Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Louisiana-Pacific Corporation (NYSE:LPX)

Q1 2010 Earnings Call Transcript

May 10, 2010 11:00 am ET

Executives

Curtis Stevens – EVP, Administration and CFO

Richard Frost – CEO

Analysts

Gail Glazerman – UBS

Mark Weintraub – Buckingham Research

Peter Ruschmeier – Barclays Capital

Paul Quinn – RBC Capital Markets

Chip Dillon – Credit Suisse

Operator

Good day ladies and gentlemen, and welcome to the Louisiana-Pacific Corporation first quarter 2010 earnings conference call. My name is have [ph], and I will be your operator for today. (Operator instructions)

At this time, I would now like to turn the call over to Mr. Curt Stevens, Executive Vice President of Administration and Chief Financial Officer. Please proceed.

Curtis Stevens

Thank you very much, and thanks all of you for joining us on this conference call to discuss our results for the first quarter of 2010. As the operator said, I am Curt Stevens, the Chief Financial Officer, and with me today are Rick Frost, LP’s CEO; as well as Mike Kenny and Becky Barkley, our primary investor relations contacts.

I will begin the discussion with a review of the financial results for the first quarter of 2010, and I will follow this with comments on some of our individual segments, and selected balance sheet items. Rick will then take over give you the weather report for Nashville and then discuss the general market environment in which LP has been operating, his perspective on our most recent operating results and his thoughts on the outlook for the remainder of 2010.

As we have done in the past, we have opened up this call to the public and are doing a web cast. This can be accessed at our website www.lpcorp.com. Additionally, to help with the discussion we have provided a presentation with supplemental information that should be reviewed in conjunction with the earnings release. I will be referencing these slides in my comments. We did file an 8-K this morning with some supplemental information, and we just filed our Form 10-Q for the quarter.

First thing on these slides, I like to remind all participants about the forward-looking statement comment that is included 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 has some of the necessary reconciliations and those have been supplemented by the Form 8-K we filed this morning. I am not going to reread these statements, but I am going to incorporate it with these references.

Slide 4 of the presentation is a discussion of our Q1 2010 results compared to the same quarter of last year and the prior quarter. We are reporting today a net loss for the fourth quarter of $23 million or $0.18 per diluted share. Our net sales from continuing operations were $300 million for the quarter. For the same period last year we reported a net loss of $30 million or $0.29 per diluted share, and sales from continuing operations of $206 million.

Adjusted EBITDA from continuing operations was a positive $3 million in the quarter compared to a loss of $25 million in the first quarter of 2009. There was some movement in the tax rate on continuing operations between the quarters. The effective tax benefit rate in Q1 was 31%. This is primarily the result of the blended rate between jurisdictions with profits in foreign subsidiaries, tax at lower rates and losses in North America in operations.

Q1 of 2009, the tax benefit rate was 39%, basically it is the statutory rate. Had the tax benefit rate in Q1 been the same as last year, net earnings per share would have been improved by about $0.03 a share.

Now let me discuss performance of each of our segments. Slide five of the presentation is a summary of OSB. OSB had an operating loss of $5 million in the quarter compared to $24 million operating loss in Q1 2009. For the quarter, we had a 34% increase in volume, and an average sales price that was 26% higher than the same quarter last year. This resulted in a $24 million improvement in earnings and adjusted EBITDA.

The strengthening of the Canadian dollar, which increases our costs more than revenue due to sales being in the US, hurt our earnings in this segment by about $5 million compared to Q1 of last year. Adjusted EBITDA from continuing operations in the OSB segment for the quarter was a positive $4 million compared to a loss of $17 million in Q1 of last year. Compared to Q4 of 2009, volumes were lower by 14%, while pricing increased by 22%. Volumes in Q1 were constrained by the availability of logs in the US South due to extremely wet weather conditions that occurred during the quarter.

Slide 6 of the presentation is our siding segment, which includes our SmartSide and Canexel siding products and commodity OSB produced in our Hayward mill. For the first quarter siding had operating income of $9 million, significantly better than the $2 million reported in the same quarter last year. Adjusted EBITDA from continuing operations in the siding segment was $14 million compared to $7 million in Q1 of 2009. For the quarter sales were up 20% and unit volumes were better by 29% in SmartSide and down by about 15% in Canexel compared to the same quarter last year.

Reductions in volumes for our Canexel product line was caused by a decision to not to run one of the production lines for working on process improvements. This has limited our available products and customers on allocation for Canexel.

For the quarter SmartSide average sales prices were up slightly due to product mix with individual product prices remaining relatively flat. Canexel prices show a pretty significant increase at 24%, but this is largely due to this product being sold in Canada and the strengthening of the Canadian dollar increased the US equivalent sales price.

Slide 7 of the presentation is our engineered wood, which includes I-Joist, Laminated Strand Lumber, produced at our main facility, and Laminated Veneer Lumber plus other related products. This segment does include the sale of I-Joists and LVL products produced by the Abitibi JV or under a sales arrangement with Murphy Plywood. For Q4 EWP recorded a loss of $7 million compared to a loss of $9 million in Q1 of last year. Adjusted EBITDA from continuing operations in the EWP segment was a negative $3 million, about half of what we recorded in Q1 of 2009 and Q4 of 2009.

Volumes of I-Joist were up significantly, 88%, while LVL and LSL were up 45% compared to the same quarter last year. The increases were tied to the increase in housing, as well as during the quarter we did see significant inventory building in the channel after dramatic reductions in 2009.

Pricing was down slightly in I-Joist, but up about 4% in LVL and LSL. Another building product in this category includes our interior molding business, our South American operations and the US GreenFiber joint-venture and some non-operating facilities. Overall, we were slightly positive in the first quarter of 2010 as compared to income of $1.6 million in the first quarter of last year.

For the quarter, sales for these operations were $41 million, up 45% from the $28 million recorded in Q1 of last year. Some other items, we did have a small foreign exchange gain in the quarter compared to $2.6 million gain in the same quarter of last year. Investment income in the quarter was about flat between periods, with returns down significantly, but cash balances were higher.

Interest expense was nearly $17 million in the quarter compared to $13 million in Q1 of 2009. This is primarily due to the higher cost of refinancing that we completed late in Q1 of 2009.

Slide 8 of the presentation shows some balance sheet items. Cash and cash equivalents and investments and restricted cash were $414 million the end of the quarter, working capital about $520 million.

We had net cash over debt of $136 million and capital expenditures were a relatively modest $4 million in the quarter. Book value per ending share was $9.73. I do want to mention as I did in our earnings call at the end of February that we did have a balance sheet (inaudible) that occurred in Q1, and was reflected retrospectively for prior periods. This was due to a change in accounting standard.

We added back our previously qualified special-purpose entity, an entity called LP Pinewood [ph] that was off balance sheet and now it is back on the balance sheet. This entity was put in place in 2003 to defer the income taxes paid on the sale of LP Southern Timberland. By adding this back, we increased our assets by $368 million, increased our liabilities by a like amount, and reduced equity by about $1 million.

The overall transaction has been disclosed since the inception in our footnotes, but is now included in the balance sheet. This is to note the associated debt has little or no recourse to LP, as it is backed by a letter of credit, which is subsequently backed by cash.

A few other comments, before I give it to Rick, our federal tax refund as we discussed in the last call, we did do a rapid filing of our 2009 federal income tax return, and received a refund of about $47 million during the quarter. The balance sheet shows the remaining income tax receivables of about $6 million, and that will come back to LP over the next year or so.

On the auction rate securities, based on valuations received from third parties, we did increase the value of this portfolio by $10 million in the quarter, and as you know we're continuing to pursue the litigation filed against the principal issuers of these instruments. With that let me turn it over to Rick.

Richard Frost

Good morning everyone. It is drizzling here in Nashville, but we're drying out after a week of sunshine last week. I am sure that you did see in the news that we had severe weather and a lot of rain in the middle of Tennessee area last week, and we had flooding of I guess, unprecedented nature. It was the worst flooding in history. I'm happy to report and relieved to report that we were fortunate that no LP employees suffered significant flood damage, but the town will take some time to recover.

I want to begin my brief prepared remarks this morning by adding a little bit of color to Q1 but not be redundant to what Curt has already said. On the safety front, we got off to a great start in the year, with only two recordable injuries across our system in Q1 and a TIR of 0.23. The other most significant event was that our Carthage OSB mill became the first OSB mill in history in North America to exceed 1 million incident free work hours.

Overall, financially we did eke out our first positive adjusted EBITDA Q1 since 2006, which felt good. The housing market ended the quarter with seasonally adjusted single family starts of about 530,000. Each of our three core businesses did improve financially from Q1 of 09, which was granted a pretty low hurdle to jump over, but they also improved over Q4 of 2009 as well.

I will make a few comments on each of our reporting segments for Q1. OSB did surprise us in Q1. Our customers’ needs were more robust than we had anticipated going into the quarter. Random lengths price [ph] across the six different sales regions moved upward $60 to $65 on a 7/16 inch basis during the quarter. Because of the lag effect, which is the time between order and delivery, we weren’t able to capture all of that move, but what we did capture helped us considerably.

Our Huntsville OSB Alabama mill was down 42 days in Q1 for log outages resulting from weather that was adverse to logging. Our TechShield radiant barrier OSB roof sheathing was 50% over Q1 ’09, and our TopNotch Sub-Flooring was up 24% from the same quarter last year.

We had two months that were indefinitely shut during the quarter, strand board [ph] and Clarke County, and the rest of our miles ran on various shifting schedules.

In siding, our SmartSide volume was up about 20% over Q1 2009 with slightly stronger sales price due to mix, and we think that bodes well for us for the rest of the year. As Curt mentioned, our Canexel fine fiber product reminds on allocation as we work to get our production scheduling back in balance.

In engineered wood products, the segment which is most heavily tied to new residential construction, we improved, which means we lost less money. At these volume levels this is still a distressed business segment. Plaguing this business at the present or the lack of starts and component raw material prices, which are outstripping finished product pricing. As you know, I-Joist is made from OSB webstock and flange lumber, and LVL is made from peeled veneer. All three of these core components have increased substantially in price, more so than finished product pricing.

In Chile, which I had an opportunity to visit in the first quarter, the earthquake affected our Lataro mill adversely with about a 17 day outage, but at present both of our Chilean mills are running full to feed the reconstruction effort that is needed there.

I will spend a few moments looking forward in terms of what we see coming at us and then we will open it up to questions. Obviously, the recent run-up in OSB pricing is going to positively affect the financial performance of our OSB business and LP overall in Q2. It has certainly been unexpected, but even at these demand and takeaway levels it is very significant to us.

But the housing market has experienced a welcome bump if you will. However, from what I read it is unlikely that substantial recovery towards the base underlying housing demand will be significant in 2010. I just reviewed a recent composite of the 2010 start forecast put together by APA, and that still does not break the 700,000 start level for 2010, although (inaudible) is still the outlier on this, having end of the year start level at about 850,000.

A couple of questions for us are yet unanswered. First, how much of the current housing activity is pulled forward cost by tax incentives, and the second is the channel building a little bit more of a position for the summer. Meanwhile, we're still looking at four large problems in the eye, the four that we have been looking at for a year now. The first is high unemployment, which last week came in at 9.9%; continued foreclosures; the excess for sale inventory of existing homes; and in general slower household formation. And because of these elements, we are still being quite cautious in our optimism around this recovery.

That said, I will turn it back over to Curt for the question period.

Curtis Stevens

Thanks Rick. Oneika, if you could poll for questions.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from the line of Gail Glazerman with UBS. Please proceed.

Gail Glazerman – UBS

Hi, good morning.

Richard Frost

Good morning.

Gail Glazerman – UBS

Rick, can you give us may be a little bit more thought on let us say what drove the surprising freight performance in the first quarter, and how you see that playing out?

Richard Frost

Well, we had anticipated as we put our production scheduling together, a pretty lackluster first quarter, and demand came out as a little bit heavier than what we thought. We were only able to meet that demand as we had put production on. And when demand is a little bit higher, then the ability to supply it – on a traded commodity it moves it forward.

And so, I think one of the analysts wrote about it as demandless recovery. It wasn't huge, it wasn't demand that we felt back several years ago. But it was a little bit more than we could supply. That allowed our traders the opportunity to ask more for the product out in future weeks.

Gail Glazerman – UBS

Okay. And I guess there was a specific comment about I-Joist’s inventory being build up, is that something may be that happened in any of your other product areas?

Richard Frost

We built a little bit of inventory in Q1 in OSB, not particularly significant because we don't have the capability to build a lot. But I think we built about 20 million, 25 million feet of inventory in OSB. I think Curt’s reference to I-Joist was that the channel seemed to be replenishing their inventories after dragging them down so severely at the end of Q1 – at the end of the fourth quarter.

Gail Glazerman – UBS

Yes, I'm sorry that is what I was asking, I mean do you have sense of I guess where inventory channels for OSB (inaudible)?

Richard Frost

My sense right now, and we don't – we are kind of in the middle of trying to guess at this, but we are wondering whether the channel is taking a little bit more of a position right now than what they were able to do earlier. But I can’t tell you that emphatically. It is certainly something that I am watching.

Gail Glazerman – UBS

Okay. And what was your operating rate in the quarter in OSBs?

Richard Frost

Well, I will answer that with a caveat, I have come up with a new term that I call effective capacity, which basically means that taking the mills that are currently running and coming up with an operating rate of that, rather than of all the capacity that could be running. And our effective operating rate last quarter was around 60%.

Gail Glazerman – UBS

Okay. And it is the two lines that are down?

Richard Frost

This leaves the mills that have been indefinitely curtailed.

Gail Glazerman – UBS

No, no, I know, but it is just Chambord [ph] and Clarke County that were down right, at this point that aren’t included in that base?

Richard Frost

Yes.

Gail Glazerman – UBS

Okay. And just in what sense would that, you know, the weather generally drying out, except maybe not too much by Nashville. Just that you will be able to ramp that up a little than the second quarter?

Richard Frost

Well, we will have to see whether we get the orders for that. At this point in time, I just don't know. Right now, we seem to be relatively stable.

Gail Glazerman – UBS

Okay, and just last question, Curt, can you give any sort of update on asset sales, I know there was something small in the quarter, but is there anything else pending that we should be looking at yourself holding at decent amounts for sale?

Curtis Stevens

Right. I continue to look at that as well Gail. Financing continues to get an our way. We haven't had any of the buyers, the potential buyers as the two biggest assets fall out. But it has been slow and gathering the cash. The asset sale we saw was a relatively small one. But we're still anticipating it is going to come in in the next quarter, but I said that last quarter too. You need to take that with a grain of salt.

Gail Glazerman – UBS

Okay. Thank you.

Operator

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

Mark Weintraub – Buckingham Research

Thank you. I was hoping that you could just walk through in a little bit more detail, how your prices lagged what we see in random lengths and how that could play out at least through the first part of the second quarter, that part which is already visible?

Richard Frost

Yes, Mark, I will take a shot at that and if I miss something, Curt can fill in the holes. If you look at Q1, you know, you guys get various amounts of information, but I will refer to random lengths print, the year North Central began on a 7/16 basis at 182, and I think the quarter ended North Central’s 7/16 at 248. There are six different sales regions and prices during the quarter varied between $10 and $15 up or down from each other in those sales regions.

In the first quarter, the North Central was higher than all the other regions except for Western Canada. So our weighted average of sales may not equal the central pricing that some people seem to pick and look at obsessively. There is also a lag on pricing for open market wood. The way this works is that as order files extend, and order taken in one week may not actually be delivered for four weeks.

So in a climbing pricing environment, this creates a lag in terms of getting what may print on a Friday, it may take you however long way your order file is out to capture that particular price. So if the market moves very, very quickly you stay behind it. There was another influence that we had in terms of looking at that and that is that our value-added products tend to lag the market as well, because the pricing these products changes less rapidly.

We did have a high component of value-added in Q1 with TechShield and TopNotch, and then finally, I think the other thing that influences price, particularly as price becomes higher is that there are discounts on contracted wood on a percentage basis. So, at a higher number those percentages are higher dollars. So that is what happens when the market moves very, very rapidly in the up direction.

Mark Weintraub – Buckingham Research

Great. Just a couple of follow-ups on that, can you give us a sense as to what percent of your wood is open market versus contracted?

Richard Frost

That is not a number that we have put out. I don't think I would want to let that go competitively.

Mark Weintraub – Buckingham Research

Okay. Have you put out what percentage would be value-added with that?

Richard Frost

Yes, in our first quarter I think we had about 30% of our mix was value-added.

Mark Weintraub – Buckingham Research

Okay, and then can you give us a sense of to how your order files progressed during the quarter and where they are now?

Richard Frost

I haven't given that number out competitively either. I apologize for that, but it is just not within our best interest to do that.

Mark Weintraub – Buckingham Research

Understood. And lastly, I don't know if there is any help you can provide in terms of given – perhaps if you could tell us where your average pricing in April was relative to your first quarter, try and give us a sense as to what the impact of the lag in the second quarter that is already visible might be.

Richard Frost

I think I'm going to be general there as well, but obviously you saw the rapid escalation in April, and as time gets further from that the more of that we would capture.

Mark Weintraub – Buckingham Research

Okay. Thank you.

Richard Frost

I'm sorry to be so vague.

Mark Weintraub – Buckingham Research

I understand.

Richard Frost

Sure you understand.

Operator

Your next question comes from the line of Peter Ruschmeier with Barclays Capital. Please proceed.

Peter Ruschmeier – Barclays Capital

Thank you and good morning.

Richard Frost

Good morning Pete.

Peter Ruschmeier – Barclays Capital

I had a question similar to the question on the order backlogs and how it affects the OSB price, can you help us understand your raw material pulpwood costs, and whether we have seen the full effect of the higher pulpwood costs, and whether there is more of that in front of us?

Richard Frost

Actually in Q1, if we take the volumes that we purchased in Q1 of 2010 and applied the pricing from last year to that, actually we are slightly positive in wood cost. You know, the problem we had in Q1 was getting the wood. There wasn't any wood available, and that is why we had the downtime in the southern mills. But in general, because we operate both in, as you know in Canada and the US, and in the Lake States [ph]. We do a lot of logging during the winter in the north, and that wasn’t affected by the weather at all. So our costs were actually down a little bit.

And as I look forward, I think they are going to be relatively flat, maybe up a little bit in Q2, but not a lot.

Peter Ruschmeier – Barclays Capital

Okay. And how are you doing at Huntsville [ph] in terms of fiber, are we close to getting that fiber back up.

Richard Frost

Well, it is still wet down there. We would expect to run Huntsville lot more than we did in Q1.

Peter Ruschmeier – Barclays Capital

Okay. Rick, I don't know if you care to comment on Chile and Brazil, maybe you can touch on the earthquakes and what it has done if anything to the supply chain, what you are seeing in the marketplace and just your progress on your Chile Brazilian strategy?

Richard Frost

Yes, I would be happy to. I think in terms of Chile from what we can tell it looks like about 300,000 residences were destroyed in that earthquake, which is somewhere in the neighborhood of 10 years worth of building. So in terms of what that has done for us, if you remember the last call I said we had just started Lataro, which is our second mill up in hopes of running it for the rest of the year.

We now feel quite confident that we will run both mills full out for a considerable period of time to help in that reconstruction. So, we did start Lataro up between Christmas and New Year's. Right after the earthquake, we added the fourth shift there as quickly as possible. So both Panguipulli and Lataro are running full. The other positive thing out of this catastrophe was that wood construction held up quite well.

So we think that it will continue to help us in our effort to convert building practices in Chile. We did spend sending about 4 million down from Canada to Chile in the immediate relief effort, and for some help to our Brazilian operation we are moving a couple of thousand cubic meters a month over from Brazil.

So Chile looks to be full speed ahead with both mills for the foreseeable future, meaning I would think at least a couple of years. In Brazil, we're running our Ponta Grossa mill at about 50% of capacity. When we bought that mill it was in need of some improvement. We do have one dryer and one thermal oil system, which is down and we're looking to perhaps start that dryer and that thermal oil system up somewhere in the fourth quarter to continue to fill in the success that we are having in selling OSB for non-construction purposes in Brazil.

In a concurrent effort, we are working through the bureaucratic red tape to qualify a building system in Brazil, what we are calling an OSB building system, which is if we are successful there it would allow us to then put LP OSB into that building system. There is huge pent-up demand in Brazil as I talked about last year, and why we went there. Currently we have about 7 million homes, and the need is projected for about 18 million homes over the next decade. So, we think that that is going to continue to get more attractive for us, but right now we are caught in this bureaucratic red tape.

In Brazil, they don't approve single products in their regulatory environment. They approve building systems. So we have been working on that now for about five or six months, and hopefully we will break through sometime this year.

Peter Ruschmeier – Barclays Capital

It is very helpful. Maybe just lastly I will turn it over, I think that some of the capacity that you have had feeding the Chilean market was really ceded from North America, and I guess related to that, I'm curious on your strategy for Chambord, it seems like you have many lower-cost mills in your system that would likely come on before Chambord would. Given your somewhat cautious statements about buying into the recovery, or strong recovery in housing starts, how do you think about the future in that mill?

Richard Frost

Well, to your first point, we only moved about 4 million feet from North America down to Chile, which was to help until we could get (inaudible) up. To your second question, I think first on our radar, which would be obvious is that we did spend a couple of hundred million dollars on building Clarke County. And that will be our most important issue to try to get utilized as the market comes back to us.

Peter Ruschmeier – Barclays Capital

Thanks very much.

Richard Frost

Did I answer your question?

Peter Ruschmeier – Barclays Capital

That is helpful. Thanks.

Operator

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

Paul Quinn – RBC Capital Markets

Yes, thanks very much, and just a couple of questions. One on value-added, you said 30% in Q1, can you give us some comparisons to Q4 and Q1 last year?

Richard Frost

Q4 was about 24%. So we're up a bit in Q1. That could be seasonality Paul as much as anything else.

Curtis Stevens

But in terms of Q1 ’09, our TechShield was up 50%, and our TopNotch Sub-Flooring was up 24% quarter-to-quarter. That is Q1 to Q1.

Paul Quinn – RBC Capital Markets

Great. And in terms of – a lot has been talked about this supply related pricing increases in OSB, what have you guys seen on the demand side, especially from your customers, is it higher pull throughs. Are you seeing things that recovered slightly faster than the – that the current numbers indicate?

Richard Frost

I'm not saying that. What we have felt so far is just a slight imbalance between what we thought we could produce, and what was being asked of us. But in terms of any great underlying pull, I mean I think the numbers speak for themselves. We finished the first quarter at – at an annualized rate of 530,000 single starts. So that is not terribly robust.

What we are trying to figure out is was any of that pull forward from these tax incentives, and then what is going to happen in historically Q3, which is prime building time. But we have seen permits go up just a little bit, but nothing that would knock your socks off. So as I said in my prepared remarks, I don't have a consensus forecast that says single family starts are all in that we're even going to crack 700,000 this year.

With (inaudible) being the outlier, and they are saying we will end the year at 870. So right now we are in a wait-and-see mode, and we're being quite careful.

Curtis Stevens

Paul, the only thing I would say to that is that we did see both January and February starts to get adjusted upwards in later months, and I wouldn't be surprised if March gets adjusted upwards.

Paul Quinn – RBC Capital Markets

Okay. That is all I had. It looks like you're having fun in Q2. Thanks.

Richard Frost

Yes, we had more fun in Q2 than Q1.

Operator

Your next question comes from the line of Chip Dillon with Credit Suisse. Please proceed.

Chip Dillon – Credit Suisse

Hi, good morning.

Richard Frost

Good morning Chip.

Chip Dillon – Credit Suisse

Hi, first question is, as you think about your capital spending and you might have mentioned this earlier, and I missed it, but what does it look like not only for this year, but as you think about 2011, I know it is early days, but you are probably starting to think about it and I mean sort of what kind of range do you think you could see next year, or do you think the market is so good that you might pick it up substantially or you are going to be more cautious?

Richard Frost

Well, we said for 2010 is we would be in the 20 million to 25 million and I have no expectations to be any different from that. Next year, probably the biggest piece is the completion of the Brazilian acquisition. We have 75% of that mill, and there is simultaneously put-call in November of next year. So I would anticipate that we would pick up the other 25% of that mill. And that is in the neighborhood of probably 18 to 25, somewhere in there.

So that will certainly be in the plan, and then I think we have talked about some of the maintenance we needed to do on the presses, which are – that is probably the biggest maintenance expense you have in an OSB mill. And we do have a press or two that we are going to have to look at over the next two years. I don't know if that will be 2011 or 2012, and those are generally right around $15 million to redo all that.

Chip Dillon – Credit Suisse

Okay, and…

Richard Frost

And I don't have anything of great significance, because we have existing capacity in front of each one of our businesses?

Chip Dillon – Credit Suisse

Right. Now as you think about your – you know, obviously, as you said next on your plate in terms of ramping up if the demand is there, and we see housing starts to be covered nicely would be Clarke County, but what would sort of be behind that. Will there be other plans that you have down for a period of time that you would sort of put, you know, sort of next in line.

Curtis Stevens

But out of the two that are in line, our Clarke County and Chambord. And I think what Rick said, we certainly would like to get a return on our investment in Clarke County, and if you – I mean you don't have to be a genius to figure out why we made Athens and Silsbee, Texas, permanently curtailed. Because the Clarke County mill can satisfy those two market areas.

Chip Dillon – Credit Suisse

Got you. And then when you look at the – I know you talk about this receivable you put back like $400 million some on your balance sheet.

Curtis Stevens

Right.

Chip Dillon – Credit Suisse

Just, A, was that tied to timber sales in the past and when did that become cash?

Curtis Stevens

Yes, it was a 2003 timber sale that we did. So there is a note receivable and note payable with an investment by LP of about 45 million. So the receivable is greater than the payable. When we did that in 2003 the rules required us to make that an off balance sheet transaction that was called by a special purpose entity. They changed the rules effective January 1, with changed the rules back to where it used to be, and so we had to add those back onto the balance sheet.

Chip Dillon – Credit Suisse

And when did they turn to cash?

Curtis Stevens

It was bullet 15 year. So in 2018, what will turn into cash for us is the $44 million investment. The rest will self liquidate.

Chip Dillon – Credit Suisse

Got you. And that seemed like you said 2018.

Curtis Stevens

2018, right. And then as you know, all the deferred tax went to.

Chip Dillon – Credit Suisse

Got you.

Curtis Stevens

So, we will get the cash in, but we will have the deferred tax on the gain.

Chip Dillon – Credit Suisse

And that is roughly how much?

Curtis Stevens

You know, it is in the 10-K. I don't have it right in front of me, because remember there is three different transactions, there is the two California sales and this one. They are all in that deferred tax. I don't have the schedule right in front of me, but if you give Mike a call, I think it is in the K.

Chip Dillon – Credit Suisse

Okay, and the last question on this is, you know, in this downturn, was there anything that you could do to accelerate sort of the termination of some of these installment sales so that the you will closed during a period, where you didn’t have much of a tax liability if any?

Curtis Stevens

You know, we looked at that, but given – and with our expectations of profits in the future are actually in pretty good shape, we have a bullet payment that comes due this June of about 115 million. So that is coming at a good time for us.

Chip Dillon – Credit Suisse

Got you. Thank you very much.

Richard Frost

Thanks.

Operator

At this time, there are no further questions in queue. I would now like to turn the call back over to Mr. Curt Stevens for closing remarks.

Curtis Stevens

All right. Well, thank you very much for participating. I hope that the improvement in Q1 is a look at better times ahead given pricing in Q2. It certainly looks that way to me. So, thank you again and if you have follow-up questions Mike and Becky are available. Thank you.

Operator

Ladies and gentlemen, this concludes the presentation, and you may now disconnect. Thank you and have a good day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Louisiana-Pacific Corporation Q1 2010 Earnings Call Transcript
This Transcript
All Transcripts