Louisiana-Pacific Corp (LPX) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Louisiana-Pacific Corporation Fourth Quarter 2011 Earnings Conference Call. My name is Cathy and I'll be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today's call, Mr. Rick Frost, Chief Executive Officer. Please proceed.

Good morning, everyone, and congratulations to all the Giants fans. Welcome to LP's Fourth Quarter 2011 Earnings Call. I am Rick Frost, the CEO of LP Building Products, and this morning, I am joined by our new CFO, Sallie Bailey, who is participating for the first time in LP's reporting process.

Sallie joined the Company the second week of December. Also in the room this morning are Curt Stevens, our recently appointed Chief Operating Officer, who is here to back Sallie up, since she wasn't on board for most of the quarter, and Mike Kinney, who, along with Becky Barckley, handles our Investor Relations.

I've also asked Rick Olszewski, our EVP of Sales, Marketing, Specialties, and South America to sit in. Since this is the first time that we have broken out South America into a reporting segment, I thought I'd have Rick be on hand to field any questions that you may have on South America.

Now I'll turn it over to Sallie Bailey to discuss the fourth quarter and the full year of 2011, and then I will come back on and offer some color on the quarter and a few thoughts about how 2012 is looking and feeling this early in the year. Sallie, welcome.

Thank you, Rick. I'll begin with a review of the financial results for the fourth quarter and the full year 2011. This will be followed by some comments on the performance of the individual segments and selected balance sheet items.

As we have done in the past, we have opened up this call to the public and we're doing a webcast. The webcast can be accessed at www.LPcorp.com. Additionally, to help with the discussion, we have provided a presentation with supplemental information that should be reviewed in conjunction with the earnings release. I will be referencing these slides in my comments.

We have also filed an 8-K this morning with some supplemental information. We will file our annual Form 10-K at the end of the month. I want to remind all the participants about the forward-looking statements comment on slide 2 of the presentation.

Please also be aware of the discussion of our use of non-GAAP financial information, included on slide 3 of the presentation. The appendix attached to the presentation has some necessary reconciliations that have been supplemented by the Form 8-K filing we made this morning. Rather than reading these two statements, I incorporate them with this reference.

Before I get started on the detailed discussion of LP's financial results for the fourth quarter and full year, I want to make some higher level comments and observations. Total housing starts increased in the fourth quarter so that the full year eked out a slight gain compared to last year. However, for the important single family portion of starts, they were down 9% compared to last year, the lowest since these statistics have been collected over 60 years ago.

Our operating results for the fourth quarter, after adjusting for non-cash impairment charge at our US GreenFiber cellulose insulation joint venture were relatively unchanged from last quarter. There was quite a bit of movement in the effective tax rates for the various quarters and the full years. This makes the comparability of a net loss more difficult and I will provide some clarification in my upcoming comments.

For the first time, we are reporting our South American operations as a separate segment and I think you should be pleased with the results. We ended the year with a strong balance sheet and have a bit of a tailwind behind us, as housing activity is showing some signs of life.

With that, let me go into the details. Please refer to slide 4 of the presentation for a discussion of the fourth quarter 2011 results compared to the third quarter of 2011 and the fourth quarter of 2010. In the fourth quarter of 2011, we recorded a net loss of $47 million, or $0.34 per diluted share.

Net sales from continuing operations were $312 million for the quarter. For the fourth quarter of 2010, we reported a net loss of $7 million, or $0.05 per diluted share, on sales from continuing operations of $316 million. The adjusted loss from continuing operations for the quarter is $46 million, or $0.33 per share, compared to $15.5 million, or $0.12 per share in the fourth quarter of 2010. The change in the adjusted loss primarily relates to recording lower investment income in the fourth quarter of 2011.

We recorded $4 million of investment income in the fourth quarter of 2011 compared to $23 million of investment income in the fourth quarter of 2010, when we recognized a recovery on the sale of some of our auction rate securities. Adjusted EBITDA from continuing operations was a loss of $14 million in the quarter compared to income of $200,000 in the fourth quarter of 2010.

Included in the adjusted EBITDA number is an after-tax impairment of $3.9 million at our US GreenFiber joint venture. Excluding this impairment, adjusted EBITDA is a loss of $10 million. There was a significant difference in the tax rate on continuing operations between the third and fourth quarters, which led to widely different reported net income, despite relatively similar adjusted losses from operations.

The effective tax rate on continuing operations in the fourth quarter of 2011 was 7%. This quarter, we recorded several discrete items, which impacted the tax rate.

We increased our tax reserve on uncertain tax positions associated with our foreign debt structure and we could not record a deduction for the expense associated with the US GreenFiber asset impairment. The effective tax rate on continuing operations in the fourth quarter of 2010 was 77%. This rate was due to the truing up of the full year tax benefit rate in the fourth quarter.

For the full year, the tax benefit rate on continuing operations was 17% in 2011, as compared to a benefit rate of 41% in 2010. In 2010, we were able to take a benefit from our Canadian tax losses. In 2011, we are unable to take a benefit from our losses on our income statements. On slide 5, we present the reconciliation of special charges on a quarterly basis.

In the fourth quarter of 2011, the only item identified as a loss on impairment of long-lived assets of $900,000. In 2010, the largest item is related to the gain that we recognized on the sales of portion of our auction rate securities portfolio. We had a similar sale in the third quarter of 2011.

The impact of looking at our results without these special items is an adjusted loss from operation of $0.33 per share at the tax rate on continuing operations of 7% for the quarter. Slide 6 presents the full year 2011 results compared to 2010. For 2011, we are reporting a net loss of $171 million. Net sales from continuing operations were $1.4 billion.

For the same period last year, we reported a net loss of $39 million on a similar level of sales. Adjusted EBITDA from continuing operations is a loss of $17 million, compared to positive EBITDA of $82 million for 2010. The most significant driver of the change in EBITDA was the lower average OSB price.

The lower average OSB selling price decreased our earnings by $96 million in the year. The tax benefit rate on continuing operations for the year was 17%, as compared to 41% in the prior year. Slide 7 presents the reconciliation of special items for the full year. The most significant item is the impairment we recorded in the third quarter on our Houlton, Maine facility. Offsetting this was a reduction in our contingency reserves around the ABTCO class action settlement and the realized gain on the sale of auction rate securities.

Moving to slide 8 and a review of our business unit results, starting with OSB. OSB recorded an operating loss of $16 million in the quarter, compared to a loss of $13 million in the fourth quarter of 2010. For the quarter, volume was flat, with average selling price slightly down. Adjusted EBITDA was lower by $4 million, which was driven by higher raw material costs, principally resins and energy.

For the year, OSB had an operating loss of $64 million compared to income of $26 million in 2010. Adjusted EBITDA for the comparable periods was a loss of $26 million in 2011 and income of $64 million in 2010. The impact of pricing between the years was $91 million and accounted for all of the change, as operational efficiencies offset higher raw material costs.

Slide 9 reports the results of our siding business. This segment includes our SmartSide and CanExel siding products and commodity OSB produced in our Hayward mill. For the fourth quarter, siding had operating income of $6 million, which was lower than the $12 million recorded in the same quarter last year.

The decline in operating results between quarters was tied to the increase in raw materials and inventory adjustments by our customers that reduced shipments in the quarter. For the year, siding had operating income of $42 million compared to $51 million in 2010. Adjusted EBITDA was $59 million in 2011 and $70 million in 2010. The reduction of full year results is tied to increases in raw material costs net of sales price increases of about $4 million and lower OSB pricing of over $5 million.

The Engineered Wood Products business results are on slide 10. This segment also includes I-Joists, laminated strand lumber produced at our Houlton, Maine facility, laminated veneer lumber, plus other related products. This segment also includes the sale of I-Joists and LVL products produced by the Abitibi joint venture or under a sales arrangement with Murphy Plywood.

For the fourth quarter, EWP recorded a loss of $3.6 million compared to a loss of $5.4 million in the fourth quarter of 2010. Adjusted EBITDA from continuing operations was a loss of $1.1 million in the fourth quarter of 2011 compared to a loss of $1.7 million in the fourth quarter of 2010.

Volumes of I-Joists were down 4%, while volumes of LVL and LSL were down 6% compared to the same quarter last year. Pricing was down 1% in I-Joists and 3% in LVL and LSL, due to changes in product mix with individual prices remaining constant.

For the year, EWP recorded an operating loss of $15 million compared to a loss of $21.3 million in 2010. Adjusted EBITDA was a loss of $2.4 million in 2011, compared to $7.6 million in 2010. The improvement was due primarily to increased international shipments and further penetration of LSL.

Beginning this quarter, we are showing South America as a separate segment, which highlights the increasing significance of this market to LP. Slide 11 of the presentation is a summary of the South American results. For the fourth quarter, the South American segment recorded profit of $1.6 million compared to a loss of $400,000 in the fourth quarter of 2010. Adjusted EBITDA from continuing operations was $4.4 million in the fourth quarter of 2011 compared to $2.1 million in the fourth quarter of 2010.

Volumes in Chile were up 37% over the same quarter last year, and up 30% in Brazil, as we continue to penetrate local markets. Sales were down 8% in Chile and 1% in Brazil. The decline in pricing is primarily related to the impact of the translation from local currency to US dollars as the dollar strengthened.

For the year, South America had operating income of $11.6 million compared to $7.2 million in 2010. Adjusted EBITDA was income of $23.2 million in 2011 compared to $17.2 million in 2010.

While there's no slide for our other building products segment, the results are shown in the selected segment information filed as part of the 8-K, and I'll make a few comments. These results primarily reflect our molding business, the US GreenFiber cellulose insulation business, and closed facilities.

Overall, we are showing a loss of $5.1 million in the fourth quarter of 2011, as compared to income of $1.9 million in the fourth quarter of 2010. During the fourth quarter, our US GreenFiber joint venture recorded an asset impairment of $3.9 million after-tax, which is included in this loss. For the year, other building products recorded an operating loss of $11 million, compared to a loss of $1 million in the same period of 2010. This was primarily related to GreenFiber's operating losses due to higher paper pricing and material costs, as well as the asset impairment.

General, corporate and other expenses were $17 million for the fourth quarter of 2011 compared to $18 million in the comparable quarter of 2010. For the full year, general, corporate, and other expenses were lower at $66 million, as compared to $73 million in 2010. The lower expense is primarily related to lower accruals for incentive payouts.

Key balance sheet statistics on slide 12 show the continued strength of our balance sheet. Cash, cash equivalents, investments, and restricted cash of $353.6 million, working capital of $517.5 million, net cash of $113.1 million. In addition to the $340 million of cash we have on our balance sheet, we have approximately $75 million of liquidity on our asset-based loan facility.

Capital expenditures for the quarter were $21.4 million, as compared to $14.5 million in 2010. During the year, we provided funding to our joint ventures of $9.6 million. Now, I'd like to turn the call back over to Rick for his comments.

Thanks, Sallie. Let me just make one correction there. Capital expenditures for the year were $21.4 million, not for the quarter. As is customary, I'll begin with our safety performance. LP ended up 2011 with a total incident rate of 0.47 compared to our all-time low last year of 0.46. Industry-wide, that is another excellent result in our journey towards zero accidents at LP.

Our Lean Six Sigma program continues to drive our continuous improvement efforts at LP. For 2012, we achieved a 6.6 to 1 return, and this is a calculation of benefits from the improvement projects divided by the costs to support those projects. That amounted to about $17 million in cost savings in 2011.

We had over 20% of our work force participate in improvement projects last year. Capital spending, as Sallie said, we did complete the year with CapEx of about $20 million, exclusive of the funds that we spent to complete the purchase of the Brazil mill.

I did promise you CapEx guidance for 2012 on our last call, and so our budget for 2012 will be about $28 million or less. That's about $25 million in mostly maintenance CapEx for our plants, and then about $3 million in roads in Canada. This will be our fourth year of heavily constrained capital spending, as 2009 was $10 million and 2010 was $15 million, and 2011, we finished up at about $20 million.

Moving now to raw materials, our 2011 versus 2010 raw material increases came in about $26 million higher year-over-year, and that's a price-to-price calculation based upon 2011 volumes. What accounted for about 20% of that increase, waxes, binders and resins were a little over 50% of that increase, and zinc borate and paper overlay in our siding business was another 20%. And then electricity went up almost $2 million last year.

Our current expectations for 2012 raw materials costs versus 2011 are much better. Actually, we expect them to be up only about $4 million, which is much, much less, wood being about half of that, and resins, waxes, and binders and energy the other 0.5 of that $4 million. This, of course, could become worse, if tensions in the Middle East cause oil prices to take off.

Now, I want to make just a few comments on each one of our major businesses. I'll begin with OSB. Q4 2011 to Q4 2010 were basically an overlay of each other with the cost of manufacture being the difference. That was mostly raw materials and some additional downtime in the fourth quarter. Average sales price was about the same and the volumes sold Q4 to Q4 were about the same.

During the fourth quarter, we did complete the rampdown of our Dawson Creek mill in British Columbia and we are now only running the TechShield line at Dawson, and the press is not running. During the quarter, our effective operating rate for the OSB business was 68%. And going forward, when I offer you that number in 2012, we will eliminate Dawson Creek's capacity from that calculation.

Obviously that effective operating rate will go up this year probably about 7%, if we compare the numbers I give you in '11 compared to '12. During the quarter, we did export a little bit over 6 million feet to Asia from North America and for the year, we exported about 18 million feet to Asia.

In Siding, we had a pretty poor quarter. Siding profits were off Q4 of 2010 by a little bit over $5 million. Over 60% of this was due to raw materials increases and production costs. The rest was a result of lower sales volume. Although our strand product volume was actually up Q4 to Q4, our fiber substrate volume was down marginally and our CanExel volume was down significantly.

I think I mentioned on the last call that as the Canadian housing market did slow down in the middle part of 2011, the impact of that was that CanExel came off of allocation. And so as our CanExel customers found volume to be more readily available to them, then they continued to lean out their inventories for the rest of the year. That was quite significant, with our CanExel volume being down over 50% in Q4.

The leaning out of the channel should have been completed by the end of the year and we are currently experiencing our customers to begin their reordering process going forward. We are pleased with what we have experienced in orders so far in January.

Year-to-year 2010 compared to 2011, total siding sales volume was up about 1%, but raw materials increases were up about $14 million and the price increases that we did put in last year did not totally offset all of those increases. Along with that, the profit from OSB made at our Hayward mill was $5 million less than what was made in 2010, due to the lower OSB pricing.

Moving now to Engineered Wood, EWP again improved in a Q4 2010 to Q4 2011 comparison. EBIT losses were 34% less on 6% less sales. The improvement came on the cost side and mostly in our LSL product made at the Houlton mill, as Q4 2011 production was up over 50% against Q4 2010.

Year-over-year, Engineered Wood lost almost $6 million less in EBIT on a net sales increase of $11 million. Most of that progress was made by two things -- growing our International sales by 43% with profitable volume and better absorption of cost at our Houlton LSL plant, due to volume growth of about 38% year-over-year.

Sallie talked about South America. South America has finally become large enough that our accounting rules now force us to report it separately as a segment, and I must admit some personal pride in this division, as I started working on establishing a South American business for LP over 10 years ago as a project. South American sales for 2011 were $145 million versus $125 million in 2010, which is up 16%. Chile sales were $89 million and Brazil sales at $56 million. Combined EBIT was $16 million and combined adjusted EBITDA was $23 million.

Both mills in Chile are currently running full, and the Brazil mill is running at about 50% of its rated capacity. Most of the Chilean production is staying in Chile and about 20% of Brazil's volume is going to China at this time. Our largest opportunity in South America right now is to figure out how to increase the profitable volume in Brazil to utilize the additional available capacity of the Ponta Grossa mill.

I'll switching my thoughts to looking ahead. 2011 ended up being a year where single-family starts were actually 9% less than in 2010 and the lowest, as Sallie said, since this statistic has been kept. Single and multi-family starts for 2011 combined sugared out at about 607,000, per the record keepers.

I feel that we have seen the bottom in the US. More importantly than what I think, though, the consensus of forecaster projections concurs with that. The consensus of forecasters published by the APA in January is 692,000 for 2012. That's 460,000 single-family, which is up from 428,000 in 2011. Their consensus for 2013 is 896,000 combined single-family and multi-family.

Significant to us is that these forecasts went up from December to January and we now have several months in a row that the forecasters have upped their projections after living through about 3.5 years where every month of projections were lower than the month before.

As I have said at the last two conferences that I spoke at, LP made its operating plans for 2012 based upon 625,000 starts. We are conservative and cautious going into 2012 and we do certainly hope that we are being too conservative based upon the other forecasts.

January has started out pretty well for us. OSB prices have printed up some since early December, although they did move down last week, and our siding orders are a little ahead of our plans so far this year.

But we have to wait and see how much of that is influenced by our customers' inventory replenishment after distribution drained down their inventories for the end of the year, and also recognizing the impact of a very mild winter weather in December and January.

Remember this time last year, we were all fooled with a good January and then the rest of the year sputtered out. We made some assumptions last fall around the volumes and pricing for our mills that produced for the Western and Asian markets in OSB.

That resulted in us shutting down the Dawson Creek facility indefinitely and also reducing log inventories into our Peace Valley joint venture. For the next six months, there will be very little panel to export towards Asia. Our focus for 2012 will be to continue to protect our balance sheet, our cash position, and to be cautiously optimistic about the coming recovery.

We will continue to limit our CapEx spending to a minimum and our sales force will continue to pursue profitable business wins in this depressed market. A lot more indicators of housing recovery are currently going the right way, albeit slowly at this time. With that said, I'll turn it back over to Sallie for the Q&A.

(Operator Instructions) George Staphos, Bank of America.

Congratulations on the improvement in performance over the last few quarters. The first question I had, Rick, if you look at the capacity that you're currently idling, realizing that you have enough available capacity right now, if you found that, in fact, your forecast and the economist forecast wound up still being too conservative, how quickly do you think you could re-start that idled capacity? Would it take a couple of quarters or do you think it would be different than that?

This is one of the things where we think we're slightly advantaged, George. In our mills that are currently running, but not running full, from the time that we make a decision to add a shift, it takes us approximately 30 to 35 days. If you've got a mill that's running three shifts and we want to add the fourth, from the time that we make the decision to do that, that's about how long it would take.

Okay.

Filling up current mills is pretty easy. Peace Valley would be an exception to that, our joint venture, because, as I've mentioned, and I did mention it for the purpose of your question, we really have the logs that we're going to have in there until about July. We won't have the logs to be able to put a fourth shift on if we need to and that was as a result of a decision that was made between the partners back in November to control our inventory costs. But the mills which are running partially full, I think I answered your question.

Got you. Next question I had on industry capacity, to the extent that you can comment on this, and perhaps you can't, there's been some discussion that some of the mills that had been shut or idled that have been since sold (inaudible) comes to mind, might restart. What amount of capacity expansion ex-LPX do your plans envision for the industry for 2012? What are you budgeting for?

You mean on mills starting up that's not running now?

That is correct, in aggregate.

We don't see that happening in 2012. Just as we look at the landscape.

Okay. Two last questions and I'll turn it over. One, there was a warranty settlement for about $5 million, if I read it correctly in the quarter. What was behind that? Also, Sallie, you mentioned tax reserves related to your international debt position. Can you give us a bit more color on that? Thank you.

I don't think we had any settlements in the quarter. We did have an impairment at our GreenFiber facility in the quarter. Last quarter, we had some settlements on claims, but not this quarter.

Sallie, I'm looking at the cash flow of December 2011 fourth quarter. There's a $5 million cash settlement of warranties net of accruals. What is that, then?

Those are just our normal cash payments.

Okay. Fair enough. Then on the tax reserve?

Yes, on the tax reserves, I'm sure you're familiar with FIN 48, which is where we have to evaluate our positions relative to what regulators would have to say, and they are just normal FIN 48 reserves.

Okay. I'll turn it over. Thank you.

Gail Glazerman, UBS.

Just sticking on taxes for a moment, it was obviously quite lumpy in 2011. Can you give us any sense of guidance either for the first quarter or all of 2012, how we should be thinking about tax rate?

Yes, sure, Gail. It's tough when we're operating at these low levels of income and we have some of these impairments running through our financial statements. The best guidance I can give is to use a rate that's someplace between 20% and 25% at this point.

Okay. That's helpful. Rick, just in terms of the outlook in the business, when you speak to your customers, are they showing the same type of enthusiasm that you're seeing come out in the consensus housing start forecasts?

Yes, Gail, we were just having a discussion about that before the call. It actually feels and sounds in our interaction with our customers better than it's actually happening. We have IBS this week, which is the International Builders Show. We have a bunch of people going down there and we'll be able to have a real in-depth look at that after the first five weeks of the year when our sales people get back from that conference. But there's a lot of enthusiasm out there, although it's cautious. But it just feels a heck of a lot different than it did a year ago.

Okay, and, Rick, your comments on inventory and replenishment, was that specifically in terms of the issue in siding or if not, can you speak more broadly on what you think your customer inventory positions are?

We still think they're pretty darn low and we've had a good experience with reordering. Like I said, we were a little bit ahead of our internal plan for January. Our winter buys were completed successfully. But as you're probably familiar, when you have a product on allocation, the psychological phenomenon there is the customer tends to order it whether he's selling it at that moment or not. Because he's not sure that he's going to be able to get more. When you come off of allocation, then the customer figures out, geez, if I order it next week, I can get it next week, so therefore, I don't need to carry as much and that's really what we had to work through in the CanExel product in siding during the fourth quarter. Now that they've worked through that, they're at reorder points and as I said, the winter buy, which affects that product, went extremely well for us in December, and then our order file is good now.

Okay, and in terms of OSB inventories they're well-positioned, and if still relatively mild weather holds out, do you think some people could be caught short?

It depends what happens over the next couple of months, whether anybody will be cut short. Right now, people order product, they can get it. Either the system will have to get out of balance or there will have to be a spring build, which may put some pressure on the system. If there is additional volume, like I said, for us, we won't be able to satisfy that like in the west out of Peace Valley, because we don't have the logs. We got to run three shifts there, so that's what we've got to sell.

Okay, thank you.

Chip Dillon, Vertical Research Partners.

First question is, can you just help us a little bit reconcile, in the segment level numbers further back in the release, you mentioned the $5.1 million operating loss for the quarter and $10.8 million for the year and yet, when we look in the equity in loss of unconsolidated affiliates, it's $8.4 million and $25.1 million. It's a much larger number. Can you just help us understand how those two interact?

Yes. Let me just get to the slide. We've got, on the siding, you see the $6.1 million of operating loss. I'm sorry, $5.5 million.

Yes, it's the other I'm talking about, the $5.1 million.

Chip, let me take a shot. This is Curt. If you look at the other operating segment, that includes a couple things. It includes our GreenFiber, where we took the impairment. The major difference between the quarters is the impairment that we took on goodwill for GreenFiber. It also includes our molding business and it includes facilities that have been closed. The carrying costs have some closed facilities. The major difference there between the quarters is related to that goodwill impairment.

Then the equity and loss of unconsolidated affiliates, that $8.4 million, that includes some other of our joint ventures, specifically the Peace Valley joint venture.

Got you. And the other one with the, I think, it's Abitibi as well, right?

That's right. The couple, there's two or three in EWP.

Got you, okay. Not to get picky on the numbers, but if you look at the third quarter, slide 6 in that case, you said year-to-date, the adjusted EPS was minus $0.58. Then this quarter, it was $0.33 and yet, for the year, it's $0.99. It actually went up by $0.41, even though you're saying on this quarter slides that the change is $0.33 on slide 5 and the $0.99 I'm getting on slide 7. Is there something that we're missing in there?

No. Chip, what's really occurring in all of this is the impact of the tax rate. It's just so dramatic.

Okay, got you. Then the next question is you're talking about the green joint venture write-down this quarter, was that $900,000 or $3.9 million?

No, it's after tax, it's $3.9 million. It's incorporated in that line you and I just talked about on the equity in loss of unconsolidated affiliates.

Got you.

Of that $8.4 million, $3.9 million is the asset impairment we discussed.

Yes.

But because of our GAAP reconciliation, we're not actually allowed to call that out on slide 5. That's why I talked about it, to alert you all to it. The $900,000 that you're referring to on slide 5, that's just a normal loss on the sale of impairment of long-lived assets and it relates to our assets that are held for sale.

Okay. If we, in our opinion, thought this was one-time, then that $0.33 would be more like $0.30?

Right. That's correct, but that's also using, when you think about it, Chip, this low tax rate that includes all the FIN 48 reserves.

Okay, got you. Then one other one, if you go to Slide 14, we had a new line on here, the current portion of long-term debt and short-term notes payable. What stuck in that $13.2 million just from the balance sheet is the part that's tied to the $7.9 million tied to the limited recourse notes, which, of course, we didn't feel like I think in some other quarters that number in current liabilities. What I thought was interesting was that you didn't choose to include the asset that's tied to that, the $10 million in the notes receivable. Are we to believe that those two are not related, or were you just being kind of conservative on this measurement?

No, it is included, Chip, but it's in the notes receivable from asset sales where it says current and long-term.

It is in there, I got you. I got you. Because there's no other way we can really see that, that's a good point. Okay. That's very helpful. The last question is, on the mill down in Alabama, Clarke County, again, is it still fair to assume that if one day you guys woke up and decide we need to bring this thing back on, is it still basically a nine-month process before you would see that fully up and running? Is that still the timeframe we should think about?

Yes, I think I've been through that three or four times, but somewhere between seven and nine months, depending on the time of the year.

Got you.

Currently, we wouldn't be running full in seven.

Okay, and it would seem, I think, from what you're suggesting, that, that would be further down your list of what you would do in terms of -- I mean, unless you care to share with us what you think would be the most likely restart, the second most likely restart when the market's there.

I don't think that I've said that publicly, Chip. You'll forgive me for not doing that.

Okay, got you. Thank you very much.

Mark Weintraub, Buckingham Research.

First question, there's been some fairly divergent behavior in OSB prices regionally. In particular, Western seemed to have gone down a lot in price, now it's gone back up in price. Is the rallying in price related to Dawson creek coming off line or are there other things that have been going on? And if you could just remind us what your exposure regionally is in OSB?

I can't give you causality on that. I can tell you that we live just through a horrible year out there where that was the bottom sucking region in the entire United States for a long time. We hung down in there at 140 range. The West Coast has historically been a dumping ground and it sure acted like that last year. It did seem to tighten up beginning, I guess, late November and in December. What was the second part of your question?

What's our exposure?

Our exposure, we put about 30% of our product into the West Coast markets last year. That was our exposure. Strategically, with pricing the way it was for us into those markets last year, I felt somewhat disadvantaged. Where we have always looked at our geographic footprint as a real strategic advantage, last year, under that pricing scenario in the west, where there was such a divergence between it and the rest of world, that didn't help us last year at all.

And now with Dawson Creek closed, do you just end up producing more product from facilities that are in the region, or is that going to likely shift your distribution in 2012?

I don't think it's going to shift that much because we picked up some extra box business out there. We should be able to handle that up to about the same amount.

Okay. Just separately, could you give us an update where you stand in terms of NOLs and also pension at the end of the year?

I think it's better to wait until we get through the rest of the year and get into our 10-K filing at the end of the year and we'll have all the details then.

Okay. One last thing then, on the CanExel, clearly, things seemed to have stabilized and volumes are getting better. Are we going to be able to see price recovery or is it more a stabilization of where things are?

Price never went down in CanExel. What we did is we just had to let the customers work through their inventories. I think at least from what we see through the first half of the year, we should be back more or less on, almost an allocation basis for the first half of the year.

Okay. So that was your mix, et cetera?

Yes. The rest of it's mix and currency.

Okay, got it. Thank you.

Our big problem there was we just weren't able to raise price enough in that product to cover all of the raw material increases.

Mark Connelly, CLSA.

Rick, a couple of quick things. You had said in an earlier call that your goal for Asia was about 2.5 million square feet a month, so we should assume that that's lower now?

Yes, at least in the first half of the year. It doesn't look like we're going to have volume out of the west to go that way, based upon the log decisions that we made back in November.

Okay.

Most of our wood to Asia, well, probably about all of it, is going to come from Brazil. We're currently shipping about 20% of our production out of Brazil to China.

Okay, helpful. Second, on Brazil, are there any updates on the building code changes down there?

This is Rick Olszewski. We continue to work with the regulatory agencies in Brazil to get codes approved there. It is more of an uphill battle than our experience had been in Chile historically. But we are making progress. In fact, we had over 50 dealers in Brazil promoting various types of construction utilizing OSB in an adaptation mode there.

We are getting these things approved gradually. That's about double the number of dealers that we had in 2010. Slow and steady progress and profitable there. We think there's a lot more upside there and we're confident that we'll continue to do that.

Super. Just one more question, part of the weakness in the stock today I assume has to do with the cash balances being down. Working capital was okay. Do you have a sense of what we should be expecting in working capital the next couple of quarters and are you doing anything different in 2012 with how you're managing cash?

I'll take that, Mark. This is Curt. Q1 is typically where we use working capital and we use it for three reasons -- one, our receivable balance is very low at the end of the year, because we run less than 20 days sales outstanding and we really don't sell much in the latter part of the month of December. We build up our receivables balance. Second thing is we have the log inventories in our Northern mills. We got to fill up the log decks basically to run during the second quarter and the first part of the third quarter. The third piece is there is some inventory build in our siding business, because we can't satisfy the seasonal demand unless we build ahead in the first and second quarter. We would expect that seasonal increase in working capital in Q1 and we expect to recover a big portion of that in Q1 and Q3.

Okay. Very good. Thank you.

Paul Quinn, RBC Capital Markets.

Just a question on Asian sales, just wondering are those sales profitable or is that something you're doing to develop the market? If you could give us some outlook on where you expect China to be out in five years time?

I'll skip the five years time one. One of our problems that we've had with developing the Asian markets is that it seems to be a spot market. You can sell in there one time and have a margin and you can sell in there another time or get orders and you will not have a margin. This is exclusive of our product coming out of Brazil. They're very, very price sensitive over there and it's more of a dumping ground right now.

I don't mean dumping in the terms of anything illegal, but it is more of a concept of the dissolving or absorbing your fixed costs at your plant, because of the pricing isn't all that spiffy. You can't count on the pricing enough to actually, at least we can't, to actually dedicate decisions to going over there. A country like Korea, if you will, one week you get a price that you'll accept and the next week you get a price that doesn't make any sense for you to take that sale. Did that give you enough color?

Yes, yes. No, that's helpful. Just wondering what your customers in China are using that product for? Is that single-family? Is that multi? Any idea on use of the OSB product?

Yes, it's actually being used for decorative interior construction, if you could imagine.

That's a big leap there.

Yes, it's a different thing for you and I. But it's a very valued product and they really, really like it. They do things like build their cases for their shrines and inside interior decorative consumption, not construction.

Okay, and then last question, just on the change in US housing mix from more of a percentage of multi to single-family, we've seen a pronounced shift over the last five years. Do you see that change being a permanent thing?

I do not. I think that we've seen the very large jump in multi-family in 2011. We expect another large jump in 2012. But I do not believe that the American dream is dead and I think this is simply a reaction to all of the foreclosures. People got to have a place to live. It's a reaction to the 23 million kids, or multi-generational families that we have where the first step out of the house is into an apartment. I think that this is going to last about two to three years and then we're going to be back and seeing a lot more starter homes. That would be my guess.

You look at homeownership, it's only down to, what, about 66% from an all-time high of 68% or 69%. I think it's a passing fad. It's not particularly good for manufactures like us, because multi-family uses a lot less, probably about 40% of the OSB that a single-family would use. But I think it's going to run its course in probably about two years.

Great color. Thanks, guys.

Steve Chercover, D.A. Davidson.

It sounds like the challenge in Brazil currently is code-related, but with the Olympics and World Cup coming on, I assume there must be a lot of infrastructure. Are we to infer that concrete form is being done with plywood? Is that an opportunity for you?

Yes, Steve, in Brazil we have a very robust economy. It backed off a little bit last quarter, but it's still growing. We have a good market to sell into. Our traditional industrial applications of OSB is still growing in the country. We expanded our point of sales for OSB into other parts of the country to over 500 outlets in 2011. We're seeing growth in packaging and in fencing materials and other non-frame construction applications that is helping our business there. Then, we are also implementing a strategy of using OSB in existing construction applications, not necessarily frame construction as you and I would think about it, but roof systems, floor systems, that kind of thing, to get the product introduced as a construction material.

The regulatory environment in Brazil is very different than other countries in the sense that you have to get these things approved one at a time and then the builders themselves have to get them approved. We are working on a couple of big projects, one in the social housing area and one in the private area, that are a significant number of homes. That will be our big breakthrough, when we're able to achieve that, which we expect to do in 2012. I won't go through the litany of all the regulatory issues that we face, but we've made a lot of progress; had six or seven very key approvals in the last 12 months and continuing to work on two or three key approvals. Still very confident that we can do that in the next few years.

I certainly appreciate that color, but is concrete form a potential for you? Do you need to put some kind of facing on it or is that not a market right now?

We do sell some product into concrete form and yes, it does require a re-manufactured type product that is based on OSB and it can be based on other materials as well, MDF and plywood and other kinds of alternative competitive products.

Great. Thank you very much.

Mark Wilde, Deutsche Bank.

Rick, can you first of all, can you explain to me what could be going on up in New Brunswick with this Arbec situation? I just find the notion that somebody's restarting a mill that was shut five to seven years ago in this market just mind boggling.

I would just have to agree with you. I cannot explain it. But I think PT Barnum had some comment about that.

Do you have any sense of how far off they may be from restarting that mill?

No. I really don't. I haven't been able to make sense of it, and I don't even know why or what they would make in this market.

I mean, just operationally, I think Weyerhaeuser had shut that mill in '05 or '07.

Yes.

I'm just trying to understand. It just seems like you might have rust and other things, that it may be pretty difficult to just try to restart it physically.

I visited that mill several times in my career and it's an interesting mill. The highway going into town goes right in between the log yard and the mill. It's quite an interesting facility. But, no, I can't add you any color on that one.

Okay. All right. I do appreciate the detail on South America this morning. I watch that business pretty carefully. I wondered if you could give us a sense of where your relative operating rates are in the two Chilean mills versus Brazil?

Yes. In Chile, we're operating both of our mills in Pangui and Lautaro at a very high utilization and we're actually importing some material from North America and from Brazil into Chile to meet the demand there. The market in Chile is very, very strong. The economy is good there. The reconstruction is starting to kick in. Both of those mills, basically, we're selling everything that we can make in Chile and as part of our commitment to supporting that market in the long-term, we will import, if the market demands it.

Okay, and in Brazil?

In Brazil, we're operating, as Rick said, somewhere just north of 50% to 60% of our productive capacity. Our real issue there is building up enough of a local market, as well as the exports to China that would facilitate starting up additional piece of that capacity, which doesn't come on a straight line. It would come in a chunk of capacity. We will face that decision most likely sometime in 2012 as we continue to grow our volume.

Just order of magnitude, if we look at that $23 million of adjusted EBITDA last year, can you give us just a ball park of how that would break out between the two countries?

We haven't released that yet. We are probably won't. I hope you understand.

Okay, and last question, just in Chile, what's the penetration rate for stick built now? I think in the early years, you guys took that from zero to somewhere between 15% and 20% and I imagine with all the rebuilding, it's up higher now.

Yes, that's correct. In the first 10 years, we achieved somewhere in the 25% to 30% range on frame construction methodologies for residential construction, and since the earthquake in 2010, the reconstruction is a much higher share on a frame-based system, and we would put our share of the market now above 50%.

Okay, all right. Rick, can you just help us think about the leverage in both the commodity OSB business, and in the engineered wood, if we start to see a ramp up in housing?

In OSB, I think we touched on that earlier in the call. We have quite a bit of capability, simply by adding shifts before we have to think about adding a mill. If you think about the financial leverage there, you're simply adding the variable component and then you get further absorption of fixed costs there. It's pretty high in OSB and it's the same in engineered wood. We have plants running bare bones production schedules right now, some of them like 40 hours a week. If you think about expanding that to 160 hours per week simply by adding people and raw materials, both of those, I think, are poised extremely well for increased take-aways.

Last week, one of your bigger competitors, I think, put a 30% or 35% operating rate out for their engineered wood business. How would yours compare to that?

Pretty darn close.

Okay, all right. Sounds good. I'll pass it along.

Great. Well, thank you. Cathy, I think that's all the time we have for questions, so if you could please provide the replay number. For those of you who participated in the call, thank you very much. As always, Mike and Becky are here to answer any of the follow-up questions.

Thank you, everybody.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. Now disconnect and have a great day.