2.
New Accounting Standards Effective January 1, 2003, Marathon adopted Statement of Financial Accounting Standards No.143 “Accounting for Asset Retirement Obligations” (“SFAS No.143”).
This statement requires that the fair value of an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made.
The present value of the estimated asset retirement cost is capitalized as part of the carrying amount of the long-lived asset.
Previous accounting standards used the units-of-production method to match estimated future retirement costs with the revenues generated from the producing assets.
In contrast, SFAS No.143 requires depreciation of the capitalized asset retirement cost and accretion of the asset retirement obligation over time.
The depreciation will generally be determined on a units-of-production basis over the life of the field, while the accretion to be recognized will escalate over the life of the producing assets, typically as production declines.
For Marathon, asset retirement obligations primarily relate to the abandonment of oil and gas producing facilities.
While assets such as refineries, crude oil and product pipelines, and marketing assets have retirement obligations covered by SFAS No.143, certain of those obligations are not recognized since the fair value cannot be estimated due to the uncertainty of the settlement date of the obligation.
The transition adjustment related to adopting SFAS No.143 on January 1, 2003, was recognized as a cumulative effect of a change in accounting principle.
The cumulative effect on net income of adopting SFAS No.143 was a net favorable effect of $4 million, net of tax of $4 million.
At the time of adoption, total assets increased $120 million, and total liabilities increased $116 million.
The amounts recognized upon adoption are based upon numerous estimates and assumptions, including future retirement costs, future recoverable quantities of oil and gas, future inflation rates and the credit-adjusted risk-free interest rate.
Changes in asset retirement obligations during the year were:
## Table 0 ##
(a) Pro forma data as if SFAS No.143 had been adopted on January 1, 2002.
If adopted, income before cumulative effect of changes in accounting principles for 2002 would have been increased by $1 million and there would have been no impact on earnings per share.
(b) Includes $12 million related to the acquisition of Khanty Mansiysk Oil Corporation in 2003.
(c) Includes $25 million associated with assets sold in 2003.
In the second quarter of 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No.145 “Rescission of FASB Statements No.4, 44, and 64, Amendment of FASB Statement No.13, and Technical Corrections” (“SFAS No.145”).
Effective January 1, 2003, Marathon adopted the provisions relating to the classification of the effects of early extinguishment of debt in the consolidated statement of income.
As a result, losses of $53 million from the early extinguishment of debt in 2002, which were previously reported as an extraordinary item (net of tax of $20 million), have been reclassified into income before income taxes.
The adoption of SFAS No.145 had no impact on net income for 2002.
Effective January 1, 2003, Marathon adopted Statement of Financial Accounting Standards No.146 “Accounting for Exit or Disposal Activities” (“SFAS No.146”).
SFAS No.146 is effective for exit or disposal activities that are initiated after December 31, 2002.
There were no impacts upon the initial adoption of SFAS No.146.
Effective January 1, 2003, Marathon adopted the fair value recognition provisions of Statement of Financial Accounting Standards No.123 “Accounting for Stock-Based Compensation” (“SFAS No.123”).
Statement of Financial Accounting Standards No.148 “Accounting for Stock-Based Compensation – Transition and Disclosure” (“SFAS No.148”), an amendment of SFAS No.123, provides alternative methods for the transition of the accounting for stock-based compensation from the intrinsic value method to the fair value method.
Marathon has applied the fair value method to grants made, modified or settled on or after January 1, 2003.
The impact on Marathon’s 2003 net income was not materially different than under previous accounting standards.
The FASB issued Statement of Financial Accounting Standards No.149 “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” on April 30, 2003.
The Statement is effective for derivative contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003.
The adoption of this Statement did not have an effect on Marathon’s financial position, cash flows or results of operations.
The FASB issued Statement of Financial Accounting Standards No.150 “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” on May 30, 2003.
The adoption of this Statement, effective July 1, 2003, did not have a material effect on Marathon’s financial position or results of operations.
Effective January 1, 2003, FASB Interpretation No.45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”), requires the fair-value
FIVE-YEAR SUMMARY OF SELECTED PUBLISHED WOOD PRODUCT PRICES
## Table 1 ##
CELLULOSE FIBER AND WHITE PAPERS The Cellulose Fiber and White Papers businesses produce a wide range of fine paper products, which are sold to customers through a network of distribution centers in the United States.
Our cellulose fiber products are distributed through a global direct sales network, and liquid packaging products are sold directly to carton and food product packaging converters in North America and internationally.
Our newsprint business, North Pacific Paper Corporation (“NORPAC”), is a joint venture with Nippon Paper Industries.
The newsprint produced at this facility primarily is sold directly to newspapers and publishers in the western United States and Japan.
In August 2006, we announced the Domtar Transaction.
White Paper assets that will be included in the Domtar Transaction are six uncoated freesheet mills in the United States and two in Canada (one of which is not currently in operation), and one coated groundwood mill in the United States.
Cellulose Fiber assets that will be included are the pulp production facilities at the uncoated freesheet mills, and one pulp mill in Canada.
Financial information in the tables below includes data from all of the segment’s businesses as of the end of 2006, including the assets and operations expected to be included in the Domtar Transaction.
What We Do ?
We are one of the world’s largest softwood market pulp producers.  ?
We provide cellulose fibers (pulp) for targeted specialty markets, working closely with our customers to develop unique or specialized applications for cellulose fiber.  ?
We produce uncoated freesheet and coated groundwood papers used in various printing and publishing applications.  ?
We manufacture liquid packaging board used primarily for the production of containers for liquid products.  ?
Our joint venture, NORPAC, makes high-quality newsprint and uncoated groundwood products.
Where We Do It We have 10 pulp mills and 8 paper mills in strategic locations throughout the United States and Canada.
Our liquid packaging mill and our NORPAC joint venture newsprint manufacturing facility are located in Washington State.
How Much We Sell Revenues of our Cellulose Fiber and White Papers business segment come from sales to customers who use the products for further manufacturing or distribution, and for direct use.
In 2006, our net sales were approximately $4.6 billion compared to $4.3 billion in 2005.
Our sales volume of cellulose fiber products in 2006 was 2.6 million tons – an increase of 5 percent compared to 2005 – despite the closures of two production facilities during the year.
Factors that affect sales volumes for cellulose fiber products include: ?
world gross domestic product growth and ?
paper production and diaper demand.
Our pulp prices in 2006 increased compared to 2005 due to improving balance between supply and demand, higher fiber costs in Europe and a weaker U. S.  dollar.
Factors that affect the prices of our cellulose fiber products include: ?
world economic environment; ?
industry operating rate, which is based on the balance of supply and demand; and ?
relative strength of the U. S.  dollar.
Our sales volumes of fine paper products, including both freesheet and coated groundwood was 3.0 million tons in 2006, which was a decline of 8 percent compared to 2005.
This decline was due to the closure of the Prince Albert, Saskatchewan paper operations in January 2006 and the closure of a paper machine at our Dryden, Ontario facility in April 2006.
?
growth in demand for high-strength containerboard and packaging in industrial countries; and ?
growth in demand for high-quality recovered fiber – particularly in China – for use in the manufacture of paper and containerboard.
Our volume of containerboard sales declined in 2006 as the result of our closure of a linerboard machine in Plymouth, North Carolina and an increase in the amount of containerboard we consumed internally to meet the needs of our packaging customers.
Our packaging volume increased in 2006, primarily due to the extra week of sales activity in our 53-week fiscal year.
We achieved higher packaging sales volumes in 2006 despite the sale or closure of production at 11 packaging plants during the year.
We maintained our sales volume in the kraft bag market despite closing one bag facility in 2006.
The factors that affect selling prices for our containerboard, packaging and recycling products and services vary.  ?
Containerboard and recycled fiber prices reflect the relative level of supply and demand for these materials in local and international markets.
Supply is affected by capacity in the industry and demand is a direct result of economic activity.  ?
Packaging prices are negotiated between buyers and sellers, as each box is generally designed to meet a particular customer’s need.  ?
Packaging prices are also affected by changes in prices for paper and other production raw materials.
Where We’re Headed During 2006, this segment made significant changes to its business model, including changing from a plant-focused management model to a customer-focused, integrated supply chain model.
Our strategies for achieving continued success include: ?
providing value and reliability for customers through our sateof-the-art technology and our extensive plant system in the United States and Mexico; ?
developing and producing innovative, cost-effective solutions to meet our customers’ needs for packaging that both protects their products through the distribution channel and communicates to the people who buy these products; ?
providing both centralized and local services through our marketing and sales departments; ?
delivering products and services to selected market segments where we can achieve target returns; ?
reducing supply chain costs by focusing on improving productivity and asset utilization as well as reducing our consumption of chemicals and energy; and encouraging an increased level of recycling through industry promotion and education supported by our collection and distribution system as well as through our own significant consumption of recycled fiber.
CONTAINERBOARD, PACKAGING AND RECYCLING PRODUCTS
## Table 2 ##
FIVE-YEAR SUMMARY OF NET SALES FOR CONTAINERBOARD, PACKAGING AND RECYCLING
## Table 3 ##
(1) Fiscal year 2006 includes 53 weeks of operations compared to 52 weeks in fiscal years 2002 through 2005.
RESULTS OF OPERATIONS Our 2006 results include 53 weeks of operations, while 2005 and 2004 results each include 52 weeks of operations.
In reviewing our results of operations, it’s important to understand these terms: ?
price realizations refers to net selling prices – this includes selling price plus freight minus normal sales deductions; and ?
contribution to earnings – refers to our business segment earnings before interest and taxes.
CONSOLIDATED RESULTS Net sales and revenue and operating income numbers reported in our consolidated results do not include the activity of our discontinued operations, which currently include the: ?
Irish composite panel operations (sold in November 2006); ?
North American composite panel operations (sold in July 2006); ?
French composite panel operations (sold in December 2005); and ?
B. C.  Coastal operations (sold in May 2005).
We report these activities and results as discontinued operations in our Consolidated Statement of Earnings.
The results of these operations are included in the segment discussions that follow.
How We Did in 2006 NET SALES AND REVENUE / OPERATING INCOME / NET EARNINGS – WEYERHAEUSER COMPANY

<table><tr><td><i>(In millions)</i></td><td>2003</td><td>Pro forma2002<sup>(a)</sup></td></tr><tr><td>Asset retirement obligations as of January 1</td><td>$339</td><td>$316</td></tr><tr><td>Liabilities incurred during 2003<sup>(b)</sup></td><td>32</td><td>–</td></tr><tr><td>Liabilities settled during 2003<sup>(c)</sup></td><td>-42</td><td>–</td></tr><tr><td>Accretion expense (included in depreciation, depletion and amortization)</td><td>20</td><td>23</td></tr><tr><td>Revisions of previous estimates</td><td>41</td><td>–</td></tr><tr><td>Asset retirement obligations as of December 31</td><td>$390</td><td>$339</td></tr></table>
<table><tr><td></td><td> 2006</td><td> 2005</td><td> 2004</td><td> 2003</td><td> 2002</td></tr><tr><td>Lumber (common) – $/MBF</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>2x4 Douglas fir (kiln dried)</td><td>$351</td><td>$406</td><td>$459</td><td>$347</td><td>$328</td></tr><tr><td>2x4 Douglas fir (green)</td><td>$284</td><td>$355</td><td>$406</td><td>$307</td><td>$289</td></tr><tr><td>2x4 Southern yellow pine (kiln dried)</td><td>$329</td><td>$421</td><td>$387</td><td>$330</td><td>$302</td></tr><tr><td>2x4 Spruce-pine-fir (kiln dried)</td><td>$265</td><td>$322</td><td>$361</td><td>$242</td><td>$236</td></tr><tr><td>Plywood (1/2” CDX) – $/MSF</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>West</td><td>$341</td><td>$386</td><td>$448</td><td>$367</td><td>$287</td></tr><tr><td>South</td><td>$279</td><td>$353</td><td>$403</td><td>$335</td><td>$248</td></tr><tr><td>Oriented strand board (7/16”-24/16”)</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>North Central price – $/MSF</td><td>$218</td><td>$323</td><td>$374</td><td>$295</td><td>$160</td></tr></table>
<table><tr><td>MAIN PRODUCTS</td><td>HOW THEY’RE USED</td></tr><tr><td>containerboard– linerboard– medium</td><td>used to produce corrugated packaging</td></tr><tr><td>corrugated packaging– boxes,– Tri-Wall<sup>™</sup>– laminated bins– sheets</td><td>corrugated packaging for the transport of products and a wide variety of other uses</td></tr><tr><td>recycling– used packaging– used paper– other recyclable materials</td><td>used in the manufacture of paper and other products</td></tr><tr><td>kraft bags and sacks</td><td>sacks used for groceries in retail, bags used for fast food</td></tr><tr><td>SpaceKraft<sup>™</sup>and bulk packaging</td><td>used primarily to transport high density products such as liquids, chemicals and bulk foods</td></tr><tr><td>retail centers</td><td>design and project services for display, point-of-purchase and retail needs</td></tr></table>
<table><tr><td></td><td> 2006</td><td> 2005</td><td> 2004</td><td> 2003</td><td> 2002</td></tr><tr><td>Containerboard</td><td>$377</td><td>$395</td><td>$368</td><td>$304</td><td>$350</td></tr><tr><td>Packaging</td><td>3,931</td><td>3,710</td><td>3,584</td><td>3,544</td><td>3,466</td></tr><tr><td>Recycling</td><td>345</td><td>352</td><td>347</td><td>247</td><td>229</td></tr><tr><td>Kraft bags and sacks</td><td>88</td><td>83</td><td>80</td><td>80</td><td>75</td></tr><tr><td>Other products</td><td>171</td><td>167</td><td>156</td><td>147</td><td>92</td></tr><tr><td></td><td>$4,912</td><td>$4,707</td><td>$4,535</td><td>$4,322</td><td>$4,212</td></tr></table>

Question: Does the value of 2x4 Douglas fir (kiln dried) in 2006 greater than that in 2005?
Answer: no