new york analyst meeting presentation
TRANSCRIPT
WeyerhaeuserCompany
Annual Analyst Meeting
New York, New YorkMay 12, 2006
WeyerhaeuserCompany
Annual Analyst Meeting
New York, New YorkMay 12, 2006
New York City
Forward-looking StatementSome information in this pr esentation is der ived pr inc ipally fr om public ly available infor mation, for est pr oducts and building industr y publications and websites, data complied by mar ket r esear ch fir ms, and similar sources. Although we believe that this information is r eliable, we have not independently ver ified any of this information and we cannot assur e you that it is accur ate. This pr esentation also contains for ecasts r egarding futur e economic conditions, economic growth, exchange r ates, demand and commodity pr ic ing, and statements concer ning the company’s futur e r esults and per for mance that ar e for ward-looking statements within the meaning of the Pr ivate Secur ities Litigation Reform Act of 1995. Some of these for ward-looking statements can be identified by the use of for war d-looking terminology such as “expects,” “may,” “will,” “believes,” “should,” “approximately,” “antic ipates,” “estimates,” and “plans,” and the negative or other var iations of those ter ms or compar able ter minology or by discussions of str ategy, plans or intentions. In par ticular , some of these for ward-looking statements deal with expectations r egar ding the company’s mar kets in the second quar ter of 2006; expected ear nings and per for mance of the company’s business segments dur ing the second quar ter of 2006, demand and pr ic ing for the company’s products in the second quar ter of 2006, stable r aw mater ial and manufactur ing costs in the second quar ter 2006, seasonal incr ease in building activity in the second quar ter of 2006, seasonal incr ease in annual maintenance outages in the second quar ter 2006, incr eased single-family housing c losings in second quar ter 2006, lower land sales in the second quar ter of 2006, the completion of a tr ansaction involving the fine paper business, futur e char ges for stock-based compensation, capital expenditur es, incr eased margins, incr eased utilization r ates and r elated matter s. The accur acy of such statements is subject to a number of r isks, uncer tainties and assumptions that may cause actual r esults to differ mater ially fr om those pr ojected, inc luding, but not limited to: the effect of gener al economic conditions, inc luding the level of inter est r ates and housing star ts; mar ket demand for the company’s products, which may be tied to the r elative str ength of var ious U.S. business segments; energy pr ices; r aw mater ials pr ices; chemicals pr ices; per formance of the company’s manufactur ing oper ations inc luding unexpected maintenance r equir ements; the successful execution of inter nal per for mance plans; the level of competition from domestic and for eign producer s; the effect of for estr y, land use, envir onmental and other governmental r egulations, and changes in accounting r egulations; the effect of weather ; the r isk of loss fr om fir es, floods, windstorms, hurricanes and other natur al disaster s; tr anspor tation costs; legal proceedings; the effect of timing of r etir ements and changes in the mar ket pr ice of company stock on char ges for stock-based compensation; and per for mance of pension investments and r elated der ivatives. The company is also a large expor ter and is affected by changes in economic activity in Eur ope and Asia, par ticular ly Japan, and by changes in curr ency exchange r ates, par ticular ly the r elative value of the U.S. dollar to the Eur o and the Canadian and new Zealand dollar s, and r estr ic tions on inter national tr ade or tar iffs imposed on impor ts, inc luding the counter vailing and anti-dumping duties imposed on the company’s softwood lumber shipments fr om Canada to the United States. These and other factor s could cause or contr ibute to actual r esults differ ing mater ially fr om such forwar d-looking statements and, accor dingly, no assur ances can be given that any of the events antic ipated by the for ward-looking statements will occur , or if any of them occur s, what effect they will have on the company’s r esults of oper ations, cash flows or financial condition .
Steve RogelChairman, President and Chief Executive Officer
Steve RogelChairman, President and Chief Executive Officer
Strategic DirectionPatty Bedient
Senior Vice President, Finance and Strategic Planning
Strategic DirectionPatty Bedient
Senior Vice President, Finance and Strategic Planning
New York City
Portfolio PrinciplesCost of capitalFocused scaleGrowth
New York City
Weyerhaeuser Revenue — 2005
WRECO 13%
Revenue: $23 Billion
Timberlands 5%
WoodProducts41%White Paper 12%
Cellulose Fiber 6%
Containerboard, Packaging
& Recycling20%
Other 3%
New York City
Weyerhaeuser Real Estate (WRECO)
ImplementationRecord growth and returns in existing marketsPortland, Oregon;SacramentoMaracay Homes, Phoenix
Strategic DirectionOrganic growth
Adjacent markets
New markets
New York City
Wood Products — ResidentialImplementation
Refocused value proposition Launched iLevel brand
Strategic DirectionProviding framing solutions to the home building industry
New York City
Wood Products — IndustrialImplementation
Sell Composite PanelsRefocus Southern Hemisphere investments to grow in South America
Strategic DirectionExplore opportunity for scale growth in hardwoods and appearance products
New York City
Weyerhaeuser Revenue — 2005
WRECO 13%
Revenue: $23 Billion
Timberlands 5%
WoodProducts41%White Paper 12%
Cellulose Fiber 6%
Containerboard, Packaging
& Recycling20%
Other 3%
New York City
White PaperImplementation
Closed higher-cost capacity Active discussions with 3rd parties
Strategic DirectionImprove Fine Paper business Evaluate strategic alternatives
New York City
Cellulose FibersImplementation
Aligned capital to strategy• Conversion of
Port Wentworth• R&D investment in new
productsClosed higher-cost capacityImprove mill system performance
Strategic DirectionDifferentiated products
New York City
Containerboard, Packaging & RecyclingImplementation
Optimize supply system to be demand driven and lower cost• Organized around market
segments• Increased integration and
asset utilization by closing high-cost capacity
Improve pricing strategies Align capital with strategy
Strategic DirectionTransform business model
New York City
TimberlandsImplementation
Continue successful business modelContinue to pursue tax legislationEvaluated alternative structures
Strategic DirectionOptimize and grow
New York City
Financial StrategyImplementation
Dividend• Increased by 25% in 2005 Share repurchase • 18 million authorizedMaintain capital spending at less than 80% depreciation
Strategic DirectionReturn capital to shareholders
Disciplined capital program
New York City
SummaryStrategic review delivered a course of actionPortfolio direction is setFocus is on implementation
Strategic Update —Timberlands
Dick TaggartExecutive Vice President,
Chief Financial Officer
Strategic Update —Timberlands
Dick TaggartExecutive Vice President,
Chief Financial Officer
New York City
Timber Update Analysis
● Weyerhaeuser’s Timberlands business
● Industry ownership structures
Issues for transforming into a REIT
Conclusions and next steps
New York City
Weyerhaeuser TimberlandsBusiness selling at market prices to internal and external customersSoftwood sawtimber focus with intensive silvicultureAdd integration value through efficient conversionExtract mineral, oil, gas and development valuesConstantly reposition the portfolio to strategic core Reinvest in highest returning regionsForests managed sustainably and by SFI or CSA
0123456789
1998 2002 2005
Weyerhaeuser Timberlands OwnershipMillions of Acres
Average Log Price
100
200
300
400
500
600
700
800
1998 1999 2000 2001 2002 2003 2004 2005
Export
Domestic(Avg. West & South)
$/MBF
Average log price has remained relatively stable
Weyerhaeuser Timberlands HarvestContinued intensive management of long-term portfolio
2.00
4.00
6.00
8.00
10.00
1998 2002 2005
Millions of CCF
Weyerhaeuser Timberlands Business —Earnings
0100200300400500600700800900
1998 2002 2005
$ Millions
PortfolioOptimization
TimberOperations
New York City
Why Retain Timberlands?We continuously evaluate hold vs. sellDivest when tax-adjusted market values exceed holding values
New York City
Different Ownership Structures for Timber
Private OwnersOrganizations C-Corp REIT Strategic
FinancialDirectPooled
Tax Rate 35% Pass through Pass through
Debt / Leverage Yes Limited Yes
Other Businesses Yes Limited Strategic – Yes Financial – Unlikely
Public Owners
MandatoryDistributions
No Yes No
New York City
REIT Creation IssuesIssues on transition to create value from REIT conversion• Potential tax liability• Impact on remaining businesses• Constraints in implementing strategic plans
New York City
Tax Issues Relative to TimberlandREIT Conversion
REIT conversion would require distribution of accumulated earnings and profits (E&P)
• Required for any path to a REIT structure
• Preliminary estimates of E&P range from $2–$3 billion
• Taxable distribution to shareholders
─Typically 80% has been paid in stock with the remainder paid in cash to cover tax liability
New York City
Tax Issues Relative to TimberlandREIT Conversion (cont.)
Business Purpose Test for corporate reorganizations
• IRS requires valid business purpose beyond lowering tax liability
• Cannot obtain advance IRS ruling• Failure could trigger $3–4 billion corporate tax
liability depending on the value of the timber; also taxable to the shareholder
New York City
Paths to a Timber REIT Structure
Process PrecedenceSpin None in timberSpin / Merge GP / Plum Creek 1996–2001Convert / Elect Rayonier / Potlatch
New York City
Timber Tax EquityTimber tax proposal• 134 co-sponsors in the House; 29 in Senate• Bipartisan support with no opposition
Why it’s best for Weyerhaeuser• Eliminates tax-related value gap at reduced risk• Avoids constraints of growing Timberlands and
other business• Retains financial flexibility to execute corporate
strategy and return cash to shareholders
New York City
ConclusionsTimberlands business continues to be value-creating for shareholdersHighest value-creation is tax reform in the C-Corp structureAt this time, a REIT structure is not the best alternative• Risk of incurring a large tax liability is high • Shareholder tax liability on distribution • Limits ability to execute current strategy — both within
Timberlands business and the companyContinue to monitor value of alternatives as legislative process evolves and strategic actions unfold
Industry Outlook
Lynn MichaelisVice President, Markets & Economic Research
and Chief Economist
Industry Outlook
Lynn MichaelisVice President, Markets & Economic Research
and Chief Economist
New York City
Agenda for Industry Outlook
Macroeconomic setting for forest productsOutlook for• Wood Products• Cellulose Fiber (Pulp)• Containerboard, Packaging and Recycling
New York City
Macroeconomic Setting for Forest Products
Economic growth remains healthyDollar decline resumesU.S. industrial production growth continuesInflation and interest rates move higherHousing starts peak
New York City
Momentum Carries into 2006
0
1
2
3
4
5
1992 1994 1996 1998 2000 2002 2004 2006
Growth in World Real GDPPercent Change
AnnualAMIOT03F
Forecast*
Source: Global Insight, Weyerhaeuser*
New York City
Another Year of 3–4% Growth
0
1
2
3
4
5
1996 1998 2000 2002 2004 2006
Forecast*
Growth in U.S. Real GDPPercent Change
AnnualAMDGA01H Source: BEA , Weyerhaeuser*
New York City
Surge in Consumer Spending Fueled by Housing Refinance Boom
-1
0
1
2
3
4
5
1995 2000 2005
U.S. Personal Savings RatePercent
AnnualAMDOT32D Source: BEA
New York City
Dollar Decline Resumes in 2006
0.7
0.9
1.1
1.3
1.5
1.71998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Forecast*
Eurointroduce
Source: Wall Street Journal, Weyerhaeuser*
Euro Exchange RateU.S.$/Euro(inverse)
QuarterlyQMIEU09F
(X = 5/04)
New York City
Current Account Deficit Got Even Bigger
-8
-7
-6
-5
-4
-3
-2
-1
0
1
1988 1992 1996 2000 2004
Source: BLS
U.S. Current Account Balanceas a Share of GDP
Percent
AnnualAMDOT78D
Q4
New York City
Weaker Dollar and Strong Growth Boost U.S. Industrial Production
-4
-2
0
2
4
1998 1999 2000 2001 2002 2003 2004 2005 2006
Growth in Weighted** Index forU.S. Manufacturing Production
Percent Change
AnnualAMDIP36E
Forecast*
Source: FRB, Weyerhaeuser*
** 80% non-durable; 20% durable
New York City
Inflation Remains Above 3%
0
1
2
3
4
1998 2000 2002 2004 2006
U.S. Consumer Price Index (CPI)Inflation Rate
Percent Change
AnnualAMDIF01F
Forecast*
Source: BLS, Weyerhaeuser*
New York City
Result: FRB Moves Short Rates Higher
0
2
4
6
8
10
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Moody BAA Bonds
3-monthCommercial
Forecast*
U.S. Interest RatesPercent
AnnualAMDIR86G Source: FRB, Weyerhaeuser*
New York City
Easy Money Fueled Housing Boom
0.8
1.0
1.2
1.4
1.6
1.8
1992 1994 1996 1998 2000 2002 2004 2006
Forecast*
U.S. Single-family Housing StartsMillion Units
AnnualAMDHO19N Source: Census, Weyerhaeuser*
Demographic Trend for 2000-10*
New York City
Very Positive Long-term Trends for Single-family Housing Starts
DemographicsAverage home sizeHousing finance: Efficiency and flexibility
New York City
Agenda for Industry Outlook
Macroeconomic setting for forest productsOutlook for• Wood Products• Cellulose Fiber (Pulp)• Containerboard, Packaging and Recycling
New York City
Key Drivers for Lumber
Demand primarily driven by residential construction —new and remodeling• Limited substitution
Supply is more complex• Timber supply • Canadian delivered costs• Limited offshore competition
New York City
Another Record Demand Year in 2005
50
55
60
65
70
75
80
1988 1991 1994 1997 2000 2003
Demand
Capacity
Demand on North American Lumber Millsvs. Capacity
Billion Board Feet
AnnualAWDNALGD01E Source: RISI
New York City
Substitution Was Wood for Wood
0
2
4
6
8
1995 2003
Lumber
EngineeredWood
Lumber Usage inU.S. Single-Family HousingBoard Feet/
Square Feet
AnnualAWDG32C Source: NAHB Housing Survey
New York City
U.S. Lumber Output Keeps Growing
8.8 9.7 11.8
6.6 6.66.6
15.8 16.718.6
3.1 3.03.4
0
10
20
30
40
50
2001 2003 2005
34.336
40.3
U.S. Lumber ProductionBillion Board Feet
AnnualAWDUSLGP10F Source: WWPA
West Coast
South
Other
Inland
New York City
U.S. Imports in Perspective
U.S. Softwood Lumber Imports (Billion Board Feet)
2002
2005 2005
Share (%) Canada 19.1 21.5 34 Europe 0.6 1.4 2 South America 0.6 0.7 1 Other 0.6 0.9 1 _____ _____ ___ Total 20.8 24.5 38
Source: RISI
New York City
Crucial to U.S. Lumber Price Outlook
0.60
0.70
0.80
0.90
1.002000 2001 2002 2003 2004 2005 2006 2007
Forecast*
Canadian Exchange RateU.S.$/C$(inverse)
QuarterlyQMICA09F Source: Wall Street Journal, Weyerhaeuser*
(X = 5/04)
New York City
Exchange Rate Offset Operating Improvements
Production Costs for Average B.C. Interior Mill ($/MBF)
2002 2005 Q4 Mfg. Cash Cost (C$) 291 275 Exchange Rate (C$/USD) 1.57 1.18 Mfg. Cash Cost (USD) 185 234
Source: RISI
New York City
Prices Approached Cost Floor in Late 2005
100
150
200
250
300
350
400
450
2001 2002 2003 2004 2005 2006 2007
Source: RISI Mill Survey, Random Lengths
(X = April)
Reported Random Lengths
Estimated Mill Net Cost Support
in 2005Cost Support
in 2002
Spruce-Pine-Fir 2x4 Lumber Price$/MBF
QuarterlyQWDCLP07E
New York City
Tentative Agreement Was Reached April 27, 2006
Only rough structure of the deal is known, 2-3 months before full detail and agreement takes effectMost of accrued duty will be returned to producers — 80% to Canadian producers
New York City
Tentative Agreement Was Reached April 27, 2006
Only rough structure of the deal is known, 2-3 months before full detail and agreement takes effectMost of accrued duty will be returned to producers — 80% to Canadian producersStructure is a combination of export tax and volume restriction, where province can choose an option• Option A: allows shipment of up to 34% of U.S. market
and sliding export tax tied to lumber price• Option B: has lower export tax than Option A but has
progressively smaller market share as price declines
New York City
Tentative Agreement Was Reached April 27, 2006
Only rough structure of the deal is known, 2-3 months before full detail and agreement takes effectMost of accrued duty will be returned to producers — 80% to Canadian producersStructure is a combination of export tax and volume restriction, where province can choose an optionBottom line: 10-15% export tax at cyclic bottom
New York City
U.S. Prices Track SPF Prices
200
250
300
350
400
450
500
1995 1997 1999 2001 2003 2005 2007
Douglas Fi GreenSpruce-Pine-Fir
Douglas Fir 2x4 Green vs.Spruce-Pine-Fir 2x4 Mill Lumber Price
$/MBF
QuarterlyQWDWLP06A
(X = April)
Source: Random Lengths
New York City
Reflects Lumber Prices and New Capacity
400
500
600
700
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Douglas Fir/Domestic No. 2 Sawmill,Western Oregon and Washington
$/MBF
QuarterlyQTLP24A Source: Log Lines
(X = April)
New York City
Key Drivers for Oriented Strand Board (OSB)Demand primarily driven by new residential constructionSubstitution for plywoodNew capacity growth continues
New York City
Demand Pressed Capacity Limit in 2003–05
10
15
20
25
30
1995 1997 1999 2001 2003 2005
Capacity
Demand
Source: RISI
North America OSB Demand vs. CapacityBillion Square Feet
AnnualAWDNAPGD38G
New York City
Keeping Prices High
0
100
200
300
400
500
1999 2000 2001 2002 2003 2004 2005 2006 2007
N.C. Oriented Strand Board 7/16" Price$/MSF
QuarterlyQWDPNLP04E
April
Source: Crow's
New York City
Costs Reflect Energy, Resin and Exchange Rates
Variable Cost for an Average OSB Mill* (7/16”, $/MSF)
2002 2005(e) % Change
U.S. South 116 144 24
Eastern Canada 88 140 59
* Based on RISI Survey Data
New York City
Engineered Products Demand Continues to Grow
0
500
1000
1500
1996 1998 2000 2002 2004
North America I-Joist DemandMillion Lineal Feet
AnnualAWDG27G Source: RISI
New York City
Agenda for Industry Outlook
Macroeconomic setting for forest productsOutlook for• Wood Products• Cellulose Fiber (Pulp)• Containerboard, Packaging and Recycling
New York City
Key Drivers for Cellulose Fiber (Pulp)
Global Market: Demand growth near 3%• Economic growth• China shift to wood pulp continues• Tissue and fluff end-uses
New York City
China Demand Growth Averaged 20% per Year for 2000–05 Period
0
1
2
3
4
5
6
2002 2003 2004 2005
SoftwoodHardwood
China Imports of Bleached Kraft PulpMillion Metric Tons
AnnualAPLOTG49A Source: Weyerhaeuser
New York City
Fluff Market Growing 3–4% per Year
0
1
2
3
4
2000 2005
Fluff Market Pulp Consumptionby Region
Million Tons
AnnualAPLOTG02F
Rest of World
Rest of Asia
Japan
Europe
North America
Source: Weyerhaeuser
New York City
Key Drivers For Cellulose Fiber (Pulp)
Global Market: Demand growth near 3%Capacity / operating rate• Exchange rate is critical to price outlook• Continued expansion in hardwood capacity
New York City
Scan Costs Higher in U.S. Dollar Terms
0
100
200
300
400
500
600
2002 2005-06
U.S.CanadaSweden
Typical Mill
$/Tonne
APLOTP84A
Source: Weyerhaeuser
Manufacturing Costs for Bleached Softwood Kraft Pulp
New York City
Softwood Capacity Declines in 2006
-2
0
2
4
6
8
2003 2004 2005 2006
Softwood Hardwood
Change in World CapacityBleached Softwood vs. Bleached Hardwood
Percent Change
AnnualAPLOTG51F
Estimated*
Source: PPPC, Public Announcements*
New York City
Pulp Prices Reflect Demand and Exchange Rates
300
400
500
600
700
800
2000 2001 2002 2003 2004 2005 2006 2007
NBSKPEucalyptus
(X= April)
NBSKP vs. EucalyptusDelivered Northern Europe
$/Metric Ton
QuarterlyQINDP05A Source: RISI
New York City
Agenda for Industry Outlook
Macroeconomic setting for forest productsOutlook for• Wood Products• Cellulose Fiber (Pulp)• Containerboard, Packaging and Recycling
New York City
Key Drivers for Containerboard, Packaging and Recycling
Nondurable industrial production Capacity / operating rate crucial to pricesNew factor for OCC prices: Energy costs for OCC plants
New York City
Box Shipments Track Industrial Production
-1
0
1
2
3
4
1993-1997 1998-2003 2004-05
Industrial ProductionBox Shipments
Weighted* Industrial Production andAnnual Growth of U.S. Box ShipmentsAverage Annual
Percent Change
ACBBXG82L Source: Fibre Box Association, FRB
* 80% non-durable; 20% durable
New York City
No Capacity Growth Since 1997
-1
0
1
2
3
4
5
1993-97 1998-2003 2004-05
U.S. Containerboard CapacityAverage AnnualPercent Change
AnnualACBOTG10H Source: AF&PA
New York City
Results in Another Very Tight Year
80
85
90
95
100
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Containerboard Operating RatePercent
QuarterlyQCBOTG09E
Tight Market
Source: AFPA
New York City
The Bottom Line: Box Prices Will Follow
48
50
52
54
56
58
60
2000 2001 2002 2003 2004 2005 2006 2007340
360
380
400
420
440
460
480
500
520
Box (left)Liner (right)
U.S. Corrugated Box Price vs.Eastern U.S. Linerboard PriceBox
$/MSFLiner
$/Short Ton
QuarterlyQCBOTP01A Source: RISI and FBA
April
New York City
China’s OCC Demand Continues to Grow
0
2
4
6
8
10
1996 1998 2000 2002 2004
TotalFrom U.S.
Source: EU Consulting, China Foreign Trade Report
China OCC ImportsMillion Metric Tons(Annual Rate)
AnnualARCOCCG14A
New York City
Why Did OCC Prices Fall?
0
20
40
60
80
100
120
1999 2000 2001 2002 2003 2004 2005 2006 2007
Recovered Paper OCC Price (Grade 11)(F.O.B. Packing Plant) (Chicago)
$/Short Ton
QuarterlyQRCOCCP16B Source: Official Board Markets
April
New York City
Energy Cost Increase Hit OCC-Based Plants
0
50
100
150
200
250
300
2003-04 Virgin 2005.4 Virgin 2003-04 Recycle 2005.4 Recyle
EnergyOther ManufacturingFiber
Comparison of Virgin* vs.Recycled* Plant CostsManufacturing Cost
$/SWT
ARCOCCP14C* Lower cost millsSource: Weyerhaeuser
New York City
Summary of Key Messages
Overall economic growth remains strong, but inflation and interest rates move higherHousing and wood products enter cyclic declineHigher delivered cost for Canadian lumberModest cycle in U.S. timber values Pulp prices benefit from exchange rates and improving operating rateContainerboard and packaging markets do very wellOverall message: normal shift near cyclic peak of economy
WRECO and iLevelDan Fulton
President, Weyerhaeuser Real Estate Company
WRECO and iLevelDan Fulton
President, Weyerhaeuser Real Estate Company
New York City
Weyerhaeuser Real Estate CompanySingle family homebuilding• Retail business — sell direct to final customer• Local / regional focus• Operate in select markets
Builder finance • Investment manager of and investor in
development financing for mid-sized homebuilders
New York City
Business Definition
WRECO
WRI
Quadrant
Trendmaker
Winchester
Maracay
Homebuilding
Builder Finance
Pardee
New York City
Business Definition —WRECO Operations
Office Locations
Maracay
Pardee
Quadrant
Trendmaker
Winchester
New York City
Business Definition
WRECO
WRI
Quadrant
Trendmaker
Winchester
Maracay
Homebuilding
Builder Finance
Pardee
New York City
Business Definition
WRECO Land Strategy
Most of our markets are land constrainedIncreasing regulation extends elapsed time for entitlements Land managed as “just in time”whenever possibleCurrent Lot Pipeline 5.7 years’ sales • 45% of lots are owned
Increasing use of land option contracts • Limits risk and upfront capital requirements
WRECO Land Strategy (cont.)
Selling land is part of our businessDisciplined focus on ROI• Optimizes balance
between margin and asset turnover
WRECO Growth Roadmap
Organic Growth (Base Case)
Adjacent Markets
New Markets
Market Penetration
New Products
New Brands
Adjacent Markets
Leverage Brand Equity
Leverage Existing Management
Acquisition
Start-up
Incremental Investment in Existing Markets
Condominiums, Age-Restricted
Camberley Homes
Portland, OR. (Quadrant)Northern California (Pardee)
Phoenix (Maracay Homes, Feb 2006)
Organic growth is the Base Case for our growth strategyStrategic Direction Implementation
New York City
WRECO Is Positioned to Succeed
Long-term favorable outlook for single-family housing WRECO is a top performer• Select markets• Proven land strategy• Experienced management team• Focus on financial performance• Leading financial results
Linkage to Weyerhaeuser
New York City
Homebuilding Industry Continues to Evolve
Homebuilder consolidation
Market demanding higher quality and more efficient solutions
Homebuilder adoption of innovative building methods• Regionally distinct construction methods• Shortage of qualified labor
Expectations for future margins
New York City
Homebuilders Continue to Consolidate
0
5
10
15
20
25
30
35
40
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Top 100 – 37%
Production Builder Market Share% of total closings
Source: Builder Magazine
Top 10 – 21%
New York City
Key Advantages of Large Homebuilders
First look at land and partnership dealsProduct and geographic diversityStrong balance sheetsScale to leverage processes and supply agreementsExpertise to underwrite, control and process land Attract and retain high talent work forceGreater relative investment in technology
New York City
Weyerhaeuser is a Leading Producer of Residential Building Materials
2005 Total 3rd-Party Sales = $9.4 Billion
Softwood Lumber 39%
Engineered Lumber Panels18%
Oriented Strand Board12%
Plywood / Veneer8%
Other Products23%
Is Positioning for the Future
Integration: 5 businesses into 1Innovation: Driving profitability of our customersInteraction: Transforming the way we do businessInformation: Increasing the transparency of data
New York City
Value Proposition Overview
Products and services aimed at the residential market segment• Improve efficiency of
design process • Optimize the structural frame• Reduce jobsite waste and
call-backs• Compress the build cycle time
Improve coordination across the supply channelBalance common processes with unique regional needsCapture the full value of Weyerhaeuser integration
New York City
Directed at the “Sweet Spot”of Homebuilders’ Cost
Source: Professional Builder Magazine, May 2006 (average of 6th -31st largest builders)
Land and related22%
Marketing/Advert.6%
Overhead6%
Financing/other2%Profit
16%
Materials & Indirect
28%
Construction Labor20%
New York City
Strategic Validation
Many builders have not yet implemented practices to promote efficient distribution operationsLarger builders are early adopters, but have difficulty implementinginnovative practices companywide
Builder performance can be improved by adopting innovative product and distribution practices
Harvard University, Joint Center for Housing StudiesKey Findings: Homebuilder Distribution Study, 2005
0
20
40
60
80
100
Current Sales 2010 Sales
Expected Benefits
Proprietary Product,Solutions and Whole House
Service Differentiated
Commodity
%
Mar
gins
<8%
>20%
New York City
Is All About Anticipating Change
“You need to skate to where the puck is going to be.”
Wayne Gretzky(and Lee Alford, Senior Vice President,Residential Wood Products)
New York City 102
Operating Excellence and Margin Improvement
Rich HansonExecutive Vice President,
Chief Operating Officer
Operating Excellence and Margin Improvement
Rich HansonExecutive Vice President,
Chief Operating Officer
New York City 103
TimberlandsGenerating higher returns through• Intensive
silviculture• Aggressive
portfolio management
New York City 104
Operating Excellence andMargin Improvements
Leveraging scale and capability to reduce cost• Transportation• Inventory management• Procurement
Demand driven • Separating marketing / sales from supply• Optimizing supply system to meet demand at
lowest cost
Wood ProductsPrior Strategy
Production orientationProduct focus
Multiple sales forcesDistinctive product orientation with multiple brands
iLevel StrategyDemand drivenResidential structural frame focusSingle point of contactInnovative product and service solutions for the builder• Floor, wall, roof• Whole house design• Technology enabled
Containerboard PackagingPrior Strategy
Individual box plant driven
New StrategyMarket segments established as profit centers
Integrated supply organization delivers against demand at the lowest cost
Leveraging scale
Containerboard Packaging Facilities
Mexico
North Central Region / 5 Zones
Warren
ThreeRivers
Belleville
St. Joseph
Omaha
Waterloo
Cedar Rapids
White Bear Lake
Austin
Manitowoc
Chicago
Aurora,Montgomery
Rockford
Fridley
Maryland Hts.Kansas City
Lincoln
St. Paul
Containerboard Packaging Facilities
New York City 109
Containerboard Strategy BenefitsBetter box plant utilization• 76% today, moving to 90%
Capital spending focused on cost reduction and asset optimization• 80% of depreciation
Improved margins and higher returns• Higher productivity• Lower costs• Centralized approach to pricing• Technology solutions for key markets
New York City 110
Improving ReturnsDemand-driven strategiesLeveraging our scale• Asset utilization matched to demand• Improving productivity and reducing costs
Effective capital deployment
New York City 111
Financial PrioritiesDick Taggart
Executive Vice President, Chief Financial Officer
Financial PrioritiesDick Taggart
Executive Vice President, Chief Financial Officer
New York City 112
Financial PrioritiesPriorities for free cash flow• Return capital to shareholders • Selective growth
Maintain operating capital spending discipline
WeyerhaeuserCompany
Annual Analyst Meeting
Steve RogelChairman, President and
Chief Executive Officer
WeyerhaeuserCompany
Annual Analyst Meeting
Steve RogelChairman, President and
Chief Executive Officer