FEDERAL WAY, Wash., July 25 -- Weyerhaeuser Company today reported second quarter net earnings of $314 million, or $1.26 per diluted share, on net sales of $5.7 billion. This compares with $420 million, or $1.71 per diluted share, on net sales of $5.7 billion for the second quarter 2005. Second quarter 2006 earnings include the following after-tax items: -- A charge of $12 million, or 5 cents per diluted share, related to the restructuring of the Containerboard, Packaging and Recycling business model. -- A charge of $11 million, or 4 cents per diluted share, related to the closure of facilities. In addition, net earnings for second quarter 2006 include a one-time tax benefit of $48 million, or 19 cents per diluted share, related to a change in Texas state income tax law, a reduction in the Canadian federal income tax rate and a deferred tax adjustment related to the Medicare Part D subsidy. Second quarter 2005 earnings include the following after-tax items: -- A gain of $110 million, or 45 cents per diluted share, related to the sale of the company's operations in coastal British Columbia. -- A charge of $44 million, or 18 cents per diluted share, related to a planned repatriation of $1.1 billion of eligible Canadian earnings under the provisions of the American Jobs Creation Act of 2004. -- The recognition of $37 million, or 15 cents per diluted share of a deferred gain from previous timberlands sales. -- A charge of $12 million, or 5 cents per diluted share, related to litigation. "The recovery in the paper markets was welcomed after a period of challenging quarters for those businesses," said Steven R. Rogel, chairman, president and chief executive officer. "At the same time, we can't rely on market conditions to improve our earnings performance. That's why we're being proactive and taking steps such as changing the business model of our integrated packaging business. This exciting initiative is starting to pay dividends and provides a glimpse into other changes we're making in how we go to market." Second quarter earnings improved from first quarter due to the realization of slightly higher log prices and the timing of portfolio improvement sales of non-strategic properties. Operating costs increased in both the West and South primarily due to higher fuel prices. Third quarter earnings are expected to be lower than the second quarter due to seasonally reduced harvest and sales activity, softening domestic log prices and lower sales of non-strategic properties. WOOD PRODUCTS Earnings in the second quarter of 2006 improved from first quarter due to seasonal increases in shipment volumes for all major product lines despite a decline in residential construction activity. Average prices realized for oriented strand board and engineered lumber declined from the first quarter, partially offset by an increase for composite panels. Average prices realized for lumber were unchanged from first quarter. Manufacturing costs for lumber and oriented strand board remained constant quarter to quarter, and manufacturing costs for composite products declined, primarily due to moderating natural gas and resin prices. The company incurred $10 million in countervailing and anti-dumping duties and related costs on Canadian softwood lumber the company sold into the United States in the second quarter of 2006, compared with $11 million in the first quarter. Weyerhaeuser expects substantially lower third quarter earnings from ongoing wood products operations compared with second quarter due to declining prices. The company expects to recognize a gain on the sale of the North American composite mills during the third quarter. CELLULOSE FIBER AND WHITE PAPERS First quarter 2006 results included a $746 million impairment of fine paper goodwill. Second quarter included pre-tax charges of $11 million associated with the closure of the Prince Albert facility. Excluding these items, earnings improved $51 million from first quarter. Fine paper and cellulose fiber products both experienced stronger market conditions, resulting in the realization of higher prices. Fine paper sales volumes reflected the closures of the Prince Albert and Dryden No.1 paper machine operations. Cellulose fiber sales volumes were flat compared to first quarter. Second quarter manufacturing costs for fine paper increased significantly due to extended annual maintenance mill shutdowns and major power interruptions at Plymouth, N.C. Energy and chip costs improved across the segment; however this was partially offset by the continued negative effect of the Canadian exchange rate on the cost of Canadian operations. Weyerhaeuser expects the segment to show continued improved performance in third quarter. The company expects to realize the full effect of price increases implemented during second quarter and the additional benefit of price increases announced for third quarter. Manufacturing costs are expected to decrease due to fewer scheduled maintenance shutdowns and improved operating performance. CONTAINERBOARD, PACKAGING AND RECYCLING Second quarter 2006 results included pre-tax charges of $18 million for charges associated with changes to the segment's business model and pre-tax charges of $5 million related to facility closures. Excluding these items, earnings improved $75 million compared with first quarter. Second quarter earnings improved primarily due to the realization of containerboard and packaging price increases coupled with higher packaging shipments. Packaging shipments increased despite the closure of seven packaging facilities since December. Manufacturing costs declined from first quarter levels mainly due to moderating natural gas costs and increased asset utilization. The market conditions for OCC (old corrugated containers) drove costs significantly higher during the second quarter. Weyerhaeuser expects continued earnings improvement from this segment in the third quarter due primarily to the full realization of previous price increases, partially offset by escalating OCC costs. REAL ESTATE AND RELATED ASSETS First quarter results included pre-tax land sales earnings of approximately $33 million and pre-tax gains related to insurance recoveries and partnership restructuring of $17 million. Excluding these items, total earnings were relatively unchanged from first quarter. The number of single-family homes closed in second quarter increased seasonally compared with first quarter. Despite lower margins, single family earnings increased seasonally but were offset by higher operating costs. The backlog of homes sold, but not closed, at the end of the second quarter represents more than five months' sales. Weyerhaeuser expects third quarter real estate and related earnings to approximate second quarter activity.