Boise Cascade Co (BCC) 2013 Q2 法說會逐字稿

Good morning. My name is Julie and I will be your conference facilitator today. At this time, I would like to welcome everyone to Boise Cascade's second-quarter 2013 conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer period. (Operator Instructions).

Before we begin, I will 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. Although 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 for Boise Cascade. Mr. Rancourt, you may now begin your conference.

Thank you, Julie. Good morning, everyone. I want to welcome you to Boise Cascade's second-quarter 2013 earnings call and business update. Joining me today on the call are Tom Carlile, our CEO, Stan Bell and Nick Stokes, the leaders of our Building Materials distribution operations as well as Tom Lovlien and Tom Corrick, the leaders of our Wood Products operations.

Turning to slide 2, I would point out the information regarding our forward-looking statements, and for those interested, there is an Appendix at the back of this presentation that includes reconciliations from our GAAP net income to adjusted net income and EBITDA.

And with that, I will turn the call over to Tom Carlile.

Thank you, Wayne. Good morning. Thank you for joining us for our earnings call today. I am on slide 3.

Housing starts continued to strengthen in the second quarter compared with the levels seen in the same period of 2012. Total US housing starts were up 17% with single-family starts up approximately 14%. The Blue-Chip consensus forecast for 2013 remains at about 1 million total starts as of the July 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.

While June housing starts were lower than most economists had expected, overall housing demand continues to trend positively and longer-term forecasts still point to underlying housing demand around 1.4 million to 1.4 million starts per year.

Our 16% sales growth in the second quarter resulted from a number of favorable events. In our Wood Products manufacturing segment, improved plywood pricing and higher engineered wood products sales volumes were the primary drivers of the sales increase.

In our Building Materials Distribution segment, our sales benefited from higher prices for many of the products we distribute, particularly commodity wood products as well as increased sale volumes from increased construction activity compared to the second quarter of 2012.

We reported net income of $10.4 million in the second-quarter 2013, compared with net income of $15 million in the same period last year. The decrease in net income is primarily a function of our conversion to a C corp in 2013 and the recording of a $6.8 million income tax provision during second-quarter 2013.

The demand backdrop continues to be better than last year, and we are getting good leverage on our fixed cost as our sales strengthened in both businesses.

Moving to slides four and five, they show the commodity price indices for panel and lumber during 2012 and first half of 2013. Commodity prices for panels and lumber began to rise in 2012 and posted sustained increases through the end of the first quarter of 2013. In early April, 2013 prices peaked and began a steep descent that continued throughout second-quarter 2013.

In our Building Materials business, periods of increasing product prices can provide the opportunity for higher sales and increased gross margins, as we experienced during the first quarter of 2013. Sharply declining commodity price environments negatively impact profitability as we experienced during the second quarter of 2013. Composite panel and lumber prices are moving up as we begin the third quarter.

Last week, we announced that we had reached an agreement to acquire two plywood plants in North and South Carolina for $102 million. These facilities will complement our existing plywood and engineered wood manufacturing businesses, and enable us to better serve our customers in the Eastern and Southeastern United States. We believe these plants generated approximately $19 million of EBITDA in 2012.

With that overview of the quarter, I will ask Wayne to provide more detailed financial results.

Thank you, Tom. Turning to slide six, Wood Product sales were $280 million in the second quarter, up 16% compared to the year ago quarter. The sales increase was attributable primarily to higher plywood prices and sales volume increases of laminated veneer lumber and I-joists.

Wood Products' second-quarter EBITDA was $29.6 million, up 36% from the year ago quarter. Improved product pricing drove the positive earnings change from the comparative period, offset partially by increases we saw in wood fiber costs.

BMD sales increased 17% to $681 million in the second quarter due to 12% higher prices and 5% higher volumes than in second-quarter 2012. BMD's second-quarter EBITDA of $5.5 million was $5.4 million lower than the $10.9 million of EBITDA reported in second-quarter 2012. The steady downward trajectory and commodity prices and $4 million lower of cost or market inventory write-downs during second-quarter 2013 caused gross margins to suffer a 270 basis points drop compared to the year-ago quarter.

On slide seven, in Wood Products, our second-quarter $328 average net sales price for plywood was up 13% from second-quarter 2012 and down only slightly from the average price in first-quarter 2013. Plywood pricing at the end of the second quarter was 12% below the quarterly average in second quarter. Our plywood sales volumes were up 2% compared to the year-ago quarter.

The product mix within our lumber facilities with its focus towards ponderosa pine lumber was beneficial to our results with overall lumber price realizations up 15% compared to the prior year quarter.

Turning to slide eight, our second-quarter sales volumes for LVL and I-joists were up 18% and 14%, respectively, compared with the year-ago quarter. Improving new single-family home construction activity was the primary driver of our stronger sales volumes.

Our LVL sales realizations improved 5% from the year-ago quarter and 3% sequentially from first-quarter 2013. Our I-joists realizations increased 7% from second-quarter 2012 and 3% sequentially. We believe the industry dynamics for engineered wood products are continuing to improve with higher capacity utilization rates and market recognition of the favorable product characteristics of engineered wood products.

On slide nine, BMD's second-quarter sales as I said were $681 million, up $101 million or 17% compared to the year-ago quarter. The higher average prices for commodity wood products gave the distribution business additional revenue lift in the second quarter of 2013. However, as discussed in the previous slide, declining commodity prices in the quarter negatively impacted margins.

With lower commodity Wood Products prices, BMD's inventory investment declined about $20 million sequentially from the first quarter. One can see on the right-hand chart that, with a 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.

However, our general line products represented a larger portion of our sales mix sequentially as those products are more seasonal in nature and, typically, we have higher sales velocity in the second and third quarters. Many of our general line products like composite decking and siding experienced demand from repair and remodel activity as well as new residential construction.

Turning to slide 10, we have set out the key elements of our working capital. The drop in inventory and accounts payable represents normal seasonal inventory sellthrough during the second quarter in our Distribution segment as well as the commodity price declines that occurred in the quarter.

As a reminder this statistical information filed as part of our 8-K yesterday as the receivables inventory and accounts payable data broken down by each business segment for those interested in more detail.

On slide seven (sic - slide 11 in slide presentation), our debt and liquidity position remains strong with our net debt and total liquidity flat compared to the end of the first quarter. Our cash position also remained even as cash from operations during the quarter, was offset by capital expenditures and interest.

We expect to use $100 million of cash for the planned stock repurchase and $102 million for the acquisition of the two Southeastern plywood operations in the third quarter.

We currently anticipate a $25 million draw under our bank line in conjunction with the acquisition in September.

With that, I will hand it back over to Tom to wrap up.

Thank you, Wayne. I am on slide 12.

As I said, the current consensus estimate for 2013 total US housing start remains at almost 1 million. We believe the demographics in the US support a return to residential construction of 1.4 million to 1.5 million total starts per year in the years ahead.

We will continue to manage our business to be supportive of our customers and to capture the opportunities the market presents. Commodity product pricing began to rise again in early July 2013 after the steady decline throughout the second quarter. However, future pricing could be volatile in response to industry operating rates and inventory levels in the various distribution channels.

I believe we are well-positioned for sales and earnings leverage as the housing recovery continues and we grow our Company.

Thank you again for joining us on our call this morning and your support as investors.

We would welcome any questions at this time. Julie, would you please open the phone lines?

(Operator Instructions). Chip Dillon, Vertical Research Partners.

Good morning, Tom and Wayne. What first point is -- thank you, by the way, for the detail you provided when you reported. Just one small suggestion is if you could put the volume and/or pricing in the press release which you released, I guess, later on that would be great. But we certainly appreciate the detail.

First question is on the acquisitions of the two plants in North and South Carolina. It looks like you paid about $215 or so per 1,000 square feet and do you see them I guess at today's plywood prices as being -- the deal as being accretive? I'm assuming you are probably using, assuming very low financing cost given that you have the cash on hand.

Yes. I think all of your assumptions are correct. Yes, we do see these plants as accretive and a very nice fit to our strategy, filling a geography in the Southeast where we didn't have manufacturing facilities. We have more veneer that can go either into the plywood business or into the EWP business.

We know the plants well. Boise Cascade actually built Chester a number of years ago. So we are very pleased with the acquisitions.

And I guess can I just ask, 10 or 15 years ago were these owned -- who owned these 10 or 15 years ago? I think Moncure was an IP plant, but I am not sure.

No. I think the sequence is Boise sold them, both plants toWillamette, Weyerhaeuser ended up with them and Weyerhaeuser sold them to Atlas.

Got you. And last question on the mills, I know the total capacity is about, I believe its capacity is 470 million square feet. How -- what kind of operating rate do you see and can you give us a rough idea over the next year how much of the output would go straight to plywood versus EWP?

At this point, we are not going to speak to the 2012 data. We will have an 8-K that will come out a little bit later with more financial details as we get through the carveouts and get through the audit process.

And on the second question around the veneer versus plywood balance, we have got an integration team that is going to work on this over the next several weeks. Obviously we have got some preliminary thoughts, but the region manager that is responsible for our Louisiana operations will also have responsibility for the North and South Carolina operations.

And he and the team from Moncure and Chester will come up with a plan, but those two plants are selling high-strength veneer into the EWP arena today. So, we would expect some mix between high-strength veneer going to EWP production and some into plywood.

Got you. And then the last question is obviously you are investing about $200 million, both in these plants and in your own stock. As we think about the distribution business, one key advantage you have is the ability to finance your growth without rights offering and things like that that we have seen some others do.

Do you feel that you -- I mean you will probably go into the bond market or do you think you have enough financing to finance the growth as we go out over the next couple of years in distribution without raising more money in the cap -- in the debt markets?

Well, we feel very good about our liquidities. As you notice we have got, at the end of June, $232 million in cash. About three quarters of the acquisition we intend to pay for with cash and we still have $290 million undrawn on our asset-based lending facility. And clearly there's an opportunity to grow that facility as the working capital grows. That's backstopped by receivables and inventory. So to the extent we have working capital build in the distribution business, it is readily financed at very attractive rates.

So we are not worried at all from a balance sheet standpoint. And clearly as our EBITDA continues to improve we can take on additional leverage. We have a target leverage that is somewhere around 2.5 to 3 times with the -- if you look at the trailing EBITDA numbers we are comfortably inside of that today even after spending the cash.

Got you. Thanks very much.

Phil Gresh.

Good morning. First question, just following up on the acquisition, any thoughts you might have on synergy potential with the existing assets? And bigger picture, what kind of opportunities do you think this acquisition might open up for you longer term on plywood or EWP?

We don't have a synergy number that we are ready to share at this point in time. It fits well. Wayne already described how we are going to operate it as part of our existing business. So we think we will be very, very efficient with that.

These facilities, again, having veneer and plywood you have the opportunity to expand into engineered wood if and when the time occurs that we need the capacity to do that. But, in the meantime, we will run those facilities as they are currently running.

Okay. And in the context of the acquisition pipeline, I mean, is this -- was this one major thing you are working on or do you have other opportunities that you see in the pipeline today that we might be able to expect over the next 12 to 18 months?

Well, we don't comment on speculation on future things.

Yes, I would describe it as there are other things on our wish list that we have an interest in. Clearly, having capacity in the Southeast and along the Eastern Seaboard was important. So we view this as one of the things that we were clearly targeting over the last couple of years. And when these plants came available, it was a very, very good fit. And there are similar assets that should we have the opportunity to get them at a price that makes sense for our shareholders, there are things we would like to do over the next 12 to 18 months.

That's helpful. And on the fundamentals on the EWP side, maybe you could just comment on the pricing that you are able to achieve this quarter. How that compared with what you thought you might be able to achieve and just what your thoughts are on pricing for the back half of the year.

This is Tom Corrick. We announced a price increase in early June, late May, I am not sure the exact date. Obviously announcing it into the face of falling commodity prices made it different than the previous price increases we have announced. And so there has certainly been challenges to get that in place, but we see it going into effect across most of the country. And certainly we will get I am guessing, somewhere around two thirds of what we thought we would get.

But it is going to be pretty gradual coming in because it was certainly a challenging effort to get that price increase in place.

Thanks. I'll turn it over.

Adam Rudiger, Wells Fargo Securities.

Good morning. This might be a question for Stan. I was just wondering if you had any sense of what inventory looked like in Wood Products at maybe some of your larger or more important customers and the reason I asked I was wondering if we see prices firming or maybe even rising a bit in July, if that sets the stage if those guys are running lean for potential price squeeze on the upside at some point during this quarter.

I wouldn't say we are expecting a price squeeze in the third quarter. Certainly, we are seeing some uptick in pricing across the system.

I think to your question about inventory levels with our customers, we are seeing those at fairly average levels out there. I think having gone through the big downturn in the second quarter there's a lot of customers who are reverting back to buying smaller quantities out of our inventory. And of course, that keeps our yards busy, but it is higher margin business for us.

But don't see a lot of wood stacked up that should affect the pricing in the third quarter to any great extent.

Okay. And then can you -- you mentioned, I think, in your release and in your prepared remarks you were seeing some log cost increases. Can you quantify that?

This is Wayne. As expected and as we discussed in the first quarter, most of the pressure we have seen on cost on logs compared to 2012 has been in the West where we have seen increases in the low teens. And in the South it has been mid-single digits. So, much more moderate in the South as expected, given the growth rates there and given the stocking levels.

And it has moderated a little bit in the West with less pressure on exports to Asia, so we will see how it plays out the rest of the year. But that is kind of what we are seeing so far this year.

And last question, I think you mentioned $12 million in EBITDA from the acquisitions last year. So that would suggest around 8.5 times trailing --.

Adam, it was $19 million in EBITDA last year from those businesses.

So, then more like five times EBITDA. Is that a typical multiple you are seeing for acquisitions?

I would say there isn't a typical multiple on acquisitions. And part of the reason you haven't seen us do anything in the distribution business, we have had a couple of conversations, but sellers wanted to be priced up at a 2005, 2006 peak EBITDA number and wanted an LTM EBITDA multiple.

So we have had a couple of conversations, but haven't been able to come together on price. And we will see how that plays out going forward.

But as Tom mentioned earlier, we are very focused on doing things that add value for shareholders. We are not interested in overpaying.

Thank you very much.

George Staphos, Merrill Lynch.

Good morning. I wanted to come back to the Wood Resources acquisition for a minute. When I look at the multiple based on historical per MSF levels, it was actually a pretty reasonable price that you paid at least again based on the history.

Can you let us know where these mills are, say, on the cost curve? I realize that you are not buying these just to run plywood. There is a lot more strategy involved than looking at these mills, but where then on the cost curve or said differently, what level investment do you need to make further from here to improve them to a Boise standard if at all?

And I recognize you bought Chester and then I had a couple of follow-ons.

George, the two plants, Chester is the typical commodity pine plywood mill. Moncure is more of a -- is a hardwood mill that is a mixture of softwood and hardwood. Chester is a low-cost mill amongst the lowest cost mills. So we are very pleased by that. And there is some capital that will be needed going forward, but we don't anticipate any major capital in those facilities beyond normal upgrades and dryer improvements and things that we do in our other mills.

Okay, Tom, but are we talking a few million dollars or tens of millions of dollars? It sounds like it is the former, not the latter.

Yes. It is not tens of millions, no.

Okay. And the other question I had around that, do you anticipate given again the veneer capacity that you are getting with this by definition, do you see yourselves adding EWP capacity now that you have the veneer and the plywood laydown in the area? Or is it too early to call that?

The mills would provide us that opportunity if there is a need for incremental capacity, but we see that being down the road. It is an option that would work well. It is not something we would see pursuing in the near future.

Yes, obviously with operating rates around 60% or so. That is helpful. I appreciate the color there.

I guess one other question and I will turn it over and come back. You had mentioned in your opening remarks and I realized it was more of a macro comment, that while the June existing home sales data I think was what you were referring to, was a little bit disappointing, the forecast still see housing trending toward the 1.4 million to 1.7 million starts and certainly that is our view and that is the consensus.

With all that said, in your day-to-day business, in your field checks and what you are hearing from your customers, have you seen any change, either positive or negative, in terms of demand and expectations from either the distribution centers or the builders in terms of the progress of the housing market?

Nick or Stan, do you want to take that one?

Well, I would say that it certainly continues to be regional in terms of what we're seeing out there. I think right now most of our locations would report very positive outlook from our customers. Some projects have been delayed because of regional weather patterns out there.

I think that, going into the third quarter, we should see the normal pickup in business as people try to drive some jobs in for the winter months. But overall, I would say our customers are pretty optimistic out there.

All right. Thank you. I will turn it over.

Joe Stivaletti, Goldman Sachs.

Good morning. Most of my questions have been answered, but I was wondering if you could give us your perspective on your -- as you think about the recent -- these two moves with the acquisition and the stock buyback and also potentially look at future acquisitions. How do you think about your leverage target, what you might be comfortable with over a cycle? I was just curious to get that perspective.

This is Wayne. As I mentioned earlier, Tom and I and our Board really felt like 2.5 to 3 times leverage is appropriate, given the cyclical nature of our business. And so as we get back toward a more normalized housing environment, obviously we have got capacity to take on additional debt. If you looked at our EBITDA in 2012, it was $96 million on a trailing basis. At the end of June, I think we were at $118 million.

So with the $250 million we have got in senior notes today, and if we take on an additional $25 million on the ABL line, we are clearly very comfortable with where we are compared to the trailing EBITDA numbers. And as our EBITDA continues to improve we can take on additional debt. But we are certainly not thinking about our debt capacity today in terms of midcycle earnings and we would look at the leverage and the debt levels moving up in tandem with our EBITDA, not ahead of and not in anticipation of improving earnings. We want to make sure we maintain as strong a balance sheet as we move through the recovery.

So that you are saying you would be comfortable. If something presented itself that was attractive, you would be comfortable in that 2.5 to 3 range based on at where we are today in the cycle. Is that -- do I understand that right?

Yes. Similar to the acquisition we are making in the Southeast, I mean, it is bringing $19 plus million of EBITDA with it. That obviously adds to our debt capacity and we would think about it the same way if we were looking at an acquisition. We would look at the incremental EBITDA it brings. And we would look at what our debt levels are compared to the EBITDA in the base business and then make an appropriate call as to what the appropriate leverage would be to make the acquisition.

Okay. Thank you.

Alex Ovshey, Goldman Sachs.

Good morning. I wanted to ask you how you think about share buyback. What valuation metrics are you looking at in regards to your own stock that is giving you confidence to deploy $100 million to buy back the stock at the current levels?

Alex, I apologize for not being able to address your question. With us being currently in registration, our SEC counsel has given us guidance that we shouldn't talk about the proposed offering, the related buyback and those topics on this call.

So we apologize but we are going to have to limit the Q&A to matters related to the earnings release.

Okay. Understood, Wayne, understood. And then I wanted to ask a follow-on on Joe's question, just thinking about the balance sheet capacity, just over the next 12 months, to the extent an opportunity does come up. I mean, again, within the next 12 months window, what do you actually see as the balance sheet capacity over the next 12 months to do another deal?

Clearly, I think we have got headroom off of our current balance sheet to do a smaller deal, smaller being $100 million or less. I think if we start to push meaningfully north of $100 million we would have to pay close attention to what the target's EBITDA is. And obviously anything meaningfully north of $100 million we would have to look at the balance sheet as the target and make some decision on the leverage we could take on.

But that is one of the advantages of being a public company is we do have other options available to finance if we have got an acquisition that we think is sizable and creates considerable value for our shareholders. We have got a lot of flexibility in terms of how we could finance it.

Very helpful color, Wayne. Last question, can you talk about your utilization rates right now in the plywood mills and the engineered wood facilities?

Yes. In our plywood mills, we are pretty much at capacity -- operating capacity. And in our EWP mills, our current capacity is in the 60% range.

Thanks, Tom.

Mark Wilde, Deutsche Bank.

Good morning. Just a few follow-ons here. I wondered first of all can you give us a sense of what you are seeing in the first couple of weeks of July here in terms of activity.

Yes, I think our activity reflects a lot of what you are seeing in random with composite panel and lumber prices picking up. There was actually a little better than we expected activity the first part of the week of the 4th of July. And then coming back from the 4th, people seem to have their P.O. books back out and business activity has picked back up.

So, the tone that first couple of weeks of July has been dramatically different than the tone we saw in early June.

And then you mentioned, Wayne, that you have seen a little bit of weakness recently in western log prices. I wondered in both regions, both the South and the West, if you can remind us about how much forward visibility you have on your log costs. In other words, how much of it have you contracted out? Quarter, two quarters, three quarters forward? And how much are you moving with the spot market?

This is Tom. We have some visibility. We have -- and I don't know the percentages, but we have -- exactly off the top of my head -- but we have 30%, 40% of it that is maybe contracted out 12 months or longer. But there's a lot of Gatewood as well. So maybe 1/3 of that.

So we have visibility out three to six months, pretty good visibility and more so in the West than maybe in the South. But the South has been much more stable than the West.

Okay. And the last question, just to come back to the two plywood plants that you are acquiring and the potential to move into EWP near those locations. Would that more likely involve building a facility, an EWP facility right near those plywood plants or could you acquire existing EWP capacity?

That is far enough out. All those options would be something we would probably consider, but that is so far out it is not something that we have on our table right now.

All right. Fair enough. Thanks, guys.

Bill Hoffmann, RBC Capital Markets.

Good morning. Wayne, a quick question. Most of my questions are asked, but just a quick one on working capital as you look towards the end of the year. It feels like markets are picking up again for a little bit of a fall building season. I just wonder how you are looking at managing the balance sheet going into next year especially within the context of higher treasury rates and higher mortgage rates and how you think that might affect the business going into next year.

Well, the main place we see the working capital growing is in distribution. And what we more or less guided people to is if you think about the topline revenue increase, we would generally think about 10% of that revenue increase showing up in working capital. One of the things that's encouraging is Stan, Nick and the team have done a very good job of managing working capital over the last several quarters. We'd expect that to continue going forward.

And as you know we have got a very entrepreneurial culture in that business and we have an incentive plan that reaches down really through the employee ranks that part of the incentive is driven by return on net working capital. So, there is a pretty tight focus on receivables and inventory and making sure we manage the working capital build. So the good news is we have got a balance sheet that can support the organic growth that, as I say, we are happy to have that topline growth and we have got the capacity from working capital, but it will grow in 2014 if we are right about where the topline heads and I use 10% as a guide.

Great. Thank you.

Chip Dillon, Vertical Research Partners.

Yes. A couple of follow-ups. I notice the Chester plant is definitely in a very rural area, but the Moncure plant is only about 15, 20 miles from the Raleigh/Cary area which is just growing rapidly. And I was wondering how you view your wood supply situation now? Do you have long-term contracts with local land owners or -- and how do you see that developing over time just given that you have a pretty fast-growing area there?

I will start. In our due diligence and we did a pretty thorough review of the facilities, we view particularly the Chester wood basket to be very favorable with the growth substantially above the drain. In Moncure, we also find a good wood basket and Moncure is a much smaller plant than Chester. So there's not the need in Moncure that we have in Chester.

Tom Lovlien, you got -- you want to add anything?

That is a great question and, yes, Moncure is very close to the Raleigh/Durham area. But remember Moncure as mentioned earlier is a hardwood mill. And the hardwood supply that we draw from, the hardwood areas that we draw from for that plant are to the east and southeast of the facility. So the plant has not historically drawn a significant amount of wood from what was rural areas to the west. And so we, in the due diligence process, clearly we evaluated that to the extent we could.

That's very helpful. And second thing, question and definitely big-picture high level is if you look at the housing situation out there and what you are seeing in both the distribution and the Wood Products businesses, do you sense that there is a constraint out there and in terms of the ability of the demand chain to fulfill what the true demand is for new houses and new residential construction?

I mean, we have been hearing difficulty in getting framers and other in certain areas. And if that is the case, do you see how -- do you see a path? Do your customers talk about how they are fixing that in terms of hiring people and training people to actually do the work?

Yes, I will ask Tom Corrick to tackle that one first. He has been talking to some builders.

As we talk to builders, I think the general theme that we are hearing is that they are feeling pretty restricted across a number of fronts. Certainly labor is a big one, but honestly land, I think, is a bigger one.

And what we are hearing pretty returning from them is that they could sell more houses than they can build right now and they really don't want to, one, get in a position where they run out of inventory to sell. And two, sell houses at a price that they think they could sell it for more next year.

And so they have been pretty aggressively raising prices, the people we have been talking to, to keep a good balance between supply and demand because they are seeing constraints on both land and labor. And I would say they are being pretty measured and how they are approaching this situation in terms of managing supply and demand.

And do they give you any view in terms of when the land situation may alleviate? I would imagine it takes -- while it wouldn't take three years to zone and acquire land, it might take six, 12 months.

They complain about it would be the most I could say about it, but I am not an expert in that one at all.

That is still very helpful, thanks.

Daniel Downes, BC Holdings.

Good morning. If I did the quick math right on your Chester and Moncure acquisitions, it looks like the multiple you paid at EBITDA was around 5.3 times. And I was just wondering if this level of multiples is indicative of where the private market values are sitting these days. Or was there something special about the situation that had a more depressed multiple?

Well, I'm not sure I can answer all your question. Our valuation of Chester and, clearly, there was thoughts on a multiple of EBITDA, but there's also how it fit into our system and what we can do both in our manufacturing and distribution business with those assets. So we are very comfortable with the multiple that we paid for the plants.

Okay. Well, I guess this raises a longer term question where, if I look at your own stock trading here at 11.5 times consensus EBITDA for this year versus where private market values are at the 5 times level, what does the Company think about its capital allocation plants as far as M&A, dividends or share repurchases? Because it seems like there is a tremendous disparancy there.

We mentioned on the February conversations when we did the roadshow that we thought our plywood earnings that we had in 2012 were probably in line with what people ought to expect going forward in terms of a midcycle number. So if you think about where our production levels were and what our pricing was, we indicated during the roadshow that we thought most of the upside earnings potential in plywood was in place.

And that may be the case. I won't speak for the seller, but that may be the thinking that they had on Chester and Moncure.

Most of the earnings leverage for us going forward as a company is really in the manufacturing side going to come from engineered wood products, incremental volume and incremental price. And then we think we have got tremendous upside both in terms of topline revenue and earnings in our distribution business.

But if you look at, as Tom mentioned, high operating rates in plywood and really pretty decent prices and margins, we think we are probably at midcycle on the plywood component of our business. And really the upside, as I say, is engineered wood, a little bit of our industrial lumber, particleboard and the distribution business. We are not counting on a lot of incremental EBITDA coming out of our plywood business. We think that is running at pretty good levels today.

Okay. Thank you.

(Operator Instructions). George Staphos, Merrill Lynch.

Just a couple of questions to follow up. Now you said, I think Tom Corrick was saying that you are now effectively at capacity in plywood. I assume that suggests that whatever mills you had idle or curtailed late June, early July they are back up and running and running full speed.

Would that be fair or are those mills still, for whatever reason, curtailed?

Yes, we took a little bit of downtime over the week of fourth of July and that was really just to balance order files. As we said, procurement activity in late June was pretty slow and so rather than trying to put supply into the market that the market didn't have an appetite for, we thought it was better to take a little bit of downtime. But those plants are back up and running at normal operating rates today and we don't anticipate any downtime at this time.

Okay. Thanks for that. And from what you could gather, how much capacity -- and I know you get this question asked a lot, but just if you could give us a refresher. How much plywood capacity would you estimate is currently idled in North America that conceptually could come back even if it may or may not be practical to bring it back?

George, to be honest with you I wouldn't even want to venture. Because most of the idle capacity is in the hands of Georgia-Pacific and, as you know, they are private. And so we don't have a lot of visibility on what their plans are. But they -- we tend to think of them as having about 40% of the overall North American plywood capacity and I wouldn't want to speak for what they may or may not do.

They just restarted -- or should say started for the first time the OSB plant they purchased from Grant Forest Products which was 800 million square feet of OSB in the Carolinas. And what they plan to do with regard to OSB and plywood, I wouldn't want to speculate.

That's fair, Wayne. The last question I had, I think Phil had been asking it and I think, Tom, again you were saying that you expected to get about 2/3 of this price increase through. And if I am misrepresenting what you said, please correct me.

But did you actually mention what price increase you were at with into the market? If you had said that I missed that as well. What is the price increase at least that you have nominally out in the market? Thanks and good luck in the quarter.

It is 5% in the US.

Okay. Thank you, Tom.

Julie, we have time for maybe one more question if there is one.

You have no more questions at this time. I would like to turn the call over to Tom Carlile for closing remarks.

Thank you for your interest in the Company and joining us on the call today and we look forward to speaking with you at the end of next quarter. Have a good day.

Thank you for joining today's conference. This concludes the presentation. You may now disconnect. Good day.