WPP plc
Q4 2007 Earnings Call Transcript

Published: 28 Feb 2008

[Operator:]

Welcome to the Wausau Paper 2007 fourth quarter and year end results conference call. (Operator instructions) I would now like to turn the conference over to your host, Mr. Perry Grover, please go ahead.

[Perry Grueber:]

Thank you, Michael. Good morning everyone. Welcome to the Wausau Paper 2007 Conference Call. I am pleased to be here today with Tom Howatt, our President and CEO and Scott Doescher, our Chief Financial Officer. This morning we will be discussing our fourth quarter financial results, which we released yesterday afternoon. Tom will discuss progress against the strategic initiatives regarding our Printing and Writing and Specialty Products businesses, initiated in the fourth quarter and the context of their operating performance as well as the performance of our third business unit, Towel and Tissue. Scott will then provide a summary of financial review after which Tom will conclude our prepared remarks by discussing the outlook for our first quarter at 2008. After which, we would be happy to address any questions you might have. And with that, I would like to inform you that statements made during this conference call, other than those that refer to past events and results are forward-looking statements and are made pursuant to the safe harbor provisions in the Securities Reform Act of 1995. Such statements including those relating to expectations concerning earnings and price increases involve risks and uncertainties that may cause results to differ materially from those set forth during this discussion. Among other things these risks and uncertainties include the risks and assumptions described in Item 1A and Item 7 of the company’s Form 10-K for the year ended December 31, 2006. The company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events. With that I would like to turn the call over to Tom Howatt. Tom.

[Tom Howatt:]

Good morning everyone. Last evening Wausau Paper announced the fourth quarter loss of $27.6 million or $0.55 a share, as compared to earnings of $7.3 million or $0.14 per share last year. Results included a charge of $28.8 million or $0.58 per share related to the closure of our Groveton to New Hampshire mill. Our fourth quarter loss from operations was $0.4 per share and on line with our revised guidance, as weakening condition significantly impacted results in each of our businesses. Net sales for the fourth quarter increased to 1% to a record $305 million, while shipments declined by 5%. Net sales for the full year 2007 also reached record levels and exceeded $1.2 billion for the first time in company history. Fourth quarter average selling price increased nearly 7% year-over-year, reflecting a measure of pricing leverage achieved in each of our businesses. Price gains however were substantially offset by fiber price increases of almost $10 million for the period. During the quarter, we took the difficult but necessary steps to address 200 performing businesses with the closure of our Groveton Mill and the sale of our laminated roll-wrap business. Each of these businesses had historically been profit contributors for the company but recent cost pressures as well as structural changes in the industry dramatically altered their viability. These actions reflect our commitment and determination to take the necessary steps to achieve acceptable earnings in each business we operate. I will now review business conditions for each of our three segments beginning with Printing and Writing. Printing and Writing recorded fourth quarter operating losses of $52 million including charges of $45.9 million related to the Groveton Mill closure. Net of closure charges operating losses were $6.1 million compared to a loss of $1.8 million last year. Net sales and shipments declined 5% and 9% respectively, impacted by weak business conditions and our decision to close the Groveton Mill. Average selling price increased by 2% on a sequential basis over the third quarter levels and 5% on a year-over-year basis, reflecting a somewhat more favorable pricing environment. At the same time, fiber cost continued to escalate and pressure margins in the quarter, increasing by $4 million over the prior year. The decision to close Groveton was part of a three-part plan we initiated to return of Printing and Writing business, the profitable levels in 2008. The Groveton Mill closure, the first step of the recovery plan was accomplished in an efficient in an orderly manner. The closure represents the capacity reduction in excess of 1,100 tons and as loud as immediately exits a substantial volume of commodity going to business. The second part of the recovery plan is a refocus of sales and marketing efforts on achieving growth of our premium product brands such as Astrobrights, Royal, and Exact an effort that has been favorably received by our customer based. We are also encouraged by the broad-based support for price improvement in the sector that we are seeing in the first quarter. The third part of the recovery plan includes select investment in cost reduction and product capabilities within our remaining two-mill system. We are confident that these actions will allow us to return Printing and Writing to profitable levels later this year and deliver cost of capital level returns by the end of 2009. Specialty Products, reported fourth quarter operating losses of $2.7 million compared with near break-even results last year. It should be noted that approximately one half of the difference in year-over-year financial results for Specialty Products is related to our Mosinee Mills annual maintenance outage, which was scheduled in the fourth quarter of 2007 compared to the third quarter in 2006. Net sales for Specialty Products increased 1% for the quarter, while shipments declined 6%. Volume was impacted by weakness in the industrial and home building sectors the economy as well as a continuing decline in volume of the roll-wrap business. An equally significant factor is the lower product basis weight associated with a greater commitment to food packaging markets as we transition away from the more commoditized segments of the released liner market. While release liner remains the core business for us, this is a strategic shift and focus for the business which we believe will better position us in markets where we can offer customers a differentiated product and create competitive advantage. Fourth quarter average selling price increased a substantial 8% for the quarter. The result of both price gains and product mix changes, as with the case with Printing and Writing, fiber cost increases for the quarter exceeded $3 million over prior year levels. Our Towel and Tissue business turned in another strong performance in the fourth quarter, reporting operating profits of $10.9 million compared to prior year record fourth quarter profits of $12.5 million. With the away from home tissue market expanding minimally in 2007, pricing has become highly competitive in commodity oriented product categories and margins have been impacted by rapid waste paper and current roll price increases, which have outpaced our ability to raise prices. Fourth quarter revenues increased 11% year-over-year, while shipments grew 7% reflecting price gains and the success of our new product initiatives, volume of a higher margin value added products grew 11% for the quarter reflecting favorable customer response to our OptiCore products and OptiServ dispensing systems and our more recent Green Seal certified double nature product offerings for the premium building market. Average selling price increased by 3% for the quarter over year-ago levels, with price a more dominant influence in product mix. On a sequential basis, selling price increased 1% over the third quarter. For the full year, Towel and Tissue continued to outperform the away-from-home market, with overall volume growth of nearly 2.5% and with value ad gains of 14% as compared to market growth of 1%. Scott Doescher will now provide further details on our financial statements.

[Scott Doescher:]

During the fourth quarter we reported a gross loss of $15.4 million or 5% of net sales, compared to a gross profit of $34.3 million or 11% of net sales last year. Included in the current quarter cost of sales with $38.8 million of charges related to the Groveton Mill closure. Excluding these charges, which consist primarily of accelerated depreciation, fourth quarter gross profit was $23.4 million or 8% of net sales. Profit margins remained under pressure from escalating input costs as year-over-year market halt prices increased $7 million or 9% and waste paper prizes increased $2 million or more than 50%. In December, we permanently closed the Groveton paper mill; as a result the fourth quarter included a pretax charge of $45.9 million with $38.8 million reflected in cost of sales and $7.1 million as a restructuring line item. Additional pretax closure charges of approximately $20 million are expected in 2008. After giving consideration to income taxes and an expected reduction in working capital, the impact of the closure is expected to be cash neutral on a cumulative basis. As a percent of sales, fourth quarter SG&A expenses were 6.9% compared with 6.7% of net sales last year. A 39.9% tax rate was applied in the 2007 fourth quarter compared with 38.2% last year. Applied against a loss for the quarter, the higher 2007 fourth quarter rate reflects one-time state tax benefit of $1.2 million. Full year gross profit margins were 6% in 2007 compared with 10% the year before. Once again, included in the current year cost of sales is Groveton Mill closure charges of $38.8 million, impacting gross margins by more than three percentage points. As with the quarter-over-quarter comparison, full year margins were impacted by higher input costs, including fiber price increases of $45 million. In 2007 we established a goal to hold manufacturing cost increases to 1%, adjusting for volume and certain raw material and energy pricing differences. I am pleased to report that we achieved our goal for the year with adjusted cost slightly lower than 2006. We will once again work to contain cost to a 1% increase in 2008. Full year SG&A expenses were 6.8% of net sales, compared with 7% of net sales in 2006. Excluding $13.3 million of one-time state tax benefits, which relate primarily to the January 1, 2007 restructuring of the company’s subsidiaries are effective tax rate for the full year 2007 was 37.2%, compared with 37.5% last year. We expect that our effective tax rate will be in the range of 37% to 38% for 2008. Our balance sheet ended the year in solid shape with several significant improvements worth noting. First, our efforts to improve working capital efficiencies continue to drive results. Terms improved in 2007 with inventories decreasing $14 million as compared to prior year end. Second, pension assets increased in recent years as a result of substantial voluntary contributions and solid market returns. Combined with reduced post retirement benefit liabilities, pension funding improvements resulted in an after-tax reduction and accumulated other comprehensive loss of $35 million. Third, long term debt declined $21 million during 2007. With our year-end debt to capital ratio declining to 33.2% from 36.9% last year, the company’s cash position and existing credit facility provides sufficient liquidity with approximately $90 million available for borrowing at year end. We continued to take a disciplined approach to managing capital with spending totally $30 million in 2007, compared with $24 million last year. Spending of approximately $45 million is projected in fiscal 2008 including approximately $20 million of the $31 million capital spent relating to the rebuild of the towel machine at Middletown Ohio facility. In addition we targeted a composite internal greater return of 17% on all capital projects approved in 2007. I am pleased to report that we achieved this goal for the year and will once again work toward that target in 2008. We repurchased 521,000 shares during the fourth quarter. Since reactivating our buyback program in the second quarter of 2005, we have repurchased approximately 2.1 million shares at an average cost of $11.60 per share. We will continue to take an opportunistic approach in repurchasing shares and anticipate first quarter activity to be inline with that set over the second half of last year. The current board authorization allows for the repurchase of approximately 540,000 additional shares. In the fourth quarter, we sold approximately 1800 acres of timberlands for an after-tax gain of $1.2 million. Since, announcing our sales program in 2005 we have sold more than 20,000 acres of timberland for an after-tax gain of approximately $18 million. We expect to sell the 22,000 acres remaining in our program over the next 24 to 36 months. I will now return the call to Tom to discuss our first quarter 2008 outlook.

[Tom Howatt:]

As we begin 2008, the weakening domestic economy adds uncertainty to demand in several other businesses. While energy prices appear to have stabilized at relatively high levels, prices were all forms of fiber continue to increase for each of our segments. With this as backdrop, we have taken and we will continue to take the necessary steps to ensure improved performance in each of our segments. The benefits of Printing and Writings recovery plan will build over the next several quarters. Product mix initiatives are underway at Specialty Products to address the economy driven demand issues and new product successes of Towel & Tissue are expected to drive above market growth and value added grade. As a result, we expect first quarter earnings to improve somewhat over fourth quarter results to near break-even levels, excluding timberland sales gains, Groveton closure charges and the impact of stock incentives. We would be pleased to answer any questions at this time. Michael if you can queue for questions please.

[Operator:]

Certainly (Operator instructions) The first question comes from the line of Steven Nissen of Mindful Capital

[Steven Nissen- Mindful Capital:]

Thank you very much guys. Stuart congratulates a decent job in a very challenging economy, so keep up the good work. A couple of things Tom, regarding the operational proven initiatives, what are you guys planning on doing, or what have your been doing in terms of looking at mainly fashion in TPN Six Sigma to overall and throughput throughout your plan and improve overall efficiency? What benefits are you going to be seeing?

[Tom Howatt:]

Let me talk first broadly, our company has had a long history of being a strong operator in our industry and so, continuous improvement and whatever manner one chooses to implement that is really a part of our culture and has been for many, many years. I believe 2007 represents a seventh consecutive year of operating efficiency improvement across our corporation and, the specific tools we might use, whether Six Sigma or some other approach really tend to be specific to the needs of the respective businesses. Where we have technical problem solving issues as it relates to high performance grades and specialty, you might see a Six Sigma approach with respect to broader cost reduction opportunity, you might see a lean approach being used and sorry to tell you it somewhat differs necessarily from one business to the other but it tends to be a continuous and intense cultural approach within the corporation.

[Steven Nissen- Mindful Capital:]

With the economic pressures facing coming(Inaudible)yourself, how are you guys measuring yourselves in terms of how you are doing on return on invested capital, are you looking at RONA, are you looking at OE. How are you looking to measure yourself and your plans to make sure you are keeping up with all your competition?

[Tom Howatt:]

Well the financial stake in the ground that we have used for some time is return on capital employed and our target of course is to earn a premium to cost on capital and that has been our target for some time with the more difficult performance over the last several years in specialty in Printing and Writing. We have of course not been able to achieve that but nonetheless the target for these businesses.

[Steven Nissen:]

Do you have a number you are trying to achieve for 2008?

[Tom Howatt:]

Well, as supposed to necessarily giving guidance for 2008, what I would tell you is that our long-term objective is to achieve a 13% ROCE broadly for the corporation.

[Steven Nissen:]

Throughout 2008, are there plans that are concerning you in terms of their productivity and throughput and what are you planning to do to bring those up to par?

[Tom Howatt:]

Well, there are segments of the business product related segments of the business where quite frankly we have insufficient pricing leverage to reach acceptable margins and so, that drives ultimately a new product development initiative that focuses on reducing our exposure to those areas where we cannot earn acceptable margins on products and that occurs in every business that it would even occur in a business such as Towel and Tissue where we are seeing operating margins in 2007 in the 13% range.

[Steven Nissen:]

If you have to pick out one of your three segments which one would you say needs to improve the most over the year, or let us say, challenging for all three segments. Which one are you going to focus on the most to get up the speed?

[Tom Howatt:]

We have an announced recovery plan in place for Printing and Writing business, which has three components that are actionable by us and we are underway of course. We have completed the first half which was the Groveton mill closure, and there are two remaining steps to that process. We have articulated a clear fast forward with respect to Printing and Writing that we believe we will achieve acceptable returns. Perhaps the more difficult circumstance is our Specialty Products business simply because that business during week economic circumstances tends to be impacted more significantly. Typically the grades in that business have significant qualification times, long lead times, and when we see a demand weakness in those grades, our alternatives in terms of filling out capacity are nowhere near as profitable as those core businesses. So we would have seen in some of those key core businesses that the client and demand that has impacted profitability over the last couple of quarters. So our challenge in that business is that the development side is to be able to be more effectively bring new products to markets that help the margin side in the overall mix.

[Steven Nissen:]

And final question for 2008, what systems and solutions are you going to be putting in place to accelerate their goods, consumers and premonitions that you are ahead in place to let the shareholder know “Hey! I am the right guy for the job, these are great ideas and we are definitely having a great 2008.”

[Tom Howatt:]

Well, I think it is a matter of taking a look at the track record of the decisions that we have made over the last several years, necessary to put this business on the proper course. If you look at Printing and Writing, we have made the decision several years ago to acquire low cost manufacturing capacity and that is serving us well. Two years ago, we closed a high cost pulp mill which was the right decision, and we have now idled capacity and refocused the business on growing our premium papers. You would see similar actions occurring in the other businesses. We have a very strong track record over in recent years in bringing new products to market and their Towel and Tissue business. Our Green Seal products came to market in 2003. Our OptiCore products and OptiServ dispensing systems in 2005, and this past year, we brought forward a new array of products to after the class A or premium building market and then finally, with respect to the Specialty Products business, we made the decision to sell our laminated roll wrap business, that was the business that was the corporation highest return on assets business a few short years ago and the structural changes in these industry obviously made it no longer viable and we stepped up to that and made the decision to exit that business. So I think we continue to take the necessary steps, aggressive as they need to be to chart a proper course for the Company.

[Steven Nissen:]

I guess what I meant by that, are you earning like learning like a CP or Oracle in the back office to manage to see our processes or?

[Tom Howatt:]

No, I would say that we have adequate systems in place and I think we are quite cost effective from a system’s standpoint in terms of how we manage the backend of the business.

[Steven Nissen:]

Okay. Thank you very much good lick for this year.

[Tom Howatt:]

Yeah you’re welcome. Thank you.

[Operator:]

Okay thank you. And the next question comes from the line of Mark Wilde of Deutsche Bank Securities. Please go ahead.

[Tom Howatt:]

Good morning Mark.

[Operator:]

Okay. Just a moment. Again Mark Wilde your line is open.

[Mark Wilde:]

Great. Tom can you hear me okay.

[Tom Howatt:]

I can Mark. Good morning.

[Mark Wilde:]

Good morning. Just a --first question! I wonder if it would be possible for you to give us a little more color on steps two and three in the three part recovery program over Printing and Writing. The first step is pretty obvious but I like to know a little more of what is involved in the other two steps and what cost it might be?

[Tom Howatt:]

Sire. The first of those two remaining steps is the refocus of our marketing effort within that business on the premium more inside of the business, and then again that is the Royal grades, which are texted in cover lines, our Astrobrights which is really our flag ship brand and the standard in the industry. In our exact grades which comprises of broad array of opaque and other grades, and in beyond those grades, I would also comment with respect to our growth and the retail side of the world. Over the last couple of years, we have quite frankly spent a considerably amount of effort trying to sustain full operations within the business and one of the benefits of quite frankly taking out the excess capacity is, it allows us to get us in literally the bottom 100,000 tons of our mix that takes a considerably burden of the sales marketing organization, and I think it allows us to focus much more effectively and ultimately growing share in the premium into the uncoated free sheet market. I think we can be more directives with our marketing efforts. I think we can be more effective with our distribution of customers and I think we can be more creative with respect to new products that we might bring into the market place, and we do think that there are clearly opportunities there in new channels as supposed to the traditional channels that would take us to the commercial print markets. So I think it is really intensity and a focus around, once again, reestablishing acceptable growth in those premium grades. The third step of the recovery plan relates to cost reduction and essentially product capabilities enhancements within our facilities. In recant years we have spent acquiring Brainerd, which gave us low cost capacity. In recent years, not the last couple but over a period of time, we have spent money at improving the operations at Groveton because we have exceptional product quality capabilities of that facility. I do think that that left us an opportunity to at this point now, reinvest within our Brokaw facility to significantly improve the cost structure, and while we have not definitively decided on precise nature or those projects, we have a handful of opportunities which we expect to reach decisions on over the course of this year, and implement over the course of two year that should significantly improve the cost position of that mill in particular.

[Mark Wilde:]

Any idea Tom, what is the sort of net cost of that might be?

[Tom Howatt:]

I think until we are firm on the projects it would be premature to speculate on that but I can tell you that it would be modest in relation to the total capital spending that you have seen out of the corporation over the last two to three years.

[Mark Wilde:]

Okay. Is there any money need to go into Brainerd?

[Tom Howatt:]

Actually we spent some money at the time of acquisition in terms of size price capabilities and subsequent of the start up, color system capabilities at that mill. So we are quite frankly in good position at that mill and do not see any substantial capital needs for that location in the near future.

[Mark Wilde:]

And what would you be producing at sort of Brainerd versus Brokaw, now with growth and close because I think your world is running things like opaque over primarily over Brainerd. Will that mill be doing Astrobrights some things as well?

[Tom Howatt:]

Yes, that mill most certainly has the capability to produce Astrobrights and as you know that is a much larger machine and what we would have in Brokaw. So it really tends to be a run size related in terms of what would dictate where we run grades because in large part, we can run products in both facilities.

[Mark Wilde:]

Second question will be simpler, is it possible Scott to give us just an average sales price per acre that you are getting through a lane. You give us a --I think that after-tax gain but I am just wondering about how much you generate in terms of gross proceeds both in a quarter and then the first 20,000 acres that you sold.

[Scott Doescher:]

You bet Make. We can certainly do that. In the fourth quarter, evaluations were strong for us with our Timberland sales program and in fact, the average selling price per acre exceeded $2000. So quite strong, over the life of our program since with the exemption of the sales program, our average selling price has been about $1500 an acre. So again, there is a very strong valuation as compared to some of the other larger block sales that you would see here in the upper Midwest.

[Mark Wilde:]

Okay. Going forward on the program, I think you have mentioned that you have about 22,000 acres remaining on the program. Can you just remind us in addition to that on how much other land will remain in the Company?

[Scott Doescher:]

Sure. After we complete the sales program, we will have approximately 80,000 acres. Most of that will be in the form of manage pine plantation of you will soft wood that is used to supply our Mosinee facility.

[Mark Wilde:]

Okay right. Next topic Tom, you mentioned in the release the tissue price initiative that is out there. Can you talk with us about how large that initiative is and then how that should affect kind of earnings from the Towel and Tissue business in the first and second quarters.

[Thomas Howatt:]

Sure. I would say that the price increase announcements have ranged in the neighborhood of 8% to10%. It is fair to say that they have been broadly supported by industry participants and that the implementation or effective date is on or around March 1st, generally speaking. Our experience over the course of the more recent cycle here is that we have intended to perhaps realize for prior price increases. Perhaps half of what has been announced and that typically takes over the course of perhaps as long as two quarters to be fully implemented although the majority that would be implemented over the course of the first quarter post implementation.

[Mark Wilde:]

Okay. All right and are there also parent roll increases out there so that while you are racing tissue prices, you may continue to get some pressure from further apparent roll increases?

[Tom Howatt:]

Yeah. In fact that has been a meaningful factor in 2007. With both waste paper and apparent roll prices increasing perhaps more rapidly than product prices increases and it increased. As a result, we perhaps were a bit behind the curve that you will in 2007 and that was part of the reason for a modest operating margin decline in 2007 versus 2006.

[Mark Wilde:]

Scott, can you remind us how much cash was left in the year-end in your cash position

[Scott Doescher:]

Sure. I would be happy to do that Mark. We had at year end about $18 million of cash and cash equipments.

[Mark Wilde:]

Okay. All right, then kind of my final question Tom. If I go back 10 years ago, when you merge Mosinee and Wausau, the idea was to really get kind of impart to get scale, take out cost, and to give yourself a bigger position now as a publicly traded company. Today, the question I really have is whether the current structure of the company gets you full recognition of the value particularly in Bay West where you have done a great job for the last 10 years. You have outgrown the industry by about three folds, that you got both very high margins and very high returns in the business. You look kind of tissue companies which typically sell at premium to paper companies, and you wonder whether the current structure of the company is really value maximizing for your share holders, any thoughts?

[Tom Howatt:]

Sure and you its clearly a fair question and I think we have to take a look at the context of what our expectations are for the two businesses that are not performing acceptably at this point in time. We have spent considerable time this as well. Clearly we are very pleased with the growth and the profitability that we have achieved with in that Towel and Tissue business, and we do not think that our share price necessarily reflects ultimately the capabilities of the corporations because of the more difficult issues with specialty and with Printing and Writing. However, we think at this point we are still and our shareholders are best served that if we were to essentially fix the business and get them back to an acceptable rate of return. If you look at Printing and Writing, we have outlined a path forward that does get us to that point. We also have initiatives underway had specialty products that we believe will improve. One of the factors here that I think we needs to be discuss is and there is some uncertainty associated with it and its unprecedented disconnect, this has occurred over the last several years between Pulp and Paper prices that has dramatically impacted margins for none integrated players in this industry. I do not know one can make a quick decision about whether to sell off a successful business and rationalize the others. In light of that kind of an unprecedented circumstance, I wish we had a crystal ball and we knew what the relationship between Pulp and Paper prices we are going to be in the future. Clearly we have been disadvantage in North America. So we feel at least that at this point we are best off – our shareholders are best of that we continue those intense efforts to improve the position of those other businesses. We have seen rationalization starting to take hold within the industry. I think we are seeing a dramatically different structure than we were 10 years ago in terms of the number of companies who are participating in most of these segments. Coded has consolidated dramatically. The commodities side of un-coded has consolidated dramatically as has have a number of areas of the industry, and I think clarity will occur every time as we see the pricing leverage at ultimately as achieved through this consolidation and capacity rationalization in the industry. As this works its way through and I agree it takes a long time for it to happen in this industry. I do think that we are best of by continuing to focus on reestablishing profitable businesses especially in printing and writing.

[Mark Wilde:]

Okay. I guess just the one other observation I would make is when you have paper in your name, people think volatility and clearly your paper businesses have seen volatility but if you look over to the tissue side of the business, for the last decade your EBITDA margins sit there between 21% and 25% every year. The business grows consistently over time, you just wonder what the name paper, whether you are ever going to get the market to really step back and look at the impressive overtime of the tissue side of the company, which after all is only about a quarter of your sales.

[Tom Howatt:]

I agree and that is a fair observation Mark.

[Mark Wilde:]

Okay. Thanks Tom I’ll pass it on.

[Operator:]

Okay Thank you (Operator Instructions) we have a question from the line Jonathan Lichter of Sidoti. Please go ahead.

[Jonathan Lichter:]

Hi Guys.

[Tom Howatt:]

Good morning John.

[Jonathan Lichter:]

Can you talk a little bit more about the initiatives in terms of I guess rationalizing the release liner for the business?

[Tom Howatt:]

Sure I would be happy to do so. As you know the release liner has been historically a core market for us within our specialty product business. Many years ago the expansion of the business and acquisition of Mill and Jay, Maine, our oldest facility was related to targeted growth within that release line markets. So that has been a core business for the corporation for many years. That being said, we have seen increase competitive influence in recent years that quite frankly has made pricing leverage very difficult in this sector and we feel that our exposure to the more commoditize segments of the release liner market put us in the position where we simply are not achieving an acceptable margin in the premium specified product that we delivered to that market place. So we have made a strategic decision to participate in the release liner market on a more selective basis. We see other markets such as food service and food packaging having a strong demand in growth characteristics and acceptable margins. So we have seen a transition to a modest degree but nonetheless it is occurring away from the commoditize segments of the release liner market focusing more on those food service and food packaging markets.

[Jonathan Lichter:]

So, of the release liner of business in 2007, how much are you moving away from, is it 50%?

[Tom Howatt:]

We have not and would not for competitive reasons of specifically disclose that. I know we have commented in the past that the release liner market is our largest product segment within the specialty product business and it will still be the largest segment in the product in this business despite that this transition of this is refocused.

[Jonathan Lichter:]

Have you identify any other areas of business within specialty that you might consider similar moves in?

[Tom Howatt:]

Well, I think the other factor at this point is more cyclical as oppose to strategic and that is the weakness that we see at the time of economic ways in the market place. We specifically have demand weakness in tape markets and some of the industrial markets are tied to the home building sector, the economy and so for us it becomes a matter of how do we -- through product initiatives more effectively address those weaker circumstances. But I do not believe it is a refocus or strategic move away from those markets because historically those are strong markets for us.

[Jonathan Lichter:]

Also in the Towel and Tissue division, I noticed that the ton actually increase in the fourth quarter seems like generally decline, is that because of new products? What is the reason for that?

[Tom Howatt:]

Well, I know that we had a good success but some of the new product initiatives are bringing the premium building office products to market. Scott, do you have any further insight into that?

[Scott Doescher:]

Nothing other than that Tom, it was a matter of some difference as we move from quarter to quarter and just the way the shipments fell during the year Jonathan.

[Jonathan Lichter:]

You mentioned that you expect I think the profitability later in the year is that any change from which had previously thought?

[Tom Howatt:]

No, not really. I assume you are referring to our printing paper business?

[Jonathan Lichter:]

Right I’m sorry yes.

[Tom Howatt:]

Yes, Yeah. We expect a continuing transition from Groveton over the first half of this year. We continue to ship out of that Groveton mill location as we established in East Coast distribution center that will subsequently support those markets and there are other wheeling down issues and costs associated with that growth and that will continue to impact early in part of the year. So we believe that it is the third quarter of this year, by the time we begun to see fully those benefits from the closure.

[Operator:]

Okay, thank you and the next question comes from David (Inaudible). Please go ahead.

[Unidentified Analyst:]

I just have a handful of questions that are related to your timber sales, you gave some data before. What is your best thinking at the moment in terms of power, I assume you opt to complete the sales. Secondly, are you seeing material change in the interest in pricing that you are able to get from your Timberland? Thirdly, if you ran into a situation where you could not get what you felt were proper prices for Timberland and decided not to sell any for some period of time but then having meaningful impact on your share repurchase program.

[Scott Doescher:]

David let me go ahead and get started with that and perhaps Tom can jump in. But with regards to the completion of that sales program, we would expect that within the next two to three years, we will be able to complete that remainder of that sales program. Quite honestly the program has taken a bit longer than we originally thought when we announce that sales program, but as you recall we have been tapping the really the retail market. We are selling these in smaller parcels in 40’s in an 80 acre parcel, which require more management time and quite honestly just a longer period to complete than the larger block sales which would be the alternative. What we have read the benefits of those as the result of closely managing that are much higher average selling prices for those lands, and then we believe with otherwise would have seen. With regards to interests in those properties, many of the properties that we sold have sold to those who are private parties who might be interested in the land for recreational purposes as an example and in a while our program I think has been executed quite consistently over the last couple of years -- there are seasonal fluctuations, typically the winter months. There is less interest in those lands than there is in the summer and in the fall. There are maybe some impact as well as by slowing economy and people who may feel a little bit more reluctant to buy a lands. That may impact the timing of our sales program as oppose to the evaluation to be would expect to achieve.

[David:]

Being any of that is just point in time that is what I was getting there.

[Scott Doescher:]

Well, like I said, it is difficult to tell of how much -- for example, a slow down at this time of the year would a attributable a slowing economy and how much is that is just related to the fact that it is winter here Northern Wisconsin and people are reluctant to go out and look at property when it is zero or 10 below, and a bunch of snow on the ground. There is probably some impact if there is any; it is modesty that I would say.

[David:]

I guess what ever getting that was -- when we get to the summer in the fall when you normal have this sales, if you discover that you can not get nearly the prices next summer that you had last summer that you got last summer with the length to cut back and pull out.

[Tom Howatt:]

Let me perhaps jump in on this, because I do sit down with design of our operations each month and review the progress of this program and, it is probably fair to say that the level of interest is perhaps slightly off, maybe the peak that we saw, broadly not just in Wisconsin from perhaps a year or so ago, but the interest still remains quite strong. I would not characterize it as being a dramatic drop-off in the interest to these properties. The second thing I would say is that we are really not under the gone to sell these properties. We estimated initially that it was going to take three plus years and perhaps at this phase, takes a little bit longer. But, I think the better approach is optimize evaluation as we move with the program and so, we are not going to dispose of lands below what we believe as fair market value, simply to complete the program. Then, I think that the last part of the question you asked you about is does it impact the share re-purchase program then, I would say no. Generally speaking, you would see that the games is coming from the Timberlands match-up over the last couple of years with the share re-purchase program, but it is certainly not a continuance of the re-purchases predicated on that.

[David:]

Okay Thanks.

[Operator:]

Okay thank you. The next question comes from the line of Mark Wilde – Deutsche Bank Securities. Please go ahead.

[Mark Wilde:]

Tom, is it possible for you guys at this point to give us a little more color on the Capital Program over at Middletown and sort of what is the timing will be. I think Scott mentioned 20 of 31 million will be spent in a way, which suggest feel 12 months from now you still have a better work to do over there. So, if you could maybe give us a sense of how this going to roll out and then, if there is any way to help us think about the financial payback on $31 million from this project.

[Tom Howatt:]

Be happy to do so. As you might imagine when one approaches machine rebuilds, you do so with the mine to minimize downtime on the paper machine for purposes of that rebuild. Over the course of the balance of 2008, more specifically the later half of 2008, will take some very select downtime on that machine, doing some of the proprietary work for the major shut down. The shut down of the towing machine itself will occur, approximately mid-First Quarter of 2009. We expect an outage of approximately three weeks on the machine to execute the rebuild, from a return standpoint, we would expect to have a fully completed, the learning curve on the machine and the other point, where were largely gaining the benefit of the rebuild within two Quarters of start up. So, that start-up would be mid-late First Quarter. In terms of the rate of return of the project, we have not specifically commented on that, although I would characterize it as supportive of our on-going financial objective of achieving a 17% rate of return each year on a Capital standing.

[Mark Wilde:]

Okay and is there any further Capital that is going down in Kentucky right now under the converting businesses as you continue to expand volume?

[Tom Howatt:]

Yes, that tends to be continues process in recent years. I suspect it has been probably on average maybe one lining per year or so that we have add to the facility. We are continuing to evaluate those needs. We think there is likely an additional converting line that we will approve within calendar 2008.

[Mark Wilde:]

Okay, just one other question, going back to growth. I remember in the early nineties, when you bought growth and part of the rationale was that it was going to give you the ability to serve customers from the North East and Mid-Atlantic with this overnight service guarantee that you rolled out about 15 or 20 years ago. What are you going to do now with growth and out? Will you be establishing in a warehouse, location here on the North East? How does that all work Tom?

[Tom Howatt:]

We have in fact identified a location already for an Eastern Region Distribution Center. We will actually begin to ship out of that warehouse by the end of the First Quarter here and should be fully transitioned to that regional distribution center within the Second Quarter. So, that will in fact happen, the decisions been made in terms of the location already.

[Mark Wilde:]

Okay, honest issue, would there would be economic advantage to you and perhaps thinking about maybe producing paper out of this part of the country on a joint venture basis. I mean there are a number of Mills out here in the North East than Mid Atlantic smaller specialty Mills that faced some of the overall market issues that you faced. I just wonder whether you could leverage your brands and your market position and maybe source the paper a little closer to the costumer.

[Tom Howatt:]

I think the need in the industry is for further consolidation, so I am not sure I would want to train our competitors out of run our grace to keep their business.

[Mark Wilde:]

Okay, that is fair.

[Tom Howatt:]

At this point, I think you would likely see us, you know, continue to do produce those premium grade analysis, because incessantly with their shut-down a growth, the next we’ve done is narrow the business to those premium grade.

[Mark Wilde:]

Okay very good. Thanks Tom.

[Operator:]

Okay thank you. (Operator instructions)There are no further questions, please continue.

[Tom Howatt:]

In the Fourth Quarter, we made the difficult decision to shut the Groveton Mill and sell our laminated roll wrap business, both of which have been strong profit contributors for the company of few short years ago. These decisions demonstrate our commitment in determination to take the necessary steps to re-establish acceptable earnings. We believe our focus on strategic markets, our tradition of product innovations in differentiated service and our commitment to operational excellence will serve as well overtime and drive improve performance. We appreciate your taking part in today’s discussion and your interest in Wausau Paper. We plan to release First Quarter 2008 results on Monday, April 28. Our next scheduled conference call is laded for 11 Eastern Time on Tuesday, April 29. Thank you for you participation.

[Operator:]

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