Louisiana-Pacific Corporation (LPX) Q2 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Second Quarter 2016 Louisiana-Pacific Corporation 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, today's conference may be recorded. I would like to introduce your host for today's conference, Ms. Sallie Bailey, Executive VP and Chief Financial Officer. Ma'am, please go ahead. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Great. Thank you very much, Michelle, and good morning. Thank you for joining our conference call to discuss LP's financial results for the second quarter of 2016. 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'll begin the discussion with a review of the financial results for the second quarter of 2016 and the first half of 2016. 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, our capital projects and give some thoughts on our outlook. As we've 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 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 do want to remind all participants of the forward-looking statements comment on slide two of the presentation. And 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. Our second quarter results continued the momentum which started in the first quarter. In addition to the strong results in our OSB segment, reporting a $63 million improvement in adjusted EBITDA on just over $40 million of increased sales, the Siding business reported record SmartSide volume and sales, including a 14% increase in volume from the first quarter of 2016 and 22% improved volumes from the same quarter last year. Now with that, let me go into the details. Moving to slide four of the presentation for a discussion of the second quarter and the first six months of 2016 consolidated results. We are reporting net sales of $582 million for the second quarter of 2016, an 18% increase from net sales of $493 million reported in the second quarter of 2015. In the second quarter, reported net income of $32 million or $0.22 per diluted share compared to a net loss of $20 million or a $0.14 loss per diluted share in the second quarter of 2015. The adjusted income from continuing operations for the quarter was $40 million or $0.28 per diluted share based upon a normalized tax rate of 35% as compared to a loss of $12 million or a loss of $0.08 per share reported in the second quarter of 2015. Adjusted EBITDA from continuing operations was $99 million in the quarter compared to $16 million in the second quarter of 2015. In the first six months of 2016, we recorded net income of $42 million or $0.29 per diluted share compared to a net loss for the first six months of 2015 of $54 million or a loss of $0.38 per diluted share. The adjusted income for the six-month period was $50 million or $0.34 per diluted share based upon a normalized tax rate of 35% compared to a loss of $31 million or a $0.22 loss per diluted share for the first six months of 2015. Adjusted EBITDA from continuing operations was $151 million for the first six months compared to $22 million in the first six months of 2015. Now moving on to slide five and a review of our segment results beginning with OSB. OSB reported net sales for the second quarter of 2016 of $253 million, up 20% from $211 million in the second quarter of 2015. OSB reported operating income of $44 million compared to a loss of $18 million in the second quarter of 2015. Adjusted EBITDA from continued operations was $59 million compared to negative adjusted EBITDA of $4 million in the second quarter of 2015. Sales volume in OSB were down 7% from the second quarter of 2015, primarily due to the conversion of the Swan mill to a Siding mill. And as such, those financial results are now included as part of the Siding segment. Pricing for OSB was higher by 30% which improved operating results by $59 million. For the first six months of 2016, OSB reported an operating profit of $59 million on sales of $470 million compared to a loss of $47 million on $401 million of sales in the first six months of 2015. For the first six months of 2016, we reported adjusted EBITDA of $89 million compared to negative adjusted EBITDA of $17 million in the first six months of 2015. Sales volumes were lower by 4% and sales prices were higher by 22%. The impact of the higher sales price on OSB operations was $86 million for the first six months of 2016 compared to the first six months of 2015. For both the quarter and first six months of 2016, reductions in raw material costs, higher utilization rates, as well as the positive impact of the Canadian currency on our Canadian operations improved the OSB segment's financial results as compared to similar periods in 2015. Moving on to slide six for the results of the Siding business. This segment includes our SmartSide and CanExel Siding products, as well as OSB produced on one line at our Haywood, Wisconsin facility. Siding reported net sales for the second quarter of 2016 of $207 million, up 26% from $164 million in the second quarter of 2015. Siding reported operating income of $42 million compared to operating income of $29 million in the second quarter of 2015. Adjusted EBITDA in the quarter was $49 million compared to $35 million for the same period last year. SmartSide volume was up 22% from the prior year and 14% sequentially. Sales prices for SmartSide were down 2% due to changes in product mix with individual prices remaining relatively flat. For CanExel, sales volumes increased 24% due to increased demand, primarily in Europe. Sales prices were lower by 3% due to the impact of the Canadian dollar. Based upon Canadian dollar selling prices, prices for CanExel were 2% higher than the same period in 2015. We produced approximately 53 million square feet of OSB in this segment during the second quarter of 2016 as compared to no OSB production in the second quarter of 2015. The Siding segment reported sales of $389 million for the first six months of 2016, an increase of 15% from $337 million reported in the first six months of 2015. The Siding segment reported operating income of $69 million for the first six months as compared to $62 million in the first six months of 2015, and adjusted EBITDA of $84 million as compared to $73 million of adjusted EBITDA in the same period of 2015. SmartSide sales volumes were up 11% and sales prices were down 2% for the first six months of 2016 compared to the same period in 2015. Please turn to slide seven of the presentation which shows the results for our Engineered Wood Products segment. This segment includes I-Joists, 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-Joists and LVL products produced by the Abitibi joint venture or under a sales arrangement with Murphy Plywood. The Engineered Wood Products segment recorded sales of $78 million in the second quarter of 2016, up $6 million from the second quarter of 2015. The EWP segment earned operating income of $0.5 million in the second quarter of 2016 compared to a loss of $2 million in the second quarter of 2015. For the second quarter of 2016, adjusted EBITDA from continuing operations improved to $4 million as compared to $1 million in the second quarter of 2015. Volumes of I-Joists were up 13% while volumes of LVL and LSL were up 3% compared to the same quarter last year. Pricing was up 6% in LVL and LSL and up 5% in I-Joist. For the first six months, sales were $150 million, up from $137 million in the first six months of 2015. The segment's operating loss in the first half of 2016 was $2 million as compared to a loss of $6 million for the first half of 2015. And adjusted EBITDA improved to $5 million from breakeven for the first six months of 2015. Moving on to slide eight of the presentation. For the quarter, our South American segment recorded sales of $41 million as compared to $39 million in the second quarter of 2015. Operating income was $7 million as compared to $2 million in the second quarter of 2015, and adjusted EBITDA improved by $5 million from the second quarter of 2015 to $9 million in the second quarter of 2016. Volumes in Chile were up 14% and flat in Brazil compared to the same quarter last year. On a U.S. dollar basis, pricing was flat in Chile and up 4% in Brazil. In local currency, Chile's pricing was up 10% with the same quarter in 2015, and Brazil's pricing increased 20%. For the first six months, our South American segment reported sales of $72 million as compared to $75 million over the first six months of 2015. Operating income of $12 million compared to $4 million for the first six months of 2015, and adjusted EBITDA increased to $16 million from $9 million in the same period of 2015. Total selling, general and administrative expenses were $47 million in the second quarter of 2016 compared to $38 million in the same quarter of 2015. For the six-month period, our selling, general and administrative expenses were $89 million for 2016 compared to $77 million for the first six months of 2015. For both the quarter as well as the six-month period, the increase in selling, general and administrative expenses was primarily due to increases in certain management incentive accruals and higher sales and marketing related expenses. Please refer to slide nine of the presentation. As of June 30, 2016, we had cash, cash equivalents, investments and restricted cash of $495 million. Working capital was $700 million, net cash of $135 million. And in addition to the $495 million of cash on our balance sheet, we have $200 million of availability on our credit facility. Capital expenditures for the first six months of 2016 were $51 million. We generated operating cash flow of $104 million for the first six months of 2016 and generated net cash flow of $40 million for the first six months of 2016. We are continuing to project capital expenditures for 2016 of $120 million to $130 million, of which approximately $60 million is for growth projects, and the other $60 million to $70 million is associated with maintenance projects. And now I'll 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 today's call. As usual, I'll start with our safety performance. Through the first half of the year, our total incident rate or TIR, was 0.31 and the rolling 12-month TIR was at 0.36. I continue to be extremely proud of all of our employees who recognize the value of being safe, have committed to it and act accordingly. Today I'll be providing comments on our results and accomplishments during the last quarter and first half of the year, discuss key demand drivers, provide an update on our capital planning, including a potential Siding expansion, and give you my views on the outlook for the rest of this year and into next year. Sales in Q2, as Sallie just reviewed, were 18% better than Q2 of last year and produced net income of $32 million and EPS of $0.22. This was significantly better than Q2 of last year due to greater demand, leading to higher OSB prices, better Siding volumes and lower manufacturing costs across all of our businesses. For the third consecutive quarter, all business segments recorded positive adjusted EBITDA that totaled nearly $100 million for the company in Q2. EBITDA improved by $83 million over Q2 of 2015, and by $52 million compared to last quarter. In OSB, Random Lengths reported North Central 7/16's Q2 price was 17% higher than the first quarter, and MP averaged a 10% increase due to regional differences and lower premiums on flooring. However, when coupled with lower costs, our EBIT margin improved from 13.8% last quarter to 17.4% this quarter. In Siding, our SmartSide revenues grew 26% versus the same quarter last year, and adjusted EBITDA was just short of $50 million, a 42% improvement. In EWP, we were EBIT positive for the quarter and EBITDA was almost $4 million compared to $600,000 in Q2 of last year. In South America, overall sales were a bit higher, but EBITDA more than doubled. On year-to-date results, our sales are up 13%. Net income was $42 million compared to a loss of $54 million last year and adjusted EBITDA was $151 million, an improvement of $129 million. In Sallie's review, she did discuss the expected capital expenditures for 2016. I want to give you a little bit more color on this. One of the projects currently underway will be to more than double the production capacity of our fire retardant OSB product, FlameBlock. Today, we have used a contract manufacturer for the coating. We have licensed this technology from this very important vendor and are nearing the completion of a $15 million post-processing facility located at our Clark County, Alabama site. This should be operational near the end of this quarter and will provide us with lower-cost production, improved logistics and greater geographical diversity for this important growth product. At our Board meeting last week, we did present three capital projects to our Board, which were approved. The first was a maintenance project to rebuild the press at our Jasper, Texas mill. This $15 million to $17 million project will take place in the first half of next year. We have done similar projects at Roxboro, Hanceville, and Sagola, and we currently have a similar project at one of our lines in Hayward that will begin later this quarter. You have heard me talk about a third mill in Chile for several years. After an arduous and lengthy environmental permitting process followed by detailed engineering, our Board did agree to go ahead with this $60 million to $65 million project, which should come online late next year or early 2018. Like our two prior mills in Chile, we will be repurposing owned equipment from a few of our shuttered OSB mills. This expansion will take place on our existing Panguipulli mill site in Southern Chile. The third capital discussion was more of a work in progress as we continue to plan for the next increment of Siding capacity. Based on our current projections, we will need additional capacity around the end of 2018. If we are converting an existing mill, we will need about 9 to 12 months for the conversion. If we're building a new mill, this timeframe extends to more than two years. There are a lot of factors that need to be considered when making this decision: the expected growth rate and product mix of our Siding business; availability, cost and species of the wood; competitive logistics; a trained and available workforce; available incentives; the overall business climate; and forecasted currency rates. When considering existing mills, the options with LP are limited due to our existing products and customers that we need to satisfy, the location of those mills, the wood supply to that mill and the actual build configuration. Logically, we are also considering OSB mills owned by others, and this exploration is ongoing. For the new mill option, we have done quite a bit of work on the potential Siding and have preliminarily concluded that the Iron Range in Northern Minnesota makes the most sense. We have been working with the State of Minnesota and the economic development group for that region, the Iron Range Resources and Rehabilitation Board, or IRRRB, on possible site selection and incentives. They have been great partners to us in this effort. To-date, the legislature and the IRRRB have combined to offer significant incentives that are greatly appreciated and help to make this alternative much more competitive. At our Board meeting, we discussed this status and requested funds for long lead time items and continuing engineering while we are completing the evaluation of all of our known alternatives. We do not currently have an estimated capital cost as this will be dependent on a number of factors that have not yet been decided. However, it is most likely that little will be spent in 2016, with spending beginning next year and accelerating as we go into 2018. With the improvement in our earnings and a continued positive outlook for housing, we are increasingly getting questions on the balance sheet, liquidity and our plans for the cash. I wanted to provide you with my thoughts. As Sallie mentioned in her review of Q2 results, we ended the second quarter with $495 million in cash, cash equivalents, investments and restricted cash. In South America, we did use some of our cash within Chile to prepay about $7 million on existing debt. Tied in with the third mill in Chile, we have been working with our local banks to put in place financing within Chile to fund the construction. You will probably see this early next year. So what are we going to do with the cash? Our first priority is to invest in our current facilities to lower costs, allow for the manufacture of value-added products and increase our flexibility to shift the product mix to what is being requested by our customers. The examples include the FlameBlock line under construction in Alabama that I just mentioned. We are installing a small I-Joist line in Chile to give us additional flexibility within South America. And we continue to make investments in our Siding mills to increase our flexibility. The next priority is to invest in new facilities to meet anticipated demand. Earlier, I discussed the addition of a third mill in Chile and the exploration of where new Siding capacity will be installed. These projects all have returns in excess of our 16% hurdle rate. We do continue to explore acquisitions that will add to or complement our existing businesses. Finally, our Board continues to discuss returning cash to shareholders via a dividend or share repurchase. As we continue our string of profitable quarters, adding a dividend will certainly be considered. We do have a current share repurchase authorization in place, but we have not yet purchased any shares under this authority. Let me shift to talk about the housing market. The Q2 news from the housing market was good, but it did reaffirm that we'll likely be in the 8% to 10% annual growth rate for starts over the next few years. While not as strong as been forecast, this actually bodes well for both homebuilders and suppliers to the building industry. Housing starts in the first half of this year are up with 7% compared to the same period last year. However, the good news for LP is that single family starts actually increased 13% during these same periods. More of our products are consumed in a single family start than a multi-family start, as mentioned last quarter. The consensus for 2016 now stands at 1.206 million, 9% higher than last year, and 1.34 million for 2017, an 11% increase over this year's forecast. In June, I did attend the Policy Advisory Board meeting of the Harvard Joint Center for Housing Studies where we previewed the recently released State of the Nation's Housing 2016. While this report looks broadly at housing, home ownership rates, financing affordability, rental markets and housing challenges, the key underpinning to their forecast is demographics and household formation. This group believes that demographics alone will drive the addition of more than 13 million households in the next decade. Their conclusion, I quote, "Factoring in the need to replace older units and meet demand for vacation homes and other uses, housing construction should average 1.6 million units a year over the next decade." I like the way they're thinking. Other positive housing related data, new home sales rose 3.5% in June, the fastest rate since February of 2008. Sales of existing single family homes ran at an annual rate of $4.5 million in May, up 4.7% compared to May of 2015. On the financing side, the average 30-year fixed rate mortgage was at 3.42% for the week ended July 15. Retail sales for building materials, garden equipment supply dealers was 7.7% higher in the first half of 2016 versus 2015. In Canada, second quarter housing starts were at a seasonally adjusted rate of 198,000, unchanged from the first quarter but up about 3% from Q2 of last year. So as I look to the rest of the year and into 2017, to achieve the forecasted 9% growth in housing starts with the first half being at 7%, we will need to see an acceleration in activity in the second half of the year. Based on our conversations with builders and the demand we are seeing for our products, I'm optimistic that this will happen. I believe that the concerns about labor and land availability for both builders, uncertainty in relative lending standards for buyers and the impact of the upcoming election on our nation, and more specifically on consumer confidence, have been built into this reduced housing forecast. If the news is better on any of these fronts, we could see an upside in activity. For 2017, I agree that we'll see a 10%-plus growth in housing starts driven by increased household formations and some wage growth. Specific to LP, we have seen further increases in OSB pricing with Random Lengths reporting current levels at 16% higher than the average 7/16 North Central price in Q2. At our Siding business, we are on track to achieve volume growth of 12% to 14% on a year-over-year basis with strong activity in all of our market segments. As I mentioned last quarter, stronger single family starts is driving demand for EWP. Additionally, the trade actions that could occur in October related to the expired softwood lumber agreement could also be beneficial for EWP later this year and into 2017. South America, I expect good OSB and Siding demand in Chile throughout the year. For Brazil, we will continue to focus on export opportunities as these are generally priced in U.S. dollars and we can benefit from the weak Brazilian currency. With that, let me turn it over to Sallie for question-and-answer. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Great. Thanks, Curt. Michelle, if you please, we'd like to go to the queue for questions.

Thank you. Our first question comes from the line of James Armstrong with Vertical Research Partners. Your line is open. Please go ahead.

Good morning, and congrats on a good quarter. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Great. Thank you.

First question is you've made good progress on your cost per square foot since 2004. As housing rebounds to something more normalized, would you expect costs per unit to continue to come down? Or do you think that as we go forward, inflation's going to start taking hold and we'll see the cost start to rise again? Curtis M. Stevens - Chief Executive Officer & Director: James, I'll take that. I think there's two things we've benefited from. Obviously, with oil pricing coming down, our raw materials costs have come down, particularly in resins and wax. I don't see that going any lower. I think you will see some pressure as oil pricing comes up on that part of our cost curve. The other manufacturing costs, I do think as we increase our utilization of our facilities that we will see cost reductions really across the board. In our OSB business, I think we were at effective capacity at... Sallie B. Bailey - Chief Financial Officer & Executive Vice President: It was 89%. Curtis M. Stevens - Chief Executive Officer & Director: 89%. So we have a little bit more to go in OSB. In Siding, we're still filling out the demand from the Swan plant as it's not being fully utilized yet. And then in Engineered Wood, we have been significantly underutilizing our assets there. So I think you will see the manufacturing costs come down, but you might see a slight rise in raw material costs. The other part of our cost is wood, and I don't see any significant pressure on the wood side. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: And James, we had some benefit from the Canadian dollar as well.

Okay, perfect. That helps. And then switching to OSB, specifically in Canada. In the Quebec area, there has been articles that they have plenty of trees but no one's – they can't harvest the logs because they can't sell the residuals. Would you ever – are you considering restarting Chambord? And on that, do you have any other mills where you can still add shifts? Curtis M. Stevens - Chief Executive Officer & Director: So the residual is not an issue for us. How it becomes an issue is these are generally mixed stands, and so when you're logging, if you've a mixed stand then you put the log in right mill. So if nobody's taking the log for lumber, then it makes it more costly to get out the log for OSB. But we don't really have the problem selling residuals. Yes, we are underutilized in Maniwaki. We a running about 3.5 shifts there so we can still add some production capacity there. In Chambord, we have no plans to start that mill this year, but we constantly evaluate where we think housing starts are from a demand – and what that will lead for an OSB demand.

And then how long will it take to restart Chambord if you were to make that decision? Curtis M. Stevens - Chief Executive Officer & Director: I think it's probably – there are some environmental equipment upgrades we need to make. So I'm guessing it's a $6 million to $10 million cost and probably a nine-month period to bring that mill up.

Yeah. Perfect. Thank you very much. Curtis M. Stevens - Chief Executive Officer & Director: James, the other thing I would say is we don't currently have a wood license from the Quebec government. That wood has not been reallocated to anyone else, but we would have to procure the wood. There is enough private wood to run that at about 60%, but to go beyond that, we would need to reacquire that wood license.

And how long does that process take? And can you talk a little bit about the process of getting a wood license? Curtis M. Stevens - Chief Executive Officer & Director: I'm speaking without full knowledge, but I could bring 160 jobs to Quebec, I probably could get the license pretty quickly.

Okay. Fair enough. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: It probably wouldn't extend the 9 to 12 months that you... Curtis M. Stevens - Chief Executive Officer & Director: No, it would be within that probably. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Right.

Okay, perfect. Thank you. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Thank you.

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

Thank you. Curt, we're used to seeing OSB price declines flow through faster than OSB price hikes. Is that what we're seeing this quarter? Should we be expecting more in Q3 the way things have gone? And related to that, for Engineered Wood, does that mean we should be expecting a fairly significant headwind in Engineered Wood Products in the third quarter? Curtis M. Stevens - Chief Executive Officer & Director: So you're right, we see the decline before we see the – more than we see the increase. I think what hurt us more than that timing on the slope of the increase was actually flooring. Pricing was very low and we're the largest producer of commodity flooring. So flooring had more of an impact on the overall pricing than I think that timing did in Q2. But I think that there's (31:21)

Okay. Curtis M. Stevens - Chief Executive Officer & Director: As far as the cost for Engineered Wood, I know we went out into the marketplace with an increase in our Engineered Wood pricing due to raw materials being lumber and OSB.

And are you confident that the balance in that business is stronger than maybe it was a year ago to try to actually capture some of that? Curtis M. Stevens - Chief Executive Officer & Director: I think so. As I said in my comments, Engineered Wood is heavily dependent on single family. There's not a lot in the multi-family area. So the increase in single family helps Engineered Wood. And again, if there's duties put on for the softwood lumber agreement, it raises the price of Canadian imports, that could have a positive impact on EWP. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Yeah. Year-over-year, Mark, the utilization increased almost 10 percentage points in our LVL/LSL capacity, so it went from, say, around 55% or 54%, close to 53%. That's what's causing some of the improvements in the performance.

It's got to help somewhere. Thank you. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Thanks, Mark.

Thank you. And our next question comes from the line of Garik Shmois with Longbow Research. Your line is open. Please go ahead.

Hi. Thank you. My first question is on Siding. You did a good job recovering in the business this quarter as you added Swan Valley back into the system. Just wondering where you are from a capacity utilization standpoint with the transition? And how much more room do you have to pick up market share in Siding as you look out over the next couples of quarters? Curtis M. Stevens - Chief Executive Officer & Director: Well with the incremental capital, which gives us more flexibility to produce the right products in the right mill, which we're continuing to do, as I said in my comments we think we have enough capacity within the Siding business to last us through the end of 2018 for that kind of 12%, 14% kind of growth rate in volumes. So we are not – as I said in my comment, we are not fully utilizing Swan at this point, and part of that is that equipment because we're limited to doing panel production in Swan today and we need to add flexibility to do some other products in that mill. And we have plans to do that.

Okay, thanks. Just wanted to shift high level. You talked about your expectations on new housing. Wondering if you could talk a little bit about what you're seeing both at retail demand there, as well as just generally on the remodel side? Curtis M. Stevens - Chief Executive Officer & Director: On the retail side, the home centers reported increases of 6% to 7% on a same-store basis. Our first half retail business was a little bit short of that, it was 4% to 5% on a volume basis. And as we look to planning, we're kind of looking at that 4% to 6% kind of growth rate in the retail. We're not going to – we don't believe we're going to see significant expansion beyond that.

Okay. Thanks so much.

Thank you. And our next question comes from the line of Gail Glazerman with REO [sic] Roe (34:55) Equity Research. Your line is open. Please go ahead.

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

A couple of questions. First on the potential Siding expansion. If you're – I apologize if you got more explicit because I missed it but I mean if you think you need this capacity by the end of 2018 and it could take up to 24 months then should we expect a formal decision on exactly how you're going to proceed by the end of the year? Curtis M. Stevens - Chief Executive Officer & Director: It's probably not by the end of the year but we – as I said, we got approval from our Board on long lead time items which we will be ordering in the next couple of months and we also included in that request that we continue to do engineering so that we would have a much better estimate on what that would cost. If it's a new mill you probably can anticipate – our board meeting is early part of February. You could probably anticipate an announcement after that if it's a new mill. If it's a conversion of an existing mill, the timeframe is much shorter than that. It's nine months to do a conversion.

Okay. And I guess just on that topic, can you just remind us what you see as your kind of competitive advantage and barriers to entry for others to try to kind of get into this given your ability to get double-digit growth? Curtis M. Stevens - Chief Executive Officer & Director: So being a little bit facetious, we paid $1 billion in claims on Siding in the 1990s which I think has been somewhat of a deterrent to others getting into it. We did reformulate the product and we do have an exclusive with our supplier of zinc borate. We have an exclusive with our supplier of the paper overlay that we use in the product, and we've got years of experience in building or converting OSB mills, siding mills and running those. And then we have a sales force that's been selling these products since 1997.

Okay. And switching gears, the price gap between plywood and OSB, particularly North Central, has gotten quite narrow, I think one of the lowest levels we've seen in at least three years. And then there's some plywood capacity coming on. No one seems to be expecting much relief on the trade front. I'm just wondering any concerns that that might start to impact customer behavior and thought process? Curtis M. Stevens - Chief Executive Officer & Director: You know, we haven't seen it to-date. If plywood is lower priced than OSB, then certainly builders are going to convert back to plywood. But we have not seen any reduction in expected demand for our product due to plywood pricing at this point. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: And we didn't see that in 2013. We didn't see much substitution.

Okay. And just finally, if you look to the Chile project coming up, how much of that demand have you been supplying to-date with volumes coming out of North America? Curtis M. Stevens - Chief Executive Officer & Director: Yeah, that's a really good question, Gail. Last quarter we had our highest sales ever in Chile. So there was roughly 13,000 to 14,000 cubic meters of product that was imported, either by us directly or by some of our competitors into that marketplace. The expansion that we are planning on doing would allow us to cover all those imports. Now the imports are coming from our own facility in Brazil. A little bit came from North America, and we also saw imports because of the weak euro. We saw imports coming in from Bulgaria and Romania by some of the foreign competitors. We believe that when we have that mill there, we will have a significant advantage. We'll eliminate $100 per thousand of freight.

Okay. That's very, very helpful. Thanks so much.

Thank you. And our next question comes from the line of Bill Hoffman with RBC Capital Markets. Your line is open. Please go ahead.

Hi. Yeah. Thanks. Good morning. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Good morning.

Curt, could you just talk – I know that obviously OSB prices are terrific right now, but can you just talk about if there's anything new development-wise on the industrial applications, but also from a diversification standpoint? Curtis M. Stevens - Chief Executive Officer & Director: On the industrial side, we focused on the furniture market about four or five years ago. Now our competitors are focused on it. So I think that the furniture market is converting away from plywood into OSB Siding. Has been successful, although we haven't been able to pull much of an edge there, because everybody- our competitors are doing the same thing. But it does expand the market for OSB, which I think is good. The FlameBlock product, we are really targeting at multi-family more than we are single family. So that's kind of an entry in a play into the multi-family market. The other industrial applications that we've been pursuing have to do with container lining, cargo trailers, interior garage panels and some of those things. And we are making some progress there, but I think as you know in this industry, builders are kind of slow to adopt new products and new building techniques and we're pursuing that and we expect to have success in the future. But I wouldn't claim victory yet except in the furniture panel.

Any guess as to what that total percentage is of your OSB sales of all that other stuff? Curtis M. Stevens - Chief Executive Officer & Director: I can't tell you that, but for the – if you look at overall from the APA, there's about 10 billion square feet to 11 billion square feet of demand that is non-residential construction related. So today, if we're, call it, at 23 billion square feet of demand, so 13 billion square feet would be residential and 10 billion square feet to 11 billion square feet would be non-residential, and that's an overall percentage.

Perfect. No, that's fine. Thanks. And then second thing, just from this sort of capital allocation, obviously, you've got a lot of cash. Any thoughts on timing and when you're going to do something or announce something on your capital strategy? And as a part of that question, how much cash do you want to keep on the balance sheet? I mean, obviously, when we go through down cycles, you need a lot, so I'm curious where you... Curtis M. Stevens - Chief Executive Officer & Director: Well, the number we've used in the past is $250 million to $300 million in cash that we'd like to have on the balance sheet. Now basically it covers cash needs if we go into a 2009/2010 kind of downturn. I know you're a banker, Bill, but the banks aren't there when you need them so you have to have some cash on hand. So that's kind of the minimum that we've talked about. From a timing standpoint, I really do think we need to make this decision whether we're going to be converting an existing mill or building a new mill. And as I answered Gail's question, that's probably end of January, early February we'll make that preliminary decision. So I think that's when I will be asking the Board to really look at whether we consider a dividend or become more aggressive on share repurchase.

Okay. Thanks, Curt, and good luck, guys. Curtis M. Stevens - Chief Executive Officer & Director: Thanks. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Thank you.

Thank you. And our next question comes from the line of George Staphos with Bank of America. Your line is open. Please go ahead. John P. Babcock - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Good morning. This is actually John Babcock on the line for George. Just wanted to ask you question on the Siding side of things. First of all, I was wondering if you could remind us essentially what you see as the long-run potential of margins in the business. And then also, based on the alternatives you mentioned earlier, I don't know if you could provide any sort of probability to whether you'll lean towards a greenfield, a conversion of an existing mill or buying one from the outside? Curtis M. Stevens - Chief Executive Officer & Director: So Siding margins, we think that we can be in the low 20s on a pretty consistent basis. So that's kind of where our target is on that. As far as probabilities, it's a tough one. And when I talk about being a new mill, it actually will repurpose equipment we already own, so it's kind of a brownfield/greenfield is the way I would think about that. And I'd be reluctant to give you probabilities. We're exploring all of them pretty aggressively now. And as I said in my comments, we really appreciate everything the State of Minnesota has done. They've been very supportive of this, and I know they need the jobs in the Iron Range, and we have several mills in Wisconsin and they are some of our most productive and have our best workers. So I think it's a good place to be. John P. Babcock - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Okay. Thanks for that. And then with regards to checking out mills on the outside that you might buy current OSB mills, is there – I guess, what do you have in mind there exactly? Are they essentially mills that might not be producing at this point? Are they mills that are actively on the market that you think you guys have an advantage holding? Curtis M. Stevens - Chief Executive Officer & Director: The key is kind of where they're located. Because to do Siding we've determined that the highest quality product is using an Aspen wood source, and so it needs to be in a location that has good Aspen wood basket. So you think about that, that's kind of late states and it's along the border in Canada, a little bit in Quebec. So that's kind of where we would be focused. John P. Babcock - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Okay. And then with regards to EWP, I think you mentioned you put a price increase out there? What regions of the U.S. was that in? I think I heard previously that there was one on the West Coast and... Curtis M. Stevens - Chief Executive Officer & Director: Yeah, I think ours is mainly in the West. John P. Babcock - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Okay, gotcha. Have you heard of anything in the South yet at this point? Curtis M. Stevens - Chief Executive Officer & Director: I'm not aware we've done anything in the South. John P. Babcock - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Okay. And then just lastly, I don't know if you could share any sort of color around what sort of benefits you might be seeing from acquisitions on the EWP side there. And I don't know whether you've gotten any sort of potential business from that at all or if market share has more or less been consistent. Curtis M. Stevens - Chief Executive Officer & Director: I would describe the EWP market as being in turmoil. There's been a lot of change in allegiances with some of these mergers that have happened on the distribution side. ProBuild and BSF came together. They put their EWP wood out for bid. Stock and BMC put their EWP up for bid. In Canada, we've had some change in distribution lineup. So it really is in quite a bit of turmoil right now. I think we're getting our fair share in that turmoil, but it's not a steady state, currently. John P. Babcock - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Okay. And was there any benefit in the last quarter from that? Curtis M. Stevens - Chief Executive Officer & Director: There probably was a little bit of benefit. We picked up some big dealers and there was some – they had to put their inventory on the ground. I think that probably slowed us a little bit in July, but we're seeing it pick up again. John P. Babcock - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Okay. All right, thanks. That's all I have for now. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Thank you.

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

Thank you. Congrats on a very strong second quarter in Siding. I want to come back to the Siding capacity addition one more time. Can you give us, at this point, just in a ballpark basis, sort of any guideline on what CapEx would look like if it's a new mill? Obviously there's been some numbers that's been out from the trade press, so if you can just give us some color on that and potential capacity, that would be helpful. Curtis M. Stevens - Chief Executive Officer & Director: So I think the first advice I can give you is on a conversion, as you know we converted Swan which is about a 480 million square foot mill. We converted that for 85 million and we're going to get about 350 (47:10) Siding volume out of that, because you don't get the same volume in Siding as you do in OSB. So that's the number for our conversion. For a new mill, the numbers that are out there are numbers that the IRRRB, which I mentioned earlier, put out. The number that they publicly put out there was a $440 million number. That was their estimate for a double expansion. So it's putting in an initial line and then adding a second line. And I don't exactly know what their number is but for something like that it ought to be kind of like 800 million square feet. So it's a big number. So as you know, our Siding business has benefited from conversions of existing mills, so they basically got the OSB mill for nothing and then added the additional equipment. As I said in my comments, we're becoming pretty short of mills that we can do that in our own stable. So that's why we're looking at other alternatives.

Got it. Okay. And then is – I just wanted to sort of again following up on that, is kind of adding another line at one of your existing Siding mills is an option or that's not possible because of maybe fiber availability or just from a market standpoint? Curtis M. Stevens - Chief Executive Officer & Director: Yeah, that's a good point. We have looked at that and actually the mill that we thought would be best positioned for that, we just don't have the physical size of the site to allow that to happen. We have a lot of property owners around it and some other constraints. So that continues to be a consideration. As an example, not just Siding, but the third mill in Chile is actually going on an existing site and we'll use the same management team to manage both those lines. And what that'll allow us to do is do specialty products on one line and do the OSB on the other line there.

All right. So what do you see at this point? This is probably at the bottom end of the kind of option range in terms of additional no additional Siding capacity? Curtis M. Stevens - Chief Executive Officer & Director: I declined to give percentages a minute ago. I'm going to do it again.

Okay. And then just one last one on that. Is Chambord an option at all, or it's completely ruled out at this point? Curtis M. Stevens - Chief Executive Officer & Director: Chambord is an option we continue to look at. It doesn't have as good an Aspen wood supply. Their alternative species in that mill are 30% to 35%, which is a little high from our perspective – from a quality perspective, quality standard.

Got it. And then just on Siding EBITDA for the second quarter, how much EBITDA in the Siding business was from OSB? Sallie B. Bailey - Chief Financial Officer & Executive Vice President: It was pretty minimal. It was about – a little under $1 million.

Got it. Perfect. That's all I had. Good luck in the back half of the year. Thank you. Curtis M. Stevens - Chief Executive Officer & Director: Thank you. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Great. Thank you.

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

Thank you. You had mentioned that pricing for flooring was very low in the quarter, can you give us a little color around that? And perhaps more importantly, has that changed? Has flooring pricing moved up with the rest of the market? Curtis M. Stevens - Chief Executive Officer & Director: We were actually selling flooring – or the Random Lengths price for flooring was below commodity, which essentially means you're not being paid to put a tongue and groove in. So we are shifting our sales focus away from Siding, which is difficult because we have customers that like our Siding products. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Flooring. Curtis M. Stevens - Chief Executive Officer & Director: Our flooring products. So it's weird. Three years ago, flooring was at about a $25 to $30 premium, and this year it's at a negative. But it's a weird market. I wish I could explain it better than that, Mark.

And so it continues to be, though, at a negative? Even now? Curtis M. Stevens - Chief Executive Officer & Director: Mike, do you have the number on flooring?

No, I don't. No. And I don't think it's changed much. Curtis M. Stevens - Chief Executive Officer & Director: When you talk to Mike, he'll have the number because he'll have Random in front of him. We don't have it in front of us right now.

Sure. Curtis M. Stevens - Chief Executive Officer & Director: But I don't think it's changed a lot.

And maybe just as a follow-up, you had noted that Random Lengths was up 16%. I don't know if that's quarter-to-date or current versus the second quarter. Curtis M. Stevens - Chief Executive Officer & Director: It was current versus the average of last quarter.

And is that a number that we should view as reflective of what should likely be happening to your mix of business at this point? Curtis M. Stevens - Chief Executive Officer & Director: I just – that's just North Central. So you'd have to look at the other prints.

Part of the mix, yeah. Curtis M. Stevens - Chief Executive Officer & Director: And again, it came up from the end of last quarter. So the average isn't 2016. That was a point in time versus an average for last quarter.

Okay. Understood. Thank you.

Thank you. And our next question comes from the line of Steve Chercover with Davidson. Your line is open. Please go ahead. Steven Pierre Chercover - D. A. Davidson & Co.: Good morning, everyone. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Good morning. Curtis M. Stevens - Chief Executive Officer & Director: Hey, Steve. Steven Pierre Chercover - D. A. Davidson & Co.: So it's kind of late in the Q&A, but I did have a question about Jasper and how much lost production does that entail in the first half of 2016, and how much capacity will the new press add? Curtis M. Stevens - Chief Executive Officer & Director: So Jasper is about a $400 million, $420 million mill. These outages usually take 35 to 38 days being out. The advantage of these press rebuilds, Steve, comes in a couple areas. The capacity is pretty incremental. You might get 2% to 3% additional capacity. But what you get is you get a higher A grade because you have much better thickness control, and you also reduce your maintenance costs and your down time. So that's where you pick it up. You really pick it up on the cost side more than you do the volume side. Steven Pierre Chercover - D. A. Davidson & Co.: All right. And obviously your hurdle rate is 16%. So that's good? Curtis M. Stevens - Chief Executive Officer & Director: Well – wait, whoa. That's where capital projects that – are for return. We see press rebuilds as a necessary maintenance. We don't include those in the – you're not going to get a 16% return on a press rebuild. But if you don't do it, you're going to have a catastrophic loss of equipment. Steven Pierre Chercover - D. A. Davidson & Co.: Got it. More like an oil change then. Got to do it. Curtis M. Stevens - Chief Executive Officer & Director: Yes. Steven Pierre Chercover - D. A. Davidson & Co.: And then is there any research being done into producing OSB out of mixed species? Curtis M. Stevens - Chief Executive Officer & Director: Well there were some very – we had a two and a half year research project in Silsbee, Texas making it out of Southern Yellow pine. And we didn't like it. Steven Pierre Chercover - D. A. Davidson & Co.: Okay. Because I was thinking of it in the context of Chambord where you said you could almost instantly get enough to run the mill at 60% because of the mix. And I'm not even thinking about Siding, I was just thinking about quality OSB. Curtis M. Stevens - Chief Executive Officer & Director: Actually, I challenged our guys about that, too. So if you get 60% aspen, do siding at 60% of the time and do OSB the other 35%. They didn't like that idea. They thought that operationally, it'd be very complicated. We do use mixed species. But generally, it's no more than 20%. Steven Pierre Chercover - D. A. Davidson & Co.: Got it. Okay. Thanks very much. Curtis M. Stevens - Chief Executive Officer & Director: Yes. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Thank you.

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

Yeah. Thanks very much. Good morning. Just a couple easy questions. Just Sallie, you mentioned 89% operating rate in OSB. What was the downtime taken in Q2? Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Sure. The downtime, Paul, was 27 days. It was about 37 million square feet. And yeah, I want to reiterate what Curt said. Remember, that's off of rated operating capacity so how we determine the capacity utilization.

Okay. And then you mentioned a 30% increase in price year-over-year which translated into $59 million in EBITDA improvement. So the difference between on a year-over-year basis, I guess the remaining $4 million, how do you break that down between, I guess you saw lower cost, FX and also volume? Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Right. Yeah. We don't really – we don't provide that level of breakdown, Paul, but I think the Canadian... Curtis M. Stevens - Chief Executive Officer & Director: Well, volume was actually down a little bit. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Well, volume was down - Curtis M. Stevens - Chief Executive Officer & Director: Because Swan wasn't in there. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: – volume was down because Swan was – yes, thank you. But the Canadian dollar – I think of the – it varies there, so it's probably the largest impact.

Okay. Then just switching over to Siding there, the capacity add that you need by 2018, just so I've got it clear, that's – you need that because you still have latent capacity, I guess, at Swan, but is that also factoring in the conversion – well, not the conversion, but switching over the other line at Hayward from OSB to Siding as well? Curtis M. Stevens - Chief Executive Officer & Director: Yes, it does.

Okay... Curtis M. Stevens - Chief Executive Officer & Director: Yeah. And it includes adding a lot of capacity at various mills, putting the ability to do variable length panels and a whole bunch of other things that are in our capital plan the next two years.

Okay. And just lastly, if you could comment on the channel inventories on the OSB side, we've seen prices, obviously, you reported and commented that they've come up in Q3. But they slowed down here. Where are channel inventories and what do you expect for the balance of the quarter? Curtis M. Stevens - Chief Executive Officer & Director: I think they're pretty lean. I think we're going to be in an environment where the market's only going to order what they need and it's going to be pulled through pretty quickly.

Great. That's all I had. Best of luck. Thanks. Curtis M. Stevens - Chief Executive Officer & Director: Thanks, Paul. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: Thanks, Paul. Sallie B. Bailey - Chief Financial Officer & Executive Vice President: All right. Well, thank you, Michelle. I think that's all the time we have of questions. So if you could please provide the replay number, and I'd like to thank everyone for participating on our call today. As always, Mike and Becky are here to answer any follow-up questions you may have. And we hope everybody has a great day. Thank you.

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