International Paper Co (IP) 2005 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2005 earnings Webcast and conference call. At this time all participants are in listen-only mode. We will be facilitating a question and answer session towards the end of today's conference. (OPERATOR INSTRUCTIONS).

As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the presentation over to Mr. Chris Nines, Director of Investor Relations. Please proceed, Sir.

Good morning. My name is Chris Nines, Director of Investor Relations for Temple-Inland. I would like to welcome each of you who have joined us by conference call or Webcast this morning to discuss the results of the fourth quarter and full year 2005.

Joining me this morning are Kenny Jastrow, Chairman and CEO of Temple-Inland and [Doyle Simons], Executive Vice President. Please read the warning statements in our press release and our slides concerning forward-looking statements we we will make forward-looking statements during this presentation.

The format this morning is for Kenny to give a presentation on results for the fourth quarter and full year 2005. After the completion of this presentation, we will be happy to take for questions. Thanks again for your interest in Temple-Inland and I would now like to turn the call over to Kenny Jastrow.

Thank you, Chris, and let me also extend a welcome to all of you who have joined us this morning.

Net income in the fourth quarter 2005 was $24 million compared to $53 million in the fourth quarter of 2004 and 38 million in third quarter 2005. Earnings per share in the quarter are $0.21 compared to $0.46 fourth quarter of '04 and $0.33 in third quarter '05.

During the fourth quarter of 2005 special items totaled $0.09 per share made up of several items, including the repositioning of the wholesale mortgage operations and the closure of box converting facilities. I'd like to remind everyone that per share results for all periods reflect the effects of a 2 for 1 common stock split on April 1st, 2005.

Net income per share excluding special items was $0.30 for the fourth quarter of 2005 compared to $0.42 in the fourth quarter 2004 and $0.47 third quarter 2005. During the fourth quarter of 2005, we repurchased 1.5 million shares.

Turning to segment results. Corrugated Packaging. The fourth quarter 2005 Corrugated Packaging had a loss of $3 million compared to $24 million income in the fourth quarter 2004 and $15 million worth of income in third quarter 2005.

Forest Products, fourth quarter was $62 million compared to the fourth quarter of '04 which was $50 million and compared to $64 million in the third quarter 2005. For fourth quarter 2005, Financial Services had $55 million in earnings compared to 58 million in the fourth quarter 2004 and 67 million third quarter 2005. For the total then, fourth quarter 2005 segment earnings were 114 million compared to 132 million in the fourth quarter of '04 and 146 million in the third quarter '05.

Now let's look at each of our business units starting first with Corrugated Packaging. As I said earlier, operating income in the fourth quarter 2005 was a loss of $3 million compared to $24 million in income fourth quarter '04 and $15 million third quarter '05.

On the price front. Fourth quarter 2005, average box prices were down $33 a ton versus the fourth quarter 2004 average price. Fourth quarter 2005 average box price was down $1.00 a ton versus the third quarter 2005 average price.

January 2006, average box prices are up approximately $11 a ton versus the fourth quarter 2005 average. Price is also up approximately $20 a ton versus the low point in the fourth quarter of 2005. These box price increases reflect initial implementation of the first linerboard increase of $30. Additionally, a second box price increase reflecting the $40 per ton increase in linerboard will begin to be implemented in first quarter 2006.

Volume. In the fourth quarter of 2005, volume was up 4% versus the fourth quarter 2004. Fourth quarter 2005 volume versus third quarter 2005 was up 3.7%. It is unusual for us to be up this strong in the fourth quarter versus the third quarter because of our mix of business. However this positive comparison of fourth to third is an indication of the strength in box markets and our success in growing our business despite closing three box plants in the fourth quarter.

The three box plants that we closed in the fourth quarter of 2005 were Atlanta, Louisville, and also Newark. Our box shipments have outpaced the industry for the past two years despite the closure of 11 box plants since the third quarter 2003. And I might note that both Temple-Inland and the industry generated strong shipment growth in the fourth quarter 2005 versus fourth quarter 2004.

Freight. Freight costs were up 14 million versus the fourth quarter 2004 and up 8 million versus third quarter 2005. Wood costs were up 6 million versus fourth quarter 2004 and up 1 million versus third quarter 2005.

Recycled fiber or OCC. Recycled fiber costs were down $21 a ton versus fourth quarter '04 and down $19 a ton versus third quarter 2005. Energy costs were up $17 million versus the fourth quarter 2004 and up 15 million versus third quarter 2005. Currently natural gas prices are down $1.50 per million in MMBTUs compared with fourth quarter 2005 average price of the $12.50 dollars per MMBTU. Let me also note that our current usage of gas on an annual basis is approximately 18.5 MMBTUs; however throughout this year we anticipate low-end gas usage by 10 to 15%.

In order to reconcile operating income between third and fourth quarter the key issues were the hurricanes' effect on the third quarter and of course, higher costs -- primarily energy and freight -- as you see on the slide before you. I might note that our year-end inventories are down approximately 20% from last year, which reflects demand growth in our box shipments throughout the year 2005.

Now let me turn to Forest Products. Operating income in fourth quarter 2005 was 62 million compared to 50 million in the fourth quarter 2004 and 64 million third quarter 2005.

Lumber. Average price was up $14 versus fourth quarter 2004 but down $25 versus third quarter 2005. Volume was up 5% versus fourth quarter 2004 and flat versus third quarter 2005. Current prices are flat versus fourth quarter 2005 average price.

Gypsum. Average price is up $33 versus fourth quarter 2004 and up $10 versus third quarter 2005. Volume in the fourth quarter of '05 was up 10% compared to the fourth quarter 2004 but down 4% versus the third quarter 2005. Current prices, however, are up $15 versus the fourth quarter of 2005 average price.

In January 2006, we acquired Caraustar's 50% interest in the Standard Gypsum joint venture. This acquisition brings our gypsum capacity to two billion feet and during the first quarter of 2006 gypsum markets continue to gain strength.

Particleboard. Average price was down $25 versus fourth quarter 2004 and down $7 dollars versus third quarter 2005. Volume in the fourth quarter of 2005 was up 12% versus the fourth quarter of 2004 and flat versus third quarter 2005.

High-value land. During the fourth quarter 2005, high-value land income was $10 million versus 7 million in the fourth quarter 2004 and 3 million versus third quarter 2005. Average sales price was $6900 per acre in the fourth quarter 2005 and $7300 per acre for the full year 2005.

During the quarter, we also had sale of timberland to TEMCO. 6300 acres of timberland was sold to TEMCO under a long-term option contract for future residential real estate development. TEMCO is a long-standing joint venture between Temple-Inland and Cousins Properties. In addition to TEMCO we also have a joint venture with Cousins known as CL Realty. The gain reported in the fourth quarter 2005 from this transaction was $6 million and, additionally, $6 million of gain was deferred and will be recognized as development occurs.

Financial Services. Operating income in the fourth quarter 2005 was $55 million versus $58 million fourth quarter 2004 and $67 million third quarter 2005. Earnings in the fourth quarter 2005 were lower than previous quarters, reflecting more normalized loan loss provision and continued activity regarding repositioning of the wholesale mortgage operation. I might note that the sale of this operation was completed in January of 2006 and approximately 250 positions were eliminated as part of this repositioning.

On a look-forward basis, we anticipate first quarter 2006 earnings for Financial Services to be comparable with first quarter 2005 earnings per Financial Services, despite the fact that our real estate group will now be a new segment in the first quarter 2006 which will include Lumbermans Investment Corporation which was part of Financial Services in 2005.

On a full year basis, net income excluding Special Items was $1.90 per share compared to $1.64 per share for 2004, up 16%.

In looking at the full year, first, on Corrugated Packaging. In 2005 segment earnings were 120 million compared to 96 million in 2004. We were pleased with the earnings in Corrugated Packaging, despite the significant pressure on costs, particularly freight and other issues.

Forest Products earned 2005 -- excuse me, Forest Products earned 238 million in 2005 compared to 215 million in 2004. This is the second consecutive year of record earnings for our Forest Products group. Financial Services earnings in 2005 were $220 million compared to 207 million in 2004. Like Forest Products, this is the second consecutive record year of earnings for this group. Overall, then, segment income for 2005 was 578 million compared to 518 million in 2004.

Pension expense. In 2005, Pension Expense was $50 million. We anticipate for 2006 that the Pension Expense will be $3 million lower or $47 million. CapEx in 2005 was approximately $224 million. For 2006, we expect Capital Expenditures to be in the range of 80% of depreciation or approximately $180 to $190 million.

In Corrugated Packaging, looking at the year, business improvement totaled $67 million. For the two year time period 2004 and 2005 business improvement has totaled $210 million. As we move forward, we see a total of 300 million in sight with additional business improvement to be accomplished in 2006, heading towards a goal of 300 million.

In addition to that, let me emphasize again that Forest Products had record earnings of $238 million. Financial Services had record earnings of $220 million and when we look at cost for all of Temple-Inland, 2005 versus 2006 for a two-year period, our total cost is up only 2.5%, despite significant cost pressures in the marketplace.

The dividend was increased at the Board meeting on Friday 11% from $0.90 a share to $1.00 per share. This is the fourth consecutive annual increase in our dividend. We did repurchase shares in the fourth quarter of 2005. We have remaining 3.5 million shares under our current authorization; and we will continue to repurchase shares going forward.

Our real estate segment which will be noted in the first quarter of 2006 includes high-value land which today is 203,000 acres. This includes 30,000 additional acres designated as high-value at the end of 2005. In addition to that wholly-owned and joint venture acres which are -- will be part of the new segment totaled 20,000 acres so the real estate segment beginning 2006 has approximately 223,000 acres in this group.

With that let me stop and take questions. And once again, we appreciate you being on the call and for your interest in our Company.

(OPERATOR INSTRUCTIONS) George Staphos.

First question on the real estate segmentation, can you remind us how much of that 20,000 acres that's wholly-owned or in JV is actually wholly-owned? And I'm assuming this land would be further developed relative to the high-value land acreage. Would that be the correct assessment?

Yes. Hold on, let me get the acreage for you, George, just a minute -- I got that actually. It's -- I don't have the exact numbers here. We can get that to you off-line.

Ballpark.

But ballpark, it's about 60% in joint venture and 40% wholly-owned.

And this land would be further entitled and or developed, therefore, of likely higher value than the high-value land? Would that be the right way to think about it?

Part of this is land that we've actually acquired and in some phase of the development process, the 6300 acres that did transfer from timberland to TEMCO is obviously in an earlier state; but the balance of the wholly-owned and joint venture land is in some form of development.

Two other quick questions. On the business improvement, the remaining 90 million or so that's left to go, could you give us an estimate for what you might achieve in 2006, actually? Will it all occur in '06? Help us understand how much if you pro rata it, is in box and containerboard.

And last within that, how much -- if you've got the 210 million or so already can you scale the level of ease of getting that relative to this last 90 million -- in other words getting this last $90 million will it be harder or about the same level of difficulty as the first level of business improvement?

First of all it's all containerboard I'm talking about. Secondly.

In the 90?

Well, in all 300, yes.

Well some of it's in box some is in (indiscernible), correct?

It's several factors. But all 300 million involves our Container board and Packaging group, all right?

Okay.

The 300 million, the timing on that -- let me answer the question this way. First of all, we started with an initial goal of $200 million that we thought we would complete by the end of '06. We actually accomplished 210 million through the end of '05. So as we look at the additional 90 we have not been specific on the timing; however, I will say to you our pattern has been to be ahead of schedule regarding this issue of business improvement.

Clearly the easier dollars were the first dollars. But let me say to you that as you know, we've been on a tear regarding the issue of increasing asset utilization through the strategy of closing down boxplants, increasing business and doing more with less. Now the three boxplants that closed in the fourth quarter will impact from a financial perspective 2006, going forward. So we have that to look forward to in 2006.

So I would say to you that our pattern, George, has been to do this ahead of schedule and we are very focused on that.

Last one and I'll turn it over, Kenny. On the October price [site] so should we expect there is another ten to go on that if point-to-point you are up 20?

We are in the process of implementing the two price increases through our box system and, as you know, there are lots of different customers and lots of different agreements with customers. But we are in the process of implementing both the first and the second price increase through our box system.

Let me clean up one point here. Doyle made a comment to me while you were asking the question. I made a comment that Temple-Inland total cost increase was up 2.5%. Let me be sure to be clear about that. That is cost from '03 through the end of '05.

Next question.

Rich Schneider.

I just want a clarification on the $10 million gain on land sales in the quarter. Does that include the $6 million gain on the TEMCO transfer?

No. The $10 million is high-value land. The $6 million was reflected in Forest Products, not high-value land section. And, Rich, there's an additional 6 million that was deferred. Let me once again emphasize that this has been a long-term agreement between Temple-Inland and Cousins. It's actually moving more timberland to the issue of development and real estate.

As you said in the first quarter, you are going to be breaking this out and you mentioned on Financial Services that, obviously, it won't include [Lumbermen's] going forward. Could you give us an idea of the profitability of Lumbermen's in the fourth quarter?

Since it is not segmented I will hold comment on that, Rich. When we publish the segment for first quarter 2005, we will also give you a look back at that business because we will have some comparable data.

All right. Just a couple of quick questions on your box operations. You mentioned your OCC costs were down significantly versus the third quarter. On a delivered basis, did you get much benefits or were some of the OCC drops in costs offset with the higher freight costs? Or how do you want to look at that?

If you look -- and you may not have this in front of you, but we gave a reconciliation of '03 to ;04 and in that reconciliation which is page 10 of the slides, OCC was down. And that affected the quarter-over-quarter by $6 million and higher costs. Principally energy and freight will reflected in the bottom number there of $25 million.

Now energy was $15 million of the fourth quarter '05 compared to the third quarter '05.

Okay. I was a little surprised with your comment about your box prices been down only $1.00 from the third quarter level. Was there any mix involved because other companies have been reporting substantially lower prices or more of a drop-off in price in the fourth versus the third.

Clearly companies have different mix. I would say to you without being specific on price but as I've said in my comments, I think it is unusual for the fourth quarter to be up over the third as strong as it was for us given our mix. And I think this is, as I said, reflective of better box markets.

Then just last, how are you going about reducing your natural gas by 10% to 15% this year? Does that involve some capital programs?

Yes. We continue to look at issues related to alternative fuel principally burning bark. And as we move through the year. we will have some projects that increase bark burning and lower the amount of natural gas. But all of that is contained within the CapEx numbers that I gave you.

Edings Thibault.

I was also hoping I could ask you a question on the TEMCO. I assume the acreage that were transferred to TEMCO are included in your 20,000 count in terms of the wholly-owned and JV since they are now in JV. Is that correct?

That's correct.

And in reference to the first 6 million and the second 6 million that you'll get upon sale of the land is that, I understand the land transfer price was set. As I recall, perhaps, as far back as 1991 as far as the option agreement. What kind of agreement is in place? Is that estimate or is that a contractual price that you anticipate getting?

No. We actually received cash at Temple-Inland from the TEMCO joint venture. But because we own one-half of the joint venture we can only recognize one-half of that into income. So the remaining amount is deferred and will be recognized as TEMCO develops the property, but it will be recognized at Temple-Inland.

Great. An additional question on the Special items that you excluded. Is there any way to get a quick rundown perhaps pre and post tax on those special items?

Well, the after-tax amount was $0.09. Pretax, obviously, you can back out the tax effect on that; and page 3 of our Webcast does have a breakdown of each one of those on an after-tax basis. So if you will take a look at page 3 I think you'll find the answer to your question.

Mark Connelly.

Just two things. First, can you remind us what the Company's goals with dividends are? Whether you are targeting a payout or a yield? You know 4 consecutive increases have been pretty much kept pace on the yield side. Curious what the goal is there. And, second, back to Rich's question on energy. Are there opportunities in shipping and logistics to save money for Temple? Or is it primarily going to be at the mill?

First of all on the dividend question, Mark, we have been consistent for a long time, regarding returning cash to shareholders. And this includes dividends as well as repurchases. Now this is the fourth year in a row that we have increased the dividend which is reflective of our confidence in the cash flow generation of our Company. I'd also remind that in 2004 on top of the dividend we also paid a special dividend which, on a presplit basis, was $1.00 a share.

So we have dividends as a constant review, part of our capital allocation process. We don't have a specific formula that says a part of earnings or a yield factor but, clearly, we look at those factors. But I would say to you in general, we think it is important. We think it is a good discipline on management to pay a dividend; and as such we are proud of the fact that this is the fourth year we have increased the dividend.

Now on the energy issue -- what was the question again? I'm sorry -- .

Question is beyond what you are doing at the mills that you already talked about, whether there's anything on the shipping and logistics side that you are working on to cut the transportation side of that cost?

I made comment -- thank you for the question. I made comment in the prepared remarks that, for 2004 and 2005, our costs -- when you look over time -- are up only 2.5%. And part of that is reflective of better logistical and supply chain issues that bubbled up out of Project [Tip] where we began to run the supply chain on a single company approach. I might say to you that it is interesting, because as you know we've been closing box plants and in addition to the lowering of fixed costs by having more business through less plants, we actually have less shipping points. So we are shipping paper to less points and as a result of that that additionally helps on the cost side. Now we have three less boxplants that will be in our system next year and we have, clearly, less shipping points next year than we do this year which will be helpful on the cost side.

And I will say to you we are very focused on supply chain issues and expect to have continued improvement going forward from here.

Chip Dillon.

My question first of all is, can you give us some tax rate guidance for 2006 and where you expect that to be?

Yes. The statutory tax rate of course, Chip, would be for federal purposes 35%. During 2006 we will began the -- to phase out the benefits of alternative minimum tax so that by the end of the year, our cash tax rate will begin to approach what the statutory tax rate is.

And your book tax rate has been going close to something in the high 30s. Is that likely to stay the same including, I guess, other taxes?

We expect the book tax rate to be around 38% this year, which includes federal as well as state. So the federal statutory of 35 plus state -- be generally in the 38% range.

Then just to help us understand on the transfer to TEMCO, of the 6300 acres, it looks like you're booking about $1000 of acre profit now and $1000 as it gets developed. Yet on the sales of this raw land that you've been reporting the last few years you've gotten quite a bit more than that. Can you just help us understand the difference?

Right. As I said in my comments, this acreage has been under a very long-term option agreement to TEMCO so the price was set years ago. So it's not reflective of its current value. It was transferred at the option value.

Got you. Makes sense. Then when you look at the reclassification in the first quarter, first of all, you mentioned the Lumbermen's income. What is that a couple million a quarter, roughly? Is that a good place to start as a guesstimate and I guess we would add to that what we think your income will be from HBU land sales and income from development activities?

I didn't comment specifically about Lumbermen's. What I said was, Chip, that in the first quarter of 2006 we will segment the real estate group which includes Lumbermen's, its joint ventures and the high-value land. In that segmentation, we will not only show you the first quarter but we will give you a look back so you can have some comparable data quarter-to-quarter. Until we do that we cannot make comment on it.

Mark Weintraub.

First, just one small detail question. The 3 million on the repositioning, the wholesale mortgage operations. Did that run through the financial services or the other line?

That was a special item not through financial services. That was $3 million a month.

On the 30,000 acreage that you are designating as of the end of '05 as HBU, what's the thought process that goes through deciding it's okay, now time to start designating this acreage as HBU?

As you know we've been consistent for a long time saying that as we continue to focus on the high-value land in this real estate segment that we would expect to have some timberland migrate from timberland to high-value. So we constantly look at timberland sites and judge whether we think, long-term, it will have real estate value. If it does then, in fact, we will move it to high-value. Now over time, we have moved land from timberland to high-value just as we've sold some off. But on a net, net basis we've actually increased high-value land.

Is there a timeframe that you would like to use? I guess eventually one could argue that almost all your Georgia and Alabama acreage could ultimately be higher, better use. What type of constraints do you put in making the decision, okay, this acreage now really merits HBU classification?

First of all the timberland becoming high-value reflects in our judgment the potential that we can move it from timberland value into a user value and then ultimately up the chain to be developed and that's the template we use to determine. Clearly Atlanta's growth, real estate activity, economic activity are drivers of these issues but over time, we expect that more of the timberland will, in fact, migrate to high-value markets.

Can you give us a sense as to how actively you are in the process of getting properties that make up some of this 203,000 acres entitled?

Yes. We actually have several parcels out of the 200,000 acres that are under very active review and worked to become entitled. And if I'm not mistaken, the number of acres on that is somewhere in the neighborhood of 20,000 acres. The largest of that of course is Wolf Creek, which is a project that is west of Atlanta's airport, and looks to us has long-term real estate potential. So on those sites we are very active in terms of working with various governmental authorities on water, roads, sewer, etc. And to the extent activity develops on other sites, then we will become active on them too.

And to the extent that the Wolf Creek negotiations go well, what type of time horizon is viable as to when that project might be entitled. And also is the South Fulton Parkway -- if you could just remind us when that is expected to be completed?

I believe the completion of that is in '06. Obviously it's very hard to predict timing on things but one of the things we are going to do when we segment the real estate group in the third quarter is put up a Website that will have a lot of the information relative to activity and what we're doing and where we are headed. So that we provide transparency to these issues.

As I've said before although we intend to do that Day 1 when we segment, I think over time we will continue to get better at that because certainly we want transparency for these issues.

Mark Wilde.

First, a couple questions on these box prices. What you are trying to do right now with box prices, is that simply to just recoup the higher price of board or are you doing anything to take into account higher freights and other costs at the boxplants themselves?

I think over a long period of time, Mark, you've seen box pricing follow board pricing. But as I said earlier we have all kinds of different agreements with different customers. So let me just say that we are in the process of moving through the box systems the previous two price increases in linerboard.

So you wouldn't do anything else that would try to incorporate costs at the boxplants themselves?

Well clearly we got all kinds of factors that make up pricing decisions. I would say to you that it has been traditional that box prices follow linerboard.

Also there's been some talk about trying to move box pricing on some of these bigger contracts away from the trade papers. Do you have any thoughts on that?

First of all, one of the real benefits of the Corrugated Packaging business in our view is the fact that there are multiple multiple channels of customers. And as a result of that there are multiple multiple different kinds of transactions. So one size doesn't fit all. And, clearly, as we work with customers we try to find effective pricing mechanisms that work for them and for us; and some of those are based on publications but some of them aren't.

So I would say to you that there are issues related to customers and as I said, not one size works for all and we don't have just a typical approach.

Turning to costs, you said you had taken out $210 million of cost out of the packaging business.

I said business improvement was up 210 million.

Okay, business improvement. How much of that is on the mills, do you think, versus the converting businesses?

It's several factors. Thanks for the question. First of all integration, as you know for us, is over 100%. As a result, this gives us the ability to have an internal customer -- i.e., the boxplants -- that demand paper from the meals. So in terms of downtime we did not take downtime for market-related reasons in 2005, simply because our mills were hustling to keep up with the boxplants. That's part of it.

Secondly when mills run more full, they run more effectively and we've had much better mill performance because they are not stopping and starting all the time.

Thirdly, Project TIP which was a very significant project -- I alluded to it earlier -- was over $75 million in lowering of annual costs and a good portion of that has gone to the Corrugated Packaging group. And that of course is part of the $210 million.

And, finally, this very effective strategy of upping asset utilization has paid financial dividends. Because we have lower cost throughout our converting operation and we continue to expect to get better going forward.

Last question. Can you talk about further cost initiatives elsewhere at Temple-Inland away from Containerboard and Packaging?

Yes. I tried to give a focus on that when I mentioned that for a 2-year period now cost -- and I'm talking total cost now, not unit cost and this includes despite growing power businesses and facing cost pressures -- total cost throughout Temple-Inland are only at 2.5%. And I will assure you that going forward, we continue to focus on that issue. Because it provides substantial operating leverage to be able to have cost increases mitigated by activity that we do here.

Is there anything kind of concrete you could put on the other two segments of the Company in terms of benefits are the next year or two years or three years?

As you know we just acquired Caraustar's interest in the gypsum operation which now gives us full control of our gypsum assets and we are pleased with that transaction.

Peter Ruschmeier.

Wanted to come back to Mark Weintraub's question about the 200,000 acres. If I understood your answer I think you said that roughly 20,000 acres is in the process of being entitled. Does that mean that 180,000 acres is yet to be entitled? And can you give us some sense as to -- just a high level view as to your expectation, as to the number of years five years, 10 years -- just the kind of time period it would take to entitle those properties?

We have been careful not to make investment about that because it's almost impossible to judge that. What I will say to you is, we understand that time and time value of money is very important. So we have in view things that we believe are most active and most right and we are currently working on that stuff. But in terms of giving a timeframe, I just can't do that.

Shifting gears, if I could, to the bank. Your loan volumes have been fairly flat over the last couple of years. I was curious if you could comment on whether you plan to maintain your loan volumes or grow them again? Kind of where your focus is going forward within your portfolio?

It's a good question. Clearly, loan markets have been competitive. I would say to you that the fact that we have record earnings for two years in a row now, two consecutive years in a row is reflective of our ability to be competitive in the marketplace and generate loans. Without loans you don't generate earnings.

So despite the competitiveness in the markets, we have held our own relative to competition. I would say to you as you go forwards, the economic activity of the U.S. certainly has an impact on loans and as we go forward, we intend to grow the loan portfolios.

Are there any segments in particular that you're looking to go grow?

No. We are somewhat opportunistic in that because you have to -- in our view -- be somewhat nimble in the product line and we have various types of loan products ranging from oil and gas to real estate to construction lending to senior housing to corporate type lending. All kinds of different products and not all markets respond the same. So I think the key is to the opportunistic and we have been and will continue to be.

Last question if I could? Curious if you could help us with some of the puts and takes on the salvage logging efforts in the South? Did it help you, did it hurt you? As you look at your harvest profile going forward any expectation for changes better or worse in the next year or so?

No. We reported in the third quarter the impact of the hurricanes on us, in -- relative to those issues. I would say to you that throughout the end of the third and fourth quarter, I think the actual harvest levels relative to the hurricane issues were slightly higher than I think people expected. But on a long-term basis including as we look at '06, it doesn't have a significant impact on us relative to our harvest levels and our strategy. But in terms of capturing some of the down wood, I think generally the view is, that there was more captured than people initially thought could have been.

Thank you very much and congratulations on the quarter.

Richard Skidmore.

Just a couple of quick follow-up questions. First natural gas, correct, that you don't hedge? And second question, your usage of natural gas first quarter to fourth quarter. Is that seasonally up or would that be essentially flat?

We've given out information relative to our annual usage which is about 18.5 MMBTUs so it's -- it is not the same every quarter. But we are running operations, it's fairly close but it's not exactly the same, all right.

And you are currently not hedging natural gas, correct?

No. Our basic strategy is to that natural gas -- our job, in our view, is to try to have the lowest cost. If we hedge in our view we add to the cost structure. Now we accept some variability but we add to the cost. That doesn't mean that we don't have some forward contracts for several months, because we do. But on a philosophical basis, we do not have significant hedges relative to gas because we think it ups the total cost long-term.

Just a couple of other questions. First on the business improvement. Was that a run rate at the end of the year of 300 million or a cost savings of 90 million in 2006?

The 210 is the amount of business improvement from all factors that make up business improvement which are mill cost, converting cost and volume through the '04, '05 time period. And then the additional 90 million is more to come.

And then lastly, in your 10-Qs, in the Financial Services business you have the real estate operation, noninterest income, non-interest expense line, is there anything else in that line besides Lumbermen's and the Cousins joint venture?

I'm not sure I know the specific line. I would have to take a look at that off-line. I'd have to look at the Q2 to answer the question.

Dana Richardson.

In the Corrugated segments, you mentioned a number of factors that resulted in the $3 million loss but I didn't see any mention of the cost that it took you to close the converting facilities and I was wondering how that -- was that part of the $3 million loss or was that reported somewhere else?

Yes it was reported somewhere else. On page 3 the opening page of my presentation which is on the Web, converting facility closures were part of the $0.09 Special Items. Of the $0.09 there were about $0.02 or roughly $3 million.

Okay. Just parenthetically, I don't see the printable slides on that presentation on your Website. Am I missing something or are they going show up later today?

If you don't have them we will get them to you because they're supposed to be on the Webcast. We will get those to you.

My other question was, in the other line in the Forest Products segment, I notice that you had $16 million more 66 million versus 50 million a year ago. And I assumed that 9 million of that comes from the $3 million difference you had in high-value land in the $6 million gain on TEMCO but where does the rest of it come from?

In the prepared remarks and also once again on the slides on page 11 and page 12 of the slides, part of it has to do particularly on a year-over-year basis with prices -- for instance, lumber prices were up $14 fourth quarter 2005 versus fourth quarter 2004. Also volume in fourth quarter 2005 was up 5% versus fourth quarter 2004. So it's both volume and price on lumber. Secondly if you look at gypsum, the average price for gypsum is up $33 fourth quarter of '05 versus fourth quarter of 2004; and volume for the same two quarters '05 to '04, the fourth quarters were up 10% in '05. Once again (indiscernible) price on gypsum.

But when does that show up in the Pine Lumber and Gypsum Wallboard line?

That's all reported in Forest Products.

Excuse me?

It's all reported in Forest Products.

I'm referring to the last page of your earnings release where you break down your revenues in Forest Products and to find lumber, particleboard etc. the bottom line says Other. And I'm trying to figure out what the difference in that other line is.

Hold on. I'll have to get the page that you're talking about. Most of that has to do with high-value land sales, TEMCO and other issues related to sales of land like that.

So it's all related to land sales that stuff.

Yes there you go. I'm sorry, I didn't understand your question.

Just two quick ones on the balance sheet. What's your total debt to capital and what was your finishing equity for the year?

Let me refer you to our published information on that which is roughly around 41.5 to 42 on a debt to capital. And the equity account, I don't have the specific number in my hand here.

There are no more questions in the queue.

Thank you all very much. We appreciate your interest in Temple-Inland and for joining us on the call today. We stand adjourned.

Ladies and gentlemen, we thank you for your participation in today's conference. This concludes the presentation and you may now disconnect.