Wayne Rancourt - EVP, CFO and Treasurer Tom Corrick - CEO Nick Stokes - Head, Building Materials Distribution

George Staphos - Bank of America Steve Chercover - D. A. Davidson & Co. Mark Wilde - Bank of Montreal Chip Dillon - Vertical Research Partners Bill Hoffmann - RBC Capital Markets

Good morning my name is Schenelle and I will be your conference facilitator today. At this time, I would like to welcome everyone to Boise Cascade Fourth Quarter 2015 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. [Operator Instructions] Before we begin, I remind you that this call may contain forward-looking statements about the Company’s future business prospects and anticipated financial performance. These statements are not guarantees of future performance and that Company undertakes no duty to update them. Although these statements reflect management’s expectations today, they are subject to a number of business risks and uncertainties. Actual results may differ materially from those expressed or implied in this call. For a discussion of the factors that may cause actual results to differ from the results anticipated, please refer to Boise Cascade’s recent filings with SEC. It is now my pleasure to introduce to you Wayne Rancourt, Executive Vice President, CFO and Treasurer of Boise Cascade. Mr. Rancourt, you may begin your conference.

Thank you, Schenelle. Good morning, everyone. I’d like to welcome you to Boise Cascade’s fourth quarter 2015 earnings call and business update. Joining me on today’s call are Tom Corrick, our CEO, Dan Hutchinson, Head of our Wood Products operations, and Nick Stokes, Head of our Building Materials Distribution operations. Turning to slide two, I would point out the information regarding our forward-looking statements. The appendix includes reconciliations from our GAAP net income to EBITDA for those that are interested. And now, I will turn the call over to Tom Corrick.

Thanks, Wayne. Good morning, everyone. Thank you for joining us for our earnings call today. I’m on slide three. Our fourth quarter sales of $877 million were up 2% from fourth quarter 2014, as a result of higher sales volumes. Most of the sales improvement from better volumes was offset by the impact of lower prices for many of the commodity wood products we manufacture and distribute. Our net income was down 85% from the fourth quarter of 2014, primarily due to lower plywood and lumber prices in our Wood Products manufacturing business. Our Building Materials Distribution business reported a strong quarter despite revenue headwinds from product price deflation. We were very pleased to negotiate the purchase of Georgia-Pacific’s engineered lumber mills in Thorsby, Alabama and Roxboro, North Carolina in the fourth quarter for $215 million. The antitrust regulatory review remains in progress. We anticipate closing the transaction in the first half of the year. The Alabama facility is currently producing LVL and the North Carolina facility is focused on I-joists production. We expect to gain incremental sales as well as freight and operating savings across our system, once we acquire these assets. Until the transaction receives antitrust approval, we will be restricted in our comments regarding future operating plans. In modeling the future operating configuration and product demand at 1.5 million housing starts, we anticipate incremental mid-cycle EBITDA earnings of $40 million. Logistic synergies and incremental organic growth in our distribution business are important components of the mid-cycle EBITDA guidance. Turning to our accelerated strategic capital program, we expect to complete the installation of the new dryer at our Florien, Louisiana plywood mill in the second quarter of this year. The acquisition of the EWP mills will impact our capital plans this year and into 2017, as we will have additional veneer and EWP capacity to efficiently serve customers along the East Coast. We did not have an open window for repurchasing shares between our last earnings release and today because of the ongoing negotiations surrounding the EWP acquisition, which was announced December 21st. We remain committed to using opportunistic share repurchases as a way to create long-term value for shareholders. The pace of execution will be a function of our free cash flow, share price, other capital allocation opportunities and open trading windows. We have approximately 1.3 million shares remaining on our current authorization. I will have Wayne cover the financial results in more detail and then I will come back with a few more comments on the outlook before we take your questions.

Thank you, Tom. I am on slide four, Wood Products sales including sales to our Building Materials Distribution segment decreased $24.7 million or 8% to $292.3 million for the three months ended December 31, 2015 from the $317 million from the three months ended December 31, 2014. Wood Products EBITDA decreased $25.4 million to $8.8 million for the three months ended December 31, 2015, down from the $34.2 million for the three months ended December 31, 2014. The decrease in EBITDA was due primarily to lower plywood and lumber sales prices offset partially by higher EWP sales volumes. BMD sales in the quarter were $707 million, up 6% from fourth quarter of ‘14. Sales volumes were up 11% in BMD and pricing deflation was down 5%. BMD’s EBITDA increased $5.3 million from the comparative prior-year quarter, driven primarily by higher gross margins of $11.4 million, including an improvement in gross margin percentage of 100 basis points. This increase was offset partially by higher selling and distribution expenses of $5.5 million. The Corporate segment reported negative EBITDA of $5.1 million in the quarter, essentially flat with the $5.2 million reported in fourth quarter ‘14. Turning to slide five, our fourth quarter plywood sales volumes in Wood Products were down 10 million feet or 3% from fourth quarter 2014, as we chose to reduce production, given market conditions, in late 2015. The $268 average net sales price for plywood was down $62 from 2014’s fourth quarter and $14 lower than third quarter 2015. The North American industry operating rate for plywood was negatively impacted in 2015 by increased imports of plywood from South America and decreased exports from the United States, driven by the relative strength of the U.S. dollar. Operationally, we may choose to take additional downtime as we move through the balance of first quarter to adjust production to demand, which could impact profitability. Plywood pricing in the first six weeks of the current quarter is about 4% below the fourth quarter averages reported by Random Lengths. The upcoming comparison to first quarter 2015 on plywood pricing will be very challenging. Turning to slide six, our fourth quarter sales volume for LVL and I-joists were up 10% and 17% respectively, compared with fourth quarter 2014. LVL pricing was essentially flat while I-joists sales price realizations improved 2% from fourth quarter 2014. As a reminder, 2014’s fourth quarters saw relatively weak EWP sales volume activity as purchasers had accelerated purchases in second and third quarters of 2014 in response to announced price increase. For full year 2015, LVL volumes increased 6% over 2014 and I-joists volumes for the full year were up 4%. With the strong U.S. dollar, we reduced sales of EWP into Canada and U.S. during 2015 which held back our overall volume growth. Our domestic EWP sales activity was in line with the change in U.S. housing starts. Moving to slide seven, BMD’s fourth quarter sales were $707 million, up 6% from fourth quarter of ‘14. By product area, BMD’s sales of commodity products increased 1%, general line product sales increased 10% and EWP sales increased 12%. The gross margin percentage for BMD in fourth quarter 2015 was up 100 basis points compared to fourth quarter 2014, driven primarily by the higher mix of general line and EWP sales. As we have communicated in past conversation, sales of general line products typically carry higher gross margins, receive higher levels of supplier rebate support and incur more selling and distribution costs, and all of those factors happened in the fourth quarter of 2015. Moving to slide eight, we have set out the key elements of our working capital. Company net working capital excluding tax items and accrued interest increased $1.7 million during the fourth quarter as payments of longer dated accounts payable were offset by the typical seasonal declines in accounts receivable and inventory. As a reminder, the statistical information filed as Exhibit 99.2 to our 8-K has receivables, inventory and accounts payable data broken down by each segment for those that are interested in more detail. I’m now on slide nine. Our cash balance decreased by $28.3 million in fourth quarter and we ended the quarter with total available liquidity of $443.1 million. We currently plan to use $90 million of the balance sheet cash and $130 million of incremental bank debt to finance the purchase of the EWP assets and the associated transaction cost. As Tom Corrick mentioned, we did not repurchase any stock in fourth quarter, because we were in possession of material non-public information. Our effective tax rate in the fourth quarter was impacted by the late passage of tax extenders by Congress including bonus depreciation and the R&D tax credit. At this point, we expect our book tax rate for 2016 to be between 35% and 37%. And with that Tom, I’ll turn the call back over to you to wrap up.

Thank you, Wayne. The current consensus estimate of 1.25 million housing starts is the U.S. for 2016 is at the upper end of the range we are using in our current planning. Housing demand improved in the second half of 2015 and we expect momentum to carry over to the first half of 2016. We believe 2016 will show improvement in housing starts with job and household formations progressing as the U.S. economy continues to grow. There is risk to the housing start forecast presented by the strong U.S. dollar and capital market volatility, both of which could hurt domestic economic growth. We continue to believe the demographics in the U.S. will support a return to a normalized housing start level of 1.4 million to 1.5 million starts. Two of the bigger challenges we face in the near-term are the imbalance in plywood markets and successfully integrating the acquisition of the engineered lumber mills being acquired from Georgia-Pacific. We expect the plywood situation to improve with demand picking up seasonally in the second quarter, but the supply side remains concerning. As some of you may know, a private equity firm has been working in Mississippi to construct new plywood capacity at the site of a previously closed plywood plant. They have described eventual capacity in the range of 360 million square feet with plans to start shipping product for spring. Together with the South American imports, we expect plywood price pressures early this year to be driven by exchange rates and oversupply, more so than weakness in North American demand for plywood and veneer. We may need to adjust our production depending upon how market conditions develop. As I said at the beginning of the call, I am very pleased with the EWP acquisition. It provides us with a stronger operating footprint and close proximity to housing markets that continue to show very solid growth. The purchase also increases our supply of low cost internally produced veneer, provides substantial logistic savings and assures that we will have adequate EWP capacity to meet our customers’ needs as the housing recovery continues. Our entire Company is very focused on making this an effective transition and capturing the available operating synergies. We faced a more difficult plywood and lumber product pricing environment than we would have expected at this point in the housing recovery. However, we continue to make measurable progress on the key elements of our strategy and we are seeing solid revenue and earnings growth for both, engineered wood products and distribution. With the depending acquisition, we are further strengthening our favorable market positions in engineered wood products and building materials distribution. We also remain focused on productivity improvements in plywood and veneer. Over time, we believe those factors provide the foundation for creating shareholder value. Thank you again for joining us on our call this morning. We would welcome any questions at this time. Operator, would you please open the phone lines?

No problem. [Operator Instructions] And our first quarter comes from George Staphos of Bank of America. Your line is now open. Please go ahead.

Thanks. Hi everyone, good morning. I appreciate all the detail. I guess one question to start and a little bit bigger picture, Tom. When you talk about doing the right things from a capital allocation standpoint to ultimately improve shareholder return, and I’m paraphrasing here, also what you put in the press release and said on the call just now. As we look back over the last several years, free cash flow has been generally negative, if for one year in 2014. Return on capital has been generally trending lower. Obviously, you didn’t plan it this way, it’s been more of a function of the market. What can you do from here that would turn the curve on both of those fundamental trends, whether it’s free cash flow, return on capital or ultimately given that you are ultimately tethered to what’s going on in the plywood markets and things that are ultimately out of your control?

Well, George, I think there are really three aspects to that question. The first thing I would say and I think the acquisition is a critical part of that is that our EWP regions that have plywood production, are doing fine. And the acquisition well integrate the Carolina plywood operations into an EWP region, and long-term I think reduce our plywood exposure and increase our EWP, the benefits of EWP. And so I think that’s a significant component of it. Second thing I would say is the plywood business is a margin business. And we continuously are buying. The major cost in that business is log cost. We continue to focus on paying the right price for logs. It takes a while for that to show up, because we have log purchase commitments from prior years that come in this year. But over time, we will be able to balance our log costs with our product pricing situation, which will get us back into a margin situation. The third component that we don’t talk about much is we I think are having real success with our process improvement activities, the big process and continue to see some pretty significant year-over-year improvements in the manufacturing costs side and recovery side on wood. And I think those trends will continue as well.

Tom, thanks for that. I could just piggyback one more time on your response to the extent that you can comment. What should we see or what benefit would you call out from the latter two points, either improved procurement or the benefits being more visible on logs; and then, on the process improvement side of the ledger, what would you have us consider in our models for 2016 relative to 2015?

Well, on the log cost side, Gorge, I think our expectations is that log costs will be reasonably flat with the 2015. I would note also -- and on the cost improvement side, those are -- I don’t think we are going to give any guidance on that but I continue to see improvement in our numbers. The other thing I’d note on the free cash flow is we’ve been investing heavily, we certainly had the strategic capital program last year, which added $30 million of capital above our base cost and continued to repurchase shares as well. So, there were some things that used cash last year. But, I feel confident that we are going to be able to maintain a strong balance sheet and continue to pursue our capital program and frankly continue to look at share repurchases inside our business.

Okay. My last one and I’ll turn over, just back to log costs. I thought you inferred that independent of the market that because of your prior contractual commitments there’d be a benefit to log costs this year. Did I incorrectly hear that? If not, maybe what benefit might you see there, if you can share that? And then, you mentioned that the projects will continue through 2017. I realize, it’s February of 2016 but do you have any kind of early view on CapEx in 2017? Thank you, guys. I’ll turn it over with that point.

Yes, on log costs George, if I didn’t make that clear, I think the point I have is that we purchased logs in the product price environment that existed at the time we purchased logs in 2014 and 2015 that we’re bringing in this share. And so that tends to average our cost up. But the logs that we are purchasing now are much more better match to the marketplace. In 2016, I think our cost for logs will be relatively similar to our cost in 2015.

A lot of the log cost dynamics are driven by what goes on in dimension lumber. And within dimension lumber, price declines that occurred in the spring of ‘15, we’ve seen log costs moderate. And to Tom’s point, I don’t think we are viewing log costs as a big price pressure on inputs for ‘16.

Could you repeat the second half of the question again, George?

Yes, sure. Just recognizing it’s really, really early, do you have any kind of view on what CapEx would look like for 2017? I’ll turn it over at that point.

George, the strategic capital spending, obviously need to finish the work we started at flooring but the strategic capital spending that we’ve done above base capital, we can proceed or not proceed depending upon circumstances. Those projects remain good projects. I would note that with the GP acquisition, there are some things that represent very good opportunities for us there. And so, we are really going to have to sit down I think and rethink exactly how we deployed capital with these new assets in place which increased our self-sufficiency of veneer because those assets have the lays and dryers, and how we’ll manage all that going forward to make sure that we get the optimal return on our capital program. But, at this point I think the ‘17 program is very much under review and we can proceed with that if we need to or not proceed with it if the certain circumstances dictate that.

Typically we think about the base capital in the $55 million to $60 million range and that will be elevated again this year, probably $85 million to $95 million range. And we’ll think about ‘17 depending on what business conditions are and where demand sits.

Thanks, Wayne.

Thank you. And our next question comes from the line of Steve.

Can you talk about how much the economic and maintenance downtime impacted Wood Products in Q4? I mean, we know it was 10 million square feet but what do you reckon the financial impact was? And some of that I presume was also for dryer projects.

Steve, this is Wayne. If you look at EBITDA for Wood Products in 4Q, I would tell you, there is couple of things in there. The downtime impact, I can tell you that on the manufacturing cost side, it probably raised our manufacturing costs in terms of what flowed through cost of sales, 4 million to 5 million bucks. If you look at a lot of the fixed costs because we took it on a rolling basis across several mills, you don’t get a lot of the fixed costs off. And again, we are trying to manage the impact on employees; at the same time, we are trying to obviously take supply out of the market and make sure we’re being balanced on what we are seeing on demand. So, the cost portion is probably $4 million to $5 million. If you said but what impact or what benefit did we get in selling price, that’s someone unknowable. So, the 268 realization we had on plywood, if you said well, -- if you hadn’t taken the downtime, would that have been 267 or 266 or 265? I can’t tell you. I can say that there were a fair number of imports still coming in, in the fourth quarter from the South America; and trying to measure the revenue side is tough. So, I think to be quite honest, we probably had a more detriment on the cost side than we got benefit on the price side. The other component that’s in there in the fourth quarter is we probably had about $1.6 million of costs related to the GP transaction on advisory and legal that flows through quarter. We’ll have additional cost that will flow through as between now and when we close that deal; we didn’t call it out because frankly at 1.5 million or 1.6 million, we don’t view don’t we view it as material to overall affairs. The other one that occurs somewhat every year is EWP volumes decline between Thanksgiving and the end of the year and that tends to be the most profitable manufactured product we’ve got. So, if you look at the sequential decline from third quarter to fourth quarter in Wood Products manufacturing, seem the fall off in volumes seasonally also sequentially hurts the EBITDA performance in Wood Products. And those are the three things I’d really kind of call out. And we indicated in the press release that we would expect sequentially Wood Products earnings to improve, certainly better than the $9 million we reported in fourth quarter. But just looking at where we were on plywood price in first quarter of ‘15 at 312, [ph] if we end up $40 or $50 below on plywood price on $400 plus million of volume in the first quarter of ‘16 that will be tough to close the EBITDA GAAP with where we were in first quarter of ‘15 at $32 million.

As far as that the GP transaction costs were attributed to Wood Products and maybe not Corporate but thank you. And it sounds like…

I can assure you Steve, Dan would have preferred, I had them in Corporate.

I bet you would. And the deal, it sounds like it will proceed by the end of June. Can you -- are you pretty confident that you can get the Roxboro, LVL, restarted kind of on the run?

Yes, I mean the thing -- to Tom Corrick’s point, and we will spend some time looking at this, once we know the closing date. But, the initial plan on restarting Roxboro, obviously we’ll need to hire people. But because we have been neighboring plywood plants in North Carolina and South Carolina, we will have an ability to take EWP grade veneer that we’re producing at those mills today and redirect it to Roxboro and start up the presses in the back end of that mill and get EWP product out without necessarily restarting the wood yard, lays [ph] and dryers initially. And then, we’ll back up through the process as warranted. So in some ways to have enough flexibility on the veneer will allow us to not only get the EWP side up, but we can look at what conditions are in the plywood market and make some call on the veneer and determine relative value between plywood contribution, EWP contribution and frankly how we balance supply to demand. So, it gives us a little more flexibility once we have the keys to Roxboro.

So, given your statement on the wood yard dryers and lays, [ph] GP has no intention of restarting LVL on its own?

What they might do if the transaction were to be blocked, that would be totally upto GP. But I can say with some confidence that if we’re successful in completing the transaction in the first half, our intent will be to produce LVL at Roxboro and ramp that up because the freight and logistics savings and operational savings as well as having a service element for our distribution business will be pretty important. And we think there is quite a bit of synergy value in getting Roxboro up.

Has the DoJ asked for any incremental documentation over and above what you submitted initially?

So, far the process with DoJ has gone quite smoothly. We’re still early in that. But again, we remain reasonably confident that we will get that complete in the first half.

Okay. And my last question is since you’re still in the midst of the DoJ process, does that mean that you’re precluded from repurchasing stock?

Not, in my mind. We will obviously review that with counsel. But unless there was something that happened on either customer retention or if we got word from DoJ that they were taking a position other than getting this thing cleared in the first half I would view that within 48 hours will be cleared. And we have a board meeting next week and we will as we do every board meeting review the repurchase activity with our board next.

Thank you. And our next question comes from the line of Mark Wilde Bank of Montreal. Your line is now open. Please go ahead.

Just to start off on the plywood side, are you aware, Wayne or Tom, of any other plywood curtailments that have taken place out in the business?

Well, the one we know of is in Omak Washington , there is a small mill that was being used somewhat as a veneer source for EWP. And we know that mill’s gone down. We believe that Indian [ph] Reservation Principals are looking to try to see if they can find somebody to restart. So, we know that one is out. Swanson is rebuilding their mills in Springfield, Oregon. From what we understand, as soon as they have that rebuild in place, the capacity that’s running that used to be Olympic Panel Products will be closed in Sheldon, Washington. So, we view that one as kind of a neutral. And then again, this is anecdotal, but we’re hearing that particularly some of the private players in the west side of Oregon are under stress from a cash standpoint and we’ve seen some modest downtime maintenance related announcements from some of the private players in the south. But other than the Omak one and the pending closure of Olympic Panel in Sheldon, I’m not aware of any permanent curtailments at this point.

Okay, right. And then stepping over to distribution, Wayne. Any impact for you guys likely from these recently announced warehouse or rationalization moves?

This is Nick Stokes. Yes, we do see opportunity in those markets. Customers -- we’ve had conversations with customers now about those opportunities and we do see it as incremental. Yes.

That’s helpful. And then I guess Nick, one other question I had in distribution. The sales in distribution expense went up quite a bit in the fourth quarter, even on just a percent of sales basis. Can you help us understand that?

Sure. As Wayne alluded to earlier in his comments as well as the written stuff, certainly products like engineered wood and general line and some of those items that require higher sales and logistic expenses had a bigger share of our mix in the fourth quarter. And I think that’s what you’re seeing reflected.

Okay, alright. I think that’s it for me right now. Thank you.

Thank you. And our next question comes from the line of Chip Dillon of Vertical Research Partners. Your line is now open. Please go ahead.

Yes. Good morning, Tom. Good morning, Wayne. First question is on the capital program. You mentioned, again, it’s a bit elevated this year as you acquire the GP assets. What is sort of the range we can think about next year, maybe if you do what you -- everything you plan to do or if you cut back from there? So, we still see the same sort of $85 million to $95 million that you’re looking at this year?

As we look at ‘17, I would tell you that the thing that’s going to drive it is really, what’s the appropriate pace on the restart of the GP assets. So, the opportunity is I think above the $55 million to $60 million in ‘17 are going to be dependent on what the need is on EWP volume in the system. So, we’ve got the dryer project that’s going on in Florien, Louisiana at the moment that was intended to provide more internal veneer for Louisiana EWP operation. Some of that project we will probably hold off on. We’ll get the dryer in place but some of the other improvements that we’re going to make at Florien, we may hold off on, because we will have the Thorsby production, Thorsby Alabama production that sit at LVL today. And we’ll have the ability to bring up Roxboro. Part of the motivation in buying those assets from GP is obviously we can restart Roxboro. And it has lays [ph] capacity and dryer capacity. And I would guess out of the call it 90 million this year, there may be 10 that would go into Roxboro this year and then will depend on what else is appropriate in ‘17, depending on where EWP demand is. If we’re able to need EWP markets and depending on where plywood markets are, if we don’t see a need to ramp up the lays [ph] and the dryers, then we can be more towards that 55 to 60 number in ‘17. If we’re seeing continued growth in housing starts moving towards 1.3 million in change or 1.4 million, then we will go ahead and take on additional capital projects at Roxboro, bring on the lays [ph] and the dryers. And then we also think there is an ability to put incremental capacity towards the Alabama. And again, it’s really going to be optimizing the capital program across the South and the Southeast to take advantage of the integration between the plywood operations and what will be the three EWP mills. And again, quite comfortable, we can manage that number down if business conditions warrant or if the economy goes in recession. But for this year, we’re starting out with the plan of $85 million to $95 million. And we will have flexibility in the second half of the year if turns out that plywood markets remain weak or if we don’t see demand follow through on housing, then we will bring that number down as appropriate.

Okay, that’s very helpful. And when you look at -- I think you mentioned I believe that you could in essence forward integrate about 10 million square feet I guess of plywood initially at Roxboro. If we kind of shoot forward three, four years from now, let’s say that you are upto kind of what you would consider mid-cycle production of EWP. It looks like now you’re selling around 1.6 billion square feet of plywood. What could that go down to, if you are at a higher level or once you get these, all these facilities running and let’s say we are in 1.4 million start environment?

Well, I think the way I would describe it is if our original mid-cycle guidance was predicated on plywood margins of around 45 box and that’s the plywood environment, we will be running around 1.6 billion in volume and selling it -- plywood. If we woke up and found ourselves in a plywood environment that was $10 margins or $15 margins, we would spend less capital inside the EWP on veneer production and we would redirect some of the plywood veneer into the EWP mills for layup and turning it into engineered wood. And again, we are going to be very focused on appropriate returns on capital and what the market demand is. And as Tom Corrick pointed out, particularly given where the stock price is today, I think some of us feel very firmly that when we look at our free cash flow over the next three years, we think the stock presents good value and we will be advocating to the board that we take advantage of the share repurchase, as a capital allocation mechanism.

And I guess just on just that, just to be -- that’s very helpful. If you kind of look at it, it looks about half of your current liquidity availability is going to be needed for the GP assets. And you do have the elevated CapEx number for the year. Would you wait to sort of see how the wood products markets act before you would get back in to buying stock? And let me ask you this, can you buy now? In another words, you mentioned you had non-public information. Are you in a position today where you can or assume to buy the stock or is there another reason you have to wait, given I guess the GP transaction?

Yes, I may have misspoken earlier; if I did, let me clarify it. As of today, I have no material non-public information. We’ve said we think the GP transaction will close in the first half and we’ve now released earnings. So, I’d be comfortable, based on counsel from John Sahlberg, our General Counsel. Otherwise, I am comfortable that we could execute. If for some reason we got a phone call on Tuesday from the DoJ and they said, hey, we are going to give you a second request and your deal is going to hung up and you are going to end up and OfficeMax Staple situation, we would view that as material non-public information that we would either need to release on an 8-K or make some disclosure before proceeding on share repurchases. But particularly given where the share price is, we will try to make sure that we have appropriate disclosures in place, so that we are not precluded from repurchasing stock.

Very clear. Thank you very much.

Thank you. And you next question comes from RBC Capital Markets. Your line is now open. Please go ahead.

Yes, thanks. Just a couple of questions. The first one is Building Materials Distribution business, I just wonder if you could give us a little bit of update on what you are seeing regionally as an early start to this year?

This is Nick Stokes. I think the best way to describe it is steady but not spectacular demand across the system. Certainly relative to the last couple of years, the winner impact has been less severe and certainly there are some geographies and regions, if you think about Texas and the oil impact, it’s having an impact in terms of just the overall economic climate. But generally, it’s pretty good.

And what about things like inventory, the change, whether it’d be plywood or other products, OSB, lumber et cetera?

Well, as everybody knows, there is no empirical data on field inventories. I would tell you that the best indicators that we get is through the conversations that we have with our customers and our suppliers. And in all cases, people express opinions and share a perspective that says that the field inventories are generally sufficient for the steady but not spectacular demand, the seasonality effect. And so I think it’s in pretty good shape. Certainly, I have not heard anybody express a desire to invest significantly in commodity products at this point in time.

Thank you. And then, just last question for you, Wayne or Tom. With regards to the GP assets, can you talk a little bit about the [indiscernible] and what its operating reach has been?

Yes. Bill, it’s Wayne. I am a little reluctant to do that for two reasons. One, GP is private and they’ve shared confidential information with us that we are not at liberty to disclose. The second is I don’t want to give you a number even if I had it because what we are really focused on is what is the business activity level that’s there on the day we get the keys. And depending on what their customer losses are between date of announcement and when we close, what’s going to be relevant to us is what book of business do we have when we get the keys and how do we maintain that and how do we grow that going forward. And we will certainly provide more guidance on that when we have a specific closing date and when we have a chance to sit down with customers and have fully open conversations. But at this point, I would be reluctant to give you a sales run rate or an EBITDA run rate that may not be representative of what it is when we get the keys.

Okay. Fair enough. Thank you.

[Operator Instructions] And our next question comes from -- a follow-up from George Staphos of Bank of America. Your line is now open, please go ahead.

Guys, I was wondering if you could hazard a guess. And I recognize that it would be that at best, I don’t think there would be anything holding you to this, in terms of how much more supply you think we could see come from Brazil and maybe to lesser extent, Chile in the plywood market? And then said differently and again recognizing this is a little bit of educated finger in the air, what kind of housing start environment we do need to see to, in your view, sop up that supply that’s sitting in the market right now?

George, this is Wayne. Let me give you some data numbers of exports, and I will let you draw your own conclusions, but I’ll give you some data. So, in calendar year ‘14, they shipped in 1.27 billion cubic meters, exported, okay? Of that 99 million cubic meters found its way to the U.S. and we were just below 8% of the exports. If you fast forward to ‘15, there was 247, almost 248 million cubic meters that showed up in the U.S. and we were 17.1% of Brazil’s exports and their overall volume had increased to 1.45 billion. If I look at January, they sent in 28.6 million cubic meters and the U.S. was up to 25.7% of the exports and the volumes in January relative to January of ‘15 for their total exports were up 21%. And again, if you look at the total volume compared to a large plywood plant in the U.S., it’s not overwhelming. But when you have 7% or 8% of North American demand being satisfied by imports, if you do not have a supply response in North America that recognizes that, you end up in the significant oversupply situation. And that’s really what we’re trying to work through is trying o understand having gone from 8% to 26% on an exchange rate basis, taking into account ocean freight and pricing in Europe and U.S. and we’re frankly trying to get our arms around this. Should we expect that number to go to 30 or 35 or where is that balancing point, and we got several people internally that are working on that. We bought a recent study, we’ve got a couple of our senior executives that are going to be travelling Brazil the next couple of weeks to meet with producers and try to get a handle on what their expectation is. I think to your point, if we get to 1 million to 1.250 million on housing starts, depending on the behavior of OSB guys, I expect some of this sheeting that’s being imported to be absorbed by an increase in housing starts and that will help balance the market. But we will need to be flexible and thoughtful on the supply side, as we go through ‘16, particularly if we continue to see an increase in the imports from South America. As a major plywood producer, we will have to think about what an appropriate response is. And then, they there will be waiting to see if high cost guys go on a permanent basis, but that’s something we are going to have to manage as we go through the first half of this year.

Additional thing, I’d say, there -- go ahead, George.

No, I was just also going to take it the other way. So, last year going into the year, I think the range on consensus was 1.1 million to 1.2 million starts, obviously wound up at the lower end of that range. That detrimental 100,000 starts, can you remind us, recognizing this is now in square feet opposed to cubic meters, but what did that cost in total from your vantage point in terms of true actual plywood demand and also for that matter veneer demand that didn’t run through in LVL or I-joists?

Well, based on current usage patterns, George, which I think you have to focus on the emphasis on current usage patents, you’d have a couple hundred million feet of veneer going in EWP if you’d been up another 100,000 starts, little bit over 200 million feet. And you would have a couple of hundred million feet going into new residential construction, recognizing that’s current usage patterns and given that the OSB guys have had significant excess production available at very good pricing, not clear to us that that incremental component of new res is plywood or is going OSB. But clearly, and then the economy growth certainly accounts for some growth. But those are kind of the numbers based on current usage patterns.

The demand side on plywood last year was not the issue. It grew a little bit below GDP, so around 2% in North America, which is kind of in line with our expectation. There is slow growth in plywood demand of course driven by general economic conditions. And then to Tom’s point, we would expect some to go into LVL and I-joists. And there wasn’t really the demand side that caused the problem in ‘15. It was clearly the supply side. And I think, if we get an incremental 100,000 or 150,000 housing starts this year that will naturally absorb some in the EWP. Assuming the OSB guys are able to balance supply to demand, I think we will see part of the oversupply situation fixed with the housing starts. But clearly, the South American guys have more supply they can send this way, if there is a strengthening in pricing relatively to Europe, this will be a market that they will largely focus. And then we’ve got the ramp up of the mill in Mississippi if that occurs. And so again, we will be thoughtful in terms of our role on the supply side and be thoughtful about how we balance veneer into EWP versus plywood and our thoughts on how much incremental veneer we choose to produce and purchase externally.

Thanks for that Wayne. Two more for me and I’ll turn it over. Just, could you comment on what your operating rates were in the quarter and for the full year as a whole for your major businesses? Obviously you can’t talk to the potential GP assets. And the pension funding I think was $55 million, if I read the cash flow statement correctly. Do you have a view on that and any other larger cash flow items for ‘16, again to the extent you can project here? Thanks guys.

Let me start with the pension one, because that’s the easiest. We did for a number of reasons, on capital allocation, decided that funding the pension plan last year with long dated term debt that was cheap on a LIBOR basis, we just completed a swap on that 50 million. So, we swapped LIBOR component at 1%, 1.01% actually for the six years. So that’s in essence fixed rate term debt, at this point we feel pretty good about that. The only thing we would anticipate going out on pensions through the cash flow this year is our non-qualified plan and then we contributed company real-estate to our pension. And we’ve got some payments on the sale leaseback. So, we’ll probably 4 millionish that will run through the cash flow that will appear as pension contributions. As far as operating rates on major products, on EWP, were probably operating last year around 70% of capacity. On plywood, even with the downtime, I would tell you that we were probably in the high-80s, low-90s on our veneer and plywood. And on lumber, that has been weak in terms of the pricing. And we just recently took a curtailment in Eastern Oregon that will be more persistent in terms of the shifts coming off. We had a negative EBITDA situation and concluded that we are not likely to see a better balance on supply and demand in the near-term in the pine lumber area. And so we want ahead and did a more or less permanent reduction in Eastern Oregon. And again, I would expect that to be an EBITDA positive event where we’ve eliminated the EBITDA losses that were occurring in that facility.

Thank you.

And then particleboard, which is kind of a minor thing in our affairs, but it’s probably operating in 65%, 70% operating rate. So, we’ve got some headwind there. If the housing market and economy continues improve, I would expect some incremental earnings out of the lumber side and the particleboard but the big driver is going to be the plywood and EWP.

Thank you. And our next question is a follow-up from the line of Mark Wilde - Bank of Montreal. Your line is now open. Please go ahead.

Thanks. I’ve got a few follow-up. One, Wayne, is there any impact in the lumber business from currency right now, because I know that a lot of that time lumber goes into some things like molding and millwork and we tend to bring that stuff in also for places like Chile and New Zealand, which have weaker currencies right now?

Yes. I would tell you, there is a number of places, as you point on the imports. The other thing is with the dimension guys having issues on pricing, there are some of the dimension guys that can swing and cut pine and cut some of the things that impact the markets that we’re in. The other piece is, it was a pretty bad fire season in the Pacific Northwest last year. So, there is a number that people that have trees standing that have been burn that are trying to get that stuff harvested and through the market before it deteriorates. So, our view -- and which was driving the curtailment in Oregon, our view is that the pine lumber market will be challenge, both for the reasons cited around, currency in South America, but importantly with the Canadian currency as weak as it is with dimension lumber pricing where it is and with this available log supply issue. We think the pine lumber shop molding market is going to be challenging for the next several months.

Okay, right. The other question, we talked about the Brazilian imports of plywood. I noticed the Chilean imports are up as well. But I know the Chileans produce kind of finished sanded plywood. So, are those imports less of an issue for you guys from a competitive standpoint?

In terms of a direct end product competition, we don’t compete head-to-head with Eraco [ph] for example on their board. A lot of their board will show up in the home center channel and it’s very high-end product. It has a similar impact in terms of the balance, because what will happen is the domestic producers that stepped in behind Eraco when their mill burned several years ago. Those guys will get displaced as Eraco comes back in the market. But we that Eraco is a steadier longer term player that has an ongoing presence in the market. And Nick could speak to this but Eraco is a core supplier for our BMDs. And we’ve got a good relationship with those guys. And then have tended to be a consistent player in the market. Brazil was heavy in the market when the U.S. went to 1.6 million housing starts to 2 million housing start back in 2005-2006. Brazil jumped in and opportunistically filled part of that gap. And again, it was a period when their currencies were weak. So, we view those guys as being more opportunistic and more swing players than we would the Chileans that are more focused on this market with high-value product consistently.

I would say that Chileans are focused on coming into the market with the value proposition of quality and the Brazilians are focusing on coming in to the market with value propositions focused on price.

Okay, alright. That’s good. Another question just around the plywood business. Do you have any sense of just over the last year to whether plywood has been displaced by OSB and some of the niche uses just because the price spread between the two had gotten so wide, so it triggered more substitution?

Yes, I think there is couple of things. One is, and we tried to be clear on this at the end up ‘14 and early ‘15, the price gap to OSB was quite wide and I think there was some marginal substitution into OSB. And the other piece, and I’ll give couple of OSB guys kudos with us. There have been some products developed by Huber and I know LP is working on a fire resistant board. They are clearly making inroads at the margin on a couple of places where plywood has in essence helped them out for a long time. Again, we see modest erosion and substitution into OSB. It’s not alarming and it’s really on pace with what we would more or less expect, which is why we are not looking to create incremental plywood production and why we were in some ways distressed to see the private equity guys building the mill in Mississippi. I don’t think we’ve seen anything on the substitution to OSB that’s any different than what we would have expected over time. And again, that’s why we’re viewing, even with the housing recovery, demand growth in plywood somewhere in the 2% to 3% range; we are not expecting 8% to 10% because we do think there will be continued substitution by the OSB guys.

Okay. Last two questions, one is just given what we see right now in the plywood market, is there any need do you think for you guys to kind of rethink or recalibrate the mid-cycle EBITDA numbers that you’ve put out there?

Yes, I would describe it this way. When we put out our 270 number, which included 20 million that we thought we would have mid-cycle from the Carolina operations we acquired in late ‘13. We were assuming that of the 170 to 180 that would be in the Wood Products manufacturing that somewhere around $70 million to $80 million would come out of the plywood operations, assuming we were selling about a 1.6 billion. If the supply fundamentals, and I view us as being part of this, if the supply fundamentals do not adjust to the reality of the demand situation and we ended up with plywood margins on an EBITDA basis in the $20 range, then I would tell you that our mid-cycle number would need to come down by $40 million to $50 million. Now obviously, we think there will be a lot of economic reasons why this will not persist because we think there is guys that are high costs that are probably running cash out of pocket today. But if you said where is the risk in our mid-cycle guidance, I would say given what we are seeing on South America and where their currencies are, that is a risk unless the domestic supply adjusts to the reality of 7% to 8% of the market being imports. And again, we’ll see if that number continues to escalate. But that’s probably where we’ve got risk on our mid-cycle earnings is in the plywood side.

Yes. Mark, I would add that if you look at it and I think Wayne spoken really well to the plywood side, but I would note that we feel very good about where we are relative to our guidance on both, EWP and on distribution side. So, the focus here is on the plywood piece.

Okay. Alright. The last question I had is, Tom, just thinking about your footprint in EWP, assuming the GP deal gets done, at that point, can you be economically a national player in EWP or will there still be geographic holes that you might want to fill over time?

I think that the key there -- I don’t think there is going to be -- we’ll be operating in all the key would baskets, Mark. Our production east and west will be very balanced in terms of where demand is relative to where our production is. Then, I would note that EWP consumption is of almost virtually 100% into new residential construction. And so that I think we are going to be right-sized where we think household formation is going to be long haul. So, not to say on margin ,we wouldn’t look at opportunities that made sense but I think we will be very well-positioned in this business with these assets in our portfolio.

And then the other piece we are going to be -- and we are focused on today but as people focus on green building, we are obviously trying to do more in the multifamily and light commercial and another commercial applications. So, where Tom said, two years ago, we would have been much more focused solely on single-family. And I think through Nick’s group and the work Dan’s sales and marketing team, we are trying to get a bigger presence in the multifamily and some of the industrial categories of building. So, I view those as real opportunities over the next 36 months as well as the single-family new res.

Thank you. And our next question is another follow-up from Chip Dillon of Vertical Research Partners. Your line is now open. Please go ahead.

Yes. And I know what you’re starting to kind of explore a little bit more about what’s going on with the South American imports, especially Brazil. But what would be a reasonable guess in terms of the length of the supply chain? And the reason I ask is, the currencies are moving around certainly and of note for example as in the last the three weeks or so, euro was actually appreciated about 5%, and that may at least start to maybe tip some of the incentives and maybe it won’t but it’s still pretty small. But let’s say that you did get a movement that would tip the incentives, it still would take I guess a couple of months before you would see the trade flows reflecting that I would imagine, just because of the supply chains. Do you have a view on that?

Yes, I think based on our past experience out of Brazil, it’s probably 6 to 8 weeks kind of movement.

It’s a 30 day boat trip, get it to the port.

It will take a little bit longer than that only because as the price adjusts, they still have to find alternative market for the products. So, I don’t think it’s an on-off switch by any stretch of your imagination.

I see. They’d have to make sure it sticks or continues in that option?

I think one of the things I talked about their market is the Brazilian economy traditionally gives us a lot of plywood and right now the Brazilian economy is not exactly heavy consumer of their production. So that’s certainly exacerbated the problem.

Yes. And the other thing that makes it possible as there is a significant overcapacity on the ocean container vessels and how those guys adjust, having just read Maersk earnings announcement, how those guys adjust their capacity to the realities, may impact some of the cost dynamics on the flow as well.

I see. And then, you’ve talked a lot about the imports. Obviously we’ve had some lost exports too. What countries are particularly seeing an impact there for us where we’re exporting less?

I can only speak to ours. It’s our international group sources product for example from Mexico. We are taking -- South American shipping it to Mexico as opposed to taking domestic production and sending it to Mexico, as one example.

We are not a huge exporter of plywood [ph] though.

Okay, I see. That’s helpful.

And as we mentioned earlier, we’ve substantially reduced EWP sales in both Canada and Europe.

Thank you. And I am showing another follow-up question from the line of Steve Chercover of D.A. Davidson. Your line is now open. Please go ahead.

Thanks. This is kind of a think out loud question and obviously a real long shot. But if the Brazilian real is going to be cheap forever, would you ever considered perhaps buying one of the mills that’s currently disrupting you?

I would not say, never. But there is a reason we’re putting two guys on a plane. And again, it would take a long conversation with the board, frankly critical mass. And you’d have to have some view of the political and economic situation because I think we’ve seen the Brazilian currency swing wildly over 10 or 15 your periods. But in some way, this is not just similar to the Europeans looking at their paper business and concluding that gee! It’s a cheaper place to grow trees and produce pulp. We will need to reach some conclusion on whether this is a permanent situation or whether it’s transitory. And I think it would take a lot for us to get convinced that it’s permanent. And we would have to look at other capital allocation opportunities including share repurchases and conclude that that’s an appropriate way to add value for shareholders. And I would say that there would be a fair amount of political risk and economic risk that we would attach to that kind of an investment decision.

Steve, we were in Brazil in the mid 2000s with the veneer operation and frankly got caught on the other side of currency move and lack of containers. And I think one of the things you conclude is that there is -- if volatility in the U.S. is uncomfortable, the volatility there is even more uncomfortable. And the other thing I’d say based on our experience is dabbling in a foreign country and production is not something that if you’re going to go, you need to go, it’d be the way I’d describe it is happening...

And that’s why I said it was -- I think a lot of questions but, so just with respect to the industry structure there, not -- I know it’s like the last priority right now, are there kind of standalone mills like you have here in Western Oregon?

There are a couple of major producers of plywood in Brazil and then there are a number of very small family-owned facilities. So, you’ve got as I say, a couple of major players and then very fragmented below that.

Okay. Thanks again.

Schenelle, we probably got time for one or two more questions.

I’m actually showing no further questions at this time. I would now like to turn the call over to Tom Corrick for closing remarks.

Basically folks, we appreciate you being on the call today. We remain very satisfied with how our EWP and distribution businesses are advancing their position in the marketplace and the profitability. And we’re going to be really focused on challenges in plywood and integrating the GP acquisition, which we’re very excited about. And thanks for joining us today.

Ladies and gentlemen, thank you for participating in today’s conference. This concludes today’s program. You may all disconnect. Everyone have a great day.