Good morning. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to the Weyerhaeuser Q1 2013 Earnings Call. [Operator Instructions] Thank you. I would now like to turn the call over to Kathryn McAuley, Vice President of Investor Relations. Ms. McAuley, you may begin.

Thank you, Brent. Good morning. Thank you for joining us on Weyerhaeuser's First Quarter 2013 Earnings Conference Call. This call is being webcast at www.weyerhaeuser.com. The earnings release, analyst package and web slides for this call can be found at our 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, as forward-looking statements will be made during this conference call. On the call, we will discuss non-GAAP financial measures. A GAAP reconciliation can be found on Chart 19. Joining me this morning are Dan Fulton, President and Chief Executive Officer; and Patty Bedient, Executive Vice President and Chief Financial Officer. Before we review the first quarter earning material, Patty Bedient would like to make a few comments. Patty?

Thanks, Kathy, and good morning, everybody. As we begin our financial reporting for 2013, I want to call your attention to some additional information that has been included in our earnings release presentation material. This information is intended to provide you with some further insight into our reported results. I'll briefly describe some of the changes we've made to our earnings release slide package, and then Kathy will follow with her normal comments on the first quarter performance. We now present condensed income statements for both Weyerhaeuser Company and each of our business segments to assist you in comparing our quarter-over-quarter results. For Timberlands, we've provided additional detail on revenues from export log sales and the countries to which we sell those logs. This information is to help you understand the scale and diversity of our markets for our Western Timberlands. We've also included a quarterly detail of our nonstrategic timberland disposition. To better explain the earnings of our Wood Products segment, we are reporting the quarterly EBITDA for each of our major business lines: Lumber, oriented strand board, engineered Wood Products and distribution. In Cellulose Fibers, we've provided the total quarterly maintenance expense dollars in addition to our scheduled annual maintenance outage days. For Real Estate, we've included quarterly earnings from land and lot sales, as well as information on the number of lots we controlled at quarter end in each of our major geographies, similar to the information we report annually in our 10-K. We hope these changes will help you in your understanding of Weyerhaeuser, and we look forward to your comments and suggestions. And thank you for those -- that have been provided in the past. So now I'll turn the call back to Kathy for a discussion of our first quarter results. Kathy?

Thank you, Patty. As summarized on Chart 1, Weyerhaeuser reported first quarter 2013 net earnings of $144 million or $0.26 per diluted share on net sales of $2 billion. Turning to our business segments. My comments reviewing the first quarter of 2013 refer to changes from the fourth quarter of 2012. Beginning with Timberlands, Charts 2, 3 and 4. Timberlands contributed $104 million to earnings, $9 million more than in Q4. Western log demand was strong in both export and domestic markets. Log price realizations increased 9%, and log sales volumes rose 7%. The fee harvest in the West was 6% higher. Export log sales increased 15%, and this is illustrated on Chart 3. Southern log prices were slightly higher and volumes declined. Wet weather in the South resulted in an 11% decrease in fee harvest volumes. Earnings from Timberland dispositions, this is new data available on Chart 4, were $3 million in Q1. Dispositions were $20 million in Q4 2012. Turning to Wood Products, Charts 5 and 6. Wood Products contributed $178 million to earnings, $140 million more than in the fourth quarter. EBITDA improved in all business lines. EBITDA by business line can be found on Chart 5. The strong lumber and OSB demand experienced in the fourth quarter continued through the first quarter. OSB price realizations increased $69 or $0.24 -- 24% to $359 per thousand square feet. Lumber price realizations increased $74 or 20% to $444 per thousand board feet. Lumber sales volumes were flat and OSB volumes were 2% lower. Sales volumes in Q4 were very high on a seasonal basis. Price and volumes increased for engineered Wood Products. Solid section prices were up 2% and sales volumes 19%. I-Joist prices rose 3% and production 16%. Operating rates increased across all product lines. Raw material…

Thanks, Kathy, and good morning, everyone. Thanks for joining us today. First quarter results exceeded our expectations, led by continued improvement in our Wood Products segment and in our Timberland segment. Our Wood Products business benefited from strong lumber and OSB prices. In addition, our ongoing focus on earnings improvement initiatives allowed us to take full advantage of improving markets. Our Timberlands business benefited from an improving U.S. housing market and strong export demand. We're realizing the significant operating leverage that comes with housing market improvement. Our steadily improving operating results, coupled with our outlook for continued housing recovery, led our board earlier this month to increase our dividend. Combined with an increase just 6 months ago, this represents a total increase of 33% since October 2012. Before I discuss the performance of our business segments, I'll provide a brief comment on select economic conditions that affect our company. First, the U.S. housing market. The U.S. housing market continues its recovery towards long-term trend demand levels. I'll cite a few statistics that help to inform our discussion of operating results during the quarter, as well as our outlook for next quarter. Though our primary focus for our company is on new construction, we look at the overall housing market, both existing homes as well as new homes, to better understand and respond to longer-term supply-and-demand balance. Sales of existing homes have increased year-over-year, leading to a drop in inventory. We now have less than a 5-month supply of existing homes, a level not seen since 2005. Sales of new homes continued to increase, but we are still less than 40% of peak levels of 2006. New home inventory at the end of March was less than a 4.5-month supply of today's level of sales. The drop in available home inventory…

Thanks, Dan. The outlook for the second quarter of this year is summarized on Chart 13. I'll begin my comments with Timberlands. In the West, the strong export markets that we experienced in the first quarter are expected to continue. Japanese housing starts this year are running ahead of last year, and some projects continue to be delayed by the carpenter shortage, pushing the backlog of housing orders further into 2013, contributing to strong log sales through Q2. In China, inventory of North American logs are lower than the same period last year. Log prices moved up in March, and these strong prices are continuing into this quarter, aided by an improving U.S. domestic market. Heavy April shipments from the Pacific Northwest, combined with record shipments of New Zealand radiata pine in Q1, may tend to dampen further upward price movement in Q2, but we expect these markets to remain strong. Domestic log prices have increased during April in response to strong lumber markets. Western fee harvest volumes are anticipated to be slightly lower. In the South, realizations for pine grade logs are expected to be flat, and fee harvest volumes will increase somewhat now that the wet weather is receding. Costs for both West and South are anticipated to increase seasonally due to higher silviculture-related spending. Before considering nonstrategic land sales, Timberland earnings are expected to be comparable to the first quarter. Earnings from nonstrategic land sales are anticipated to be somewhat higher than Q1 where we had income of $3 million. In Wood Products, zen [ph] channel inventories, combined with a seasonally stronger demand, are expected to drive low double-digit sales volume increases across all major product lines. Adverse effects from unexpected weather events, combined with Canadian rail transportation issues, should subside. We expect sales realizations for engineered…

Thanks, Patty. Overall, I'm pleased with our financial performance during the quarter, and I'm optimistic about our ability to continue to improve our operational results as the housing market remains on a path to return to trend levels of demand and global markets stabilize for our Cellulose Fibers segment. In our Timberlands segment, we're well-positioned to capitalize on improving domestic markets, while taking full advantage of our competitive strengths in accessing high-value export markets from our Western Timberlands. We have an added benefit that comes from our extensive mineral rights, which generate revenue from oil, gas and other resources. In our Wood Products segment, we have the widest range of wood products of anyone in the industry, all of which will be needed to construct new housing units as the U.S. housing continues to recover. Our lumber and OSB businesses showed their potential during the quarter. As new construction continues to increase, we expect to see improved results from our engineered Wood Products and distribution businesses. Our WRECO business is filling its backlog pipeline for new homes to be delivered over the balance of the year. As we continue on our planned path to increase our total community count by nearly 20% this year, I'm encouraged by the interest of new buyers who are visiting our model homes and signing new contracts at increasing prices. In our Cellulose Fibers segment, as Patty noted in her outlook, a slight recovery in pulp prices, together with reduced maintenance, fiber and energy expense, are expected to result in significantly higher earnings in the second quarter. We'll continue with our strategy to grow with our global customers by innovating to create differentiated products that benefit our key existing customers while attracting new ones. An example of these differentiated products is our new cellulose-based composite, THRIVE, which is now planned to be used as an interior part of a new 2014 Lincoln model which will hit the market later this fall. In closing, we had good solid performance in the quarter, and yet we still have opportunity for continued improvement. We've made great progress in improving the strength of our balance sheet while rewarding shareholders with another increase in our dividend. And we're well-positioned to capture the opportunities that will come as we continue on a path of economic recovery. And now we welcome your questions and comments.

Would you please open the floor to questions?

[Operator Instructions] Your first question comes from the line of Mark Wilde with Deutsche Bank.

I wondered -- first of all, on the Wood Products business, can you give us a sense of kind of what your estimated operating rates are in those different businesses?

Sure. For the first quarter, Mark, our lumber and OSB businesses were operating at about a 90% rate. And in our engineered Wood Products business, we saw a significant increase in operating rate so that we're now operating in the mid-40% range for our I-Joist facilities and mid-50% range for our solids.

Okay. And Dan, can you also talk about anything that you might be doing to kind of add more capacity, whether it's just picking up another shift or perhaps restarting capacity or maybe even thinking about a little incremental capital?

Yes, a couple of comments, Mark. We are -- we do have the ability in our lumber mills to add hours and, to some extent, add shifts. All of our lumber facilities are operating today. In our oriented strand board business, all of our mills are operating. And we are increasing shifts in some cases, so there's some additional flex capacity in our solid or engineered wood business. We still have 2 curtailed facilities. And as the market continues to recover, we have the ability to bring them back. As anyone in the industry restarts capacity, there's a long lead time. And so we are positioning our facilities so that, at the right time, we can bring them back to meet demand. One of the surprises, I think, in the industry, has been how long it takes to bring back mills that have been shut down, both because of the availability of labor that's qualified, the ability to fill a log yard and to operate smoothly. So we have flex capacity to respond. And as the market continues to improve, we're well-positioned.

Okay. And I just...

Mark, I just might add that the engineered wood operating rates that Dan gave you did include those 2 closed facilities. So if we were to back those out and just use our existing facilities, that would be closer to the mid- to high-60% ratio. So those operating rates, as Dan said, are continuing to move up. I think, also, as you think about our capital spending, which I referenced was -- could be up to $300 million for this year, which is similar to what we spent last year. But the mix of where we spend that will be very different from last year, given that, in last year, we were finishing our converting facility in Poland, so we were spending more in Cellulose Fibers last year than we will this year. And we will also be putting more money to work in Wood Products, especially in our lumber business, to look at low capital, but still capital solutions where we can bring on additional capacity as we need it, adding a dry kiln here and there so that we can process more of the green lumber that we can produce at some of our facilities. So you'll see a little shift in mix that is not huge increments, but across our 18-mill set, does add up as we put those dollars to work.

Okay. And if I could -- just a follow-up on your Timberland business, you highlighted that dichotomy between kind of the Western situation and the Southern situation, what are your expectations about kind of price and volume in the South as we kind of move through the year? And when do you think this pickup in housing and Wood Products prices is going to start to flow through to Southern log and timber prices?

Well, we think it will come, but we can't call the timing, Mark. As I mentioned, there was more deferral in the South. And so as markets pick up, clearly, the Wood Products production is increasing. So the deferral wood in the South is benefiting the margins of wood products producers, whereas in the West, it's a much stronger log market. So it will just be one that we have to watch over time, and very difficult to call the timing of when that market tensions because there are so many landowners that are -- have the ability to bring logs to market.

But fair to say, you think it may be a little longer than normal lag in the South this time around before this starts to flow back to the stump?

I'm not sure what a normal lag is. I mean, I think we've been through an extraordinary period with this housing recession, and so we don't have experience with this amount of deferral. But I would expect, with the pace of recovery in housing, that there'll be opportunity.

Yes. So, Mark, I think we've already experienced a little longer than a normal lag...

Yes, yes, I agree, Patty. It's not been a normal downturn.

Yes. So I think we'll -- those prices will start to move probably some time more in the latter half of this year than what we've seen at this point. So I don't think it's a long ways away, but we'll be ready for it when it comes.

All right, we all will.

Your next question comes from the line of Chip Dillon with Vertical Research.

By the way, not to join the bandwagon, but I noticed this was the third quarter in a row where you didn't have any adjustments to between GAAP and reported earnings and the first time you've had 3 in a row since 1998, so congratulations.

Thanks, Chip. I'm glad that you noticed.

Oh, yes, absolutely. Listen, the first question -- this has been a long time coming. The first question is on the Cellulose business. I know you sort of gave us the view that there will be substantial improvement. And as you know, that number can jump around considerably, excluding any price impacts. So if we made -- I don't know what you're assuming, whether this current round of pricing -- price announcements go through or not, but could you just give us a little -- a better guidance in terms of what the movement might be if we exclude any pricing impact from first to second quarter?

Well, maybe the way to think about it, Chip, would be, if you think about where we would expect that business to be in the second quarter, given the assumptions that I had in my outlook, that I would say that it will be much closer to the $60 million that we earned in the fourth quarter than in the $31 million that we moved in this quarter.

Okay, that's very helpful. And then second follow-up is on the Wood Products business. I know your guidance is for flat, and it's really tough with pricing moving around the way it is. It just seems like in the past that often when there is a sudden movement about the time of the call, and it's not fair because your people couldn't have looked at randomly last night, for example, and then reacted to it. But it would seem to me that if we see a continuation of softer lumber prices in the next 3 or 4 weeks that maybe that would prove high, but maybe you could comment on that sensitivity. And maybe if I turn it around and said if we do see a bottom by the end of, let's say, by mid to late May, in a turnaround, could that number actually be up?

I guess the best way to answer your question is to think about conditions in the channels, Chip, because this is really a behavioral issue as much as anything. Channels are very tight, and with prices as high as they have been, most in the channel have been reluctant to take significant inventory positions, but the orders continue to come in because new home construction is picking up. And so the real question is, to the extent that there's softness, how long, how deep? And since the inventory levels are relatively low, I think what we may find is something similar to what happened in the fourth quarter, where the orders were coming in and so the distributors and the builders put their orders in and reentered the market. So it's really going to be a behavioral issue, I think, as much as anything. And it's all really just flow back to demand levels and construction. So I think you have to look at construction levels for some guidance there, and I wouldn't want to speculate about price movement.

And you're not concerned about inventories being elevated at the very end -- at the builder level because we've seen so many strong months?

Help me a little bit with your question. Inventory levels at the builder level? Inventories...

Yes, your end customer. Yes, exactly, the guys that are actually using the stuff now.

Channels seem to be relatively thin.

Got you.

And finished inventory for builders is very low, as I commented. And so as those new orders come in, construction will pick up, and it starts with the lumber drop and panels. And so we would expect building activity based upon all of the statistics, starts, permits to be continuing to increase through the year.

Your next question comes from the line of Joshua Barber with Stifel. Joshua A. Barber - Stifel, Nicolaus & Co., Inc., Research Division: I'm wondering if you guys can talk about any of the possible supply pinch points that you may see cropping up or are seeing today? Dan, I think you mentioned something that I think a lot of us just look at strangely, which is the engineered business seems to be operating at pretty low operating rates and generally would follow the single-family business, whereas lumber and OSBs had multi-year highs. Can you talk about, I guess, anything that's affecting that today and where you think that could possibly continue if the supply and demand continues where it is for the rest of the year?

Well, by product type, the engineered products, as we've talked before, are primarily reliant on new construction. And so I think that we have a significant position in both I-beams, as well as solids, and that product does flow into new construction, and so we expect new construction activity to continue to pick up, and I think that that's a positive. We saw that move just in the quarter in the change in operating rate in that business more significant, really, than what it was for our lumber or our panel business. Multiple outlets for lumber, both new construction, repair and remodel, all of that looks positive; and in industrial, a bit. And then panels, primarily going into new construction, but that's also singles and it's multis. The big question in the industry is probably facilities that are -- that had not been operating that are coming back online. And I think that the -- that there's -- people underestimate the challenge of bringing the facility back if it's been shut down for some period of time. So there is -- there will be supply that will come online to meet demand, but I think that the supply response is a bit delayed and trying to catch up to demand. Joshua A. Barber - Stifel, Nicolaus & Co., Inc., Research Division: Okay. I guess, also, as these markets get better and better, and especially on the homebuilding side where we're seeing some really excellent valuations, would you guys be inclined, I think, at some point, to consider spinning off or selling perhaps WRECO, given the valuations that a number of the other builders are trading at?

We're focused on operating our businesses as well as we can and continuing to take advantage of the opportunity presented to us with market recovery. So our focus is on operations. In our homebuilding business, we're well-positioned because we do have a land position to build on. We're in great markets, and they're all showing really robust recovery at this point. So we're going to take advantage of that in our operations.

Your next question comes from the line of George Staphos with Bank of America Merrill Lynch.

I wanted to pick up on WRECO as well. And certainly, you're seeing progress. But, for example, the closings in the quarter were, I think, a little bit below where you had guided in the prior quarter. I think at one point in time, you had said you were looking for 500 closings. So I was wondering what might have created the variance there if that was a correct recollection. And also, Dan, I mean we're seeing, from our scan of the homebuilding regions, California has been very, very strong. Texas had been very, very strong. These are areas where you are certainly very strong from a regional standpoint. I'm just curious why we're not yet seeing the lift in your margin within WRECO. And then I had a couple of follow-ons.

The margin question is, I mean, to some extent, it's a mix issue among markets. We have different margins by market, different margins by product type. We've historically guided that we should expect gross margins in the low-20% range. This quarter, we were at 19.5%. That was a bit of a mix issue between a more attached product in the Washington, D.C. area and coming off some higher margin projects in the Las Vegas area. Sales, as you know, in California had been very strong. As I look at our first quarter activity, the real strength year-over-year was in L.A. Ventura, which had been a soft market. It was the Inland Empire, it was San Diego and it was Las Vegas. So those have been the last markets to come back. There is a lag in when those homes are delivered. So the sales that we took contracts on in the first quarter will be delivered over the second, third and fourth quarter, depending upon the complexity of the home. As I noted in my comments, a lot of these are to-be-built houses, and so there's a bit more of a lag. And so we would expect that we'll have a stronger back half of the year, as we always do, at WRECO. I did note, and I wanted to spend some time talking about cost increases because they are factors for everyone in the industry. As you noted, I led off with OSB and lumber, so that's not a bad thing for Weyerhaeuser Company. But there are increased costs, and there is a process as cost increases and we pass that through to the ultimate homebuyer where there's a bit of a lag. So you should expect prices to continue to rise. Our focus is not just on maintaining margins, but growing margins. So -- and you talked about Texas. Texas was not quite as strong, first quarter, but last month or so, it has really picked up. So we're really pleased with the markets that we're in. We think we have the ability to maintain the margins that we've had in the past, but there are mix issues quarter-to-quarter. And that business is traditionally back-ended in terms of deliveries, much more heavy in the third and fourth quarter.

Dan, you've mentioned for a number of quarters the, I'll put it as the affordable housing element in your mix that's been keeping margins perhaps below where you'd like them to be. When does that, if you will, cycle through? And are you finding that as you're needing to purchase land, if there are scenarios like this, that you need to continue to commit to a certain level of affordable housing as you purchase these new lots, and in turn, that's keeping a lid on margin? And the other question I had and I'll turn it over, and I think you're alluding to this, as I look at your backlog pricing, it seems to show up in your -- your selling price on a closed home is usually within a couple of quarters. So these $440,000 levels you've been at the last couple of quarters, these more or less should be showing up in the back half? Would that be your expectation?

Let me start with the last question. The higher-priced homes that we have generally are -- some of them are in San Diego, and some are in the Washington, D.C. metro area for our Winchester and Camberley brands. We had the longest lead time on those Washington, D.C. homes because they have more customization, and so there is a cycle time for them that maybe 6 to 9 months as compared to a shorter cycle time for it. The other extreme would be a townhome that we're building in the Inland Empire. So there is some lag that you observed. With respect to land and lot prices, lot prices had been moving up relatively quickly. We clearly are -- we are restocking our pipeline for current projects. Those prices had moved, but we would not expect that, that would lead to a significant degradation of margin. You talked about the -- asked about the affordable housing units. That's a function primarily in that Washington, D.C. metro area. It happens in larger communities of more than 50 units, and we try to point that out when we see those closings come through. That was not an issue in the last quarter. Last quarter was just a shift to more of a townhome product, which is lower priced as compared to higher-priced single families. So we can try to guide you a bit on those affordables. When they do occur, it normally occurs where there's significant number of closings at one time because we turn those houses over to a regional housing authority and they handle the sales activity.

Your next question comes from the line of Gail Glazerman with UBS.

There were a couple of reports in the Wall Street Journal and the New York Times earlier this week talking about the tax treatment of REITs, and the Journal specifically was talking about Congress taking a look at that pretty hard. I'm just wondering, can you give any comments from what you know about what's going on? Is there anything kind of out of the usual there? And most specifically, how it might drill down the timber REIT versus maybe a more traditional REIT?

Well, there had been a series of articles that you've noted that have discussed some recent conversions or some planned conversions, including some nontraditional real estate. So I think that they are all consistent with the current tax law. As we look at broad tax reform, I think Congress, if they take a broad look on tax treatment, they talk about all aspects of the code, including a discussion of corporate tax, personal tax, LLCs, pass-through entities, as well as REITs. The National REIT Organization is well-organized. They have broad constituency across the country. I think that the REIT structure has worked very well for a long period of time. Because of the way it's structured, the REITs generate income. That income is distributed to individual shareholders and they pay taxes. So I can't speculate on what Congress might or may not do in any tax reform, but we pay attention to it, and the National REIT Organization is well-positioned to deal with those questions.

Okay. And just one other quick question. Going sort of back to Chip's question on Wood Products, I just want to make sure I understand, or can you just clarify what you think is causing the weakness in wood product prices that we've seen over the last couple of weeks?

I can't comment on market reaction to prices. Prices have been very high. And I think that at today's levels, that creates some level of caution. But the product is needed. And ultimately, as I come back in my discussion, you have to look at the channel. The channel is relatively thin. If the orders are coming in, they'll get filled and prices will be settled at market. And I can't comment on, quite frankly, the direction because it's a function of supply-demand. I feel really good about the demand side.

Gail, as you know, prices -- volatility and prices for both lumber and OSB are not surprising. That usually does happen, and prices did move up in the first quarter. So to think that they're going to just continue to move up forever would certainly be a mistake...

No, I guess I was just wondering if there's a sense that maybe more supply was finally making its way back into the market and even tension a little bit, but...

Yes. I think that as the demand increases, we will need more of that supply. So the fact that more supply is coming on is just kind of the natural order of things. I don't think there's -- if you're talking about a real big shift, a big fundamental shift from supply-demand balance, I don't think that there's a huge piece. I think what we're seeing here is just more of the normal kind of reaction that we see.

Your next question comes from the line of Alex Ovshey with Goldman Sachs.

A couple of questions for you. I think you're going to start to face some high-quality problems in the near future, specifically with the balance sheet. With the EBITDA improving and the cash flow generation picking up, it seems to me the leverage ratio will start to really drop pretty quickly. So can you remind us again how you think about the efficient leverage in the business and what you expect to do to stay in front of the balance sheet becoming inefficient?

Yes, Alex. What we have said is that for this size of company, that we would think that gross debt of -- or at about $4 billion would be something that would make sense for us. At the end of this year, we'll certainly be there where they're on a net debt basis today. I think that what you point out is that because of the strength of the balance sheet, because of the strength of the improvement in markets and also our own operating performance, that we are experiencing -- as you call it a high-class problem, I call it a great opportunity to take advantage of things that are out in front of us. And so those are the kinds of things that we look at in terms of what is the right leverage, what is the right capital allocation. You've heard us talk about this morning both in terms of investing in our businesses, returning cash to shareholders. And all of those things are things that we are reviewing on an ongoing basis. So I think the future does look very exciting, and those kinds of problems I like a lot better than the ones that we've seen behind us.

Right. And switching to the Wood Products business, can you talk about what you believe the strategic rationale to have a distribution business tied back into the manufacturing businesses is?

Sure. With distribution, for us, it's always helpful to provide a little bit of history. Today, our distribution business is a significant channel for our engineered Wood Products business, plus we do flow some lumber, especially our higher-grade lumber Framer Series and differentiated products, as well as some of our higher-value OSB. We also, in that business, distribute products for third parties. So we have some third-party element of distribution because we've got the infrastructure in place to serve our customers in the homebuilding business, and they need not just our products but others. And so there are some complementary products. We have a business that historically had more scale. We scaled it back when we changed our operating model and went to a brand called iLevel about 5 years ago. And in that time, we eliminated most of our third-party distribution and focused on being a channel for our own products, really made that business uneconomic. And so we noted that, that wasn't working for us. We shifted it back to a standalone business, and so you'd see the results where we account for is a separate P&L. We've got a scale of footprint that allows us to flex with an improving market, and we have a lot of operating leverage in that businesses as we see housing recovery. So it serves as a channel for not all of our product, but some of our product, as well as third party gives us an opportunity to provide some additional marketing services especially for our engineered Wood Products. And we are looking forward to the opportunity to have that business take advantage of its scale and operating leverage as the market recovers.

Your next question comes from the line of Anthony Pettinari with Citi.

I had a quick follow-up on WRECO. You talked about a stronger back half of the year but also some mix headwinds and price bottlenecks. And I guess when you look at the business broadly, I think WRECO earned about $100 million last year, with a large land sale impacting that in the fourth quarter. When you think about the earnings potential of the business for full year 2013, would you envision the business would earn a similar amount? Would it -- would you expect it to earn significantly more or slightly more? Or could it actually earn less, given the large land sale last year? And I understand you don't give full year guidance, but sort of any kind of color on that would be very helpful.

Well, you're right, we don't provide full year guidance, so I appreciate you recognizing that. We did have a significant land sale last year of some nonstrategic land in San Diego, which is land with a product type that we don't build. We always have some of that. It's part of our land development strategy, especially with our Southern California operation. As we look at 2013, full year, what we are expecting is a significant shift in mix in our earnings that will be much more heavily weighted towards our housing business. There may be some land sales, but we are not projecting them. We're an opportunistic seller, both nonstrategic land that might be zoned for products that we don't build, but we also have, in some cases, residential lots that -- where we have the option to either build them on ourselves or to sell them to others if we have the right price. So I think that the major story for WRECO 2012 versus 2013 will be a shift in income away from just land sales, not just land sales, but heavyweight the land sales to a much higher weighting of a single-family.

I think also, Anthony, as you think about WRECO coming out of 2012 into 2013, I think as Dan gave in his comments, we ended the year with a very low community count in WRECO at 62. We'll be at 81 at the end of the second quarter. So there's a little bit of a flywheel effect, if you will, of low inventory at the end of 2012, as we weren't sure about where the California markets were headed. So that flywheel is going to work. You're seeing it now in the backlog. Although, as what's discussed earlier, most of those homes don't get delivered until the back half of 2013. So as you noted, we won't give full year guidance, but it will be significantly better, and better than our normal seasonal pattern because of that flywheel effect of low inventories at 2000 -- end of 2012, and now going to work in 2013 back half.

Your next question comes from the line of Carly Mattson with Goldman Sachs.

Following the company's return into a full investment grade, could you talk to whether Weyerhaeuser will consider looking to refinance its higher-coupon debt or what types of consideration the company takes into account when it's thinking about that decision?

Carly, yes, absolutely. We would love to refinance some of that higher-coupon debt. It really is a function of what premium would have to be paid in order to do that in the economic tradeoff. So we look at that on a very regular basis. And when that makes sense for us to do, that would be a great thing to do. But right now, from an economic standpoint, it doesn't make sense.

And your final question comes from the line of Mark Weintraub with Buckingham Research.

First, just the intersegment elimination LIFO inventory that was in the corporate, I assume that goes away next quarter, and so that corporate goes back down to more like a $20 million number. Is that generally speaking right?

Yes, Mark. It is unusually high for 2 reasons: one, typically, from a seasonal perspective, that number would be higher at the end of the first quarter because of our normal inventory build. But given the strength of Wood Products, we certainly had a little more working capital than maybe even a normal seasonal pattern would be. And then as we sell down that working capital over the course of the year, that will turn around and come back, so that the pattern of the unallocated segment will be closer to as you just described it. We try and take all of these anomalies and put them in this unallocated item and give you full visibility in terms of the detail of what's in there. So you can track that volatility. But you've got the pattern right. Just as you can see in the fourth quarter, we actually had pickup from LIFO and intercompany profit.

And all that -- by the way, I do appreciate the additional disclosure in general. It's very helpful. Second, as you're making more money from the Wood Products and the homebuilder hopefully soon, can you help us in how to do the tax rate? It came off a little off from my tax rate. Is there kind of a rule-of-thumb way to be able to get to the tax rate?

Well, it really is, as we've talked about before, a function of how you think about the mix of earnings. So the mix in the Timberlands business that is in the REIT, of course, is a 0 tax rate. And as we look at the TRS, those have a normal kind of tax rate. I would think about something around the 34%, 35% rate for that mix of income. Now we had a higher tax rate maybe than what you would have thought, given the fact that we had a higher Wood Products income in the TRS than what a number of people were thinking about in the model. So it really is a function of the TRS versus the REIT. And then also, not all the Timberlands earnings are REIT-qualified. We do some merchandising of our logs in the TRS portion of the Timberlands business, and so we did have income in the TRS from Timberlands that would be subject to the tax.

Okay. And then lastly, Dan, you referenced housing going back towards trend levels of demand over time. At this juncture, having had a couple of years to think about it, where do you think trend levels of demand for housing, single-family and total, what do you think is the right number for trend levels?

I continue to follow the long-term trend numbers that are generated by the Joint Center for Housing at Harvard. They're not a forecaster. They just look at long-term demographics, starting with population, household formation. And there's a headship assumption there's the repair or the replacement for destroyed units, and then the wildcard in their estimates is immigration. So they would have a range of 1.6 million to 1.9 million, Mark, with the biggest question being the impact of immigration, which can move numbers by 100,000 or more or so. As I think about it, I think, generally, 1.6 million to 1.8 million is a trend number over a 10-year period. There are periods when you would expect housing starts and deliveries to be greater than that, and then obviously, we're coming off of a very deep trough. I think we've been underbuilding for some period of time. The question or the mix between singles and multis is being debated a little bit just as demographics change, but I quite frankly don't expect a very significant shift. I think we'll see a gradual move to higher-density housing over time just because of the continued urbanization of population. But as I note, we're a long way from those trend numbers. And it really is about household formations, and we're going to go through a period of accelerated formation now just because household formations have been so low. Household formations are about 1.2 million a year, 1.2 million on average.

And as you think about -- if you have those types of long-term trend numbers that, that might call for one type of investment strategy in your underlying business. At the same time, you said that we're pretty far away from those numbers. Are you going to be much more of the mindset to actually begin to really see evidence of it, of these much higher housing-type numbers before starting to commit significantly more capital, recognizing that you maybe a little bit late doing it that way? Or are you going to be inclined to get out in front of it because you're confident it's coming?

I think the timing is a question, and I think that there's-- we're going to be cautious. As we've come through this recession, it was just last year that California housing started to pick up, and that's a very significant market, not just for us, but for the entire country. I think that, directionally, we want to be operating the facilities that we have today as best we can, make them as efficient as possible, get the most return that we can from them. We've got opportunities with modest investment to continue to improve operations of our existing facilities. And we will focus on what we've got in front of us rather than, I think, getting out with significant new capacity. New capacity will come back, but I think the entire industry is going to be operating much more efficiently than we were in the prior cycle. I commented earlier that, as we noted in our release, this was our best quarter for Wood Products since 2005, and yet, we did it on half the volume. And so I think not just us, but the industry is going to be more efficient, and we'll react as the demand emerges. Well, I want to thank everybody for joining us today. We appreciate your attendance, and we appreciate your interest in Weyerhaeuser Company. I want to remind everybody on the call that we'll be hosting our annual investor conference in New York. That's just 2 weeks from today, on May 10 at the Sofitel Hotel. You can register for attendance on our website. And if you have any questions about that event, or following this call, if you have further questions and you need follow-up, contact Kathy McAuley. And we appreciate you joining us this morning. Thanks very much.

Thank you. This concludes today's conference call. You may now disconnect.