I’d like to start my formal remarks by bidding a special welcome to 50 customers of our residential wood products business. You’re true VIP’s and we are committed to earning your business every day. Please stand to be recognized.
(Applause)
Weyerhaeuser began operations more than a century ago, in 1900. That same year, the first hamburger was flipped in Connecticut, the first-ever automobile show opened in New York, and a Norwegian inventor demanded a patent for his new invention, the paper clip.
Like hamburgers, cars and paper clips Weyerhaeuser is still here 106 years later — but no longer are we just a small timber operator in the Pacific Northwest. By size, scale, breadth and reputation we are recognized as a global leader in the forest products industry.
This is the ninth year I’ve enjoyed the privilege of speaking to Weyerhaeuser shareholders. I’ve often invoked our history as we focus on business and market dynamics that are reshaping our industry. While the pace and intensity of change is unabated, Weyerhaeuser continues to transform in ways consistent with our heritage. In the midst of tumultuous change some things remain constant: timberlands are the nucleus of this company, and our commitment to enhancing value for shareholders is as strong as ever.
Weyerhaeuser’s storied history reveals a case study in successful growth, ethical business practices and continuous innovation in forestry and product development. We’re built on a foundation of sound financial management. We demonstrate the effective integration of significant acquisitions.
We define excellence in forest and environmental stewardship, corporate performance and accountability. Our longevity validates the success of thoughtful strategic planning that precedes the execution of bold measures. All pointed toward the goal of creating both short and long term shareholder value.
Even as we honor Weyerhaeuser’s past and all it has taught us, we live in the present and we plan for the future.
Weyerhaeuser embraces constant renewal to meet the ever-changing needs of customers, shareholders, communities, employees and suppliers. We are not a company that dwells on where it has been. Rather, we are a company that understands the power of vision, strategy and execution to create our future.
Our businesses compete internationally and our strategy embraces scores of trends, drivers and markets. There are many moving parts to consider — market dynamics, economic uncertainties, manufacturing variables, tax issues, environmental debate and controversy.
There are many critical decisions to make. But there is no simple solution that can resolve all issues.
Constant change and transformation is now imbedded in the Weyerhaeuser DNA — we’re hard wired to move with the markets, ahead of those who do not see that in change there is opportunity.
So what has been the nature of our change over these past nine years? How has Weyerhaeuser transformed?
From our roots in the Pacific Northwest we’ve grown to manage 34 million acres of timberland in five countries. We are major producers of softwood, hardwood and engineered lumber. In North America we’re one of the largest producers of structural panels, and one of the largest distributors of wood products. In the U.S. we are major homebuilders.
We produce cellulose fiber, containerboard packaging and fine paper for North American and global markets. We have moved to South America where we see a bright future in sustainable forest growth.
For over one hundred years we’ve responded to changing stakeholder expectations. We have driven technological innovation that uses every part of the tree. With each decade of development we manufacture straighter lumber, stronger and more versatile engineered products, and more absorbent pulp fiber. We incorporate more recycled materials and we use byproducts to make energy.
Just as customer and consumer expectations have changed, so have investor expectations.
From the earliest days of family ownership we focused on creating long-term shareholder value. Today, we face one of our greatest challenges. Capital markets have evolved and today’s investor expectations reflect shortened planning horizons.
All of us in this room who are planning for our retirements play a role in why these expectations have shortened.
Let me explain. When you retire, you will rely on three sources of income.
The first is Social Security. The government takes care of funding and supporting that program.
The second is your pension. That’s up to the company to fund. I know a lot of you are interested in how we’re doing and I’m pleased to say that our fund is rock solid, and has achieved industry leading results for the past two decades.
The third is your 401(k), and this is where today’s investment pressure plays a role.
As with most companies of our size, the majority of our shares are held by institutional shareholders who manage the holdings of many individual investors. If you invest in mutual funds through your 401(k), you’re one of people who benefits from how institutional shareholders manage their investments.
As a person planning for their retirement, you want these managers to create a diversified portfolio that produces maximum investor value — something they have done consistently.
But this expectation by individuals has a dramatic effect upon Weyerhaeuser and the returns we are expected to produce.
When our stock is held in an institutional portfolio, it must play its role in fund-management strategy to deliver the best possible investor returns. The timeframe is far shorter than the rotation cycle of even our fastest-growing trees. We are fortunate that our large shareholders understand our cyclical industry and its businesses.
But in a world that places ever-greater emphasis on “what did you do for me today?”, institutional investors face constant pressure to produce immediate results. That is the reality of today’s Wall Street. If we expect to attract and satisfy the owners of capital, we must meet those expectations.
The influence of shareholders — the owners of the company — has never been greater, and they are often catalysts for positive change. As a result, we are driving improved business returns and safety performance — function by function, asset by asset, and business by business. While maintaining the long term perspective that has been instrumental to our success, we are working hard to restructure our portfolio to enhance shareholder value in the near term. We are determined to deliver improved profitability, but not in a manner that compromises the health and vitality of the enterprise.
Everyone — our Board, senior managers, and indeed our whole workforce — understands the challenge we face in capital markets, and we work shoulder-to-shoulder to address it. In 2005 we took significant actions to realign our assets — closing or selling mills and divesting whole businesses that are not core to the company. These are not the last changes we will make. We can never stop being strategically driven.
In timberlands, residential wood products, and real estate we are implementing strategies to maintain and build on our position of leadership.
Global forest production is extending from the northern hemisphere to the southern. In response, we are diversifying our timberlands base — focusing on South America. This strategy will accelerate.
North American fine paper and pulp producers are facing high production costs, declining demand and excess manufacturing capacity caused by electronic substitution and the arrival of the paperless office.
A different trend is affecting containerboard. As manufacturing shifts offshore, domestic demand for containerboard demand has declined. In these businesses we’re taking urgent and decisive action to rationalize, and to improve performance and our returns.
We’re focusing our asset portfolio. We’re going to market in new and different ways. We’re exiting businesses or mills that are not strategic.
We’re implementing these strategies with deliberation, urgency and speed that is consistent with sound management practice. The imperative is to be more profitable, to be more focused.
Change has been a constant in the industry for as long as I can remember. When I look back in history the other constant is trees — or rather abundant, growing and well managed forests. Fly low over the Pacific Northwest or the southeastern states and you will see countless industrial sites that have been replaced by newer, larger facilities, often for different kinds of forest products.
But the trees are there, decade after decade, harvest after harvest — planted to be harvested again — each time in a better, sustainable way.
Many shareholders tell us they hold Weyerhaeuser shares because of our well-managed timberland assets. Weyerhaeuser knows timberlands — this is a core competency of the company.
When you invest in Weyerhaeuser you invest in a legacy and reputation for high quality timber, environmental leadership and social responsibility.
But we confront not only changes in product markets, capital markets and timber production. Today, our industry faces a different kind of challenge created by United States tax law.
Timber gain for individuals is taxable at 15 percent in some tax-advantaged structures, while gains for corporations like Weyerhaeuser are taxed at 35 percent — more than two times as much.
This major gap in tax rates has contributed to many companies either selling off or restructuring their timberlands. Much of the U.S. industry has been transformed as a result: timberlands are now routinely separated from manufacturing plants, and put into these lower-tax entities.
In recent months Weyerhaeuser has strongly supported U.S. forest industry efforts to implement tax law changes to create equitable tax treatment for U.S. timberland no matter who owns the asset.
Looking ahead, with timberlands it is not a question of how we manage it, but how we own it. With our businesses, it is not a question of growing or shrinking, but how we focus on the best mix of products, markets, mills and expertise to leverage our strength and maximize shareholder return in a changing world.
When you arrived this morning you saw even more visible evidence of dynamic change at Weyerhaeuser. I am sure you could not help but notice the bright-green banners marking the launch of iLevel, the new brand for our residential wood products business. But iLevel is much more than a new brand.
It is a new, innovative way of doing business. We will lead this market, not follow it.
We have completely restructured our wood products organization. Where once we had four separate businesses we are now one — one voice, one way of doing business, one focus on the customer. We are uniquely positioned with the best timberlands, the right products and a strong unified team to lead the market.
iLevel does not rely on the strength of just one product. We offer full range of industry-leading products, technology and manufacturing, backed up by builder service and dealer support to provide a unique “whole house” capability to our customers.
We now provide valued-added, integrated solutions for homebuilders that reduce cycle time and eliminate cost from the building process. We’re working closely with builders to create new applications for wood products.
We’re doing things faster, better, simpler and smarter for home builders and building materials distributors. iLevel is more than just building materials, support and services. The iLevel promise is home-building solutions.
This is my fifth decade in the forest industry. The magnitude of change and excitement I see in iLevel represents one of the most profound transformations I’ve ever witnessed.
Let me share with you a short video about iLevel and why it will make Weyerhaeuser the industry leader in structural frame building.
(iLevel video runs)
The iLevel transformation touches almost half of our company. Is the corporate transformation complete? Are the changes over? Not by a long shot.
Our containerboard and recycling businesses are also transforming to become demand-driven and customer focused. We’re introducing integrated supply chain management across all of our businesses to maximize efficiency and optimize the use of resources and business support.
But as we look ahead, we are also mindful of the challenges coming from beyond markets and timberlands, from beyond Wall Street and Pennsylvania Avenue.
These challenges come from Main Street. We cannot compete globally unless we are firmly rooted locally.
Through our longstanding relationship with forests and the land, Weyerhaeuser has created an enduring relationship with people and communities in many regions of North America.
Our businesses operate where trees grow — often in rural areas where our employees are also the only people next door. These are our Main Street neighbors. We recognize that we cannot succeed without their labor, their loyalty and their support. We are proud of our heritage and our roots.
We recognize that some of the changes reshaping the company can profoundly impact Main Street, too. When uncompetitive mills are closing we provide as much advance notice as possible. We support affected employees with transition measures. Where possible, we identify opportunities elsewhere in the company.
Just as we are committed to delivering consistent and competitive financial returns to our shareholders, we honor our social contract with our employees and communities to be responsible corporate citizens.
Environmental stewardship is another cornerstone of Weyerhaeuser values.
An announcement will be made today in Edmonton, Alberta regarding a $1.25 million boreal wetlands conservation project in which Weyerhaeuser is partnering with Ducks Unlimited Canada.
The scope of the project includes developing a watershed conservation plan that will protect wetlands, provide data about important nesting areas for tens of millions of migratory birds, and further develop best forest management practices.
This is in addition to the $1 million that Weyerhaeuser contributed to the University of Alberta over the past five years for caribou habitat research. This commitment was backed up by a forest management strategy to retain stands of older forests in areas defined as caribou range.
We are also funding numerous watershed research and management projects in South America, and in other regions of North America where we have timberlands operations.
These initiatives demonstrate our commitment to advance environmental performance, along with our willingness to partner with environmental organizations, conservation groups, universities and government agencies to achieve goals that none of us could achieve alone.
We begin with the nucleus of our timberlands and our innovation in forest management and leadership in environmental stewardship. We add the strength of our manufacturing assets, the skills of our people and vitality of our communities. The sum is a company positioned to compete successfully both in North America and in global markets for forest products.
This morning I would like to recognize several important milestones. In February, Bob Herbold retired from the Board. I want to acknowledge and thank Bob for his counsel and his outstanding contribution to Weyerhaeuser during his seven years as a Director.
The Senior Management Team also experienced change this past year.
Bill Corbin retired earlier this year, and general counsel Bob Dowdy just announced his retirement. Both had distinguished careers; both made outstanding contributions to Weyerhaeuser.
The Senior Team was joined by Craig Neeser, who became senior vice president Canada; and by Patty Bedient, who was appointed senior vice president, Finance and Strategic Planning. Sandy McDade took on a new role as senior vice president, International and Industrial Wood Products.
Earlier this month, George Weyerhaeuser, senior vice president Technology, began a two year secondment to the World Business Council on Sustainable Development in Geneva, Switzerland.
And finally, Ken Khoury recently joined the Senior Management Team as our new General Counsel.
On behalf of the Board and the Senior Management Team, I would also like recognize our 50,000 employees, nearly a third of whom are associates on the proud new iLevel team. You work with dedication and resolve to deliver results for our shareholders. We appreciate the contribution each of you makes to the success of the company.
I also want to thank all of our shareholders and bondholders for investing in Weyerhaeuser and for the confidence they have in us to create value on their behalf.
Before closing, I want to share one more important milestone of 2005.
Last year on a very windy May 18th a large group gathered near Mount St. Helens to commemorate the 25th anniversary of its eruption. On that day, Weyerhaeuser launched a one-year, company-wide effort known as “Project Habitat.”
In partnership with the president of Habitat for Humanity, and in the presence of the U.S. Secretary of Agriculture and the governors of Washington and Oregon — and more than 300 of our closest friends — on behalf of Weyerhaeuser I pledged $1 million in wood products and Weyerhaeuser Company Foundation funds to Habitat for Humanity. Our goal was to build at least 25 new homes for families-in-need, living in communities where we operate all across North America.
As we surveyed the mountain that day it was difficult to believe that it was only 25 years ago when forestlands around Mount St. Helens were devastated by the eruption. Weyerhaeuser replanted more than 45,000 acres, and those 18 million seedlings have grown to become 70-foot-tall trees.
Last year we began commercially thinning those trees to make room for additional growth. At least one piece of lumber from this thinning process is built into not 25 Habitat homes — but 32 homes.
Project Habitat was an opportunity for Weyerhaeuser people in the U.S. and Canada to partner with Habitat for Humanity, suppliers, customers and friends — to build homes, change lives, renew communities, and demonstrate the value of managed forests.
Today we have a short video to share this story of return and renewal, and the citizenship of 1200 dedicated employee volunteers.
(Habitat video runs)
It is a privilege for me to lead this great company — this company transformed over more than a century, this company that is still transforming.
Our management team, our employees and associates thank you for your confidence in our vision, leadership and stewardship. Thank you for your investment in the assets and the people of Weyerhaeuser.
