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Wood Products HOW WE DID IN 2007 We report sales volume and annual production data for our Wood Products business segment in Our Business/What We Do/Wood Products. Here is a comparison of net sales and revenues and contribution (charge) to earnings for the last three years: Net Sales and Revenues and Contribution (Charge) to Earnings for Wood Products  COMPARING 2007 WITH 2006 In 2007: • Net sales and revenues decreased $2.2 billion, or 28 percent, • Contribution to earnings decreased $1.2 billion. Net Sales and Revenues Net sales and revenues decreased primarily due to the following: • lower average sales prices for softwood lumber and OSB – average price realizations declined 10 percent and 26 percent, respectively; • lower average sales prices for engineered I-joists and engineered solid section – average price realizations declined 6 percent and 8 percent respectively; • decreased shipment volumes for softwood lumber, plywood, OSB, engineered products, and other building products due primarily to the decline in market demand and the sale or closure of a number of distribution outlets in Canada and the US; • decreased shipment volumes for composite panel products primarily as a result of the sale of our North American composite panel operations in July 2006. Contribution (Charge) to Earnings Contribution to earnings decreased primarily due to the decline in residential homebuilding and the resulting effects on product price and shipment volume. U.S. census statistics show that single family housing starts declined 29 percent from 2006 to 2007. Decreases in Wood Products contribution to earnings included the following: • Contributions from product sales declined $680 million, including:
• Gains on the sale of operations declined by $51 million as 2006 included the sale of the North American composite panel operations; and 2007 had no comparable activity. These decreases were partially offset by lower raw material, manufacturing, and selling and general administrative costs, which increased the contribution to earnings by approximately $290 million. COMPARING 2006 WITH 2005 In 2006: • Net sales and revenues decreased $1.4 billion, or 15 percent. • Contribution to earnings decreased $21 million, or 4 percent. Net Sales and Revenues Net sales and revenues decreased primarily due to the following: • lower average sales prices for softwood lumber, plywood, and OSB – average price realizations declined 9 percent, 6 percent, and 22 percent, respectively; • decreased shipment volumes for softwood lumber products, primarily due to the sale of our B.C. Coastal operations in May 2005, and the closure of three sawmills in 2006; • decreased shipment volumes for softwood plywood due to the closure of a plywood mill in October 2005, the diversion of veneer production into engineered products manufacturing, and the termination of distribution arrangements for certain outside suppliers; • decreased shipment volumes for composite panel products as a result of the sale of our North American composite panel operations in July 2006; and • decreased shipment volumes for engineered lumber products due primarily to the decline in market demand. Contribution to Earnings Contribution to earnings decreased due to some significant but offsetting factors. The primary reason for the decline was the rapid deterioration in the primary market we serve – residential homebuilding. • U.S. census statistics show that total housing starts declined 13 percent from 2005 to 2006. • On a seasonally adjusted annual rate, single-family housing starts fell from 1.75 million units in the first quarter of 2006 to only 1.23 million units in the fourth quarter. The contribution from softwood lumber and structural panels declined $650 million – $600 million from lower average price realizations and $50 million from reduced shipment volumes. The significant decline was offset by the following items: • recognition of $344 million of income refunded from amounts collected for countervailing and anti-dumping deposits relating to the softwood lumber dispute between the U.S. and Canada; • recognition of $95 million of income for a reversal of the reserve for alder antitrust litigation; • a decrease of $74 million in the average prices paid for lumber and plywood purchased for resale; • a $51 million reduction in closure and restructuring costs as compared with 2005; • a gain of $51 million realized in 2006 for the sale of the North American composite panel operations; and • income of $23 million for a reduction in the reserve for hardboard siding claims. OUR OUTLOOK We expect no improvement in market conditions in first quarter 2008, and we expect to incur significant losses in the Wood Products segment. We will continue to balance production to demand, which may result in further production curtailments and mill closures. |