Weyerhaeuser Company (WY) Q4 2007 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Weyerhaeuser 2007 Fourth Quarter Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. [Operator Instructions]. I will now like to turn the conference over to Kathryn McAuley, Vice President of Investor Relations. Please go ahead, ma'am.

Good morning. Welcome to Weyerhaeuser's fourth quarter 2007 earnings conference call. I am Kathy McAuley, Vice President of Investor Relations. Joining me today are Steve Rogel, Chairman and CEO; Dan Fulton, President; Patty Bedient, Chief Financial Officer; and Rich Hanson, Chief Operating Officer. The call is being webcast at www.weyerhaeuser.com. The earnings release material for this call can be found at the website or by contacting April Myer [ph] at 253-924-2937. Please review the warning statement in our press release and on the presentation slides concerning the risks associated with forward-looking statements. Forward-looking statements will be made during this conference call. I will now the call over to Steve Rogel. Steve?

Thanks, Kathy, and thanks everyone for joining us. 2007 was a challenging year for our industry and another busy one for Weyerhaeuser. On today's call, I would like to briefly discuss some of our strategic achievements in 2007 and update you on the progress we’ve made on the various initiatives underway at Weyerhaeuser to improve performance and prepare us for the future. Then Kathy McAuley, Dan Fulton, Rich Hanson, and Patric Bedient will provide more detail on our businesses, fourth quarter operating results, and our first quarter outlook. As always, once that we have concluded our prepared remarks, we will open the call to your questions. Developing a deep pool of talented executives has been one of our key priorities, and in 2007 we made a number of changes to our management team and enhanced the talent on our Board with the addition of a new director. Most recently, we announced that Dan Fulton has been named President of Weyerhaeuser. Dan is overseeing operations in a number of staff functions along with his responsibilities as President of WRECO, our real estate company. Dan has a strong background in financial and operational management, and he's participated in our corporate decision making process for several years. Dan is an effective leader with a clear understanding of our company and the industry. We currently have a process in place to name Dan’s successor as the President of WRECO and we hope to name that person by the end of first quarter. Another key change to our management team occurred with Patty Bedient who assumed the CFO last April upon the retirement of Dick Taggart. Patty is a valuable contributor to Weyerhaeuser and her knowledge of our strategic direction combined with our financial expertise makes her the ideal person to oversee our financial functions as we implement our strategic plan. Other notable appointments in 2007 included Tom Gideon as Senior Vice President of Containerboard Packaging and Recycling, and Mike Branson as Senior Vice President of Timberlands. Also in December 2006, Shaker Chandrasekaran was promoted to Senior Vice President of Cellulose Fibers. Each of these leaders has shown exceptional operating expertise and has already made significant contributions to the businesses they oversee. I know many of you are interested in an update on the review process for our Containerboard, Packaging and Recycling business. Well, I came limited in what I can say. I will tell you that we're pleased with the level of interest that we're seeing and with the range of options that the Board is able to consider. We look forward to concluding the process. In the meantime, our successful initiatives to improve the financial and operational performance of this business continue. Another major achievement in 2007 was the completion of our Fine Paper transaction with Domtar, which created meaningful value for our shareholders. The transaction also narrowed the focus of our Cellulose Fibers business onto value-added grades of pulp. This allows us to leverage Weyerhaeuser strengths, especially in R&D and product innovation. We've also made progress in implementing strategies to grow our Timberlands assets in South America. In October, we completed the sale and transfer of our New Zealand assets after receiving the necessary government approvals. This allows us to focus our international Timberlands investments in South America where we are in the process of simplifying our investment and management structure to maximize our flexibility. We look forward to continuing to build upon Weyerhaeuser's position in this region. Furthermore, we are intensely focused on realizing all of the potential income from owning Timberlands, not just the income from growing and harvesting timber. Weyerhaeuser generates additional revenue from activities such as mineral, oil, and gas extraction. We are excited about the potential of creating biofuels from cellulose, which is the purpose of our combined efforts with Chevron that we announced this last spring. We are also pleased with the progress made on the Tree Act, which is currently attached to the Senate-passed Farm Bill. This legislation is well positioned for enactment this year. Passage of the TREE Act of 2007 will provide immediate value to shareholders and is compatible with many different business strategies and structural alternatives. In conclusion, 2007 was a busy year in which we took action and made significant progress despite the challenging environment. We are executing on strategies to performance and create value. I'm proud of all that we have accomplished and I'm confident that we're taking the right steps to position Weyerhaeuser for even greater success. Now, let me turn the call over to Kathy to discuss Weyerhaeuser’s fourth quarter financial results. Kathy?

Thank you, Steve. This morning, Weyerhaeuser reported a fourth-quarter loss of $63 million or $0.30 per diluted share on net sales of $3.9 billion. The fourth quarter includes the following after-tax items; a charge of $85 million or $0.40 per diluted share for impairments of a real estate assets and investments; a charge of $73 million or $0.35 per diluted share for closure, restructuring, and asset impairments in Wood Products; a charge of $22 million or $0.10 per diluted share from the true-up of deferred taxes related to the Domtar transaction; a gain of $27 million or $0.13 per diluted share on the sales of a log export facility in the New Zealand join venture; a net gain of $13 million or $0.06 per diluted share resulting from changes in the Canadian federal tax rate and in Mexican tax law; a charge of $13 million or $0.06 per share for corporate restructuring, a packaging plant closure, and the casualty laws associated with severe wind storm in the Pacific Northwest in early December. Excluding these items, Weyerhaeuser earned $90 million or $0.42 per diluted share. A GAAP reconciliation of special items is available at our website in the earnings information package. Please turn to chart four on page seven in this package for our next discussion. Chart four is a bar chart detailing the changes in earnings per share on a segment basis from third quarter of 2007 to fourth quarter of 2007. As noted in the first bar on chart four, Q3 2007 earnings before special items was $0.55 per share. Quarter-to-quarter changes in corporate earnings were as follows. Proceeding left to right across the waterfall chart beginning with the Timberlands segment, lower log prices in the West and fewer non-strategic land sales reduced Timberlands’ earnings by $0.11 per share. In Wood Products, losses increased by $0.31 per share, resulting from significantly lower prices in [inaudible]. Lower material costs only slightly moderated the drop. Cellulose Fibers earnings were comparable to third quarter. Higher price realizations and an increase in sales volume were offset by higher chemicals, energy, and fiber costs. Containerboard, Packaging, and Recycling contributed $0.01 per share over Q3 earnings. About $0.10 per share improvement in Containerboard, Packaging price realization was offset by seasonally lower packaging shipments and decreased mill production as supply was matched with demand. We also incurred higher energy and wood fiber costs. WRECO increased $0.18 per share. Land and log sales accounted for most of the increase. Also contributing to the increase were seasonally higher closing and higher prices due do mix. Lastly, corporate and other added $0.10 per share. The usual year-end tax true-up accounted for the majority of the interest. The final bar to the far right of the page is fourth quarter 2007 earnings before special items of $0.42 per share. I will now turn the call over to Dan. Dan? Daniel S. Fulton - President, Weyerhaeuser Company; President and CEO, Weyerhaeuser Real Estate Company: Thank you, Kathy. As I wear the hats of President of Weyerhaeuser and temporarily President of WRECO, my discussion is going to be a little different this quarter. To begin with, I will done my hat as the President of WRECO and give you a general overview of our real estate results for the fourth quarter. This will be a somewhat abbreviated version of my past presentations. However, all the data that I normally include is there on our website for your use. Then, I will put on my new hat as President of Weyerhaeuser to provide a general discussion of our economic outlook for 2008. This will help provide context for some of the comments Rich Hanson will make and will give a general idea of how we see the economic affecting our businesses in the current year. Although, differential by market, the dramatic correction that began in the housing sector in 2006 continued to negatively affect WRECO in the fourth quarter. Our Houston operation where we have a competitive niche at the high-end of the market performed at record levels. Meanwhile, the focus of our Puget Sound subsidiary on homes targeted at entry-level and first-time move-up buyers has allowed us to maintain our position as the leading homebuilder in a region that has held up longer than most other major markets. Despite these relatively strong performances, our real estate business is not immune to market woes. Last Vegas, Phoenix, and the Inland Empire of Southern California, which where some of the hottest markets during the first six years of this decade, are experiencing painful market adjustments. Considering current business conditions, near-term market stabilization in these markets seems unlikely for at least another year. Meanwhile, after beginning to signal stabilization in early 2007, the Washington D.C suburban markets retreated in response to increasing levels of unsold inventories and continued to struggle as the year closed. In addition, the stronger markets that I mentioned earlier are now beginning to show signs of fatigue. The Houston and Puget Sound markets will slow down from preceding years of strong activity, but are not likely to correct to the degree of other markets. As a major landowner in our select markets, we are also feeling the impact of declining valuations. As you've read, public homebuilders have recognized significant impairment charges as their holdings come under increased pressure. We control land representing approximately seven years of sales, of which 60% is owned. We are less vulnerable in that we own more land priced at three bubble levels. Nonetheless, our process of reviewing our land and investments on a quarterly basis resulted in us recognizing impairment charges of $121 million in the fourth quarter. This compares with $23 million in the third quarter and $19 million in the fourth quarter of last year. These impairment charges are all pretax numbers. The outlook for our real estate business is for a tough year ahead. Our management team however is one of the most experienced in the business and has seen challenging markets before. We are focused on minimizing incremental capital investment while maintaining a keen awareness of local land valuation trends for possible compelling future growth opportunities. I’m now switching to my Weyerhaeuser Company now for a discussion of how economic conditions are affecting our other businesses. It is stating the obvious, but with effect of the unfavorable housing market upon the Wood Products industry is startling. The 1 million unit drop in single-family housing starts since the market’s peak in 2006 equates to 9 billion square feet of oriented strand board and 15 billion [inaudible] feet of lumber. That amounts to 36% less demand for OSP and a 23% drop for lumber. Not surprisingly, prices have plunged. Recently, Douglas-fir lumber prices sank to nominal levels last seen in 1982, over 25 years ago. We'd like to say that we see it right on horizon, but as yet we do not. Looking ahead, we estimate that US single-family housing starts will continue to decline from 2007 levels. Although degree of additional decline in starts is debatable, any drop would put additional pressure on all of our Wood Products. We employed the recent Federal Reserve rate cuts, but it will take some time for this action to have a meaningful impact on the housing market. And until the housing market recovers, our Real Estate, Wood Products, and Timberlands businesses will struggle. In response to this sobering backdrop, our focus is on cost reduction and capital preservation, which Hanson will discuss in greater detail the actions that we're taking in our Wood Products and Timberlands businesses to meet the challenging market conditions ahead. At the same time, we are focusing on the future. Our actions today must also position us to maximize our opportunities when conditions improve. That is why later this spring we will start up our new Santiam sawmill in Oregon. This mill along with the improvements to the Grand Prairie facility in Canada and the new Longview, Washington mill allow us to replace older, less efficient sawmills. Consolidating our manufacturing into state-of-the-art facilities positions us to be a low-cost producer. In Timberlands, we are maintaining our growth strategy, which includes enhancing our investments in South America. Meanwhile, economic conditions for our Containerboard, Packaging, and Cellulose Fiber businesses are encouraging. Our Containerboard, Packaging business is benefiting from the growth on non-durable goods production. It has also been helped by the weaker US dollar, which has made our containerboard more competitive against offshore production. As long as international economic conditions remains strong, this business should continue to benefit from the weaker dollar. Meanwhile, our Cellulose Fiber's business also benefits from the week US dollars. As a result, prices for pulp are approaching 1995 levels of nearly $900 a ton. In addition, the completion of the Domtar transaction last year reduced our exposure to the Canadian exchange rate and focused our business on premium absorbent rates. We see continued strong markets in 2008 for this portion of our company. It's true we've challenges ahead, but I'm energized by the prospects for success that lie before us. I'm looking forward to working with all of our employees to seize these opportunities. I'm also looking forward to discussing our company with the investment community in my new role. And now, I'd like to turn the call over to Rich Hanson, Chief Operating Officer, who will discuss our operational performance in our businesses other than WRECO.

Thanks, Dan. At this time last year, we predicted that our Wood Products business would experience significant losses due to weak market conditions, but we didn't foresee the historic downturn that haunted 2007. Even the most pessimistic projections didn't anticipate that prices for oriented strand board would drop more than 40% from levels in early 2006 or that when adjusted for inflation lumber would dip to depression era levels. So that's exactly what happened and the effect upon our earnings has been dramatic. We continue to report losses in our Wood Products business despite aggressive actions taken by Lee Alford and his management team. This includes closing 1.3 billion square feet of our oriented strand board capacity and curtailing other OSB mills. Taken together, the combination results in a curtailment of 38%. In addition, we have closed one of our three TimberStrand LSL mills and curtailed production at the remaining two. Similarly in 2007, our softwood lumber production declined by nearly 900 million board feet. In addition to these actions, we've taken aggressive steps to reduce costs if they weren't enough to offset the price and volume declines. We are continuing to further adjust production to match declining demand from our customers and minimize cash losses. Of course, there is significant cost associate with closing and curtailing a facility, but we've developed a process to make these decisions thoughtfully and quickly. We believe the long-term prospects for the North American residential homebuilding market are good due to favorable demographics and the economic outlook. Our high-level strategy, which we’ve discussed before remains sound as indicated by our customer response and market penetration with higher value products and services. We have unique capabilities and proprietary technologies that give us the competitive advantage to bring value to the homebuilder. Also this quarter, we saw a deeper impact of the weak housing market on our Timberlands business. Our Western operations are a very dependent upon the California housing markets, which are being hit harder than other areas of the nation. As a result, lot prices dropped in the West while prices in the South were relatively stable. Our western operations also felt the fury of Mother Nature in early December when a series of snow, wind, and rainstorms slammed into Washington and Oregon. We experienced gusts reaching to 147 miles an hour while nearly 20 inches of rain saturated our PL [ph] Tree Farm in Washington over a 48-hour period. So we expect significant salvage and road and bridge repair cost to affect our Western Timberlands operations for several quarters. Notwithstanding the current challenging conditions, Timberlands are a unique asset with long-term value, which we maximized through our industry-leading cultural expertise. In addition to growing and harvesting timber, we are focused on developing other sources of income from these lands. This includes, as Steve mentioned, oil, gas, and mineral extraction, which has developed into a growing source of value, and biofuels such as the alliance we have now formed with Chevron will represent a future revenue source. Moving on to Containerboard, Packaging, we continue to improve this business while conducting our strategic review. By year-end, we had captured above 75% of the $40 per ton Containerboard price increase in box prices. For the year, these prices were nearly offset by cost increases predominantly in fiber and energy. We have now realized a $120 million of the $230 million improvement goal we committed to achieve by the end of 2008. Our continued focus on improving the performance in this business has resulted in improved margins each quarter during 2007. We also successfully implemented our programs to consolidate orders into more efficient manufacturing plants. This included selling our Cerritos, California site and moving customers into other Southern California locations. We also closed our Closter, New Jersey facility following a fire, and recently announced the closure of our Baltimore box plant. We’ve repositioned the accounts served by those facilities into plants that have competitive advantage. As Dan mentioned, this business has benefited from the strength of the non-durable goods market and the weaker dollar. As a result, we saw containerboard shipments increased during the fourth quarter due to strong export demand. Meanwhile, we see encouraging market conditions for our Cellulose Fibers business with continued high demand and the weakening U.S. dollar. On a quarter-to-quarter basis, our pulp price realizations increased, shipment volumes climbed slightly, and cost for planned annual maintenance decline. Unfortunately, in the business higher chemical and energy costs offset those benefits. Meanwhile though, our five-mill Cellulose Fiber segment continues to make significant operational improvements. The industry efficiency index for these mills improved 2.2% compared to the fourth quarter of 2006. As a result, this segment is poised to benefit fully from the strong markets in which it operates. Before I close my comments, I want to acknowledge that work our employees have done not only in improving operating performance, but in reducing our injury rate by 26% during 2007, making it the safest year in Weyerhaeuser history. And it is no surprise that there is a high correlation between safety and operational performance. We’re positioned for the future, and I'm confident in the ability of our operations to perform well through the challenging conditions ahead. For a more detailed discussion on our first quarter outlook, I would like to turn the call over to Patty Bedient.

Thanks, Rich, and good morning. Dan and Rich have provided the overall economic outlook for 2008. My comments will focus on first quarter 2008 compared to fourth quarter 2007. Then I'll wrap up with some summary comments about capital spending and other financial items. I will start with Timberlands. The impact of the continued weakness in the housing market is expected to result in the lower log sales volumes and prices in the West. In addition, the December storm event that Rich discussed will result in higher costs. We should have a positive price variance in the South due to a higher grade mix on slightly lower volume. We expect a lower level of non-strategic Timberlands sales in the first quarter. So overall, Timberlands earnings are anticipated to be lower in the first quarter of 2008 compared to the fourth quarter of 2007. In Wood Products, we don't see any significant improvement in market conditions for the first quarter of 2008, and we expect to continue incurring substantial losses across our operations for reasons that Rich discussed. This could lead to even further production curtailments or mill closures. Our focus is on careful management of working capital and cost reduction. Cellulose Fibers, the economic outlook continues to be favorable, and liquid packaging prices are expected to increase in the first quarter. We will be taking more scheduled annual maintenance in the first quarter versus none in the fourth quarter. Because maintenance costs are charged in the quarter incurred, we expect our manufacturing cost to increase, also fiber and chemicals could increase. As a result, we anticipate first quarter 2008 earnings for this segment to be slightly below the fourth quarter of 2007. Packaging sales realizations are expected to rise in the first quarter due to seasonal mix improvement, mostly due to an increase in produce shipment. Overall Packaging shipments are expected to decline mainly as a result of exiting low margin business and from seasonally lower demand. We anticipate an increase in containerboard shipments due to strong offshore demand. Mill non-fiber manufacturing cost should decline, primarily due to increased production, as we have less planned maintenance downtime in the first quarter compared to the fourth. Prices for OCC and wood chips are expected to increase from fourth quarter level and are quite volatile today, 2008. Higher energy costs are anticipated due to seasonally higher prices and consumption of natural gas. Cornstarch and wax prices are also expected to further increase due to pressures from the ethanol and petroleum markets. As a result, we anticipate that earnings in the first quarter will be les than the fourth quarter. In our Real Estate business, the seasonal reduction in single-family closings and lower single-family margins are expected to result in a loss in this segment. We expect margins will continue to be negatively impacted due to excess home inventories, competitive price discounts, and sales incentives. We do not anticipate any significant land or lot sales in the first quarter of 2008. Weyerhaeuser Company had capital expenditures of approximately $700 million in 2007. We expect to reduce capital spending in 2008 to approximately $550 million. During the year, we completed our 18 million share repurchase authorization, with total share repurchases in 2007 of 7 million shares. In addition, through the Domtar transaction, we retired over 25 million shares early in 2007. Our shares outstanding at year-end were 211 million. As of year-end, we had $1.8 billion available under our $2.2 billion of committed bank facilities. During the fourth quarter, a favorable decision in the Paragon Trade Brands litigation enabled us to cancel 500 million of appeal bonds. Our net debt to total capitalization ratio is just over 39% versus our target of 30% to 40%. Excluding discontinued operations, our general and administrative costs for 2007 were $130 million lower than 2006. While the uncertain conditions that face us from an economic standpoint will be challenging, we believe we are well positioned to weather the storm, given our intense focus on cost control, working capital, and overall cash flow. And with that, I'll turn the call back to Kathy to begin our question-and-answer session.

Thank you, Patty. Mary, would you please open the line for questions. Question and Answer

Thank you. [Operator Instructions]. Our first question comes from George Staphos with Banc of America Securities. Please go ahead.

Thanks, everyone. Good morning, and congratulations to Dan and everyone on the additional responsibility. Well, I guess the first questions I had were boxes on containerboard, can you remind us when you expect to get full implementation on the containerboard price like through boxes? Do you expect that that will happen by the first quarter with the lag we just associate with national account business, etcetera?

Yes, this is Rich. I'll take that one, George.

Hi, Rich.

As I mentioned, we believe we have realized in the range of 75% and looking at the accounts that are still open in the first quarter, we should virtually complete it. There is a little bit of business still on into the year, but for the most part we will have it completed.

Okay. And just in general, in terms of box trends and what you're seeing in terms of consumption through the first portion of 2008, realizing that the export markets are quite strong and that's a positive, what do you think in terms of box consumption domestically?

Yes, I mean aside from the comment we made about seasonal differences in the first quarter, we're seeing pretty strong markets, we are seeing good takeaway, and market conditions really are pretty good in this business. The inventories are tight, our customers’ demand is solid. So conditions are very good.

Okay. So that’s a the year-on-year increase or can you put numbers on that?

Question again, George.

The question is, I know it's good takeaway, but could you put some percentages or parameters, are you up 2%, 5%, down through, what's good in your estimation at this juncture realizing it's early in the year?

Well, Patty made the comment we will be off slightly seasonally. But we have done a lot of repositioning. We are not looking really at volume growth in that respect, but the markets should allow for volume growth through that, but as we’ve repositioned we are focused on the higher margin business.

Okay. A few strategic questions and I will turn it over [inaudible]. In Containerboard in terms of the strategic review and really the interest that you're getting from other parties, you said you have been pleased both with the interest level and the number of options. Are you surprised with the interest and options that you're seeing at present related to maybe what your expectations would have been six months ago or is it pretty much as you would have expected? And then, within Wood Products, realizing that you run the businesses that you own for the longer-term, is the outlook in the performance perhaps raising questions as you look at the longer-term returns in that business relative to what you would have thought it could generate several months ago and it fits within the portfolio as a result? Thanks, guys.

Okay. With regard to the Containerboard, Packaging strategic review, George, we did say that we're pleased with the response and the progress that we're making to date in our review. So I would say, we weren't totally surprised by the response, but we're pleased with the response that various parties have given us. So we look forward to concluding that process.

Okay, and on Wood?

On Wood Products for the longer term, I think we have well introduced to all of you the eye level strategy of moving our Wood Products into the structural frame of a home. That is a process of penetration that is continuing even as we are entering into this downturn, and our expectations for that business and our optimism is high that the penetration will continue to increase and of course we consider that to be more profitable business for the company.

Okay. Thanks very much.

Next question?

The next question comes form Gail Glazerman with UBS. Please go ahead.

Hi, Just curious, your guidance in timber is fewer non-strategic land sales. I was wondering if you could give us a sense of how much you had in the fourth quarter? Hello?

Gail, this is Patty. We typically don't break that out separately. They are lumpy and from a seasonal perspective we would expect to be down in the first quarter compared to the fourth.

Okay. And can you talk about your view on OCC moving into 2008? I know obviously that you expect it to be up and volatile in the first quarter, but just in general how you see the pressures in the market playing out versus I guess overseas demand and shipping capacity and everything else?

Well, this is Rich. I believe we have said before, we see continuing pressure on OCC, especially because of the offshore demand in China, and we really don't see much relief there. It's a question of how much more might arise.

Okay. And do you see any issues relating to the Containerboard business, either in terms of OCC or your export business in terms of the shipping capacity?

No, we haven't experienced that.

Okay. Thank you very much.

Next question?

Thank you. Next question comes from Richard Skidmore with Goldman Sachs. Please go ahead.

Good morning. Just to talk about the homebuilding business for a second, given your backlogs and what you're seeing in the market with regards to traffic in your expectations for the starts in your homebuilding segment, how do you see the closings progressing through 2008?

Well, as you can see from our numbers our backlog is down as we go into the year and I think that is consistent with really the entire industry. On a year-over-year basis, as we look at '08 versus '07, we expect volumes to be down modestly. Each of our markets happened to be in a different phase in the cycle. We've talked about that in the past. So we… as I noted we expect to see some slowdown in the Northwest and in Texas. As we go through the year, I think first quarter will be soft, Richard, but we expect to see more recovery from the back half of the year, probably starting with the Washington DC market, which entered the downturn earlier.

Okay. Then sort of following on that, as you look at the level of housing starts where we are now your level of profitability in wood, what sort of housing start level do you think you need to see generally speaking to see the Wood business get back to levels of profitability or prices and volumes sort of normalize, what kind of level of housing starts would you need to see? Daniel S. Fulton - President, Weyerhaeuser Company; President and CEO, Weyerhaeuser Real Estate Company: I will take a stab at that, Richard. Long-term we have a view over the next ten years that the economy should average total starts of about 1.9 million a year over the cycle. So we overbuilt that '04, '05, '06. Now, we are going through a correction period. Our view is that it will as I say be softer in '08 and '07, start to pull out of this in '09, and hopefully start to get back on track in 2010. Our relative profitability is going to depend quite a bit on the competitive environment. We think we've got a strong set of assets both in our homebuilding operations and in our Wood Products manufacturing. We expect to see some competitors disappear in this cycle, and I think we certainly expect to pick up share, but I couldn't give you a number of starts and correlate that to a particular level of profitability.

That's helpful. Just to clarify, as you think about your housing segment, thinking about the inflation point being sort of 2009 at some point and then improving into 2010, is that what you said Dan? Daniel S. Fulton - President, Weyerhaeuser Company; President and CEO, Weyerhaeuser Real Estate Company: That's what I'm expecting. We've lots of opinions on that one, and as I say it is very, very regional, and so what would impact our wood product business is really national starts would impact our WRECO business. It is down to a more granular region-by-region focus, and my view is that we are going to start to see some stabilization towards the end of this year and I would not expect a very dramatic rebound, but I think one that will be much gradual.

Thank you.

Next question?

Thank you. Next question come from Mark Connelly with Credit Suisse. Please go ahead.

Thank you. This is Hamza Mizari [ph]. Just a couple of questions.

I am sorry. We are having trouble hearing you, Hamza.

Hi, is that better?

Yes, it is. Thank you.

Thanks. Just a couple of questions, do you expect there to be much more international repositioning of your business?

This is Steve. On our strategies, as we look forward we have specifically indicated South America the center of activities this year of '08 for our timber business and solid wood converting for South American and world markets. That would be the major thrust over the next couple or three years, strategically for us on the international scene.

Okay. Got you. And you've always have been through a number of downturns in the past. How much flexibility is there in your system to take out further cost short of closing down sawmills permanently?

That is a constant effort that we undertake to remove costs from our system. Certainly, when you take a shutdown, you have ongoing costs that are quite high, particularly in some regions of North America. But we are working within the constraints of capital to constantly improve our manufacturing costs. And I think you heard in Richard's presentation today about several sawmills that we are rebuilding and should position us when we come out of the downturn for much better competitive positioning.

Okay. Last question. In Containerboard, you talk about exiting low-margin business. Can you give us a sense of the sorts of businesses… the sort of business you decided to walk away from? Is there a regional product or geographical trend in that decision?

Well, within the segments that we have there is a range of margins available to us, but… I will just take an example of fast… what we call a fast-moving consumer goods business, which is food and beverage, beer, and soft drinks, etcetera. That's a very tough competitive business. And so we have been pretty selective about where we want to be within that business. And as we have closed some operating units, some of our box plants, we have tended to transition really only about 75% of the business from those plants to the remaining plants and that is a selection process we have been going through. It has been very successful with very little surprise in terms of lost accounts that we wanted to keep.

Okay. Got you. Thank you very much. That's it.

Next question?

Thank you. The next question comes from Mark Wilde with Deutsche Bank. Please go ahead.

Good morning. Dan, I have got a couple of questions on Real Estate kicking off. Is it possible for you to give us a little color on where the real estate write-downs took place and also where you have been selling land in real estate within this segment? Daniel S. Fulton - President, Weyerhaeuser Company; President and CEO, Weyerhaeuser Real Estate Company: Sure. Mark, this is Dan. I'm going to take the second question first. The significant land sale that we had in the fourth quarter was sale of a commercial zoned property in the San Diego market, and we have talked about our land sales before. It's an ongoing part of our business. We continue to remind you that it’s lumpy, we use that term. But on average, non-single family revenues end up averaging 88% to 92% of our total revenues. Last year I think we came in at 88%. With respect to impairments, we took impairments in the fourth quarter in the Phoenix marketplace, in Las Vegas, in Southern California, in the Pacific Northwest, in Washington D.C. We review our portfolio on a routine basis. We react to competitive pressures in the market in terms of pricing and competition, and we continue to evaluate our strategy with respect to every piece of property. But the majority of the impairments in Q4 came out of the Phoenix market.

Okay, right. The next question I had was on the Timberlands. I think Rich Hanson mentioned that some of these cleanup costs were going to continue over the next several quarters. And I wondered if it's possible to kind of quantify the magnitude of those cleanup costs and exactly how long you think they may run?

Okay, well, of course, we are still assessing that. But giving you an example, we have roads that have been destroyed that we will to rebuild to access the timber and then we have to salvage the timber that's blown down, and… so that the logging costs to do that are going to be higher than normal logging cost. We estimate that it will take us more than a year to work our through this. So it's going to be spread out over several quarters. And I suppose if you think about it in any one quarter, it is not material. So that's the best answer I can give you at this point. I think you saw the book write-off, but that doesn't address the operating cost in front of those.

So there is no way… what you are saying though is that increase in the operating cost is not a material number in any quarter in terms of the results of this business?

No.

Okay. All right. And then, the next question I had was on the Wood Products business, I was just kind of curious. You talked about pricing being down at these depression era levels and this is in spite of the Canadian dollar being at its highest levels since World War II. It would seem like with so much of our wood coming from Canada that that high Canadian dollar would put a little floor under wood prices?

Well, I would say in any kind of normal market swings you would be right, but these are extraordinary swings. I think you heard the comment about the reduction in supply there, demand requirements of over 15 billion board feet of capacity. I guess my response will be it’s not enough. You saw what we did, took out close to a billion feet of capacity as we tried to move and stay in front of this. So, the best answer I can give you is it's not enough.

Okay. The last question I had is on the Packaging business. It sounded like you're moving away from a lot of high volume kind of consumer beverage, consumer food, consumer products business. And if I think back just 4, 5 years ago, what I heard you talk about was trying to grow the type of business, the feeds in the big boxes. I think you were pretty aggressive about lining up some contracts with big volume consumer goods companies. Can you just talk about kind of what's led the kind of a change in view on this strategy?

Well, fair enough. I mean we need to be competitive in national account business. There has been a lot of consolidation in this business and it’s been very competitive and you better have good logistics and good low-cost systems to serve that market. But even as I mentioned, within that there are pieces of it that are better than others. So I don't mean to save we're exiting that market, we're just being a lot more selective of where our system matches up to the accounts that are available, and we have a logistics advantage or a particular quality capability that's needed. So we won't be exiting that market. We're just going to be more selective within it, because at our scale we should be able to be competitive in that market over time and we are.

Okay, very good. Thanks, Rich. Good luck.

Next question?

Thank you. Your next question comes from Chip Dillon with Citi. Please go ahead.

Yes, good morning. My question has to do with I guess more of the time clock here. With this year being an election year, we saw how quickly that Congress moved on the stimulus package and… I guess I'm just little concerned that you be in the only major seed [ph] corporation left, I think there one in Arkansas that owns timberland, and it looks like that risks to you taking advantage of the options out there are actually getting higher in terms of avoiding tax down the road. Can you comment sort of on the sense of urgency with your restructuring?

Chip, this is Steve. Our Board and our management team are working very diligently on the Containerboard, Packaging process, and I expect that we'll be moving very smartly along to a decision on it. We have a number of options to look at and review, and the Board is prepared and has been very active and involved in that decision making process.

Okay. And respecting that, I know that you can’t and shouldn't say much about that in particular, but when you look more to the broader issue of the timber taxability, it seems like the TREE Act will solve maybe a third of the issue if you consider the 2011 tax rates that the law currently has for individuals. And given that, are you comfortable that… and also given that you never know what a new Congress could do in 2009, are you comfortable that you can achieve your goals by then, whatever those goals might be, to ultimately result in the timberland being more, as I was saying, in a more tax favored status like just about every other acre is in this country?

Chip, first with regard to the TREE Act, we are very optimistic of getting that passed this year. As you probably know, it's in the Farm Bill and now that the stimulus packages has been passed, Congress is going to do more focus on that bill. So we're optimistic of achieving that, but with the tax relief package or without it all the actions that we are taking today leave us completely open for consideration of any future form of incorporation of the company or direction we might take. The TREE Act itself, once enacted, is certainly I think you are inferring it's a one-year package, but our expectation is it would go into the extenders and be renewed on an annual basis along with many, many other tax relief packages.

Okay. Thank you very much.

Next question?

Next question comes from Don Roberts with CIBC World Markets. Please go ahead.

Thank you. Steve, two strategic questions, I guess the first one, when we talk about the further growth in the Timberlands side in South America, I'm just wondering how challenging it's going to be to implement that in the face… at least, profitably in the face of rising land costs in South America? You certainly see it in Brazil. I was just wondering if you can give us more color, you see specifically in Uruguay on that challenge?

Well, certainly, Uruguay has been discovered, and we have competitors who are working on their own land base, but to this point in time and just as recently as this first quarter, we still find land… bare land and land that has already been planted that are at prices that can give us a comfortable return and a return that takes into account all the aspects of operating in a different part of the world. So we are optimistic at this stage that we can continue to build the land base. Of course, if things start to runaway we have to pull in our horns.

Okay. This is the second I guess the strategic issue is this is only announced sale of the Commercial Construction Sales business. I'm just wondering, what's the strategic relationship really with the Trus Joist franchise and what implications of getting rid of this as it is for that franchise?

This is Rich. This commercial beam business is open beam… open Trus business that has been around out a long time. It is not central to our strategy to focus on the residential housing framing market. It's a small business with three locations. And we just felt that at this point it is better to monetize that business and focus where our basic strategy is.

Okay. So, no implications really for the Trus Joist in terms of other potential divestitures?

No, not at all.

Good, okay. Thank you.

Next question.

Next question comes from Mark Weintraub with Buckingham Research. Please go ahead.

Thank you. First, Steve, I'm curious whether or not overall company performance and obviously, the difficulties in the homebuilding and the wood products area currently, if that has any bearing on the way you think about the containerboard sale process, or are you able to look at that as a wholly distinct from the performance in the non-containerboard businesses?

I think the way we look at it is over a longer period of time strategically. And as we evaluate what the make-up of the company is going forward, we've looked at with containerboard in, as well as all the other businesses. So our view is the containerboard process that is going on today is the right review at the right time.

Okay. And so there are no, from… I should come away thinking that there are no timing related issues that weakness in other businesses would create as you assess what you want to do longer term for containerboard, is that right?

I think that, as we look for the longer term, that is correct, you are looking more at a short-term cash burn, I think.

Okay. And second, on a whole different note, in the real estate biz or the homebuilder has indicated that you were going to likely lose money in the first quarter. I guess I'm trying to understand if… how much of that is seasonal, if at all, or another way to put at it, if the current level of business activity were to persist through the year would you expect to continue to be losing money in that business or is there a significant seasonal element that would suggest that even at these levels of business activity, in other quarters you would more likely be making money? Daniel S. Fulton - President, Weyerhaeuser Company; President and CEO, Weyerhaeuser Real Estate Company: It is a combination Mark. This is Dan. First quarter is seasonably slower in terms of deliveries, as you know, we end up delivering a lot of homes in the back half of the year and as we go into the New Year we got a low backlog, but normally we have slower deliveries and so it's generally a softer quarter. We expect the business to be challenged throughout 08 with slightly lower volumes throughout the year and we expect margins, as I commented, to be under pressure throughout the year even as compared to 2007. You’ve noted that we always have some level of land sales and we expect to replicate that during the year, but I'd… we had had no plans for land sales in Q1, and I comment… I can't comment on when they might occur in the balance of the year. But our view of the year, generally, is it's going to be tougher than '07.

That’s helpful. Thanks for bringing up the land sales, because I just wanted to clarify, I wasn't quite sure. You had mentioned something about 88% or 90% of something. I wasn't quite sure. If you could just over again what land sales have historically run at? Daniel S. Fulton - President, Weyerhaeuser Company; President and CEO, Weyerhaeuser Real Estate Company: Land sales, well, conversely, the 88% to 92% is the percentage of revenues coming from single-family operations.

So it's run to the… slightly… almost half of the revenues of the business? Daniel S. Fulton - President, Weyerhaeuser Company; President and CEO, Weyerhaeuser Real Estate Company: No, no, no. Single family, 88% to 92 % of total WRECO revenues come from single family.

Got it. Okay, thank you. Daniel S. Fulton - President, Weyerhaeuser Company; President and CEO, Weyerhaeuser Real Estate Company: But in any given quarter, that number may move a bit depending upon the size of the land transaction.

Okay. Thank you. Daniel S. Fulton - President, Weyerhaeuser Company; President and CEO, Weyerhaeuser Real Estate Company: So included in the land would be routine sale of lots. We are land developers, selling to third-party builders as well as what we would call some non-strategic land, such as the land that we sold in Q4, which was zoned for commercial use.

Great. And then very quickly lastly, on the write-down, I realize that most of it was related to the Phoenix acquisition, but on the remainder, are you writing down finished homes, you're writing down homes in process, or are you writing down raw land, or is that heavily weighted to one or the other of those categories? Daniel S. Fulton - President, Weyerhaeuser Company; President and CEO, Weyerhaeuser Real Estate Company: It is heavily weighted to projects that are in process, where we evaluate the impact of changing pricing. In some cases it may be related to just the land position, but normally that's related to a housing project that's under way. It could be that we are building homes, it could be we are actually in the land development phase, but it's a routine evaluation of the project economics that causes to have to impair if we see prices declining significantly.

Thank you.

Next question?

Next question comes from Claudia Hueston with JPMorgan. Please go ahead.

Hi. Thanks very much. Most of my questions have been asked. But I just had two housekeeping issues. One, if you could just give some guidance around the tax rate expected for 2008. And then secondly, I was wondering if you might be able to quantify the impact of the maintenance you expect in cellulose fiber business in the first quarter, and then maybe the impact that you had in the packaging business in the fourth quarter, so as to know what to expect going forward? Thanks.

I'll take the first one, Claudia as it relates to the tax rate on a go forward basis, we are looking at 34% to 35% for the tax rate for 2008.

Thanks.

Okay. And your question was the impact of maintenance… the downtime in cellulose fibers?

Yes, please.

In the quarter ahead?

Yes.

Yeah. Well, there will be additional maintenance, it's primarily related to Longview operations. Then if you move over to Containerboard Packaging, it will be less maintenance downtime. We had significant plant maintenance downtime in the fourth quarter in Containerboard Packaging related to the first quarter.

Okay. I think in the press release you go through what the maintenance expenses were last year in each of the quarters. Is that a pretty decent guide to be using just going forward as we think about maintenance in the quarters?

They tend to follow the same pattern quarter-by-quarter.

Okay. Thanks.

Next question?

Next questions come from Peter Ruschmeier with Lehman Brothers. Please go ahead.

Thanks. Good morning. Steve, I was hoping to come back to your comments about being pleased with the level of interest and range of options for containerboard, and if I read between the lines, I guess I would interpret that to mean that you've got lots of options, you're not prepared to tell us what you might do yet, but that you plan to take some action, or previously, I think you'd indicated that one-year options was simply to retain the business. And so I guess, to ask differently, given that you have good interest, given you have a good range of options, can we… is it fair for me to rule out one of these options of retaining this business going forward, or asked differently, under what conditions might should be better off if the decision was in fact to retain the business?

Well, Pete, first of all, options are still on the table. So we haven't cleared one off. And I would also say on the option of retention, that business group is progressing very well on improving the operational performance of the business and we are pleased by that, but I'm not in a position to speak for the Board today on what options we favor or what direction we might take. We obviously take into account all of our long-term strategic views of things and of course we're mindful of the short-term as well. But there are no options off the table.

Okay. That’s helpful. And a quick question for Patty, if I could. I believe your over funded pension balance last year was 843 million for 2006, do you have an updated figure for us for 2007?

It will be significantly above that at the end of the year-end, closer to the $2 billion level.

To $2 billion?

Yes.

And can you help us to reconcile the --?

It’s closer to $2 million. Pete, I don't have the exact number.

No, I understand. But if it’s up over $1 billion, can you help us to understand how much of that maybe was planned performance versus discount rate assumptions et cetera, I mean, what accounts for such a large sequential increase?

Most of it is planned performance.

Okay. That's helpful. Lastly, I wanted to come back if I could to… I think it was Mark Wilde was asking about lumber prices and I want to ask the same question, I guess in the context of the US-Canadian Trade Agreement, which some thought at one point in time that would support a higher floor prices for lumber, if a third of our consumption is coming from Canada and we probably got the lowest lumber prices in Canadian dollars since the 60s or prior. Is there something going wrong with the US-Canadian trade agreement or asked differently, what impact on markets do you think the agreement is having through this downturn?

Well, this is Rich. It's probably a longer discussion with the economists that really are analyzing this thing in-depth, but again I would say there has been a tremendous amount of capacity go down in Canada and it is continuing, I mean, it is real blood bath at Canada. But again, this has just been an extraordinary drop in demand for lumber and it hasn't been enough and as I mentioned in my comments, as we look forward and we look at this continuing housing situations there will be more closures and so I think, it's just a fact that it's deeper and more rapid than anyone anticipated. I don't think it has much to do with the agreement and the Canadian mills are significantly disadvantaged.

Okay, fair enough. Thanks guys.

Thank you.

We believe we have time for one more question, Mary.

Our final question will come from Ross Gilardi with Merrill Lynch. Please go ahead.

Good morning. Thanks a lot. Steve, I was just wondering what impact did falling prices have on Timberland valuations, if any, particularly in the Pacific Northwest? And then, late on that, are you seeing significant enough timber harvesting deferrals to prevent sawlog prices from falling much further?

The falling prices or stoppage, it certainly would indicate that prices for Timberland would [inaudible], but again people evaluate these things over the long-term and normally bid a price that supports our long-term deal with the market. Having said that, I am not aware of any big Timberland sales that are taking place during the current time. With regard to your second question, I think, I'll defer to Rich on the timber question.

Would you restate the second part again?

I’m wondering if you are seeing enough in terms of other companies deferring their timber harvest to prevent sawlog prices from falling much further in the Pacific Northwest?

Yes. Well, it has been deferential in South as compared to the West, and I mentioned that in my comments. So in the South, we have a much heavier proportion of the ownership in small private landowners. There has been a pullback that seems to have firmed up sawlog prices more than in the West. We are now seeing pullbacks in harvest in the West, and in our own case we will continue to look at that. We are certainly not going to harvest into a weakening market and depress values even more. So I think, you are probably seeing on the front edge of it now in the West adjustments and pullbacks.

Okay. And then if I could just ask one final question on Containerboards, it's clear you are still exploring several different alternatives. I am just wondering, is tax-free spin-off a viable alternative if you decided not to hold, sell or merge the business?

Certainly, that is an option that we can consider amongst all the options we have, but at this stage we are not prepared to talk about any specific options.

Okay. Thanks very much.

Okay. Thank you.

Thank you for joining us this morning. And I will be available in my office for additional questions in probably about half an hour. Thank you. Have a good day.

Thank you. Ladies and gentlemen, that will conclude the Weyerhaeuser 2007 fourth quarter earnings conference call. If you would like to listen to replay of today's conference, please dial into 303-590-3000 or 1-800-405-2236 and enter the access code of 11105215 followed by the pound sign. We thank you again for your participation, and at this time you may disconnect.