Sallie B. Bailey - Chief Financial Officer & Executive Vice President Curtis M. Stevens - Chief Executive Officer & Director.

Ketan Mamtora - BMO Capital Markets (United States) Chip A. Dillon - Vertical Research Partners LLC Mark Connelly - CLSA Americas LLC John P. Babcock - Merrill Lynch, Pierce, Fenner & Smith, Inc. Bill Hoffmann - RBC Capital Markets LLC Mark A. Weintraub - The Buckingham Research Group, Inc. Steven Pierre Chercover - D. A. Davidson & Co.

Paul Quinn - RBC Capital Markets.

Good day, ladies and gentlemen and welcome to the Louisiana-Pacific Corporation Fourth Quarter 2015 Earnings Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, this conference call is being recorded.

I'll now introduce your host for today's conference, Sallie Bailey, Executive Vice President and Chief Financial Officer. Please go ahead..

Thank you very much, Ashley, and good morning. Thank you for joining our conference call to discuss LP's financial results for the fourth quarter of 2015 and the full-year 2015.

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 will begin the discussion with a review of the financial results for the fourth quarter and the full-year results for 2015.

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, provide his perspective on our operating results and give some thoughts on the outlook.

As we have done in the past, we have opened up this call to the public and are doing a webcast and that 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 this morning in my comments. We filed an 8-K this morning with some supplemental information and we plan to file our 10-K in the next few weeks. I want to remind all the participants about the forward-looking statements comment on slide two of the presentation.

And please also be aware of the discussion of our use of non-GAAP financial information included on slide three of the presentation. The appendix attached to the presentation has some of the necessary reconciliations which have been supplemented by the Form 8-K filing we made this morning.

Rather than reading these two statements, I incorporate them with this reference. A 16% improvement in OSB pricing for the fourth quarter as compared to the third quarter of 2015 and positive adjusted EBITDA for all four segments contributed to stronger earnings for the fourth quarter of 2015.

On a non-GAAP annual basis, LP recorded 2% lower sales, but 52% higher adjusted EBITDA. We exited 2015 with lean OSB finished goods inventory, low raw material costs and a favorable U.S. dollar versus Canadian dollar exchange rate. We are well positioned in 2016 to take advantage of the ongoing U.S. housing, the ongoing recovery in U.S. housing.

Here are some details behind our earnings report. Moving to slide four of the presentation for a discussion of the fourth quarter and full year 2015 consolidated results. We are reporting net sales of $463 million for the fourth quarter of 2015, a 2% increase from the net sales of $454 million reported in the fourth quarter of 2014.

In the fourth quarter, we recorded a net loss of $8 million or a loss per diluted share of $0.05 compared to a net loss of $43 million or a loss per diluted share of $0.30 in the fourth quarter of 2014.

The adjusted income from continuing operations for the quarter was $1 million or $0.01 per diluted share based upon a normalized tax rate of 35% as compared to a loss of $32 million, or a loss per diluted share of $0.23 reported in the fourth quarter of 2014.

Adjusted EBITDA from continuing operations was $34 million in the quarter compared to negative adjusted EBITDA of $17 million in the fourth quarter of 2014. For the year ended December 31, 2015, we recorded a net loss of $88 million or a loss per diluted share of $0.62 compared to a loss of $75 million or a loss per diluted share of $0.53 for 2014.

The adjusted loss for the year was $46 million or a loss of $0.32 per diluted share based upon a normalized tax rate of 35%, compared to a loss of $60 million or $0.42 loss per diluted share in 2014. Adjusted EBITDA from continuing operations was $67 million for 2015 compared to $44 million in 2014.

Now, moving on to slide five and a review of our segment results, starting with OSB. OSB reported net sales for the fourth quarter of 2015 of $206 million, slightly higher than the $203 million of net sales recorded in the fourth quarter of 2014.

OSB reported operating income of $11 million compared to a loss of $29 million in the fourth quarter of 2014. This is the first quarter of operating income in our OSB segment since the fourth quarter of 2013.

And adjusted EBITDA from continuing operations for the quarter was a positive $25 million, compared to negative $15 million in the fourth quarter of 2014. Pricing for OSB was higher by 10%, which resulted in improved operating result by $18 million.

And in addition to the improved OSB price, results benefited from reductions in raw material costs as well as the positive impact of the Canadian currency incurred by our Canadian operation as compared to the fourth quarter of 2014. For the fourth quarter of 2015, the average of the U.S.

Canadian exchange rate was $0.75 as compared to $0.88 in the fourth quarter of 2014. For the full-year, OSB reported operating sales of $808 million compared to $855 million, down 6% from the prior year, and we recorded an operating loss of $46 million, compared to $53 million in 2014.

Adjusted EBITDA for 2015 was $12 million, compared to $4 million in 2014. Sales volumes increased 2% and prices decreased 7%. The decrease in selling price unfavorably impacted operating results by $61 million.

Offsetting the reduction in sales price for the year was a reduction in raw material costs related to petroleum-based raw materials as well as the positive impact of the Canadian currency exchange rates on the cost incurred by our Canadian operations as compared to the prior year. For the full year of 2015, the average U.S.

dollar Canadian exchange rate was $0.78 as compared to $0.91 in 2014. On slide six, we report the results of the siding business. This segment includes our Smart Side and CanExel siding products, as well as a minor amount of OSB. Our siding segment had record sales, had a record year for sales, operating income, and adjusted EBITDA.

For the fourth quarter of 2015, the siding segment reported sales of $141 million, operating income of $14 million and adjusted EBITDA of $19 million, all comparable to the fourth quarter of 2014. For the quarter, Smart Side average sales were up 2% and volumes decreased 5%.

Volumes decreased in our Smart Side siding line due to the customers continuing to rebalance their inventories based upon expected housing starts and labor availability, which have slowed housing completion.

During the third quarter of 2015, we began the conversion of our Swan Valley OSB mill to a SmartSide mill and during the majority of the fourth quarter, this mill was not operational.

It is estimated that the additional cost incurred of the Swan Valley facility during the fourth quarter related to that conversion as well as market-related downtime was approximately $6 million. For the year, the Siding segment reported sales of $636 million, an increase of 3% from $617 million reported in 2014.

Siding segment reported operating income of $93 million compared to $80 million and adjusted EBITDA of $114 million as compared to $98 million in 2014. The estimated impact of the additional cost incurred at the Swan Valley facility for the full year was approximately $11 million.

Now, please turn to slide seven of the presentation, which shows the results of our Engineered Wood Products. This segment includes I-Joist, Laminated Strand Lumber, Laminated Veneer Lumber, OSB produced at our Houlton, Maine facility plus 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 Products segment recorded sales of $75 million in the fourth quarter of 2015 up from $66 million in the fourth quarter of 2014.

The segment's results were break even in the fourth quarter of 2015 as compared to a loss of $6 million in the fourth quarter of 2014. For the fourth quarter of 2015, adjusted EBITDA from continuing operations improved to $3 million as compared to negative $4 million in the fourth quarter of 2014.

The best quarter in EWP since the third quarter of 2014. Volumes of I-Joist were up 21% while volumes of LVL and LSL were up 29% compared to the same quarter last year. Pricing was lower by 1% in LVL and LSL and higher by 5%, I'm sorry higher by 4% in I-Joist.

During the quarter and the full year of 2015, we changed the mix of OSB products at our Houlton operations manufacturing more value-added OSB and less commodity products. The impact of this change resulted in improving operating results of $800,000 in the quarter and $3.5 million for the full year.

For the year, sales were $286 million, up from $281 million in 2014. The segment's operating loss in 2015 was $7 million as compared to $14 million in the same period of 2014. Adjusted EBITDA improved to $6 million for 2015 from breakeven in 2014.

Moving onto slide eight of the presentation; for the quarter, our South American segment reported sales of $34 million as compared to $36 million in the fourth quarter of 2014. Operating income was $3 million and adjusted EBITDA was $5 million for the fourth quarter of 2015, essentially flat with the fourth quarter of 2014.

Volumes in Chile were up 9% and up 15% in Brazil compared to the same quarter last year. The sales volume increase in Chile was due to improved housing demand and the increase in Brazil was due to increased exports. Brazil continues to be in an economic recession with continued political upheaval. Pricing was down 12% in Chile and down 23% in Brazil.

In local currency, Chile's pricing was up 3% with the same quarter in 2014 and Brazil's pricing was up 13% primarily due to the impact of higher exports. For the year, our South American segment recorded sales of $135 million as compared to $150 million in 2014. Operating income was $10 million for 2015 compared to $11 million in 2014.

And adjusted EBITDA declined to $18 million from $20 million in the same period of 2014. Total selling, general and administrative expenses were $38 million in the fourth quarter of 2015 compared to $41 million in the same quarter of 2014.

For the quarter, the decrease in selling, general, and administrative expenses is primarily due to the lower compensation expense. For the year, our selling, general, and administrative expenses are higher at $153 million as compared to $150 million for 2014, primarily due to higher sales and marketing expenses.

Please refer to slide nine of the presentation. As of December 31, 2015, we had cash, cash equivalents, investments in restricted cash of $455 million, working capital of $626 million, net cash of $88 million and in addition to the $455 million of cash on our balance sheet, we have $200 million of availability on our credit facility.

Capital expenditures for 2015 were $114 million. We are planning on spending between $120 million and $135 million in capital expenditures for 2016. Approximately $100 million has been allocated to North American projects, 50% for growth and the remaining for capital maintenance and cost reduction projects.

The remaining $35 million has been allocated to our South American segment, primarily for the building of the third mill in Chile and we anticipate that the South American capital expenditures will be funded by cash on hand in Chile as well as local bank financing. Now, I'll turn the call over to Curt for his comments..

Thanks for that review, Sallie. Good morning to all of you, and thanks for joining us on the call. Let me start with LP's safety performance. For the full-year, our total incident rate for recordable injuries or TIR was 0.47, which is the 10th year in a row that LP was below 1.0.

Another impressive statistic that demonstrates LP's commitment to safety is that, for the second year in a row, the contractors that we in use our capital projects went injury free, a remarkable accomplishment.

As I typically do on these calls, I'll provide a few comments on our results and accomplishments in the fourth quarter and year, discuss the housing market, and give you my views for 2016. After that I will turn it back over to Sallie to take your questions. As Sallie just reported, all of our segments recorded positive EBITDA in the fourth quarter.

For the full year, our EBITDA improved by over 50%, despite a $62 million negative impact to both sales and EBITDA due to lower OSB prices than the prior year. As Sallie also mentioned, we did benefit from lower raw materials costs and a favorable Canadian exchange rate.

On our OSB business, we reacted to lower sales prices by holding our sales volumes relatively flat with lower production due to the conversion of Swan Valley to siding in the second half of the year. We were able to ship the same amount by bringing down inventory of finished goods across the system.

This means that we entered the first quarter with very lean inventories, which should be beneficial as the building season resumes in a month or so.

We had the most profitable year ever in our Siding business with a 16% increase in EBITDA, despite absorbing about a $10 million cost in the second half of the year associated with the Swan Valley conversion. With Swan operating, we have unleashed our sales force to return us to the growth rates that we've demonstrated in the past.

Engineered Wood, with over $3 million in EBITDA recorded the best quarterly results in many years. For the year, EWP had adjusted EBITDA of almost $6 million, compared to breakeven last year.

In South America, we had another strong year, although reported results reflect a significant weakening of the Chilean peso, about 15% and the Brazilian real over 50% against the U.S. dollar.

Following approval by the various governmental agencies of our environmental permit for our third mill in Chile last October, we did get through the mandatory waiting period. This is good news as we're in a sold out position in Chile, and we are seeing improving economies in Argentina and Colombia.

I am anticipating that our Board will approve this project next summer and the construction will begin shortly thereafter. The news about the housing market continues to be good. However, it has not been as strong as forecasted. U.S. Census Bureau released their data on housing on January 20.

For December, housing starts came in at 1.149 million, while permits were higher at 1.232 million.

Other positive housing-related news includes, while the rate of the household formations fell a bit in the fourth quarter, we did end last year with an average of 1.7 million household formations, which is significantly higher, more than doubled in the last few years. This could mean that the Millennials are finally on the move.

Medium home prices for the year were up 7.6%, and December marked the 46th consecutive month of the year-over-year gains. First-time homebuyers purchased about 30% of the existing homes in 2015 and this was up slightly from last year. The total inventory of housing for sale is 3% lower than a year ago, which is creating some shortages.

On the financing side, average 30-year fixed-rate mortgage rates were at 3.92%, and this is for the week ending January 15. So when we look at the consensus forecast for this year, it currently stands at 1.263 million, which is about a 14% increase over last year. The consensus for 2017 is 1.385 million, which is a further 10% increase.

For LP, we're using a budget assumption of 1.2 million to 1.25 million for 2016. Nonresidential construction, an area that we do participate in, was up 9.3% through the end of November.

The five most important sub-sectors for structural panel demand are commercial, offices, religious, healthcare, and schools, registered an increase of 22% for office building and 5% for healthcare and religious buildings. Finally, sales of building materials and supply dealers were up about 4% in 2015 compared to the prior year.

So our view for 2016, I just returned from the policy advisory board meeting of the Harvard Joint Center for Housing Studies, held in Washington DC earlier this week.

While almost all the participants share the view that 2016 will continue to show that 10% to 12% growth in new housing and a continuation of demand in repair and remodeling, to a person, these CEOs expressed dismay surrounding the current political situation, frustration with financial markets, and increasing concern about the more restrictive regulatory environment.

So with that being said, I do share that as we look back at 2016 post election, I do believe that housing will be one of the few bright spots in the economy. For LP, January order rates were strong for Siding and EWP and a bit muted for OSB as reflected by a slightly declining price during the month.

In the first part of January, we did have our annual sales meeting and also attended the International Builders Show in Las Vegas. At these two events, we had a chance to talk to our field sales folks, builders and channel partners. I'd summarize that the overwhelming sentiment was cautious optimism.

Almost universally there was a feeling the housing and repair and remodel markets in 2016 will be stronger than 2015, but there are some headwinds. Based on the forecast, it does appear that multi-family housing will be a little over 35% of the mix in the U.S. for the next few years.

Additionally with the aging baby boomers and the explosion of the sharing economy like Airbnb, we are increasingly seeing builders of single family units add square footage to accommodate an elderly relative or short-term renter in a separate space.

This has probably showed up in that the average size of single family new construction 2015 was the highest ever. In Canada, we did see a decline in housing starts in the fourth quarter primarily focused on lower multi-family starts in Ontario and a cutback in the prairie provinces associated with oil sands.

In 2015 starts were almost 200,000 units and we forecast this to be lower by about 5%. South America, the outlook continues to be mixed. Brazil is clearly struggling with an untenable political situation and continued economic downturn.

The bright spot for LP's operation in Brazil is that the dramatically lower Brazilian Real has created some export opportunities for us. In Chile, lower copper prices have hurt the economy, but the government continues to take an active role in funding replacement housing that was destroyed by natural disasters, which benefits LP.

Change in government in Argentina and the immediate relaxing of import, export controls should lead to higher volumes into this country and the continued emergence of the Colombian economy also creates export demand for our products in South America.

On retail demand both Home Depot and Lowe's have given forecasts of same-store sales being an upward of 5% range for 2016.

On the longer term, there has been nothing that has happened recently to change my outlook, as I continue to believe that we have several more years of housing growth in front of us, based on the underbuilding during the last decade, population demographics, and the slow rate of recovery so far.

As I've said in the past, the constraining factors to more immediate robust housing, labor at all levels, available lots and access to credit for the first time homebuyer.

Again as I said before, I believe the labor issues faced with the builders will ease either through increased employment or changing construction practices that will reduce the need for labor.

The lot shortage continues to be resolved on multiple – due to factors including regulations, a shortage of manpower in planning departments, and funding for infrastructure. On the financing side, we know there will be no significant changes to Fannie and Freddie until after the 2016 elections.

The Fed interest rate hike in December had very little impact on mortgage rates and based on Fed Chairman's results, or comments yesterday, it looks like, they will be very cautiously consider additional rate hikes.

The other interesting trend that is happening is the traditional depository banks with the exception of Wells Fargo have essentially withdrawn from the FHA mortgage market due to increased reserves, documentation requirements and continued litigation risk from federal and state regulators.

The good news is new entrants like Quicken Loans with their Super Bowl commercial are taking up the slack. As we look at the forecast demand for our products, the challenges faced by builders and the emerging trends, there is much that LP can and is doing to take advantage of these opportunities. Let me give you some concrete examples.

In single-family new construction, we have had very good success in growing the TechShield Radiant Barrier Sheathing brand to address energy requirements in a number of jurisdictions. We expect to continue this push.

In the – the urban interface zones in places like California and Colorado, the requirement for fire retardancy has given lift to our FlameBlock product. This is also true in Pennsylvania and Ohio, where codes have changed related to fire burn through in the floors above unfinished basements. Our newly released FlameBlock I-Joist addresses this need.

In multifamily, these projects also require increased fire retardancy, acoustical performance, and low maintenance durable siding. In January, I was joined by Senator Jeff Sessions of Alabama and other dignitaries at the groundbreaking of a $15 million project to add FlameBlock capability to our existing Clarke County, Alabama mill.

This post processing facility will augment the capacity that we have available through our relationship with International Barrier Technology. Not only does this meet the technical needs defined by the various building codes, it also lowers the labor content, adds structural integrity, and gives the architect more design flexibility.

With our Smart Side siding products including (25:20) a builder of multifamily projects will have both the best looking product available, but also the durability to survive harsh treatment from renters.

And like commercial, our EWP products have long played a role in the segment as the ease-of-use and design flexibility critical to the architect and builder. At the recent International Builders Show, we introduced a substrate panel that can be used to replicate a stucco look with less cost and less labor.

This is important both to light commercial as well as other areas like the Southwest where stucco is a preferred finish. South America we see very good opportunities to expand and grow our business there.

As mentioned earlier we've cleared all the necessary hurdles for our environmental permitting for a third mill in Chile, that will serve the domestic market as well as other countries on the continent. Our plan is to redeploy existing equipment as we've done in the past to limit the capital investment to $55 million to $60 million.

The timing of this construction is likely to be later this year. On the industrial side, we continue to develop products for markets beyond residential construction. In this category we include panels used in furniture manufacturing, various transportation applications and substrates used for decorative panels, cabinetry and the interior panels.

So in conclusion the continued rise in housing activity, more normalized repair and remodeling activity and new uses for our current products is good for our stakeholders as LP is well-positioned to capitalize on this growth. Further, we're committed to innovation to meet our customers' needs for products efficiencies and affordable costs.

With that let me turn it over Sallie for the Q&A..

Great. Well, thank you, Curt. Ashley we're ready to go to questions, if there are any in the queue..

Thank you. Our first question comes from Ketan Mamtora of BMO. Your line is open..

Good morning, Sallie, Curt..

Good morning..

Good morning..

First question on Siding.

Can you provide a little more color on the big drop in volumes both in production and sales?.

Well, as we said in earlier quarters, we were in a sold out position we were on allocation. So, we really didn't have any more product to sell until the Swan Valley facility came online in the October, late October, early November timeframe and we've been ramping up that production.

So, what we have been doing – and comment I made is unleashing the sales force, that is in fact exactly what we did at our International Sales meeting in early January. We have armed our sales force with the tools necessary to get us back on the growth rate from a volume standpoint.

I would hasten to add though if you look at our record results from an EBITDA standpoint, when you're on allocation you do have the opportunity to high grade your customer mix if you will, and that's exactly what our sales force did, is we were able to take the product that we had available and get a higher price for that, that's why you saw the record EBITDA.

So, in 2016, the challenge is to go back to probably some of those customers who we high graded out of it, offer them the opportunity to participate in buying these products going forward and manage the gross margin along with the growth rates..

And I'd add a couple more comments on what Curt said. If you look at the year-over-year results, the volume is down about 2%, which is pretty much what we had said – that we thought the volumes would be pretty much the same.

And so, I think it's coming as they anticipated or as we'd anticipated for the past six or seven months, and then things are looking so far pretty good for the first quarter..

Okay. That's helpful.

And still sticking with Siding, are you seeing any increased competitive behavior especially as your mill ramps up in Siding?.

Well, we have a competitor that has been very aggressive. They don't like the fact that we're more durable than they are. So, they're competing against us with us on price. And that's principally close to where they have their facilities.

Their Texas market has been a market they've been very aggressive and some of the central part of the country, they've been pretty aggressive..

Okay.

And then third question, just on share repurchases, how are you thinking about it, right now given where the share prices and your view of the OSB market over the next 12 months to 18 months?.

Well, I think the best way to answer that is with the statement we made about the $120 million to $135 million that we have in capital that is being reinvested in growth primarily in our Siding business as well as capital maintenance and cost reduction. So that's really where the focus is right now in terms of capital allocation..

Got it.

And then just one last question, what was your operating rate in OSB or in any way if you can quantify the economic downtime in the fourth quarter in OSB?.

Sure. We took about 128 down days, which is the equivalent of just under 200 million square feet..

Got you. Okay. That's very helpful. Good luck in 2016. I will turn it over..

Thank you..

Thank you. Our next question comes from Chip Dillon of Vertical Research. Your line is open..

Yes. Hi, good morning, Curt and Sallie.

First question is, I might have missed this, but what did you all say the total CapEx was for 2016?.

Between $120 million and $135 million..

Okay..

And Chip. Sorry, if I could just give a little more color, because I think it's important. About $100 million is allocated to North America and about $35 million to Chile and we would expect the Chilean capital expenditures to be funded within Chile, either through cash on hand or local bank financing..

Got you.

And there seem to be some – like there's a still a chance you might push that out, just some of the commentary, if I heard that right and sort of when is the go, no go decision point for that project?.

Right. Where we are now now that we've gone through the environmental permitting, and getting the approvals and the necessary waiting period and, frankly, some legal issues that we had to go through. We're in a position now to complete the engineering on that term and the equipment that we take down there.

And as I said in my comments, I anticipate taking that to the – we'll do some preliminary work prior to the summer board meeting, but I anticipate that, taking that to our Board in the summer. And that's why Sallie waffled on the $20 million to $35 million it depends on the timing on when we start that..

Okay.

And then, let's say you do get – you do the maximum this year, what would next year's pipeline look like at this point, knowing that it's early in 2016, but I mean would that number likely come down or are there other projects that you're thinking about, maybe you don't want to tell us that would keep the CapEx at that level?.

We're not going to provide any direct guidance on that, but what I will say is, when we put Swan Valley in place there were some siding projects to maximize our system, and we're doing some of those this year and that will continue into next year.

The other thing – and as you look longer term, this was as Ketan mentioned, we didn't have much growth in Siding this year because we mistimed when the new capacity came online. So we have to be cognizant of that and make sure that we have Siding capacity in front of the demand.

So, you will see in the next probably two years to three years that we will have to do something to add additional Siding capacity, as we believe Swan will only give us about two and a half years of headroom..

I see, I see, and then when you look at the Siding segment, I want to make sure I heard this right, you are saying that within the kind of operating EBIT and EBITDA numbers were $6 million of costs this, for the quarter and $11 million for the year that shouldn't repeat in 2016, did I hear that right?.

You did. Yes..

Hey, got you, got you, okay. Well, that's great, thank you..

Thank you. Our next question comes from Mark Connelly of CLSA. Your line is open..

Thanks.

Curt, when you think about housing recovery longer term and the Millennials that you mentioned, we clearly seem to be seeing more of strength in multi-family, are you thinking about the long-term rate of demand differently than you were, maybe three years or four years ago?.

Again I was just at the Harvard meeting and you can poo poo him but Mark Zandi talked to Moody's and his comment is demographics is destiny, and he just said with the number of Millennials coming forward and the need for housing, whether it's single family or multi-family, we're going to have to pick up the pace.

And I think that was the common theme among the participants. What I believe is that we are probably fully recovered in the multi-family and you should see about that same level of construction going forward. But I think single family is going to see more growth.

Interesting statistic that they presented at the meeting is that the percentage of Millennials who want to own a home hasn't changed, it's 92%, 8% said they are happy renting for the rest of their life, 92% said they want to own a home. That's pretty compelling and that's very consistent with other surveys that have been done.

What's stopping them today, is that the job – we've had the job growth but we haven't had the wage growth and then the financing for first time homebuyers has become much more difficult..

All right. Okay, that's helpful. One more question, we're used to seeing more of a lag in OSB prices as they move up than as they move down.

So how much of the improvements that you saw on realizations would you say was coming from the Q3 pickup versus the Q4 and if we saw OSB more or less hang out would you expect to see a meaningful increase from here in Q1?.

The way I would answer that is that FEA, Forest Economic Advisors who we use to look at pricing, they have 2016 pricing about 16% higher than 2015. And what we saw in January is we saw a slight pricing downturn in OSB that kind of continued in the first two weeks of February and it's stabilized the last week or so.

So I mean I can't really give you much more of a forecast than that, I have missed the OSB forecast the last 9 or last 10 years..

So that puts you on a par with everybody else, so. Thank you very much..

Thanks, Mark..

Thank you. Our next question comes from George Staphos of Bank of America. Your line is open..

Hey good morning, guys. This is actually John Babcock on the line for George. Just a couple of quick questions here. First on the OSB segment, I was wondering if you could discuss the non-price drivers of EBITDA.

It looks like you got about an $18 million contribution from price, but just want to get a sense for what else might have helped you there?.

Well, the raw materials, I mean the two key ones are lower raw material cost year-over-year and the exchange rate, the Canadian, U.S dollar exchange rate..

Okay.

So that was really all – there wasn't much as far as efficiency improvement or any of that really involved in there?.

No. The downtime in the fourth quarter of 2015 was a lot greater than the fourth quarter of...no, no it's about the same..

Downtime was about the same..

Downtime was about the same yeah..

We did reduce inventories in the fourth quarter..

Right..

Okay. Sounds good.

And then the next question I had, we've noticed in industry trade publications and comments coming from the builders that there are new entrants in siding coming from the plastics market, and I just want to get a sense for whether you've seeing any impact from these competitors and if so, if what your plans are as far as maintaining that growing market share going forward?.

Well, I'm not aware of any plastic siding. There is – obviously there is vinyl siding, which has benefited from lower resin costs with oil-based materials coming down. I'm not aware of any new competitors from plastic. I mean, Boise had a product many years ago that they tried to bring to the market, but I'm not aware of any.

So, maybe you can send me some information on that – I'll follow up..

Okay. All right well it sounds good. So it sounds like the impact at this point has been mild been little (39:10) then.

And then the last thing I was just wondering if you could discuss distributor inventories, in any sort of way you could quantify or validate, I know your comments on dealer inventory has been allowed (39:19), it would be helpful?.

Well, I think – again we had our sales meeting in the first week in January and really conversations with our field sales force and the guys or the team that manages the big builder and the big distributor, they all had comments that inventories were being held relatively lean. And I think that probably was a reaction to last year.

So if you remember last year, people built up inventories, we shipped a lot of product in the first quarter and then we had the terrible weather and didn't flush through the system until May or June. And I think they're relatively cautious as a result of that..

Okay. All right. Well, that's all I have for now. Thanks..

Okay. Before we go onto the next question, I do want to mention back on the OSB that we are seeing improved performance from our Peace Valley and Clarke County and that did drive along with the improvement in raw materials and the Canadian/US dollar relationship. That did also drive the improved performance in the OSB..

Thank you. Our next question comes from Bill Hoffmann of RBC Capital Markets. Your line is open..

Yeah. Thanks, and good morning..

Good morning..

Curt, can you talk a little about how Swan is running right now and sort of what kind of operating rates, is there any sort of startup problems or anything like that?.

What we assumed is that we would – in November, December that we would basically be working out the kinks and running that really A grade probably in the 20% range, but then downgrade, we'd sell out of that though in the fourth quarter. That's pretty much the way it played out.

In the first quarter, we had planned for 50% capacity and I think we ran a little over 60% in January. In the second quarter, we assume 75% of capacity and then by summer, we'd be running right at capacity..

And so, what do you think from a – from a salable product, what kind of volumes do you think you can get out of there incrementally this year?.

Well, if the overall capacity because we have to downgrade from OSB because we can't run it as fast as of probably a 350 million square foot mill. So, if we say we're going to run full the second half that would be 175 million then – so, we're probably talking about 225 million kind of numbers..

Okay.

And just as far as the market demand for that – it sounds to me like, you feel like, you can fill that void reasonably quickly, or at least you said like 2.5 years kind of things, so?.

Yeah. Generally, we would expect to be somewhere in the 100 million to 140 million, increase in volume on an annual basis..

Okay..

Now you do remember Bill that what we will do is we will move Siding volume out of Hayward and run OSB there. So, while that won't be reported in the OSB segment. We will run probably 225 million feet of OSB in Hayward..

Okay. That's helpful. And then the CanExel business, just given some of the softness there, how is that affecting operating rates in those plants and....

Well CanExel is a – it's a single plant, and it's a....

Right..

... and it's a finished product. So, we sell it as already painted..

Right..

The decline in CanExel really, we had an issue in Europe with two of our colors, that we had – we actually had a legal dispute with a paint vendor on that, but that aside, we stopped selling those products in Europe about a year ago.

And we've introduced new colors into Europe, but it's taken awhile for those to take hold, so the primary reduction hasn't been in Canada. It's been in the European business that we were, that was satisfying on that facility..

Okay.

Thanks and then finally just, your drive towards pushing more into the industrials market, what is your mix today and what is the outlook for 2016 industrial side?.

I don't have the industrial numbers in front of me, but what we did, what we do track is how much of our OSB is value-added and last year in 2014, it was about 40%, and we increased that by about 4% to 44% in 2015. So we did make progress there. That was largely, it was FlameBlock, it was TechShield Radiant Barrier and our flooring products..

Any thought for 2016, similar growth rates?.

Well, we're hoping, what my objective is to get that over 50%, but I don't think we're going to do it this year, it will be multiple steps..

Great. Thank you..

Thank you. Our next question comes from Mark Weintraub of Buckingham Research. Your line is open..

Thank you. Couple kind of follow-ons.

Just first of all on that last comment on the TechShield and FlameBlock, is the pricing for that product less volatile than it is for the commodity grades, kind of any rule of thumb you can give us there?.

Yes, on FlameBlock it is not tied random links, we do a quarterly pricing. So, obviously we have to take random links into consideration, but it's a quarterly pricing, not subject to weekly adjustments. On TechShield and our flooring products those are largely an adder, so they're still tied to random links.

And what we're trying to do is move some of the higher end point products away from random links but we haven't done that yet. On the industrial products, they are priced generally on a quarterly basis..

And order of magnitude FlameBlock and industrial products would be what percentage of the total?.

Well, FlameBlock is just in its infancy now. We probably had a 40% increase last year but on a very small base. We expect with the new plant we're putting in place we're adding about 30 million square feet of capacity and there's about 20 million at our partners right now. So, when that's fully running that will be about 50 million square feet..

Okay.

And do you have the industrial products offhand roughly?.

I think the industrial I guess is probably around 100 million to 120 million feet..

Sounds about right..

Okay, great. And on the Siding business, obviously we're going to have the benefit of not having Swan Valley, so that's kind of an 11 million positive kicker.

Presumably, we're going to have better volume and it sounded like though that on the pricing side you could see that third quarter to fourth quarter first of all is down a little bit and that January comment you said about things being strong.

Can you give us a sense as to what was happening on the pricing in January and some realistic expectations maybe for 2016?.

In 2015, we put a price increase in place that took effect in January 1. We have not put a price increase in place for this year yet. And I'm not sure we will because we're trying to recover that or get back to the growth rates that we've enjoyed in the past.

So I think that you probably won't see any major change in the price because the mix will get better but I don't think we're going to put any price increases in. What you will see is that we will probably go back to some of the customers that as I mentioned that were high graded out and get back into their good graces and start selling..

Okay..

One of the reasons, we can do that is Swan Valley, it will be the lowest cost plant in our system, so it does give us a little bit of flexibility to maintain margins while giving a little on the price..

Right, and presumably you're going to certainly want to be generating incremental profit on that volume, so is it fair to say that you will be disappointed if you don't see at least $10 million of improvement in siding 2016 versus 2015, just at Swan Valley reversal?.

I would be very disappointed..

Okay..

That's very fair..

And....

I just put pressure on our General Manager by the way..

Thanks, Curt..

And then lastly, so with exchange rates where they are, there is a lot of talk out there that the Canadian mills are very, very profitable, much more so than the U.S. mills, when you look into your system, how are things shaking out Canada versus the U.S.

right now in OSB?.

Yeah, in OSB, the problem is that all of our customers know that the Canadian exchange rate is down, and so if you look at the primary benchmarks for product from Canada coming into the U.S. which will be the Western Canadian print and the Eastern Canadian print, they are by far and away the lowest performers across the region.

So unfortunately we haven't been able to capture all that because they're giving some of that pricing, we're giving it back in pricing in the random links reported numbers. I think currently between North Central and Western Canada, we have a $40 differential, so that more than makes up. So that's the problem..

Got it. So actually the Canadian mills are not more profitable per se than the U.S.

mills at this point given those price differences, is that fair?.

Well if they're selling into those regional pricing environments then they would not be more profitable. Now, if they can – if they're closer to like the North Central market, then they could be..

Okay. Okay. Thanks very much..

Thank you. Our next question comes from Steve Chercover of D. A. Davidson. Your line is open..

Thanks. Good morning.

Can you hear me?.

Hang on..

You're okay..

We won't cut you off. Today..

Well I'm on a cell phone so you just never know.

So Q4 certainly demonstrates that price is more important than volume and I think that Swan Valley conversion was part of that and I recognize you've got some other good things going on, but you think this industry can get religion on capacity management?.

Well I can only talk about LP, Steve and you saw the amount of downtime that we took, we did pull inventories down throughout the year. We just think that if we were more real time with the market and not have an inventory overhang that makes a lot of sense. So we are running our mills to respond to the demand that we have..

Perfect. If everyone does the same thing then we should be in a better shape.

And then switching gear to Siding, the new facility I take it that the switch at Hayward back to some commodity OSB is going to limit the chance that you will saturate the Siding market and hurt pricing?.

No that's not the dynamic, the dynamic is that we want to run Swan full on Siding, but we don't have demand yet for 100% of the Siding capacity we have. So, we'll use that swing capability at Hayward to run OSB in the North Central region..

Okay. And then, but you could be theoretically sold out within three years or so..

Yeah. Yes..

So what other mothballed mills do you have beyond Chambord that could be, I guess taken to Siding?.

Well, we have other equipment throughout the system and I don't want to be too specific because our competitors are listening here, but we have under – the fellow who heads up all of our procurement and logistics in forestry.

He's got a team put together to look exactly at that at sites that make logistical sense, that make sense from a personnel standpoint and to look at equipment that we could redeploy most cost effectively. So, that was my comment about – when you think about future capital. We do have to think where the next mill goes to support the siding growth..

And when we think of the equipment that you have in storage, and I mean that's everything from waferizers to a press presumably?.

Yes..

Okay.

And then you've done a great job teaching Chile and Brazil to build with OSB, when are you going to teach them to cover the frame with SmartSide siding?.

Actually in Chile, we already make siding down there. And actually the third mill that we want to put in Chile, we will put on the same site we already share and that smaller mill will likely go to a 100% SmartSide with the new mill being OSB. That is exactly our plan.

We are struggling to figure out how to do that in Brazil with a continuous press and we haven't figured that one out yet..

Okay, so the results that we get from South America is not just OSB but also siding it is comingled..

Correct..

Great. Okay. Thank you, both..

Okay..

Thank you..

Thank you. And our final question will come from Paul Quinn of RBC Capital Markets. Your line is open..

Yeah, thanks. Good morning, Curt and Sallie. Just a couple of questions. One, you've shown good growth in Siding and also in South America. I just wondering what the growth plans are for OSB in North America given the sort of bullish comments that U.S.

housing is still recovering?.

Well, we still have, as Sallie just told you, we had 128 down days in the fourth quarter. So we'd like to get rid of those first and then the further growth is we still have the Chambord mill that is indefinitely curtailed..

Looking at any options above that and is there any change in the status at Chambord?.

No change in status, as near as we can tell nobody bid for the wood.

So we still have a very good chance of getting that back, should we want to start it up, but with 128 down days in the quarter, I'd much rather fill that out and as Sallie said we've made a very good progress at Peace Valley and Clarke County getting them up to their rated capacities..

Okay and then just shifting on lastly to the EWP section, if I understood Sallie's comments right, Holden added 3.5 million (54:50), so EBITDA really on that segment in 2015 is really that 58 minus the 3523 (55:06)?.

For, yes for the OSB piece..

Right..

Yes..

Okay. And then any idea about the operating rate was for EWP in 2015..

For the industry, I'm guessing we were at 60%..

That's fine..

And you guys weren't much different from the industry?.

We weren't much different than the industry. We do have a little bit of an export business so that offset a little bit, but we are probably right there with the rest of the industry. In fact Sallie and I just looked at some numbers yesterday and our growth in I-Joist was a little bit better than the industry.

Our growth in LVL was a little bit less and then LSL was above. But fundamentally, we grew where the industry grew..

Thanks. That's all I had..

Thanks, Paul..

Thanks, Paul..

Actually, I think that's all the time we have for questions. So if you could please provide the replay number..

And I'd like to thank everybody for participating in our call. And Mike and Becky are here to answer any follow-up questions you may have. So, thank you very much and have a great day..

Thanks..

Ladies and gentlemen, this call will be available for replay, February 11, 2016 starting at 2 PM Eastern, ending February 18, 2016 at 11:59 PM. The replay phone numbers are 800-585-8367, also 855-859-2056 and 404-537-3406. The replay code is the conference ID number, which is 26143516.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may now disconnect. Everyone, have a wonderful day..