Louisiana-Pacific Corp (LPX) 2002 Q3 法說會逐字稿

Ladies and gentlemen thank you for standing by, and welcome to the Louisiana-Pacific earnings release conference call.

At this time all participants are in a listen-only mode. Later we will conduct a question and answer session, instructions will be given at that time. If you should require assistance during the call please do press zero and then star. As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host Curt Stevens, Chief Financial Officer. Please go ahead sir.

Thank you very much. And thank all of you for joining us today for the Louisiana-Pacific Q3 2002 earnings call.

As usual with me today are Mark Suwyn, L-Ps Chairman and CEO, and , our Vice President of Business Development, as well as the Primary Investor Relations Contact.

I also as usual want to remind all the participants about the forward looking statement languages included in our earnings release. I'm not going to reread the statement, but I am going to incorporate the comments into this discussion with this reference.

In addition the earnings call has been opened up to the public, and we're also doing a web cast that can be accessed through our Web site at www.lpcorp.com.

For today I will be reviewing the results of the quarter, Bill will provide an update on our assets sale and divestiture program, Mark will provide a perspective on the market environment and the outlook for the fourth quarter in next year, and finally I will open it up for questions, to which we will respond.

Before I begin the discussion on the quarterly results, I do want to make all the listeners aware of a slight revision to our segment reporting. Based on the decision to retain a majority of our lumber business, we have combined these continuing operations with our engineer of wood operations in a new segment called Structural Framing Products. Bill will have a few more details on the specific operations that are included in a few minutes.

As a result of this change we will be filing a revised 8K in the next few days, and provide the details by segment for this revised reporting over the last several years.

Now the results for the quarter.

For the third quarter we are reporting net income of 3.3 million, three cents a share, on sales of about $.5 billion. This compares to a net loss of 1.7 million, or two cents a share, on comparable sales in the same quarter last year. Excluding goodwill, net income for the third quarter 2001 was a positive 5 million, or a nickel a share.

For the first nine months of 2002, we are reporting a net loss of 19.4 million, or 19 cents a share, on sales of about 1.5 billion, compared to a net loss of just over 100 million or 96 cents a share, on comparable sales during the first nine months of last year. And looking at excluding goodwill, the net loss for the first nine months of 2001 was 80 million, or 77 cents a share.

For the quarter L-P had income from continuing operations of 18.4 million or 18 cents a share, compared to income of 4.2 million or four cents a share during Q3 of 2001. For the nine months, income from continuing operations was 27 million or 26 cents a share, compared to a loss of 82 million or 78 cents a share during the same period last year.

I will note that both the third quarter 2002, and the nine month result include several other operating charges and credits the most significant of which was a pretax gain of 58 million associated with the sale of our Timberland and a $17 million non-cash charge to cancel the North shore Quebec OSB project.

With that I'm going to give some more detail with the segment results in OSB sales and profits were down 13 percent and 71 percent respectively due almost entirely from sales prices being lowered by 12 percent on quarter to quarter basis production volumes on quarter to quarter basis were down about 100 million square feet due to the week of downtime we took in July at our - across our mill systems and the continuing strike at our mill.

For the nine months sales were up nine percent and profits higher by four percent on slightly lower volumes. This improvement was a combination of higher sales average and improved manufacturing costs.

The composite wood statement improved profitably in the quarter on relatively flat sales. Better performance in our OSB based siting offset some weakness in hardboard siting particularly in the Denver market - our traditional strong hold for this product.

In addition we had about a million and a half currency translation loss for on our mill in Chili.

On a year to date basis earnings are up significantly to just over $40 million.

the plastic buildings products was profitable in the quarter with three and a half million of profits and showed a substantial improvement over the prior year. Within this segment poor results in our merging decking product line an outstanding performance in vinyl siding and molding.

For the nine months we made five and half million in savings compared to a three and a half million-dollar loss last - during the same period last year. product segment now include both engineered wood and our retained lumber mill. The segments have profits of a million seven for the quarter and 8.4 million years to date.

For the quarter our engineered wood business had record shipments of I-joists and and continues to capture new business. The lumber operations while lost a bit a money in the quarter due to the variable lumber pricing. The offset to the lumber business is that we continue to lower our cost .

The pulp segment remains in our reports primarily for historic reporting reasons will talk about it in a minute but are remaining pulp mill British Columbia early in the fourth quarter. the reported gain in this quarter was primarily related to currency translations.

The other segment at about a million dollar to the quarter and a little over five million on a year to date basis.

In the discontinued operations before taking into account 14 million in other operating charges and credits related asset impairments re-structuring charges and other items had a loss of $10 million. The vast majority of this loss is related to the final quarter of operations for our recently divested plywood business.

Selling and administrative expenses were 36 million in the quarter both this year and last on a year to date comparison 2002 expenses are about 112 million compared to 124 million last year a 10 percent reduction.

Any other operating charges and credits as we talked last time with the new accounting rules we have to flip those between our discontinued operations and our continuing operations.

In the continuing operations there was a significant gain of 38.8 million for the - in total 58 million of that was the gain of the Timberland track the largest charge was 18.3 million of non-cash charges related to impairment primarily the cancellation of the proposed OSB mill on the North shore in Quebec. The other items are detailed in the release.

Most of the 14 million in charges taken in discontinued operations during the third quarter were by the actions taken in our pursuit of the asset sale program. We took non cash asset impairments around 7.5 million related to assets help for sale there was a non cash reversal pension of pension adjustment of two million related to our decision to keep most of the lumber businesses.

Severage related discontinued operations by 4.2 million. In addition we recorded about a $4.5 million loss contingency in a long term timber contract as the mill is contract was entered into support was the best during the quarter.

On the balance sheet working capital was around a 180 million. Buck value for share a little over $10. Cash remain constant compared to last quarter at about a $100 million. In addition we add $47 million in restricted cash which is shown as a non-current asset related to the after-tax gains on asset sales.

This restricted cash maybe used to reduce debt and in fact we drew on this cash earlier in the fourth quarter to off set the 33 million dollar amortization on the for X notes.

Contingency reserved were lower by about 25 million largely due to the continued implementation of the alternative payment program that we discussed last quarter under the offices of an national class action settlement.

Available liquidity at the end of the quarter was an excess of 300 million and this does not consider the restricted cash amount mentioned earlier. This includes capacity available on our U.S. Credit Facility, the Canadian Credit Line the Accounts Receivables Securitization and the cash on the balance sheet.

With that let me turn it over to Bill and ask him to talk about the Asset Sale Program.

Thanks Curt.

As you might imagine it's been a very busy time for L-P since the announcements in early May. I'll talk about each of the asset category separately but over all I'm happy with the progress and the interests in our assets.

What has been challenging is the business climate that we've experience in the past six months. First let me recap some of the actions we've all ready taken some of these are redundant from the second quarter call but we did complete the sale of our 65 percent ownership in the LSVP Plant in Ireland. We sold that to our Joint Venture Partner. It's an agency that Irish Government in April.

We completed the sale of our product abroad plant and our California in June and we completed the assets swap with Georgia Pacific in which we traded our fourth Southern Plywood Plants in our MBV Plant for there woodland main LSP facility.

We've round down operation within in our wholesale trading operation releasing working capital and it closed our Texas Distribution Center are in the process of liquidating the working capital there and we'll sell that facility as commercial site.

We did sell one brought the Timberland transaction for 68 million that Curt talked about and while it's actually a fourth quarter '02 event we did sell our ownership in the Chapland BC Mill to and we'll report more about that.

Sum total of all of these actions if you reflect asset sale proceeds liquidation and working capital and liability avoidance's in the range of $120 to $130 million. Specifically now on lumber, when we started the sales process for our lumber business we were convinced that we would get a lot of good interests. We're right about that.

What we didn't anticipate was the negative economic conditions facing the lumber markets in general and the impact this would have on our sales profits. As I mentioned we had excellent interests.

The people who listened to our management presentations and toured our mills were very impressed with what they saw and the quality of our assets and our people. However external conditions like the fact that lumber prices dropped $50 a thousand and since our announcement the Canadian Duty situation and very restrictive capital markets all of our positive impacts. At the end of the day we simply did not receive bids that we think represent the true value of our mills.

As a result eight of our sawmills will be retained and brought back into L-Ps future plans. However we will move forward on the sale of four mills Tacoma of Washington Wyoming and Mary Anna in West State Florida. Which we believe can be completed without any adverse impact on the rest of the lumber business and add values that we consider to be fair values.

Next the industrial panels business. Just a reminder we, we include two particleboard plants one MDF and the decorative panel business in this category. One of the particleboard plants has been closed at Texas. There is some opportunity to sell which we are pursuing but that has been closed.

The second we are working with a buyer and would to close that transaction in the fourth quarter of '02. The MDF plant as I mentioned was transferred to GP as part of the plywood trade.

Regarding the decorative panel business we are continuing to pursue a potential buyers for that facility but have transferred operational control of that business over to our specialty products group and that is there results are included in the composite wood category.

Relative to distribution we are pursuing working with a buyer on the Rockland California distribution facility and we would anticipate that transaction to close the fourth quarter of '02 as well.

On the timberland front we have three separate transactions in timberland pooling a little over 100,000 acres that we are marketing. Independently of what we had called the big block. At least one of these parcels will be sold in the fourth quarter of '02 and the remaining two in the first quarter of '03.

Regarding the big block which is a little over 700,000 acres we've had excellent interest in our lands. We have completed management presentations and woods tours for our kind of selected group of buyers and we'll be getting final bids in the fourth quarter of '02 and based on where these bid levels come out we will decide then whether to sell the land in one block or break it into smaller pieces.

In the miscellaneous asset category we continue to have good success in selling surplus property which primarily is older plants states and equipment that we have. We generated nearly $10 million to date and expect $7 million more yet this year.

Of course each time we sell some of these facilities this eliminates another distraction for the company. Bottom line I see no reason why we still you know we won't achieve our objective of getting $6 to $7 hundred million for these assets over the next 12 to 15 months.

With that let me turn the discussion over to Mark Suwyn who'll discuss the outlook for the next quarter and talk about expectation for Q4 and the rest of the year. Mark.

OK thank you. As Curt out lined the sale of assets the decision on the eight lumber mills and the severance and closure costs this quarters numbers are somewhat complicated that hopefully the data we provided in the up coming AK will make it clear and traceable.

However from an operational point of view things are very clear and focused. Our retained businesses are driven by new housing starts and the repair and re-modeling businesses. As you have seen with this months housing start numbers at a seasonally adjusted rate of 1.834 million rate.

And with the large homebuilder earnings announcement you've probably seen over the last week or so home building is very strong and appears to be getting stronger. Of the key builders that we track new orders during the third quarter were up between 20 and 40 percent versus last year.

And their backlogs rose an average of 20 percent, while inventories of unsold homes remain very very low. In essentially every case they are still able to inch prices up a sign that they are still in a situation that demand is exceeding supply.

Now you have read all the reasons for this continued strong market, the low mortgage rates and the attractive refinancing deals that provide money for remodeling in additions.

But in addition homebuilders continue to add a lot of attractive features that are attracting people to upgrade to new homes. On the cautious side the manufacturing sector lost 35,000 jobs to September and employment is a key indicator for new homes.

The current remodeling is probably a little less robust than those 20 to 40 percent numbers that we've seen in the home building, but as we measure off take for home , they too have had a good third quarter in terms of volumes of our products.

So demand for our products are still strong and actual off take will probably likely be determined more by weather and the ability to get new projects started over the next month or quarter or two, than by demand for new homes or remodeling.

Now for our commodities businesses the key is supply not demand. we would appear to be moving closer to a balanced position on supply and demand. As Curt indicated we have taken steps to moderate our production, a couple of others have scheduled maintenance to down time during this slow period we announced about 65 days of down time for maintenance and capital projects.

Plywood substitution by OSB continues unabated with OSB capturing close to 57 percent of this total structural panel markets so far this year, up about 1.5 percent market share from last year.

The total consumption of OSB in North America through a third quarter is up 7.8 percent versus last year. With this growth the overhang of new capacity appears to be slowing as the new mills that started up last year have pretty much completed their ramp up this year.

As you know we've cancelled our Quebec project and we know of other proposed projects that have not moved forward because of financing difficulties. We believe this suggests an improved pricing environment if housing stays strong.

Meanwhile we're wrapping up our investment program for our existing OSB mills to take their costs down. Our expected total capital expending this year will be around $45 million and we're planning on raising that closer to an 80 to $90 million level next year if the cash flow supports, and a large portion of that will go towards OSB cost reduction programs that we've outlined in the past.

We have a whole line up of those projects that are aimed to taking our costs down, we prioritize them and we are already beginning the capital expenditures on those now.

In engineered wood we've gained significant shares this past year and it improved our earnings in the process. The gains have come from lower costs and excellent relationships with our key customers and by maintaining a very prompt level of service.

We see that growth continuing next year as we have both the capacity, relationships and marketing programs already in place to support.

In our composite wood segment we do see some slow down in hardboard siting in a few key markets such as Denver where its a particularly popular product, but that was much more than offset by strong growth in our smart system OSB family of siting, trim and facia, and we expect that growth to continue as well.

sales are still on a 40 to 50 percent pre year growth track as they have been for a couple of years.

These products are extremely attractive in the sun belt and are moving from being an option to a standard product of many homes. We have the added capacity needed to stay up with this kind of growth rate. Our excluded molding business has grown more than 10 percent this year through an expanded offering and better oil management in the retail stores and we expect that to continue as well for next year.

And finally the retained eight mills are running extremely well and it'll add to earnings even if prices stay at the levels we've averaged over this past year.

The sale of assets is bill indicated continues to move forward. I will simply repeat that we will get good value for our assets and we're approaching the marketing and sale then with that premise.

I believe we're on track to finish them well within the original time line. So the bottom line is that all elements of the plan laid out for the organization and for you and me are moving forward with enthusiasm that grows every month as we see positive results.

With that let me turn it back to Curt.

Thanks covered two final things before I open it up for questions. The first is to reiterate our near term enquiry's. We will continue to focus our efforts on driving down costs even further and our continuing operations aggressively going to continue the asset sale process and the related debt repayment.

We're going to aggressively implement selective capital projects to drive costs lower and we will span the market conditions with responsible actions.

The message you should take away from this call is that L-P is well positioned. All of our continuing operations had operating profits in the quarter to the asset sale enclosures we are moving distractions and bleeders.

The organization is focused. We will be competitive in all market environment that generate significant cash flow when we return the cycle average price.

With that let me turn it back over to to open up the questions.

Ladies and gentlemen if you wish to ask a question please depress the one on your touch tone phone. You will hear a tone indicating that you have been placed in queue. You may remove yourself from queue at any time by depressing the pound key.

If you are using a speakerphone please pick up your handset before pressing the numbers. One moment please for the first question.

And the first question comes from the line of with DSFB. Please go ahead sir.

Hi guys. Two questions just if you could give us a little bit more call on what you were saying. You mentioned some comments on OSB but I'm wondering when you suspect the supply that's overhanging the market might get absorbed.

And secondly just on the asset sales. I'm wondering how if you guys have given it any color would provide any color on. Whether you describe more value on the assets to be sold about six or seven or eight million dollars total to the timber side or more to the rest of the other wood products businesses.

On the OSB supply demand balance the keys as they have been for the last decade or so are the rate of plywood penetration. The way wood should substitute for plywood and that's requiring as we've indicated in the past more product development than just pure price.

Exploring products that we have out now that are really substituting rapidly for plywood sub flooring is an example where we've had the modified of product to perform as well or better than plywood and then with the price advantage we're rolling in that plywood share of the market fairly rapidly.

So those are those kinds of activities are product development and modifying them to specifically to get the operations the products lined out for specific applications will continue to be.

In our case what we're doing to impact that is as I indicated when we took over the when we took over the mill from JP of Woodlands, we've left it down and we will bring it up when the market is ready for additional capacity. In addition, the plywood mills that we transfer to JP, they have left a couple of those down as well. We have a mill down in Quebec, some soft strike and that's taken that mill out and we will just stay out for a little while yet, and so with that, we've also scheduled our down time and our maintenance and some of our projects during the slow period that always occurs in late December and January, and some of our competition have announced that they are doing the same thing, that's just good capacity management and we're seeing more of that occurring.

Do you have a down time figure actually for the fourth quarter on OSP.

We announced that we are taking the equivalent of about 65 or 70 days of mill days of down time, during the fourth quarter, most of it coming in December time period which is just kind of little slow period for demand.

I think that we announced that last week.

Right.

In addition on the issue of the asset sales, the bulk of the dollars will come in on land and timber, and those processes take a little longer because people have to go out there and count the trees and make sure that they see the right kind of trees and the right number of trees etcetera, plus there is all the legal work that none of this was in a big one block with one title and there's hundreds of titles that you have got to get cleared and work out and so that's why the timing is a little bit longer, but the demand for well managed plantations which is what these are. The interest is very high and we expect this will go forward as anticipated.

OK and lastly do you have the break down, you mentioned I think 300 million but I guess cash is 100 but do you have the break down between the US Canadian and the AR facility?

At the end of the second quarter we had about 30 million outstanding under the AR facility, that is $125 million facility but it is also based on qualified receivables so there is actually less available on that with the assets sales that we put in place so there is probably 55 to 60 available on that. The bank line in the US is $190 million facility property and there's 50 million of LCs against that, but no borrowings on it so there's 135 140 there. There's a $15 million Canadian line and then the $100 million in cash.

OK thanks.

The next questions comes from the the line of with Goldman Sachs, please go ahead sir.

Hi could you just review the restricted cash account, what that is again and how restricted it is?

Yes I'll do that Joe, we talk about the last quarter, this had to do with the bank agreement amendment to allow us to do the asset sale program, so what we do is we take the after tax proceeds for the fixed asset and those go into restricted cash accounts that the first 150 million can only be used to reduce debt or contingent liabilities, so what we'll do is for instance, the statement was made at the end of September by the company and then we sent a notice to the bank group that we wanted to withdraw that payment from the restricted cash account so that 47 million, actually 33 million came out approximately in early October, because we did use that to amortize that forward step, so that's the way it works so the first 150 paid down debt and then after that we can use a portion of it to reinvest in our remaining business on a 50 50 basis up to 200 million and then after 200 million it can either be used to reinvest in the four businesses or to pay further pay down debts. So that is the mechanism.

All right so when were calculating on net debt levels it's appropriate to add that in its not restricted for some unusual reason.

No it for debt repayment so that would be appropriate.

OK and then I was just wondering you talked a little bit about the timing on the sale on the big block and that you are looking for final bids on the fourth quarter. I guess I just wanted to understand are you at this point just soliciting bids for the entire piece or are you just sort of telling people look you know show what ever you want to show us and then were going to sit down and decide this just trying to get a feel for the likely hood of anything big happening in the near term on that piece.

What we did on that Joe was we did kind of a limited option we identified what we considered to be very good buyers from different aspects of the timer ownership side of it and ran them through the and we are really marketing it at this point as the big block or can be given on the big block so at this point that's what were offering to these buyers and then based on there feed back we've got we've set some internal thresholds in terms of what our expectations and if we get with in our thresholds were going to try and move forward on that.

Mean while what were looking at in terms of if that doesn't deal as the highest value how are we going to break it up in to smaller pieces so we have already started to identify that.

OK and the last question was just maybe an update on the year term expectations for regarding your settlement program I mean we see the numbers of you know current and long term portion of your liability which has moved down a fair amount as a result the program you had is 20 million sort of a good number for the next 12 months going out the door.

That's our current expectation let me just give you a quick heads up on that since we announced this program in mid June claimants have cashed about $28 million in checks which liquidated about $80 million in claims. When we filed the you'll see it we'll up date the numbers as of the end of the quarter but that is basically what we have done so we have eliminated 17 thousand claims through that process.

We are currently extending that beyond the date on the original program was that any claim that would have been filled and excepted and inspected as of March 15th we are currently on a purely voluntary basis we are extending that program to claimants who have had excepted claims after that March 15th date and were sending checks on a monthly basis now again I have to emphasize this is a voluntary program and our intent there is to basically limit the universe that we'll have to deal with at the end of the year. As you know under the settlement no one can file a claim beyond December 31st of this year and then it goes away. So we will deal with what ever is remaining at the end of December and that there are a number of opportunities there that we've talked about so we - we're not making any public announcement on what that's going to be. In addition the current portion also includes not just a settlement but there's some environmental - there's the hardboard class action that's in there and also just our standard litigation time to reserves. But the 20 million is probably a pretty fair number on a go forward basis. We do not have to make a decision until August of next year on the liquidation of the final

OK. Great. Thank you.

And the next question will come form the line of with UBS Warburg. Please go ahead.

Yeah. Just a couple of questions. Bill could you give us the sales in EBIT numbers of the detained lumber operation just so we can understand what ?

For the third quarter?

: Yeah. That would probably be a good starting point or if you want to give us some historical data.

Well what we're going to be reporting Rich is we're going to be reporting that in that structural framing.

: Right.

Segment. And as Mark said in his comment Engineer Wood had a very good quarter 'til the profits that we had in that segment were offset by roughly a $2 million loss in the retained lumber business's from an EBIT basis in Q3.

: I thought I heard that there was - it should be a contributor going forward.

Yeah. What I said was is that if the price of lumber next year averages at the price of lumber this year ...

: OK.

Not at this particular moment but this year ...

: All right.

Which I think is a reasonable assumption because obviously there is a lot of blood on the streets at today's prices and there's a lot of shut downs being announced every day. I think you'll see that tighten up. And so if we average next year the prices we had this year on average it will be a .

The other thing we're seeing is a log cost coming down.

Yeah. Log cost as you know - lag - lumber prices but they are coming down.

: OK. But in a New York term it's slightly diluted.

In the second - in the third quarter ...

: And probably in the fourth quarter I would imagine.

Yes.

: OK. The - just in terms of the capital spending that you talked about increasing for next year. Just wanted to refresh the quest reduction project - Is that again to take out about $10 a thousand square foot out of your quest structure for ?

Four - about a four or five year period because we're going to ramp up the you know we're going to the rate of which we put that in for two reasons. One is we're going to live off our cash flow but secondly you don't want to have a hundred projects at the one time because you won't manage them all at the same well. So it's a plan to structure or prioritize and we were actually starting some of the first projects right now.

: OK. So does that mean we should be looking at over a several year period for cap spending to be at these kind of levels ?

I would think so. Our is about 110 and so that 80 to 90 some where in that ball part will be break.

: OK. And the includes what you expect the company as it will be positioned after all the assets ...

That's correct.

: OK.

Maybe with the retained lumber mills it probably goes up a little bit.

: Yeah it might be about 15 or so.

Not much though.

: Most of the in lumber business is .

That's right.

: OK.

And in terms of OSB production I know we sort of touched on this, but OSB production in the fourth quarter, is that going to be - with 65 to 70 days of shut down is that going to be roughly about the same level that we saw in the third quarter, which was obviously down from the second?

It'll probably be down a little more than average because is still out. And we took effectively about 50 days, so maybe ...

Probably even.

: Yeah, it's pretty close.

Pretty close to even, because taking a week down of mill system is equivalent to about 65 to 70 days, and that's about how much we'll take total in the fourth quarter, so it's roughly the same.

: OK.

The was down all of the third quarter as well.

: And just a couple of other things.

The , any updates on that? Or is it pretty much the way it was when we last talked about it? Where it was last ...

It's basically still on strike. And there's no you know, hot issues, I mean things going on right this moment that would lead me to believe it'll be anything other than that for at least the foreseeable future.

It's over a pension issue, and I'm sure it'll resolve itself eventually. But right now quite frankly, I don't need the capacity. And so it's probably just as good it's down.

: OK.

There is a fair amount of pressure being brought on the union by the town. Because it's not just the direct jobs that are effected, but obviously it's the whole - the indirect and .

In the summer period that is a kind of a resort vacation area, so they can find alternative employment. But in the winter it's pretty tough.

: And Mark, I think you mentioned there has been some cancelled projects other than yours in OSB. Are ...

Yeah, I don't know if they've been cancelled. They've certainly been delayed. There were several - at least two projects designed, and they carried a lot of peoples numbers as going onstream in - up in the New York area. And it's just tough with today's pricing to project for a financing case that you ought to go forward with. And as a result there's been no ground broken or any official announcements.

: And just lastly, Bill 120 to 130 million of proceeds that you talked about, how much of that was cash?

: About 100.

: OK. Great. Thanks a lot.

The next question comes from the line of with Salomon Smith Barney. Please go ahead sir.

Yes. Thank you very much.

Just wanted to zero in on the cash flows in the quarter. Tell me if this is correct with your numbers, but it looks like the net debt here not counting the change in the restricted cash was improved by almost 54 million. And then on top of that you reduced these contingency reserves by another 22 million. And then you had this restricted cash which you said basically should - is usable against debt.

And you add all that up it's just like you had another $1 a share of sort of total all-in net debt and liability reduction in the quarter. Is that how you look at it?

Right on.

Yes.

: Well OK.

If you then say Ok you're now down below 600 million, and your stock is six tenths of .6 book value, and you've got 300 million I think you said in liquidity including the cash, why would you - at what price do you say we don't pursue these cost cutting projects and we buy our own stock back? Given that we can you know basically take and buy more than half the company back.

Well obviously we continue to look at various strategies our current bank agreement we can't buy any stock back so well theoretically we'll continue to look at that. Yeah we have to get to the point where we can re-do the credit agreements in order to be able to do something like that cause it's not - we can't buy any stock back at this particular moment.

But it is a strategy and other things we continue to look at. But our main focus is to not take our eye off the ball, sell the assets, improve the operations and right now that's keeping us quite frankly fully occupied.

: And what is the right level of debt when you sort of take - you step back and say OK we sell as the trees and the other assets that's going to basically eliminate that debt as it stands now obviously there's some uncertainty regarding maybe future liabilities on the siting. But I think you seem to say that that's - you feel pretty comfortable with what you've reserved. So that would have to be something extraordinary.

So you are looking at virtually a net debt free company at the end of next year assuming you sell all the trees. At that point what do you feel the correct capital structure would be as your figure?

Well that's what we will obviously be wrestling with and looking at a lot of different and not having the trees says we've got to be more conservative than perhaps we would be if we had the trees because that's kind of like a reserve bank account to some extent. So we will if you will tend to on the side with a little more conservatism.

But right now our plan is to go forward on the basis and we've laid our capitals, spending plans et cetera on the basis of kind of living off our own cash flow and then we'll look at obviously the options of buying shares of which gives attractive financing can be done after we blow up the kind of agreements we've got right now.

We'll do some of that. Well those are all options we'll look at and we are doing that but quiet frankly I'm not letting the organization get too engaged in that until we actually get to the point where we have sold all the assets and actually don't have any debt.

: OK and then shifting gears I noticed that the all in discontinued loss was 15 cents and you itemized a number of things that we've totaled to about seven cents or eight cents a share in the footnote which would then imply that sort of from the ongoing normal operations of the discontinued operation that you lost about seven cents would that have been mostly these four - the four saw mills you continue to plan on selling?

No, no that's the plywood. Actually almost all plywood. mills actually were very, very were near break even. Now remember there's no depreciation in discontinued operations so they were breaking without depreciation.

: .

Almost all plywood.

: But which would have lost money obviously on a cash basis then and where...

It's gone that's the main thing.

It's no longer with us.

: Oh so as we kind of project out really the discontinued operations line should really be close to zero unless there is some kind of impairment or something.

That's correct.

: OK thank you.

Next question comes from the line of with please go-ahead sir.

Thank you. Two questions first on the impact of downtime in the fourth quarter versus the third quarter is there gonna be much more cost related to downtime I think you said production would be similar but from a dollar perspective is there much difference?

And then second just from the capital spending I think you mentioned you would go up to the 80, 90 million markets you saw and some improvement in the market, where do you think you would hold it if improvement is slow to materialize?

We are about 45 this year and I don't think we have hurt any mills, all our mills have gotten all the cash they need for say maintenance and other such things, what we can do at 45 are these projects that are necessary to improve the costs and so we'll monitor that as the year goes on which we have a great ability to do, these are not one big massive project we have to do, there is a host of two, three $5 million projects that you can start when you are ready.

I think what we'll do is honestly, we'll enter the year with more caution and if we get to mid year and see if we have an improved position.

With all sorts of down time, week costs of $4 to $5 million and then if you combine and it is included in a number of two million and a quarter.

Yes.

So if you net that up relative to what happened in the third quarter, what would your expectation ...

Up things, up things, up things.

OK great thanks.

And next we have a question from Mark Connolly with CSSB and go-ahead sir.

Thank you, when you talk about OSP markets getting back into balance, I wonder if you could give us a sense of the kind of indicators you are looking at there, and also tell us as we move back to those, what does LP think is a normal or normalized price for OSP, we've obviously been bouncing around down here with people not making much money, I'm curious how you come to both of those conclusions.

Well if you look at the numbers, I think it was 7.8 percent over the first so far this year. On an annualized basis, that's about 175 to 200 million square feet of additional consumption this year versus last year, and what that's done is it sucked up some of the ramp up that's gone on. And this is as we have indicated, we have taken some capacity out that helps to bounce that up. I look at the ability, we try to watch the ability of the market to deal with slight disruptions for example our hurricane approaches Louisiana, retail outlets tend to order another 100 trucks or so, from several others and you have to then watch the ripple, how thin are the inventories out there to be able to deal with a 100 trucks going out to Louisiana where they otherwise wouldn't have gone and what we are seeing is that we're getting some bumps in pricing in tightness and in availability, at this time of the year order files for most people are out one to two, two and a half weeks, prices are above last year, those are all signs that things are keeping the ... things are staying relatively tight at this point. It was just pointed out to me that my math is lousy that 7 percent increase is actually 1.6 billion not 076 million, added a decimal point in the wrong place and that obviously is a lot of the capacity at that situation so that are the things that we look at and right now the market is you know is still as volatile as it's ever been but it appears to be much closer to an imbalance position than it was last year at this time.

The other things we've kind of seen or found out, we are a little perplexed with the level of housing, the builders loan the activity loan are very high they've actually gone smaller units there and the outside is actually down nine percent year over year. Now obviously they all sunk kind of the units but the consuming less good now that's - we don't believe it's a long term trend - but the other, at the end of the day it's up 7.8 percent and so lets just stop getting consumed.

You asked about our view of normalized price - the last five years have averaged about 195 on a set of 16 spaces and we believe the next five years will probably be between 190-195.

OK perfect thank you.

And next we have with please go-ahead sir.

Thank you and good morning. A couple of questions. I'm trying to piece together the EBITDA this quart versus last and trying to you know score through, I wonder if Bill if you could just maybe give us a bit of help on what this quarter looks like - continued and discontinued operations versus last quarter.

If you take out the other operating charges incurred ... continuing its just a little less than 49.

OK now what about the discontinued operations, you said that that was most of the plywood that's gone ...

Which is effectively gone and what is remaining in there is basically break even.

OK so now if you look forward the fact that you're rolling back in six sawmills on the lumber side and taking out net four I wonder if you could give us some kind of guidance on what capacity you'll have in the lumber business, what you expect it to be.

Ah today with - out of the four mills we're about 1.3 billion and I think we'll be about 1.1.

OK.

And actually if you look at the - I don't have them in front of me - if you look at the annual report, we've got the capacity for those four mills or all the mills that are left if you take those four out.

OK yeah no I only had the old ones. And then going in during the fourth quarter with regards to down time in the lumber side of the business what would you expect to have there.

We're going to watch the market, we do have several facilities down, Saratogas down, but we're going to watch the market, our log situation to things and we're going to put a lot of pressure on log prices because we think that's where the market needs to be, just because its been slow, like Curt said before, then we're going to lag there but we're going to push log prices down ...

We also have to be cautious in that we do have a fair amount of business with the homecentres and there are some so we must meet our commitments there and we haven't seen any real reductions in take away's and that's that channel.

I think to some extent we'll be driven a little bit as Bill has indicated by we're drawing the line in the sand in certain areas in terms of log costs so we'll probably run inventories a little lower than we'd like to during the winter which means you could run the risk of being down for a week or two because you ran out of logs but you need to do that in order to drive the log costs down to where they need to be, so we'll be walking that position mill by mill.

OK and then just in the siding businesses going into the fourth quarter could you give us some indication of what is normal seasonal softness might be in that segment as well as you get into the lower filling season.

It tends to trail off in the winter because of the slow down mainly the slow down in repair and remodeling, some Northern mill you know buildings slows down as well. I don't have good number in terms of what is seasonal no I might be able to get one here.

It's about 20 percent.

Yes it's about 20 percent that's a pretty good number and.

No about 10 percent on the.

Yes 10 percent on the sighting quick frankly some extent we need that . During the spring and summer or early fall those mills are running absolutely flat out particularly the mills and so we do like what were doing in the mills we schedule some maintenance time to make sure that those things are maintained as well as we possibly can because they are very important mills to us and so we use that so percent reduction to do that plus in the January February start building a little bit of inventory to take care of the spring rush so that's quiet frankly we need a little bit of that breeding time.

OK and just last question with regard to the part about claim I just wanted to know are you currently appealing that wondered if there is a reserve for that is included in the existing reserve numbers or wither that's above and on top of what we have got already.

Angus there is two parts to that first we do believe that this claim should fall under the national plots action and such it would be reserved there for any coast claims we believe that would be covered in our warranty reserve but because of the judgement we did increase our liquidation reserves by the amount we think would be sufficient to take care of what ever the resolution of this is.

OK so net will show from the fourth quarter then not the third.

No it was reserved in the third quarter we reserved it when we found out about the judgement. I will tell you for sure though we have not reserved $29 million.

Just an up date carry the lawsuit forward.

OK great thanks very much.

And next we have a question from with the please go ahead.

Good morning a lot of your friends have been talking and giving us up dates on pension liabilities can you tell us how you guys are set at this point in time.

How we set up pension liabilities.

Yes are you do you have sufficient funds in your pensions or are you going to have to increase your expenses going forward or your cash contributions.

Well we continue to meet all the guide lines and we do have does valuations Steve but as I'm sure most of the industry is doing are earnings have not been up to where our earnings estimates where but we are at the low end from an estimated stand point although we have put in to our numbers so we would see our cash contributions probably increasing by about 15 to 20 percent next year on the pension side.

And sorry can you tell me what they were this year.

Total cash pension contributions where about 25 so that would be an increase of maybe another five to 10.

And will there a bottom line like an earnings per share impact.

Shouldn't be.

OK and the strike I mean is that getting still that you expect you know.

Actually it never has been in fact the workers have allowed us to drain all the inventory out of there we have done some projects in the mill.

They've allowed us to do that. So we haven't really had any kind of certainly no violent and certainly not much from acrimony standpoint.

If there's acrimony it probably between the workers and there union. As an example of that is our Milwaukee facility has the same union and there's currently a process going on where the union to switch to another one and so.

This is a strike on that apparently has significant meaning to the union to other wood and paper operations contracts and that we're, we are, have offered a very generous defined contribution pension plan as opposed to a defined benefit plan and we think it's the right thing to do and we have it everywhere else in the operations and so that's really the, the battle is that they believe there're ought to be a defined benefit plan.

And we said we simply don't think that's the right thing to do and so that's the issue and it'll resolve itself. I think it'll be resolved as Curt indicated though by the people who are out of work resolving it with there union in terms of what they accept and how they go back.

So when you say you expect no resolution in the fore seeable future that extends beyond hunting season obviously. But when they do come back they'll be, they'll be no resentment towards you and therefore operations should go smoothly.

Certainly no signs of that yet obviously there are going to be some people who are would have preferred that we were just you know come from our last and final offer and gotten that taken care of. We've made it clear we're not going to do that and so I think you know it's, we've been above board open I'm sure there'll be a little adjustment period when we get back together but it'll, that will work itself out.

I think the other important think to note is there sister mill that they've adopt the contract it does have the defining contribution in. It kind of leaves them as out lawyers supporting a union position that the rest of the workers in our corporation are not supporting.

OK thank you.

Next we have Matt with Morgan Stanley. Please go ahead Sir.

Hi I just wanted to double-check some numbers. Bill you said that you still expect to see cash proceeds in that $600 to $700 million range but you know if I just subtract $120 million you said you've already netted from the 600 so that means that all you need to do is get about book value proceeds from your timberlands cause you got book timberlands on the books at $500 million. Is there something I'm missing in, is that, shouldn't that still be a pretty conservative?

You are missing another thing it's not just timberlands in that timber number. It's also the licenses in Canada the value assigned to those. It is pre-paid timber contracts and there's timber deeds so there's a fair amount of other stuff in there and I think the book value on the Texas plants is around three, three to three and a quarter and the rest is of those other activities.

OK that's very helpful. I also wanted to ask about good will you still have $277 million good will on the balance sheet and you referenced the point Curt that you know your book value still around $10 a shot. I just wondered at what point, remind us what the mechanism will be to re-access that good will in light of the fact that Louisiana-Pacific has only earned more than 30, 35 cents a share once since 1996. I mean at some point I would think that goodwill would have to be reassessed.

Well under the standards it's reassessed every year.

Yeah, I understood ...

And if you have a significant change then you have to reassess it at interim periods. Most of that goodwill is tied to our OSB business, and you need to look at the entire business, not simply the mills that, that was associated with.

So the goodwill was - , principally. But you look at the entire 14 or 15 mill system, you look at that business. And there is no impairment based on the testing that we have done.

There is a little bit of goodwill also associated with both the wood segment, as well as the plastics segment. And again we've run those numbers on a discounted basis under the standards, and there's no impairment there.

There is an emerging issue that - and frankly I don't necessarily agree with, but the SEC has had some comments on that. And that is looking at the sum of the components and comparing it to the market value.

As an example of that I think Sun Microsystems had a strange announcement in their earnings release that said if their stock price didn't go up by in the next eight months, they would write off all their goodwill. And so they're tying that to really a view of what their stock price is doing.

Right.

And then, you know, there would be no assurance if the SEC pushes that that company's that have had their stock price reduced from the time they acquired their goodwill to when they're doing their measurement, they'd be required under that market capitalization to do something. And if that's true, then we'll certainly do that.

But from our perspective again, you look at the segments the goodwill's related to, that's OSB in our case, a modest amount of plastics and a fair amount of in wood, and our testing all supports that there's still value for us if goodwill remains on the books and if it's not impaired.

The one impairment we did take is we did write up the goodwill related to the engineered wood business.

Right. So would it be fair to take from your comments that you really are not assuming that there's been any fundamental change in the profitability or the profit outlook for your OSB assets relative to when you put that goodwill on your books?

That's correct.

Relative to when you made the acquisition?

Well relative to the point where we measured it. We measured it as of January 1st of this year.

Right, because I mean it'll ...

The goodwill measuring had to happen on January 1st.

Understood. Other company's however have since then like has in the latest quarter, that they will probably take impairment, a goodwill impairment charge. But you'll wait till you take another look I guess.

Well from my perspective, the best thing that could happen is for the SEC to just say write it all off boys. And then we wouldn't be going through these machinations.

Of course I think we're more interested kind of what the fundamental or - outlook is for the business. Not just the bookkeeping.

Can I just speak into that? Can we just run through your reported numbers? I'd like to try and figure out what your earnings were from continuing operations.

The OSB line is 7.1 million. Was there anything unusual in there?

The only thing that was unusual in there, there was about 1.5 million currency adjustment for the Canadian operations, but not a big number.

And the shutdowns.

Oh and the shut down.

But that's not unusual?

The shut down isn't unusual.

Right. I mean in terms of unusual charges.

No. There were none.

And the 1.1 million was a negative?

Yes.

And composite would attend too?

There was nothing unusual there. You know what that's right.

What?

A million and a half of currency -

OK. And then the plastics building products 3.4?

Nothing.

OK. And then I think I heard you say that it's structural framing product the one seven included a two million loss.

In lumber.

OK. But that's not unusual. Just as I continue do you know about pulp one four?

Pulp was a currency gained with the sales that asset early in the fourth quarter. There won't be anything there other than - what we'll have is the transaction in the fourth quarter about an on going basis.

Yeah.

The public will present it just for historical purposes.

And the other line 1.1 is that just

Well the biggest one in there is Timberland. Timberland is in that segment.

OK. Well tell me if I'm wrong to do this. If I take these numbers just keep the FX charges in them I guess to go bounce around and then take out pulp. Leave timber in there because that will continue probably for another few quarters so you sell. And then take out general corporate of 20.4 in interesting comp in tax effective. It sounds to me like earnings you could say from continued operations were in the seven to eight cent loss range if I look at it that way.

That seems a little high. It would look more like a .

Like a .

Five cents?

Yeah.

OK. But I'm not - I'm sort of on the right track with that.

Correct.

Approach.

Yes.

OK. Thanks very much. Appreciate it.

Next we have a question from . Go ahead Sir.

Thank you. I was wondering if you could tell us what confidence you had that should always be market that this idled capacity is going to stay off line arise. It seems like we're here to seekable peak in terms for housing and you're talking about your results improving a get the prices and you say you see the price moving up.

I'm just not sure - you say it's not a demand issue because could be expected to off a bit and the supply situation doesn't seem to be getting any better. I'm just wondering if you see any actual quotas and dismantling coming about or you know you've something - some information that makes you think people will leave capacity idle as the price runs up.

OK. A couple of things one is that there probably will be some mills that are taken off line. We took off. We won't bring it back up. We'll face decision on the as to when and if it ought to come back up and I know there are other people who have mills that are hurt pretty bad at the kind of average pricing we've had in the last six months and so I'm sure they're making there own decisions on that. You have to come back to the fundamentals the recent grows is not because of housing because housing hasn't grown that much over the last five years.

The reason grows is because it's taking greater greater share out of the total structural panel market. And it's beginning to even take a few little places in some of the non-structural panel there is against the particleboard where it provides greater value. So the reason it grows is not because the market's growing wildly it's growing dramatically because it's taking share.

And so therefore as indicated 1.6 billion square feet more this year then last year housing market and other places haven't grown that much is because there's been another one and a half percent erosion of plywood share.

Now what does occur is plywood mills could shut down. And plywood mills at least not the last 10 years don't get restarted and so that trend is likely to continue for several more years as OSB continues to work it's way into plywood markets.

So that's the dynamics that are going on. Now what I can't what I have absolutely no influence on is what other people are going to do about that. What we've done is we've shut down Montrose. We didn't start up and we have a we've taken a week of downtime in the third quarter and the equivalent of a week of downtime on the fourth quarter and is on is out.

And so on that in we cancelled our North shore project, which will add about another 700 million square feet of production. So we're taking the action that we think is appropriate and right what I course can't have anything have no ideas to exactly what other people will do.

But they have to face economic reality as well. What we are also doing is we're spending our money to drive our costs of our existing mill system down so that we're less and less sensitive to whatever the pricing levels are.

So that we have increasingly a good business even at the bottom of the an over produced market.

Ok I have another question regarding the timber sales you mentioned that you have three smaller parcels that I think total 100,000 acres. You expect one to close in the fourth quarter and the other two to close sometime next year sales or that so it would sound like you're pretty close in terms of coming to terms on the deal for the fourth quarter.

I was just wondering if you could give us a scent of the size if the three parcels are each about the same size or if one's bigger than the other. Which one's closing in the fourth quarter.

They're pretty similar we've actually got two of them under signed contracts and so they're pretty similar in size and you know the 20 or $39 range for a transaction.

So a $30 million range.

Yes per transaction.

Per transaction.

You said two were pretty much worked out but one of those is going to close sometime next year.

Right.

Ok great thank you.

we've got time for maybe one more question.

: Ok then we have with CIB Sea World Market. Please go ahead.

Thank you. Most of my questions are answered. Just one follow up on the plant sales. Over the last several weeks we've seen an absence by competitors that they too were trying to sell and I was wondering if you could give us any colors to whether this additional supply has had any impact on the bid process and our expected evaluations and as an extension to that you know if we look at the buying group are they mostly operating guys or are we looking at more financial oriented buyers at this point.

We if as you if we spent a fair amount of time on the front end of the timber sell process we are looking at just that issue as a supplying demand because a lot of these things that are being announced have really been rumored in the market for quite some time.

And basically at the end of the day we determine that there's a lot of money in still chasing transactions and we're saying that in our process you know you've seen you know what other yesterday and offering 115,000 blocks to find that deal and you know form a store some property and so you know there is a lot of transactions being done but in terms of profile to the buyers you've got your traditional insurance companies and you've also got a lot of large family trusts that are looking at the versible you know investments and looking at you know at the end of the day timber is a good investment at the growths of six to eight percent every year.

So when you're looking at that is an alternative for a state plan in investment.

Great. Thank you very much.

OK.

I want to thank, thank everyone for joining us on the call today and answers are our practice Bill and Becky are available, so if you have further questions or clarifications please feel free to give either of them a call.

Thanks very much. Mary could you give the call back information please.

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