威爾豪瑟 (WY) 2004 Q4 法說會逐字稿

Good morning. My name is Michelle, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Weyerhaeuser quarter four earnings conference call. (OPERATOR INSTRUCTIONS). Ms. McAuley, you may begin your conference.

Good morning. Thank you for joining us this morning on the Weyerhaeuser year-end 2004 earnings conference call. This is Kathy McAuley, Vice President of Investor Relations. Commenting today on earnings will be Steve Rogel, Chairman, President and Chief Executive Officer, and Dick Taggart, Executive Vice President and Chief Financial Officer. Also joining us in the room today is Steve Hilliard, Vice President and Chief Accounting Officer. This call is being webcast at www.weyerhaeuser.com. A copy of the earnings release and presentation slides can be found at our website. If you need any materials, please contact April Meyer at 253-924-2937.

Please read the warning statement in our press release and on our presentation slides concerning the risks associated with forward-looking statements as we will be making forward-looking statements during this conference call.

This morning Weyerhaeuser reported fourth-quarter net earnings of 199 million or 82 cents per diluted share on net sales of 5.9 billion. Fourth-quarter earnings include the following after-tax items, a charge of 34 million or 14 cents per diluted share for the early extinguishment of debt; a gain of 24 million or 10 cents per diluted share on the sale of facilities; a charge of 16 million or 8 cents per diluted share for the impairment of assets in the Company's European manufacturing operations; a charge of 16 million or 7 cents per diluted share to recognize a change in the method of estimating worker's compensation liability; a charge of 15 million or 6 cents per diluted share with a net book value of technology donated to a University. These items totaled 25 cents per diluted share.

Quarter by quarter GAAP reconciliation of special items for 2003 and 2004 is available on our website with the presentation materials for this conference call.

I will now review the fourth-quarter performance versus third quarter of 2004. Timberlands. Due to good weather in the West and ample log supply, Western log prices declined 1 percent. The situation in the South was the opposite. Log prices rose 3 percent as the region was impacted by log shortages and cost increases associated with the September hurricanes. Domestic log volumes declined over 9 percent from the third-quarter levels.

However, in the export market, log volumes increased nearly 18 percent. Most of the increase was due to the late selling of two vessels in the third quarter, which we noted on our third-quarter conference call. Export log prices were down less than 1 percent.

Wood Products. Softwood lumber prices declined $57 per thousand board feet, and lumber volumes fell about 6 percent in the fourth quarter. Plywood prices decreased $45 per thousand square feet, and volume declined 3.5 percent. OSB prices fell $64 per thousand square feet, and volume was down nearly 6 percent.

Pulp and Paper. Average pulp prices decreased $23 in the quarter. However, specialty and fluff pulp prices increased, offsetting some of the decline in papergrade prices. Pulp shipments rose 4 percent, but pulp production was down 2 percent as a result of maintenance downtime. White paper prices increased $46 per ton on average from Q3, while white paper shipments fell 6 percent.

Containerboard, Packaging and Recycling. Nil net realization for containerboard increased $15 per ton in Q4 from Q3. Production was down 1.1 percent due to downtime. Box prices increased $22 in the quarter. Sales volumes were off 4 percent. OCC prices were flat to down slightly in the quarter.

WRECO. Single-family home closings increased 22 percent in the fourth quarter from the third quarter, and the average home price increased 8 percent. The backlog of homes sold but not closed is running about six months.

Referring to the waterfall chart which is on our website, the major impacts which describe the fourth quarter are as follows. Beginning with the third quarter of 2004, non-GAAP earnings were $1.62 per share. Lower wood prices for Wood Products and pulp more than offset the improved prices we experienced in paper and containerboard packaging, resulting in a negative impact of 38 cents per share. Lower sales volumes accounted for a negative 3 cents. Higher raw material costs, largely higher log costs in the South and Canada were negative 10 cents.

The impact of higher manufacturing costs associated with downtime and higher energy costs at Pulp and Paper and Containerboard mills and Wood Products facilities was a negative 29 cents. Strong results in WRECO contributed 17 cents per share, and other netted to a gain of 7 cents per share. The combined effect of these impacts resulted in a non-GAAP earning of $1.07 per share.

I will now turn the call over to Steve Rogel.

Thanks, Kathy. Those of you who joined us in New York last spring may remember that I said we had our ship headed in the right direction. We felt confident because we had the people, systems, assets and processes in place to produce strong results. Our 2004 results validated that optimism. We finished the year with sales of $23 billion and record net earnings of $1.3 billion. Our improved operations generated $1.2 billion in free cash flow. We made significant progress in paying down our debt and are now at the upper end of financial target range.

We achieved our $300 million synergy run-rate from the Willamette acquisition earlier than expected. But as the fourth quarter demonstrated we are not immune to occasional rough seas. Despite our hard work, there are still occasions when unforeseen events can combine to produce a weaker than expected performance.

Kathy has just walked you through the effect these events had on our earnings. But I would like to spend a few minutes focusing on two issues that had an unusual effect on our performance -- raw materials and manufacturing costs.

Current weather conditions, especially those in Southern California, are receiving a lot of attention these days, but we faced some significant and unexpected weather in the fourth quarter. In Canada, for example, an unusually warm and wet fourth quarter slowed logging operations. As a result, several of our Canadian Wood Products facilities experienced near out of log situations, resulting in lower production.

Even when we could source our operations, the weather had an effect. Poor logging conditions, for example, prevented the harvests of trees meeting the specifications of our Canorik (ph) engineered lumber mill. This negatively affected production of the mill.

But Canada was not alone in experiencing bad weather conditions. Nearly every Southern mill also experienced log shortages due to weather. Not only did the wet weather hamper normal harvest activities, many logging crews were involved in salvage activities following the Florida hurricanes. These two conditions combine to create unusual shortages of woodfiber in the South.

In addition to wet weather, our Wood Products performance was affected by another factor, maintenance. As we have mentioned in previous quarters, we delayed scheduled maintenance at many of our operations due to strong market conditions. In Oriented Strand Board, for example, we pushed much of our scheduled maintenance into the fourth quarter. The same was true for some of our sawmills and Containerboard facilities.

We also had some unexpected downtime at our Sutton Oriented Strand Board facility. This is the largest OSB mill in our system and was down longer than expected after encountering additional operating problems with press cylinders.

We had some similar conditions in Containerboard. Unplanned turbine downtime at our Valliant, Oklahoma mill significantly increased our energy costs at that facility. Across the system we also experienced some higher energy costs, mostly for our natural gas and higher electric rates in the Northwest.

Weather was also the culprit in Kentucky where an ice storm resulted in a collapsed roof at our Bowling Green box plant, taking that facility completely out of production.

Another factor adding to our Containerboard costs was the 24,000 tons of market-related downtime we took during the quarter. Although we had said last quarter that we expected lower fourth-quarter box volumes due to normal seasonal factors, volumes were even lower due to the lingering effects of the Florida hurricanes. This meant that much of the market downtime we took was unplanned.

Finally, we elected to take some additional downtime in Pulp and Paper. We had expected to take about 31,000 tons of scheduled maintenance downtime during the quarter. As we mentioned last quarter, we expected this downtime to affect earnings. However, we experienced some additional downtime due to operating problems at some facilities. This meant that we took an additional 18,000 tons of downtime for a total of 49,000 tons.

Many of the events I just described are infrequent occurrences. Unfortunately all of them came in one quarter. Combined they accounted for nearly all of the 29 cents of our increased manufacturing costs.

As we look ahead, we do see smoother sailing in the first quarter. We have completed the delayed maintenance, and pricing for most of our products should remain stable. Weather, however, is a concern, especially in the West. Agricultural customers account for a large part of our box business in the West, and heavy rains in Southern California affected many of those crops.

We are also concerned about the effect this weather will have on housing starts in the region, a factor affecting both of our Wood Products and Real Estate businesses.

This past year was a very good year for Weyerhaeuser. Our hard work over the past five years is paying off. But the fourth quarter reminded us of the intensely competitive environment and the capricious natural environment in which we operated. We must continue to improve operating efficiencies, and several projects are underway to do just that. We are currently beginning the project to install new recovery boilers at several Pulp and Paper and Containerboard facilities to reduce our energy needs.

The first of these are going into Grand Prairie and Valliant. We are also installing a new turbine at Kingsport and undertaking a significant order rebuild at our Springfield Containerboard mill.

In pulp we are reducing our cost of processing pulpwood with the rebuild of woodyards at Flint River, Fort Wentworth (ph), Newburn, Plymouth and Valliant. In addition, across the system our people continue to find ways to make us more efficient and to reduce our costs.

In summary, this past year has been a very good year for us, and I want to thank all of our people for the work that they did to make us successful. We believe that the future holds great things for Weyerhaeuser, and at this time I would like to turn the call over to Dick Taggart who will discuss the first-quarter outlook. Dick?

Thank you, Steve. As we currently look at the first quarter of 2005 compared to the fourth quarter of last year for our business segments, we see seasonal product price improvement in Wood Products, price improvement in market pulp, somewhat lower single-family closings, but little change in other key market forces. Energy costs have stabilized, and we don't expect significant changes in our energy costs in this quarter compared to last quarter.

In Timberlands we expect somewhat lower earnings as market conditions stay relatively flat and our nonstrategic timber sales decline somewhat. Earnings are expected to be lower in the first quarter than the fourth.

Our Wood Products realizations, however, for lumber and panel are expected to continue to improve. As Kathy noted, they begin to improve in the latter part of the fourth quarter, but most of that price improvement will be reflected in January's shipments and beyond. Prices are expected to be better in Q1 than in Q4, but could be below year ago levels for all of Q1 as we started the recovery earlier in the season than is normal.

Log supplies remain uncertain in some areas of the South as Steve noted, and it's unclear what the impact of the recent unusual weather will have on housing construction activity, especially in California. Our earnings are expected to be higher than Q4, however.

Prices are expected in Containerboard to be relatively stable in Q1 with some improvement in volume resulting in a slight increase in earnings.

In Pulp and Paper, pulp prices have begun to increase, and papergrade pulp prices have been increasing. Fluff remains relatively firm. Paper realizations for uncoated free sheet are remaining stable at this time. Higher shipments and higher papergrade pulp prices are expected to result in modestly higher earnings in this segment in the first quarter than in the fourth.

In our real estate company, single-family closings will be lower in the first quarter than in the fourth, which is normal for that business, as there is a rush to close single-family homes to complete the year's work. Margins there are expected to be flat, resulting in somewhat lower earnings in our real estate company in the first quarter than in the fourth. Our year-round debt was $10.6 billion on a consolidated basis with $1.2 billion in cash and short-term securities. Weyerhaeuser Company, excluding the real estate company, has total debt of 9.8 billion. Our current cash will be used to finance our normal seasonal build in working capital in the first quarter and then to retire approximately $400 million in debt that matures in this quarter. While our capital budget for the year is $850 million, as we have previously noted, and as Steve noted, we have a number of major projects that are already underway.

With that overview of our outlook for the first quarter, I will turn the call back to Kathy to initiate our question-and-answer session.

Thank you, Dick. Michelle, could you please open the floor up to questions?

(OPERATOR INSTRUCTIONS). George Staphos. Banc of America.

On the manufacturing variance, I know it's kind of a tough question to answer because there are all these things that go wrong for you in a quarter. Of the 29 cents, what do you think was actually unplanned? Because obviously you were planning to do some maintenance in the fourth quarter, etc. If you had to ballpark it?

This is Dick Taggart, and this would be an approximate estimate. Of the 29 cents, you could approximately split it into thirds. A third would be higher energy, a third would be planned and a third would be unplanned.

Got you. And in the box business, in Containerboard, where do you think your inventories stand right now? It sounded like most of the downtime that you were taking was mostly for maintenance (inaudible) directly. Was any of it related to clear out inventories?

Our inventories stayed relatively stable. In Containerboard most of the downtime was for market reasons. In Pulp and Paper most of the downtime was planned.

Got you. But Containerboard overall your inventories were about normal for this time of year?

About normal. Yes.

Last question and I will turn it over, if I do some rough math, it seems like the revenue in real estate came a little bit more from non single-family. If that is correct, what would have driven that in the quarter? Thanks, guys.

There was a -- there was -- no, I think this was mainly driven by strong single-family closings and higher price increases. There was one sale of a school site that was about $20 million, but that was offset by a lost on the sale of one of our communities in the Pacific Northwest. So the earnings impact was not there, but it may have impacted the revenue.

The quarter was a very very strong quarter for single-family closings.

Single-family closings were up considerably -- (multiple speakers).

22 percent in the quarter.

The earnings were largely driven or almost exclusively driven by single-family closings.

Okay. But the revenue run-rate picked up even more strongly if I'm doing it correctly. I mean you drove $900 million plus in total, and my contribution from single-family was around 730 or so when I do the math. So I have a somewhat wider gap than normal versus what I normally calculate for single-family. I will come back off-line.

Why don't we get back to you and walk through the numbers.

Rich Schneider. UBS.

Dick, could you just clarify in the release you indicate there was about a $24 million gain on real estate due to lot sales. That was the school site, and that was largely offset with the loss on another sale. Is that the way it should look then?

That is correct.

Okay. And then in Timberlands, in the release you indicate there were Timberlands sales in the quarter that helped push the 38 million gain from last quarter. Was the Timberlands sales in the neighborhood of 38 million?

That would be pretty close, yes. Pretty close.

Okay. (multiple speakers). Just using this analysis of the 29 cents manufacturing cost, as you look into the first quarter, and again this is a tough one to obviously forecast with weather variability, do you expect to get a third of that that is unplanned back and also a reduction of the third that was planned because of the amount of downtime you took in the fourth quarter?

Well, the key to getting it back will be getting our Containerboard shipments back to the level they were in the last year that didn't required us to take market downtime to maintain our inventory levels. (multiple speakers). And it is always hard to predict in January if that is going to happen. But that should come back once our production rates pick up.

The shortfall in box demand was that earlier in the quarter related to the Florida issues and then things started to come back after Florida started to improve? Or how has (multiple speakers)

I would say for us October turn was an excellent month, but it deteriorated as we went through the quarter. And our box business, the shipments were actually up in six of the nine regions in which we manage. They were down in Florida. They were down in California, and they were down in kind of the Chicago Midwest Great Lakes area.

And just lastly, two financial questions. What was the impairment that you took on European assets? What were those assets that you took an impairment charge on?

It was a particleboard mill in France called Darbo.

Okay. And then lastly, could you give us an idea of what you're looking at in 2005 in terms of pension assumption?

They will not change very much. We have not finalized our calculations for the year. We will go through that on the first quarter. We remained overfunded in our pension fund in the U.S., and we will continue to be making some -- a lot of contributions in Canada. But our discount rate will -- our liabilities will be increasing because our discount rate will be lower that we are using. But we are not going to change any of our other assumptions. Our return on our pension fund exceeded our assumed rate of return, so there will not be a significant change, but we have not finalized that yet.

And the discount rate, do you know what you're going to be using there?

At this point, I would say we're going to use 6 percent.

Eading Stavol. Morgan Stanley.

Good morning, gentlemen. A quick question on corporate expense and the outlook for 2005. What should we expect in terms of an increase or a potential cost cutting on that front?

When you say corporate expense, are you referring to the Corporate and Other segment or one of the line items in the P&L?

The Corporate and Other segment.

That has a certain set of stable components to it that add to about $60 million. And then the two areas in there that fluctuate are variable compensation systems that fluctuate with our relative performance and our relative stock performance. And the foreign exchange translation fluctuates with Canadian currency. So a normalized level would be $55 to $60 million probably.

Per quarter?

Per quarter, yes.

And then finally, as we look at capacity, particularly it really stands out on the Containerboard side where production was very strong on a year-over-year basis pretty consistently throughout 2005. It was also pretty up nicely on the paper side as well.

Can you talk about productivity measures that are in place? Obviously it is relying on market demand. But you feel like you're running with the exception of that 24,000 tons right at the limit of your current capacity, or do you feel as if there is still more room to raise production?

I think that we still have room to improve the productivity of our machines and mills. Obviously the last two years we have gotten far in excess of what you normally consider accretive. I would expect that we would continue to improve at some level above the 1 percent, 1.5 percent that people normally attribute to creep growth. So I cannot give you an exact number, but I anticipate larger than that.

Mark Weintraub. Buckingham Research.

First, just following up on the corporate expense, if I understand rightly, it would usually run about 60 million, and I believe the foreign exchange gain was 27 million? But I think in the fourth quarter it was just a 7 million capital item. If that is correct, what made up the difference?

Mark, you're referring to the fourth quarter?

Yes.

And to the 7 -- tell me again the $27 million --?

I thought foreign exchange was I think in the footnotes referenced at about 27 million.

That is correct.

So if I take the 27 off the 60, that would get me to 33. (multiple speakers)

And you add back, as Cathy noted, the contribution that we made of the technology to the University with a charge at the corporate level, it just about offset that.

Okay. So that -- in the slides, that was not put into special items?

Well, we did in the slide, but in the Corporate and Other segment, which I'm assuming you are referring to, it is reported in that segment.

I will come back to you. I think I was referring to the slide.

I'm sorry. I thought you were referring to the P&L. Why don't you come back and we will clarify that.

Sure. Second, on the Canadian duties on softwood lumber, go forward should we now be cutting that in half in terms of what you will be booking or how to treat that?

No, the accrual rate going forward will be --

About 25 million.

Will be lower but not half. The final -- the preliminary duty was going to cut it in half, but then the final duty lowered it only about a third.

Right. Okay. Coming back to the manufacturing costs, etc., I guess I am trying to understand. So if we look to the first quarter versus the fourth quarter at the waterfall-type chart, should we -- recognizing there is a lot of variability and unpredictability -- but should we be expecting that to -- we get back about half of that 29 cents negative delta first quarter versus fourth quarter? Is that your initial take?

Well, I think that Dick indicated that was three components -- weather-related, regular maintenance and unplanned maintenance. We don't have maintenance downtime scheduled in the first quarter to anywhere near the degree of the fourth. Of course, the unplanned downtime, we dearly hope will not have that for weather conditions or manufacturing things. So I expect two-thirds of that is going to come back to us.

Okay and then lastly, Steve, from a strategic perspective, can you just update us on how you are viewing the BC coastal properties that you have right now, which I think were acquired as part of the McMillan Bloedel acquisition?

Well, to view the coastal properties as viable business, we operate it as an independent business of the Company. It is managed as the coastal business.

Okay. Thank you.

Mark Connelly. Credit Suisse First Boston.

Thank you. Just a couple of small things. First, Dick, do you expect to take any different approach to energy and hedging in '05 versus '04, or is there anything different in place that we should know about?

No, Mark. We have been pretty diligent in terms of sticking to a systematic hedging plan for natural gas. As these investments that Steve talked about that will reduce our natural gas exposure come online, we will be changing that, but that will be a year or two years out before those have any effect.

We could have improved our earnings actually in the fourth quarter had we chosen to take the closeout to gain in some of the hedges. But we're sticking to a pretty disciplined hedging program.

Okay. So you didn't that, okay. Just one other question. You said that box prices are flat. Will we see a full quarter effect of the pickup of prices, or have we already seen that in the fourth quarter?

Well, because box prices increased as much as they did in the fourth quarter, that increase did not all occur on the first day of October. So there would be some average, and I would expect increase that will occur -- that you will see in the first quarter. That should be the first full quarter, and so any fluctuation in realization, we would expect to be more of a function of mix than of price.

Okay and is it fair to say that you got most of it in December?

Yes. We don't -- we believe we have completed any of the price recovery of liner into boxes that we will from the price announcements that occurred for liner and medium in 2004.

Okay, that is helpful.

Chip Dillon. Smith Barney.

I don't think except for I guess the closing -- the demand issuing California with the rain, I have not heard you say much about the markets being the problem. We have gotten some different opinions from companies in the last few days about where especially things stand in Containerboard. And how would you describe the state of the market at the end of the quarter and as you enter January?

Containerboard? Is your question specific to Containerboard?

Well, boxes. Corrugated boxes.

Corrugated boxes? Well, as we said, in six regions it was up, and in three regions it was weak.

But as you left the quarter, is that --?

(multiple speakers) -- the quarter and December was for us the poorest month.

Got you. And then as you looked at the whole Wood Products business, we're getting -- I guess the Wood Products prices have tended to be quite strong for this time of year and the last couple of quarters, couple of months I should say. Do you think that we are seeing -- looking at the published numbers -- do you think that that is more a function of the downtime that you and others have taken, or a function of the demand staying quite good?

Probably somewhat of a function of both. I think that large production builders, just as Weyerhaeuser has a six-month backlog, most large production builders have a large backlog. Their suppliers know that, and they have been expected to deliver the materials to satisfy that backlog. Last year in the first quarter they delayed I think building inventory, and they got caught short. And so I think there was some early buying to ensure that there was no shortages of the contractor -- suppliers were not going to be short in the first quarter, as well as some additional downtime, some of which was planned and some of which, at least for us in one of our large OSB mills, was not planned.

And then shifting gears, just one more. When you look at -- it looks like your net debt dropped another couple of dollars a share, which I know a lot of that is seasonal. In the fourth quarter, you are down to about I guess 8.8 on the Weyerhaeuser basis. Is there a sort of a level at which you feel you need to get down to before you would entertain raising the dividend, and maybe probably you could talk about what you think about doing that since it has been almost a decade?

Well, we have indicated that we are targeting a 30 to 40 percent debt to total cap the way we calculate it. We're riding right at the top end of that. I think we closed out the year at about 40.8 or something like that. And if you look at 30 to 40 and 35 in there, we've got a little bit of work to do to pay down debt. But our board is pretty cognizant of our free cash flow, and they also know that we are 10 years out on a dividend increase. Let's leave it that way.

And when you look at the alternative options you get when you get down to that midrange, would you consider a dividend more preferable to an acquisition in most circumstances?

Well, I think we look at it, at what is the best way to return value to the shareholder, and you have to make a judgment at the time. But certainly I would have to say that a dividend is one of those things that is on the radar screen.

Steve Chercover. D.A. Davidson.

Good morning. A couple of my questions have been asked, but I just wanted to clarify on the Containerboard side first of all. The weakness that you saw in December, some of that is seasonal, but it sounds like it was a bit more than anticipated. Yet I believe you're talking about a first-half linerboard and medium increase. Is that inconsistent, or does that mean you just think it was a temporary phenomenon?

Steve, I -- this is Dick Taggart -- I'm not sure I understood your comment or your question about a first-quarter linerboard increase.

I'm not sure it was first quarter, but first-half. But I think you folks were mentioned as contemplating raising Containerboard prices in '05, and I'm just wondering if there is any inconsistency between what you saw in December and the prospect of raising prices? Or do you just think that was a short-term phenomenon?

Well, I cannot comment on what others may have thought we might do, but we have not made any announcement about or any indication that we expect that to happen. We certainly expect the economy to continue to improve and the Containerboard demand to improve with it. But we have made no comment regarding our expectation of when prices might be able to be increased in the Containerboard business.

Let me just say this about the demand for the first quarter, the biggest area of uncertainty that we see in the first quarter in box demand is in California because of the extremely unusual wet weather they have had there that has affected the produce market. We are a very large supplier to the produce markets in California, and it is not clear how the produce season is going to be impacted by the unusual weather in California.

Thanks, I understand. Then, I have one other quick question. On the charge that you took associated with worker's compensation, is that something that we will see reoccurring in the 16 million a quarter, if that was a onetime adjustment?

That was the amount of the onetime adjustment by changing the method of estimating the worker's comp liability, and the ongoing worker's comp will not have that kind of an increase relative to the third-quarter level.

Great. Thank you.

Peter Ruschmeier. Lehman Brothers.

I just wanted to ask a couple of questions about the Real Estate business. Obviously tremendously strong performance. The question I guess is the single-family closings, if I'm doing my math right, for the full year were up about 14 percent. And not that we should annualize the fourth quarter, but that run-rate is 24 percent above the '04 level.

I'm just curious if we take the market risk out of the equation in terms of whether demand is up or down, can you give us some sense as to your confidence in what kind of capacity you have to generate units for the full year of '05? I presume that we should not assume that you can sustain the kinds of closings in the fourth quarter. But any sense as to where you think you can deliver units to the market in '05?

Well, that is a good question. I think that Kathy indicated in her talk that the fourth quarter this year as always is a closeout quarter and shows home deliveries at higher than annualized rates. So you have to be careful about taking fourth quarter and projecting forward. But indirect answer to your question, I think that our various homebuilding units do have some capacity to increase their output if the market demands it going forward, and I give that as dependent on each region that we operate in. Some are building at higher levels of capacity than others right now.

Okay and can you comment maybe on a longer-term basis how you think about growing that capacity?

Well, I think we have indicated that I think not only is real estate a long-term business of the company, but it is a business that has earned the right to grow as we go into the future. This when, where and how is something that we have never divulged publicly.

Pete, this is Dick. Clearly we have -- our average closings have increased well over 10 percent a year for the last three years, and as Steve indicated, we do have the capacity in terms of the lot pipeline and the management of resources to continue to grow our existing real estate company.

Okay and I guess on a related question, as it relates to the single-family home price realization that you have had, is there any mix considerations we should think, or is that a pretty good run-rate from where we are going forward for your mix of homes?

The mix will shift, and some markets are stronger than others. But there is nothing that we could point to that would guide you to a particular average price impact as a result of that.

Okay. But it is not an unusual number for the quarter?

It was a strong number for the quarter. It was a strong quarter. I think that we don't expect that all of the markets will have the same price appreciation that we saw in the fourth quarter.

Well, we would expect we could continue to grow the number of units. We don't expect home prices to continue to increase at the same rates that they have.

Pete, you were getting at a mix question, too, as well as price appreciation?

Correct.

I think that there are a couple of comments we would make there. One of our units in Houston has shifted, but that is taking place. They are building more multifamily units now than they were a couple of years ago. But in the main -- the mix that each of our other units is doing has been pretty steady.

Okay. Maybe a financial question for Dick. Operating leases I believe the last you have disclosed is way back from 2003, 179 million for the company. Can you comment at all -- my assumption would be that you continue to use about the same amount of operating leases going forward. Is the '04 number available yet, or any comment in general as to how you think about operating leases in your business?

No, there will be very little change. Our major operating leases are for transportation equipment, for ships, railcars and so on. So that we don't anticipate any major change in.

Okay. Just lastly if I could, I understand that the pulp data is available and shipments were strong yet again globally for December, and days of supply I guess are down something like nine days in just three months time. I'm curious if you can maybe give a little bit more of an update on your view of the pulp markets? I understand you're out with a price increase. Can you just elaborate on whether you think the volume is a fluke, or whether this is real demand we are seeing in the pulp market? And you know days of supply have obviously come down. Maybe you could just elaborate.

Well, I think if you look at it through our lenses, first of all we have a high proportion of specialty and fluff pulps. Those markets have been stable to growing. As you know from history, pulp had been displaced in diapers by SAP, which is a petroleum-based product. That product is in short supply, and prices have been very high. So there has been a subtle shift back into fluff pulps. So that market we expect to stay reasonably strong throughout the coming year.

On papergrade, we have seen stronger markets, and I guess our bet is they are going to stay that way.

(OPERATOR INSTRUCTIONS). Karen Gilsenan. Merrill Lynch.

Good morning. Just a couple of brief questions. First of all on the Containerboard business, you are commenting on a little bit of a concern regarding California as you look into the first quarter due to weather. I was wondering if you could tell us roughly how big is that business as a percent of your total Containerboard business?

And also related to Containerboard, there were three regions that were weaker in the fourth quarter. It appears to me as though all three of those were weather-related, but I was wondering if you could confirm that?

This is Dick Taggart. I don't have the data on how big the produce business in Southern California is for us in total. I know that we are a large supplier there. But I would not want to give you a number off the top of my head. While we believe that a lot of the business -- that the Florida decline in shipments was largely related to the impact of the hurricanes on the fruit and produce business there and other manufacturing, we don't have a good feel for the Chicago area and the Midwest area. Some of the decline in California came from the loss of a box plant that we sold.

Okay. And then on your Real Estate business, are there any trends by region that you could comment on? Earlier in the year you talked about the Texas market weakening a little bit, while the other markets were staying strong. I don't know if you have any comment about current trends.

I think that current trends are pretty similar to what we reported earlier. We continue to build at an even flow rate in the Pacific Northwest that has not changed. We have good backlog files and they are holding in California, Las Vegas and the Washington D.C. area.

And Texas is softening a bit?

Texas has stabilized out from what we reported earlier. So it has not fallen any further.

Okay. Great.

Rick Skidmore. Goldman Sachs.

A couple of questions. Just to follow-up on the Real Estate business, on the third-quarter call you had backlogs of seven months. In your press release today, you have them approximately six months. Is that just because your closings were so high in the fourth quarter? Is there something else happening there in the Real Estate business?

You hit on a good point. Each year we readjust that based on what we expect the closings to be during the year, and that is the divisor of the number.

The actual number of homes that were sold and not delivered in the backlog remained constant. But the sales rate went up.

Then just coming back to the log availability that you discussed earlier, how is that situation now, and going through the first quarter do you see that improving?

Well, inventory -- this is in the Southern United States -- inventories are largely low, and it will be strictly a function of the weather. In Canada it is now cold, and logging is returning to normal. So I would expect that in Canada things would return to normal pretty quickly, but in the south it remains somewhat uncertain, though.

But the other factor in the South was we made the comment that because of their hurricane damage, independent contractors flowed to the recovery work out on the Gulf Coast area. Most of those crews have come back home, and we have got the capacity back that was part of our problem in the Midsouth regions for example. They just could not move logs because their logging contractors were not there.

Okay. And, Steve, is there any update that you can provide on your thinking with South America that you had talked about previously and any change in view on the coated groundwood mill that you own?

Well, South America first. We continue to remain upbeat. In the latter part of last year, we completed the acquisition of a majority control of a hardwood sawmill that we now own jointly with Vera Cruise (ph). We began construction of a plywood facility in Uruguay along with our partners.

So that timber is beginning to come into its first maturity. That is the thinning stage and has commercial value in it. But we do remain bullish on our South American operations and the potential down there. The second part of your question was?

The coated groundwood mill. Have you changed in that thinking there?

Well, we continue to run well. We continue to have good business with it as we speak and no change.

John Tamasdos (ph). Prudential.

Congratulations on all the progress. Could you describe the potential timing of a CVV duty refunds given that the rate was rolled back from about 27 to about 19 percent? I have been watching steel trade stuff for 25 years and think it is all bologna, and cannot understand how under NAFTA you had any duty assigned. But there seems to be some redress, and if you could describe when you might get a check?

It is the same sausage makers who work this file, so you can expect the same. It is a political question. It is not a NAFTA or WTO question. There is a very large buildup of duties that have been collecting. And the debate is who is going to get them right now? It is not when are the Canadians going to get them back, it is who will get them.

The U.S. government has been making noises of assigning those to the coalition that filed the complaint on the U.S. side. The Canadians are claiming that the duties are all due back because of their wins or pending wins at NAFTA and WTO.

The net of all of that is I would predict it is going to be settled by a negotiation at some point in time. No one knows when that is. The governments are just beginning to make noises now that the election is over about meeting again. The industry is trying to get together given the antitrust regulations, but get in a venue where they can discuss the issue in the larger sense and press on their governments to get back to the table.

Is it wrong to a some that (indiscernible) of the monies withheld from Weyerhaeuser to be refunded just because the rate rolled back from 27 and 19 percent according to what we read in the papers?

Well, John, that is our position and I think the position of other Canadian producers. Whether we will be successful in getting the money back remains to be seen. And as Steve said, it's very much a political issue.

Michelle, we have time for one more question.

Mark Willoughby. Deutsche Bank.

On the cost side, you did not mention chemicals and some other costs. I just wondered given what we see with chlorine and caustic prices whether there is an issue that is going to show up here in 2005?

I think that when you look at the array of chemicals that we buy, you hit on one of the biggest. Another if you look at our company is starch. And a third area are the resins that we use in the Company. It is a safe bet that resins are going to be tied to whatever the petrochemical business in the world is going to do to go. Starch is based on agriculture, corn primarily. I don't anticipate huge increases there.

Chloralkalai, that is a market that, first of all, it is energy intensive with electricity. So it is going to be impacted by that. But more than that, the supply and demand balance is pretty tight right now. So I don't know how to predict that for you because it can be tightened or loosened depending on the demand for caustic or for chlorine. And that just depends on how the world is going to break. What chemical businesses in the world are going to do well and which are not?

I guess what I wondered, is I mean I guess the combined unit is at record prices. But if you could maybe give us some sense of, you know, whether you pay anything close to spot price, or if you have contracts, how that hedges you at all? And then sort of the amount of chloralkalai you have to buy in total?

Well, I do not have the -- you know the chloralkalia ratio has changed over the years in our industry. As people went more out of chlorine bleaching into chlorine oxide, where years ago you used to buy almost a unit of chlorine for a unit of caustic, and you were a favorite buyer. Today that is out of balance with the suppliers. We buy more caustic than we do chlorine, and that is not to our industry's advantage.

But in terms of price, it is an issue for all of us. But I don't know what the exact percent increases are. Kathy, do you have that in your records?

Why don't I get back to you, Mark, on that?

That is fine. Another question I had was just we did not talk about prices in the white paper business, which is a big market for you. It sounds like you were up about $46 you said. There had been some reports in the trade papers about a little bit of softness in pricing in the fourth quarter, and that does not seem like that is evident in your numbers. Can you talk about what is going on in that business?

Well, you have to split it into the uncoated free sheet cut size business as opposed to the other operating businesses that we have. Running through 2004, the cut size business has been very good. As you know, the printing business had it's early in the year was in the doldrums and began to pick up, and I believe we are predicting a pretty good year, both.

Okay. And the last thing I wondered about this is, you really did a great job on capital spending this last year. In fact, I think earlier in the year you have been talking about a number up in the 700s and you came in at about 500. Should we assume, however, in 2005 since you are talking about big projects like recovery boilers that that $850 or $850 million number is a firmer number and less likely to see kind of a decline through the year?

You are right on. The contracts were left for those boilers in 2004, but big spending starts in 2005. Not only that, I may have mentioned about five woodyard projects, all of a significant size that are underway. So the engineering front end work of those was done in 2004. The heavylifting starts in 2005, and I fully expect we will be at the 850.

Okay. If you could --

The only thing that might slow us down is if there is some delay in steel deliveries. We have made commitments toward the steel deliveries for these boilers. But if those are delayed, then it may slow it down.

Yes. If you were to look at that Latin American capital spending, can you give us some idea of what that might be in terms of just order of magnitude over the next three to five years? It sounds like it is all Wood Products related stuff, which is typically a lot less capital intensive. Pulp and Paper --

You are right. I think in terms of when you go into the planting of a forest, the first products you start getting out are thinnings, and there is not going to be the volume there that anyone is going to have any interest in Pulp and Paper operations. So you look to solid Wood Products for it of one sort or another. As that forest begins to mature, we will be coming behind it with other solid wood manufacturing facilities. I'm absolutely sure.

But these are facilities that typically are $40 to $80 million depending on (multiple speakers) what it is and the capacity.

Okay.

There will be capital spent, but it is not (multiple speakers)

Not a pulpmill.

Yes.

Okay, thanks.

That concludes the Q&A session. Ms. McAuley, please conclude with closing remarks.

Thank you for joining us this morning on the call. I will be available for questions in a few moments when I get back to my office. The telephone number is 253-924-2058. Thank you.

Thank you, ladies and gentlemen. This concludes today's Weyerhaeuser quarter four earnings conference call. You may now disconnect.