Louisiana-Pacific Corporation
Q4 2011 Earnings Call Transcript

Published: 7 Feb 2012

[Operator:]

Good day, ladies and gentlemen, and welcome to the Louisiana-Pacific Corporation Fourth Quarter 2011 Earnings Conference Call. My name is Cathy and I will be your operator for today. [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 to Mr. Rick Frost, Chief Executive Officer. Please proceed.

[Richard W. Frost:]

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, and 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 and Marketing Specialties in 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. So 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.

[Sallie B. Bailey:]

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 to the public and we're doing the 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 2 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 U.S. 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 and 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 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 U.S. 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 operation. 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 U.S. 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 were unable to take a benefit from our losses on our income statement. On Slide 5, we present the reconciliation of special charges on a quarterly basis. In the fourth quarter of 2011, the only item identified is a loss on impairment on -- of long-lived assets of $900,000. In 2010, the largest item is related to the gain that we recognized on the sale of a 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 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 on the year. The tax rate -- 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 the reduction on 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 the 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 cost, 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 period 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 cost. Slide 9 reports the results of our Siding business. This segment concludes 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 in full year results is tied to increases in raw material cost, 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 includes I-Joist, Laminated Strand Lumber produced at our Houlton, Maine facility, Laminated Veneer Lumber plus other related products. This segment also includes the sale of I-Joist 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-Joist 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-Joist 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 U.S. 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 with income of $23.2 million in 2011 compared to $17.2 million in 2010. While there is 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 U.S. 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 U.S. GreenFiber Joint Venture recorded an asset impairment of $3.9 million after tax, which is included in this slide. 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 cost 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 expenses 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. And 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 comment.

[Richard W. Frost:]

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 0 accidents at LP. Our Lean Six Sigma program continues to drive our continuous improvement efforts at LP. For 2012, we achieved a 6.6

[Sallie B. Bailey:]

Great. Thank you, Rick. Cathy, if you could, we're ready for questions and if you can go with the queue.

[Operator:]

[Operator Instructions] And our first question comes from the line of George Staphos of Bank of America.

[George L. Staphos:]

I'm here filling for Mike. Congratulations on the improvement in performance over the last few quarters. I guess the first question I had, Rick, if you look at the capacity that you're currently idling -- really, I mean, you have enough available capacity right now. If you found that, in fact, your forecast and the economists' forecast wound up still being too conservative, how quickly do you think you could restart that idle capacity? Would it take a couple of quarters? Or do you think it would be different than that?

[Richard W. Frost:]

Well, 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. So if you got a mill that's running 3 shifts and we don't want to add the fourth from the time that we make the decision to do that, that's about how long it would take. So filling up current mills is pretty easy. Peace Valley would be an exception to that, our joint venture, because as I mentioned and I did mention that for the purpose of your question, we really have the logs that we're going to have in there until about July. So 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 cost. But the mills, which are running partially full, I think I answered your question.

[George L. Staphos:]

Got you. And the 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 idle, that had been since sold, [indiscernible] comes to mind, it might restart, what amount of capacity expansion x LP x do your plant envision for the industry for 2012? What are you sort of budgeting for?

[Richard W. Frost:]

We -- you mean a mill starting up that's not running now?

[George L. Staphos:]

That is correct, in aggregate.

[Richard W. Frost:]

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

[George L. Staphos:]

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? And also, Sallie, you mentioned the tax reserves related to your international debt position, can you give us a bit more color on that?

[Sallie B. Bailey:]

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

[George L. Staphos:]

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

[Sallie B. Bailey:]

Those are just our normal cash payments.

[George L. Staphos:]

Okay, fair enough. And on the tax reserve?

[Sallie B. Bailey:]

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're just normal FIN 48 reserves.

[Operator:]

Our next question comes from the line of Gail Glazerman from UBS.

[Gail S. Glazerman:]

I guess 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 fourth -- first quarter or all of 2012 how we should be thinking about tax rate?

[Sallie B. Bailey:]

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 statement. So the best guidance I can give is to use our rate that's someplace between 20% and 25% at this point.

[Gail S. Glazerman:]

Okay, that's helpful. Where -- 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 forecast?

[Richard W. Frost:]

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 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 5 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.

[Gail S. Glazerman:]

Okay. And Rick, your comments on inventory and replenishment, was that specifically in terms of the issue in Siding? Or can you just -- if not, can you speak more broadly on what you think your customer inventory positions are?

[Richard W. Frost:]

Well, we still think they're pretty darn low. And we've had a good experience with reordering. Like I said, we're a little bit ahead of our internal plan for January. Our winter buys were completed successfully. But as you are probably familiar, when you have a product on allocation, what 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, "Jeez, 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 work through that, their reorder points, and then they said the winter buy, which affects that product, went extremely well for us in December, and then our order file is good now.

[Gail S. Glazerman:]

Okay. And in terms of OSB inventories, they are well positioned and if the kind of relatively mild weather holds out, do you think some people could be cut short?

[Richard W. Frost:]

Well, it kind of depends on what happens over the next couple of months, whether anybody will be cut short. Right now, people order products. They can get it. And 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've got to run 3 shifts there. So that's what we've got to sell.

[Operator:]

Our next question comes from the line of Chip Dillon of Vertical Research Partners.

[Chip A. Dillon:]

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 million -- $5.1 million operating loss for the quarter and $10.8 million for the year. And yet when we look in the equity and loss of unconsolidated affiliates, it's $8.4 million and $25.1 million. So it's a much larger number. Can you just help us understand how those 2 interact?

[Sallie B. Bailey:]

Yes. So let me just get to the slide. So we've got -- on the Siding, you see the $6.1 million operating loss? [indiscernible]

[Chip A. Dillon:]

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

[Curtis M. Stevens:]

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

[Sallie B. Bailey:]

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

[Chip A. Dillon:]

Got you. And I guess the other one with the -- I think it's Abitibi as well.

[Sallie B. Bailey:]

That's right. There's a couple there, 2 or 3 in EWP.

[Chip A. Dillon:]

Got you, okay. And then as you look at -- the one thing I just -- 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 sort of adjusted EPS was minus $0.58. And then this quarter, it was $0.33. And yet for the year, it's $0.99. So it actually went up by $0.41 even though you're saying on this quarter slide 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?

[Sallie B. Bailey:]

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

[Chip A. Dillon:]

Okay. Got you. And then the next question is -- I keep -- you're talking about the green -- the joint venture write-down this quarter. Was that $900,000 or $3.9 million, I think?

[Sallie B. Bailey:]

No. It's -- after tax, it's $3.9 million. So it's incorporated in that line you and I just talked about on the equity and loss of unconsolidated affiliates. Of the $8.4 million, $3.9 million is the asset impairment we discussed. But because of our GAAP reconciliation, we're not actually allowed to call that out on Slide 5. So 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.

[Chip A. Dillon:]

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

[Sallie B. Bailey:]

But -- you're right. That's correct, but that's also using -- when you think about it, Chip, there is low tax rate that includes all of the FIN 48 reserves.

[Chip A. Dillon:]

Okay, got you. And then one other one. We had a -- if you go to Slide 14, we had a new line on here, I guess, the current portion of long-term debt and short-term notes payable -- I'm sorry -- yes, it's that line. And what's 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 never -- we didn't like, I think, in some other quarters that number in current liabilities. But I thought what's interesting is that you didn't choose to include the asset that's tied to that, the $10 million in the notes receivable. Are those 2 -- are we to believe that those 2 are not related? Or were you just being kind of conservative on this measurement?

[Sallie B. Bailey:]

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

[Chip A. Dillon:]

Okay. So it is in there. I got you. That's right because there's no other way we can really see that. That's a good point. Okay, it's very helpful. And I guess the last question is on the mill down in Alabama, Clarke County. Again, is it still, I guess, fair to assume that if one day you guys woke up and decided we need to bring this thing back on, is this still basically a 9-month kind of process before you would see that fully up and running? Is that still the kind of timeframe we should think about?

[Richard W. Frost:]

Yes. I think I've been through that 3 or 4 times, with somewhere between 7 and 9 months depending on the time of the year. Certainly, we wouldn't be running full in 7.

[Chip A. Dillon:]

Okay. And it would seem to -- 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 sort of what you think would be the most likely restart, the second most likely restart if -- when the market is there.

[Richard W. Frost:]

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

[Operator:]

Our next question comes from the line of Mark Weintraub of Buckingham Research.

[Mark A. Weintraub:]

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

[Richard W. Frost:]

Well, the -- I can't give you causality on that. I can tell you that we lived through just a horrible year out there, where that was the bottom-sucking region in the entire United States for a long, long time. We hung down in there to 140 range. 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?

[Curtis M. Stevens:]

What's our exposure.

[Richard W. Frost:]

Our exposure. We put about 30% of our product into the West Coast markets last year. So that was our exposure. And so 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 it was -- there was such a divergence between it and the rest of the world. That didn't help us last year at all.

[Mark A. Weintraub:]

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

[Richard W. Frost:]

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

[Mark A. Weintraub:]

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

[Sallie B. Bailey:]

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.

[Mark A. Weintraub:]

Okay. And then one last thing then. On the Canexel, clearly, things seem to have stabilized and volumes are getting better. Do you -- are we going to be able to see price recovery? Or is it more a stabilization of where things are?

[Richard W. Frost:]

Well, price never went down in Canexel. What we did is we had just -- we 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.

[Mark A. Weintraub:]

Okay. So that was your mix, et cetera?

[Richard W. Frost:]

Yes. The rest of it is mix and currency. 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.

[Operator:]

Our next question comes from the line of Mark Connelly of CLSA. Mark W. Connelly - Credit Agricole Securities (USA) Inc., Research Division Rick, a couple of quick things. You had said in an earlier call that your goal for Asia was about 2.5 million square foot a month. So we should assume that that's lower now?

[Richard W. Frost:]

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. So 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. Mark W. Connelly - Credit Agricole Securities (USA) Inc., Research Division Okay, helpful. Second, on Brazil, can -- are there any updates on the building code changes down there?

[Richard S. Olszewski:]

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 in construction, utilizing OSB in an adaptation mode there. So we are getting these things approved gradually. That's about double the number of dealers that we had in 2010. So slow and steady progress and profitable there. So we think there's a lot more upside there and we're confident that we'll continue to do that. Mark W. Connelly - Credit Agricole Securities (USA) Inc., Research Division So for 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 in the next couple of quarters? And are you doing anything different in 2012 with how you're managing cash?

[Curtis M. Stevens:]

I'm going to -- I'll take that, Mark. This is Curt. Q1 is typically where we use working capital. We use it for 3 reasons

[Operator:]

Our next question comes from the line of Paul Quinn of RBC Capital Markets.

[Paul C. Quinn:]

Just a question on Asian sales. Just wondering if that's -- are those sales profitable? Or is that something you're doing to develop the market? And if you could give us some outlook on where you expect China to be out in 5 years' time?

[Richard W. Frost:]

Well, I'll skip the 5 years' time one. One of our problems that we've had with developing the Asian markets is 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. So they are 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 cost at your plant because the pricing isn't all that 50. So it's not -- it's -- you can't count on the pricing enough to actually -- at least, we can't actually dedicate decisions to go in over there. A country like Korea, if you will, one week you get a price that you'll accept and the next week, you'll get a price that doesn't make any sense for you to take that sale. Did that give you enough color?

[Paul C. Quinn:]

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?

[Richard W. Frost:]

Yes. It's actually being used for decorative interior construction, if you can imagine.

[Paul C. Quinn:]

That's a big leap there.

[Richard W. Frost:]

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.

[Paul C. Quinn:]

Okay. And the last question, just on the change in U.S. housing mix from more of a percentage of multi to single family, we've seen a pronounced shift over the last 5 years. Do you see that change being a permanent thing? And yes, I guess that's the question.

[Richard W. Frost:]

I do not. I think that we've seen the very large jump in multifamily 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 the -- 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. So I think that this is going to last about 2 to 3 years and then we're going to be back and seeing a lot more starter homes. So that would be my guess. I mean, you look at home ownership, it's only down to what? About 68% from an all-time high of -- excuse me, 66% from an all-time high of 68% or 69%. So I think it's a passing fad. It's not particularly good for manufacturers like us because multifamily uses a lot less, probably about 40% of the OSB that a single family would use. But it's -- I think it's going to run its course in probably about 2 years.

[Operator:]

Our next question comes from the line of Steve Chercover of D.A. Davidson.

[Steven Chercover:]

A number of my questions have been asked, but 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 some -- a lot of infrastructure. Are we to infer that concrete form is being done with plywood? Is that an opportunity for you?

[Richard S. Olszewski:]

Steve, I mean, 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 application 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. And so we're seeing growth in packaging and in fencing materials and other non-framed construction applications that is helping our business there. And then we are also implementing a strategy of using OSB in existing construction applications, not necessarily framed 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 a 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. And 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 6 or 7 varied key approvals in the last 12 months and continuing to work on 2 or 3 key approvals. Still very confident that we can do that in the next few years.

[Steven Chercover:]

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

[Richard S. Olszewski:]

We do sell some product into concrete form. And yes, it does require a remanufactured-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.

[Operator:]

Our next question comes from the line of Mark Wilde of Deutsche Bank.

[Mark Wilde:]

You'll have to excuse me if I ask something that's come up before. I'm on a couple of calls here this morning. Rick, can you first -- well, can you explain to me what could be going on up in New Brunswick with this, [indiscernible] situation? I just find the notion that somebody's restarting a mill that was shut 5 to 7 years ago in this market, just mind boggling.

[Richard W. Frost:]

I would just have to agree with you. I cannot explain it, but I think P.T. Barnum had some comment about that.

[Mark Wilde:]

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

[Richard W. Frost:]

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, but...

[Mark Wilde:]

I mean, just operationally, I think Weyerhaeuser had shut that mill in '05 or '07, so I'm just trying to understand. I mean, it just seems like you might have rust and other things. It may be pretty difficult to just try to restart it physically.

[Richard W. Frost:]

Well, 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 any color on that one.

[Mark Wilde:]

Okay, 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 or sort of the -- your relative operating rates are in the 2 Chilean mills versus Brazil?

[Richard S. Olszewski:]

Yes. In Chile, we're operating both of our mills in Pangui and at 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. So both of those mills -- basically, we are 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.

[Mark Wilde:]

Okay. And then Brazil?

[Richard S. Olszewski:]

And in Brazil, we're operating, as Rick said, somewhere just north of 50% to 60% of our productive capacity. And 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. So we're -- we will face that decision most likely sometime in 2012 as we continue to grow our volume.

[Mark Wilde:]

And just order of magnitude, I mean, if we look at that $23 million of adjusted EBITDA last year, can you give us just a ballpark on how that would break out between the 2 countries?

[Richard W. Frost:]

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

[Mark Wilde:]

Okay. And my 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 0 to somewhere between 15 and 20. And I imagine with all the rebuilding, it's up higher now.

[Richard S. Olszewski:]

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, there's a much higher share on a frame-based system. And we would put our share of the market now above 50%.

[Mark Wilde:]

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

[Richard W. Frost:]

Well, in OSB, I think we've 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 the mill. So if you think about the financial leverage there, you're simply adding the variable component and then you get further absorption of fixed cost there. So it's pretty high in OSB. And it's the same in engineered wood. I mean, we have plants running bare bones production schedules right now, some of them like 40 hours a week. So 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 takeaway.

[Mark Wilde:]

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

[Richard W. Frost:]

Pretty darn close.

[Sallie B. Bailey:]

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. And for those of you who participated on the call, thank you very much. As always, Mike and Becky are here to answer any follow-up questions.

[Richard W. Frost:]

Thank you, everybody.

[Operator:]

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