威爾豪瑟 (WY) 2006 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Weyerhaeuser 2006 fourth quarter earnings conference call. During today's presentation, all parties will be on a listen-only mode. [OPERATOR INSTRUCTIONS] This conference is being recorded Friday, February 9th, 2007. I would now like to turn the conference over to Kathryn McAuley, Vice President of Investor Relations. Please go ahead, Ms. McAuley.

Thank you. Good morning. Welcome to Weyerhaeuser's fourth quarter 2006 earnings conference call. I am Kathy McAuley, Vice President of Investor Relations. This call is being Webcast at www.weyerhaeuser.com. The earnings release and material for this call can be found at our website, or by contacting April Meier at 253-924-2937. Please review the warning statement in our press release and on the presentation slides concerning the risks associated with forward-looking statements. Forward-looking statements will be made during this conference call. I will now turn the call over to Steve Rogel, Chairman, President, and Chief Executive Officer of Weyerhaeuser Company.

Thanks, Kathy, and thanks all of you for joining us today. It's a real pleasure to be with you, and I want to report 2006 was a very busy year. So today I'm going to review some of the strategic actions we've taken over the year to improve our operational and financial performance. I'll then turn the call back over to Kathy McAuley to discuss our detailed results for the quarter. Rich Hanson, our Chief Operating Officer, will cover our restructuring efforts in Containerboard and Wood Products. Then our CFO, Dick Taggart, will address the Domtar transaction and the separation of our Fine Paper business. He will be followed by Patty Bedient, Senior Vice President, Finance and Strategic Planning, who will provide the outlook on the quarter ahead.

At the beginning of the year, we told you that our focus was on executing our strategic plan to improve operations and to position each of our businesses for long-term success. That plan is in motion. And while a number of segments in our industry will face challenges in 2007, our efforts in 2006 are making us a more efficient and customer-focused Company. We will be able to more rapidly respond to market cycles and changing demands to drive continued growth and profitability. Our Containerboard, Packaging and Recycling business is transforming from a plant-centric production-out business model into a demand-driven, customer-focused supply chain design. We also significantly restructured our Residential Wood Products business with the launch of iLevel. As part of these restructuring efforts, we've closed a number of Containerboard and Wood Products facilities to improve returns and better meet the demands of customers. Later in the call, Rich Hanson will provide more details on our achievements to date and our goals moving forward, as we continue the restructuring of Containerboard and the iLevel business.

As expected, the residential housing market slowed during 2006. For WRECO, it was a rolling slowdown, beginning in Washington, D.C. early last year, then creeping into Southern California and Las Vegas, and only now affecting other markets, including Seattle. However, we remain confident that WRECO will continue to be one of the strongest performers over the long-term. In addition, the 2006 acquisition of Maracay Homes gives us access to the high-growth markets of Phoenix and Tucson. WRECO is well-positioned to benefit from attractive demographic trends and job growth in the markets in which it operates.

We are also growing our international operations. We started up a joint venture plywood mill in Uruguay, and will continue to increase our supply of high-value appearance grades from South America to serve the international furniture and cabinet markets. We're also increasing our Timberlands position, and will continue to expand our Wood Products manufacturing capabilities in South America. In large part, due to the Domtar transaction, which I'll discuss in a moment, our Cellulose Fibers business is now focused on serving the growing number of specialty pulp customers worldwide. To support this growth, the Cellulose Fibers business made significant operational improvements in 2006, by reducing costs and adopting streamlined market-facing business processes. We've been a leader in providing customer solutions for many years, and with our proprietary products and long-standing commitment to research and development, I'm confident we're uniquely positioned to build on our already strong position in the specialty pulp markets.

In 2006, our Timberlands business continued to thrive, despite pressures on the housing market. We continued to find ways to reduce costs and extract the most value from each acre of forest we manage. At the same time, we're working hard to ensure that the value of our Timberlands is fully reflected in the Company's stock price. In that regard, we're analyzing the benefits, complexities, and risks of various alternative structures. We're simultaneously supporting the industry initiative for tax legislation that was recently reintroduced, and has strong bipartisan and industry support. We believe passage of this legislation would create significant value for our shareholders.

Of course, one of the major actions we undertook in 2006 was the strategic decision to combine our Fine Paper business with Domtar to create the largest fine paper producer in North America. Our transaction will result in $1,350,000,000 in cash for Weyerhaeuser on a tax-free basis, which we'll use to pay down debt. Weyerhaeuser shareholders, who will own 55% of the new entity, will have the opportunity to benefit from the significant upside potential this combination will offer. We recently announced and filed definitive materials related to the split-off transaction, which Dick will discuss in just a few moments. We're confident that the new Domtar will be a competitive Company, with significant scale, high-quality assets, and a strong management team. The transition is progressing smoothly, and just a few weeks ago, the new Domtar announced its Board of Directors, a group of accomplished individuals who are committed to new Domtar's success.

As a result of our efforts this past year, Weyerhaeuser has continued to generate strong free cash flow. We also were able to deliver on another key element of our strategic plan, returning value to shareholders. The Board authorized a 20% dividend increase, and we aggressively implemented our buyback program, repurchasing 11 million shares as of December 31st. We intend to complete the 18 million share repurchase program within the original period authorized by the Board.

Speaking of the Board, we recently announced the addition of two new directors, Kim Williams and Debra Cafaro. Kim recently retired from Wellington Management, and Debra is Chairman, President and Chief Executive Officer of Ventas. The Weyerhaeuser Board is comprised of proven and highly experienced individuals. We are pleased to add Debra and Kim, two seasoned leaders, whose valuable insights and expertise will undoubtedly contribute to Weyerhaeuser.

To position Weyerhaeuser for success, we've made fundamental changes to the way we do business. While there is more work ahead, I'm proud of all that our team has accomplished. We remain firmly committed to improving the Company's financial performance and enhancing shareholder value. And I look forward to updating you on our continued progress. Now let me turn the call over to Kathy to discuss Weyerhaeuser's financial results. Kathy?

Thank you, Steve. This morning Weyerhaeuser reported fourth quarter 2006 earnings of $450 million or $1.88 per share on net sales of $5.7 billion. The fourth quarter includes the following after-tax items: A gain of $227 million or $0.95 per diluted share for the refund of the countervailing and antidumping duties on Canadian softwood lumber sold in the U.S.; a gain of $43 million or $0.18 per diluted share from the sale of the Company's Composite Panel assets in Ireland; charges of $36 million or $0.15 per share for asset impairment and costs associated with the closure of facilities. These costs were primarily for facilities in Wood Products, with a small amount in Containerboard, Packaging and Recycling. The charges of $13 million or $0.05 per diluted share for the impairment of real estate assets. These items totaled $0.93 per diluted share. A GAAP reconciliation of special items is available on our website along with the presentation materials for this conference call.

We will now review sequential quarterly business trends by segment, fourth quarter 2006 versus third quarter 2006, excluding the items noted above. This discussion refers to chart four, changes in earnings per share by segment, and the net price realization charts five, six, and seven in the presentation package. Please note our fourth quarter period contains 14 weeks and our third quarter period encompassed 13 weeks. We begin with Timberlands. Timberlands' earnings were $0.04 per share lower in fourth quarter than in third quarter. Log volumes declined less than 1%. Fee harvest volumes increased 7.5% from the third quarter. Export log prices were slightly lower and export log shipments declined 6%. Domestic log prices softened due to weak market conditions.

Wood Products. Wood Products earnings were $0.44 per share lower in fourth quarter reflecting extraordinarily weak conditions in Wood Products markets. Volumes in the quarter were lower in most product lines, as production curtailments occurred at 70% of Wood Products facilities. Average lumber prices declined $36 per thousand board feet during fourth quarter and volume dropped 6%. Average plywood prices declined $7 per thousand square feet and volume fell 13%. Oriented strand board prices dropped $35 per thousand square feet, however OSB volume increased 5% due to the extra week in the quarter. Engineered I-joist and solid section prices declined 3%. I-joist shipments were down 14%.

Cellulose Fibers and White Paper. Cellulose Fibers and White Paper earnings were unchanged from third quarter. Cellulose Fiber price realizations rose $6 per ton during the fourth quarter due to sales mix. Adjusting for the extra week in the quarter, shipments increased about 3%. White Paper prices were firm, with only slight seasonal softening, and shipments were flat when adjusted for the extra week. This was a good performance in a seasonally weak quarter. Strong results in Cellulose Fibers and White Papers were offset by realization declines in both newsprint and liquid packaging.

Turning to Containerboard, Packaging and Recycling. Containerboard, Packaging and Recycling earnings were $0.08 per share lower in the fourth quarter. Containerboard prices increased on average $14 per ton in Q4, primarily due to strength in export markets. Containerboard shipments rose about 16% when adjusted for the 14-week quarter. This increase was driven by strong export markets. Containerboard production declined in Q4 when adjusted for the extra week, and reflecting 45,000 tons of maintenance-related downtime, and 45,000 tons of market-related slow-backs. Box prices were unchanged. However, box realizations were modestly lower due to the normal seasonal mix change in the quarter. A 3% increase in box shipments was the result of the 14th week. Higher virgin fiber costs were offset by falling old corrugated container prices, which dropped $19 per ton. Mill manufacturing costs increased due to seasonally higher energy usage, and increased manufacturing costs associated with projects at the Red River and Valliant mills. Maintenance costs at packaging facilities were higher as a result of the completion of major projects and equipment moves.

Real Estate and Related Assets. Real Estate and Related Assets contributed $0.51 per share to earnings in the fourth quarter from the third quarter. Q4 included an earnings contribution of $138 million from the sale of residential lots and an apartment building. Single family homes sold declined 8% in the third quarter, and were 29% below the fourth quarter of 2005. Closings seasonally increased 22% from the third quarter, but were 8% below the closing volume of Q4 2005. Traffic in the fourth quarter declined 15% from the third quarter, and it was 29% below the year-ago quarter. The cancellation rate in the fourth quarter remained steady with the third quarter at 36%. The cancellation rate in the fourth quarter of 2005 was 22%. WRECO's backlog of homes sold but not closed decreased to three months from over four months in the third quarter. The backlog was just over five months in same quarter last year. I will now turn the call over to Rich Hanson.

Thank you, Kathy. As Steve mentioned, enormous efforts in 2006 involved a significant restructuring of our businesses, Wood Products, and the Containerboard, Packaging and Recycling. It's difficult to imagine the magnitude of these changes or the challenges our people are successfully managing. So I'll spend this portion of the call providing you with some insight into what we're doing, and what we expect in these long-term results.

I'll begin with Containerboard, Packaging and Recycling, which we're transforming into a customer-driven supply chain. This new model provides us with a direct line of sight into the customer base but allows us to determine which segments provide the greatest contribution through our system. On last quarter's call, Jim Keller outlined the steps that we were taking and the process for this significant restructure of our Containerboard, Packaging business. At that time, Jim said that we believe this new business model will allow us to increase the contribution to earnings an incremental $230 million over the next two years. Approximately $130 million of that will come from cost improvements from our operations, while the remaining $100 million is a result of our sales and marketing initiatives.

Based on the progress that we've made in moving this business to a more disciplined and accountable management system, we remain confident in our ability to deliver that magnitude of improvement. The process begins with a serious focus on pricing for both paper and boxes, and we've improved the quarterly box sales realizations approximately 13% since the fourth quarter of 2005. Last October, we announced the January price increase for both Containerboard and Packaging products. Earlier this month, we began implementing these price increases. These increases are critical as we experience current escalating fiber costs.

At the same time, we're changing our mix to segments and products that are more profitable, and we are growing our ability to serve customers where we are uniquely positioned. We're also focused on improving the operational efficiency of our mills and our converting facilities. Much of the work to achieve these changes occurred in 2006. We closed or sold 12 plants, moved businesses to new locations, retooled plants, reduced our head count by nearly 1,000 people, and transferred people into new locations and into new roles. This was necessary work as we eliminated some of our highest-cost operations from the portfolio, and completed the transfer of the most profitable mix of business to plants in the same geography, or our zone. Throughout this success -- excuse me. Throughout this process, we retained 77% of the volume from the closed plants, while pruning unprofitable business.

On the mill side, we balanced production to market requirements by closing our Plymouth, North Carolina, machine early in the year. Meanwhile, the remaining mills improved their daily productivity 2.4% on a same-machine basis. The cost of making these significant changes affected the 2006 financial performance of this business. During the year, we incurred over $30 million in restructuring and closing -- closure costs, and experienced other costs associated with the disruption of the business. We expect these moves will result in higher utilization rates, reduction in fixed costs, and overall productivity improvement. These benefits combined with the sales initiatives underway, should result in us achieving about half of the earnings improvement goal in 2007, or all things being equal, in the range of about $100 million. Of course, all things are never equal, as Patty will discuss in the outlook. The effect of the cold weather on our Western produce and vegetable crop business is expected to dampen the packaging shipments in the first quarter, and fiber costs continue to rise. But nonetheless, we are now positioned to capitalize on growth opportunities and the improved cross-structure as we continue to transform this business.

Our other significant work occurred in Wood Products, where we combined five separate Wood Products businesses into a new brand, iLevel. Like Containerboard, the iLevel launch positions us for long-term success. Weak markets have created significant red ink across our system, and we responded by lowering production volumes through curtailments affecting 70% of our facilities in the fourth quarter. We continue to proactively manage the situation to minimize the negative cash impact. In oriented strand board, we are reducing operating postures that will take us to about 75% of our capacity. We are operating our three TimberStrand facilities on a reduced basis to bring those inventories back into line with demand. But these are tactical decisions based on the current conditions.

Looking beyond this severe cyclical downturn, we believe that our current strategy offers significant upside long-term potential based on underlying market fundamentals. When you look at factors such as demographics, job growth, and continued immigration, easy to see why we're bullish on this business. To ensure that we meet the needs of our customers serving the home building market, we've taken an aggressive approach to making our system one of the most efficient in the industry. Over the past three years, we've announced the sale or closure of 39 mills across our portfolio because they did not meet our strategic objectives. We've augmented this fix-sell-close strategy with a prudent investment strategy that has invested $500 million over the last three years in this segment. Our recent announcements about the repositioning and upgrading of mills in Washington, Oregon, and Alberta demonstrate our continuing commitment to this business, and how we align our Wood Products and Timberlands operations to maximize our returns.

Our customers understand and support the solutions that we offer. They tell us that we've improved our ability to provide a coordinated, single point of contact. From the service delivery standpoint, our iLevel approach has resulted in a 10% increase in on-time in-full deliveries from our mills. In addition, the usage of our differentiated products in the home frame and skin has increased by 5% to 14% depending upon the particular product line. Finally, our software solutions are increasingly being utilized by our dealer customers to develop higher value solutions for their builders, and including providing turnkey framing solutions. We believe that these gains in customer acceptance continue to build the base for future growth when the housing market recovers.

Before I turn this call back over to Dick Taggart, I'll summarize our views of the work we've done to position our Containerboard, Packaging and Wood Products businesses for long-term success. First, both organizations successfully underwent significant change in 2006. Second, most of the costs associated with the changes in Containerboard, Packaging are behind us, and these gains have been obscured by the costs. Third, customers are welcoming the changes that we've made in Wood Products, but the challenging market conditions make that difficult to see. Fourth, we believe strongly in the long-term potential of both of these businesses, and feel that the work we've done has put us in the best position possible to benefit from market improvements. So at this time, I'll turn the call over to Dick Taggart to discuss another significant step we've taken to create value, the Domtar transaction.

Thank you, Rich. As you know, last Friday Weyerhaeuser announced an offer to our shareholders for the exchange of some or all of their Weyerhaeuser shares, for shares in the new Domtar Corporation. The offer also, of course, applied to exchangeable shares of Weyerhaeuser Company Limited that are listed on the Toronto Stock Exchange. The exchange is expected to be tax free to participating Weyerhaeuser shareholders for U.S. federal income tax purposes, and the offer expires at 12:00 p.m. midnight, New York City time, on Friday, March 2nd, unless it is extended or terminated. We filed a registration statement with the SEC that describes the terms and conditions of the exchange offer. During the exchange, our public comments will be limited by the rules governing such offers. And we ask that you refer to the registration statement for detailed information on the exchange in the new Domtar Corporation.

Steve, however, asked me to make a few comments on why we selected the split-off versus the spin-off. After taking a careful look at the alternatives, our Board decided that the split-off was the most attractive option for our shareholders and for the Company. The split-off gives our shareholders a choice to decide how much of the new Domtar they wish to own, and an opportunity to increase their exposure to either Weyerhaeuser or Domtar. The exchange distributes Domtar stock to its natural holders more effectively than a spin-off transaction. We have heard from a number of our shareholders, also, that they prefer this form of distribution.

At the same time, the exchange offer permits the Company to reacquire a significant number of Weyerhaeuser shares on a tax-free basis to both the Company and its shareholders. And finally, a significant reduction in outstanding Weyerhaeuser shares through the exchange means less cash is required for dividends, and earnings per share dilution is minimized. In addition to our filings with the SEC, information on the exchange can be obtained from our website at www.weyerhaeuser.com, and then click on Weyerhaeuser/Domtar exchange information.

I would now like to turn the call over to Patty Bedient to summarize the outlook for the upcoming quarter, prior to taking your questions. Patty?

Thank you, Dick, and good morning. Well, we are well into the first quarter, and we continue to face challenging market conditions in many of our business segments. The seasonal slowdown, combined with the continuation of the severe cyclic downturn in housing is especially impacting our Timber, Wood Products, and Real Estate businesses. I'm going to start the outlook with Timber. Domestic log prices in the first quarter are expected to decrease, as the impact of low lumber prices and volumes continues to work its way back to the log market. Fee harvest volumes in the west are expected to increase, but not enough to offset the drops in prices. Export prices are also expected to soften, although volumes are holding up well, given the traditional slowdown in the Japanese markets this time of year. We expect log prices in the south to decrease, but the sales realization should improve due to a higher grade mix. However, we anticipate the lower fee harvest in the south in the first quarter will more than offset the impact of the improved realizations. Overall, we expect that first quarter earnings in our Timberland segment will be slightly lower than the fourth quarter of 2006.

Softwood lumber sales realizations are expected to increase slightly compared to the fourth quarter, as lumber prices should respond positively to the wide curtailments reported in the industry. Our lumber operations had extensive fourth quarter market and construction-related down time. And while we're not expecting the same level of down time in the first quarter, we will be adjusting operating levels based on market conditions. OSB sales realizations are expected to decrease on reduced sales volumes. We have announced the indefinite shutdown of our OSB mill in Miramichi, New Brunswick effective January 30th, and just this morning announced further curtailments in three other operations. Engineered lumber sales volumes are forecast to improve somewhat, and raw material costs should decrease slightly as the veneer prices and OSB prices are decreasing. We will continue to match production with demand, and further curtailments could result within the segment. Compared to the fourth quarter, we expect losses in our Wood Products segment will decrease. However, given continued challenging market conditions, the losses will still be significant.

We expect to experience favorable pricing for Packaging and Containerboard in the first quarter of 2007 compared to the fourth quarter of 2006. Although we do anticipate that packaging volumes and mix will be adversely affected as a result of the cold weather in California. Excluding fiber, we expect lower production costs in both Packaging and Containerboard compared to the fourth quarter, especially in the areas of labor and maintenance. We are experiencing higher costs for OCC due to increased Chinese demand, and ship costs are also expected to increase due to continued Wood Products curtailments. As a result of all these factors, we expect earnings in our Containerboard, Packaging and Recycling segment for the first quarter to be slightly lower than the fourth quarter.

We expect prices in our Cellulose Fibers business to increase across all grades in the first quarter of 2007 compared to fourth quarter '06. Average sales realizations for Fine Paper are expected to be comparable to the fourth quarter. Production volumes in the first quarter are expected to decrease as we take down time for our normal annual maintenance outages. Because of the outages, we anticipate manufacturing costs on a per unit basis will increase compared to the fourth quarter. As Dick just discussed, we expect to close the transaction with Domtar for our Fine Paper and related assets during the first week in March, and this would result in only two months of operations in the quarter. The assets that will be remaining in the segment following the transaction earned approximately $44 million in the fourth quarter. Because of the normal maintenance outages in both Cellulose Fiber and Fine Paper mills, and the divestiture of the Fine Paper and related assets, we expect that earnings in the first quarter for this segment will be lower than the fourth quarter of 2006.

Our major Real Estate markets are under intense margin pressure in the face of a significant industry-wide inventory overhang. We entered 2007 with a backlog of approximately three months compared to five at the beginning of 2006. Single family closings are expected to decline seasonally in the first quarter of 2007 compared to the fourth quarter of 2006. The number of closings is expected to be comparable to the first quarter of 2006. However, we expect the sales mix will change. Prices and margins are expected to decline from the fourth quarter, and there are no significant land sales anticipated. As a result, we expect our Real Estate earnings in the first quarter of 2007 to decline significantly from the fourth quarter of 2006.

2006 capital spending for the Company was about $850 million, as previously anticipated. In 2007, we expect spending of approximately $800 million or less, as a result of divesting our Fine Paper assets. During the exchange offering, the Company, of course, is not repurchasing its stock. So share buybacks beyond the exchange offering will likely be minimal, if any, in the first quarter. With that, I'll turn the call back to Kathy to begin our question-and-answer period. Kathy?

Thank you, Patty. Eric, I believe we're ready to open the floor now to questions.

[OPERATOR INSTRUCTIONS] George Staphos, Banc of America Securities.

Congratulations on the year. I guess the first question I had, may be a little difficult to discuss on this type of form, but we'll try anyway. The discussion in looking at alternative structures for Timberland, does that suggest, perhaps, the risks as you see for a restructure are lessened at all, or changed have at all, guys? And then I had some follow-on questions.

George, this is Dick Taggart. As you recall, last May we discussed the opportunities and the risks associated with that, and none of those things have changed.

Okay.

Clearly, as Steve said, our Board is going to review all of the opportunities.

Okay, very good. As far as Wood Products goes, could you give us some additional parameters, perhaps, or guidelines around what you mean by significant losses for the first quarter? And how should we think about how you're evaluating some of the capacity that you've currently curtailed, whether you may or may not bring that capacity back later on?

First, Patty.

Hi, George, this is Patty. I would say that as we did announce, we have an indefinite shutdown at Miramichi, that's our New Brunswick OSB mill. And that mill will stay down indefinitely, depending on market conditions. The other three operations that we announced this morning, Drayton Valley, Hudson Bay, Saskatchewan, and Sutton, West Virginia, are on a reduced operating posture. So they are not shutdown. They are just reducing their operating posture. As we've said, these are significant curtailments. We will continue to monitor the market as we go forward. There is some more production that is envisioned to come online. There's also a mix of plywood capacity that could come out. So I think the best thing that we could say at this point, that for the first quarter, based upon the market conditions that we see, we do think that the OSB price will be down from the fourth quarter. So losses from that perspective will certainly continue. These curtailments are focused on curtailing the negative cash at the prices that we are seeing right now. Many of the mills are cash negative in the industry. And we all know that they won't run at those levels. So all of that is to say that we'll have to continue to monitor the market conditions, what happens to housing starts in the spring building season, and we'll go forward on that basis. But we will take action based upon the events as they unfold.

Fair enough. Two last questions. One, can you give us a trend on single family closing prices in the fourth quarter, either percentage or price in absolute terms? And then secondly, you've done a great job returning value to shareholders. What are the prospects for maybe a further dividend increase this year, barring any strategic moves, obviously, for 2007? Thanks, guys.

All right. I'll take the dividend one. That, of course, is a Board decision. And they look at our earnings, earnings prospects periodically, and make their decisions based on the parameters we have for dividends. But I can't give you a prediction. Dick, on the single family, do you have -- or Patty, do you have some price information? Maybe Kathy has some.

George, I can get back to you with the exact price numbers.

George, the price, the average price in our backlog is still lower than the average price of the homes we are closing.

Okay. Thank you, guys. Good luck in the quarter.

Peter Ruschmeier, Lehman Brothers.

Good morning and congratulations on the progress, on the actions. I wanted to ask if I could, maybe a question for Rich Hanson on the Containerboard segment. I think you mentioned that most of the costs you -- have been included, and going forward, they start to get stripped out. Can you elaborate on that in terms of how much in the way of one time costs, for example, in the fourth quarter were incurred?

Well, in terms of the Containerboard, Packaging, the plant system, just in the fourth quarter alone, we incurred in the range of $11 million of additional maintenance costs. But what I meant by most of the costs are incurred, is that on the box plant side particularly, most of the major moves are complete. That is, by moving to the larger scale, more efficient plants, and getting the machine centers in place that we had forecast, we still have a series of projects ahead of us in the primarily mills. The primary mills did a heck of a good job driving their costs down in the last year, as I mentioned, both costs and productivity. But there is a series of projects out in front of them as we go forward. So I was referring to the physical moves in the box plant.

Okay, that's helpful. Maybe a question for Patty on the 14-week accounting quarter -- or, I'm sorry, for Dick. Can you help us to better understand that? And I'm sure it's not as easy as dividing by 14 and multiplying by 13, but can you help us to better understand the impact of that? Presumably, it exacerbated the Wood Product losses and helped the other businesses? I'm just trying to get to a run rate as we start the first quarter?

It's difficult, Pete, because it varies by business. Those operations that ran 24/7 had an additional week of production. However, from a shipping standpoint, because it was a holiday period, it really only added about three shipping days to most businesses. Because of our fiscal accounting -- our fiscal calendar, as you know, is typically four 13-week quarters, and then about every few years we have this 14-week quarter. It typically is a negative to any business that, such as Wood Products, that is operating at or near, or below break-even levels, because it adds an additional week of fixed costs to all of those businesses. So I wish I could lay out very clearly what it does. But I would say that mostly, it was probably a negative for Wood Products, it was a negative for Containerboard, and probably a positive for the Real Estate Company.

Okay, that's very helpful. Just lastly, if I could, maybe a question for Steve. Steve, I was hoping you could amplify a little bit on your comments in the press release about the Domtar deal being a landmark transaction. I know Dick and others have commented about some of the specifics of it. But I'm curious on that language, in particular, as to why you think it's such a landmark transaction. And then, if you care to comment, I'm curious if you could share with us either the process or the time line on the remaining -- on the alternative structures that are being examined?

Well, Pete, the language really refers to on the Domtar case, it's a reverse Morris Trust spin, with an added split feature to it. And I don't believe that's really been done before, that's quite an unusual approach to doing things. However, since you bring the subject up, we think that it is going to help create a very strong Company in a very competitive market. So from that standpoint, I think it would be a landmark transaction, as well.

With regard to the other alternatives that we have been looking at, and will look at as we indicated with renewed focus, that takes place at our Board level. And it's a continuous process, but with renewed emphasis. And I'm not in a position to comment on what decisions the Board might take.

Okay. Fair enough. Thanks very much, guys.

Rich Schneider, UBS.

I was wondering if you could talk about the Wood Product improvement in the first quarter you're expecting. Is it primarily going to come from the lumber markets, being that you're expecting and prices are already up somewhat in lumber, and a little bit from engineered woods? Are those the two key drivers for the improvement that you're seeing in the first quarter?

Rich, this is Rich. Let me say, we're not expecting much improvement. But we think we could see some seasonal improvement as people finally begin to purchase for the building season. We also think there could be some positive impact on pricing with some of the announced closures. But you characterize it as an improvement. We would really qualify that; it's pretty minor.

Okay.

Well, I think it would be fair to say that the losses will be reduced. So we are saying that we will still be incurring losses in the first quarter. But I think you got it right, Rich, when you said that we are looking for some slight improvement in lumber pricing. And that will -- we are seeing some at this point, and that will be contingent on the spring building season and what happens to that as we come out of the quarter. I think we've already said we don't see pricing improving in OSB. But we are hopeful that as the industry continues to take curtailments, that pricing will ultimately improve in that product line. And we are, in our closures, or in our curtailments that we are talking about, also looking at stemming cash flow -- negative cash flow in that area, as well. So I don't think that it's anywhere near where we would like it to be, but we don't think it will be at the magnitude of the fourth quarter either in terms of loss.

Could you talk a little bit about what's happening in engineered wood? Did you say, I think, Patty, that you expected pricing -- I wasn't -- not sure I got that. Pricing to be up a little in engineered wood?

Yes, I said I think that the volumes would improve somewhat. And we said that the raw materials, which obviously the raw material for that product is the near-end OSB. So the bad news on the OSB, is good news in this product, in terms of it being a lower alternative -- or lower cost going forward into the first quarter compared to where we are.

Okay.

But it won't be -- the big driver of the quarter will be OSB and lumber.

Okay. Just a couple things on Containerboard. Could you give us an idea of what price increases you're seeing here in the first quarter in OCC? And what the volume impact, or even if you want to put it in terms of bottom line impact of the California freeze has done to your box business?

As you know, Rich, the OCC prices moved up sharply here in the past week or two, and we're really just assessing the impact of that. I think as you know, the recycled content across our total system runs in the range of 40% to 50%. So you can take it from there, it's pretty significant. And then of course, that's coupled with very high wood chip costs, particularly in the western system here, because of the Wood Products sawmill curtailments and the reduction in residual chip supply. As far as the freeze, very serious for that part of our business in California. But you have to -- we're a large system as well, and we're in a lot of other markets and a lot of other segments. So it will be serious but not -- how should I put it? To put it in perspective, it won't be really very dramatic in terms of the financial results in total on this business. But certainly for that segment, very significant.

Rich, I would just add a couple of additional things. As you think about OCC for our system, this is a real rough rule of thumb, but every $10 movement in the OCC price in the quarter is about $8.5 million. So you can track OCC from the reported amounts, and get at least some level of what that will do to our own operations, I think with that metric.

Terrific, and -- .

The other thing I was going to say on California, it's not only a volume reduction. But that segment, as you know, is one of our more profitable segments, as well. So we'd reflect a little bit of mix change as it relates to the prices. We think the prices will improve across. And as you know from Rich's comments, we are implementing the price increases in both Containerboard and Packaging this month. So we'll get some upside for that. It will be somewhat muted by the California weather.

And then just quickly, you had a pretty low tax rate, around 25% this quarter. Could you talk about that, and what you're expecting going forward on taxes? Is it back at the 34.5% in '07? And then lastly, could you go through the discounting that you're alluding to in the home building area and any quantification of that? Thanks.

Sure. On the tax rate, the low tax rate is really the function of truing up the rate for the year. I think through the third quarter we were somewhere around high 33%, close to 34%, 33.6%, if memory serves. And the rate for the year, and of course, you have to remove the unusual items that we have, like the goodwill charge that does not get tax effected. But removing those items and just looking at continuing operations, I think our effective rate will come in closer to 32.2%. So it's a matter of taking that true-up of the lower rate, and putting it all into the fourth quarter as we true that up, that results in the abnormally low tax rate for the fourth quarter. And you're correct, going forward into 2007, we would anticipate that we would have a more normal rate, closer to the 34%.

And then the discounting on home building?

I think as we look at the discounting in home building, one of the things that we see that as a result of the cancellation rate, that builders are seeing across their systems that there is inventory at a higher level, finished homes that builders are carrying than they normally would. And so our concern in that area is to watch to see what will happen as builders try to move that inventory. And so we anticipate that there could be some further discounting as a result of trying to get those finished homes off their books. The other thing, I think, in terms of going forward for the year that's an important consideration, is there have been a number of impairments, very large impairments, reported in the industry. And we will wait to see what impact of taking those losses in 2006 will have in their margins going forward for 2007. So, many builders have already taken some of those impairments. So it will improve their 2007 margins. We'll see what impact, if any, that has.

Thanks.

Mark Wilde, Deutsche Bank.

To follow-up on that real estate question, you really haven't had to take much in the way of impairments or write-downs on your land book. Any thoughts about that going forward?

Well, Mark, as you know, we have a very detailed and consistent process of looking at our land. I can't really comment on the position that other builders have had, and how they have done their calculations. But we have gone through that very carefully, taken the impairments that have been warranted. We would all like to say that we were smarter about buying land. But, and we do know that we do have people in our markets that have been in those markets for a long time, and do follow land prices. But I think all I can say at this point is we have reflected the impairments to date that we need to take in our portfolio.

Okay. Then the second area I wanted to ask about was a little more follow-up on the Containerboard and Packaging business. You've given us a lot of color on how OCC affects costs. I wonder, on the other side of the equation, if you could talk about how that may roll through and affect pricing?

Well, as I said, we are now invoicing these pricing increases, and we feel it's even more critical, and we intend to stay the course as we see these escalating costs coming through the system here, both in wood chips and OCC.

Dick, are there any pieces of business that you have that might contractually be linked at all to OCC?

It's pretty minor. Are you referring to our recycled business, or --?

Well, I'm thinking more about just any kind of longer-term relationships you might have on the box side, that somehow kind of tie box pricing to any kind of input cost, whether it's OCC or energy?

That's a very small fraction of the long-term contractual business at this time, Mark.

Okay. And then finally in Containerboard, any sense, just given the restructuring that you talked about, Dick, what you might expect in terms of volume in '07, all other things being equal? I think you said you were retaining about 77% of the business in the closed box plants.

Yes, well, we would expect to continue to grow volume in the chosen segments. So we'll see some volume improvement as we go through the year, as well, in absolute terms.

So if the market is flat, you should be flat to up then, all other things being equal?

That's correct.

All right. Last question is just longer-term on the Timberland. I wonder, Steve, when you think about what you're starting to see out of Latin America, what's the impact going to be do you think, over the medium to long-term of all of these forestry operations in Latin America on sort of Timberland in North America and the Wood Products business in North America?

Well, Mark, the first thought that comes to my mind to your question is the vast majority of the timber that's been planted for commercial forest uses has been pulpwood. And of course, that's in the marketplace today. There are relatively few people planting on saw log regimes utilizing both pine and eucalyptus. So the midterm, you won't see the huge kind of spikes that you've seen out of pulp, but the plantings are increasing. The rotations on a saw log down there out of pine are about 21 to 22 years. So the midterm shouldn't be impacted that heavily, although 20 years out, you're going to see some significant volumes on the market.

And I guess we have some Brazilian plywood coming up here, and I think one of your competitors in engineered wood is bringing up veneer for engineered wood production. Do you think that's going to grow over time?

Well, certainly we built a plywood plant, and it has the possibility of producing high grade veneers for LVL. That material has to be used sparingly though, because its strength properties are very directional. Meaning, it has a lot of strength in one of the axis, and not a lot of strength in the other. With the grain, it's strong, and across the grain, it's weak. So you can't use it to high degrees in LVL.

All right, very good. That's all my questions.

Mark Weintraub, Buckingham Research.

First, Steve, I'm sure you've been very pleased with the way the market has received the White Paper transaction you're doing with Domtar. And I'm curious how you would contrast your view on your Containerboard business now with where your view on the uncoated free sheet business was a year or a year and a half ago?

That's a good question. When we made the decision to move the White Paper business, and ultimately created the Domtar transaction with Domtar, our view of that business was that it was one that had a continuing, albeit, small decline in absolute market, and the businesses needed to see some consolidation for the health of that industry. With regard to Containerboard, Packaging, our view is that it is in a moderate growth stage. Our manufacturing has had a bit of a renaissance in the U.S. and we can foresee that business in a moderate growth stage going forward.

And separate question on the timber tax changes. If they had been in place during 2006, can you give us a sense as what the financial impact, how much that would have benefited Weyerhaeuser's bottom line?

Mark, this is Dick Taggart. Its order of magnitude, it would have been around $180 million, something of that order of magnitude. $160 million to $180 million.

So is it fair to say that when you are -- you're looking at strategic alternatives, et cetera, that on a risk-adjusted basis is the type of bogey that you have to get to from another alternative to make it worthwhile moving forward? Or are there other important elements to the thought process?

Well, clearly, that is an important element. But there are certainly other considerations, as well, that we discussed in our meeting when we were in --- in May, when we were in New York.

And those other elements include risk on the transaction, and they include the flexibilities you have with what you can do with forest.

Okay, great. Thank you.

Steve Chercover, D.A. Davidson.

I was hoping you could also give us some more color, first of all, on South America. How much land you acquired? And ultimately the Wood Products you're producing there, given that they're not that structural, will they be coming back to North America for appearance grade? Or are you trying to create a new market in South America?

In terms of hectares of land, we have about -- a little over 100,000 hectares in joint venture ownership. And we have, independent of that, about 30,000 hectares that is owned directly by the Weyerhaeuser Company. My comment on the strength of the materials was related to the eucalyptus species. You can mix, in particularly in plywood, utilizing those strength characteristics, and produce a very strong product, because the different layers are interleaved or cross-grained one to another. We can also intermix pine with it. So we can produce a variety of industrial grade panels that have clear faces, either of pine or eucalyptus. They've been very well-received in the industrial and furniture markets, on a South America, North American, and European basis, so far. It is a single plywood facility. So it's hard to extrapolate from that out to a complete future, but the reception has been very well. We're operating on a multishift basis now, full operation, and the product is all sold for the coming year. That says to us that as our forests mature, that we have more opportunities in the production of that material, if the market can take it. But we also have other solid wood potential.

Okay, switching gears. I think Rich was mentioning Containerboard, and he threw out some numbers in terms of targeted. I don't know if it's savings or incremental margin over the next couple of years. Could you give us that number again? And what it's going to cost you to achieve it, and the time horizon?

Okay. The number that I started with was the $230 million goal that we have for improving the margin in that business. And that was, as you may recall, about $130 million on the supply side. That is in the primary mills and in the box plants. And the $100 million is in the sales and marketing side, and the market selection, the pricing from the market-backed discipline that we put in, and the visibility we have on our margins in our pricing formulas. And as I said, we've completed most of the physical changes in the box plants. Some still ahead. And so we're now going to realize the cost reductions in the box plants. We need to get the business there, and get the productivity up. And our estimate is that in that process going forward on the box plant side, we'll beginning to realize the improvements from this year. And that, coupled with the mill projects will give us around -- it actually comes out to about half of the $100 million I commented on, we expect to realize in '07. And the other half coming from the marketing side in pricing, and moving to the market segments that we've chosen because of their better margins. So $100 million total in '07, and that's, of course, a range number. And that's coming from both the supply side and the marketing.

Great, thanks. One last question, please. Last year, Steve Rogel was good enough to defer his retirement for two years. Steve, do you expect that Weyerhaeuser will be in whatever final incarnation by the time you do retire in 2009?

Well, I suppose every CEO dreams that. But this Company has been in existence for 107 years, and I think changed about every year. So with respect of the things that I have hoped to be able to achieve, I'll be pleased with the progress to that point. But I think we're in a dynamic world that's continuous change.

Great. Thank you.

In the order of time, since we are at the end of our normal session, could you please restrain yourself to one question for our next questioners? Thank you. Next question.

John Tumazos, Prudential.

John Tumazos here. Concerning WRECO, you guided that the first quarter would be less than the December quarter. You didn't, I believe, say anything compared to the $155 million a year ago? Do you expect to do as well as last year?

John, let me give you maybe a little more color on WRECO in terms of its margins, and hopefully this will help you a little bit. If you think about margins in the business for the third quarter, they were about -- single family margins were about 26%. Those dropped to about 24% for the fourth quarter. Sales price was up slightly, but margins dropped. And for the first quarter, we anticipate that margin will drop further, probably around 20%, 21% from a margin perspective. So closing, I said, would be comparable to about a year ago. And I think we had roughly over 1,000 closings in the first quarter of 2006. But you can go back and check that number. But the margin will be closer to 20%, 21%. And it was about 30 something percent in the first quarter of 2006.

Thank you.

Mark Connelly, Credit Suisse.

This is [Humzum Azari] from Credit Suisse. Just one quick question. Could you update us on your progress towards your box plant utilization rate target? And whether you're going to see, or are seeing, any kind of margin improvement from that initiative yet?

This is Rich. Again, yes, we are now beginning to see the margin improvement. We commented that we were in the low 80% utilization, going to a target of 90%. So as we look at getting the business in these plants that are now more efficient in the markets we want to be, you'll see that continue to improve through the year. And that's part of what the number is that I quoted, in terms of the profit improvement we see ongoing on the box side. So as I recall, we did not see an improvement in utilization in the fourth quarter, for the reasons I mentioned about the ongoing restructuring, movement of business, maintenance projects. So we're still in the low 80s. You'll see that come up during the year.

All right. Thank you.

Todd Peters, American Century.

On the receipt of the countervailing refund, the use of that proceeds, is that earmarked for anything? Debt reduction or share repurchase?

Todd, this is Dick Taggart. Those proceeds were used in the fourth quarter to -- as part of the funds to repurchase the 5.5 million shares of stock we repurchased in the fourth quarter.

Great, thank you.

Richard Skidmore, Goldman Sachs.

This is [Bob Traud] in for Rick. Just a quick question on Wood Products with your distribution business. I know BlueLinx preannounced negatively a couple weeks back. I'm just wondering if that business negatively impacted you guys much, and if you could quantify it a little bit?

Well, that business for us is now part of our iLevel business, where we've combined all of our businesses together to serve the dealer market and the production builder at the end of that chain. Everyone was impacted by the home building market. But as Rich indicated, our penetration into that market has been quite good given the short period of time we've put that system together. So it would be very difficult to break out and compare that business specifically with a competitor.

Okay. Thank you.

Thank you for joining us today on the call. If you need any materials, please contact me. And I will be in my office shortly for any additional follow-up questions. Have a nice day. Thank you.

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