Weyerhaeuser Company (WY)

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Weyerhaeuser Co. (WY)

Q4 2008 Earnings Call

February 06, 2009 10:00 AM ET

Executives

Kathryn F. McAuley - Vice President of Investor Relations

Daniel S. Fulton - President and Chief Executive Officer

Thomas F. Gideon - Executive Vice President, Forest Products

Lawrence B. Burrows - President and Chief Executive Officer, Weyerhaeuser Real Estate Company

Patricia M. Bedient - Executive Vice President and Chief Financial Officer

Analysts

Gail Glazerman - UBS Securities

Richard Skidmore - Goldman Sachs

Peter Ruschmeier - Barclays Capital

Mark Wilde - Deutsche Bank

Mark Weintraub - Buckingham Research

George Staphos - Banc of America-Merrill Lynch

Steven Chercover - D.A. Davidson & Co.

Anna Torma - Soleil Securities

Claudia Hueston - J.P. Morgan

Presentation

Operator

Good morning ladies and gentlemen, thank you of 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.

Kathryn F. McAuley

Thank you, Brandy. Good morning. Welcome to Weyerhaeuser's fourth quarter 2008 earnings conference call. I'm 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 asset 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 activity, an after tax gain of $21 million or $0.10 per diluted share for early extinguishment of debt.

Excluding these items, the company had a net loss after tax of $209 million or a loss $0.99 per share. A GAAP reconciliation of special items is available on our website in the earnings information package.

Please turn to chart four in the earnings information package as I will discuss the waterfall chart. Chart four 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 four in the third quarter 2008, the company earned $17 million before special items, interest and taxes. Changes in Weyerhaeuser's segment earnings from the third quarter to the fourth quarter were as follows. Proceeding from left to the right across the waterfall chart, we begin the discussion with Timberland.

No land sales and reduced timber volumes resulted in lower Timberland's earnings of $45 million. Significant declines in number and OSP prices, and weak volumes throughout our product lines were the main contributors to the $90 million reduction in wood products earnings.

Falling coal 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 had a negative $8 million impact. The loss on land sales at Weyerhaeuser Real Estate companies of $130 million was the most significant factor in the $62 million decline in retail earnings.

Corporate and other contributed $12 million less. Foreign exchange was the largest factor in reduced earnings.

The final bar at the right of the page is the fourth quarter 2008 pre-tax loss before special items of $213 million. Please note chart one in 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 op -- for continuing operations for the year is now approximately 41%. This excludes Uruguay restructuring gains and the goodwill impairment.

I'll now turn the call over to Dan Fulton.

Daniel S. Fulton

Thank you, Kathy. And 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'd also said these were some of the worse 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 an annualized rate of 398,000.

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