tremendous change in the cycle time for building a house, going from 90 days to 100 days to 170 days to 180 days. And the siding is the last thing that goes on the structure. So we think a little bit of that impact has hit us as well.

Okay. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: We also want to call your attention to that we did have a 6% price increase quarter-over-quarter and year-to-date pricing in SmartSide is up 6%. So...

Okay. All right, so you think maybe there's a little bit of pull-forward as well ahead of whatever pricing you might have had in play? Sallie B. Bailey - Chief Financial Officer & Executive Vice President: I think the point is that we've been able to maintain price through.

Okay. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: And actually increase it year-over-year.

All right. Thanks for all the details on that, Sallie. One question for Curt; Curt, I mean to the extent that you have a view on this or your customers were commenting on the growth in Millennials, what's been catalyzing Millennials to finally start buying homes from your viewpoint, other than they are sick and tired of living in the basement of their parents' houses? Is there anything else going on in terms of – from a fundamental standpoint, that is driving that? And then quick one on OSB and I'll turn it over; from looking at some of our industry data, panels, year-to-date, are relatively flat. I don't have the breakdown of OSB versus Plywood in that number, but I noticed your volumes were up. Is that, do you think, OSB gaining market share year-to-date or do you think you've gained market share within OSB year-to-date? Thanks. Curtis M. Stevens - Chief Executive Officer & Director: Well, on the Millennials, I think it is the household formations. Again, what I said is 1.1 million in the first quarter on to 2.1 million household formations and a lot of those I think are the Millennials leaving their parents' home and actually forming relationships and beginning to have children because the birthrates are coming back up. So I think that's what's driving their participation in the market. It's a long delay when we didn't have jobs for them and now the household formation creation. On OSB, actually, our sales in Q2 from a volume standpoint out of the OSB segment were a little bit lower than last year. So I'm not sure I understand your question.

Well, year-to-date, I thought your volumes in OSB were up, unless I was mistaken. So year-to-date versus 2014, you were up 4%, which is better than my industry indicator. So I was just – if you had a specific view on that, I was curious why you think you are growing a little bit stronger than the panel market overall, whether it's OSB gaining share versus Plywood, or do you think you've gained share within OSB? That was all within the question. Curtis M. Stevens - Chief Executive Officer & Director: I think the APA industry stats would say it's up about 4% as well. So I think we're pretty consistent.

Okay. So it's then OSB gaining share versus Plywood then. All right, guys. Thanks, I'll turn it over. Curtis M. Stevens - Chief Executive Officer & Director: Okay.

Thank you. And our next question comes from Mark Connelly of CLSA. Your line is now open. Please go ahead.

Thanks. Curt, it looks to me like your Siding segment could've been a lot worse, given the year-over-year volume declines. So I looked at that performance as actually pretty good. Can you give me a sense maybe of why we didn't see a bigger hit from that 14% decline? You got some price, but I'm just wondering if it was mix that saved you? Curtis M. Stevens - Chief Executive Officer & Director: Well, it was mix; it was some price increase, but it was also a little bit of mix. We didn't run any OSB in the third quarter last year. We did run a little bit of OSB this year. So that was an offset. And then the costs in our facilities have actually gotten quite a bit better. We did have the benefit of raw materials; so we had lower raw materials in MDI, resin, and then we had a little bit of increase in zinc borate. But overall, our manufacturing costs were lower. So it's a combination of the price and better manufacturing costs.

Okay, that's very helpful. And one last thing is we've been hearing a lot of chatter about hurricane impact. Is that going to be meaningful at all to you? Curtis M. Stevens - Chief Executive Officer & Director: I don't think so.

Very good. Thank you. Curtis M. Stevens - Chief Executive Officer & Director: We don't have that in our forecast as an upside.

Good. Thank you.

Thank you. And our next question comes from Gail Glazerman of UBS. Your line is now open. Please go ahead.

Hi, good morning. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Morning.

Curt, can you give a little bit more perspective on the recent OSB price rally and what you think drove it? To what extent it might have been on the production side versus just kind of catch-up from the weather issues in the first half? Curtis M. Stevens - Chief Executive Officer & Director: Well, I do think the weather issues had some impact on that. We did take – I will just talk about LP. We did take some downtime and we also were very careful to sell into real demand and not fill the channel. We do think the channel got filled in Q1 and Q2 and that affected pricing.

Okay. And slightly related to that; the 50 million down days, is that kind of apples-to-apples to what you were taking earlier in the year, or would the outage at Swan maybe have impacted that, if you take a little more company look? Curtis M. Stevens - Chief Executive Officer & Director: Well Swan in Q3 of last year produced about 90 million feet. So the reduction that you saw for the Q3-to-Q3 is almost entirely Swan because we moved that into the Siding segment.

All right. And, Sallie, can you give some more details on kind of the raw material costs relief you've seen maybe year-over-year in the third quarter as well as year-to-date? Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Yes, sure. Overall, we've been saying that raw materials would benefit us year-over-year around $50 million. And we certainly see that occurring maybe even a little bit better. On the basis of the third quarter of 2015 relative to the third quarter of 2014, logs were probably about the same, although we would've seen some improvement in OSB from logs and that would've been offset. We would have a negative impact of that on our Siding business. But we saw very positive – probably on a price basis, around $10 million quarter-over-quarter for MDIs and waxes and other resin-based inputs.

Okay. Thank you. And just one last... Curtis M. Stevens - Chief Executive Officer & Director: Gail, almost all the savings is coming from the resins and waxes that are tied into benchmarks that are oil derivatives.

Okay. And just one last one question on kind of global trade flows. Not much, but your Chilean prices were down a teeny bit sequentially. Did you see any sort of uptick in North American flows down to Chile or has the currency situation been enough to kind of keep that in check? Curtis M. Stevens - Chief Executive Officer & Director: We actually saw pressure coming from Europe in imports into Chile. We didn't see much coming down from the U.S.; mainly from Europe.

Okay. Thank you.

Thank you. And our next question comes from Ketan Mamtora of BMO Capital Markets. Your line is now open. Please go ahead.

Good morning, Sallie, Curt. Curtis M. Stevens - Chief Executive Officer & Director: Good morning. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Good morning.

Coming back to the raw materials one more time, are you seeing any impact from flooding in U.S. South on your wood costs for Q4? Curtis M. Stevens - Chief Executive Officer & Director: From the flooding?

Yes. Just, generally, is there any uptick in... Sallie B. Bailey - Chief Financial Officer & Executive Vice President: No. Curtis M. Stevens - Chief Executive Officer & Director: No. Actually, where we operate in Texas wasn't affected that much. That would've been the primary area. And then, as you know, we don't operate in South Carolina, but South Carolina did have a disruption of logs for a number of our competitors.

Got you. Okay. And then switching to Swan Valley, can you just help us provide some sort of guideline on the ramp-up? Because I know this quarter, there was a lot of noise between OSB and production and Siding. But if you can just help us provide some guideline in terms of the ramp-up? Curtis M. Stevens - Chief Executive Officer & Director: Well, as I said, we made our first board last Friday. So what we'll be doing is running that mill this week. We will be identifying the areas that we need to go in and fix, and then we will spend most of November and the first part of December making those fixes. So salable product I would anticipate wouldn't come off till the second half of December, and then we are right into the holidays. So I wouldn't say there's going to be meaningful production out of Swan until January.

Got you. And so there would obviously not be any OSB production during that time at the mill? Curtis M. Stevens - Chief Executive Officer & Director: Not at Swan.

Right. Okay. Curtis M. Stevens - Chief Executive Officer & Director: If you recall, Ketan, what we said is we would move – if we had excess capacity inside, we would move the OSB production to Hayward.

Understood. Okay. That's very helpful. Good luck in Q4. Curtis M. Stevens - Chief Executive Officer & Director: Thank you. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Thank you.

Thank you. And our next question comes from Steve Chercover of D.A. Davidson. Your line is now open. Please go ahead. Curtis M. Stevens - Chief Executive Officer & Director: Steve, we won't hang up on you. Steven Pierre Chercover - D. A. Davidson & Co.: Okay. Appreciate that. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Yes, our apologies from last quarter. Steven Pierre Chercover - D. A. Davidson & Co.: That's fine. I am pretty used to it. In South America, your profit in EBITDA were up $2 million, even though the sales were down $10 million. So was that cost improvement and is it sustainable? Curtis M. Stevens - Chief Executive Officer & Director: Well, we are running our mills in Chile at 100%. Part of the improvement, if you recall, in Q3 of last year, we lost a month of production at one of our mills because we had a flaker go down. So part of that improvement is that extra month of production in Lautaro. We have a good cost position in Chile. Brazil, our costs are getting better, although we've had a reduction in volume because of the horrible economy there. Steven Pierre Chercover - D. A. Davidson & Co.: And you are saying that it's actually getting more onerous to get the permitting for your new mill down in South America. If everything went perfect, would it be online maybe for mid-2017 or something? Curtis M. Stevens - Chief Executive Officer & Director: No. Well mid-2017, correct. That's about right. So let me just be a little more specific. What Chile did is they adopted the UN standard on Aboriginal people. So essentially what we have in Chile now is we have a situation similar to Canada with First Nations, where there is a consultative process that you need to bring the Aboriginal people into that. And it is new for Chile and it's very disjointed. Steven Pierre Chercover - D. A. Davidson & Co.: And that – I guess that impacts logging or it implies that they have to participate in the logging, the way the natives in Canada get some of the... Curtis M. Stevens - Chief Executive Officer & Director: No, no, that actually isn't the issue because we actually employ in the region where we operate that we do have – the tribe is called Mapuche. We actually employ about 30% of our workforce, so that's not the issue. It's that they are contending they own the natural resources, similar to Canada. And so you can't get your fiber out of the woods without some kind of agreement with the natives. Steven Pierre Chercover - D. A. Davidson & Co.: In Canada, they own 150% of the natural... Curtis M. Stevens - Chief Executive Officer & Director: Yes, I think that's right. Steven Pierre Chercover - D. A. Davidson & Co.: Well, with the duplicating claims; okay. And then on Swan, you gave us some indication of how long it will take to be ramped up. Is there a risk that it undermines pricing for Siding as a whole or you think that the demand is there? Curtis M. Stevens - Chief Executive Officer & Director: No. I don't think there's any risk at all. We are really the only producer of that product and we compete against James Hardie in fiber cement and vinyl in some applications. So I think we have lots of market opportunity. Overall, our Siding business is somewhere in the 6% of the available market. So we've got a lot of ramp-up in front of us. Steven Pierre Chercover - D. A. Davidson & Co.: Good. Okay, final question. I agree with you on your 2016 housing forecast of 1.2 million to 1.25 million. So if the consensus of 1.3 million and change is correct and your peers kind of plan production in line with you, will OSB be very tight or is the industry nimble enough to increase production rapidly? Curtis M. Stevens - Chief Executive Officer & Director: I think there's been – let me answer it in a different way. I was at the Harvard Joint Center for Housing Studies and we did a roundtable to look at what housing starts might be. And the consensus in that room was right at about where we are, 1.2 million to 1.25 million, with labor being the big issue. So I don't think I've answered your question directly. What we have is we do have a fair amount of capacity in front of us. Even with taking Swan Valley out, our Canadian mills are not running at 100%. So we will have the ability to respond to the increase in demand from housing starts. Remember the rule of thumb; it's about 1.1 billion square feet of demand for every 100,000 housing starts. So if we get 150,000 housing starts, that means we need another 1.6 billion. The industry according to APA was running at about 86% last quarter. We ran about that same number, so you can use your calculator to figure that out, but I think it's going to be more tight. Steven Pierre Chercover - D. A. Davidson & Co.: Perfect. Okay. Thanks, Curt. Thanks, Sallie. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Thank you. Chanel? Curtis M. Stevens - Chief Executive Officer & Director: Chanel?

Thank you. And our next question comes from Mark Weintraub of Buckingham Research. Your line is now open. Please go ahead.

Thank you. Just wanted to dot a few i's, cross a few t's on the Siding, just first of all, the $4.5 million, I assume that was in the Siding business, correct? Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Correct. That's right, Mark.

Okay. And second, now you noted that Siding pricing had been up year-over-year – or SmartSide to be more precise. But it was down 3% versus the second quarter. Is that a mix thing or were there dynamics in the market where there was some give back in pricing? Curtis M. Stevens - Chief Executive Officer & Director: All mix.

All mix, okay. Curtis M. Stevens - Chief Executive Officer & Director: And then we also had – we produced some OSB in Q3 in Hayward.

Okay. And that shows up in the SmartSide price, in curiosity? Sallie B. Bailey - Chief Financial Officer & Executive Vice President: No.

Okay. Curtis M. Stevens - Chief Executive Officer & Director: No. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: No, it's mix. Curtis M. Stevens - Chief Executive Officer & Director: It's all mix.

Sorry. And then you'd mentioned that October was pretty good. Are you starting to see favorable year-over-year comparisons volume-wise yet? And maybe asking the question a little bit differently, are we done with the de-stocking, do you think? Curtis M. Stevens - Chief Executive Officer & Director: I think so. I think we should have normal takeaways.

And so would it be fair to say we're positive in October for SmartSide volume-wise? Curtis M. Stevens - Chief Executive Officer & Director: I haven't looked at the numbers, so I can't answer that.

Okay. And then lastly, I think the sense had been that the Siding business was growing at about a 15% type rate volume-wise. And then obviously this year, we've had a pause and some of the de-stocking being a big factor. How are you thinking about the growth rate in the Siding business and obviously tying it to housing starts as we look to 2016 and even 2017? Any rules of thumb you could give us? Curtis M. Stevens - Chief Executive Officer & Director: Well, we need – I want to be in the low double digits. I would like to be in the 12% to 14% kind of growth on volume year-over-year. I can't really take the increase in housing starts because only 40% of the product is going into new construction. The rest is going to repair/remodel and these outdoor building solutions, the sheds, and then the retail piece of it.

Okay. Curtis M. Stevens - Chief Executive Officer & Director: But I think 12% to 14% should be achievable.

And there had been a thought process that maybe you've been capacity constrained at one point. Are you backing away from that perspective? And it looks like there was inventory building going on and that was... Curtis M. Stevens - Chief Executive Officer & Director: I think there was a de-stocking, but also I think when you go on allocation, to be honest with you, your sales forces isn't as aggressive as they need to be. Now that we have Swan operational, the sales force is going to be a lot more aggressive.

Okay, great. So lastly, and then I will stop beating a dead horse here but – and so do you think this is kind of a one-quarter blip and we should be back on track starting fourth quarter and beyond in Siding? Curtis M. Stevens - Chief Executive Officer & Director: I think it's probably not going to pick up the pace until Q1 when we have the Swan contributing.

Okay. Curtis M. Stevens - Chief Executive Officer & Director: Swan Valley mill contributing.

Okay. Thanks very much.

Thank you. And our next question comes from Sean Steuart of TD Securities. Your line is now open. Please go ahead.

So the conversion expenses at Swan Valley, how much more should we expect to carry into the fourth quarter, if anything? Curtis M. Stevens - Chief Executive Officer & Director: Well, when we talk about – the $4.5 million is the expenses of the people in running the facility. It didn't have anything to do with the capital, but that was in effect for about half the quarter. So my guess is the conversion expenses will be in the $6 million range to $7.5 million range in the fourth quarter.

Okay. And then, Curt, as you showed with OSB, because it is driven by U.S. housing activity, you talked about that driver. But can you speak to some of the other end markets in OSB? The renovation, commercial industrial end markets. What are you seeing there in terms of demand pull? Curtis M. Stevens - Chief Executive Officer & Director: Well, a lot of that, we can't really tell where it comes from. A lot of it does come from the retail. And if you look at our comparables for Lowe's and Home Depot year-over-year, I think they are up 2% to 3%, 2% to 4%; so not significant. And then the pro dealers, we have been going through some consolidations, as you know, with ProBuild and BFS and BMC and Stock. And so their numbers are up kind of consistent with housing, kind of 10% kind of increases.

Okay. Thanks for the context. That's all I had. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Great. Thank you.

Thank you. And our next question comes from – a follow-up question from George Staphos of Bank of America Merrill Lynch. Your line is now open. Please go ahead.

Thanks. Hi, guys. Just some housekeeping at the end; first of all, Curt, I didn't want to quadruple it, but on Millennials and their sort of recovery in terms of housing demand, I know household formation drives ultimately construction, but what's driving the household formation if again you have a specific view on this from your sources? Historically, we found that wage growth in employment has been a driver, but I can't really point to that as being a driver here. So what do you think is going on with household formation? And then my other two questions; Sallie, I think you mentioned there were some corporate initiatives in SG&A, were those large? What was behind that? And just I think you said the operating rate in OSB this year-to-date was 86%. Did I hear that correctly for you guys? Thank you. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Yes.

Yes to which one, Sallie? Curtis M. Stevens - Chief Executive Officer & Director: Yes to the operating rate. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Yes to the operating rate.

Got it. Curtis M. Stevens - Chief Executive Officer & Director: On the Millennials, we spent a lot of time talking about that, particularly at the Harvard meeting. And if you look at the Harvard Joint Center for Housing Studies, they just came out with their State of the Nation's Housing. And there was a section on the Millennials and they do think it's getting a job. You're right; it hasn't been necessarily a high-paying job, but they are getting employed. And I think there is a lot of help coming from the Baby Boom Generation and helping them make down payments to leave the household. And that's a bigger trend. We also spent a lot of time talking about student debt. And it turns out that according to Harvard, most of the student debt that is at risk of being not paid back is from a portion of the population that wouldn't buy homes anyway. So they don't think that's a big impact on the buying trend for Millennials. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: So, George, was yours a year-to-date question on operating capacity?

Yes, that's right. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Okay, sorry. That was probably about 80% in the OSB group year-to-date.

Okay. And 86% then by implication for the third quarter? Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Yes, it's around there; you're right. And then in terms of the SG&A, the biggest piece of that increase really relates to sales and marketing and the people we are putting on the ground to support our Siding business.

Okay. And so the other items were insignificant in your view? Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Well, I would hesitate to say – if they were insignificant, I wouldn't have mentioned them. So I think we can conclude that they were material enough to be mentioned in my comments and in our Q.

Okay. Good deal. We will discuss it offline and look at the Q as well. Thank you, guys; good luck in the quarter. Curtis M. Stevens - Chief Executive Officer & Director: Thanks. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Thanks.

Thank you. And our next question comes from Chip Dillon of Vertical Research. Your line is now open. Please go ahead.

Yes. Good morning. I had a question about the capacity situation out there as you all see it, the industry. And I don't know if either you, Sallie or Curt, could comment about. My knowledge is I think you have the Martco plant in I guess Texas, but really nothing else. But maybe you know more about how that's changed. And when is your best guess as to when the Martco plant opens in Texas? Curtis M. Stevens - Chief Executive Officer & Director: Well, as far as new mills, that's the only one that I've heard. Now there's been speculation about some further capacity additions in Europe, but in North America, I don't know of any others. There are several mills that are curtailed in the U.S., including our Chambord, Quebec mill that could come back online, but I... Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Yes. I don't think, Chip, we know any more than what we read in Panel Magazine a couple of months ago about the mill in Texas.

Okay. And then shifting gears, I guess this is more for Sallie. Could you update us as to when some of your timber transactions may unwind or when you have an option date – when you might be at a point where you might let them close or you might extend them? Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Right. Those begin being due in 2018, February of 2018. And there's no ability to extend those.

Got you. Okay. Thank you.

Thank you. And I'm showing no further questions at this time. I would now like to turn the call over to Ms. Sallie Bailey for closing remarks. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Well, great. Well, thank you, Chanel. Thank you all for participating in our call. As always, Mike and Becky are here to answer any follow-up questions you may have. We appreciate your participation and we hope everybody has a great day. Thank you. Curtis M. Stevens - Chief Executive Officer & Director: Thank you.

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