Boise Cascade Co (BCC) 2013 Q1 法說會逐字稿

Good morning. My name is Shaquana and I will be your conference facilitator today. At this time, I would like to welcome everyone to Boise Cascade's first-quarter 2013 conference call. (Operator Instructions).

Before we begin, I'll remind you that this call may contain forward-looking statements about the Company's future business prospects and anticipated financial performance. These statements are not guarantees of future performance, and the Company undertakes no duty to update them. Also, these statements reflect management's expectations today. They are subject to a number of business risks and uncertainties. Actual results may differ materially from those expressed or implied in this call.

For a discussion of the factors that may cause actual results to differ from the results anticipated, please refer to Boise Cascade's recent filings with the SEC.

It is now my pleasure to introduce you to Wayne Rancourt, Senior Vice President, CFO, and Treasurer, Boise Cascade. Mr. Rancourt, you may begin your conference.

Thank you, Shaquana. Good morning, everyone. I'd like to welcome you to Boise Cascade's first-quarter 2013 earnings call and business update. Joining me on today's call are Tom Carlile, our CEO; Stan Bell, head of our Building Materials Distribution operations; and Tom Lovlien and Tom Corrick, leaders of our Wood Products operations.

Turning to slide 2, I would point out the information regarding our forward-looking statements. It remains our practice to refrain from giving earnings guidance. There are reconciliations in the appendix for those interested in the calculations of adjusted net income and EBITDA. And with that, I'll turn the call over to Tom Carlile.

Good morning. Thank you for joining us today. I am on slide 3.

Housing starts continued to strengthen in the first quarter, compared with levels seen in early 2012. Total US housing starts were up 36%, with single-family starts up approximately 28%. The Blue Chip Consensus Forecast for 2013 has moved up to 1 million starts as of the April report, which is encouraging.

We are seeing the impact of more residential construction activity on demand for our products in most areas of the country and expect seasonal strengthening in the Midwest and Northeast now that we have moved into spring.

Our 27% sales growth in the first quarter resulted from a number of favorable elements. In our Wood Products manufacturing segment, we saw further strengthening in plywood pricing and shipments, as well as higher engineered wood products sales volume. In our Building Materials Distribution segment, sales volumes were up as demand from increased construction activity pulled product through the distribution channels. BMD also benefited from price inflation on many of the products we distribute, particularly commodity wood products.

We have reported adjusted net income of $12.2 million in the quarter, excluding the impact of recording net deferred tax assets upon our conversion to a corporation. Net income was $1.7 million in the first quarter of 2012.

Both of our businesses delivered strong earnings performance in the first quarter, compared to the same period in 2012. Wood Products EBITDA increased by 62% to $27.1 million. BMD's first-quarter EBITDA was $10.2 million, up sharply from the $1.4 million reported in the comparable period.

I am encouraged by our performance in the first quarter and the current momentum in the business. The demand backdrop is noticeably better than this time last year, and we are getting good leverage on our fixed costs as our sales strengthen in both businesses.

We are seeing upward pressure in log costs, which is something we will be paying close attention to as we move out of spring break-up and into the logging season, particularly in the Pacific Northwest.

With that overview for the quarter, I'll ask Wayne to provide more details on the financial results.

Thank you, Tom. Before I get started on slide 4, I wanted to point out that we have included additional segment operating results data in our earnings release this morning and segment working capital data in our statistical information for those interested in modeling each business separately.

On slide 4, Wood Products sales were $269 million in the first quarter, up 28% compared to the year-ago quarter. The sales increase was attributable primarily to 24% higher plywood sales prices, 28% higher laminated veneer lumber sales volumes, and 37% higher I-joist sales volumes. Higher lumber sales volumes and prices, as well as plywood sales volume, also contributed to segment sales growth.

Wood Products first-quarter EBITDA was $27.1 million, up 62% from the year-ago quarter and up 104% from the $13.2 million of EBITDA the segment generated in the fourth quarter of 2012. Improved plywood, lumber, and EWP pricing all contributed to the positive earnings changes for both comparable periods, offset by higher wood fiber costs.

BMD's quarterly sales increased 29% to $581 million, due to 18% higher prices and 9% higher volumes than in first-quarter 2012. Volume growth in general-line products lagged the stronger volume growth experienced in commodity wood products and engineered wood products, which tend to be more directly influenced by single-family new home construction.

BMD's first-quarter EBITDA of $10.2 million was $8.8 million higher than the $1.4 million of EBITDA reported in first-quarter 2012 and $2.1 million higher than the $8.1 million of EBITDA earned in fourth-quarter 2012. The strong topline growth and expense leverage, partially offset by 50 basis-point lower gross margins, drove the sixfold increase in BMD's EBITDA compared to the year-ago quarter.

Turning to slide 5, in Wood Products, our plywood sales volumes were up 5% compared to the year-ago quarter. Our first-quarter $331 average net sales price for plywood was up 9% from the fourth quarter and up 24% compared to the first quarter of 2012. Plywood demand and pricing early in the second quarter continues to be strong with high-capacity utilization rates in our veneer and plywood mills.

Turning to slide 6, our first-quarter sales volumes for LVL and I-joists were up 28% and 37%, respectively, compared with the year-ago quarter. Improving new single-family home construction activity was the primary driver of our strong sales volumes. Our first-quarter 2013 LVL sales realizations improved 6% from the fourth quarter of 2012 and were up 1% from the year-ago quarter. I-joist realizations also increased 6% sequentially and were up 3% from first-quarter 2012.

We did announce 5% to 8% price increases on our various engineered wood products effective March 1 of this year and we would expect the impact of those price increases to start to show up in the second quarter, with additional gains in the third quarter. With higher dimension lumber prices and improving EWP capacity utilizations, we believe the industry dynamics for engineered wood products are becoming more favorable.

Moving to slide 7, BMD's strong sales growth continued in the first quarter with revenues reaching $581 million, up $130 million, or 29%, compared to the year-ago quarter. Calculated on an incremental basis, BMD generated EBITDA margins of approximately 6.8% on the additional sales volume.

Certainly the strong market environment for commodity wood products gave the distribution business additional revenue and earnings lift again in the first quarter of 2013. BMD is carefully monitoring its inventory positions, as the current commodity pricing environment creates some challenges in the form of higher working capital levels. Inventory positions of higher commodity prices also present some risks to gross margins if prices were to weaken.

One can see on the right-hand chart that with the strong growth in new residential construction and the pricing environment for commodity wood products, general-line sales have represented a smaller proportion of our overall BMD sales mix over the last several quarters. Many of our general-line products, like composite decking and siding, experience demand from repair and remodel activity, as well as the new residential construction.

On slide 8, we have set out the key elements of our working capital. Most of the inventory growth from year-end occurred in our distribution segment, with accounts payable providing most of the funding. The statistical information filed as part of our 8-K this morning has the receivables, inventory, and accounts payable data broken down by segment, for those interested in the detail. I would expect working capital to be a use of cash again in the second quarter as sales activity ramps up seasonally.

I'm now on slide 9. The increase in accounts receivable and inventories, along with the payoff of the $25 million outstanding borrowings during the quarter from our bank line, had a major impact on the calculation of our bank line availability, which jumped from $196 million up to $290 million during the quarter. Even with our working capital growth in the first quarter, the $263 million in net IPO proceeds gave us a very good quarter-end cash position. Combined, our cash and bank line availability favorably positioned us with over $500 million of usable liquidity at quarter-end to support our growth plan.

And with that, I will turn it over Tom.

Thank you, Wayne.

Our outlook hasn't really changed much since our year-end earnings call in early March. We expect 2013 to show a continued improvement in the demand for single-family homes and we are encouraged by what we are achieving in our two businesses on cost leverage and pricing. We still have a long way to go to get back to historical demand levels, but it is nice to be operating with some tailwinds.

Thank you again for joining us on our call this morning and your support as investors. We'd welcome any questions at this time. Operator, would you please open the phone lines?

(Operator Instructions). Phil Gresh, JPMorgan.

Hey, good morning. (Multiple speakers). So first question is just on the plywood side. You know, we've obviously started to see a little bit of a tick down in the OSB prices. And so, I guess my question would be, how quickly do you start to see kind of the incremental pull back to OSB from a demand side? I know there's some overlap on the demand between OSB and plywood and the prices somewhat move together, but I'm just curious. Is that usually quick? And just kind of what are you seeing in the business? You talked about some pretty optimistic outlook for Q2 on plywood.

Phil, yes, OSB prices did tip down a little bit last week, when plywood didn't. I don't know that I can give you a definitive answer because they do trend together. OSB prices have escalated more than plywood prices, but they over time will trend together. I think the operating rates on plywood are likely to be better over time than maybe OSB, as capacity is added, but we'll have to see what the demand level is.

Okay. And then, just on the Wood Products, in this quarter, Wayne, were you guys positive price cost on a year-over-year basis? Or are you still trying to kind of catch up with inflation that you have been seeing?

In total, we're obviously very positive, price to cost, particularly in plywood.

And on EWP?

On EWP, less so, if you look at it year over year. Certainly, the escalation we have seen in veneer costs and in OSB. They've probably compressed margins relative to price increases on EWP.

It's certainly favorable sequentially fourth quarter to first quarter with the improved pricing on EWP, but if you look at it year over year, I think costs have moved up more than pricing on EWP if you were to compare first quarter of 2012 to first quarter of 2013.

Got it. And then, just my last question is on the Building Materials Distribution side. Very nice performance on the EBITDA there. I think you had mentioned a 6.8% dropthrough. That was a dropthrough of EBIT from volumes with respect to sales from volumes? Is that what that number was?

No, it was just looking if you look at the change in EBITDA and divide it by the change in revenue. So clearly, the price changing that we're seeing on commodity wood products is giving us quite a bit of topline leverage on fixed costs in that business, payroll and occupancy.

Right, okay. So do you expect -- I mean, is this level of EBITDA something you would expect to be able to continue for the rest of the year, then?

In terms of the leverage on sales?

Yes.

I think we -- fourth quarter and first quarter, in particular, as you look at what's gone on with commodity prices, I think we've probably got more leverage coming out of the sales because of what's going on in prices on commodity. So if you think about our gross profit margins, we've clearly had benefit the last six to nine months from an improving commodity price environment. And as prices move up, we tend to see expansions in gross margins, and if prices were to tip over, we would see compression in gross margins, certainly on the commodity lines.

Right, okay. All right, thanks a lot.

You're welcome. Thank you.

Chip Dillon, Vertical Research.

Yes, thank you and good morning. You know, I noticed from slide 6 that the sequential improvement in both I-joist pricing and in LVL pricing looks to be at least mid-single digits or higher, and I guess my understanding was that prices didn't really start moving up until later in the quarter. So I was wondering, is my impression wrong or could there be a mix effect here?

If you look at the sequential change from fourth quarter, part of what you're seeing is the impact of the prices that were -- price increases that were put through in the second half of 2012.

And typically, it takes a little while for the price increases to actually work their way through to our net realizations when you go through implementation of the price increases, places where we may have price protection agreements in place. And that's why I say if you look at the price increase that was announced March 1, I would expect to see some impact from that in the second quarter and then see additional impact from those rounds of price increases in the third quarter.

Okay. And then, moving on to -- you know, you mentioned you expect the working capital, primarily in distribution, to move up in the second quarter. And obviously, a lot of that is seasonal. And then, just so we understand, would you then expect to see that come down pretty substantially in the second half of the year? Is that sort of the normal pattern and it bottoms in the fourth -- at the end of the year?

Yes, usually once we get past October 1, and particularly once we get past Thanksgiving, you'll see a fairly substantial drop in receivables and we'll pull our inventories down as we get towards year-end. So if you were looking at working capital, particularly in the distribution business, you'd clearly be at a low point in the year-end period.

And then, next question, just on engineered wood, and you may have given this rough number out at some point. But when you look at your competitors, obviously you guys are backward integrated, for the most part, at least on a -- when you net everything out in terms of making your plywood. When you look at your competition, I mean, obviously there's another competitor in Washington state that has full backward integration as well, I understand, but do you have significant proportions of the industry that run where they have to go out and buy most of their plywood and OSB?

Yes, Chip. Yes, we think that we have maybe the highest integration back to self-generated veneer and plywood that feeds the EWP business.

(Multiple speakers). But we are exposed on OSB for web stock on our I-joists, but there are a number of people producing I-joists that would be fully exposed on external veneer and OSB. And I'm quite certain those producers are not having much fun in engineered wood at the moment.

Got you. I would agree with that statement. Okay, this is very helpful. Thanks.

Mark Wilde, Deutsche Bank.

Hi, a couple of questions around plywood. What is your practical volume for the year, would you estimate?

On plywood if I think about what we are likely to produce?

Yes, exactly.

Yes, the product we will produce as plywood will probably be in the 1.250 billion to 1.30 billion, and then we'll take part of that plywood volume and we'll use it to produce an internal product that we call parallel laminated veneer, which is essentially a plywood-like product with the grain running all the same direction, and we take that forward into our EWP operations.

But if you look at our external sales, there's probably, as I say, 1.2 billion or 1.3 billion, and then we'll probably have another 100 million or so square feet that we'll buy on the outside and resell as plywood.

Okay, all right, so sort of a -- sales would be at $1.3 million to $1.4 million? Is that right?

That's correct.

Okay, all right. And you guys, I think, took some deferred -- or you took some deferred maintenance in December when the market was very, very good. Is there any kind of a catch-up effect from that that's going to show up one of these quarters?

I don't believe we had any deferred maintenance. We did have a dryer project at our Florien, Louisiana, mill.

Yes, okay. I was thinking when we were out there in December, you guys had mentioned you were going to run through the Christmas holidays when you usually took things down?

Yes, Mark, you know, we did take down a green end, as well, but it's -- we manage around it so it's not -- other than the dryer project, it's not a material impact.

Okay. And can you just talk about what you're seeing out there in terms of any plywood coming back into the market? I saw some kind of a press release three or four weeks ago about somebody down in Georgia talking about a 20% addition to kind of plywood and lumber capacity, but they're not somebody that usually talks to Street analysts.

Mark, we read the same announcement, and we don't have visibility of how much of that is plywood and how much of that is lumber. We think anybody that has got a plywood plant is trying to run them as hard as they can right now. But (multiple speakers)

Okay. Tom, have you seen any restarts?

The only one that is way out is there is a mill in central Washington, in Omak, that has been idle for a number of years that has been announced that it will restart. But I think it's several months out.

Okay, all right. Could you just put a little more clarity around the increase in kind of log and stumpage prices? Because my impression has been that logs are moving up on the West Coast, but I didn't know whether you were seeing anything down in the South yet.

Mark, they have moved up in the West Coast and there is some seasonality going on as well in the first quarter, and maybe a little bit of moderation from very high levels in the West. In the South, we are seeing some modest increase in the South, and again, you need to get through the wet season to see how much that would be on an annual basis.

Okay, and then my last question, Tom, can you just talk a little bit about sort of what you're seeing in the M&A environment and in terms of asset values?

Yes, well, this is a tough question, Mark. We don't comment, but it appears there's some activity out there. I would suspect people are trying to leverage off of what they view as great momentum in earnings and a pick-up on housing. So I don't have a comment on values, but there is some activity.

Okay, all right, sounds good. I'll turn it over. Thanks very much and good luck with second quarter.

Thanks, Mark.

George Staphos, Merrill Lynch.

Thanks. Hi, everyone. Good morning. Congrats on the first quarter, out of the box, and also, great stat package and information that you provide. It's one of the best on the Street, so thank you for all that detail.

Guys, my first question, how are the projects like Rogue Valley proceeding? And how do you think your strategy for improving operations and efficiency sets up well, relative to what you're seeing in the market in terms of restarts and pricing and demand thus far in the year?

George, let me try it this way and see if I can get to your point of view. We are starting up a facility in Rogue Valley on the West Coast in the White City area, and the product would be raw material for EWP.

Right.

So the product we make there will feed the growth that we're seeing in EWP. The startup is going well, as planned, and you know it's going just as we expected. So I think we feel good about that.

How about some of the other projects, Tom, again where you're maybe trying to debottleneck not necessarily to, obviously, produce more plywood, but just to improve your efficiencies and flexibility down the road?

Our primary focus is to produce more veneer, and our projects are generally based on improving the efficiency in our dryers and through our dryers. We have another dryer project this year. At this point, all of them are going well and all of them have exceeded our expectations. So we're pleased with what we're seeing there.

Okay. Is there anything else going on in terms of improving layup capacity, or it's mostly on the dryer side?

Well, there's nothing major on the layup capacity, other than Rogue Valley.

Rogue Valley.

But we continue to improve our productivity throughout (multiple speakers)

Okay, thanks for that. Can you give us -- I guess we can back into it -- but what you think your current operating rates are in EWP right now?

Yes, around 60%, plus or minus. But it's kind of, we would say, around 60% in the first quarter.

Okay, thank you for that. And you provided a lot of volume statistics, and again we appreciate all of that detail. If you had to think about it in terms of, I don't know, tons of woods or some real and uniform unit of metric across all of your businesses, what do you think your volume was up year over year in the quarter versus -- obviously versus first-quarter 2012?

Well (multiple speakers)

Let's get back to you on that (multiple speakers) (laughter)

Get out -- break out the calculators, okay.

That's not one we normally think about in that way, but yes, if you'd come back to either Greg Sanders or I, we'll see if we can help you on that one.

Yes, the reason for the question, I was just trying to compare it to the direct-cost metric you provide in Wood Products to see if it was more or less than the 25% that you had just for wood. But that's fine. We can come back to it.

I guess my last question, then I'll turn it over, how are residual markets in the Northwest? Were they helpful, hurtful, neutral? I know it's not a big number, but nevertheless just curious.

The residual pricing is trending down.

Okay. Guys, thanks. I will turn it over.

Adam Rudiger, Wells Fargo Securities.

Hi, thank you. Following up on just one of the previous questions on the 60%-ish operating capacity at EWP, can you talk through how you think maybe over the next year or two as that ramps, based upon your history, where you start seeing the real ability to raise prices and margin expansion, and just really how you'd expect that to transpire as demand continues to improve?

Directionally, Adam, I'll try this. As the operating rates improve, it helps to increase price, and as it's already been discussed, the cost pressure on the EWP side is escalating at a fairly high rate.

I would expect to see more price movement in the EWP business as we move through the year and clearly as operating rates climb back up towards 80%, 85%.

But historically when operating rates have moved about 65% towards 70%, you start to see price momentum. And as Tom said, it improves certainly when you get into the 80%s. And we're hopeful this time that we'll see similar behavior.

Is your expectation for price increases for the rest of the year, would that be more -- just based on what you just said -- more cost driven rather than utilization driven?

I think it'd be both, Adam.

And then, my other question, if you've already mentioned it, I apologize, but can you talk a little bit about the gross margin in the distribution business and what happened there? And if it's mix related, which I suspect it is, how that should frame our thoughts going forward if that mix maintains itself?

Let me try and -- Stan Bell is with us here, and we'll see if that will work. You know, the gross margins come down a little bit, and our volume of direct shipments on commodities did increase, which generally has a lower gross margin, but it also has much lower operating costs. So you get the leverage at the bottom line versus the gross margin line.

As the market continues to improve, we still see the margin change around, some of the seasonal related, so I would say I'd be surprised if there was much continued downward trend on the gross margin.

Okay, and then one more question, then I'll wrap up, on the distribution side. Is there any history of -- you mentioned earlier that there could be some higher working capital requirements. Is there any history of you being able to, since it's a service, charge more once your working capital requirements increase?

Let me see if I understood the question. Part of our offering is to have the products and have the balance sheet to support our customers. And to the degree they want more support, which might be inventory and having the product there, there probably is a relationship to higher margins in that business. But our DSO and other things stays pretty consistent, so we're not out there offering extended terms.

Okay, thank you.

Steve Chercover, D.A. Davidson.

First question, I know you don't give guidance, but is it fair to say that Q1 exceeded your expectations?

Well (multiple speakers) let me maybe answer it this way. Q1 commodity prices did exceed what we expected when we started the quarter, yes.

Okay, yes, I mean, they certainly were on the proper trajectory.

The $69 million tax benefit that you enjoyed in Q1, I just wanted to clarify. Those aren't NOLs. So is it still appropriate to use the mid-30%s tax rate for modeling purposes?

Yes, I would still use 38%.

38%, thanks, Wayne. Okay, and just a couple other quickies. You might have kind of touched on this, but is the drop in OSB incorporated into your optimism for engineered wood or is that just the March price increased throughput?

Well, OSB cost is a factor in the cost of engineered wood, but engineered wood tracks fairly clearly along residential construction, so I think that is driving it as much as anything.

Yes, I think the optimism probably stems from the fact that the volumes are going up, and while Weyerhaeuser and LP and others haven't announced, but assuming they're seeing similar increases in volume, part of the optimism stems from the fact that the industry operating rates are probably getting up towards a level where normally producers would see more price leverage relative to buyers.

So if we continue to see housing starts move towards 1 million units and higher in 2014, we would suspect the industry operating rates will be more favorable, and therefore pricing opportunities will be in front of us.

Perfect. Okay, thanks for taking my questions.

Thanks, Steve.

Alex Ovshey, Goldman Sachs.

A couple of questions for you. So excellent quarter, almost as good as the third quarter of last year, which is seasonally a much stronger quarter for volumes. And as we look at the seasonal pattern for profitability in the business, there's a very distinct pattern that we see where most of the money is made in the second and third quarter. I mean, if we held pricing constant at the exit run rate, should we expect to see that same type of seasonality in the business in the second and third quarter as we've seen in the past?

I would say no. If I look at where prices are in the first quarter and where volumes have been, frankly the first quarter, in terms of the demand side, weather issues, and pricing, has been much better than we've seen in a first quarter in the industry in a very long time.

So I would not take the percentage changes that you would typically see seasonally from first to second and second to third, and then to fourth, and overlay those in 2013 because I think you would end up with much higher numbers than what would be appropriate.

Okay, Wayne, got it.

And then as I look at your net price realization for plywood, it's fantastic, but relative to the benchmarks we track, the discount has widened. And I would think part of that is just the slope of the line for the increase in prices during the quarter. So as you look at your book of business in plywood, again assuming pricing is flattish relative to the exit run rate, is there a catch-up in plywood prices that you see in your book of business as you ship the orders that have been taken in the first quarter during the second quarter?

Alex, I don't know that we would view there is a catch-up. You know, we do have an order file. I think our pricing tracks very well for the specific products that we sell, so if there is a difference, it's a mix issue. (Multiple speakers)

And price time or order versus time ofshipment, we do have part of our sales book where we price at the time we take the order versus where Random is at the time the order ships. So I guess I'm not surprised if you say that there's a little bit of a lag in our realizations relative to a weekly print on Random Lengths. That wouldn't surprise me at all.

Understood, Wayne. And then, let me shift to the distribution business. Is there a way to quantify the benefit on EBITDA from the higher selling prices that we saw in the quarter? So maybe -- I'm not sure if this is the right way to classify, but inventory gains, if you will?

Well, you know, it goes to one of the earlier questions around margins. I think you'll tend -- and we're obviously, for competitive reasons, not going to break that out. You'll tend to see improvements in gross margins around commodity prices as prices are moving up, and so if prices were to change and move downward sharply in the second quarter, we would expect to see compression in the gross margins around our commodity lines.

And I'm not going to quantify that aspect for you, but if you look at the individual segment statement we provided for you on Building Materials Distribution as part of the earnings release, you can clearly see the leverage on SG&A and G&A.

Okay, we'll take a closer look, Wayne. Then my last question and I will turn it over, and I may have missed this, but you talked about the general-line business not seeing the volume uptick, or I think you said that you didn't -- volumes were flattish in the general-line business. Can you just remind us again what end markets you have exposure to in that business?

Well, let me give you a good example. Trex composite decking is a very big product line for us that would be in general line. There's not a lot of people in the Northeast building decks between November and March. So we would expect to see that product, in particular in the northern tier, to have higher sales as we go into the second and third quarter.

Okay, got it. Thank you.

Thanks, Alex.

Matthew Dodson, JWEST LLC.

Hi. Could you -- you alluded to it earlier, and I think there was a follow-up question, but could you talk a little bit about stumps in the South and, I guess, how much of your purchasing that you get from there? And can you just talk a little bit about the thought process of prices moving up over the next couple of years? A lot of the suppliers there are very bullish, and if that happens, will that have negative ramifications for you or positive ramifications?

Matt, I think you're asking what do we see in wood costs in the South?

Yes, sir.

Yes. You know, a wood cost increase in the South isn't -- would flow through as an increase in costs in our business. So to the degree costs increase in wood, it increases our costs, and you hope you can pass that on to the end product.

Having said it a different way, the demand for logs in the South is driven by conversion, converters like us, so it's likely that a cost increase won't happen unless there is higher-end product prices over time. So we have seen some modest increase in stumpage in the South, but we think you need to look at it on a seasonal basis and not necessarily just in the first quarter.

So just to follow up, the increased cost, is it up $1 or $2 or $3 or can you give us any kind of, or is that competitive?

Matt, I don't have that, and we generally talk about percent increases and we typically don't do that until the end of the year.

We'll file our 10-Q in the first week of May and we'll have some additional MD&A in there, but we're probably looking at single-digit increases, mid-single digits in the South and higher than that in the West.

Okay, great. Thank you.

George Staphos, Merrill Lynch.

Just real quickly, to the extent that you can track it and based on your experience, were you pleased with the working capital efficiency in the quarter and overall, more broadly, the cash flow generation? Obviously, the deferred tax payment was a big hit. And how would your leverage off of working capital compare to past recovery periods? Thanks and good luck in the quarter.

(Multiple speakers) let me start on the deferred tax. That is a non-cash item, so that didn't impact us at all in the first quarter in terms of cash.

And the working capital build was pretty much in line with expectations. A little less of a payout on the accrued liabilities than we would have thought, so we may see some of that continue into the second quarter. But in terms of the inventory and receivables, very much in line with what we would typically see this time of year. We usually use cash really through the April/May period, and then it starts to level out on working capital as we go through the summer months, and then we have a return of working capital, as was mentioned earlier, as we get into the fourth quarter.

So pretty much in line, but again we'll likely have working capital use again in the second quarter, but it will be less than what we saw in the first quarter.

Okay, fair enough, guys. Thank you.

Chip Dillon, Vertical Research.

Yes, hi, I know this is really small, but do you have the lumber production and realization for the first quarter?

Yes, give us one second. Lumber, the volumes were 49.8 MBF. And prices were $463 per MBF, compared to $414 per MBF in the prior year.

Got you. Thank you.

At this time, there are no further audio questions.

Well, we want to thank you all for joining the call today and we appreciate your interest in our Company. And if you have any other questions, please give us a call. Thank you.

Thanks, Shaquana.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a great day.