Good day, ladies and gentlemen, and welcome to the Second Quarter 2011 Louisiana-Pacific Corp. Earnings Conference Call. My name is Derrick and I'll 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 call over to Mr. Curt Stevens, Executive Vice President of Administration and Chief Financial Officer. Please proceed.

Thank you very much, and thank all of you, for joining us on this Friday afternoon to discuss our earnings for the second quarter of 2011. I know it's been a busy day for many of you. As the moderator said, I'm Curt Stevens, the CFO; and with me today is Rick Frost, our CEO; as well as Mike Kinney and Becky Barckley, who are primary Investor Relations contacts. As I usually do, I'll begin the discussion with a review of the financial results for the quarter and then I will follow that with some comments of the individual segments and selected balance sheet items. Then I'll turn it over to Rick, who will discuss the general market environment in which we operated last quarter, his perspective on our operating results and some thoughts on the outlook for the remainder of this year and into 2012. As we have done in the past, we’ve opened up this call to the public and are doing a webcast. And this can be accessed at our public website, www.lpcorp.com. Additionally, to help with the discussion today is a presentation that we sent out with the release, and I will be referencing those pages as I go through my comments. We've also filed an 8-K with supplemental information that will help with the understanding of this material, and we expect to file our Form 10-Q later this afternoon. And again, before I start, I want to remind you about the forward-looking statement comment that's included on Slide 2 of the presentation, and also, on Slide 3 is a discussion of our use of non-GAAP financial information. I'm not going to read either one of those, but I am going to incorporate it by this reference. One final thing before I get to the numbers,…

Good afternoon, everybody, and we do appreciate your interest in our call. I realize there are a lot of competing news releases today, plus a lot of national suspense. On top of that, we just completed our Board of Directors meeting here at noon. So Curt was kind enough to get us -- Kirk and his people were kind enough to get us ready for this call for this afternoon. For a bit of a personal indulgence to me, I plan to escape to Maine this evening to spend some vacation time with my family, and so I'm looking forward to that. And instead of waiting until next week, I getaway this evening. I'm going to begin my prepared remarks with an overview of some thoughts on Q2 and the market. I think that it's no secret, it's been well publicized, that spring did come late across the U.S. and Canada, and because of that, what building activity that did take place in Q2 started late. I think, if I coupled this with the sense that we and our customers begin the year with a little bit more optimism and a little bit more wood, Q2 was not only slow in activity but we found our customers soon trying to conserve their cash and bleed down what inventories they had on hand during Q2. That was not a combination that was terribly conducive to robust sales from our manufacturing facilities. I think we suffered, all quarter, from this combination across all 3 businesses. And then judging from the performance of Random Lengths print, of OSB prices, there appeared to be more wood on the market than there was demand for it. Along with U.S. starts being down 4% Q2-to-Q2, the Canadian starts were also slowed by the late onset of…

Thank you, Rick. Derrick, can we go to the queue?

[Operator Instructions] And our first question is coming from the line of Mike Roxland from Bank of America Merrill Lynch.

Curt, in your remarks, you mentioned that the decline in OSB profitability in 2Q was basically driven by OSB pricing. What was the impact, if any of higher cost, such as resin, in the quarter?

If you look at across -- what we do, Mike, as we look at the raw materials cost across the business, for the quarter, compared to the second quarter of last year, raw materials costs were up about $6 million. About half of that was in resin, about $2 million of that was in the zinc borate and the paper associated with the Siding business, and the rest would have been in power and wood. Now, what we were able to do was offset that with some of the continued efficiencies that we've gained through our Lean Six Sigma program. So when you think about OSB we offset the increased raw materials cost with more efficiency in the mill.

Got you. And how have input cost trended with respect to your initial expectations of, I think, a total petro-chem spend this year of around $125 million?

The second quarter ended up being about $4 million higher than what we had budgeted. And that was largely because of the spike in benzene and methanol pricing that we had in Q1, because we have a look back adjustment factor in our resin, so our resins were all of that. Wood came about where we expected it to, natural gases where we expected, electricity is where we were expected. So it really was in the resin area. That was because methanol and benzene were high.

Just in terms of capital spending. Obviously you are trying to keep it as lean as possible. What's your typical level of maintenance capital spending and how long can you run at those levels without the mills requiring additional spending in the next year or so?

Typically, what we look at is about $1.5 million to $2 million per mill. But we're not running the mill full out, so we don't have that same level. So typically, what you would see is in the $40 million to $45 million for our maintenance capital, and we aren't going to spend that this year and we didn't spend it last year. So we are building up some projects there, as we look out into the future years. But I would emphasize, we're not running them 24/7 either, so those costs probably aren't the same as they would be if we're running 24/7.

Your next question is coming from the line of Gail Glazerman from UBS.

Rick, last quarter you talked about some initiatives to increase your exports out of North America. I guess you talked a little bit about, maybe you mentioned there, wood going to Australia. Can you just give us an update on how that initiative stands?

Yes. I said a little bit of it, but I'll just kind of run through the businesses. We have achieved quite a bit of success coming out of Brazil to China in non-structural OSB and that's, I think, that will be about 4,000 cubic meters -- that conversions help, 4,000 cubic meters a month are coming out of Brazil to China. Last quarter, we moved about 5 million feet out of North America to Asia, admittedly at very lousy pricing, most of that product did go to Korea. I'm hopeful that we will start being able to put OSB from North America into China, but the gain that we have to accomplish there is that we have to try to strategically position that product in China where it's good business, not just a take-or-refuse business. Which means we have to try to position it strategically into the housing market. I would guess, if our plans come with what we have on the drawing board right now, I'm hopeful to get up to 15 million board feet per quarter by the fourth quarter of this year. In terms of our Engineered Wood Products business, we have had considerable success going to Australia. We are also penetrating Europe now with, predominantly, our LSL product, and so that is one of the reasons that you see our LSL sales going up. Did that answer your question, Gail?

It did indeed. Curt, can you keep the corporate expense line, kind of in general, where it was in the second quarter? Would you expect that to move up later in the year?

Right now, the primary reduction is we are falling short of our budget from a bonus standpoint, so we reversed management bonuses. And unless we see OSB pricing go up dramatically, I would expect it to stay at the same levels.

Okay. And then just one last question on Engineered Wood Products. So you're kind of, I guess, EBITDA break even in the quarter. Is that something that you think you can sustain moving forward? Or was that kind of just something unique in the quarter that you'll probably maybe get a little bit negative moving forward?

That's why I put that little doodie in there but Australian distribution backing up. I think that's going to cause us a little bit of problem out of our Golden mill. The other thing is we kind of, in a little bit of a process of switching from watermelons to cantaloupe, their developing an appetite for a treated product. So we're changing some volume production from the western side of the United States to the eastern side of the United States to be able to handle that. So I would think, probably, while we're working through both of those issues, one, their distribution leaning out a little bit, and secondly, us getting some treated product into that market. We'll be a little slower on our exports to Australia in the second half.

Okay. And, all right, just one last quick question. Rick, you mentioned inventories having buildup earlier in the year with expectations. Do you think those have largely been worked out of the system by now?

Yes. It just feels really, really clean out there right now. I mean, it's hand-to-mouth, at least that's what it feels to us and that's what our customers are projecting to us.

One last thing, I'd just like to add. Rick stopped a little short on our export business. In siding and molding, Lowe's is opening up a presence in Australia and may have selected our siding and molding products to be stocked in their stores. So we are seeing a little bit of activity in siding and molding in Australia as well.

Your next question is coming from the line of Mark Connelly from CLSA. Mark Connelly - Credit Agricole Securities (USA) Inc.: Rick, 2 questions. Looking a little past the wins that you've got this quarter. Are you thinking about shifting around where you're going after business or have you been shifting around where you're going? I'm increasingly convinced that Home Building is going to pick up in much different places than it was strong before. And I'm just wondering, how much you can shift around and react to that? Second question is, as we see homebuilders simplifying floor plans, trying to hit lower price points. Are they doing anything with siding or panel that is going to help you in that process, beyond some of the things you've already talked about with CanExel?

Let me take your shifting question first, Mark. I'm interpreting that question to mean geographically inside the U.S. Are you talking about... Mark Connelly - Credit Agricole Securities (USA) Inc.: Yes. For the most part, that's right.

Yes. I think we're already there. I would we bet that anybody you asked that question is to -- we have just, really, almost started doing microanalysis and we're actually putting sales efforts and marketing efforts based upon individual cities now. You can no longer look at this thing nationally or even regionally, and so our sales guys are out there trying to find just individual cities where their activities greater. And that's the way it's going to come back and that's where we're putting our sales effort together right now. Mark Connelly - Credit Agricole Securities (USA) Inc.: Are you more nimble in doing that now than you were say a year or 2 ago?

Yes. We learned a heck of a lot. My Executive Vice President of Sales and Marketing sitting here smiling, because he keeps telling me that he's getting a lot better at that. That's basically been his job the last 3 years, and of course, it's also been a necessity, so yes we're getting much more nimble at that and also much better at that. In terms of your second question on siding, I don't see any trends, in terms of homebuilders changing that would particularly benefit from us. But what I do see is that our siding products have a very good growth trend, and I talked about the 20% of our wins last quarter in LSL. Even a larger portion of those wins are in one siding product or another. So were still very excited about -- once we get a builder to use our siding products, they use it again because they like it, they like working with it. And so we had some growth there, we have a couple of new products that we're trying to penetrate, some different markets than what we've been in before as well.

Your next question is from the line of Bill Hoffman from RBC Capital Markets.

Rick, I just wonder if you guys could put some numbers on some of these export business that you're talking about. Where we are today and what you see the potential growth rates from the business are at the moment?

I think, I'd rather not. I really don't want to share that with everybody else that might be listening, if you understand. Maybe, we can do a little bit more later. But right now, there's a whole pack of dogs trying to run anywhere where there's a piece of meat, and we don't want to point out where the meat is.

Bill, what we will have is in our 10-K. We do put in international sales and we'll break those out by country.

Just a second question is, with the purchase of the other share down in Brazil. I just wonder if you could talk a little bit more about, maybe, what future opportunities you see there. And that's obviously -- solidified that position today, but what else do you see opportunistically down in the South America markets?

Well, we're making progress in Argentina and also Colombia right now. Those are the 2 countries, as I talked to our South American leader down there, where he's putting his efforts. So you add that to currently doing business in Peru and in Chile. So as Chile fills up and I said 85% of that production is kept in Chile and used in Chile, Brazil will be the source of that product, so that will help us to start to fill up Brazil. And of course, the big win and the ultimate strategic pearl that we're looking for is that we make this breakthrough and become part of the housing construction system that's got to satisfy this 14 million home need in Brazil over the next 10 years.

And then last question is on just on resins. What are you guys looking at this one time? Any shift in strategy on resins, especially with some of these rulings on formaldehyde and the like?

The rulings on formaldehyde don't really affect us, because that's at the customer level. When you go through the process the formaldehyde is taken out of it. So we continually look at the trade-off between PF and MDI and optimizing our resin recipes to be as cost-effective as we can. But those are relatively modest modifications we're not making anything that's significant. We are looking at alternatives for wax, so we have qualified tallow wax at our mills. Today, that's not cost-effective but with the volatility we've seen at wax pricing, we can switch back and forth.

You're next question is from the line of Chip Dillon from Medical Research Partners.

Listen, I remember on the last call or maybe it was 2 calls ago, you guys mentioned that if you made a decision to start up Clarke County, it could take as much as I think 9 to 12 months to really get the people hired and get everything shaken down. And I guess the first question is, is there any reason why it would take others who have existing plants less time to restart them than that same 9 to 12 month period? It would seem not, given that you have sort of a clean slate there and that it would, therefore, take others just as long to really get their plants restarted if they were attempting to do that.

I said it would take up to 9 months. We still think that it would take somewhere between 8 and 9 months to get Clarke County up and going. Clarke County is a huge mill. We would have to basically start over with training people and all of that. We think that if we were to say, go after and startup Chambord, it might only take us like 6 months because most of those people still live in that area and it would be a little speedier process, depending upon the time of the year that we made that decision. So I think, for us, that's what we think, I don't know how anyone else would have much of a different approach to that. Probably part of that answer is when somebody admits that they start it, right? So if somebody wants to look good, they'll tell you 3 months into their process of getting started, that well we can do this in the 3 months and that's probably because they got 3 months already done.

Let's say it does take whatever the number is, 8 to 9 months or even 6 from the time you decide. If you're down here in the States, aren't there other factors? Like for example, the supply-chain that's around that mill, whether getting wood procured, getting people to bring it to the mill, as well as wholesalers and other relationships to take the product. Is that something that could actually delay a restart? And I'm not talking about just you but anyone.

You bet. I mean, just to add on to that, let's say you're in the north. Depending on where you were in the logging cycle up there, if you don't get your wood in, in the winter there you can't start logging again until mid-June, early July, so that's a complicating factor. So on your wood supply, you can be affected by a month or 2, and then also, the other end of it is what shape will the distribution channel be in when there's a need for these mills to start back up, and I think all of us are wondering that. That's why you don't get a real precise answer of like it's going to take 97 days and on the 98th day I'll be doing it, because it's different for each location.

Well, yes, there's a brand-new pulp mill, I won't say the name, that was announced last year in Brazil and they gave almost the hour at which they plan to start it up. And I think it's in 2013, so if that happens, I'm going to Vegas. I hear you.

Well we try to make the distinction between precision and accuracy around here.

Your next question is from the line of Gene Pavlenko from D.A. Davidson. Steven Chercover - D.A. Davidson & Co.: This is Steve. Two quick questions please. First of all, the wins that Rick was referring to. Do they come become at someone else's expense? And if so, do you think that this is perhaps exacerbating the depressed price levels?

I think they do come at someone else's expense. That's true. Now whether it's exacerbating anything or not, I'm not sure. I mean, it's a dog or dog eat world out there for customers, and so everybody is competing for customers. There's too few customers and there's too much distribution, and so we have to have demand, that's what going to solve that problem. It has to be more -- our customers have to have more customers. Steven Chercover - D.A. Davidson & Co.: Well, we need the economy to grow faster than 1.3% for that.

Yes, sir. I would agree with you. Steven Chercover - D.A. Davidson & Co.: Second question then. You indicated that 8 of your mills are operating, 2 are on a definite hiatus. Can you tell us what the operating rate was during the quarter and where you think it will be for the next couple of quarters?

I can't tell you where it'll be, but I did say in my opening prepared remarks that we operated, in the second quarter, at an effective capacity of 70%, Steve. And then it depends what happens in the market this quarter and where that sugars out. We're making decisions almost weekly on what we run and what we don't. Steven Chercover - D.A. Davidson & Co.: Do any of your mills in the South -- are they benefiting from the extraordinary dryness which has made logging very simple and depressed wood prices?

Well, I think probably the benefit that's not terribly obvious is that we've had a large increase this year in diesel prices. But you haven't seen our wood cost go up a whole lot, so the offset in the increase in diesel prices is probably offset by the availability of wood, which allows us to cut on the stumpage side a little bit. So that's the benefit of it. But it's not huge, I think we're up probably favorable to last year by 800,000, 900,000 in the South. Steven Chercover - D.A. Davidson & Co.: And the $14 million gain that you're going to get in the asset-backed securities in Q3. Does that put this whole thing to bed after this or there's still litigation pending?

There is still litigation pending against both the primary issuers of the securities. Part of that litigation is in New York and part of that is in California. We will have, as I mentioned, we did not sell the collateralized debt obligation because, basically they're valued about $0.04 on the dollar. And all but one of those is currently paying interest. So it makes more sense to hold those, they're on the books for a little less than $2 million. So it's not much value there, but we're going to hold them for the interest of getting the $2 million dollars and putting it in money market funds wouldn't be a very prudent thing to do, but we are getting interest paid on that. But we are aggressively pursuing the litigation because we do believe we were misled, as the industry was, on these. Steven Chercover - D.A. Davidson & Co.: What's the face value if you're holding them at $2 million?

About $25 million in face value. So we're collecting interest on about $21 million, but we're carrying on our books for $2 million. Steven Chercover - D.A. Davidson & Co.: And when do they mature?

There are various time frames, but they're generally like 2018 to 2025. There's only one that's not paying interest, the rest are.

Your next question is coming from the line of Peter Ruschmeier from Barclays Capital.

I wanted to come back, if I could, to the wins Rick. And I don't if you can maybe give us a some more specific examples. In particular, I was curious if you have any good examples of OSB penetrating new markets in plywood that might be different from the kind of markets you've gone after in the past.

Yes, I'm not going to give you the specific, but we just recently had a good win in one of our specialty OSB products in the state of Florida, where Florida has not typically been a very good recipient for OSB products. So I'm not going to give you the detail on that, but it would be a builder going standard on our product in a place where they have substantial activity, where they had not before given us a standard. Is that a good example?

Okay. That's a good example. And I guess, I was curious if you have any examples outside of traditional housing and markets.

Well our Siding business is continuing -- I think I've made some comments on the last call, around we're going to a segment strategy in our Siding business, where we divided it up into 5 different segments, and let's just take one of those which I'll call the shed segment. I think they've got a fancy name for it now. But where we would go to people that have traditionally constructed sheds for people and we have been able to inject a handful of our siding products into that shed construction. Everything from a siding panel that has the radium barrier on the inside to a flooring product in that shed that actually has a paper overlay on it. And that would be an example of going into a segment and convincing them to move away from plywood and the old conventional plywood paneling or whatever and switch to SmartSide, and that would be an example of that. And we've proven quite successful there.

And then, I'm curious if you could take us back a step back for us and help us to better understand. In the siding market, if you could remind us, your share of the overall siding market. And how much share you think you're gaining and what kind of limitations you have, and is it vinyl that you're going after most successfully? Which categories have you been most successfully gaining on?

Well, if you remember, back to our Investor Presentations that we've done over the years, we have a chart in that section where it breaks down -- in fact, you got a copy of this, you know you do. It breaks down the overall siding business and where we put ourself as we're the only people that make the kind of siding that we make and that's about 3% of the market. The other thing that we observed over the last 5 or 6 years is that everybody's taking a bite out of vinyl, so the growth in all of the other kinds of siding, I think, have come at the expense of vinyl. I think the first time I gave one of those presentations 7 years ago vinyl had like 43% of the market and I think they're down to somewhere around 25% of the market. Our products compete very much head-to-head with the cementitious siding and so that's where the big battle is.

Okay. And how about -- I mean, do you have any stretched goals or targets in this area? I mean, if you're at 3% of the market, if you're to aspire to have 5% market share, how long does it take to get there? I mean, do you have kind of line of sight to what's achievable?

I'm going to answer your question in a different way. We'll probably sell about 400 million feet of siding this year. Current capacity to make siding in the LP system right now is about 700 million. So our first goal is to fill up the capacity that we've got and then where are we going to build our next mill or convert the next OSB mill to this product. I think, longer-term, we're aspirationally believing that siding can be a billion dollar revenue business for us. I can't put the timeline on that right now, because of the morass that we're in the middle of right now, does not allow me to make any kind of a reasonable projection about that.

Your next question is coming from the line of Mark Wilde from Deutsche Bank.

Just a couple of questions down in South America. You mentioned that your selling most of the Chilean output in Chile. And I know a couple of years ago, seemed like there were a lot of -- there were some guys from the North American market who had been dumping OSB down in Latin America and really depressing that market. Is that still going on or have you seen some of that tail off?

There are some occasional forays from non-Chilean companies into Chile.

But it sounded like, a couple of years ago, it was a pretty serious issue. And if you're selling most of your output in Chile now, is that less of an issue?

Well, it can be. Obviously, I mean, what it can be is if you could end up in a situation where you've got more wood on the market than the market wants and that affects pricing. So yes, I mean, you have to keep your eye on that. Nothing we can do about it, by the way, but obviously it affects you.

Yes, I just wondered whether the fact that you could sell so much in Chile was a marker that maybe there was a less of that going on. Doesn't sound like it.

Our competitive advantage there is freight and distribution. We're the local producer, we're the Chilean company making it and we don't have to ship it from a different continent. So that's how you compete with the occasional intrusion.

Doesn't seem like it whenever I'm down there. You go more than about 50,000 miles of than Pan American highway without seeing an LP billboard. Over in Brazil, can you just talk about the headway you're either making or not making in terms of getting some of these building codes changed? And what you think the timeline might look like.

Yes. The last conversation that I had with our South American leader down there is that we're hoping to have made some progress on roofs and walls by about this time next year.

Okay. How long would have that have taken? How long have you been working on that?

A year, year and a half.

All right. You have any precedent from just sort of what you've gone through in any of these other countries?

Well, it's too early for a precedent there, because our precedent before was Chile, where we had great success in conversion. And what we've learned going into Brazil is the bigger the opportunity and the country is usually the bigger the obstacles and the bureaucracy are. So that's what were working to overcome.

Yes, okay. You mentioned you were having some luck up in Columbia, which I think is really enjoying some good growth right now. Are you going to talk briefly about that?

Well, just that, that's been the discovery, if you will, of our Chilean President, is that he likes the look and the feel of the Colombian economy, and thinks that, that may be a good place for us to sell more products. So he never really talked to me in the past before last week about Colombia, and he was pretty complimentary of what he thought the opportunity might be there. He thinks he's approved in Colombia.

Are you exporting anything over to Europe right now? I mean, it seems like European prices are a little bit better and the currency, the dollar is weak.

Yes, actually, that's a little better deal for us than the stuff that's going to Korea. We're putting some product in Europe right now, from our Québec mill, and that's pretty good business. Their ears perk up every time Jeff mentions a U.K. order or a European order.

Okay. And then the last question I had, you mentioned that the pipeline appeared to be pretty empty. I just wonder if we go in to August here, and it seems like 1 year out of 4, 1 year out of 5, we get a pretty good hurricane season, usually you sell a lot of panels during hurricane season. Do you have any thoughts on what this market could do if we saw 1 or 2 and if there's any kind of buffer out there in the market if demand does pick up?

Well, I think the only thing that -- I just have to go back to my original comment there, I think the channel is extremely lean. And so if there's some kind of an upset created by anything that tends to put some franticness in the market which that's tends to make pricing react favorably in that particular sales area. But I don't know how to like handicap that for you.

It's supposed to be an active hurricane season, but...

What we say around here, about hurricanes, is that we would like a lot of them, but we want none of them to hit land. We just like the process where everybody gets scared and goes boards up their property and then nobody gets hurt or loses anything.

Derrick, I think that's all the time we got for questions. So, if you could give the replay number and I want to thank all of you for participating. And as always, Mike and Becky are here to answer any follow-up questions. Thank you.

Ladies and gentlemen, that concludes today's conference. If you would like the number for the replay that will be (888) 286-8010 with the access code of 49386948. You may now disconnect and have a great weekend.