威爾豪瑟 (WY) 2008 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Weyerhaeuser 2008 fourth quarter earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions). This conference is being recorded today, Friday, February 6, 2009.

I would now like to turn the conference over to Kathryn McAuley, Vice President of Investor Relations. Please go ahead, ma'am.

Thank you, Brandy. Good morning. Welcome to Weyerhaeuser's fourth quarter 2008 earnings conference call. I am Kathryn McAuley, Vice President of Investor Relations. Joining me this morning are Dan Fulton, President and Chief Executive Officer; Patty Bedient, Executive Vice President and Chief Financial Officer; Tom Gideon, Executive Vice President, Forest Products; and Larry Burrows, President, Weyerhaeuser Real Estate Company. The call is being webcast at www.weyerhaeuser.com. The earnings release and material for this call can be found at the website or by contacting April Meier at 253-924-2937.

Please review the warning statements in our press release and on the presentation slides concerning the risks associated with forward-looking statements. Forward-looking statements will be made during this conference call.

This morning Weyerhaeuser reported a net loss in the fourth quarter of $1.212 billion or $5.73 per share on net sales from continuing operations of $1.8 billion. This includes an $827 million or $3.91 per diluted share goodwill impairment in our iLevel and cellulose fibers businesses, writing off all of the goodwill in these businesses; real estate impairment related after tax charges of $313 million or $1.48 per diluted share; an after tax gain of $149 million or $0.70 per diluted share on the ownership restructuring of assets in Uruguay; an after tax charge of $33 million or $0.15 per diluted share for closure and restructuring activities in wood products and corporate activities; an after tax gain of $21 million or $0.10 per diluted share for the early extinguishment of debt. Excluding these items, the Company had a net loss after tax of $209 million or a loss of $0.99 per share. A GAAP reconciliation of special items is available on our website in the earnings information package.

Please turn to chart 4 in the earnings information package, as I will discuss the waterfall chart. Chart 4 is the bar chart detailing the changes in the contribution to earnings by segment from the third quarter of 2008 to the fourth quarter of 2008. This is presented on the basis of contribution to earnings before special items, interest, and taxes. As noted in the first bar on chart 4, in the third quarter 2008 the Company earned $17 million before special items, interest, and taxes. Changes in Weyerhaeuser's segment earnings from third quarter to the fourth quarter were as follows. Proceeding from left to right across the waterfall chart, we begin the discussion with Timberland. No land sales and reduced timber volumes resulted in lower Timberland earnings of $45 million. Significant declines in lumber and OSB prices and weak volume throughout our product lines were the main contributors to the $90 million reduction in wood products earnings. Falling pulp prices and market related downtime reduced cellulose fiber earnings by $13 million. There was no containerboard packaging and recycling activity in the fourth quarter, whereas the third quarter contained one month of CBPR earnings. This has a negative $8 million impact.

The loss on land sales at Weyerhaeuser Real Estate Company of $130 million was the most significant factor in the $62 million decline in RECO earnings. Corporate and other contributed $12 million less. Foreign exchange was the largest factor in reduced earnings. The final bar to the right of the page is the fourth quarter 2008 pretax loss before special items of $213 million. Please note chart 1 in the information package contains the actual Q3 and Q4 contributions to earnings by segment excluding special items, interest expenses, and taxes.

Lastly I want to point out that our tax rate for the continuing operations for the year is now approximately 41%. This excludes the Uruguay restructuring gains and the goodwill impairment. I will now turn the call over to Dan Fulton.

Thank you, Kathy. Good morning to everyone on the call. When I spoke to you in December, I mentioned the conditions in all of our markets had significantly deteriorated since the end of the third quarter. I also said these were some of the worst conditions in my career, and we foresaw a continued weakening of the economy.

As this morning's sobering results indicate, that prediction came true. Single-family new home construction has nearly come to a standstill. During the fourth quarter alone, annual construction plummeted to a rate we haven't seen since 1959. Not only have we seen a 77% drop in housing starts since 2005's peak level of 1.7 million, but the pace of this decline has accelerated. By 2007 starts had fallen to a level of 1 million. In 2008 they plunged to 620,000 and by December starts had dropped to annualized rate of 398,000.

The story in the repair and remodel market is the same. Tighter credit and fears of possible unemployment have caused people to delay projects they might have undertaken only a few months ago. As a result, wood products are barely moving, and what is selling is going for prices substantially below third quarter levels. These figures demonstrate the complete capitulation of the consumer in the last half of the fourth quarter. It is not surprising. Consumer confidence has now sunk to its lowest levels ever as buyers face an environment of uncertainty. They wonder what Congress will do and if its action will help stem the freefall. Every day they read of thousands of job cuts and wonder if they're next. In this environment, even qualified buyers have decided to sit on the sidelines rather than take advantage of lower home prices.

Such conditions obviously affect our real estate, wood products, and Timberland businesses, but the bad news doesn't stop there. Over the past couple of years, cellulose fibers has provided a bright spot due to our competitiveness and a weaker dollar. However, the rebound in the US dollar during the quarter, combined with increased weakness of the global economy, took its toll on pulp prices.

All of our markets are facing extremely difficult conditions. In response, we have moved to align our production to the rapidly deteriorating markets and to lower costs. In a moment Tom Gideon and Larry Burrows will outline in detail the actions they have taken and will take in the coming months. Patty Bedient will provide the first quarter outlook and explain the goodwill charges we reported this morning.

Based on today's results, it may seem hard to believe that the steps we have taken so far have made a difference. But we're dealing with a market that's weakening faster than anyone envisioned. So far we have taken steps to reduce overhead by $375 million and have eliminated significant production. We recognize that these are unprecedented conditions which require an unprecedented response. We are accelerating the necessary and tough decisions to get us through this protracted down cycle and to position ourselves for the market upturn. At this time, I would like to turn the call over to Tom and Larry, who will go through their specific areas in detail. Tom, I believe you're first.

Thanks, Dan. As you have just heard, we're facing some extraordinarily challenging markets and we're committed to taking the necessary steps to improve our performance under these conditions. In this portion of the all I would like to detail some of the actions we're implementing in our wood products, cellulose fibers and Timberlands businesses. Because our wood products business is the most heavily affected by the current financial situation, I will spend most of my time discussing what we're doing in that business. However, be assured each business in the forest products segment is responding to this need to act with the same discipline and sense of urgency.

Prices and sales volumes for building materials fell during the fourth quarter. As we have throughout this downturn, we continue to make operating adjustments to balance our production with declining demand. Today virtually all of our facilities are experiencing some degree of reduced operation. Both lumber and OSB are now running at a rate approaching 50% of capacity. For engineered products, we are operating our mills at less than one-third of their capacity. Since the market peak in 2005, North American lumber demand has dropped 30%. During the same period, Weyerhaeuser production has declined 32%. In addition to volume impact, we have also seen significant price declines. For example, we have not seen Douglas fir pricing at these low levels in 25 years. In response, we're monitoring demand and supply on a weekly basis and making realtime adjustments to our operating schedules to more aggressively manage our response to these unprecedented market conditions.

In addition to modifying operating postures, we're also making tough decisions about permanent capacity. In just the past 11 days we have announced the enclosure or indefinite curtailment of lumber and veneer operations at four mills in Aberdeen, Washington, and Pine Hill, Alabama. These are in addition to the seven operations we either closed or indefinitely curtailed in 2008. In the coming weeks, we will continue to assess the market situation and make additional operating decisions as appropriate.

From January 2008 through today we have eliminated approximately 2,700 positions in our iLevel business due to closures, sales, or modified postures -- or nearly 25% of our total operational and staff roles. This translates into a total reduction of $175 million in payroll costs. For 2009, we've reduced our capital spending by 50%. We will continue to fund only those projects critical to maintaining optimum operating performance, ensure safety, and meet environmental regulations. We have restricted or eliminated discretionary expenses such as travel and training. And all in all we are challenging all of our employees to find ways of doing every aspect of their jobs faster, better, cheaper, and of course safer.

Our immediate goal is straightforward -- to get to a core set of operations that can be cash neutral in the severely depressed market. These assets will then serve as the platform for significant operating returns when the market rebounds. While we firmly believe the long-term prospects for residential housing demand are strong, we recognize the current conditions in the homebuilding industry warrant severe cost conservation actions. That is why we were taking unprecedented steps across all areas of our business to save costs.

Turning to cellulose fibers, prices and volumes declined due to the dramatic changes in global market conditions. We continued to improve our operating efficiencies into the quarter. This was offset by the sudden severe declines in market pulp prices and demand. In response, we adjusted our production to meet declining demand and reduce production by 16,000 tons. We will continue to match production with demand by appropriately adjusting capacity utilization.

In November, we began actions to dramatically reduce our spending in key areas including overtime, chemical usage, vendor pricing, staffing, and the use of outside contractors. We expect to start seeing the results of these actions this quarter. In addition we reduced 2009 capital. Combined with these cost reduction actions, we believe cellulose fiber sincerely well positioned to meet these challenging market conditions given on our efficient operations and strong presence in the fluff, pulp, and specialty fiber markets.

Moving to Timberlands, we're dealing with lower harvest levels in response to deteriorating market demand. Harvest levels in the fourth quarter were down approximately 13% from the third quarter due to market declines and adverse weather conditions. For the year, harvest levels were essentially flat to 2007. It should be noted, however, that nearly one-third of the harvest in the West was associated with the need to harvest wood damaged by the severe storms that struck the Northwest in December 2007. Following the reduction in demand, domestic log prices were also lower while export realizations were up slightly as our export markets remained steady. Volumes to Japan were comparable to 2007 levels. During 2008 we took advantage of our experience in Asia to expand our sales to the Korean hemlock market. We had improved lease revenue from minerals during the fourth quarter primarily from leases originating in the Hainesville Shale region.

Looking across the entire company I would be remiss if I didn't recognize our employees for their outstanding safety performance in 2008. We had our safest year ever, incurring fewer and less severe injuries than ever before. Given the market and operational challenges we faced this past year, this was truly a superior achievement on their part. I will now turn the call over to Larry.

Thank you, Tom. Good morning. As Dan mentioned, what started as a dramatic deterioration in the housing and financial markets is now significantly affecting the overall economy. Rising unemployment and economic uncertainty have driven consumer confidence to the lowest level since the index began in 1967. The supply of customers has become very limited as potential homebuyers have lost confidence to make major purchases. Against this backdrop, foreclosure activity is accelerating, driving up inventories of unsold homes and placing downward pressure on prices, which continue to decline in all markets.

Conditions in our markets have eroded considerably in recent months. Towards the middle of last year, there were signs the Washington, DC market, one of the first to enter the downturn, might begin to stabilize. Any hopes of stabilization was dashed during the fourth quarter with the rise of unemployment and the collapse of consumer confidence. Phoenix, Las Vegas, and the inland empire in California remain our most challenged markets. The Houston and Pacific Northwest markets, which had remained relatively steady through the third quarter, are now deteriorating.

This deterioration is evidenced in our key indicators on chart 9. Comparing the fourth quarter of 2008 to 2007, traffic decreased 33%, sales fell 44%, and closings were off 53%. Our backlog of homes sold but not closed dropped to slightly more than two months. Our average sales price was down 13% from 2007, consistent with the 15% new home price decline nationally.

In the past we have discussed the actions we are taking to adjust to this difficult operating environment. We have cut land acquisition and land development spending, adjusted staffing, reduced work in progress, closed communities, and repositioned others with smaller, less expensive product. Efforts in all of these areas are ongoing, but are insufficient. We reviewed our homebuilding projects and land portfolio for opportunities to generate cash and avoid future development spending. This effort and the increasingly uncertain timing of recovery resulted in a change in our land strategy for certain projects. We decided to sell the land rather than hold it for development.

Consistent with this strategy, in the fourth quarter we sold land, eliminated options, and impaired land identified for future sale. These land related activities account for $469 million of our $630 million fourth quarter pretax loss as as follows -- $130 million from divesting land in Arizona and California, $58 million from eliminating options on land in virtually all of our markets, and $280 million from impairing land we are likely to sell in the future. This land is located in Arizona, California, Nevada, and the Pacific Northwest.

An additional $135 million in asset impairments relates to communities where we continue to operate. We also incurred incurred restructuring charges of $10 million. Excluding the loss on land sales and the noncash charges I just discussed, RECO recorded a loss of $16 million on fourth quarter operations. Our local managers are experienced and capable and together we will successfully guide RECO through the exceptionally difficult operating conditions we continue to experience. The actions we are taking position us to generate cash and return to profitability as our markets stabilize and recover. I will now turn the call over to Patty.

Thanks, Larry, and good morning. As you have already heard, the start of the year has been exceedingly challenging, and we expect it will continue throughout the quarter. I will begin the outlook with Timberlands.

[Grade] harvest volume is expected to decrease in both the west and south. Traditionally, the first quarter is seasonally weaker than the fourth, and the market curtailments and shutdowns in mills across all geographies will only serve to exacerbate this trend. In the West, export prices are expected to decline due to the slowing Japanese housing market. Domestic realizations should remain weak. Prices for logs in the south are anticipated to decrease, although we anticipate a higher mix of grade log compared to the fourth quarter. We expect logging and handling costs to be somewhat less due to lower diesel costs and improved salvage costs in the West. Overall, we expect that Timberland's earnings will be comparable to the fourth quarter.

In wood products, prices and volumes across all product lines continue to be anemic. Mill curtailments in all geographies and product lines as Tom described are expected to be the norm as we adjust production to low demand levels. Further shutdowns are likely if markets do not improve. As a result, we expect that first quarter operating losses could be similar to the fourth quarter.

Pulp prices and sales volumes are expected to decrease in the first quarter as the deterioration in consumer products and Asian markets continues. Production volumes are being adjusted to lower levels of demand, which is expected to negatively affect operating efficiencies. We will also have additional maintenance expense in the first quarter compared to the fourth as a result of scheduled annual maintenance. We do expect to lower freight costs resulting from decreasing fuel surcharges and ocean freight. In addition, fiber costs should be lower. However, these cost decreases will not be enough to offset adverse market trends. We expect that overall operating earnings in the cellulose fiber segment for the first quarter will be significantly lower than the fourth quarter.

In our real estate segment we expect that first quarter home closings will be seasonally lower than the fourth quarter. In addition, the lack of demand that Larry has just described is not expected to improve as unemployment continues to be high and consumer confidence remains fragile. Low sales orders and high cancelation rates have been prevalent thus far in the quarter. Excluding impairments and losses on land sales which we experienced in the fourth quarter, we expect that the segment's loss from homebuilding operations will increase in the first quarter compared to the fourth.

Capital spending for Weyerhaeuser Company for the full year of 2008 was approximately $425 million. This included approximately $100 million for the containerboard packaging business we sold last August. As announced in December, we anticipate spending in the range of $200 million to $250 million in 2009.

Now, as Dan mentioned, I will provide some additional background on our goodwill impairments as well as other significant changes in equity during the quarter. Included in the loss of $1.2 billion for the fourth quarter are noncash charges are $827 million for goodwill writeoff associated with our cellulose fibers and wood products businesses. The accelerating deterioration in market conditions during the fourth quarter led to a fair value analysis which indicated that the carrying value of the goodwill was impaired. The analysis takes into account the industry's reduced market multiples, recent and expected operating performance, and an expectation that weak macroeconomic trends will likely continue. After recording these impairments and according with Financial Accounting Standards 142, the goodwill remaining on our balance sheet is approximately $40 million and is associated with our Timberland segment.

At year end, we also updated the funded status of our pension and post retirement benefit plans. Investment losses primarily in the second half of 2008 and a lowering of the discount rate resulted in an after tax charge to equity of approximately $1.2 billion. Other changes in equity included the fourth quarter dividend payment of $127 million in addition to the accrual of $53 million for the dividend the board declared in December and which is payable in March. Changes in foreign currency translation accounted for the remainder of the decrease.

In addition, we ended the year with $2.4 billion in cash and short-term investments and $6 billion in debt. This follows the retirement of $800 million of debt in the quarter. We remain in compliance with our debt covenants and we have available unused lines of credit totaling $2.2 billion. Now I will turn the call back to Dan, and I look forward to your questions.

Thank you, Patty. I acknowledge the significance of our $1.2 billion loss. It reflects the speed and the severity of the deterioration of the economy, especially in our markets. We're well aware of the challenges our markets present, and we're taking action. Each of us is taking responsibility to accelerate our cost savings measures. We're questioning every expenditure and challenging ourselves to work more efficiently. There is no silver bullet here, but we're confident that our focus will produce measurable results even in these economic conditions.

We have a great asset in our Timberlands. Our businesses operate in markets that is are anchored by sound long-term demographics. Consumer confidence will return, credit markets will ease, and we will see a rebound. In the meantime, we're dealing with current markets and the uncertain timing of recovery. We will improve our performance and put ourselves in the strongest position for the future. I have no doubt that we'll succeed. Now I would like to open up the call for your questions.

Thank you. (Operator Instructions). We have a question from the line of Gail Glazerman with UBS.

Good morning.

Good morning, Gail.

I guess starting on the timber segment, if one-third of 2008 volumes were salvaged, and I am assuming you're running through that activity, how should we think about harvest volumes and mix in 2009?

Gail, this is Tom. Looking into 2009, in the West you will see a lower harvest level, and it will be more aligned towards Douglas fir as opposed to hemlock.

Okay. Can you give any visibility into I guess -- part of the change in the fourth quarter was one off land sales? Just the magnitude of land sales between the third and fourth quarter and all of 2008?

Well, as we indicated, we did not have any land and adjustment program sales in 2008 [point four], and during the fourth quarter. We're in the market on an ongoing basis, so the difference was that as we looked at the opportunities, there wasn't a match in timing between the assets that we were looking to purchase and opportunities that we felt comfortable with exchanging for. So we had nothing in the fourth quarter.

Okay. But you did in the third? Correct?

Yes.

Okay. And just looking on the cellulose business, the weakness that you referred to in emerging market, was that more commodity pulp or was that across the board including fluff?

It was primarily in the paper grade segment, which obviously over time has an impact and flows over to some degree on the fluff producers as well. As you know we're predominantly into the absorbent pulp and specialty fiber markets, but we weren't immune to the slowdown in the Asian markets.

Patty, just a quick question. Can you remind us what the cash tax payment on the IP sale was in the quarter?

We pay taxes on our total all in taxes, Gail, so the total cash taxes that we paid out in the quarter were just over $1 billion.

Okay. Thank you.

Next question.

Thank you. Our next question comes from the line of Richard Skidmore with Goldman Sachs. Please go ahead.

Thank you. Good morning. Tom, can you just talk about your comment that you made with regards to getting to cash neutral in the wood products business and what are some of the steps that you think you could take and what the timing might be in order to get there?

As you can imagine, Richard, our goal is to do this quicker rather than later. The whole issue that we have is we really wanted to be cash positive and earnings positive. But during these extreme market conditions, our first goal is to make sure we're cash neutral in all of the operations that we continue to run. So we're continuing to look again and against what we see is expected demand against the customer commitments that we have and against the facilities that most logistically advantage and cost effectively can meet those demands that we want to continue to fulfill. It is an ongoing process of looking at every element of our business, both our operating postures as well as the markets and the channels that we wish to go through, as well as all of the dimensions of overhead expenses and spending that we can take a look at. So everything that is associated with operating and manufacturing businesses is being scrutinized.

On the recent recent move up in wood products, specifically lumber prices and -- it's only happened in the most recent week where lumber prices have moved up pretty sharply, do you think that's something that is just a seasonal factor? Is that driven by something else? Do you think that that's sustainable? Can you maybe give some comment on that?

I wouldn't want to speculate in this market. There was a slight increase in some of our lumber pricing, but again as we look at the economic situation and the market conditions, we don't see an ongoing uplift in lumber prices going forward.

Okay. And then if I could just ask one question for Patty, just with regards to pension. Can you give us detail with regards to what the status was at the end of the year in terms of funded status and what the pension income looks like for 2009?

Sure, Rick. As you know, at the end of 2007, our qualified plans were overfunded by almost $2 billion, and our investment performance for 2008 was a loss of approximately 30%. Our largest plans are our US qualified plans, and some of those plans are overfunded, and some are underfunded by about a similar amount. For those that are underfunded, we don't expect to be required to make a cash contribution until the end of 2010, probably around September. The amount is still an estimate, but could be in the range of $50 million to $100 million. In terms of income going forward, we're still in the process of estimating that number subject to the year end numbers, but we will have pension income during 2009.

Thank you.

Thank you. Our next question comes from the prion of Peter Ruschmeier with Barclays. Please go ahead.

Thank you. Good morning. Just following up on the last question, Patty, was hoping you could clarify -- so the overfunded status of I think $1.9 billion -- the plan assets came down 30%. What was the net effect?

Well, the net effect of the plans at the end of the year, and you will see all of this detail in a couple of weeks as we file the 10-K, but we have -- I am speaking primarily about the US qualified plans because those are by far and away our largest plans. And there are some of those as I mention that had are overfunded, still overfunded. Some are underfunded by about a similar amount. I think it swings around $300 million.

Okay. Shifting gears to the real estate business, I was hoping you could provide a little more color on the charges in terms of how much of the charges were cash charges versus noncash charges? What I am really trying to get at is how much was the cash burn for the real estate business in the quarter?

Peter, I am sorry, go ahead.

I was going to to say I believe most of the charges relate to land writedowns which will be a noncash item -- just trying to separate between the cash and noncash charges.

I would say the majority of them in terms of obviously the impairments we took, which was a large portion of it, was noncash. Obviously the sale was a little bit different. The $130 million came from selling the land. $58 million was money -- cash that we walked away from in terms of option deposits and whatnot. The $280 million of land that we're likely to sell in the future obviously was a noncash charge. The severance of the about $10 million will be a cash charge.

Okay. That's very helpful. And shifting gears to the interest expense, Patty, it was a little bit higher than I expected. Curious if you can provide a little more color on that in terms of maybe interest expense, interest income? And do you have any guidance for us for either the first quarter or for full year '09 based on where you stand today?

The interest expense will come down simply because the debt is coming down, but I think really the change in the interest expense probably wasn't so much the interest expense itself, Pete, but the fact that we capitalized less interest in the fourth quarter compared to the third.

Okay.

The net.

Okay. Last question and I will turn it over. I see the international operations are now reported in the timber segment. Is it possible to give us the performance of that piece, that business, in the fourth quarter and for 2008?

In the fourth quarter I think we show about a $10 million loss in the international segment. That was primarily driven by the product prices reduction that we experienced globally for the plywood that was being produced at our new operation down there. We also saw some increased depletion as a result of the step up in basis as a result of the partition and some foreign exchange impact.

Okay. Thanks very much.

You will get a breakout of those as we go forward, Pete, in the 10-K.

Thanks, Patty.

Thank you. Our next question comes from the line of Mark Wilde with Deutsche Bank. Please go ahead.

Good morning. I wondered, Tom and Patty, if you could just help us unwind the timberland situation a little bit more. Tom, I think you said one-third of the '08 western harvest volume was salvage logging, is that right?

Correct.

And how how much of the volume that you harvest in total across the company is western?

I would have to look at it. It is probably around 40%. I would have to get back to you exactly on that amount.

Okay. Another question, I noticed that your year-over-year depletion in unit volume in timberland was up about 10% and that your third party log sales were up about 20% or 25%. And I just am trying to understand why this is away from the salvage logging, that this is occurring when the lumber and wood products markets are down so sharply in terms of both volume and price?

To some degree, with less internal sales and more went to third parties -- again, we had a good export market and we increased some of our sales over into Korea with the salvage hemlock that we had.

So it most of the increased volume is going into the export market, it is not domestic sales?

I wouldn't say most of it. I would say a good portion of it.

I am trying to understand -- it seems like you would almost, aside from your desire to generate cash in the near term, like this is a market where you actually want to be pulling your harvest volumes back pretty significantly.

When you look at that, our primary goal, particularly in the West, was to get the value from the wood that was blown down and to get that into cash as quickly as we could. Otherwise it would have been sitting out there and degrading on an ongoing basis. So you did see the significant volume come in, and it was good for us and the shareholders that we were able early in the year to get that into the marketplace before the degradation occurred out in the woods.

Okay. Switching over to real estate, with the land sales that you have identified out of RECO, can you give us some sense what your land book is likely to look like after those sales are complete?

Mark, this is Larry. Help me understand what you mean.

You're getting rid of some of your existing land position. Once you complete the sale that you're looking at right now, what will you be sitting on in the way of land inventory?

We have consistently said we had a little bit longer land inventory than others, maybe in the seven year range. I think that we're probably a little bit longer than that right now, just given what's happening. And so we're essentially looking to kind of work back roughly to about that range level.

Is there any chance going forward, just so that we can -- to help those of us as analysts and investors understand the company, is there any chance we can get more color on where exactly the land book sits and how much is there? I think one of the big questions people have right now is really trying to figure out how to value real estate. And if we don't really have any more information on what the portfolio looks like, it's hard to do that.

This is Dan. We can do that. As you know, we have also committed that we're going to provide an increased level of disclosure in our Timberland segment. You can look for that in the 10-K and our annual investor guide, and you can provide some feedback to us as to whether or not it is helpful. We will attempt to address your questions on the RECO land, because we consider it to be a significant asset and obviously better understanding is helpful.

My last question. Dan, is it possible to get an update on asset sales? I think you have pulled the sale of the ships business, but as I understood it, the sale of the short line railroads was still in progress, and I don't know whether you have added anything else to that asset sale list. Could we get a little update on that?

We had three assets that we had announced processes on. One was as you mentioned Westwood shipping, which we pulled off the market for two reasons. One was just a general deterioration in ocean shipping business across the world, and secondly the financial market made it impossible for any prospective buyer to be able to pay what we felt was a reasonable price. It is a business that makes money for us, so we will hold it for the time being. I can't comment on the railroad process. We are continuing to be in discussion and negotiation with a potential buyer, but can't provide a specific update. And the third business that we announced that we had a letter of intent was our commercial I beam business, and once again I can't provide any update other than we're still in discussion with the potential buyer.

Would you consider on any other assets, Dan, would you consider creating some joint ventures? Because it just seems like if the real estate market is not going to come back quickly, to deal with some of the oversupply that we have got in a lot of the building products markets, maybe some joint ventures would be ways to start to get at more of that?

We would not rule it out. One of the issues that we have generally in the wood products business is fundamental overcapacity, and so the industry continued to take downtime and curtailment and both temporary and permanent closures. So we're open to discussion, but we have no ongoing discussions at this point in time.

Thanks, Dan, and I do appreciate the commitment to more information, more transparency.

Next question.

Thank you. Our next question comes from the line of Mark Weintraub with Weyerhaeuser. Please go ahead.

Thank you.

Mark, did you change your employment?

I was kind of interested by that, too. On the land, you mentioned that you wrote down or mark-to-market land where you expect to build on -- I am sorry, which you expect to sell. Does that mean that you didn't on land which you at some date might develop? I wasn't quite sure what that distinction you were making there was.

Mark, the distinction is we went back and we looked at our portfolio. There was some land in our land portfolio that we said, you know what, I think that we may be better off selling this rather than holding it to develop in the future. And again this is a function of looking at maybe a protracted difficult operating environment. And so what we did is we wrote that land down and anticipate being able to take that to market sometime this year. Likely it would be in a series of transactions, and probably this is not something that would happen probably quickly. It would probably play itself out over several quarters.

So where you have on the balance sheet, you have land being processed for development, which is at $1.12 billion at the end of the fourth quarter, that would -- would that have been first of all where the writedowns would have shown up on the land you're talking about here?

Yes. I believe so. I think we also took some impairments, approximately $135 million relating to communities and land where we are continuing to operate and develop. So a little bit of both.

Understood. And how much -- can you help us at all understand how much of the land did not get a look through, so -- or on the one way we get to that number is you told us was the writedown was. Where did this land that you wrote down -- where did it end up on the books at?

I am trying to understand your question. Are you talking about -- first of all, every quarter we go through a process where we look at our land held for impairments. And we go through that, so everything gets looked at on a quarterly basis. The degree to which either we have had a change in strategy is one that we just outlined where had we decided to go ahead and sell land, or because of market conditions things continue to deteriorate, that's when we would elect to take impairments. And the land that we are going to sell in the future or projected to sell in the future would go underneath real estate and process of development and for sale. That's where it shows up.

Okay. I guess --

Let me also mention one other thing. The majority of what we ended up impairing is land that we acquired typically that has been in the run up, which is really 2002 and beyond.

Right. I guess what I am really trying to get to is get a sense as to how mark-to-market, how good the book value on the real estate business is? Which I guess goes back to Mark Wilde's point, more information for us to be able to better assess would be very helpful. Because obviously you have still got a pretty big book value there, but in this type of market people I think are unclear whether or not it really has that type of value. Any help you can do would be great. Just to follow up on the pension expense, I do assume that pension income would be meaningfully lower than the $177 million in 2008, would that be true or not necessarily?

I think that's a fair statement, Mark, and again we'll get you that number. It will be out in the 10-K here in a couple of weeks.

Okay. Then lastly, how much of your timber sales go through your building products manufacturing businesses?

I would say approximately 55% to 60% in general go through.

Okay. Great. And in the profits always show up in your timber business, though, you don't book that at cost of building products, I assume?

All of our logs are transferred at market pricing.

Okay. Thank you.

Next question.

Thank you. Our next question comes from the line of George Staphos with Banc of America Merrill Lynch. Please go ahead.

Thanks. Hi, everyone, and good morning. A few questions here. First of all, Patty, on the impairment in the fibers business, obviously there's some cyclical challenges here, but what changed -- and these are my words, not yours -- so radically that there had to be an impairment within the business? Can you give us a bit more color there?

Was your question on cellulose fibers, George?

Yes, it was, Patty. Can you hear me okay?

Yes. Basically it has to do with the way the impairment test is done under FAS 142. It is a point in time test, and you're looking at now 12/31 where all of your market caps and market multiples have decreased pretty radically.

Sure.

We could have a philosophical debate about whether or not those are indicative of the long-term value of the business. But the accounting rules dictate that those are the values that we use. So that's one of the big drivers of why that impairment occurred in cellulose fibers, even though we would look at that business very favorably in terms of its focus on especially the absorbent markets and the ability of that product line to continue to be attractive. So it really is the function of the downturn that happened at the end of the year, especially in the markets that that business operates in. And then just globally as you look at what has happened to market caps generally, not only in our industry but others, you are seeing an incredible amount of goodwill impairment in a lot of industries coming up in the fourth quarter. And it is primarily for that reason.

Thanks for the color on that. I realize this is not the reason why you would do it and it is driven by the accounting rules, but I was curious -- do the writedowns and impairments of goodwill help you at all ultimately in the process at some point in time to convert to REIT? Or does it really not get into the various calculations and tests?

It really doesn't help one way or the other, because as you know those tests are market value tests, has nothing to do with what's on our books.

Okay. Patty, can you remind us, too, given the sale and now the taxes paid on containerboard, where do you stand in terms of maturities? And again you mentioned at the beginning of the call, but what's the cash on hand at the end of the quarter?

Yes. The cash on hand at the end of the quarter in cash and short-term investments was about $2.4 billion. Our maturities for 2009 are approximately $454.60 million, and then as you look forward into 2010, I believe our maturities are around $40 million, so they drop off pretty dramatically, and then 2011 another $30 million or $40 million.

Okay.

And as I mentioned on the call we do have available our $2.2 billion of credit lines. Those expire -- we have nothing outstanding under them, but those expire -- $1.2 billion of them expire in March of 2010, and the remainder $1 billion is at the end of 2011.

Okay. Great. Last quick one. I didn't hear necessarily the answer to Rick Skidmore's earlier question in terms of when, Tom, you expect that you will be cash neutral within wood products. Is that holding -- current fundamentals going forward, is that something that is achievable within 2009? Thanks, guys.

That is certainly our goal. I can't give you an exact timeframe. It is a market that's continually been slipping away.

Understand.

Constantly trying to get in front of that, and we're going to accelerate the decisions we need to get us to cash neutral absolutely as quickly as we can. I can't give you a specific timeframe on how soon we can attain that number.

Just looking at whether it is 2009 or sometime beyond. Thanks very much.

Thank you. Our next question comes from the line of Steve Chercover with D.A. Davidson. Please go ahead.

Thank you. Good morning. First of all, can you give us an update on the status of the two new saw mills in Oregon and Washington?

Sure. We have one in Santiam and the other one in Longview. They've started up and they're well along in the start up curve. Our goal there is to make sure they're most efficient and cost effective mills in the West, and we're well along where we expected to be, so good progress.

So they're both running and presumably the shuts that you have taken in this region have been cannibalization?

We're making sure we're moving our volume to our most effective and efficient operations that we can.

Thanks. Secondly, can you tell us philosophically where you stand on Timberland values? Seems like eventually you might be a timber REIT, certainly going through the motions. And some of your existing counterparts are for lack of a better word arbitraging the market where they look at private Timberland values and realize they can buy back stock or do things with their own balance sheet by crystallizing some extremely good values right now. How do you feel about that?

Steve, this is Dan. I don't want to comment about arbitraging. If your question is what do we think about Timberland values, I will have Tom address that because obviously we're in the market looking all the time. And Tom, can you just address what you see in the market for Timberland?

Sure, Dan. We have seen as we have been in the market on an ongoing basis and what we have seen with some recent third parties with Potlatch sale that we basically have seen a holding up of Timberland prices. We haven't seen a significant diminishment or acceleration of prices, so they have been holding fairly instead any the marketplace.

I would agree we haven't seen a decline. So if someone was to offer you what you thought was good value given the current environment, might you crystallize a little bit?

We're always interested in looking at the best way to create value and add return back to the shareholders, and we would have to take that on a case by case basis.

Okay. Thank you.

Next question.

Our next question comes from the line of Anna Torma with Soleil Securities. Please go ahead.

Thank you. Just revisiting Mark Weintraub's question on real estate impairments, can you give us a sense of what percentage of communities may have been impaired to date and what percentage of communities you have impaired more than once at this point?

Sure. I think that if you were to look at the land that we had purchased let's say as I said in the run up, post let's say 2002, for our -- in our homebuilding operations, we have impaired approximately close to two-thirds of it. I would say a good portion of that we have impaired more than one time. If you look at our entire portfolio when we do have some significant holdings that are prior to 2002, we're probably looking at something on the order of maybe about one-third.

Great. That helps a lot. And could you talk about the percentage reduction you might be seeing in the number of communities you had in '08 and what reduction you might expect in '09? And do you expect your footprint to change? Are you going to completely exit some markets or enter new markets? Thanks.

Sure. We do not anticipate our footprint changing at all -- notwithstanding all of the challenges and the difficulties, we like the market that is we're in. We saw about a 25% decline in our number of communities from '07 to '08. We would anticipate that being probably a little bit less today, and really it is going to be a function as we're out there in the communities and we're seeing kind of how the market shapes up -- if we could be generating cash and being cash positive, have a good position, able to get some sales and velocity, we'll continue to operate those communities. If we find conditions change where we're no longer able to do that, we'll revisit that and make a determination to close a community.

Great. Thanks very much.

Next question.

Our last question comes from the line of Claudia Hueston with JPMorgan. Please go ahead.

Hi. Thanks very much. I was hoping you could give an update on your SG&A initiatives, where you are from a timing perspective, and how we should think about those coming through in 2009? And then should we expect a lower corporate expense rate going forward?

Claudia, it is Dan. When we announced the initiative the midpart of last year, we had targeted savings at the corporate level of $375 million, and we believe that we could achieve a run rate of 50% of that by year end 2008, 90% by the end of 2009. We are ahead of that rate at this point in time. So I believe that certainly you will see in the 2009 numbers a good part of that $375 million come through our P&L. To give you a little flavor, from year end 2007 to year end 2008, our total headcount dropped 47%. That includes the elimination of our containerboard business, both direct employees, but also the indirects that supported them. And at the staff level, which supports all of our businesses, over that twelve-month period we have seen a decline in headcount of 31%. We have made a lot of change. I would suggest that the $375 million was a number that we started with in mid-year. We are continuing to look for opportunities to find additional savings. So I am confident we'll hit the $375 million, but I think you will see more.

Thanks. And then maybe could you just comment on the importance, how you feel about your credit rating and the importance of investment grade to you right now at this point?

Claudia, this is Patty. I think as we look rat our investment grade rating, it has been important to us, and we believe it is important going forward as it relates to our liquidity. I don't think we have any change in the way that we think about it.

Okay. Thank you.

Thank you. At this time there are no further questions.

I will take a minute to just sum up the call, make a few concluding comments. Going back to December and certainly today, you have heard us acknowledge that we face some unprecedented challenges as we look at the economy today. The uncertainty of the timing of recovery is what drove actions that we took in December and continue to frame actions that we take in all of our businesses. We are moving daily with urgency and decisiveness to adjust to these markets, adjusting capacity as necessary, and even strategy as necessary. We've got disciplined cost control in effect in all of our businesses and support operations.

At this point we are focused on action by Congress to help stabilize the economy. We believe they are addressing the need of fixing housing first, which would create some stabilization of home prices. Following that we need a stabilization of employment, and more than anything else a stabilization of consumer sentiments. One of the things that we saw significantly change in the fourth quarter of the year as it relates to housing, which of course affects most of our business activity, is what we call the capitulation of the homebuyer. So they went from being concerned about dropping prices to whether or not they had a job, and as every successive announcement comes out regarding employment, you see unemployment increasing. That's a concern. We have to get that fixed.

Nevertheless, we continue to affirm our long-term strategy. Timberlands are our core, and we're going to continue to develop the Timberlands asset in all of its aspects -- the land, the timber, our minerals, our energy, our biomass potential, and the potential that comes from carbon. The markets for all of our products in all of our businesses continue to be supported by sound demographics long-term. And so we like the businesses that we're in, and when the recovery begins we'll be ready. My takeaway from this morning's call is that you would like to see some greater disclosure on our Timberlands assets and real estate assets, and we will respond to you, and you can look for the increased Timberland exposure or disclosure in the 10-K and the investor guide. Thank you very much for your attention this morning.

Thank you. Ladies and gentlemen, this concludes the Weyerhaeuser 2008 fourth quarter earnings conference call. If you would like to listen to a replay of today's conference, please dial 303-590-3000 or 1-800-405-2236 followed bypass code 11125016. ACT would like to thank you for your participation. You may now disconnect.