Louisiana-Pacific Corp (LPX) 2008 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2008 Louisiana-Pacific Corporation earnings conference call. My name is Dan, and I'll be your coordinator for today. At this time, all participants are in listen-only mode. We will facilitate a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS) I would now like to turn the call over to your host for today's call, Mr. Curt Stevens, Executive Vice President of Administration and CFO. Please proceed, sir.

Thank you very much, and thank all of you for joining us on LP's earnings call to review our results for the first quarter of 2008. As the moderator said, I am Curt Stevens, the CFO. With me today are Rick Frost, LP's Chief Executive Officer, Mike Kinney and Becky Barckley, who handle our investor relations along with other duties, and then Jeff Holloway, our Controller. I will start the call with a review of the financial results for the first quarter, discuss the performance of each of our individual segments, and comment on the balance sheet. I'll then turn it over to Rick who will discuss our accomplishments and other actions during the first quarter, and his thoughts as we execute our plans for the rest of 2008.

As we have done in the past, this call has been opened up to the public, and we are doing a webcast, which can be accessed through www.lpcorp.com. Additionally, to help with hearing this call, we have provided a presentation that has supplemental information. I will reference these slides when I go through the discussion. As I've cautioned in the past, this presentation should be reviewed in conjunction with the publicly available earnings release. I want to remind the participants about the forward-looking statements comment that is included in our earnings release and shown on slide two of the presentation. Also be aware of the discussion on the use of nonGAAP financial information included on slide three of the presentation. We do have an appendix attached that contains the necessary reconciliation. I will not going to reread all these statements, but I will incorporate with this reference..

First of all, I'm going to address slide four which has a discussion of Q1 2008, compared to the same quarter last year and last quarter. Reporting today a net loss for the first quarter at $46 million or $0.45 per diluted share. Net sales from continuing operations were about $350 million for the quarter. The same period last year we reported a loss of $37 million or $0.36 per diluted share, on sales from continuing operations of just under $400 million. Sequentially, our net loss was a bit lower due to foreign exchange gains, special items, and an improvement in our discontinued operations. Slide five in the presentation provides an overview of the special items that are not generally attributable to ongoing operations.

In Q1 of 2008, we recorded a $4 million gain associated with our hardboard products, related warranty reserves, and belated insurance settlements. We also recorded a $1 million, about a $1 million other than temporary writedown of our auction rate security portfolio that I'll comment on in a few minutes. In the first quarter of last year, we recorded a $5 million impairment which reduced the carrying value of San Michelle sawmill to our estimated sales price. Briefly for last quarter, we reported another $3 million impairment on that same sawmill as our expectations for the sales price came down. We also had a $7 million reserve for an agreed upon litigation settlement on an environmental matter, and we rerecorded a $21 million other than temporary impairment on the auction rate security portfolio.

Slide six of the presentation is a new slide that we haven't shown before. What this shows is actual housing starts over the last five quarters that will help put our results in context. These are the actual numbers of starts as reported by the census department. This includes single-family and multi-family. For Q1 of 2008 compared to Q1 of 2007, actual starts declined 30%. Now, let me discuss each of our segments.

Slide seven is our OSB segment. OSB price compared to the same quarter last year was down 4%. During the same period, all volumes were down 15% due to production curtailments taken at our low during the quarter. On a quarterly comparison, pricing accounted for about $5 million in decreased sales and profitability. On the cost side, the $9 increase was largely attributable to an increase in the Canadian exchange rate that was offset by a reduction of wood costs associated with lower log costs in some areas and improved wood yields. During Q,1 we did start up the Clark County OSB mill as we talked about on the last call. At the beginning of April , we received our initial APA certification and we are currently shipping A-grade product from this mill to customers. Siding in our slide eight of the presentation.

This segment includes our SmartSide and Canexel siding products, and commodity OSB produced in our Haywood mill. Beginning this quarter, we are changing the discussion of our siding business, based on a consolidation of our product lines and the launching of an approved fine fiber siding product family. SmartSide now includes our OSB-based siding products and a treated hardboard line of products from our Roaring River facility. Canexel refers to our pre-finished hardboard product line produced in our eastern Nova Scotia facility. Most of this product is sold in Canada and export markets.

For the quarter, sales volumes were down 9% in SmartSide, compared to the same quarter of last year, but were 3% higher than the fourth quarter of last year. Sales prices were basically flat compared to both the same quarter last year and sequentially. Canexel volumes were significantly higher, up 22% for the same quarter last year, due to strong Canadian and export sales. Sequentially, volumes were actually almost 70% higher, as we did get a seasonal lift through the hardwood storage winter booking program for the Canadian markets. The 17% increase in pricing, compared the same quarter last year, is almost entirely attributable to the stronger Canadian dollar as most of the sales are made in Canadian.

Engineered wood, slide nine, summarizes the operations of this group. This segment has been expanded this quarter to add our laminated sand lumber or LSL product produced at our Houlton facility, along with laminated veneer lumber and I-Joist operations . This segment also includes the sale of I-Joist and LVL products produced by the Abitibi JV or under an exclusive sales arrangement with Mercury Plywood. For Q1, our EWE business reported a loss of about $8 million, down from a profit in Q1 of last year of $6 million and a loss of $3 million in the last quarter. Volumes of both I-Joist and LVL were down significantly, compared to the same quarter of last year, 32 % and 26% respectively. This is a direct reflection of the 30% reduction in new housing activity in the quarter.

Pricing did continue to drift down, compared to both the same quarter last year and last quarter. Also as I mentioned, this quarter, we did include the start-up losses attributable to the Houlton, Maine LSL mill. During the quarter, we incurred all the expenses associated with the start-up, but didn't have any salable product. Currently, we are very close or have received the APA certification and will soon be shipping products to customers. Other building products, while there is no slides for this segment or this category, let me make a few comments. Overall, we had a loss of $2.5 million in the quarter, compared to income of $2.4 million in the same quarter of last year. For the quarter, sales were up about 20%, mostly from an increase in Chile and our export sales. Our molding operation continued to make money, and was slightly better than the same quarter last year.

In our Chilean operations, we did have a loss of just over $1million dollars. This was due to two factors. One was the higher administrative cost associated with the new mill start up down there. And the second factor, were lower sales price due to some competition from imported OSB. On the new Lataro mill, we did start up operations in Q1, and we are currently shipping first quality product to our customers. Our U.S. green fiber joint venture lost a little bit less than $1 million in Q1, compared to a slight profit in the same quarter last year. Strength and retail sales here partially offset the weakness in contractor business that is tied directly to new home construction. Also in this segment, we report on nonoperating facilities and here is where we incurred about a $2.5 million loss. The largest of that being related to severance and other costs at our San Michelle mills.

We also had a $9.4 million exchange in the first quarter compared to the $2.8 million loss in the same quarter last year. About two-thirds of this was related to changes In the Canadian exchange rate, for the remainder related to a change in the Chilean Peso. In investment income in the quarter was $2 million, compared to $10 million in the same quarter last year. This was a result of both lower earnings on investments, higher interest payments due to borrowings in Canada, and a lower amount of capitalized interest associated with investments. In the quarter as I mentioned earlier, we did recognize an additional other than temporary loss on the auction rate securities of about $1million. On the SG&A costs, we were slightly below the same quarter last year. But on the unallocated side, we were up about 6%, most of this increase was in, partly in sales due to higher head count, but it was offset -- we were able to offset the inflationary costs for other expenses with functional efficiencies..

Slide ten of the presentation in balancing cash flow. On the cash -- cash flow plus investments in restricting cash, at the end of the quarter, were $611 million, working capital about $540 million, net cash and investments $165 million. For the quarter, we spent about $42 million in capital and investments in our joint ventures. And book value per earnings share was $17.03. I know of high interests certainly to us and our investors, is to understand what is happening with our $150 million auction rate security portfolio. Let me summarize where we are in these securities. These obligations continue to fail at auction.

However, they continue to reset at the maximum stipulated amount, and are performing and current in all interest payments. There have been no downgrades to the credit ratings on the ARS that we hold. All indications are that they're performing as expected, and there have been no changes in the underlying collateral. As of March 1, 2008, we sought out valuations on these securities from the issuing bank, consistent with the approach that we used as of December 31 of '07. Based on these values, we did make further adjustments. We recorded an additional $12.5 million temporary decline in value and other comprehensive income, $7.7 million after tax, and then, the $1 million, other than temporary pretax impairment that I mentioned earlier. With these adjustments, between Q4 of last year and Q1 of this year, the cumulative impairment is $67 million or 44% of the par value. I will note that in April using this same approach, we did see a $4.6 million increase in the value of the portfolio, using these quotations.

Other activities that we are pursuing with respect to this portfolio, is we are monitoring the various legal actions that are underway. We are talking to the issuing banks about liquidity alternatives. We are exploring liquidity options with other financial institutions. And we are doing work to make sure that we fully understand the collateral. Slide twelve of the presentation, I wasn't going to go over it, but this does provide the calculations of nonGAAP financial measures discussed during my comments. That concludes my initial remarks. And with that, I'll turn it over to Rick Frost,

Good morning, everyone. I usually start with a weather report. It is a beautiful day here in Nashville without a cloud in the sky. It's about 70 degrees. That is the good news. I do thank you all for your interest in LP building products and your interest in our call this morning. We have released and Curt has reviewed with you our financial results. This is currently a dismal housing environment, and that is coupled with no evident end of concerns with mortgage debt and other debt-related markets. But through this quarter, I think we have stayed on mission and had some decent accomplishments that will contribute to LP's longer term future.

In 2007 as I announced at the last call, we did have our safest year ever at LP with a TAR of 0.87. This earned us the number one position for the second year in a row of AF&J building products companies. I'm pleased to announce that in Q1, we did even better. We had an incidence rate of 0.62. Now, this was accomplished in spite of the adversity in the market and the resulting intermittent running of our mills which presents all of our people more hazardous operating environment, due to the distractions and the starting and stopping of operations. We did rebrand dozens of products at the international builder's show this year in February, and we also introduced a handful of new products. We relaunched a broader and technically improved SmartSide external siding product line that included both vent and soffit, and the variable links trim. And we added zinc borate which is included now in the recipe of our fine fiber base siding, previously known as hardboard.

We also launched a rebranded family of high performance OSB flooring products at the show, and that is going well. We also introduced LP SolidStart laminated strand lumber to the industry. On our new mills, I'll be the first to admit that the timing of the start ups in relation to the economy has turned out rather poor, but our execution on the start-up of these mills has been reasonably good. Lataro Chile OSB mill began operations in producing board in Q1, and we received our APA certification on the product. Lataro has been shipping to customers now for over about six weeks. The Chilean building market has remained strong and we expect it to continue to remain strong.

Clark County OSB, this mill began running in early April and has recently received APA certification, which has allowed shipments to begin. It really is a magnificent facility like Peace Valley. At some point, we're going to be glad that we built it. Houlton, Maine laminated stand lumber mill is running product now and is expected to receive soon. I was expecting that Friday and I haven't heard, the certifications for the first products being shipped to our customers. Our enthusiasm for this product line in the marketplace remains very high. In veneer, the L mill in Oregon, which has been producing in limited volumes since the first of the year, is up to two full shifts currently. As you may recall, we have marketing and sales rights to this product and we're responsible for selling them to our customers. This is a lower cost facility than the hines LVL mill which we closed in 2007.

As discussed on the last call, we are close to completing the first phase of acquiring a controlling interest which is 75%, in the only other OSB mill in South America. This mill is in Ponta Grossa, Brazil and has an engineered capacity of over 300 million square feet. Although the most it has produced so far is about 240 million. Our partner in this Brazilian operation is a publicly traded Chilean company called [Lusissa]. As Curt reviewed our financial results in Q1 were poor. In the quarter, we took about 160 mill days of down time in OSB. Now this does not, let me remind you, include St. Michelle or Silsby that didn't run at all during the quarter nor or either anticipated to run in 2008 or 2009. If you remember, St. Michelle is permanently closed and Silsby is currently being used as a reload facility.

In siding, both hardboard and SmartSide and in engineered wood, we took significant down time due to lower demand and the need to keep our inventories in check. How does the rest of '08 shape up for building products? Not so good, I fear. Demand will probably stay at this low rate. Consensus from the most recent set of forecasts is that new residential starts will be at or under the 1 million mark in '08, with only a forecasted slight uptick in '09. Published results for starts and permits in the first three months of this year, certainly give credibility to this lowered '08 forecast. 2008 is going to be a tough year for anyone in building products and the new residential construction business.

What will LP continue to do to manage through this down turn? As my friend on my left continually tells the organization, cash is king. We do still have a strong balance sheet and we are very mindful of managing our resources quite prudently. During the last six quarters of the current fall on housing, our board of directors left the dividend at $0.15 per quarter, because of our cash balances and the expectations that the markets would rebound sooner than now anticipated. We did approve the dividend at $0.15 last Friday. In light of recent questions by investors on the dividend, I'd like to provide a little bit more color. As many of you know, I have been a proponent of the dividend since we reinstated it a few years ago. I've shared that when queried, and I've had this position based upon our cash reserves.

Going forward, although supporting the dividend is still my personal preference, there are factors mounting up that are gaining heavier consideration. These are the depth and duration of this downturn, which has not yet been defined. The strength of our balance sheet must be protected in a prolonged down cycle. And we are becoming increasingly conservative in our expenditures, both operating and CapEx. And we had $150 million of liquid securities become illiquid in the short-term because of the auction rate security market situation. As well, access to bank and public debt is more expensive and difficult to obtain today. At our most recent board of directors meeting, we did have a lively debate about the dividend in light of the market conditions, managing liquidity, refinancing debt, and the wisdom of continuing to deplete the cash reserves, based upon the uncertainty of earning the dividend from operations in this new market.

As we have told you, we discuss the dividend at each board meeting. I don't think it is out of the question that the dividend could possibly be reduced or suspended until we regain profitability. At this point. we'll have to wait and see and address this uncertainty quarter by quarter. In operations, we will manage our mill outputs to takeaways, being mindful of not tying up anymore cash or inventory than we need to. This means that there will be more down time across our system, throughout America, and across all of LP's businesses. At this point, I would anticipate probably 200 down days of OSB mill time, perhaps 90 days or greater in engineered wood, and our siding business impacted by about 100 mill down days.

Having completed several very large capital projects in the first quarter, we have dialed back our capital expenditures to maintenance levels. The expectation to this -- the exception to this will be our investment in Brazil and a probable purchase of an additional JV interest sometime this summer. We will aggressively continue to market and sell our products with a purpose of creating a preference for LP products and doing business with LP. We will also rely again very heavily, on our land six sigma efforts for the largest part of our cost and process improvement work. We have and will continue to shave discretionary spending, capitalizing on any attrition opportunity where we think the risk is acceptable. We will put some activities and further -- around brand building and marketing into hibernation until better times. With that said, I'll turn it back over to Curt.

Thank you, Rick. Dan, we'll go to the Q&A.

(OPERATOR INSTRUCTIONS) Your first question comes from the line from Gail Glazerman from UBS. Please proceed.

Hi, good morning.

Good morning.

I was wondering if you could talk a little bit more about the current OSB market. What you think has driven the recent improvements and given your outlook for higher mill down days? Is that just that you expect more out put from Clark County? Or is there something in the market that you're seeing?

I think probably accurate supply and demand are getting closer together. That is tightening up the amount of available open market wood. I don't think that you have seen a shift in demand. I think that the two are just closer together.

Okay. When you talk about CapEx being -- back to maintenance level, is there any change from your prior guidance or can you just reiterate what that guidance is for the year?

For the year, there is a couple of things happening in the cash flow. One is we had two very large mills under construction at the end of last year that we finished up in Q1. We had accrued, at the end of Q4, a little over $40 million in payables related to those mills that we will pay -- that we paid in the first quarter and the second quarter. Then in addition to that, we do have the two acquisition opportunities that Rick talked about, the Brazilian acquisition and the potential JV, sometime this summer. Combined those would be about $100 million. In addition to that there is about $60 million that would be for maintenance and finishing up the projects. You add all that together, you get about $200 million. $100 million of that being acquisitions, and $100 million of it being the completion of the major projects and maintenance CapEx.

Okay and changing gears. Can you give a little bit of an update on the OSB anti-trust situation? It looks like a couple more competitors have settled.

I can't give you an update on that. I think as you said, we did have one of the competitors announce yesterday. At this point, all the defendants in this case, except us, have settled. As you have seen in their public releases, all of the defendants have denied any liability or any wrong doing. We certainly not going to speculate on why they agreed to settle. As far as us, we are preparing for trial which starts in early June. But beyond that, it is probably not prudent for us to talk about the specifics of the pending litigation.

Okay. Thank you.

Your next question comes from a line of Peter Ruschmeier from Lehman Brothers. Please proceed.

Thanks. Good morning. I was curious about, slide ten shows $541 million of working capital at the end of the quarter. I was curious, Curt, on how much of an opportunity you may have as you look out over the next several quarters of monetizing some of that working capital?

Actually, it's a good opportunity. Included in the receivable number is a big tax receivable. We have about $150 million that we were anticipating coming in in the third quarter, about half in Canada and half in the U.S.. That's a piece of it, that we would expect to realize. The other piece of that is we do build our log inventory in the northern mills in the first quarter. We basically don't do much logging in the second quarter in those northern mills. We will be bringing down that log inventory. That happens every year. Those are --- two biggest changes to monetize some of that.

Any more color you can offer on the tax receivable? What that is related to?

It is related to us not making money last year.

Right, okay. Maybe a question for Rick, if I could. I was just curious in this difficult environment how you think about assessing down time in your system. You have obviously got some lower cost facilities than others. In a perfect world, you might run the real low cost facilities flat out and take the others down. But that is perhaps not feasible. Just share with us how you schedule and plan in this environment.

Well I think the first premise is that we have to look at it regionally, in terms of the market that we're selling into. We take our customer demand and then we apply that back to regional production. That's how we have been doing it, with exception of the two mills that we shut down last year. I think problematic for us going forward, and probably where you're going is, as we do ramp up Clarke County, we'll have a world-class facility there. In this market, there won't necessarily be room for all that additional wood. We'll be forced here in -- and probably over the next three months, to look very hard at making room for the Clarke County wood. We may have to do that at the expense of other facilities, in terms of making some tougher decisions than we've made so far.

Okay. That's helpful. Last question if I could. Rick, I was curious if you could elaborate on your international strategy. Obviously, you've made some moves in Brazil. You continue to look at work in Chile. If we think of your equity exposure to OSB, how much ends up offshore today, either directly through these interests or indirectly through exports? And should we expect that number to rise much over the next few years?

I think we've got about 8% of our active production right now being exported. That's out of North America. We probably have been 15% of our Chilean productions going to countries other than Chile. One of the purposes of building Lataro was to continue to feed the Chilean growth, in terms of the fact of more and more stick frame housing is occurring down there. And we basically got sold out.

We were having to limit the amount of exports from Chile into other continents. Now with Lataro starting up, and I think we should by next month be up to about 6,000 cubic meters, and then continue to ramp that up throughout the year. We can start pushing harder again on exports from Chile. We think that with the addition of the Matissa mill, hopefully being able to replicate on a much broader scale, a larger scale of success that we have had in Chile, in terms of selling into local markets and changing home construction norms that there would also be an opportunity to export some volume out of Brazil. But our main goal down there is to teach them how to build the way that we build up here, and have the predominance of that product consumed in South America.

Not to cut this too finally, but would it be a unrealistic goal to double or triple those export numbers over a three to five-year period? Or any high level expectation that you have as to what kind of international opportunity you're really looking at?

I think that that is very realistic. I think the other thing that you probably have to keep in your head is that right now in this North America market, as I have said before, most people come to the same conclusions. My guess would be that anybody that's got OSB right now is trying to push it offshore. I did say, I think, maybe it was at your conference a year, year and a half ago, and it's looking like it may actually come true. I offered the long-term observation that North America may actually end up being an exporter long-term of wood products, simply because of tree availability in some of the other continents. I'm starting to see that get some legs, particularly with the Russian decree of putting a very high export tax on any of their trees. That's going to dry up tree supply for countries. I think they're going to look to Canada and the U.S., and to places like South America, which we're hoping to gain more of their structural panel.

Okay, I'll turn it over. Thanks very much guys.

Your next question comes from Mark Weintraub with Buckingham Research. Please proceed.

Thank you. First, Curt, I want to follow up on the account receivable. Was that 65 or $68 million increase in the account receivables, was that related to the income tax receivable? Because I thought the income tax receivable already was about $155 million at the end of last year.

Well there was an additional accrual in Q1that went into the receivables for the current period.

What was behind -- is that what was largely behind the big build?

The increase in income due was about $35 million. And then the other increase in trade receivables, if you remember, on a -- every year, December 31, we run a DSO of about 20 days. In the last two weeks of December, nobody is building, so our accounts receivable balance is the lowest it ever is at the end of December.

Got it. That is just a normal seasonal increase that you saw there.

Seasonal increase in that first quarter.

On the cap spending and the acquisitions, where are you in terms of making a decision on Brazil and the JV? Do you have the flexibility or are you looking at financing these separate from whatever you might already have in place? Have the prices for these acquisitions changed at all, given the type of environment that we in? Because obviously, folks are looking at what has happened with the stock, and what's happened with the stock market's assessment of values in businesses. I'm just trying to find out whether or not you're seeing that, and the external world that you're looking at moving forward with your strategy.

The South America asset, as you know we signed that memorandum of understanding about the middle of December with Matissa. That included a due diligence period and some other work between then and now. We are currently in a position where I expect to close the first phase of that in the next couple of weeks with them. There have been some modifications to the deal we struck in December, but I wouldn't consider them to be meaningful. We have explored the possibility of a stand-alone financing for that facility, and that is still a possibility. It probably will be a possibility further down the road than right now. In answer to your question, we are planning on proceeding in the next couple weeks for this first phase of the Brazilian acquisition. On the one that I mentioned for the summer, that's yet to be determined, but I just want to make sure that you had that in your plans.

Okay. And then if I understood you correctly, you consider your maintenance spending to be about $60 million a year, additional to the acquisition stuff, et cetera. Then there's $40 million which was related to finalizing some of the expansion projects. Next year if you were at maintenance levels, is $60 million a type of number that one should be penciling in?

I look at it a little bit differently, because -- the $40 million was a carryover that was accrued at the end of the year. We also had additional expenses in Q1 that were not accrued, that were related to the completion of those projects. I think you're probably better off looking at maintenance expenses. We have talked about it before, in a $1 million to $1.5 million facility, which would put that in the $40 million range, 30 to $40 million.

And I'll add to that. We're going to crank this thing down really tight. I think that $40 million might even be high for me. We have to work a little more. I've got some of my friends around the table who that directly impacts, but we're having world class discussions about what --- under these condition, what '09 and '10 ought to do.

Fair enough. And lastly, you mentioned several start-up losses. I don't know how much detail you want to give. Can you give us a ballpark for what the total impact on the quarter was from Chilean, LSL, and Clarke County?

I give you some rough numbers. In engineered wood, about two-thirds of that was related to Houlton, because we didn't sell any product out of it and had all the expenses of starting that up. That gives you an order of magnitude on the engineered wood. On Clarke County, I'm probably not going to give you a number on that, but we didn't sell any product out of it until the end of March or early April. Again, you had the expenses of having all the folks there, but not any production capacity. And then in Chile, I think combined, with the difference in the sales price and the start-up of Lataro, was about a $2.5 million swing, where they lost about a little over $1 million and they made money last year. That would be attributable to those two factors.

Your next question comes from the line of Christopher Chun from Deutsche Bank. Please proceed.

Yes. Thanks. Good morning, guys. Your first -- provided us production volumes, but I was wondering if you could provide sales volumes for the first quarter?

We have always just provided the production volumes. That is what is in there.

Right. Can you give us an idea of just on a seasonal basis, what your sales volume was like compared to production volumes in 1Q?

On a year-to-year basis, our inventories don't really change much. I think as Rick talked about, when our inventories get above what we think is a comfortable range, we take production curtailment. Finished goods inventory, other than maybe a quarter being higher than what we would expect, we adjust pretty quickly with the production volumes. We don't have any space to keep this stuff. On our OSB mills, we have got five days of production that we can keep there. On engineered wood, there is not a whole lot more than that -- a little more inventory in engineered wood. But I wouldn't say that -- over time, production volumes and sales volumes are going to be very close.

Okay. That is helpful. And then going back to the issue of -- at an earlier call I raised it, about perhaps the different cost structures at your different mills, Can you talk about how flat or steep the cost curve among your different mills might be?

It is pretty flat. I think the largest influence is the parity of the dollar, so that the operations north of the border are more expensive than the operations south of the border. That affects decision making right now. All of those in investments were made at a different dollar rate. With the change that's occurred, they're more expensive operations up there, particularly in eastern Canada.

I think the other piece you have to look at, Christopher, is that what the customer cares about is the delivered cost, so getting the wood where they need it. That's an adder to whatever the mill FOB price is. When you take the freight into consideration, that is why Rick's comment about making regional decisions, is so important. Because you make a decision, and if the demand in the west coast is down, that's going to influence your western Canadian mills, and it probably isn't going to have any impact at all on your decisions in the lake states. You really do need to look at it on a delivered basis and look at it by region.

Yes. That is an interesting point, Curt. Tell us, on average, when you're talking about the delivered price for the customer, how much of that is freight from the mill?

For us, it's about -- well it's changing with the diesel environment on a regular basis, and the dislocations in rail, but it's about $20 a thousand, average across our system.

Okay. That gives us an order of magnitude. Thanks for your help.

Your next question comes from from the line of Rick Skidmore of Goldman Sachs. Please proceed.

I'd like to come back Curt, if you would, just on the cash in 2008. $100 million for acquisitions and CapEx.

Rick, I think we lost you.

Can you hear me now?

Yes. Okay. Rick, go ahead.

Can you just go through the quick pick takes on the cash flow of 2008? Tax on CapEx?

The question I was responding to was on capital. And what I said is there's about $100 million that would be for acquisitions for the Brazilian mill and this potential JV interest. And about $100 million in capital expenditure, with $40 of that being a carryover that was accrued at 12/31 of 2007.

Okay and then, you have got the $160 million tax refund coming in later in the year, and then whatever you're doing on the dividend front. Cash flow items in the year?

Well other than operations which I am not going to give you a forecast on that, but I think what Rick said, it's not a very good environment out there.

Thank you.

Your next question comes from a line of Mark Wild from Deutsche Bank. Please proceed.

Good morning. Can you talk for just about -- what you're doing and what your trade receivables right now to kind of protect yourself on the bad debt side of things?

Obviously, we have a credit department. I believe we have one of the best credit guys in the industry, a guy named Bruce [Giving]. Bruce manages that very directly. He gets financial statements from the private companies. He gets public financial statements. He visits our customers. He has ra rather sophisticated way that he tracks whether they have earned the discount or not. And in Q1, I just received his report and we were at 20.1 days BSO. We were pretty close to exactly where we were at the ends of last year -- or at the end of the first quarter at last year. The challenge is that, as you know some of our customers are being -- are feeling the pressure on their financial resources. We have engaged our sales force in that. We do have a couple on our watch list, where we've actually reduced the credit facilities available to them. We're managing it extremely aggressively.

Okay. Second question, when I was in Latin America with your guys a couple of months ago, they mentioned that you were studying restaging another one of these North American mills down into Argentina. It sounds like that would be probably a minimum of two or three years off, but can you just update us with that process? Then, it looked to me that if you added that together with Brazil, with the two in Chile, that you would have a million units of production potentially in South America.

Yes. That's the long term goal. But what we're doing this year is we're taking the Woodland press and anything else that has any significant value, and we're restaging that down to Chile. Because that is the place -- if it gets used it will get used in South America, is our belief. We do not, at this point in time, have anything on the drawing board in terms of timing. We're trying to sell the Woodland facility. We need to get what of value is at that site, off, and I didn't want to move it twice. The idea is we think that there will be continued growth in South America, but at this point we have done no site location work, no engineering. I would think you would be very safe to assume that you won't see any activity on that for a couple of years.

Okay. It would be in Chile. It won't be in Argentina, is that right?

It could be possibly be in Argentina, and that's how I thought process at this point in time. But I think when we actually start firing up the computers and pulling out the pencils in terms of where the next piece in South American growth is, the landscape will have changed. But argentina certainly seems to be a potential spot for this. We basically can service part of the Argentina market. now I think out of our Matissa operation for a couple of years. We're merely trying to think a little longer term. And also accomplish the purpose of being able to sell the Woodland site and put that equipment at least in the right continent to figure out what to do with it in a couple years.

And then last question from a little longer term perspective, Rick. The increase in using wood residuals for biofuels or maybe bio refinery or anything. How do you think about that potential impact on the OSB business over the next ten years here in North America?

I tell you, I think it's got everybody's attention right now. Where a year ago, we weren't sure it was going to be too intrusive. You have a couple of pellet plants start up around you, if you're a paper mill that is used to getting their biomass relatively free or at least just for freight. Now, if we get into a situation where people are starting to -- there is a couple of different ways this can affect you. One is some intrusion into the lower diameter classes of pulp wood. In other words, you -- what they really want is what we call pre-merchantable wood which is wood up into that five-inch -- below five-inch diameter class. Of course when you put harvesting operation on a site like that, you tend to creep up into what would be wood for building products purposes or pulp-making purposes.

The other long-term potential impact of this is that the landowners, and most of the landowning base, with the exception of Weyerhaeuser, has been separated from these large companies that we historically have dealt with. The new landowners could actually change their timber-growing regime to grow fiber, and actually pre-merchantable fiber, rather than trying to take that into a pulp-wood class or into a long class. That to me, is the longest, most heavy potential repercussion on this industry, is if -- and I haven't run the economics on it from my forestry days. But if these guys start switching from trying to grow pulpwood and logs as their end product to sitting down and saying, I'm going to try to grow a 10 to 12-year rotation, and try to grow biomass, that could change the long-term supply of timber. Obviously, that is a decade out from the time that people start thinking that way, but it's certainly a potential.

Okay. Thanks Rick.

We have time for one more question.

Yes, your last question comes from a line of George Staphos from Banc of America Securities. Please proceed.

Hi guys. Good day. A couple questions here. I guess given the way 2008 is trending right now, how would you coach us to think about the potential in '09, whether there would be another fairly large tax refund. Or would '08 be a point off in that regard?

Right now, based -- we put together the tax rate benefit rate for the first quarter. We have to take into consideration where we expect the full-year earnings to be and calculate the rate based on that. Simply the fact that we did put the tax benefit rate back at 44%, it did increase the tax receivable. As you can assume that we expect to use the benefit of any operating losses and receive a refund next year.

Okay. Fair enough.

And I said, George, at the annual meeting on Thursday of last week, our expectation for '09 is to only be marginally better than '08, in terms of starts and demand.

Okay. I guess trying to summarize it without pinpointing the forecast, there should be some benefit again next year that we could -- directionally what we think about in our models, would that be correct?

That would be correct.

Okay. Now as far as safety and branding, you talked about your initiatives this year, but ultimately it is in a very difficult market. How would you guide investors to gauge your performance this year, since we don't have quite the visibility into how you're performing other than the financials that you report? Are you gaining share? Should we expect further reductions in manufacturing costs? And if you help us try to qualify that a little bit, guys, that would be helpful.

Well, I don't want to get too specific about share, but I also made the comment at our meeting that internal metrics that we're keeping do indicate that the efforts we have been putting in on being proactive in the market place, are convincing us that we are gaining share in each one of our product lines. Albeit, I think the caveat to that is, as one of our managers in his report to the board said, gaining share is hard. When you can pick up a point of share, you have really accomplished something. Our internal metrics suggest that there are more LP products in homes on a volume basis% per start, which puts the relativity and depending -- That is the thing that allows you to compare period-to-period over a bust market versus down market.

We have more LP volume per start in homes today than we did two years ago. That is encouraging us. On the other side of that coin, some bad news for us or news that we didn't like is that a considerable amount of our branding work in this down market, has not been very effective in terms of increasing awareness. What we're doing is we're looking at sales and marketing work, and trying to measure where we're getting a bang for our buck. We're going to put this stuff into hibernation where the potential return on that is too far out. We can't be spending money right now to help ourselves in brand awareness three years from now. We're looking at some of those activities for hibernation.

Would that even include giving up the naming rights on the stadium? It's not that material, but --

That is a done deal.

Okay.

You should think of that as a long-term centerpiece for our one LP effort. We're very happy with what we've done so far there in terms of that, providing us the customer relationship, that is a very special opportunity for people that we bring into that. Plus we signed a contract on that. As we told you when we did that I think, we have taken money out of other areas, so that that is not a complete additional cost. We used funds from other things that we were doing to create more of a focused approach there.

Last question. Know appreciating all the color and commentary on the dividend and things that you're looking at right now, and the likelihood that you'll be -- back to CapEx fairly significantly next year. Could you review again for us Rick or Curt, the thought process with investing some amount of money in Brazil right now, given the environment? And why it is a good time to be doing that here? What kind of returns you expect? How easily will you be able to take the cash that you do generate in South America over the next several years, and bring it back to the states if you need that? Thanks guys.

Well let me just talk about that. The Brazilian decision really is a decision to expand on our presence internationally. We have had a very good experience in Chile. Brazil got 220, 230 million people underserved for housing needs right now. We think we can take the experience in Chile and move that into Brazil successfully.

From a timing perspective, when these mills become available, you want to strike while you can. We have been in discussions with Matissa for several years. We do believe that this is the right time, given the strategic direction they're going and how we're going to expand at present. We have looked at -- and one of the reasons that we are willing to go into Brazil is that Brazil from an economic standpoint, has gotten much better than historic. I think you just saw that S&P or Moodys, or one of them just raised their sovereign debt up to investment grade, which is a very good sign. The way they are restructuring the transaction, we should have no problem bringing back our investment in the facility or our earnings in the future, very tax --

Okay. Thanks very much guys. Good luck in the quarter.

I think the way to think about South America -- the way to think about South America is making the pie bigger. The long-term forecast for U.S., 1.8, 1.85 starts, that is about what it is going to be. Through the last boom, I think we ended up with an industry that was sized to be able service two million starts or more. If you have a limited market here, but yet the products and the building techniques are favorable in emerging countries, and it was either Mark or Rich mentioned earlier, we can potentially have a billion feet of production in South America. Which if you put that compared to the -- what we produce up here in North America, that will be a substantial part of our company going forward. So we look at it as a way to continue to grow this company, understanding that in this country, demand over time is about 1.8 to 1.85.

I understand, I realize the long-term growth opportunities. But also, obviously, you have got some challenges here domestically. Thanks, guys.

Thank you, Dan, for moderating this discussion. And thank all of you for participating. As always, Mike and Becky are available to follow up on questions that didn't get answered during this discussion. Thanks again.

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