Sallie B. Bailey - Chief Financial Officer and Executive Vice President Curtis M. Stevens - Chief Executive Officer, Director, Member of Executive Committee and Member of Environmental & Compliance Committee.

John P. Babcock - BofA Merrill Lynch, Research Division Chip A. Dillon - Vertical Research Partners, LLC Mark W. Connelly - CLSA Limited, Research Division Alex Ovshey - Goldman Sachs Group Inc., Research Division Mark A.

Weintraub - The Buckingham Research Group Incorporated Joseph Francis Stivaletti - Goldman Sachs Group Inc., Research Division Steven Chercover - D.A. Davidson & Co., Research Division John Charles Tumazos - John Tumazos Very Independent Research, LLC Paul C. Quinn - RBC Capital Markets, LLC, Research Division.

Good day, ladies and gentlemen, and welcome to the Quarter 1 2014 Louisiana-Pacific Corporation Earnings Conference Call. My name is Patrick, and I will be your moderator 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 Sallie Bailey, Executive Vice President and Chief Financial Officer. Please proceed..

Thank you very much, Patrick, and good morning. Thank you for joining our conference call to discuss LP's financial results for the first quarter of 2014. 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 contact.

I'll begin the discussion with a review of the financial results for the first quarter of 2014. This will be filed by some comments on the performance of individual segments and selected balance sheet items.

After I finish my comments, Curt will discuss the general market environment in which LP has been operating, provide his perspective on our operating results for the first quarter of 2014, give some thoughts on the outlook for the remainder of 2014 and provide an update on the status of the planned Ainsworth acquisition.

As we have discussed in the past, we have opened up this call to the public and are doing a webcast. That webcast can be accessed at www.lpcorp.com. Additionally, to help with the discussion, we provided a presentation or supplemental information that should be reviewed in conjunction with the earnings release.

I will be referencing these slides in my comments this morning. We have also filed an 8-K this morning with some supplemental information and we'll file our 10-Q later this morning. I want to remind all the participants about the forward-looking statement 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 is some of the necessary reconciliations that has been supplemented by the Form 8-K filing we made this morning.

Rather than reading these 2 statements, I incorporate them with this reference. Market conditions were difficult in the first quarter. Seasonally adjusted housing starts in March of 2014 were 9% below the seasonally adjusted housing starts for March of 2013, what has certainly appears to have been a contributor in the lower demand.

That said, we are pleased to see that Random Lengths stood up by double digits in all but one region last Friday and the mid-week plant was also up in all but one region. Now please turn to Slide 4 of the presentation for a review of the first quarter of 2014.

We reported net sales of $445 million for the first quarter of 2014, a 16% decrease from the net sales reported for the first quarter of 2013, primarily driven by the lower OSB prices.

In the first quarter of 2014, we recorded a net loss from continuing operations of $14 million or $0.10 per diluted share compared to income of $65 million or $0.45 per diluted share for the first quarter of 2013.

The adjusted loss from continuing operations for the quarter was $7 million or $0.05 per share loss based upon a normalized tax rate of 35% compared to income of $58 million or earnings per share of $0.40 in the first quarter of 2013, using the normalized 35% tax rate.

Adjusted EBITDA from continuing operations was $23 million in the quarter compared to adjusted EBITDA of $120 million in the first quarter of 2013. Please turn to Slide 5, and we'll begin the review of our segment result, beginning with OSB.

OSB reported an operating loss of $2 million on $195 million of sales in the quarter compared to operating profit of $98 million on $287 million of sales in the first quarter of 2013. For the quarter, we reported adjusted EBITDA of $12 million compared to adjusted EBITDA of $109 million in the first quarter of 2013.

Our volumes were higher by 6% as we started up our Dawson Creek, British Columbia and Clarke County, Alabama mills on limited production late in the second quarter of 2013. Pricing in our OSB segment was down 37% compared to the first quarter of 2013. Random Lengths North Central 7/16 pricing was down 47% compared to the first quarter of 2013.

This decline in pricing was the most significant contributor to the lower OSB performance, almost $115 million. As we've indicated in the past, our pricing percent changes, tend to stay above Random Lengths in the market with falling prices and our pricing percent changes tend to lag in markets with improving prices.

Moving onto Slide 6, which reports the results of the Siding business. This segment includes our SmartSide and CanExel siding products and commodity OSB produced at our Hayward mill. The Siding segment reported sales of $144 million in the first quarter of 2014, an increase of 7% from $134 million reported in the first quarter of 2013.

The Siding segment reported operating income of $19 million compared to $21 million in the first quarter of 2013 and recorded adjusted EBITDA of $24 million, a decrease of $1 million compared to the first quarter of 2013. Reduction in OSB pricing lowered our Siding business segment results by $3 million.

For the comparable quarter, SmartSide average sales prices were up 6% and volumes increased 12%. Volume increase in our SmartSide siding line due to continued penetration in several key focus markets including retail, repair and remodel markets and sheds.

Improvements due to higher volume prices were somewhat offset by the additional sale and marketing expenses. CanExel prices were down 8% due to the strengthening of the U.S. dollar as a majority of these sales are denominated in Canadian dollars. In terms of Canadian dollars, CanExel prices were down 1% roughly related to mix.

CanExel sales volumes were up 13% due to increased sales through our promotional winter buy program. Please turn to Slide 7 of the presentation, which shows the results from our Engineered Wood Products segment. This segment includes I-Joist, Laminated Strand Lumber, Laminated Veneer Lumber, some OSB and other related products.

This segment also includes the sale of I-Joist and LVL products produced by the Abitibi joint venture, under our sales arrangement with Murphy Plywood. The Engineered Wood Product segment reported sales of $66 million in the first quarter of 2014, up from $63 million in the first quarter 2013.

The segment's operating loss in the first quarter of 2014 was $3 million as compared to a loss of $4 million in the first quarter of 2013. For the first quarter 2014, adjusted EBITDA from continuing operations was $2 million as compared to breakeven in the first quarter of 2013.

The improvement in adjusted EBITDA was related to higher pricing to have increased utilization of our Houlton OSL facility, as we've produced limited amounts of OSB.

Volumes of I-Joist were up 3%, volumes of LVL and LSL were up 2% compared with same quarter last year, and pricing was up 11% in I-Joist and 8% in LVL and LSL, reflecting price increases implemented during 2013. Moving onto Slide 8 of the presentation.

For the quarter, our South American segment recorded sales of $37 million compared to $45 million in the first quarter of 2013. Operating income declined to $4 million in the first quarter of 2014 compared to $6 million in the first quarter of 2013.

South America's adjusted EBITDA from continuing operations was $7 million for the first quarter of 2014 compared to $9 million reported in the first quarter of 2013. Volumes in Chile were down 18%, while volumes in Brazil were up 7% compared to the same quarter last year.

The sales volumes decrease in Chile was primarily due to reduced production due to maintenance work performed during the quarter. In Brazil, the higher volume was due to increased export sales, as well as continued penetration of local markets as compared to the first quarter of 2013. In U.S. dollars, pricing was down 13% in Chile and up 5% in Brazil.

In local currency, Chile recorded an increase of 2% and Brazil recorded 11% improvement in pricing. Total selling, general and administrative costs were $41 million in the first quarter of 2014 compared to $35 million in the same quarter last year.

This increase in cost was primarily due to higher sales and marketing costs associated with our Siding business, increased cost on our Information Technology area associated with our systems upgrade and costs associated with our proposed acquisition of Ainsworth.

We recorded a $4.3 million foreign exchange loss in the quarter compared to a $700,000 loss in the same quarter last year. Interest expense net was $5 million in the quarter compared to $7 million in the first quarter of 2013.

This reduction was primarily related to the lower interest expense associated with our Chilean debt, as we reduced the outstanding balance during 2013. Additional reductions were due to lower amortization of debt costs due to the refinancing we completed during the fourth quarter 2013. Turning to Slide 9 of the presentation.

As of March 31, 2014, we had cash, cash equivalents, investments and restricted cash of $567 million. Working capital of $843 million and net cash of $194 million. We used $73 million of operating cash flow in the quarter, an amount similar to the cash used in the first quarters of 2011 and 2012.

Historically, we have used cash in the first quarter to fund investments and inventory and receivables. The operating cash flow was lower than the first quarter of 2013 primarily due to lower operating result caused by lower OSB prices. We are planning to spend approximately $100 million for capital expenditures in 2014.

We used $24 million of cash for capital expenditures in the first quarter and among the projects which were successfully completed were our Roxboro, North Carolina OSB mill price rebuild, the RTO rebuild at our Carthage, Texas mill and the Tomahawk siding mill, 50% expansion that is currently under commissioning process.

And with that, I'll turn the call over to Curt for his comments..

first is availability of labor; second is the lack of affordable loss; the third is the future of Fannie and Freddie; and the fourth is mortgage access, primarily for the first time homebuyer. Let me now take a few minutes to just talk about Ainsworth and give you an update on where we are.

I know that all of you are frustrated that our comments have been somewhat limited, but I'm sure that you understand that when dealing with these regulatory agencies, the outcome is a culmination of a process that has lots of twists and turns, plus, I can assure you that you're not the only ones that are frustrated by this.

As I stated in the last call, what I'm going to tell you today is really all we can say at this time and I appreciate, once again, restraining yourselves from questioning Mike and Becky with more detail.

Considering the agreement early last September, we have been in regular contact with the Department of Justice and our trust division and the Canadian Competition Bureau on antitrust matters.

Together, we have provided a significant amount of information and analysis to these agencies, engaged in a number of face-to-face and telephone discussions and are currently operating under a time extension in our efforts to convince the agencies that the transaction should be permitted to proceed.

At this point in time, the regulators have indicated that they will not allow the current transaction to proceed. Therefore to complete the transaction under its current terms, we may have to litigate with the regulators.

LP and Ainsworth continue to explore other options with the regulators that could invest divestitures that go beyond what was contemplated in the arrangement agreement. This, of course, would require changes to the arrangement agreement that would need approval from both boards and the Ainsworth shareholders.

There's no assurance that such revised deals can be consummated.

While this has been a much, much more difficult, time-consuming and expensive process than originally contemplated, we trust that you appreciate that we've been working very hard on this and that our ultimate course of action will be driven by what we believe to be the best interest of our shareholders.

For 2014, I do remain optimistic, the consensus forecast for 2014 now stands at $1.1 million, about a 19% increase from last year. For 2015, the consensus is at $1.37 million, another 25% increase.

Well, I certainly hope the forecasts are accurate, the weather in the first quarter lack construction activity, which may make it difficult to reach that $1.1 million this year.

Earlier this week, and I think again today, Federal Reserve Chair Janet Yellen made the following comment, "One cautionary note, though, is that readings on housing activity, a sector that has been recovering since 2011, have remained disappointing so far this year and will bear watching." I certainly agree with that. We are watching that.

The overall economy is improving, although Q4 was revised downward to a 2.6% growth. The forecasted real GDP growth for 2014 is at 2.8%. Consumer confidence took an unexpected bounce in early April to 82.6%, attributed to positive feelings about job prospects and better weather.

The 30-year fixed-rate mortgage had bounced around the 4.3% range since the Fed comment last May. Also, it has been reported there's a slight easing of lending standards. For Q2, there are several things we'd like to accomplish this quarter.

First and foremost, we'd want to make progress with the regulators so we can get the Ainsworth acquisition done, continue to stabilize and improve on our ERP system and work with our transportation partners to catch up on late shipments and bring our operations back to normal.

LP stands ready to serve at the growing housing market and we're looking forward to the increased activity. With that, let me turn it back over to Sallie for questions and answers..

Great. Thank you, Curt. Patrick, we'd like to go to the queue for questions now..

[Operator Instructions] And your first question comes from the line of Michael Roxland with Bank of America Merrill Lynch..

This is actually John Babcock's sitting in for Michael Roxland. I just have a couple of questions for you. Obviously, refraining from saying anything about or rather asking about anything regarding Ainsworth.

But first of all, with 2014 housing forecast coming in given the weather and lower affordability and other factors, how are you guys thinking about OSB capacity and utilization? And on top of that also, has LPX adjusted its production schedule with housing not materializing as expected?.

Well, let me answer the second one. As I said, we did have quite a bit of disruption, particularly in Canada during the first quarter due to the rail problems.

So we did take quite a significant amount of downtime in our Canadian mills, and we also had -- believe it or not -- we had rail problems in the south due to the snow and ice that we had down there. So we took additional downtime at our Clarke County mill. So yes, we did take a fair amount of downtime in the first quarter.

In fact, I think our volumes were lower than they were in the fourth quarter of last year. As we look forward, I think I've talked about this in the past, we used to do budgeting and then we did forecasting and now we do now casting, so we are adjusting our production schedule based on-demand on a regular basis and we'll continue to do so..

Okay.

And now, can you give us a sense of how much downtime you guys had during the quarter?.

It's about 40 days..

About 40 mill days of downtime in the first quarter..

Okay.

And then what was the operating rate for that?.

Well, we don't include the Chambord mill, which is still shutdown. We operated at about 81%..

Okay.

And now what do you got to do -- do you mind providing like what you guys anticipate having for downtime in the second quarter?.

Well, the only downtime that we -- my -- talking about is we do have about 5 days related to capital projects. But other than that, we're not going to provide any more information..

Okay, sounds good.

And then also, have you -- with some of the recent pilot curtail announcements, including Boise Smith [ph] for Oregon mill, the Ferry's mill in Mill City, Oregon and also the recent explosion at Georgia Pacific's mill, have you guy’s experienced better OSB demand from that?.

Those aren't OSB mills..

Oh, sorry. Plywood..

It wouldn't be significant, so I can't tell you that we've seen anything as a result of those accidents..

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

Could you give us a little more detail on the $7 million? And I guess just a higher pre-tax GAAP between what you or -- distance between what you consider the non -- I'm sorry, the non-GAAP adjusted loss of a $0.05 a share and $0.10? I know you mentioned there's some Ainsworth expense, but do you have the pre of the elements of that difference?.

Yes. Sure. I don't have -- I can tell you what they are at a high-level and then, you can follow-up, check with Becky.

But Ainsworth would be a big piece of that and then there's a foreign exchange loss associated with some Canadian dollars that we bought in anticipation of the Ainsworth transactions and being completed last year and was a decrease in the Ainsworth -- I'm sorry, with the decrease in the value of the U.S. Canadian dollar relative to the U.S.

dollar, we took a hit on that this quarter..

Got you.

And will at least ask this -- I don't know if you'll answer, but do you think we'll know which way you guys will move on this by the time of the next quarterly call, in terms of how you would proceed regarding Ainsworth?.

Well, let me just give you -- there is some timing in the agreement that we have. We did an extension of the arrangement agreement that takes us through June 4. We have the ability to unilaterally extend that for another 45 days, which takes us to the middle of July.

Absent that, we would have to have an agreement with Ainsworth to extend beyond the middle of July..

I see, that's helpful.

And the last thing is just in terms of your -- I know in mid-April, you all had some -- you talked a little bit about your plans of adding shifts or maybe what you could do, given I guess the slow start to the year with the winter weather and everything, are you proceeding as you maybe had thought you would back in December/January or have you slowed back in terms of some of the shifts you might add or the -- let's say, how fast Clarke County comes up?.

Well, we started making that adjustment over last summer and we're continuing to look at that on a weekly basis..

Your next question comes from the line of Mark Connelly with CLSA..

Two questions. As you think about all of these restarts and then you -- we think back over the years, we spent a lot of time in the last 10 years adding capacity to the market.

How are these restarts entering the market relative to history? Are you seeing bigger swings than usual in inventory? Are you seeing more deals getting cut?.

Well, from a -- the restart -- the disruption that we saw in the first quarter, frankly, was all transportation related. I wouldn't say it was an impact on the restart. For us, what we have said is Dawson Creek, we brought up on a limited shift basis to support our TechShield and our foreign products principally.

And then Clarke County, we've been on a steady ramp since this summer, we're continuing the ramp-up. Most of the downtime that we take is in Canada..

Okay, that's helpful. And just one minor question. You had talked awhile back about shipments to Asia and targeting a couple of million a month.

Can you tell us whether that's still your target or is there anything bigger we can look forward to?.

We look at that opportunistically. I would say that the shipments out of North America are principally going to Eastern Europe and Russia, not to Asia from our company. Some of the others that you've heard do ship more to Asia than we do. But our focus has been on the Eastern Europe and Russia..

And we do, do some shipment out of Brazil into Asia..

And is that number moving in any particular direction?.

It improved..

It improved in the fourth quarter and first quarter..

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

First question, would you be able to quantify what the impact of weather was on the quarter and if things are normalizing weather-wise, you're going to see some of that cost to reverse as you move through the year?.

It's hard to quantify. I mean we've had late shipment to customers and often that has a pricing impact. Probably the one number we could quantify is we spent about $2.7 million converting the truck. So we did have extra logistics costs that we couldn't pass on to our customers..

Okay. That's helpful. And then on the EWP side, so one of the key players is bringing on new capacity or I shouldn't say new but restarting capacity.

Do you have any thoughts on how that may impact supply and demand as we move through 2014 and EWP?.

I think you'd have to ask them why they restarted it, but we're expecting to have an increase in housing starts, and so I think that they are growing nicely[ph]. It was better in Q1 of this year than was Q1 of last year, even though housing starts were down..

Got it.

And then more of a medium- to longer-term question, if we look at all the new OSB capacity that's been announced for restart and assuming that it comes online, what do you think the housing start level needs to be in order to be able to absorb that capacity? And then maybe looking at it a little bit longer than that assuming that all the idle capacity in OSB gets restarted, what housing start level do you think you could be at in order for that to be absorbed? Do you have any thoughts on those questions?.

Well, the rule of thumb for just housing is 1.1 billion square feet of OSB per 100,000 housing starts. So if you think that over, I think the idle capacity today that has not been restarted is probably somewhere in the 1.5 billion range on what's started, and isn't fully running, it's probably another 2 billion.

I would say you need roughly 300,000 more housing starts to absorb that. That was just 1.3 million, we're supposed to be 1.37 million next year. So starting at the end of next year, early in 2015, coming up to some limitations, which would require restarting the new -- the other mill that were idle..

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

I realized, Curt, you hadn't said anything additional to what you've already said on the Ainsworth situation, but just wanted to clarify, make sure I understood it correctly.

So basically, are there kind of 3 alternatives now as one you either litigate; two, you walk away or three, you continue to work with the regulators, but that would also require a change in the initially contemplated transaction? Is that a fair summary or is there -- are other options, too?.

The fourth is they can give up..

The regulators..

Well, presumably they would do that after you started the litigation process..

But, yes, I think those are the 3 options..

Okay, fair enough. And I'll throw one other.

The new ERP system, can you quantify potential upside from getting that system in place?.

We think that we will get -- and these are very high level numbers, but we ought to get $1 sales price by having better analytic tool and we ought to get $1 in cost. That's kind of the way we would quantify it..

Okay, great.

So basically $10 million to $15 million across the system?.

That time on all of our volume..

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

I just wanted -- I guess I just wanted to comment this question a little bit differently and the issue is basically with -- if you look at Richie's forecast, they're still using the last structural panel commentary of 1.2 million for housing starts and if we're now talking about 1.1 million or even less, that would -- and you overlay that, you're obviously, for this year, coming up with some pretty low operating rates.

And I guess I'm just trying to get your perspective on how you think the industry is behaving or will behave, given these lower housing starts.

I mean are you -- are some of these restarted facilities not fully ramping up or have you seen any slowdowns in that activity or -- just trying to get some color to see if there's -- if we can get a higher comfort level that operating rates will be at sort of reasonable levels this year? Because I certainly, understand you're looking out over the next couple of years, if we get up to 1.37 million and whatnot, we'll be in good shape but it's more looking at 2014 here.

So do you have some perspective on that?.

Really what I can talk about is what we're doing and I think I've said that. We have a much slower ramp-up at Dawson Creek than we've anticipated. We're not running full at Maniwaki and Swan, and we're in the ramp-up phase with Clarke County. So we really do adjust those schedules based on what we see as demand for our products in the marketplace..

Sure, I know you're not going to get in to talk about a specific competitor or anything, but I mean broadly out there, you sort of -- do you think other people are being that responsible in terms of taking out of that sort of being conservative and really being -- adjusting your production like that on a real-time basis or -- I just was curious with....

But I think the -- overall, I think the APA said volumes Q-to-Q were up 8%. Q1 last year to Q1 of this year, they said that, that was the production increase. That's probably a pretty good benchmark to look at as how -- what's being reported to them..

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

Question about Engineered Wood.

The EBITDA was up quite nicely when you consider that the sales were rather flat, so is that due to lower costs as the OSB that you bring into that segment? The prices are far lower?.

Yes, it was principally tied into the sales price increases that we announced in 2013 that reflected this quarter. And the second, as Sallie mentioned, was better utilization of the whole facility stood lower overall costs..

And I think you have some issues at Houlton, so with seasonality and no polar vortex, we should start to see some torque in that segment, correct?.

Well, and this is -- we actually had a fire in the LSL line in Houlton, we were down the whole month of January. We were able to make OSB in that, though, during that time. But we didn't run any LSL in January. So we would expect to see some acceleration there, yes..

Okay. And then on the Ainsworth deal, I don't want to put words in your mouth, but the rationale is unchanged, so I guess the only reason to walk would be if the economics don't work.

Is that how you look at it?.

Well that's -- as I said in my comments, we're going to do what's best for shareholders and if the economics do change to a negative, then that would certainly be a consideration we got to take..

Your next question comes from the line of John Tumazos with Very Independent Research..

My question, I apologize, it's been asked a little bit different ways, but presumably, it doesn't require a specific decision by Kurt at the top level to reduce schedules or output or whatnot, you just have an order book and if the order book isn't full, the mills run on less shifts.

And if there's too many mills open, the EBITDA is negative and you decide to have fewer sites active, et cetera.

So is it sort of reasonable to look at your results and the EBITDA is still positive, so you're not at the point of curtailing capacity yet?.

As I said, we are adjusting our production schedules based on-demand. So you're exactly right that what our salespeople see is demand from our customers, it dictates what we do from a production standpoint.

And typically, what Jeff does, who runs that business, is he sets inventory targets at his mills and once you hit those targets, you adjust the schedules..

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

Just a question on -- we've seen a lift in OSB pricing last couple of weeks, just whether you attribute that to the delay in the U.S.

home building activity as a result of weather or is that -- and if you could give an indication of what you see in, in-field inventories?.

Yes, I think it is weather-related. As I mentioned in my comments, we did have late shipments, those are starting to show up but they're going right out to the field. So our sales people would say that inventories remain lean and the building season has begun in earnest, and that's a good thing. So I'm very happy about this..

Yes, I know. It's good to see it as well. Just on operating rates, just trying to understand what you're doing in Clarke County? It sounded like you took downtime in the quarter but that was more rail, maybe you could give an indication on what you expect to produce at that mill.

And what you're running Dawson at, is that running 1 shift or 2?.

No. I think Dawson, it moves between 1 and 2, it's no more than 2. And at Clarke County, we expect to produce this year somewhere in the $400 million range..

Patrick, I think that's all the time we have for questions, and that's the questions we have. So if you could please provide the replay number, we will move forward. And we'd like to thank everybody for participating in the call. Mike and Becky is always -- are here to answer any of your follow-up questions. So thank you, and have a good day..

Ladies and gentlemen, to access the replay, please dial 1 (866) 233-1854 and use replay code 63373789. Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day..