Louisiana-Pacific Corp (LPX) 2011 Q1 法說會逐字稿

Good day ladies and gentlemen, and welcome to the first quarter Louisiana-Pacific Corp. earnings conference call. My name is Marissa, and I will be your coordinator for today.

At this time, all participants are in a listen-only mode. We will be conducting a question-and-answer session towards the end of this conference. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Mr. Curt Stevens, Executive Vice President of Administration and Chief Financial Officer. Please go ahead.

Thank you and thank all of you for joining us this morning to discuss our financial results for the first quarter of 2011.

As the moderator said, I am Curt Stevens, the CFO. With me today are Rick Frost, our CEO, as well as Mike Kinney and Becky Barckley, who are our primary Investor Relations contacts.

As I usually do, I'll begin the discussion with a review of the financial results for the quarter, followed by some comments on the performance of the individual segments and then selected balance sheet items. Rick will then take over to discuss the general market environment in which we operated in the first quarter, his perspective on the most recent operating results, and some thoughts on the outlook for the remainder of the year.

As we've done in the past, this call is also opened up to the public and we are doing a webcast. The webcast can be accessed at our public website.

Additionally, to help with the discussion, we have provided a presentation with supplemental information that we will be reviewing with my comments. I will reference the slides in the presentation as I go through it.

We will file -- we did file an 8-K this morning with some supplemental information and we intend to file our Form 10-Q right after this conference call.

Before I get onto my comments, I do want to remind the participants about the forward-looking statement comments, and it is included on Slide 2 of the presentation, and the discussion around our use of non-GAAP financial information that's included on Slide 3. There is an appendix attached to the presentation with some of the reconciliations and that's been supplemented by the Form 8-K filing that we made this morning. I am not going to reread these statements, but I will incorporate them with that reference.

Starting with Slide 4 of the presentation for a discussion of the overall Q1 2011 results compared to the same quarter last year and to the prior quarter reporting today a net loss for the first quarter of $23 million, or $0.18 per diluted share, on sales from continuing operations of $332 million. For the same period last year, we also reported a net loss of $23 million, or $0.18 per diluted share, on sales from continuing operations of just under $300 million.

Adjusted EBITDA from continuing operations was a positive $10 million in the quarter compared to $3 million in Q1 of 2010.

There was movement in the tax rate on continuing operations between the quarters. The effective tax benefit rate in Q1 of this year was 23%. The primary difference between this and the US statutory rate of 35%. The effective rate applicable to our earnings relate to state income taxes, the effect of foreign tax rates and increases in valuation allowances contributed to net operating loss carry forwards in various jurisdictions. In Q1 of 2010, the tax benefit rate was 31%, which is the statutory rate blended for the various foreign jurisdictions in which we operate.

Slide 5 of the presentation is a brief discussion of some special charges we had in the quarter. As part of our ongoing review of long-lived assets held for sale, in this case all of the properties were assets held for sale, we did adjust downward the carrying values by $5.5 million to be more reflective of the value we expect to derive from these assets in the future. Also in the quarter, we did settle with one of our vendors that resulted in about an $800,000 recovery of past costs.

With that, let me talk about our segments. On Slide 6 is our OSB segment. We had an operating loss of $9 million in the quarter compared to $5 million operating loss in Q1 of 2010. For the quarter, we had an increase in volume of 18% but we had a lower average sales price of 5%. The decline in sales price accounted for approximately a $7 million reduction in both the sales and the adjusted EBITDA. Offsetting this decrease were reductions in manufacturing costs due to the higher production volumes. Adjusted EBITDA from continuing operations in the OSB segment for the quarter was slightly positive at $300,000 compared to a positive $4 million in Q1 of last year.

Slide 7 of the presentation is our Siding segment. This includes our SmartSide and CanExel siding products, and some OSB produced at our Hayward Mill. For the first quarter, Siding had operating income of $12.7 million, significantly better than the $8.5 million recorded the same quarter last year. Adjusted EBITDA from continuing operations in this segment were $17.1 million compared to $13.8 million in Q1 of 2010.

For the quarter, sales were up 18%, with unit volumes better by 18% in SmartSide and down slightly CanExel compared to the same quarter. For the quarter, SmartSide average sales prices were up 2% due to product mix, (inaudible) individual product pricing remaining relatively flat.

As a side note, we did implement a sales price increase that took effect on April 1 at SmartSide offset rising zinc borate and paper overlay costs. CanExel prices showed an increase of 18%, but this was largely due to these products primarily being sold in Canada, and the strengthened Canadian dollar increased US equivalent sales price.

Engineered Wood is Slide 8 in the presentation. As a reminder, this is our I-Joist Laminated Strand, lumber produced in Houlton, Laminated Veneer Lumber, plus other related products. It also includes the sale of I-Joist and LVL products produced by the Abitibi JV, or under a sales arrangement with Murphy Plywood.

For Q1, EWP recorded a loss of $5.5 million compared to a loss of $6.6 million in Q1 of last year. Adjusted EBITDA from continuing operations in this segment was a negative $1.2 million compared to a loss of $3.1 million in Q1 2010.

Volumes at I-Joist were down very significantly in the quarter, 35%, while volumes of LVL/LSL were down 8% compared to the same quarter last year. We attribute this decline in volume to lower housing starts as housing starts in Q1 were 10% lower than the prior year. Where those housing starts were in Texas principally is a slab on grade building technique that doesn't use much I-Joists.

Pricing in both I-Joist and LVL were up 8%, 9% respectively. These were the result of increases we put in place last year to offset higher raw material costs.

While there is no slide for other building products, let me make a few comments. This category includes our molding business, our Chilean and Brazilian operations, and the US Green Fiber Cellulose joint venture, plus our surplus properties.

Overall, we were nearly $3,000,000 positive in the first quarter as compared to a little over breakeven in the first quarter of last year. Adjusted EBITDA increased to over $6 million. Quarter sales were at $46 million, up 11% from the $41 million recorded last year. Q1 was a good quarter in both molding and South America while the US Green Fiber results were down due to higher raw materials costs, primarily wastepaper and pricing pressure from alternative insulation products.

Our SG&A cost, total SG&A was down about $2 million compared to the same quarter last year, and the same was true for our General, Corporate, and Other expenses, down about $2 million.

Slide 9 of the presentation is the balance sheet. A couple of things, comments here. Cash, cash equivalents, investments and restricted cash was at $362 million. Working capital was $585 million, a slight increase compared to the end of the year. Net cash was down, but it was down due to our usual seasonal build in inventory and accounts receivable. The inventory increase, to put into perspective, is about a third in logs, about a third in finished goods, and a third in our South American operations as we ramped up production.

For Accounts Receivable, just as a reminder, we run about 19 days sales outstanding. At the end of the year, we typically only have seven days of sales in AR as we don't ship much product during the holidays. Much of this increase in working capital will come back to us in the next few quarters, particularly the logs.

On the capital side, we were very parsimonious. We only had about $3 million worth of capital and $2 million of that was for working capital at Peace Valley.

Book value (inaudible) share was $9.07.

A couple other comments -- I think on the fourth-quarter we did say that we expected a Canadian tax refund. We did not receive that in Q1 of this year, so it shows up in receivables, but subsequently we have received that refund.

Then in auction rate securities, we did get bids from various parties on our portfolio. As a result, we wrote up the securities by about $3.5 million in the quarter. As you know, we are pursuing litigation against the principal issues of those instruments and hope to have some success in the future.

With that, let me turn it over to Rick.

Good morning everyone. Thank you for your interest in our call. We appreciate you listening in.

Curt, I want to thank you for that comment of calling me parsimonious. Most of the operating guys just call me cheap.

It's already almost mid-May, which seems astounding that the first four months of this year have flown by so quickly. It's beautiful here in Nashville today. We're going to see almost 90 degrees, and the Preds have Vancouver in town for Game 6 tonight in a win or go home situation.

Before I get started, I would share with you that today's call reminds me of the timing of the last investor conference that I spoke at up in Montreal. But February starts number had just come out about 30 minutes before I was supposed to stand up and talk about the housing market for about an hour. February starts were I think the second lowest in recorded history at the time. So this morning's Wall Street Journal front-page article on housing isn't the best way to start my comments off.

I will begin my prepared remarks with a few comments on the building products market for Q1, make a few observations about each one of our business segments for Q1, and then end my relatively brief comments with a few current and forward-looking statements.

I guess, to make an understatement, Q1 provided disappointing building products activity. Unadjusted Q1 start single-family and multifamily together were almost 10% less than Q1 of 2010. The March 2011 adjusted rate was only at the 549,000 level. Unadjusted single-family starts were down 21% from Q1 of last year at 89,000 units.

Citing explanations for the whole level of activity have been all over the board -- severe weather, cautious lenders, uncertainty about the future and unemployment holding back the turnaround in single-family housing. But in general, I would say it's hard to find much good news about single-family new residential construction as of yet this year.

Q1 of 2011 was without the advantage of the homebuyers tax credit that was in place last year during Q1. We started out the month of January with actually quite a bit of optimism, but that quickly faded as we've progressed through the year.

So with that as the Q1 backdrop, I'll now make a few comments on LP's Q1 performance. Customarily, I start with safety, and I'll do that again. After again winning the EPA award for being the safest company in our industry in 2010, we're off to a totally remarkable start and 2011 with a Q1 TIR of 0.20 which is over 50% better than last year's results.

In terms of continuous improvement, our lean Six Sigma team performed well in Q1 with over 5.8-to-1 returns so far this year. If we look at these efforts, it's gone a long way at offsetting the raw materials increases that we are sustaining this year in mostly energy related areas.

Sales and marketing [within] unadjusted housing starts down almost 10% for Q1, LP Specialty Product sales dollars were up almost 9%. Our sales force was able to capture about 280 new wins during Q1. At this level of housing, the winds are becoming more difficult.

For OSB in Q1, LP's OSB operated at an effective capacity of about 67% and an overall capacity of 53%. We did sell 18% more volume in Q1 than a year ago, but at an average sales price of 5% less.

We entered January with random print in the $200 per thousand range, but prices began to drop through February and March to the current random print levels. The strengthening of the Canadian dollar to the US dollar has not particularly been our friend for the Canadian production that we have to sell in the US. As well, we did experience some weather related shipping issues with the Canadian railroads, which caused some inventory problems North of the border.

Siding continues to be our bright spot in this poor building market with SmartSide sales volume up 18% in Q1 of this year compared to Q1 of last year. Our strategy of segmenting this product category is producing positive results. We are growing this product line and adding resources to this business to promote and support the growth.

We've divided the Siding market into five segments -- the retail big-box segment, the shed/nonresidential, the remodeling segment, the multifamily segment, and the single-family new construction segment. We are pursuing growth in each area in an individually tailored manner.

Engineered Wood Products with new residential starts so far in the tank as Curt mentioned and with Engineered Wood so heavily tied to new starts, volumes of I-Joists in LVL were down. The improvements in losses quarter-to-quarter come from improvements in pricing to offset raw materials from last year, and absolutely great cost control by our operations. As well, we were able to move a bit more volume offshore.

In South America, we continue to be pleased with our progress. Both Chile and Brazilian operations were profitable in Q1. The Chilean rebuilding activity created by last year's earthquake has begun now in earnest, and both of our Chilean plants are running at full production on an annualized basis that should be somewhere around 240 million feet this year.

In Brazil, we produced at an annualized rate of about 200 million square feet in Q1. Only about 10% of that production is currently going into Brazilian housing, and about 25% is going into specialty exports to Asia, and the rest is for general use in Brazil. We may be at a point by midyear where we decide to start the second thermal oil line at our Brazilian mill to increase the production capacity.

Looking at Q2 and the rest of the year, it's again disappointing not to be able to see significant housing activity increase. A quick review of the revised forecast from the many forecasting services shows all revisions have occurred in a downward direction, since at this time of reporting is about 622,000 single and multifamily for the year, and another 40,000 to 50,000 in manufactured housing.

Q2 has started off very differently than a year ago to say the least, when the month of April was quite robust for both OSB and Engineered Wood. As of yet, we have not felt nor experienced any spring bump in the construction activity.

Our logic going into this year was that the first half of the year would be slower than the last half and the second half of this year would be stronger. The first assumption is proving true, and our visibility into the second half is not currently very clear.

One other item, on our last call I did offer some capital guidance or the year, but said that I would adjust that amount as the year unfolded. I have done so based upon how this year has started out. I am reducing our capital spending number to about $25 million plus the $22 million to $25 million for the completion of the Brazilian mill purchase.

With that, let me turn it back over to Curt for the question-and-answer period.

Thank you Rick. Marissa, if you could give Q&A instructions.

(Operator Instructions). Gail Glazerman, UBS.

Good morning. Rick, I was wondering if you could give some perspective on the 18% growth in OSB volumes relative to the 20%-ish decline in single-family starts in the first quarter. Was that kind of a mix shift share gains inventory build on the part of customers?

I think some wood went into the channel. We were certainly optimistic going into the year. We had put a few more logs on our log deck, and we had produced thinking that there would be greater takeaways. I think our customers had the same sense of enthusiasm earlier in the year, and I think they took a little more wood, plus the channel was built out, drained down quite a bit in the month of December. So that's the way I'd think about it.

Okay, thank you. Can you talk a little bit more about what you're seeing in inflation? I think last quarter you gave us some guidance that you expected 2011 inflation to be similar to 2010. Has that changed at all?

This is Curt. If you look at our raw materials, our raw materials were up $6 million over the first quarter of last year. So we take first-quarter 2011 volume and apply the pricing differential. About half of that was logs, and of that, I would guess that maybe two-thirds of the log increase was related to the Canadian currency more so than inflation. So where we saw the inflation is -- I mentioned zinc borate. We did get a price increase in zinc borate in our Siding business, so that was about $1 million. Then we continue to struggle with anything that's related to energy. So MBI was up a little bit, RPF was up a little bit, and then wax was up. But overall about a $6 million impact and I'd say a third of that was currency.

That's helpful. Curt, can you give us some guidance for the tax rate for the balance of the year?

Yes. As you know, when you put your tax rate into effect in the first quarter, what you need to do is look at what you expect your year-end tax rate to be. So in the first quarter, the 23% benefit rate, if the year plays out the way we have forecasted, it would continue to be at that 23%.

Okay. Then just last question on the asset sales, anything eminent related to the write-down that you took, or still kind of wait-and-see?

We do have a contract for the Saint-Michel facility which we've had for some period of time. Like Kenny who's running that sale assures me that we're going to get money about every quarter. I haven't seen it yet, so it's not in my forecast. Then we continue to look at options for at least the front-end portion of two closed OSB mills looking at bioenergy. So we are still pursuing that, but right now, it's kind of difficult for people to come up with a lot of capital for that. So, I am not anticipating anything. If it does come, I will be pleasantly surprised.

Thank you.

Mark Wilde, Deutsche Bank.

Good morning Rick. Good morning Curt. Curt, you'd talked a little bit about the Canadian dollar in terms of its impact on your variable inputs. Do you have a number for its overall impact in the quarter?

Typically, when we look at it on an annualized basis, every penny is about $1.3 million. So that's a pretty good proxy for it, so you can look either sequentially or go back to January of last year. January of last year was about 95. So we had about a $0.10 swing; it was a pretty big swing.

Now, what we're doing to offset that is our largest customer in 2010 was actually a Canadian customer. So we are trying to keep as much of our product in Canada that we produce in Canada. That doesn't always work, but the Canadian housing market has actually been pretty steady for the last couple of years. So (multiple speakers) offsetting that, that's -- if you had asked me that about three years ago, it would have been a $4 million number per penny.

Okay. The second question, can you talk about sort of the different elements of impact from kind of storms and flooding that we might be seeing in terms of what it might be doing for wood costs, any OSB mills that it's knocked out and anything that it might be doing for you on the demand side?

Yes, I'll take a couple of whacks at that. I think, overall, impact in terms of probably your reference point around it, there's like hurricanes, the price of OSB jumps. We have seen surprisingly little impact from the different weather occurrences and tragedies that have occurred around overall, which means that, number one, it's early on the back end of those, but number two, the distribution channel has been able to handle that. So the overall impact has been relatively small.

In terms of the impact on us specifically, we lost 10 days at the Haynesville mill due to a power outage, and then we lost about four or five days up in Manawakee due to some weather related stuff up there. But that's been the only impact on our inability to produce.

Okay. Does has that been any impact on wood costs, wood supply, just timber getting knocked down and maybe getting salvaged and sold at lower prices?

It's very early for that. We just got the power restored back to our Haynesville plant last Friday, so in terms of any residual impact on timber, we wouldn't be able to feel that probably for three months or so. It certainly -- most of these storms were not very wet, so there hasn't been anything related to the ground being wetter than it should be this time this year, and we will have to look at the salvage, but it's too early to tell on that.

Okay. Then another thing that was a little bit of a head scratcher here a month or two ago was one of your competitors in the business made the decision to move ahead with completing a partially completed OSB mill. Any thoughts on, given the pretty miserable look ahead for single-family housing, what might have sparked that decision?

I've got a bald spot on the side of my heads from scratching it.

Okay. All right. I guess the final question, just given the outlook for housing, has it -- and on the demand side, has it made you think more about sort of trying to find some supply-side alternatives to turn this business around?

I think what we are trying to do is we've certainly turned up the gas in trying to get more board oversees. So in particularly if we can get more Canadian board oversees, that's probably the single largest lever that we've got. We will continue to try to produce to the demand of our specific customers, and then continue to be what we call very agile in terms of not making more than our customers need. But I don't anticipate that we would have any announcements other than of a short-term nature in terms of just adjusting in the individual mill's supply or production to the market at that time.

Okay, fair enough.

So I'm not looking at shutting anything else down right now.

I'll pass it on. Thanks Rick.

Peter Ruschmeier, Barclays Capital.

Thank you and good morning Rick. Good morning Curt. Maybe following up on the last question, Rick, I'm curious. Can you quantify the amount of offshore OSB volumes in the quarter, and do have kind of a visibility of how much you think that might be able to scale up in the coming quarters?

I'd like to knock your socks off with that number. It's still pretty small. But we are trying to -- I think I made the comment on the last call that we had put about 5 million feet into China all of last year. I think we are currently at about the 2 million to 2.5 million level with hopes of maybe -- per month -- with hopes of perhaps going up to 4 million feet per month over time. So, there is a chance that we could do eight times -- eight, ten times more this year to Asia than we did last year. But again, we are at the front end of that, so I can't make that promise at this point in time. I'll keep you posted.

Are there markets outside of China that you're finding interesting?

Not particularly. We have a few from our South American operations. We are looking at Turkey and a little bit to India, but basically we're trying to solve our West Coast Canadian problem. And Asia is (multiple speakers) logical there.

Very good. Curt, you mentioned the Canadian tax refund has finally come in but it's more of a 2Q event. Can you remind us the amount of that tax refund?

It was CAD11 million.

CAD11 million? Okay. Then on the OSB operating rates, I just wanted to clarify the 66% utilization rate. I believe that's how much you ran as a percent of those facilities that were running where the 53% is if you had all facilities running?

That's correct. To get to the different denominator, I would have to put the sham board mill in there and the Clark County mill in there, which are both currently indefinitely curtailed.

Okay. Then just lastly, if I could, the 18% volume game in SmartSide, you mentioned you're breaking that down between retail business, the sheds, the remodel, the multifamily, single-family construction. Can you provide some clarity on where that demand is coming from in those segments? Is it really a market-based phenomena or are you actually gaining share in that segment, SmartSide?

We're actually making very good penetration in each one of those segments. The retail business has been good for us. We've had tremendous success in the central part of the United States in our SmartSide line. I think what's happening there is as we are getting more and more people to try this product, we get repeat customers, and we are also now about 15 years beyond the debacle of the Innerseal issue, and people are starting to forget that when they see the merits of this new redesigned product. So penetration is remarkable for us right now. We're very happy with that in each one of those segments.

Do you foresee more CapEx required in that business, or do you think you have enough of a footprint to work with?

Got about 80%, 90% capacity in front of what our current run rate is. You remember that we did put some improvements into that business right before housing went in the tank, and we fully converted our Hayward mill. So we are only running one line at Hayward right now on Siding, the other on OSB, but the Hayward mill is ready to convert to Siding when the need comes. Then we are currently running our three smaller mills on three shifts. So we've got about 300 million or 400 million feet of capacity, 300 million feet of capacity in front of that business right now, without money.

Very good. Thank you guys.

Steve Chercover, D.A. Davidson.

Good morning everyone. So first of all, is it your sense there is a lot of inventory on the ground, given that production for OSB was up 18% and the offtake wasn't really there?

I don't know what "a lot" means, but there's certainly more than there was at this time last year. So the channel -- our customers have a little bit more on the ground than what they did a year ago. It's not just charter [block] full near as I can tell, but you kind of look at the way the market is performing, and that tells you that they've got enough to cover their needs.

Steve, I would say that, at the end of the quarter, there was more on the ground. But I think they have all been adjusting through April and May. That's why you see pricing come off as hard as it did.

So are you going to adjust your production plans from where you might have thought at the beginning of the year?

We do it every day.

We do it every week.

Then I apologize. I should probably know this, but on the notes receivable, the $533 million, is there a direct offset for that long-term debt? How come the number went up from 2009 back up to the current levels?

There was a change in the accounting literature. We had to take an off-balance-sheet transaction that was for the Southern timberland. We had to add that back onto the balance sheet. So that was the big increase. It was always reported and disclosed, but it was an off-balance-sheet transaction, but they changed the accounting rules.

I thought it was something along those lines. There was a direct offset in terms of the debt, right?

Not a direct offset, there's about $45 million greater assets than there is a liability.

That's what I thought. But the obligation shows up in your long-term debt?

Correct. It shows up as recourse notes.

It's within that $716 million?

Yes, it is.

That's what I thought. Thanks. I guess one other quick question. You gave us a little bit of an update on South America. Do think that, in Chile, are they in full-blown reconstruction mode following the earthquake? Obviously, it took some time to just sift through the mess.

They are getting there. There was a bit of a lull after the earthquake when the new administration down there slowed everything down for a period of about six months to reset the dial on some of the problems they thought they might be having around corruption. That now has been reset and I think the expectation for this year is to do about 100,000 homes in which the government is going to participate. So we are right on the front end of that. Because you remember there was about 400,000 to 500,000 structures that were damaged or that are destroyed, so we are right on the front end of that. So we feel pretty good about the takeaways in South America for a couple of years.

Does it surprise you that Brazil is still such -- so undeveloped from a pure housing demand?

No. I guess if you had asked me that about six to nine months ago, it'd be surprising maybe because of the difficulty that we have actually had in penetrating the building product systems down there, but we're pretty sensitized to that now. We've changed our strategy from one of conversion to one of adaptation, meaning that we are looking, instead of converting their building practices, we are looking where our products can fit into existing building practices and putting most of our effort there. Then it's just going to take a little while. The bigger the country, the harder to get over the inertia. Building products has never been a really fast-moving, trendsetting type of an industry anyway, and so changing building practices are slow. But we are encouraged in that we are up to about 10% of our product is going into building the way we build up here, where a couple of years ago that was nothing. We have a strategy to improve that every year. In the meantime, we are doing relatively well in terms of exports, and then just general use of OSB for other purposes like furniture stock and concrete form, etc.

Got it. Thanks Rick.

We'll keep you posted on that in terms of our penetration.

Bill Hoffmann, RBC Capital.

Good morning. Just a quick question on the Canadian plants. You talked about keeping more of that product in market up there. It sounds to us like the Canadian markets are slowing down as well. So could you just address that strategy, and also maybe what you're seeing about the other offshore opportunities out of Canada?

From last year's robust activity, I was just up there a couple of weeks ago talking to some of our larger customers. At least in the first quarter, it did slow down a little bit. But over the course, the projections are that the underlying demand up there is somewhere around 175 to 180. I think projections for next year, the consensus is about 162, but the variation is not all that great. So, I think the first quarter was riddled with weather and transportation problems, and I don't really know how much it's going to slow down yet this year because the projections are for about 172 for this year.

What was the second part of your question?

I was just trying to get a sense of how much product comes into the US out of Canada right now and --

We have two mills on the West that are players into the US, and basically the Western US market, which is our very large mill, the Peace Valley joint venture that we have with Canfor with a capacity of about 750 million feet, and then a relatively small mill called Dawson Creek. Both of those, we are trying to keep as much of that volume as we can in Canada. Then what we are trying to do, as I said earlier, is to see if we can use those two mills because of the freight logical nature of their location to go to Asia. The Peace Valley mill was built to put volume into the western part of the United States down into California, which has not been a very good market. So anything that we can either keep in Canada or push to Asia we think will benefit us.

Thanks. The just final the question, in the Engineered Wood Products, you mentioned, just talking about some offshore opportunities. I just wonder if you could expand on that a little that, and what you see as potential there.

Yes, we've had considerable success so far in Australia mainly, and so we have some good customers in Australia, which are taking product predominantly out of our Golden British Columbia mill. That's mainly LVL.

Okay.

That's allowing us to run that plant a little bit more full. It has allowed us to make a little bit more plywood to ship the plywood opportunistically in the trail of the Japanese problem that they've had.

Alex Ovshey, Goldman Sachs.

Thanks, good morning. A couple of questions. First, on the housing market, a number of analysts out there are saying that it is more likely we will see a recovery in multifamily starts before we see one in single-family because vacancies are much closer to normal and single-family homeownership rate is still declining here. So the first part of that question is based on what you're seeing out there in the market, would you agree that it's more likely to see multifamily come back first? How do we think about the impact on your business from a recovery in multifamily relevant to single-family? How much OSB goes into multifamily, or a unit of multifamily, relative to a unit of single-family?

Multifamily definitely is up much more from year-to-year. I think it's up somewhere around the neighborhood of 28% from this time last year. That's a good thing. Multifamily uses about, what is it, half as much product as a single-family start, so that's the downside of that. Multifamily is very good and we've been having some recent successes and wins for our Siding business. Multifamily also uses Engineered Wood Products.

That's very helpful. Then second question is we've been seeing the square footage of the single-family house trend lower over the last number of years. How do think about that dynamic over the next three to five years in terms of just the size of the single-family? How do you see that changing from where we are over the next couple of years?

There's two different camps that I read on that. One is that will continue to stay at about the level it is now because, at least in the near-end recovery of housing, you're going to see more started homes, because that's where the greatest pent-up demand is going to be. So you've seen about somewhere around a 9% reduction in the amount of square feet per start.

The other camp says that more of the houses that are going to be built in the next couple of years are going to be houses that are built from the wealth effect, if you will, the money that's been made in the stock market over the last couple of years. So, that will actually offset and drive the average start per home up, which is not necessarily a good thing since that means that there's fewer homes being built.

From that perspective --

I don't know exactly how that's going to sugar out, but I don't anticipate it -- my own opinion is I don't anticipate it dropping more than another 50 to 60 feet and then it's going to turn around and slowly start back up.

Thanks. I'll turn it over.

Mark Connelly, CLSA.

A couple of things. In your release, you talk about enhancing customer relationships. My question is, in the current market, is there a lot of switching going on? Your customers aren't that busy. I'm curious if they are spending their free time shopping around or not. So I am curious. Has that become more or less important?

Then a second question on Engineered Wood Products. If I leave aside I-Joist, Engineered Wood Products wasn't doing all that great in the bull market. Now it's not doing great in the bear market. My question is do you think it's going to look materially different as we get into the bull market? Obviously, it would be better than now, but this was the piece of the business overall that lagged the most when things were good, so I'm curious if you think it's going to look materially different next year.

Yes, when things were good right before they fell off actually was when Engineered Wood was starting to come to its own. If you go back probably the 13 to 15 years before that, it was always a segment of the business which was fighting with overcapacity. Amazingly enough, all of the forecasts that we have going forward say there's actually going to be a shortage of LVL and LSL going forward, and that the corresponding pundits' beliefs on what's going to happen to pricing have also been very positive. So we think there is more and more conversion and acceptance of Engineered Wood Products in terms of the quality of that material. So from our point, vantage point, it's way too early to give up on Engineered Wood Products because when this market comes back, our belief is that they are going to be even more important than they were.

That sounds promising. Can you just talk about the customer relationship a little bit, whether you see builders putting things out to bid or shifting around their suppliers in OSB when they are this quiet to begin with?

Yes, I think, to deal with that with any degree of respect, you almost have to build -- divide the different business segments. So let me run through them. I think our most important area of customer relationships is in our Siding business. Where we can match customer service with a high-quality product that has a value proposition, we are not seeing switching. What we're doing is we're gaining market penetration there; we are gaining share. In the last couple of quarters, you've seen double-digit growth. Those people, once they take our product, are not switching back.

Engineered Wood Products, I would tend to kind of agree with you in terms of we appear to be switching customers. We'll win one from someone else, and then they will win one from us. So some of the barriers there that we thought were tremendously important, like software and the fact that it's more technical so it's harder to change out, that hasn't proved to be true. It seems to be a price game to a large degree right now in Engineered Wood Products.

Then in OSB, other than your contractual volume, the relationships are critically important in the value-added products. Our value-added products are of course radiant barrier, the market-leading TechShield, plus our flooring products. So, customer relations are more important in the value-add and less important in the commodity.

Okay, that's super.

Did that answer your question?

Yes, that's helpful. I appreciate it.

Mike Roxland, Bank of America Merrill Lynch.

Thanks very much. Just a quick question as it relates to exports. I'm not sure you're seeing the impact today, but how much OSB I guess are you currently selling to Japan? Do you have any expectations that the amount that you're currently exporting will increase as Japan looks to rebuild?

We don't do much in Japan. We do not have the certification, the [DAS] certification to get into Japan. There is another one of our competitors which has been in that market for quite a while, and they seem to be satisfying most of that market. Our bet is that Japan is not going to be a real game changer, and we are putting our efforts on China.

Got you. Any improvement in China in terms of have you seen building codes change? We've heard stories in the last year or so about increased building with wood, like in Shanghai, as the code actually changes. Have you seen that impact?

Currently, as I look through -- as many of the lumber statistics and what's being published in lumber right now, because that's obviously leading the way over there. Only about 2% I think of the homes over there that are use -- of the wood frame construction is at about 2%. That's mostly single-family rural and up to six-story multifamily. The expectations are over the next couple of years that that may actually move to about 8%. Right now, of the wood that's going, say, from North America over to China, near as we can tell, about 49% of it is going into some wood remanufacturing in some form or another, which would mean for specialty products and then probably either being used there or shipped back out. About 48% of it is still being used for concrete form. So the opportunity there with as large a market that it is is if we actually do see them grow this from 2% wood construction to 8% would construction, that's quite large and may actually help the takeaways from this country quite a bit.

Got you. And then just last question, going back to North America for a second, obviously housing has turned out to be worse than expected when the year began. You have higher resin costs. Also, you have the Canadian dollar which has been a headwind. Is there anything else you can do from a production vantage point to improve domestic profitability?

Well, the things that we can control I think we are getting a pretty good look at. I talk every quarter about our Six Sigma being a Six Sigma company. Like last year, we had 30% of our employee population participate in improvement -- project improvement teams. That accounted for about $18 million of improved results last year.

So in terms of efficiency, in terms of driving down cost, in terms of working on usage, that's where we have our people employed. But I don't see any other big levers, other than if the supply demand relationship can be changed much as it has in Canada, where more and more of their lumber is going overseas, I think that's helped buoy the lumber price in North America.

The only comment I would add to that is we did see, with housing starts down 9% to 10% quarter-over-quarter, we did see our adjusted EBITDA go up from $3 million to $10 million. That's after offsetting the $6 million increase in raw materials costs. So I think we've demonstrated with those results that we are doing the things that we can control, and we do need some help from the market to increase profitability.

Is there a particular target you have in mind for 2011 with respect to the Six Sigma project?

Yes, but I wouldn't want to share that with you. I'll tell you what we do every quarter. We have stated early on that we expect at least 3-to-1 returns. We are currently -- last year, we produced at a little bit over 5-to-1 returns, and this year, through the first quarter, we were at 5.8-to-1. So we haven't run out of projects, which is good.

Got you. Thanks very much.

Paul Quinn, RBC Capital Markets.

Thanks very much. Good morning. Just a couple of easy questions. One is on just the indefinite idled capacity in North America. I've got it somewhere at 20%, 25% to 30% of total capacity. What's your current estimate of the percentage of this stuff that comes back to the marketplace?

It depends on where housing starts go. If housing starts go back to $1.2 million to $1.5 million, you're going to need it all. I think that's the chart we showed in the presentation. If you go look at the website, a chart that looks at that.

But we'll need the 25 billion. If you think about it, it's about 1 billion square feet per 100,000 housing starts. So if we go from basically 550,000 to 1.2 million, you're adding 7 billion feet to a market that's roughly 17 billion now, of which you [hit] the 24 billion.

Then just on overseas shipment volumes, I think, Rick, you said 2010 you shipped 5 million square feet into China?

Yes.

We want to multiply that by eight or tenfold going forward here?

That's the opportunity we're looking at right now. I'm not willing to promise that to you, but that's what we're trying to do.

That's all I had. Good luck going forward but not tonight against the Canucks.

Well, Nashville bars and restaurants really appreciate another game, so that's good.

I would now like to turn it back to Mr. Stevens for closing remarks.

Thank you very much for participating on the call with us. As is our practice, Mike and Becky are available for follow-up discussion. Thank you.

Ladies and gentlemen, that concludes today's presentation. Thank you for your participation. You may now disconnect. Have a great day.