Boise Cascade Co (BCC) 2015 Q2 法說會逐字稿

Good morning. My name is Andrew and I will be your conference facilitator today. At this time I would like to welcome everyone to Boise Cascade's second-quarter 2015 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 remind you that this call may contain forward-looking things 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, Executive Vice President, CFO and Treasurer, Boise Cascade. Mr. Rancourt, you may begin your conference.

Good morning, everyone. I would like to welcome you to Boise Cascade's second-quarter 2015 earnings call and business update. Joining me on today's call are Tom Corrick, our CEO, Dan Hutchinson, head of our Wood Products Operations, and Nick Stokes, head of our Building Materials Distribution Operations.

Turning to slide two, I would point out the information regarding our forward-looking statements. The Appendix of this presentation includes reconciliations from our GAAP net income to EBITDA.

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

Thanks, Wayne. Good morning, everybody. Thanks for joining us today for our earnings call. I'm on slide 3.

Our second-quarter sales of $955 million in total were lower than expected. Demand in April and May was weaker than we anticipated for many of the products we manufacture and distribute. June was a much better month, as weather abated and spring building demand kicked in later than usual.

Our second-quarter net income was $20.2 million or $0.51 per share. Wood products EBITDA was $34.1 million, down $7.2 million from the year-ago quarter, primarily due to lower lumber prices for the nonstructural grades of lumber that we produce, as well as operating issues at our plywood operations in the Carolinas.

BMD had a challenging start to the quarter with limited demand and weak commodity pricing. But in June, demand improved and the business reported the best monthly EBITDA performance since 2006.

We did make good progress on several of our capital allocation objectives during the quarter. We increased our balance sheet leverage with a $50 million seven-year floating-rate term loan, which gets us closer to our leverage target of 2.5 times EBITDA. The proceeds were used to fund a $40 million contribution to our pension plan.

We are making good progress on the $30 million strategic capital program for 2015 that we announced in February. Additionally, we repurchased $8.1 million of our stock since our last earnings call.

All in all, it was a mixed quarter with regard to our performance and the housing markets. However, the tone in June and the recent permits and starts data are encouraging.

We have work to do in the second half of the year to take full advantage of the improving momentum in housing. I will have Wayne cover the financial results in more detail and then I will come back with a few more comments on the outlook before we take your questions.

Thank you, Tom. Turning to slide 4, Wood Products second-quarter sales, including sales to our building materials distribution segment, were $340 million, down 3% compared with last year's second quarter. The decrease in sales was driven primarily by 5% lower plywood volumes and a 16% decline in our average lumber sales price. Wood Products reported second-quarter EBITDA of $34.1 million, down $7.2 million from the prior year quarter. The decline in EBITDA was due primarily to lower lumber prices and operating issues at our North and South Carolina plywood mills.

The North Carolina mills struggled with its energy system during the quarter, which adversely impacted its production. The installation timeline and cost of the new dryer in South Carolina were adversely impacted by foundation issues that we discovered as we demolished the old dryer.

We expect to see better operating performance at both of those mills this quarter as the energy system in North Carolina is stabilized and we are well up the startup curve on the new dryer at our Chester, South Carolina mill.

BMD sales in the quarter were $762 million, essentially for the year ago quarter. Our volumes were up 3%, but that was offset by pricing being down a similar amount. BMD generated EBITDA of $22.5 million during the quarter, which was up 3% from the $21.8 million reported in the second-quarter 2014. The increase in EBITDA was driven primarily by a higher gross margin of $1.6 million, offset partially by increased selling industries and expenses of $900,000.

The corporate segment reported negative EBITDA of $5.9 million in the quarter, which was a larger deduct than the $4.4 million reported in the second quarter of 2014. That was primarily due to increased pension expense.

Following our $40 million discretionary contribution in the middle of May, we remeasured the funded status of our defined-benefit pension plan for accounting purposes. The funded status of the plan has improved approximately $70 million since year end. As a result, we would expect reported pension expense to be close to zero in the second half of the year, which will reduce our corporate segment back to about a $20 million annual run rate.

Turning to slide 5, our second-quarter plywood sales volumes in Wood Products were down 20 million feet or 5% from the same period a year ago and the 20 million shortfall was largely attributable to the Carolina operation. The $302 average net sales price for plywood was down $10 from the first quarter of 2015 and essentially flat with last year's second quarter. The upcoming comparison to last year's third-quarter plywood pricing will be very difficult.

You may recall that in third-quarter 2014, we saw a spike in pricing caused by the loss of the mill in the West due to fire as well as very strong demand for engineered wood products, which diverted veneer within the industry away from plywood. This year, we have been seeing increased imports of plywood from South America, driven by the strong dollar. With relatively flat demand for plywood, there has been a corresponding decline in domestic production and industry operating rates.

We believe the resulting lower operating rates in the U.S. are the main driver of the current softness of plywood pricing that we've seen since the start of the second quarter. Plywood pricing starting out in the current quarter is about 5% below the second-quarter average that we reported by random lengths.

Turning to slide 6, our second-quarter sales volumes for LVL and I-joists were essentially flat compared with the year-ago quarter. LVL pricing was also flat while I-joists sales price realizations improved 3% from the year-ago quarter. Last year, second and third quarter saw heavy EWP sales volume activity as purchasers tried to get ahead of announced price increases. We haven't seen any unusual supply chain behavior this year.

Moving to slide 7, BMD second-quarter sales were $762 million, essentially flat with the year ago quarter. By product area, BMD sales and commodity products decreased 7%, general line products increased 10% and EWP sales increased 2%. The gross margin percentage for BMD increased by 20 basis points compared with last year's second quarter, driven in part by improvements to general line and in part by improving lumber prices in the back half of the quarter.

On slide 8, we have set out the key elements of our working capital. Company net working capital, excluding tax items and accrued interest, decreased $35.6 million during the second quarter. BMD working capital benefited from extended payment terms for certain products that will last through the summer months, and that drove the increase in the payables to inventory ratio.

I would expect that to normalize as we move toward year end. As a reminder, the statistical information filed as Exhibit 99.2 to our current 8-K has the receivables inventory and accounts payable data broken down by the segments for those that are interested in more detail.

I am now on slide 9. Our cash balance increased by $60.4 million in the second quarter and we ended the quarter with total available liquidity of $509.6 million. For those modeling cash flow, we made a total of $40.3 million in pension contributions in the second quarter and repurchased $6.1 million of stock. Subsequent to quarter end, we repurchased an additional $2 million of stock.

Our effective tax rate for the quarter was 36.5%. At this point, we would expect our book tax rate for the full-year 2015 to be between 36% and 38%, depending on what the Congress does on tax credits.

As Tom mentioned, we borrowed $50 million under a seven-year floating-rate term loan, during the quarter. We also extended a maturity on our existing revolving credit agreement out to April 2020. We have good balance sheet flexibility to support our capital allocation objectives and feel good about the balance sheet heading into the second half of the year.

And with that, Tom, I will turn it back over to you.

Thank you, Wayne. The consensus estimates for 2015 housing starts in the U.S. is in line with our original planning level of 1.1 million starts. We continue to believe that the demographics in the United States will support a return to normalized housing levels of 1.4 million and 1.5 million starts. With that in mind, we are managing our business assuming a favorable backdrop of increasing general economic activity, improving employment and accelerating new residential construction levels.

Our priorities remain to focus on operational excellence while pursuing organic and strategic growth. We want to grow organically and pursue acquisitions that we believe will provide a favorable return to our investors. We are committed to allocating our available capital to increase shareholder returns. Given our cash position and available liquidity, when we believe our shares represent a good return opportunity relative to our other alternatives, we plan to make additional share repurchases.

In closing, we are optimistic about the balance of 2015 and what lies ahead in 2016. Thank you again for joining us on our call this morning. We welcome any questions that you have at this time.

Operator, would you please open the phone line?

(Operator Instructions) George Staphos, Bank of America Merrill Lynch.

Good morning, appreciate the details as always. I guess the first question I had, maybe segueing off of one of your final comments here, Tom and Wayne, you, I think, mentioned that you see relatively good value in the shares here. And looking at the repurchase activity, the average share price would suggest that.

Having said that, $8 million is reasonable, but given your balance sheet and your cash flow, in theory, you could do more. Should we surmise that you see even better opportunities to deploy the capital either for investing internally or acquisitions in the back half of this year, relative to share repurchases and that is the reason why we didn't see a ton of share repurchases?

I think, George, it's fair to say that we are going to proceed opportunistically. And I think as we've alluded to on past calls we do the quarterly update with our Board of what we are seeing for organic opportunities to invest capital internally as well as what we are seeing on the acquisition front. And frankly, those would be our preferences of where to deploy.

But if we do see weaknesses in the shares, we are proceeding in large degree quarter by quarter with our Board. And to the extent we have opportunities, we will pick some up. But it's probably going to be a fairly temperate pace, given what we are seeing for potential opportunities on the acquisition front.

Understood. I guess the second question I had, then, maybe segueing off of that, the operations in the Carolinas, which you acquired into a couple of years ago, can you size for us at all what the impact at the EBITDA line was and what -- and/or what lost production was from those issues? And how quickly do you expect that to normalize?

Yes, George, this is Dan Hutchinson. The quarter-over-quarter EBITDA impact is about $5 million, so 2014 to 2015.

Okay.

We are starting to see improvement in those. As Tom talked about, most of that problem at the Chester operation was due to the dryer -- the construction of the dryer. And that dryer is up and running now, so I expect the third quarter you are starting to see things more normal to what we had predicted. (multiple speakers) We are starting to see progress now.

In terms of the volume shortfall, it was (multiple speakers)

All of the volume shortfall was there, really.

Yes, relative to 2014, we had about 12 million feet less at Chester and 10 million feet less at Moncure. And then frankly, given what we are saying in terms of the supply/demand balance on plywood, had we not had the outage at Chester, there probably would have been more contemplation around downtime.

Right, which gets me to my next question. So you mentioned the effects of imports, given where the dollar is. Is there a level of housing start activity? Obviously we are not going to hold you to this. There are no guarantees in life. But is there a level whether it's 1-2, 1-3, 1-5 million starts that would, in your view, tighten the market efficiently where the import issue would be less visible? If it is significant in the first place in your numbers, how would you have us frame that?

George, this is Tom. A couple of things I would say about that; as I think we've discussed many times, the bulk of the plywood production ends up in things that aren't directly relating to new residential construction. I think as much of anything relative to the residential construction space, the strength in the EWP sales and the demand for incremental veneer is probably going to have as much impact on that going forward is anything.

Okay, I mean fair point, but I guess more the point, so if it's not residential starts, what level of activity either in terms of repair and model growing 4% or 5% or 2% or what have you or GDP would make for a market, you think, is a little bit tighter? And I will turn it over with that, thanks.

Let me describe it this way. In the first half of 2014, imports other than from Canada were about 80 million feet per quarter. If you look at the first half of this year, they are running at about 160 -- 160 million feet per quarter. So relative to US demand, historically they've been at a 3.5% rate. This year it's probably closer to 7% of US demand.

So I think, to your point, if we get the housing start growth of 10% to 15%, and if we get a 3% to 4% growth in the economy, the imports would easily be absorbed. And then the other thing you have is the Wood Resources mill that is scheduled to come up in mid-2016. But certainly, when we look at the veneer demand for EWP, what we would expect to come from housing starts and general economic activity, we think that we can be in a better balance as we get into the first half of 2016.

But obviously it did have some influence in the second quarter and into third quarter.

Yes, that's fair. We've been modeling for about 200 million square feet from imports. I will turn it over. Thanks, guys.

Ketan Mamtora, BMO.

Good morning. Again, on imports, just one more time, obviously you have seen imports rise quite a bit. Is there any difference in the kind of board that comes from South America? Or do you guys compete directly with that board?

When you think of South America, there are two different kinds of imports that are occurring. Coming from Chile, you are getting a sanded plywood and that is really not in the markets we compete. Coming from Brazil, you are getting more of the sheathing products that we compete against.

Got you. And how much risk do you think there is, even with the kind of increase that we've seen for the imports to grow further?

I think that -- I personally think that you are going to continue to see some growth. It's really going to be a function, though, of other world economies, the price in the US and exchange rates. But I think there is some risk that the imports increase.

Got you. And then, just one thing I want to clarify. Did you say that in the distribution business, June was the best month that you saw since 2006?

This is Nick. (multiple speakers) That is correct, yes, best EBITDA on income month since 2006.

So, what drove that? Where did you really see demand pullthrough?

I think as we have stated, in both comments as well as the release, spring came a little later. And so I think there was a little bit of pent-up demand through the first half of the second quarter. And clearly, the pricing trends on commodities in general got better halfway through the quarter, and dealers started to see orders and jobs ahead of them and were more comfortable taking inventory. And we were in a position to take advantage of that.

And so, I think it's a combination of the pricing market getting a little better on the commodities, demand being pretty steady, changing mix for us in terms of spring building season.

Got you, and how have the trends been thus far in July?

Similar to June. So far the quarter's starting out well in the distribution business. I think that is reflective of what you saw in the permit and start numbers in May and June. We would expect pretty good carryover, given what we've seen on starts and permits into the third quarter.

Okay, thanks. That is very helpful. I will turn it over.

Chip Dillon, Vertical Research.

First question has to do with the plywood business. Did I hear you say that June was a much better month, that you had resolved the issues as you got into June? Or did I mishear that?

Yes, there were two issues that Tom mentioned. One was the combustor at Moncure facility. That is running much better, that is running fine. The other was the dryer issues that we had and the dryer started up in early June.

Okay, I got you. (multiple speakers) Go ahead, I'm sorry.

No, I would just say that we are in the startup curve on the dryer.

I see, I see, okay. Now in terms of the pricing, you mentioned that second-quarter pricing, or at least right now is about 5% below -- excuse me, the current pricing is 5% below the 2Q average. Was it kind of a steady decline for you all in the quarter? Or has the drop really occurred more here in July, more suddenly?

Let me give you just a couple of numbers, and these are available on Random Lengths� website but let me just give you a couple grades. So, in the second quarter, 1/2 inch four ply in the West started at $422 at the first week of April, got as low as $387 and recovered back on the week of the June 12, the $415 and has since fallen. First couple of weeks in July were at $390 and this last Friday it was at $393.

In the South if you look at 15/32 four ply, it started second quarter at $440, dropped down to $390, got back a size $420 in the second week of June and if I look at the first couple weeks of July, we had $395, $385 and last Friday it was at $382. So the trends in July are down from where we were on second-quarter average, but given what we are seeing on start activity in July and August, we are reasonably optimistic that we will see prices stabilize and hopefully move up as we move through the quarter.

Now, obviously, we know about the import issue. But when you look at the demand, my understanding is that a lot of plywood proportionately versus, say, an OSB, is going into repair, remodeling and nonresidential. And both of those areas, especially repair and remodeling, seem to be stronger than new housing. Is there something else going on in the market? Is it just the imports, do you think, that is causing the weakness? Or, do you think that there has just been a pre-buy in terms of (multiple speakers) builders doing the repair and remodeling?

It's a little tough to tell, Chip, because we don't have real good visibility on the inventory side of the marketplace but as we look at the production numbers and recognizing that EWP production was down a little bit relative to the quarter in the prior year, which in turn translates to more veneer available for plywood, I don't see anything in that data that would say that something unusual or untoward is going on in terms of plywood demand. I just don't see it in the data that says we've got to increase substitution for OSB or -- it's hard to take anything from the data that would say we see negative trends in the demand side.

Okay, and just one last one. I know the Canadian US lumber agreement, I believe, expires in October. And there are various schools of thought. Maybe they won't send as much down here because there could be a worse regime later. On the other hand, it's very tempting to send more lumber down here, because of the currency situation.

What is your view on how you see lumber in the late 2015/2016 environment? I know it's not a big business for you.

Yes, I think probably the important thing for us is it's got two different impacts. If you look at the distribution business, clearly what's going on in dimension lumber matters a lot for Nick and his guys, because half of their sales are in commodities, and lumber would be a major category within that. So, the dimension price matters a lot on the distribution side.

On the manufacturing side, we are essentially doing shop lumber and boards that would go through the home center channels. So we are not a major player at all in dimension lumber. That's part, if you compare our results on lumber pricing being down 16%, the industrial grades in the shop grades were down far more than the dimension was in the quarter. So if you track what's going on in the manufacturing and the lumber for us, you really need to pay attention to the shop and the pine boards, and less so to dimension.

The other thing I would add that think the currency issue plays a role, not only in terms of the Canadian focusing on the United States but also the Canadians are challenged getting in to Asia right now, partially because things are slower and partially because other parts of the world are now more competitive. So I think that there was a number of things going on there that have put downward pressure on it and at the end of the day, a lot of it feels like currency.

I see. And then one last one. Could you just talk a little bit about the current and maybe perspective environment for wood costs in both the Carolinas and, then, in your other regions? Do you see any real change having occurred?

Yes, Chip, this is Dan. I don't -- we have not seen really dramatic changes occur in the Southeast -- Louisiana, Carolinas. We continue to see a really good supply/demand situation there. In the West, nothing dramatic, kind of a continuation.

So, I don't see any significant dramatic change. We've talked a little bit about dry summer and fire issues and that, and I think there could be some issues associated with that in the short term. But nothing new in the long term, really, that has cropped up.

Okay, thank you.

Steven Chercover, D.A. Davidson.

My questions are a follow-on to some of the previous questions. You quantified the impact operationally. Can you tell us what the weather impact was on BMD from the very wet Texas floods?

No, not really. It's anecdotal and it's very subjective, and I can't tell you exactly how it is. But clearly, given the magnitude of the moisture down there, things came to a stop for three weeks. Our business results reflect that and the big question, Steve, is whether or not we get that back in the next three weeks or the next six weeks or the next nine weeks. We will have to see how that goes.

Yes, I thought to the extent that the ground was saturated, the foundations that did not get poured are not going to get poured, so -- .

All the above. Everything that you think about in terms of what rain and weather and moisture causes things to delay happened.

Got it. Well, not to dwell on weather, but we all know how dry it is here in the West and the impact on logging. So, has that had any impact on your log decks in this part of the world? And I think, given the export situation, log prices have actually gone down despite the drought.

Yes, I think that's it. And so far, it really has not had any impact on our log decks. We are in good shape.

Got it. And I was a wee bit surprised at the realizations in engineered wood were flat. Are there any pending price increases?

We will continue to look at the supply/demand situation. I'm not (multiple speakers) go ahead.

I was going to say, I think, Steve, on realizations we will see what we get on price increases in August and September. That is going to largely be driven by what the activity levels are and competing products like dimension lumber where pricing is. The other thing to keep in mind as you think about our prices going forward sequentially is, we do sell a fair amount of engineered wood into Canada. So the weak Canadian dollar, relative to where we were a year ago, will hurt us a little bit on translation.

Got it. And my final question, as plywood cools, we know that is a negative impact on your P&L. But how does it change the acquisition landscape? Everyone knows that you are interested in both veneer and plywood.

I would say there that, again, if you look at the plywood space, virtually all those assets are in the hands of either strategics or families. And honestly, I don't see much movement.

The things that seem to drive those decisions for those players, I don't believe are perceived are tied to the volatility that we see in the marketplace sometimes in the plywood space. And I think everyone knows that we are interested and we continue to pursue things. But I don't think this is going to have a material impact on how that plays out.

And maybe just a long shot, since the currency has had an impact on imports of plywood, it also gives you a better currency to go shopping perhaps in South America. Is there any interest to go abroad?

I would tell you that if we were going to go abroad, nothing against South America, but as an organization that would probably be a challenge certainly in the near term. And if we were going to do anything we would probably look north of the border or Europe initially. I don't know that we would move to South America ,unless we could move there in a meaningful way, because without having a presence, doing a small acquisition down there would probably be more of a distraction.

Steve, we were there in the 2000s. We had a veneer operation with a little bit of plywood in Brazil, which we sold at the beginning of the downturn. I think the key to that world that I think we learned out of all that is, if you are going to do it, you'd better do it big. It's not something you're going to do on the margin successfully.

Yes, and I guess as I understand it, your NOLs up in Canada would also make an acquisition up there perhaps a little more strategic.

Yes, I think it's fair to say that if you look at where the Canadian dollars, if you look at the NOLs that we have accumulated in Canada, making an acquisition north of the border, if we can figure out how to get the right legal and tax structure, would make sense and we continue to actively look at things that would make sense from a strategic standpoint. We obviously wouldn't do it just for the NOLs. But to the extent that we can get the right product situation in either integration into distribution or what we do on EWP would be of considerable interest to do something in Canada.

Very good, thanks for taking my questions.

Alex Ovshey, Goldman Sachs.

On the plywood side, you guys are putting in some capital to free up some production over the next couple of years. But in the context of what we are seeing in the market, where demand is flattish and the strength of the dollar is creating opportunities for folks outside of this country, is there any thought around maybe scaling back some of the capital that is now going into the plywood system?

Well, I think the critical point there, Alex, is that that project is being pursued to supply veneer to our EWP business. And there is both material, very significant cost difference between internal and external veneer sourcing, and frankly, some pretty significant limits on the available supply of external veneers. So this is, I think, a pretty critical component of our strategy to continue to grow EWP sales in line with the housing recovery.

That's fair, Tom. Maybe just let's talk about the relationship there. Is there rule of thumb for how much plywood you need to make a cube of LVL?

That is a great operational question, and we can change that ratio a lot by how we run the plant. The larger the ratio of veneer going to EWP is, the more things you have to do to get there. I would say a pretty typical number, though, would be in the range of 40% of our total veneer production could end up in EWP in those regions where we produce EWP.

Okay, that is helpful. Maybe just going back to the plywood as well, look, we look at OSB, that thing is sitting at cash cost. The price is at a good cash cost right now. Plywood has started to come down -- again this is totally out of your control, but the strength in the dollar obviously is hurting. Is there risk that plywood could come down to cash costs? Or as you look at the landscape in plywood, what do you think is different in plywood, relative to the competitive landscape in OSB right now?

Yes, well, a couple of things. I think we feel pretty good about the industry structure and, frankly, we have been pretty focused on operating our assets in a way that generates return on capital as opposed to just running for cash. And we would expect to operate our facilities in line with demand, not necessarily focused on market share, but return on capital.

The other thing is, plywood mills by their nature are a lot more flexible in terms of adding shifts and changing capacity dynamics than you would have in an 800 million square foot continuous press OSB facility. So I think if you look at the structure of the industry in terms of the major players, and if you look at the flexibility they have within the individual facilities, I just think we've got the structure that, at least over the last couple of years, has been more constructive and I would expect that going forward.

I think the other key issue is just to take care of the OSB industry and how much idle capacity there was and remains which is an overhang that we just simply don't see in the plywood space.

Okay, I appreciate that color there. And maybe last one for me, just on the input cost side, so saw logs, I mean in the Pacific Northwest, looking at the log lines, I think the pricing is down pretty materially there. So, should we see that benefit at some point in your Western plywood business if the saw logs price continues to stay at the current level?

I guess what I would say about that is certainly in the last session I think we had a very good logging year on the West Coast, which we really never had the spring shut down that we typically would see. Log supplies were plentiful. Sales into Asia slowed down a bit, and I think in the last month or two, we have seen a significant reduction -- a good chunk of our wood is purchased in advance. I don't think there's any doubt, Alex, that if it stays this way for a long time, yes, it would have an impact. But this is kind of the spot market and we don't rely -- nor does anybody rely -- 100% on the spot market for their log supply.

Got it, great. Thanks Tom and Wayne. Appreciate it.

George Staphos, Bank of America Merrill Lynch.

I just wanted to catch up on one thing. I think it's a segue from Steve's question. I think I know the answer, but what you are suggesting is, even though there is a potential for a difficult fire season, you are not seeing that also affect demand for plywood or any of your other products on the West Coast. Would that be fair?

I don't think we are tying the difficult fire season to plywood demand in any meaningful way.

Okay. Thanks for that. Would it be possible at all to notionally talk about your operating rates across your key businesses, third quarter versus second quarter versus a year ago? Whatever you could share would be helpful.

I think that, really, the only negative in operating rates we had the second quarter was related to the operational issues we had in the Carolinas. We continuously evaluate that because if we are having to push wood into the pipeline, that is not a good thing. So I can't tell you where that will play out. The veneer dryers tend to operate reasonably full.

On the EWP side, I think we've � historically and recently we've said we are in the range of 65% to 70%, and I think that number continues to be a pretty good number, recognizing that as we bring those dryers up, that has an impact on our capacity.

Okay. I kind of remember the number being a little bit higher on EWP in the past, Tom. So, has the operating rate declined or is that just faulty recollection?

Well, I think probably there were some numbers bandied about not only by us, but by others last summer and we had that real spike in demand. It pushed the system really hard and is one reason there was a price increase last summer and that is certainly, I think, looking back on it you can see the comps second quarter this year to second quarter last year and they are obviously not the same. I think the APA shows I-joist production down 8% and LVL production down 5% so that would obviously have an impact on capacity utilization.

Sure. That's true. With that, I will let you go, guys. Have a good rest of the quarter and we will see you soon.

Thank you, ladies and gentlemen. (Operator Instructions) That looks like all the questions that we have in the queue. So, I would like to turn the call back over to management for closing remarks.

Thanks, everyone, for joining us. If you have any questions, give us a call. Otherwise we will talk to you next quarter. Thanks, Andrew.

Ladies and gentlemen, thank you again for your participation in today's conference. This now concludes the program and you may all disconnect your telephone lines at this time. Everyone have a great day