Good day, ladies and gentlemen, and welcome to the Louisiana-Pacific Third Quarter 2013 Earnings Call. My name is Stephanie, and I will be your coordinator today. [Operator Instructions] I would now like to turn the presentation over to your host for today's call, Ms. Sallie Bailey, Executive Vice President, Administration and Chief Financial Officer. Please go ahead.

Thank you very much, Stephanie, and good morning. Thank you for joining our conference call to discuss LP's financial results for the third quarter of 2013 and year-to-date result. I am Sallie Bailey, LP's Chief Financial Officer, and with me today are Curt Stevens, LP's Chief Executive Officer; as well as Mike Kinney and Becky Barckley, our primary Investor Relations contacts. I'll begin the discussion with a review of the financial results for the third quarter of 2013 and the first 9 months of 2013. This will be followed by some comments on the performance of the individual segments and selected balance sheet items. After I finish my remarks, Curt will discuss the general market environment in which LP has been operating, comment on the status of the announced Ainsworth transaction and provide his perspective on our operating results for the third quarter of 2013 and give some thoughts on our outlook. As we have done in the past, we have opened up this call to the public and are 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'll be referencing these slides in my comments this morning. We've also filed an 8-K this morning with some supplemental information and we have filed our 10-Q. 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 of the necessary reconciliations that's been supplemented by the Form 8-K filing we made this morning. Rather than reading these 2 statements,…

Thank you for that review, Sallie. Today I'll make some comments on our performance for the last quarter, talk about the current state of the housing market, give you an update on the Ainsworth acquisition, talk about some other accomplishments we had in the quarter and, finally, provide comments on what I see for the rest of this year and into 2014. For the third quarter, our safety performance was very good. For year-to-date, TIR, total incident rate, of 0.52 and a rolling TIR of 0.45. In October, I'm pleased to say that LP was named one of America's safest company's by EH&S Magazine, this is an honor that we received for the second time. Sallie just reviewed overall sales increase to about 10%. We earned 26% -- or $0.26 per diluted share, $0.13 per share on an adjusted basis and adjusted EBITDA of $64 million in the quarter. Every one of our segments was adjusted EBITDA positive in the quarter and all, except OSB, had better results in the same quarter last year. Siding in South America continued to do very well. As we think about the housing market, the question I get is so what happened in Q3. My summary is that the housing market is improving across the U.S., but at a much slower pace than we anticipated earlier this year. In our discussions with builders and our channel partners, they support this view that housing is recovering although they do have some headwinds. They continue to be concerned about labor shortages, both skilled and unskilled, costs and availability of high-quality lots and the lack of a supportive local infrastructure, and these are planners, inspectors, roads and utilities. The other thing that has become very obvious to us is the first time homebuyer is not yet participating…

Great. Thank you very much, Curt. Stephanie, we're ready for questions.

[Operator Instructions] Your first question comes from the line of Gail Glazerman with UBS.

I guess -- I can't decide where to start -- I guess, maybe on the regulatory approvals, I'm sorry if I kind of missed the dates and stuff, but with the U.S. and the refiling, when would you expect to hear something at the latest?

Well, the 30-day period expires on November 20. As you know, we can get a second request prior to that.

Okay. And can you give me the little bit more color in terms of the Clarke County ramp up, what you'd estimate and the cost might have been during the third quarter, or what you might expect in the fourth quarter? And what type of run rate, I mean, you talked about production records, but only 2 days. Kind of what type of run rate you're at currently?

Well, on the cost side, it cost us, if you look at -- the loss at that mill was about $7.5 million in the third quarter. And that's less than it was in the second quarter. So we made improvement. We're currently running at about 1.1 million square feet a day.

Okay. And can you talk a little bit about what you're seeing in terms of costs, as you move into the fourth quarter and maybe what you might have seen in the third quarter? I missed it if you discussed that.

Sure, Gail. We actually saw, quarter-over-quarter, we saw our costs increase, now this is just the price aspect of it, by about $5 million and probably half of that is fiber related. However, if we look at the third quarter of 2013 relative to the third quarter of 2012, the raw material costs are actually a little bit better.

Okay. And that increase, is that something you'd expect to be sustained or increased sequentially moving into the fourth quarter?

Yes. I think overall, the costs are a little bit but not significantly higher, sequentially.

Okay. And Curt, when you talk about, I guess, the consensus forecast of 1.15 million starts next year, when you talk to your customers, I mean are you reading that level of confidence that we're going to see that big a pick-up given what they have in the backlog? Or do you have any sort of incremental color on that?

Well, I attended the Harvard Joint Center for Housing Studies, I'm on the policy advisory board, so there's a lot of builders and channel partners on that. And we went around the room, and I think that the sentiment was that it's probably going to be between 1.1 million and 1.15 million. And some of the forecasts earlier were up to 1.25 million and they certainly have backed off that. So I think the sentiment around that room is 1.1 million to 1.15 million is a pretty good number.

Okay. And I guess given the comments in terms of the government slowdown, you certainly haven't seen any sort of change in trends or activity in the fourth quarter.

No.

No, not meaningful, no.

I think this is implied in what Curt was saying, Gail. But the fact that we've just kicked the can down to February, I think really as part of that whipsaw of consumer confidence that -- what Curt was talking about.

Your next question comes in the line of Mike Roxland with Bank of America.

Wondering if you can provide just any color around recent pricing trends. It looks like pricing, I think within the last week, was lower. I just want to get a little bit of color on what you're seeing in markets currently.

Well, at this time of year is when building activity does typically slow down. So this is not unusual for us to see a little withdrawal in November and December. I think that overall pricing is going to -- it is what it is, based on the transactions we have every day with our customers.

It's probably fair to say that will muddle along until you have a little bit of improvement in housing.

I think it's a little bit of improvement in housing but it's also weather-related. So if we have an early winter or whatever happens in that regard, as well. So the Random Lengths report last week, they basically said that the retailers and the channel partners are filling to existing orders. They're not taking any inventory. So I think that's the situation we're in. And we do see increased activity, and it will be interesting to see how Q1 comps. Last year, we saw a big upswing in inventory in Q1 and then kind of a deleveraging the inventory in April and May, because we did see slower growth in the second quarter than we had in the first quarter. So if we have a good start to the building season. We could see inventory being added in the first quarter.

Got you. And all year long, we've heard from homebuilders who have had orders come in less than expected as they continue to drive price over pace. And also demand has slowed from higher rates. What's LPX's strategy of orders only continued to rise on a modest pace? And how flexible is your system and how willing are you as the leader in North American OSB to flex that system to maintain pricing?

Well, we manage our system to what we're seeing demand from our customers. So it's all based on customer demand. So we have a weakness in our order files, then we adjust our production schedules accordingly.

Is that something you do in the third quarter? Sallie, I believe you mentioned that took some downtime in 3Q.

Yes, absolutely. We did that in the third quarter and we used that to do some maintenance in our mills, which is, of course, what also caused the increase and some of the costs in our OSB segment.

How much downtime was taken in 3Q? And has that persisted into 4Q?

I don't have the number in front of me. We did take downtime in 2 of our Canadian mills.

It was about 30 to...

$50 million.

30 -- well, I was talking days. Yes, about 30 days.

30 mill down days.

69?

60.

60?

Well, you got a new number.

All right. Yeah.

Got you. This is really 2...

I was just going to say, we did take -- I think the real point is on how much should we take, as much as did we take it, and the answer to your question is, yes. So as we took downtime, as we saw the demand lessening, we took downtime within each of the facilities, within some of the facilities.

I got you. And then last question, where was the downtime taken? Was it mostly in your U.S. mills or your Canadian mills?

Mostly the Canadian mills.

The next question comes in the line of Mark Connelly with CLSA.

This is Garrett Hines [ph] for Mark Connelly. How comfortable are you with the way OSB restart capacity has entered the market? And as you think about the last couple of years, do you think OSB producers have been more sensitive to the risk of flooding the market?

Well, I can just tell you what we have done. We've said when we saw housing starts get to over 1 million to 1.1 million that we'd consider a restart and then the forecast, as we entered into 2013 was for 1.050 million kind of numbers. So when asked the restart of Clarke County and you brought that on late in Q2 of this year and that's ramping up now. And then also in Q2, we started up on limited production in our Dawson Creek mill to satisfy specialty OSB demand on the West Coast.

That's helpful. And what is your operating rate in OSB right now in the U.S.?

It is -- for our facility it's probably not even for the operating facility for the quarter probably just around 75%.

Great. And what do you think would be a normalized rate of EBITDA in Engineered Wood?

Well, when we've talked about Engineered Wood is that we need to get to north of 1 million starts before it's going to a positive contributor. If we go back to 2005, 2006, it was in the $45 million to $55 million range.

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

You answered all the questions.

Your next question comes from the line of Alex Ovshey with Goldman Sachs.

On capital allocation, can you just remind us what you view as the appropriate leverage ratio in the business, I guess, pro forma assuming that the Ainsworth deal closes. And just remind us on how you're thinking about potential returning cash to shareholders via share buybacks?

Well, I don't really think, Alex, our thinking on that with acquisition of Ainsworth has changed very much. So as Curt mentioned, we intend to keep $350 million to $400 million on the balance sheet and as of right now, we'll use a fair amount of our cash to fund that, as well as then fund Ainsworth acquisition and in fact, we suspect we'll have to borrow a little bit from our Farm Credit Systems revolver to help finance that activity. From a debt-to-cap ratio, that number hasn't changed and we've historically talked about a 30%, 35% number and that number hasn't changed.

Got you, that's helpful. And then on the Siding business, we've seen very nice improvement in the profitability there, even though starts are well below normal. I'm curious if you can sort of talk about the earnings runway in that Siding business as your housing starts get back to that 1.5 million level.

Well, you have to think about the Siding business in kind of the segment strategy, because we sell into new home construction, probably about 40% of that. And then into the retail channel, probably another 25% to 30%. And the remainder goes into our repair and remodel and nonresidential structures. So as housing recovers, so if we -- say we have a 20% increase in housing, from a Siding perspective, that means it we'll pick up about 8% growth, with the 20%. So you don't -- your Siding doesn't respond according -- because retail does go up at that same rate, retail is up 3% to 5% kind of growth rate. And then we're seeing about a 5% growth rate in the other markets beyond retail and new home construction. But we think it continues to have a good growth rates, we've been averaging in the 8% to 10% even through the downturn. The little markets have improved. And I think this year, we'll probably be 12% growth year-over-year.

Got it and thanks for that color. Curt, just last question for me, as you think about budgeting for '14 and getting your facilities ready for '14, what's the base case outlook for housing starts? I know you talked about the consensus numbers being 1.1 million to kind of 1.150 million. I mean, is that what you guys are you using? Or are you using something less more conservative than that number?

We're using 1.1 million for our base case.

Your next question comes from the line of Joe Stivaletti with Goldman Sachs.

I just had a couple of follow-ups. One, given the current outlook for housing and whatnot in the current market conditions, are you rethinking any of your capacity decisions? Are you changing any of that or ramping things up at a different pace or less fully ramping them up? And have you also -- have you seen much in the industry going on that -- in terms of that type of adjustment given the slower third quarter relative to the first half?

Joe, as you know, we only talk about ourselves and I'll continue to talk about ourselves. But we've made the decision to bring Dawson Creek up on a limited basis and we're running on a limited basis. We brought Clarke County up, our contingency was that we saw weakness that we would take -- either take some export business or we would take downtime in our Canadian mills. And that's exactly what we did in the third quarter and we'll continue to look at that, in the fourth quarter and the first quarter.

Okay. And then just one quick capital structure question on the -- assuming everything closes with Ainsworth, are you planning to -- is your current thinking that you'll just leave those Ainsworth bonds in place for now?

Yes.

Okay. And then just finally the CapEx numbers you shared, that is -- that excludes Ainsworth? That's just you in terms of your forecast that you shared earlier in the call.

That is correct.

Your next question comes from the line of Mark Weintraub with Buckingham Research Group.

A couple of regulatory process-related questions, if you can help us on them. Can you share -- are the authorities looking at the structural panels market given that plywood and OSB are interchangeable in most applications or are they looking at more on an OSB focus?

I have no idea. It's a structural panel market in North America, and that's the way they should look at it. But their questions are all over the place right now.

Okay. And then did the U.S. folks, and maybe you have no idea on this either, but I assume they are primarily looking at the U.S. business and Canada is looking at the Canadian business, or are they looking at the North American businesses? Is that something you can have any color on?

Again, they've asked questions about both -- well, about all of North America. So the questions have been pretty far ranging. So I honestly can't tell you what they're thinking.

Okay. And then lastly just shifting gears, you mentioned current expert potential, taking bids from the export market. Is that a meaningful potential outlet? Can you maybe quantify that a little bit for us?

Yes. It has ranged from probably 15 million to 40 million square feet a quarter.

And what was it in the just ended quarter, order of magnitude?

It is about 2% of sales on a dollar basis, about $13 million.

So at the low end of the range?

Yes, so it's at the low end of the range. That's correct.

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

Just a couple of questions. One on downtime, you mentioned 30 mill days in Q3. What is Q4 expected to be?

Okay. I think Mike revised that it was 60 mill days of what Mike...

No, 30.

Never mind. You are right, 30.

Okay. So for Q4 it's...

I don't have that right in front of me. I would assume, it's going to be a little bit more because we're starting the Roxboro press rebuild. So Roxboro will go down from up 30 days between December and January.

And then just on the cost increase. And Sallie, you related half of that to fibers. Was that due to wet weather that you experienced in the U.S. sales or is it that more just regional market?

It was really across North America, so nothing specific.

Yes, some in the U.S and some of -- yes.

Okay. So it wasn't one region specific. And then just lastly, on the system's upgrade project, just trying to understand the main benefits of that. And if there's any implications for your flexibility in ramping up or ramping down your production based off markets that you see at the time?

Well, we're not doing anything at the mill level, with the systems. This is really replacing legacy systems that we had that were customer facing and a general system that's kind of end-of-life. So it's really just upgrading older systems.

And really our systems have just gotten to the point where it was either -- we had to do something and so it's really focused on bringing the system to a more modern era, I'd say. Paul, really the way to think about it is if systems tend to have, let's just call a 5- to 7-year life. And when we would've begun to reach that point of time was when the housing would've been reaching the worst of the downturn. And so we've been deferring spending on those systems, and we just concluded this year that -- I mean, we've been doing the studying [indiscernible] but it was now -- it's the time to bring us into the -- to set the systems upgrade project in place. So it's really about improving the systems versus looking at getting a lot of efficiencies.

I think the way to look at it is it's really about the magnitude of a press rebuild. It's time to rebuild, but...

That's a great way to think about it, yes.

The IT press [ph].

Your next question comes from the line of Ketan Mamtora with Deutsche Bank.

Can you talk about any regional differences you are seeing in your OSB price realizations? And if that has changed in the last couple of quarters, I know one of your competitors was talking about weakness in the Southeast prices?

Yes, it's been really an usual quarter because there's been a lot of regional price differentials, there's also been a lot of differentials in some of the value-added products, particularly in flooring. In flooring, we had the highest differential between commodity boarded flooring of any quarter since I've been here, since 1997, very unusual. And I don't think we really have an explanation for that. We've talked our sales guys. We enjoy it, but it's interesting that if you look at North Central, Q3 to Q3, down $61. But our average sale price is only down $15. It really had to do with those regional differences and the premium on flooring. It was very unusual.

Okay. And then can you talk about how your inventories are in the system right now and how they have done in the last couple of quarters?

Okay. The question is what? I'm sorry, on inventories?

Yes. Inventories in your system at the moment and considering that we're heading into a seasonally slow period. How do you think you stand with your inventories?

I think we're about where we need to be. Our Siding business need to be about 58 to 60 days and that's about where they are. Our EWP business is in 30 to 35 days and our OSB business is around 20 days. So I think, we're in pretty good shape.

Got you. And then a couple of quick questions. Are you seeing any uptick in pulpwood cost, not just in a particular region, but any significant change in pulpwood cost? And if you can remind us how your contracts are structured there?

Well, as we look into the next year, we see a slight increase, probably more related to inflation than anything else. There are regions, IP just announced the closure of a huge pulp mill in Alabama. That will have a positive impact on the mill that is closest to that. So we'll see an improvement there. So that's really -- and you're exactly right, that's who we compete with, is the pulp-and-paper guys. And they pull capacity off, it gives us a little bit more leverage with our vendors.

Got you. And a couple of quick questions for Sallie. You mentioned the operating rate in U.S. was 75%?

In OSB.

And this excludes the mill that are shut right now or this is across the system?

Yes, it excludes the Chambord [ph] facility.

And if you -- got you. And then the $200 million Farm credit, can you tell us what the interest rate will be on that at this point?

Well, it's a floating interest rate. I don't remember what that -- what is it? 1.75%? 1.75%.

And the final questions will come from the line of Steve Chercover with D.A. Davidson. Steven Chercover - D.A. Davidson & Co., Research Division: Just 2 quickies. First, I assume that you're probably in discussion with your channel partners in 2014 -- or, sorry, for 2014. Do you have to know how many of channel partners that you currently share with Ainsworth?

Yes. That's the one area of diligence we haven't been -- that we haven't looked at, at all. Steve, is we really have to look at the customers. We know through their public reports who their largest customer is but, as far as those details, we won't be able to see that until the transaction closes. Steven Chercover - D.A. Davidson & Co., Research Division: I mean, would you perceive that as a risk or as an opportunity? I mean, that's presumably where I guess some freight synergies could be obtained. But do you think you might lose anything if folks want to have diversity?

Well, I think that the logistics piece will bring us some advantages. One of the things we've done is we did do a listening tour with our biggest customers and talked about what they like about us and what they like about how Ainsworth conducts business and try to take the best of both. Steven Chercover - D.A. Davidson & Co., Research Division: All right. And my second was I guess a follow on, on Engineered Wood. I mean, it's nice to see it finally EBITDA positive, and I heard you loud and clear that you need 1 million starts for any tension in the market. But you've alluded to kind of $45 million to $50 million of EBITDA in 2005, which is probably the peak. But at that stage, I don't think Houlton was running. So I mean, would some puts and takes shouldn't we be a bit better than $45 million once housing is leased back to normal?

We will be when we get to 1.5 million plus starts, absolutely. There's a shortage of LVL, I think. Steven Chercover - D.A. Davidson & Co., Research Division: What do you spend on the Houlton, $100 million or something?

On the construction? Steven Chercover - D.A. Davidson & Co., Research Division: Yes, the conversion there.

The conversion is about $120 million. Steven Chercover - D.A. Davidson & Co., Research Division: So I mean, that ought to, I guess, if you got a 15% to 20% return, contribute, what, $20 million.

Our pro forma is even better than that.

Right. You're right, Steve. Our expectation would be that if we got there, that we'd see a performance that was better in our EWP business than we've seen in the past, because of the addition of LSL at the Houlton mill. Great, all right. Well thank you very much. Stephanie, I think that's all the time we have for questions. So if you could please read -- provide the replay number. And I would like to thank everyone for participating in our call. Mike and Becky are here to answer up any follow-up questions you may have. And we thank you for your participation. Hope you have a good day.

Thank you, ladies and gentlemen. The replay will be available for 8 days. The replay number is 45001139 and the replay number to dial-in to is 1 (888) 286-8010. And the replay number again is 45001139. Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a great day.