Weyerhaeuser Company (WY) Q1 2008 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen and thank you for standing by. Welcome to the Weyerhaeuser 2008 First 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]. This conference is being recorded Friday, May 02, 2008. I would now like to turn the conference over to Kathryn McAuley, Vice President of Investor Relations. Please go ahead ma'am.

Thank you, Eric. Good morning. Welcome to Weyerhaeuser's first quarter 2008 earnings conference call. I'm Kathryn McAuley, Vice President of Investor Relations. Joining me today are Dan Fulton, President and CEO; Patty Bedient, Chief Financial Officer; Rich Hanson, Chief Operating Officer and Larry Burrows, President of Weyerhaeuser Real Estate Company. The call is being webcast at www.weyerhaeuser.com. The earnings release and material for this call can be found at the website or by contacting April Myer at 253-924-2937. Please review the warning statements 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. This morning Weyerhaeuser reported a first quarter 2008 net loss of $148 million or $0.70 per diluted share, a net sale of $3.4 billion. The first quarter includes the following after tax items: a charge of $40 million or $0.19 per diluted share for the closure of wood product facility and one box plant, a charge of $35 million or $0.17 per diluted share for real estate company asset impairment and a reserve, a charge of $11 million or $0.05 per diluted share for a litigation reserve, a charge of $11 million or $0.05 per diluted share to adjust environmental reserves related to closed facility. Excluding these items, Weyerhaeuser's net loss was $51 million or $0.24 per diluted share. A GAAP reconciliation of special items is available at our website in the earnings information package. Please turn to chart 4 in the earnings information package as I will next discuss the waterfall chart. Chart 4 is a bar chart detailing the changes in earnings per share on a segment basis from fourth quarter 2007 to first quarter 2008. As noted in the first bar on chart 4, Q4 2007 earnings before special items was $0.42 per share. Quarter-to-quarter changes and corporate earnings were as solid and will be proceeding from left to right across the waterfall chart beginning with the timberland segment. Fewer non-strategic land sales reduced timberland earnings by $0.05 per share. Lower wood products prices were offset by the clients in log costs and reduced sales and distribution cost, resulting in a $0.02 per share contribution to earnings from Q4 in wood products segment. Cellulose fibers earnings were lower by $0.07 per share. Higher price realizations were more than offset by cost associated with an annual scheduled maintenance outage at a primary mill and increased energy, chemical and fiber costs. Containerboard, packaging and recycling earnings were $0.02 per share lower. Modestly higher packaging prices were offset by seasonally lower shipment volumes and higher fiber transportation and energy costs. Real estate earnings were $0.49 per share lower than in Q4. Primarily, this was due to no land sales or lot sales during the first quarter. The price of homes closed was 16% lower and there were fewer closings in the seasonally strong fourth quarter. Lastly, corporate and other were $0.05 per share lower, due to tax-related variance. The final bar to the right of the page is the first quarter 2008 loss before special items of $0.24 per share. I will now turn the call over to Dan. Dan?

Thanks, Kathy. Before beginning today, I'd like to borrow from the vernacular of baseball and announce some changes in our lineup for this call. I'll begin with someone who is not on this call for the first time in more than a decade, Steve Rogel. As you know, Steve retired as CEO after our annual shareholder meeting, as part of the culmination of succession planning that he undertook shortly after joining Weyerhaeuser. From day one, he viewed the identification and preparation of the next set of leaders as an important component of his role as Weyerhaeuser CEO. He leaves me with a roster of top flight leaders, all uniquely qualified to unlock the potential of our business portfolio. Speaking on behalf of all of us who have worked with Steve on a daily basis, we thank him for sharing his industry knowledge, business savvy and sound counsel. All of us are better managers and stewards of our shareholders investment in Weyerhaeuser, because of his mentoring. At the Board's request, Steve agreed to delay his retirement in order to continue to guide important initiatives. One of the most significant was the strategic review of our containerboard, packaging and recycling business. This review culminated in our recently announced decision to sell the business to International Paper for $6 billion. Additionally, I want to recognize Steve's long-term commitment to improving workplace safety across Weyerhaeuser. In Steve's final quarter as our CEO, we achieved the safest operating conditions in the history of the company. In his ongoing role as Chairman of our Board, Steve will remain a critical force in steering the future course of Weyerhaeuser. I personally look forward to continuing my working relationship with Steve knowing that I can rely on his counsel as we make further changes to Weyerhaeuser to maximize shareholder returns. I'd also like to acknowledge a new addition to the line-up on today's call. For the first time, Larry Burrows joins us as the new President of WRECO. Larry is a 32-year veteran of the real estate business. He joined our Winchester Homes' subsidiary in 1989 and served as President of Winchester from 2003 until assuming his current position. I have worked with Larry for many years and I know that he is a proven leader with the experience necessary to guide WRECO through these tough market conditions. As a member of our senior management team, Larry will also play a key role in Weyerhaeuser direction setting. Before turning to current market conditions and the steps we are taking to position Weyerhaeuser in light of these challenges, I want to update you on two significant events. The first activity is an update of our active support for forest products industries ongoing tax reform efforts. Bipartisan support for this legislation continues to be strong and is growing. As you know, the Tree Act is in the Senate passed Farm Bill. Conference negotiations are well underway in the Farm Bill and were told that the Tree Acts inclusion in the final Farm Bill agreement is under serious consideration. We continue to work with the industry and Congress to seek passage of the Tree Activity, which will provide immediate value to shareholders and is compatible with many different business strategies. The second significant area of activity over the past months involves the work being undertaken to transition our containerboard, packaging and recycling business to IT. Transition teams from both companies are in place and we've submitted the agreement to the Department of Justice for review. Both companies remain focused on finalizing the transaction in the first... in the third quarter. I would like to acknowledge the focus and dedication of our employees in this business. As Rich Hanson will outline, this team produced outstanding results during very uncertain times. It may be ongoing needs of customers that met the ongoing needs of customers during the strategic review process and subsequent sale announcement while continuing to improve the operational performance of this business. Turning now to first quarter market conditions, the protracted recession in the housing market has had a devastating impact on our first quarter performance. We've gone from the market with 1.7 U.S. single-family housing starts in 2005 to today's rate of approximately 680,000. We saw evidence of this slowdown first in our wood products business in 2005 and then WRECO beginning last year. As reported last week, new home sales in March were at their lowest levels in 16 years. There continues to be a great deal of uncertainty in the financial markets supporting residential construction and sales even as regulators search for solutions to help stabilize the current situation. Excessive levels of inventory affect both sales of homes as well as new starts. Like others, we believe these factors will continue to put downward pressure on the housing market and by extension, wood products. Although it appears that prices for lumber and OSB may have hit bottom, there's still ways to go before the significant increase in demand. The lone bright spot in the economy to our portfolio is the benefit we're seeing from the declining value of the U.S. dollar. As a result, prices for our pulp are becoming increasingly competitive compared to those based on the euro and the Canadian dollar. We can't control economic conditions. Our focus is on controlling what we can by improving our operating position in the context of this challenging environment. This includes curtailments, permanent shutdowns and sales of non-core assets. We also must dramatically reduce overhead and support costs to align with the more focused company that we are creating. I am committed to making this happen. Over the past several years, you have seen us review our portfolio with a critical eye to enhance our ability to deliver shareholder value. By divesting our fine paper and packaging businesses, we've said that we understand that our future is not defined by our past. In the future, we'll continue with an increased sense of urgency demanded by current market conditions. The major moves we've already made allow us to be more nimble in executing any additional adjustments to our portfolio. Trees define us and our Timberlands business is at our core. Other businesses must compliment our Timberlands holdings and manufacturing will be done only where we have the technology, unique skill opportunity or competitive advantage and most importantly, the ability to do so in a capital efficient manner. Today's results are sobering, but we've weathered similar business cycles before. In my years with the company, I have seen that the best path lies and driving forward with purpose and conviction and we're doing that again. In the process we are creating a great future, a future that I am excited about. I look forward to our upcoming Analyst Meeting on May 30, in New York in order to continue the conversation. And now, I would like to turn the call over to Rich Hanson, our Chief Operating Officer.

Thank you, Dan. During my presentation this morning, I will reference several supporting charts that we posted in the Investor Section of our website. While it's not imperative to see the slides during my discussion you can find them by clicking the link to our webcast of today's call. To help you follow me, I'll reference the chart number as I start a new section. Before discussing our first quarter performance though I want to expand briefly on Dan's comment about our safety performance. For the first time in our company's history, we achieved a recordable incident rate of less than one. As one of the first safety champions here at Weyerhaeuser, I am extremely proud of this achievement and as the Chief Operating Officer I recognize that safer conditions translate directly into more efficient operations, which is critical when markets are as tough as they are. I will begin today's review of our operating performance with the business where it all starts, Timberlands. For those of you following the slides, this is chart 5. The sluggish housing market that Dan discussed affected our Timberland's business in the first quarter. This was particularly true in the west, where much of our harvest goes to products used by the California housing market. As a result of the significant slowdown in building in California, lower demand for logs dragged down prices in the west. We still command premium prices for our export logs, but market factors are pressuring us to lower those prices to be inline with domestic levels. The south remains strong, where we saw realizations actually increased as more Wood Products mills take downtime in response to market conditions; the region is experiencing a shortage of wood chips. This resulted in higher prices for fiber logs, which led to the higher realizations. Our log inventories increased during the quarter. This was primarily due to the beginning of our salvage operations to harvest trees damaged by December's wind storms in the west. To avoid the degradation of the wood, we're quickly salvaging as much as possible. The recently implemented Russian log tariff has allowed us to increase our flow of logs to our Korean customer base. Moving to Wood Products, I will direct your attention to chart 6 and 7. There's little doubt that we have extremely challenging market right now. Dan mentioned that we think we've seen prices start to stabilize, but demand remains very weak. Lumber shipments dropped 12% during the quarter, while oriented strand board declined 15%. In response, our Wood Products management team has aggressively reduced our production levels. Since the market peaked in early 2006, we have curtailed or announced the curtailment of nearly half of our OSB and engineered lumber capacity. In addition, we have taken nearly 30% of our lumber capacity out of production. These are significant reductions, and we're prepared to take further action if necessary to lower demand... to meet lower demand, I should say. We also continue to position this business for the eventual market rebound by completing the sale of our first [indiscernible] European business and several U.S. distribution locations. Next, I will discuss two businesses that performed well during the first quarter. I'll start with cellulose fibers, which is represented by chart 8. The performance of this segment was highlighted by outstanding operating performance and stronger prices. This resulted in higher price realizations of $37 per ton. As you know, roughly two-thirds of our pulp is fluff grade that's used in absorbent products, a market that generally has commanded higher prices. This was offset, however, by lower volumes, additional costs associated with plant maintenance and higher costs for energy, chemicals, and fiber. Virtually, all the decline in shipments resulted from the expiration at the end of the year of the brokerage agreement that we had with Domtar. The planned maintenance was for our Longview liquid packaging board mill which was down for eleven days. I'll close today with a discussion of our containerboard packaging and recycling business. Information for this segment is on charts 9 and 10. Realizations for packaging improved nearly 1% as we captured a full quarter of the price increases that began last year. We also benefited from the improved mix that resulted from our work to rationalize low-margin accounts. In addition, an increase in containerboard shipments partially offset the seasonal decline in packaging shipments. Box price realizations improved compared with the same time last year. In addition, weekly shipment volumes were higher despite the selective closure of box plants resulting from the rationalization of low margin accounts over the past year. Non-fiber unit cost declined $16 million compared with the first quarter last year, due to productivity improvements and cost reduction over the past year. This was a significant improvement during a period of rising chemical and natural gas prices. Overall, this business delivered a solid performance given the distractions caused by the strategic review that resulted in the amount sales of these assets to International Paper. I join Dan in commending the people in containerboard packaging and recycling for their focus and dedication. I will now turn the call over to Larry Burrows, who will discuss our real estate business. Larry?

Thank you, Rich. For your reference, WRECO's statistical highlights are included in the Investors section of our website on chart 11. Housing markets continue to struggle; the industry's spring selling season has not really materialized. This is normally the time of year when prospective home buyers are most active in the market requiring constructions spring and summer where homes to be delivered later in the year. Excess inventories of both new and existing homes plagued most markets as a result of today's depressed sales. There is approximately an 11 month supply of unsold new home inventory with nearly a 10 month supply of unsold existing home inventory. Declining home prices are now evident in every major market. Price discounting on sales of new homes is also prevalent in each of our markets as builders compete for a limited pool of buyers. While price decline and favorable interest rates have benefited housing affordability, the tightening of mortgage underwriting criteria has constrained demand, particularly at lower price points. We continue to respond to this difficult environment as follows. First, reducing the amount of land acquisition. Virtually, every land acquisition obligation has been re-underwritten to reflect expected market conditions, the resulting outcome being a modified purchase price in terms or a forfeited contract deposit. Second, balancing land development expenditures with the reduced forecast for closings. Third; decreasing unsold inventory, fourth; adjusting staffing to the current level of market activity, fifth; substituting smaller and less expensive homes. Let me briefly describe conditions in our individual markets. Las Vegas, Phoenix, and the Inland Empire region of Southern California remain our weakest markets characterized by excess inventory and increasingly hampered by foreclosure activities. The San Diego market continues to support new home sales in well located closing communities, although the market is far from risks. Market activity in suburban Washington DC is below trend, functioning at the same slow seasonal pace evident for several quarters. As we anticipated, robust sales in the Houston and Puget Sound markets moderated in the first quarter. Traffic and sales declined on a year-over-year basis and price concessions increased in frequency. Reduced sales has decreased our single-family homes sold but not closed, what we call our backlog to approximately four month sales. Our builders finance subsidiary, WRI is an investor and an investment manager. The principal sources of funding are institutional investors for whom WRI performs investment management services. The first quarter's $19 million charge reflects impairments on investment activity and a reserve to true-up investment management fee obligations. Residential land markets remain iliquid with few reports of sales transactions. In the early stages of this cycle, land values were resilient despite weak housing markets. As the downturn extends, major home builders continue to report significant impairments. These impairments translate to lower sales prices. Lower sales prices may force a compensating pricing reduction in our neighboring communities to remain competitive. As an operating discipline, we routinely reevaluate our land pipeline to gauge project profitability. Essentially, we re-underwrite our land under control for current and expected market conditions. This re-evaluation process is the basis for the impairment charges recognized in our results of operations. Weak demand, excess supply and stiffening mortgage underwriting standards make the outlook for housing over the balance of 2008 exceptionally difficult. We believe that the markets will stabilize when the following trends occur. First, buyers regain confidence that the new home they buy today will not be selling for less tomorrow. Second, new home buyers are able to sell their existing homes at a price that makes it worthwhile for them to sell. Third, contract cancellations return to historic levels in the 15% to 20% range. Fourth, large builders bring liquidity to the land markets to reinvestment and land values stabilize. Our local managers are seasoned and experienced. Their companies are well equipped to work through the near term and benefit as market stabilize in transition to recovery. Now, I will turn the call over to Patty Bedient to discuss our outlook for the second quarter.

Thank you, Larry, and good morning. The collapse in the housing market will continue to adversely affect our second quarter earnings. Markets for cellulose fibers and our containerboard packaging businesses should remain favorable. I'll begin the outlook with Timberlands. In the west, the domestic log markets continue to be weak, due to very low lumber demand and prices, although they appear to be stabilizing. The export log prices were flat in April, while higher freight rates continue to put downward pressure on price. Favorable exchange rates offset this to some degree. Fee volume in the west, should be up in the second quarter compared to the first, as we continue to quickly recover blow-down from storm-damaged stands. In the south, the realizations for logs are expected to be up slightly quarter-to-quarter due to continued strong fiber demand. Fee volume will be down compared to the first quarter as Great Mills continue to reduce production. Logging costs will likely increase, mainly due to higher diesel fuel prices and higher salvage logging costs. Overall, we expect Timberlands earnings to decrease slightly in the second quarter, compared to the first. Wood Products market conditions are expected to remain difficult in quarter two with differing trends in realizations by product line. We expect modest increases for lumber and OSB and a decline in average realizations for engineered wood. Shipment volumes of softwood lumber and OSB are expected to continue to decrease in response to weak demand, while engineered wood volumes are expected to increase seasonally compared to the first quarter. Log costs are anticipated to decline and pricing for byproduct residual should remain strong. We continue to monitor working capital levels closely as we navigate these challenging markets. Losses for our Wood Products segment will continue to be significant in the second quarter, although they are expected to moderate from the first quarter levels. Packaging sales realizations and shipments are expected to increase, primarily due to seasonal improvements in the demand for produce. OCC costs will likely be higher, due to seasonal fluctuations caused by lower generation, coupled with continued strong demand from China. Ship costs are also expected to remain at the high levels of the first quarter. Energy costs will increase, due primarily to higher natural gas prices in the second quarter. We do expect to take additional scheduled annual maintenance downtime in the second quarter compared to the first, and this will result in lower production volume and higher maintenance spending as these costs are expensed as incurred. Excluding the impact of reduced depreciation, we expect second quarter earnings to be comparable to the first quarter. Depreciation was suspended in mid March because these assets are now accounted for as discontinued operation. Depreciation for the full quarter would have been roughly $70 million on an ongoing basis. Sales realization in Cellulose fibers are expected to increase slightly in the second quarter, due to the continued strong market. This will be offset by higher maintenance and supply costs as a result of additional scheduled annual maintenance outages in the second quarter. As Rich noted, the mills continue to improve their operating efficiency. However, because of the additional scheduled maintenance downtime, we expect that earnings in the second quarter will be just slightly lower than the first. Larry has already described the challenging markets for our home building businesses. As a result of the continuing weak demand, we expect that the second quarter results from single-family home building operations will be comparable to the first quarter loss of $22 million before considering the effect of any impairment that may be required. During the first quarter, Weyerhaeuser Company spent just over $100 million on capital expenditures. Given the current environment, we have deferred spending on capital projects that are not already well underway or essential for safety, environmental, or regulatory compliance. As a result, we anticipate capital expenditures for the year will be between $400 million and $450 million. In addition, we are conserving cash by restricting all discretionary spending. Net cash flows in the second quarter should be significantly stronger than the first. As previously announced, we anticipate using a substantial amount of the proceeds from our containerboard packaging sale should pay down debt, which we expect to occur later this year. I will now turn the call back to Dan for some additional comments.

Thanks, Patty. Before we open the lines for questions this morning, I'd like to comment briefly on the conditions that Patty just described and what this means for Weyerhaeuser going forward. It will take unprecedented action on our part to deal with these economic conditions and the need to restructure our company in light of the portfolio changes that we've made. I think that it's important for everyone to understand just how seriously we're looking at the decisions that lie ahead. I believe in the future of this company and in our ability to meet this challenge. I also know however, that we can achieve the future success that I envision by taking incremental steps. Today's environment does not afford us that luxury. In the months ahead, you will see Weyerhaeuser take definitive steps to resize this company as a leader in the markets where we operate, positioning us to grow again when the time is right. Under Steve Rogel, we defined our strategy. We'll continue implementing that strategy with conviction and decisiveness. That's my focus and the focus of every leader at Weyerhaeuser. And now, I would like to open the call to your questions.

Eric, could you please open the lines. Question And Answer

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

Thanks everyone, good morning. I guess, first off, congratulations to Steve, Dan and Larry and good luck in the upcoming months. First question I had, until the transaction in containerboard is finalized, Rich, what's the strategy going to be within containerboard? You actually performed I think comparatively better than we would have expected given the tractions and frankly even relative to a lot of the other players in the market? So, what's the strategy here going forward until the transaction?

Well, the strategy is the same George and that is to continue to improve the results in this business against the business model that I have described and that included rationalizing the low margin business and optimizing the system economics, looking at regional costs and paying attention to the supply side and sourcing the business we chose to keep at the least cost. And that team has done a tremendous job of executing that strategy as you can see, it's been very gratifying and I think the momentum is still there, it's remarkable.

How do you fight against the natural tendency perhaps to try to drive now for more volume, maybe even at the expense of price, do you think or care about that much now given the next step in there?

No, that's the one thing that we have really addressed well. The discipline around looking at margins and volume is not the game, margin is the game. In addition in the mills, we have gained great efficiencies and in the way we operate, but that is in strictly more volume than significant cost reduction and productivity improvements.

Okay, that's helpful, thanks for it. I guess may be two questions to finish up. First off, maybe for Larry or Dan, what comments do you have on the proposal that have been offered in Washington about bringing more stability to the housing market and obviously to the related financing sectors, any thought on the Frank Dodd Bill or the other things that have been thought about?

We'll be interested to see what the folks in Washington do, but I thing any thing if they can do to kind of help stabilize the markets, particularly relative to foreclosure activity and what's happening I think would provide a very important stabilizing value to our markets.

Larry, do you have a preference at the juncture.

No, again but I think this is the function of been able to have actions that will really kind of bring back some confidence and help stabilize conditions in the market, give people confidence to come back into the market.

Okay, I guess may be the last question, I will turn over. Obviously, with the IP transaction you're going to have an even stronger balance sheet. Obviously, with your comments and the directional guidance for the second quarter, your remaining sectors are struggling quite a bit because of the macro economic issues out there. They could be improved potentially with consolidation and you'll have the balance sheet which to do this, you're also potentially down the road move, potentially move towards the REIT structure and that would heighten perhaps the need to have a stronger balance sheet in the future. So, realizing that you can tell us point by point, detail by detail what you're thinking about and how it's going to proceed. How would you have us think about some of these issues ahead of the company over the next two, three quarters? Thanks very much.

I'll take that, George. As we've tried to articulate, over the last six to twelve months, our primary focus is on our strategy going forward, and then having structure, whatever that corporate structure might be, follow that strategy. Our strategy is to find with Timberlands at our core, and as we continue to review the portfolio, as you know, we've made the change in fine paper, emerged with Domtar, now we're selling Containerboard. We have sold and are in the process of selling some non-strategic assets, and then for the balance of the portfolio, getting to your question, we continue to examine our non-Timberlands assets and strategies for their long-term strategic fit and the long-term potential to enhance shareholder value. So beyond that, we're looking that process diligently, don't have specific comments related to the... our balance sheet, other than as Patty has shared, the intent is to use significant proceeds from that sale to pay down debt.

All right thanks, I'll turn over.

Next question?

Our next question comes from Gail Glazerman with UBS. Pease go ahead.

Hey, good morning. I was wondering if you could talk in any more detail on Wood Products, that's encouraging to see that the loss has narrowed a bit despite what pricing and volumes did in the quarter. And I'm just wondering if there's any kind of, I guess, carry forward some actions and cost cutting that you did in the first quarter that we'll see kind of moving through the year or if that's just kind of an ongoing run rate?

I'll have Rich answer that one, Gail.

Gail, I mentioned that one of the things we have done is trimmed down our distribution system to focus just on the distribution centers where we're serving the residential markets and taking overhead out and sales costs associated with non-strategic business and non-strategic locations. Obviously, as we've taken capacity out with permanent closures, you're correct in assuming that we've taken out the highest cost capacity. We've taken out a lot of Canadian capacity, for example. We're bringing on the lowest cost mills in the west. We're taking out high-cost capacity in our western lumber system. We've taken capacity out by the way ahead of our original schedule as we've addressed these weak markets. But we'll be coming back in with obviously no increased volume certainly in these markets, but at a much lower cost. So those are just some of the things off the top that I could give you as examples, but you're absolutely correct, our cost base going forward is lower and will be even lower.

Okay. And did I notice in the footnotes correctly that you actually lost $1 million on land sales in WRECO in the quarter? Hello?

Yes, we're here.

Gail, this is Dan. I'm used to answering the WRECO questions and I'm trying to getting used to passing it to Larry.

Gail, I'll have to maybe take a mull again on that. I know we did have land sales in the home building business. I don't know whether we lost $1 million in the first quarter on them.

Okay.

I'll get back to you on that.

Okay, thank you. And just one last question, obviously less of a point going forward, but in containerboard in terms of box realizations, do you now feel that you've seen everything you're going to see from the kind of late 2007 price increase or as contracts roll off is there a little bit more to come?

Well, this is Rich. We are essentially complete, but you are also again correct in assuming there are a couple of more accounts that we still have to come open later on this year. But, we're essentially complete but there is still a little bit of carry over so there is some upside yes, in the price increase. And there is some more benefit ahead of us from the rationalization away from lower margin accounts that we haven't fully realized yet.

Okay, thank you very much.

Thank you, Gail, this is Larry. Let me kind of see if I can jump back in there. We did lose $1 million in land sales and I think, that's been a consistent part of our business being able to sell land, and we've talked about it, it's about 10% of our volume and it's uneven when it occurs. The reason for the loss largely just go around because we were able to finally sell a golf course at Snoqualmie Ridge out here in the northwest.

Okay.

Next question.

Our next question comes from Mark Connelly with Credit Suisse. Please go ahead.

Thank you. Just one question. Dan, when we look across the Wood Products business across the industry, there is a long-term pattern of running below cash cost for a fairly substantial amount of time at a lot of different producers. I'm curious if you can help us understand the decision process and the criteria that Weyerhaeuser uses on when to idle a mill and when to make the more serious decision about closing it. Just help us understand how you guys think about it?

Sure. I am going to have Rich take the first half of that and then I'll conclude with some comments, because this is something that we study very diligently, because of the situation in the market today. Rich?

Well, as Dan said, we have a very disciplined and regular process of examining that. And we look at what is the demand telling us about the capacity response that we ought to have. And so that's where we start. And then we have our mills arrayed by their cash operating costs, and we look at the impact of a closure relative to continuing to run against our view of where this market may be headed. So, we've given you the example of why the industry has been slow to respond on the OSB side, and that is because these closure costs are extraordinarily high, and that is, by that I mean, you could be looking at an excess of a year of the cash losses at today's prices by closing with regard to severance and so on. In the lumber side, it is a little more flexible because you can manage shifts and be a little more nimble in that response to the demand that's out there. But, Dan?

I think the other thing that occurs Mark, is that, every manufacturer and supplier has their own perspective on future housing starts and what the cycle is going to look like, so you may have differing responses that occur simply be based upon a different view of when market will turn around, and when it does, whether it's going to be slow recovery or whether it will be more robust. So, as Rich says, we go through that process all the time. It is driven from a market back what the demand is, but then depending upon competitor actions and we respond.

Okay. That's helpful, thanks.

It's a tough one as we go through this kind of a cycle.

Yeah, I can imagine. I can imagine, my congratulations to you.

Thank you.

Next question?

Your next question comes from Peter Ruschmeier with Lehman Brothers. Please go ahead.

Thanks, good morning, and congratulations to Dan and Larry. I wanted to ask a question if I could to Patty if you could help us to understand how the passage of the Tree Act has currently written, would have impacted your cash taxes in recent years?

Well, Pete in terms of the way that the Tree Act is currently included in Senate Bill, as we have said in the past, going back couple of years its somewhere around $150 million. That is the way that it's currently written we'll have to see what eventually does come out of the Congress in terms of particular specifics of whatever does get passed but right now, the guidance that we've given in the past is still the same.

Okay, that's helpful. Question for Dan, if I could, maybe an observation and followed by question. As we take a big step back and look at Weyerhaeuser, share prices flat in recent years, even though you've got some of the best Timberlands with the market, where values have risen very sharply in recent years in a private market, your debt is down more than $6 billion since the time Willamette was acquired and I guess against that back drop, Dan, I was curious if you could comment on the types of strategic actions you might consider and frankly, importantly the types of actions in your opinion you might rule out and if you can wrap all this up in one question, how you juxtapose your view of the world against your predecessor or the previous Weyerhaeuser management team.

I would say that the view... my view of world is not different than Steve Rogel's, we've been on a path recent years of refocusing our efforts on our Timberlands, as you commented, we made acquisitions, significant acquisitions like MacMillan Bloedel, Willamette industries. With those acquisitions came not only fiber business, but also significant timberlands. So those timberlands, for the most part or still part of our portfolio, we were building our strategy around those timberlands. We're focusing on businesses that we believe enhance the value of those timberlands either for instance through our lumber business where we might drive more value back to the timberlands and we're also focused on improving the returns from timberlands coming from our minerals activity higher and better use activity and most recently, our initiative with Chevron, which has the potential to create value through biomass, biofuel. The other businesses are going to have to earn competitive returns of recycle. They're going to have to have our positions that are defensible and allow them to operate top quartile in their industries and they are going to have to be able to support themselves in a capital structure, so that as we go forward we continue to improve value for our shareholders.

Okay. That's very helpful. If I could just lastly follow-up with perhaps a question for Rich, Rich, can you comment on the budget at a high level that you're thinking about for the harvest volumes for 2008, especially relative to their long-term potential? I would think they might be down a bit and then relatively, can you comment on how the Tree Act or possibly other tax advantaged structure possibilities might allow you to bring some harvest forward relative to your future timber harvest plans?

Well, Peter, I guess I won't speculate on how we might harvest with regard to tax consequences, but I would say from a strategic and operating standpoint, you're correct. Our harvests are at a lower level than they've been. I think we've discussed that in the past why that is. And going out into the future, there is upside potential in the south. I've commented earlier too that some of that upside was delayed a little bit by some of the storm damages that we experienced in our southern operations, Katrina being the most recent, but the ice storms before that. But still, significant upside. So we're at a low point, both because of the markets and our view of what makes sense for the maximization of present value, considering growth and value on those lands. In the west, right now, we're at a little bit lower level, but also, if there's some noise in there as we pick up the salvage that was damaged in the December wind storms. Does that help, Peter?

That's helpful. Thanks very much, guys.

Next question

Well, next question comes from Mark Wilde with Deutsche Bank. Please proceed go ahead.

Good morning. Dan, a couple of longer term questions. One, not long after Steve took over back in 1998 he came to New York and he kind of walked us through Weyerhaeuser in each of the businesses and he categorized each of them in kind of a serious of categories whether they were businesses you wanted to monetize, businesses you want to optimize or businesses you wanted to expand. Knowing that you are going through review work right now, when do you think you will be ready to do that sort of thing for us?

Well, Mark, it's an ongoing process. We're going to spend sometime in May in our analysts meeting talking about our Timberland strategy, one of the things that we haven't spend a lot of time on with you is the degree that, we use our R&D capabilities to innovate not just in our Timberlands business but, also our Wood Products business and Cellulose Fibers business. So, we are going to talk a bit about that. That's part of our strategy in trying to drive greater value for the products that we do manufacture, which also enable us to keep a competitive edge in our industries. So, I would say we're going to have some of that discussion in May, but, it will be an ongoing dialogue.

Okay, and I'd like to just get your reaction to an observation of mine which is, if you look at the company over a long period of time, it really it's generated very good cash flow from the Timberland and the land holdings and it just seems like over the decades one of the biggest issues is that when it tries to use that cash to diversify whether it's got into financial services or more recently just trying to make consolidation moves in the industry, it's often struggled?

That's a fair comment and when we talk about Timberland as our focus, some of it is an acknowledgment of that and we're committed to growing our Timberland's income and we are committed in the other businesses in which we are engaged that they support themselves and that they do not detract from our core business, which we continue to see as Timberlands.

Okay. And to the extent that you want to focus on Timberland and you may be want to do things outside of North America, where you either have to invest capital upfront to develop plantations or whether where tax considerations may not fit as well within a REIT, can you just... can you talk about that issue?

Well, as you know, we're active in South America.

Right.

And we have been pleased with our progress there. We got into Uruguay relatively early compared to some other investors as you know we're creating plantations there rather than buying existing Timberlands. We've also built a plywood facility there to help monetize that resource. We continue to look for expansion opportunities in that market. We've got... we've had good success so far in our South American strategy and we believe that we've got an opportunity there to leverage our Timberland's capabilities and we've created an excellent relationship with local government, based upon the way we approach our Timberlands and the stewardship that we apply to our assets. And so, we're optimistic about opportunities to continue to grow South America, but when the timing is right, we'll continue to invest in North America.

Okay. Last question I had, I have heard that there are some producers out west who are integrated, who are literally just shutting down sawmills and wood products plants and choosing to sell that fiber into the open market because the log prices are actually higher than the losses they would be generating if they just ran the stuff through the sawmill. Are you doing any of that right now, or how do you think about that?

Rich, can you address that?

Well, we have a lot of capacity curtailed back in terms of manufacturing. We're somewhat unique in that the large part of our harvest that's dedicated toward the Japan log export market. And so in our case, we're serving a firm market that looks firm going ahead, and we have cut back in the outside wood that we buy as we've downsized our systems. So I can't really comment about individual competitors, but that's really the changes that we've experienced.

Okay. Thanks, Rich.

Next question.

Our next question comes from. Chip Dillon with Citi. Please go head.

Yes, Good morning, and congratulations, Dan, on your new position.

Thanks, Chip.

First question is on the Containerboard sale. Is there... how much of the wood was your system getting from your own either forests or as residuals from your own wood plants? And is there any kind of an agreement? And what are the terms, roughly, of that agreement with IP?

Can somebody help me in terms of the ...our ability to comment on specific terms?

I don't think we can comment.

Yes.

Yeah. We really can't comment on the terms...

We do have supply agreements.

The terms that that we have with IP. There is a supply agreement, as you might imagine, in this kind of a transaction, but those specifics are confidential.

Okay. And then just quickly, on the succession timing, I remember when I guess Steve and the Board talked about him remaining through into the middle of '09, and I think we were... at least I was under the impression as CEO and I just didn't know if something had changed in the business or maybe it was just more of a personal decision to make the transition sooner, or am I just mistaken?

Well, Steve shared with the financial community that he had committed to stay through as late as the end of '09, based on what the Board wanted to do, and so we made a change in December when I took over as President, and it was really a joint decision between the Board and Steve that I would move up to CEO at this time, he continues as the Chair very much involved, so that there should be no negative connotation whatsoever in the timing of that change nor was there any real change in direction. I think the Board made a determination that they were ready to continue to move forward, shift Steve into a Chairman role. He's still actively engaged with me, and I hope that he'll be able to stay through the end of '09.

With an office actually there at the complex?

He's got an office here. I think he's getting a little more time with his spouse, who is happy to see him a little bit more. He is not in the office today and, as I said, not on this call today, but I see him in the queue. I'm waiting for a question to come in from him. He's engaged, but he's not in the office today.

Then the last question, as you look at the structure of the company, it seems to me that looking at one of the options for tax efficiency, obviously the Tree Act is a big one. It certainly would not go as far in terms of especially when the, if and when the 2003 tax changes expired in 2010. May not go as far as what you would see if your restructures REIT and it looks like that you all are making the decision just externally that is a path that either is just as to own risk or one that just doesn't seem to be one that's easy for you to do since it would seem to be very difficult to see you comport to that structure anytime soon?

We have not ruled out that structure. As I continue to say, we are focused on what our ongoing strategy is going to be. We've certainly been heavily engaged in attempting to gain passage of Tree Act which we believe is beneficial for the entire industry and will provide us with significant tax benefit and some greater flexibility as it relates to managing our portfolio but we continue to evaluate all alternatives with a back drop being that we will settle on a strategy and they will continue to monitor not only changes in tax law related to Tree Act but there could be potential changes that ultimately affect a reach structure.

Got you. Thank you very much.

Next question.

Our next question comes from Ross Gilardi with Merrill Lynch. Please go ahead.

Good morning, thank you. Just a couple of questions. First, I just wondered do you think we will see a lot more bulk Timberland coming to the market due to the decline in saw log prices and the record valuations that we're still seeing here and with that do you see potential for correction in private timberland valuations over the next 1 to 2 years?

I don't think we are prepared to speculate on Timberland values. There has been a lot of comment and analysis of recent trades. I do believe that Timberlands are likely trading at some value attribution to the timber itself, but also certainly the land and every piece is unique with respect to HPU potential, minerals potential and then I think also today we are seeing some value attribution that is very difficult to define related to biomass and the potential that exist and some of which we hope to demonstrate on our own property.

But just generally speaking, in the industry, do you see potential for... or are you seeing it now more supply coming on to market?

It has not been evident to us that there is significant more supply coming.

Okay. And then just on the Tree Act I mean, it certainly seems that we are pretty close in the Farm Bill you had to fight very aggressively to push the Tree Act this far. If the Farm Bill does get signed by the President, what's your level of confidence that you can get the Tree Act extended for a longer period of times given that we are headed into the heart of the presidential election and certainly seems the funding issues for tax reductions or getting harder to justify in Congress?

Well, as you know if the Tree Act is passed along with the Farm Bill at least it has been discussed today it would be passed and effective for a one year period and then following that it would go into an annual extender package. Experience shows that in that extender package predictability is relatively high. But I think the market will have to observe that for a bit. There are also issues that will come in... in terms of those extender packagers there is a number of tax initiatives that routinely rollover. R&D exemptions, sales tax deductibility and I can't comment in handicapped, but experience shows that high degree of likelihood that it would be extended if it falls into that annual extender program.

But do you generally proceed that being the process as opposed to being... as opposed to having an avenue or you can get the Tree Act potentially extended for three or five year period all at once or do you just sort of have to just take it year-by-year and hope that it gets renewed?

Seems that you have to take it year-by-year.

Okay. Thanks very much.

Next question.

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

Thank you. First, you said in your prepared remarks, in the months ahead you'll see definitive steps to resize the company. Am I right in interpreting from that that you have actually pretty much determined, figuring from a portfolio management perspective, what's your strategy is going to... what it is, and in the months ahead we are going to see that being executed or implemented?

The resizing comment is more reflective ongoing G&A and operating cost related to the support of our businesses. So, we have been through a process where we spun off our fine paper business. Now, we are going to process of selling the containerboard packaging business. If you look at the overall size of the company, containerboard packaging has over 14,000 employees. It's a significant part of our asset base, it's a significant part of our employee base and so the resizing that I am talking about is resizing support cost G&A. So, that is those businesses leave the portfolio the right size in our line in our operating cost in orders to support the businesses that remain in the portfolio.

you give us a sense of to that the type of our reduction in corporate expense that's feasible to this right sizing?

I don't want to comment on that right now because we were going through that process. Obviously, we were still supporting this business, but we are making plans today for what happens after that sale is concluded.

In terms of the net proceeds on that containerboard sale, can you update us of that $6 billion sale how much you expect to end up in net proceeds and help us understand that number please?

Mark, this is Patty and what we have said I think as you are aware that it is not of $4 billion and that will fluctuate depending upon one, eventual timing of the closing is of the sale and we were working through that, but at this point I wouldn't want to give you on more exact number.

Okay. I mean could it be... I guess as I look at $6 billion number and I realize it had a low tax base, but I assume there is also working capital that goes into the transaction and just seems like a very significant amount of tax leakage or is there something not obvious or is it possible that it could be as much as $500 million higher than $4 billion number?

It will be higher than the 4 billion and you are correct and that it does have a very low tax base as we have talked about in the past. So, the working capital number will be included in the $6 billion. So, it is not additive to the $6 billion.

Okay. And then lastly, in the past, we talked a little bit about you going out and doing all the paper work to get all the deed information on the Timberlands that you own et cetera. Can you tell us where do you stand in that process, have you gotten all the paper work on the Timberland deed or is that still not completed?

We... I'm not sure what comment you are talking about in the past. I mean we have all the information that we need on our Timberlands. We run our own title shop and so there is.

That's a good one.

There is really no uncertainty or ambiguity about any kind of documentation or records related to our Timberlands.

So, you have all the paper work on your Timberland ownership at this point on the deeds. Thanks.

Absolutely. We are in good shape. Yeah.

We have time for one more question.

Our final question comes from Richard Skidmore with Goldman Sachs. Please go ahead.

Good morning and thank you. I wanted to focus on building products for a minute. If I heard Rich correctly, you are running 50% of the capacity in OSB and 70% lumber?

That's correct.

Is that correct?

Correct.

And then can you just quantify how much of that is permanent indefinite or temporarily idle out of those two businesses?

It's next year, I mean that would take some more work maybe with Kathy to sort it for you, but I mean it's... no I can't comment right up.

I'll get back to you Rich and we will go through some of those facilities and which one we have announced for permanent closure.

Sure, and as you think about maybe when the market does comeback how easy do you think it would be and your thought process to when those mills, due come back it could restarted?

Well, it's more difficult with the oriented strand board piece and relatively easy with lumber, but in many of those cases in lumber we have, those are permanent closures and they are again I think in our financial information and working with Kathy we can tell you about the permanent closers component.

Great. I'll follow-up with Kathy. Thank you.

Talk to you later Rick.

Okay. I just you like to make couple of closing comments. Based upon our remarks and then listening to the questions, obviously there continue to be a number of questions related to our ongoing strategy and our focus for the future and so we look forward to continuing dialogue. I want to continue to make the point that positioning the company for future growth in areas that will enhance shareholder value, the questions around structure. We will be determined ultimately by our business strategy which has Timberlands at our core. We talked this morning about the challenging times that were in with respect to the housing market and how that's affecting both our wood products business and our WRECO operation. And so we're dealing with that as Rich mentioned. We have curtailed, we have downsized wood products in order to respond to decreases in demand. As we come out of the cycle, it will be our expectation that we would see recovery in a really reversal order as the way we went into this. So, when things started to slowdown in housing, we saw the result of that first in our wood products business in 2006 and then following that we see a chill up in WRECO part of that because wood products has a national footprint whereas WRECO has a original foot print and then as we come out of the cycle you know I think we'll start to see recovery sooner in WRECO followed by wood products based upon the competitive environment. So we're focused on that. We are focused as I said on rightsizing our support cost based upon the portfolio that we will become following the disposition of our containerboard packaging business and as we continue to evaluate our business portfolio, we'll continue to have dispositions of what we consider to be non-core strategic assets and we'll be defining our future around our portfolio that will support our Timberlands and will be supported by businesses that add value to the Timberlands and businesses that have the ability to meet their cost of capital and the competitors in their business that will position us over the cycle to create maximum value. So, I appreciate everybody's attention this morning. We welcome the opportunity to answer your questions and we look forward to seeing you in New York on the 30th of May and to the extent you've further questions today you can follow up with Kathy. Thanks very much.

Thank you for joining us today.

Ladies and gentlemen, this does conclude the Weyerhaeuser 2008 first quarter earnings conference call. If you would like to listen to replay of this call one will be available by dialing 800-405-2236 or internationally at 303-590-3000, enter passcode 11112724. Once again those numbers are 800-405-2236 or internationally at 303-590-3000, enter passcode 11112724. ACT would like to thank you for your participation. You may now disconnect.