Good evening. It's my pleasure to be here tonight.
I've always respected the rich history of Astoria and Clatsop County.
It may have been Lewis and Clark or John Jacob Astor who first
envisioned the possibilities for this area, but people like you have made
it into a community.
From dugout canoes … to fishing
boats to logging trucks … your industrious heritage stands as a testament
… to your work ethic and your sense of community. The people I've known
with roots in Clatsop County know how to get a job done. You understand
business … and you recognize opportunity and possibility.
You
also demand accountability and involvement from your business partners.
I know this to be true … because I've heard from a good number of you as
Weyerhaeuser completed the acquisition of Willamette.
I
understand your concerns – and I hope to address them in my remarks tonight.
Specifically … I'd like to focus on why the acquisition
of Willamette by Weyerhaeuser makes sense for both companies and Oregon
… and also how the integration is proceeding.
In addition,
I will outline Weyerhaeuser's expanded presence in Oregon and talk about
what we see for the future – the future for Weyerhaeuser in Clatsop County
… in Oregon … and in the global marketplace.
Let's begin
with why the acquisition makes sense:
It's true that
Willamette was a remarkably successful … mid-size company. Willamette took
a focused, no-frills approach to manufacturing.
What
they did, they did well and at low cost.
But the winds
of change – for Willamette and the entire industry – have been gaining force
for some time.
Like a Tsunami crashing the Pacific coastline,
consolidation and globalization have been sweeping the business landscape.
It’s my belief – and the belief of many in the investment community
– that, when the storm subsides, only about ten major players and a few
small, niche operators will survive.
The “tweeners”
– the mid-size companies like Willamette – will disappear.
But
why?
You can help answer this question by raising your
hand if you’ve ever shopped at: Costco … Staples … Office Depot … OfficeMax
… Lowe’s … The Home Depot … Fred Meyer … Walgreen’s.
My
point is that – like it or not – much of the commerce in North America is
gravitating to large chains.
Who’s to blame for this
trend? As in the comic strip Pogo: “We have met the enemy … and they are
us.”
As consumers, we demand the large selection and
the low prices these chain stores can provide.
Now imagine
you’re a company like Weyerhaeuser in this changing environment:
- You need to make strategic decisions that will serve
your shareholders, your customers and your operating communities.
- You need to understand what's happening with the rest of the world
– and you must adapt.
- You need to grow bigger so you
can provide everything the customer wants – when and where the customer
wants it.
And what is it that large customers
want from their suppliers? They want:
- Product
availability and selection … with a choice of unique features.
- Just-in-time delivery over large geographic areas – often national
or greater.
- Consistent quality across their entire
system.
- Electronic transactions to lower their costs.
- The ability to manage their inventory across the entire chain.
And they prefer to do business with only a handful
of suppliers – sometimes a sole operator – for an entire group of products,
such as wood or paper.
So you see, size is critical
to supplying the large chain stores that dominate business today.
But merely getting bigger is not the answer – which is why you
don't see Weyerhaeuser building new plants.
The forest
products industry today is fragmented and "over-supplied." There are too
many operators – too much wood, too much paper – in the marketplace.
The industry as a whole needs to balance supply with demand, so
companies can provide a competitive return to shareholders.
In
fact, analysts almost uniformly agree that our industry must continue to
consolidate – to be viewed as an attractive choice for investors.
For Weyerhaeuser, the answer is growth through acquisition because
it positions us to help balance capacity with demand. We can stem capacity
where it's not needed – while using our most cost-efficient facilities to
supply customers worldwide.
Let me give you two examples
of how the Willamette acquisition is already paying off in terms of serving
large customers.
Early this year, Weyerhaeuser won all
of the corrugated box business from Tyson Foods. Tyson bought from mid-size
suppliers until the company acquired new businesses, growing into a 23-billion-dollar
company.
You probably associate the Tyson name with chicken.
Since their acquisition of beef and pork processing companies, Tyson now
refers to itself as a “purveyor of protein.”
And it's
a purveyor of significant proportion. Tyson’s account represents about two
percent of the entire corrugated-box business in the United States. That's
a bundle of boxes!
To adequately supply Tyson, we expected
to spend 25 to 30 million dollars to upgrade eight Weyerhaeuser facilities.
Then came the Willamette acquisition. The added geography
and capabilities of the Willamette plants enabled us to reduce freight …
use assets more efficiently … and reduce the amount of capital required
by 10 to 12 million dollars.
Now that's synergy!
Here’s another example:
Willamette sold lumber
through middlemen. This offered some advantage, but it typically resulted
in lower returns on lumber sales.
Weyerhaeuser's distribution
system enables us to flow lumber from former Willamette sawmills – including
the mill at Warrenton – directly to The Home Depot, one of our largest customers.
The results?
For Weyerhaeuser, the return is
higher because there's no middleman.
For Home Depot,
the benefit is in a larger volume of quality product from a single supplier.
And for consumers, lumber from Warrenton is now on the
shelf at Home Depot stores in the Puget Sound area.
Lumber
from Warrenton is also flowing to Home Depot in the Midwest – another shining
example of the good work the two companies can do together.
So
the acquisition makes sense because it positions the new company as an ultra-competitive
force in a consolidating marketplace … and because investors believe that
large, efficient companies have the ability to offer greater returns to
shareholders.
And there's more:
- Willamette and Weyerhaeuser assets and operations make a “hand-in-glove”
fit. The combined company is number one, two or three in the world – in
private forest ownership … lumber, engineered wood products, and structural
panels … softwood market pulp … packaging and fine paper.
- The
combination of Weyerhaeuser and Willamette creates the opportunity to use
our assets better and to lower costs. We predicted 300 million dollars in
annual synergies at the end of three years … and we are on our way to achieving
these cost savings.
And the lion's share
of these savings are related to raw materials, transportation, and manufacturing.
Let me provide you a local example of a synergy that involves raw
materials, transportation and manufacturing. The opportunity is trucking
large hemlock logs from our Washington timberlands to our new Warrenton
sawmill here in Clatsop County … just 50 miles away. Formerly, we had to
haul hemlock to mills much further away, with higher transportation costs.
Willamette had the opposite problem.
Any
small logs they harvested from the North Coast were trucked 200 miles to
the Willamette sawmill in Coburg.
Now we truck the small
logs to our mill in Raymond, Washington, and the larger logs to Warrenton
– all at a significantly lower transportation cost.
And
don't worry about Coburg. Logs from Weyerhaeuser timberlands in Lane County
are now flowing to this modern, high-speed mill.
At
this point, the integration of the two companies is legally complete … and
the transition to operating as one company is proceeding smoothly. Our new
leadership structure is set … and most of the consolidation decisions have
been made.
The Willamette employees are as good as we
expected – no surprise to me – and they are melding well with the Weyerhaeuser
workforce.
We're capturing the best of both companies
… with a focus on simplicity and efficiency. And customers are indeed excited
about how the bigger, better company can position them for the future.
In terms of job losses, the major impact in Oregon has been to
Willamette's corporate headquarters in Portland – as we expected. What we’ve
retained in downtown Portland is a regional office that's home to a crack
team of engineers, environmental managers and IT specialists – about 200
employees in all.
Other changes we’ve made in Oregon
include:
- Downsizing a regional office in
Albany, eliminating some positions and reassigning others to Federal Way.
- Reconfiguring our engineered wood products business
to improve efficiencies and lower costs. This has involved some downsizing
in Junction City and Eugene … and the closure of small plants in Winston
and Woodburn.
- Closing a particleboard plant in Bend
that was already troubled by supply problems and aging machinery.
- And, in the mid-Willamette Valley, we sold logging assets from
a Willamette subsidiary to local contractors. These contractors are small
operators who will now work for us as independent businessmen, with many
former employees on their payrolls.
These
decisions have not come easily.
That said, let’s shift
to "the bigger picture." What you need to know is that Oregon is now – more
than ever – one of Weyerhaeuser’s most important operating states.
With the Willamette acquisition, Weyerhaeuser owns and operates
more than 20 manufacturing plants in Oregon, as well as forestry offices,
recycling centers, building materials distribution centers, tree nurseries,
seed orchards, and support offices in 11 counties.
We
employ more than 4,500 people statewide – and we sustainably manage 1.2
million acres of forestland in 14 Oregon counties. Nearly 170,000 acres
are right here in Clatsop County.
Our timberland in
Clatsop County is a large investment and supports our mill in Warrenton.
Like all our timberlands, it illustrates the challenges that come with our
business today.
On the one hand is the stewardship challenge.
This involves integrating the business of growing and harvesting trees …
along with the protection of wildlife, plants, soil and water quality.
Managing for all the benefits offered by our forests has brought
us a "sustainability certification" for all our Oregon forest ownership
– under tough standards defined by our industry’s Sustainable Forestry Initiative
program.
Incidentally, certification auditors inspected
our Clatsop timberlands last month. Although we don’t yet have the final
report, initial feedback indicates that these independent foresters and
wildlife biologists were impressed by what they saw.
Certification
is important because it provides assurance to customers and community partners
– like you – that we are managing our forestlands for the long term.
On top of this industry program, we can add the Oregon Forest Practices
Act … the Oregon Plan … and about 8 million dollars in stewardship projects.
That's just on company land in the North Coast in the last eight years.
So we're meeting the stewardship challenge – not just
because it's the law – but also because it's the right thing to do.
On the other hand, there’s the challenge that comes with managing
forests for timber in an area that also offers world-class recreation and
tourism. Some might consider tourism and timber-harvesting to be incompatible.
We look at these two potentially competing needs as an opportunity
– an opportunity to demonstrate that we can be a responsible forest steward
… a good neighbor … and a successful forest products company … all at the
same time.
One person who understands this type of opportunity
is Phil Penttila. Phil is here tonight. He's our team leader on the coast.
Phil has helped manage this land since Crown Zellerbach
owned it – and we're pleased to now have him with Weyerhaeuser.
Years ago … when local residents expressed concern to Phil about
the visual impact of timber harvesting … he said "let's go take a look."
What they discovered was that innovative harvesting could dramatically minimize
visual impacts. We're still harvesting here … and we're doing it in ways
that recognize "viewshed values."
Is it more expensive
to do business this way?
Of course.
Is
it worth it? Yes! Because, even though we can't possibly please everybody
all the time, we’re committed to and we must operate with sensitivity to
local concerns.
Now let's talk about the future.
When I look to the future, I see a strong and competitive company
anchored in the Northwest … with a global reach in operations and sales.
There's no question that the recession … overcapacity … and a strong
dollar will continue to challenge us in the near term.
But
keep in mind that we make products people need … wood for homes and furniture
… pulp for paper and diapers … paper for printing and copying … and packaging
that brings all the products people need to their local stores.
You can be sure consumers worldwide will continue to need and want
Weyerhaeuser products. And – as the industry consolidates and capacity balances
with demand – our long-range prospects are very promising.
Oregon
will help us achieve our vision of being the best forest products company
in the world … and a global leader among all industries. It will continue
to be a company stronghold in terms of operations, sustainable forest management
and community support.
And in turn, we will continue
to support the communities that support us. In the last six years – in Oregon
alone, our Weyerhaeuser Company Foundation has granted more than four million
dollars to non-profit groups. And we are committed to maintaining a level
of support comparable to what Willamette provided in those communities where
it did business.
That's a promise we made to Oregon …
and a natural extension of Weyerhaeuser's core citizenship value.
We have friends here tonight from the Columbia Memorial Hospital,
where Weyerhaeuser is helping to grow a very good idea – a healing garden.
A week ago, we delivered a check from the Weyerhaeuser
Company Foundation for 25 thousand dollars. It's the lead gift in a larger
campaign to grow a quiet and peaceful garden where patients can enjoy the
therapeutic powers of nature.
I should point out that
– although we do our best to stretch Foundation dollars – our philanthropy
extends to 600 operating areas. This means there's never enough to do all
we’re asked to do. But we do our best.
In closing, we
have the opportunity to consider and embrace the future. Where some have
burdens and obstacles, we see challenge that can lead to opportunity.
Weyerhaeuser has always sought partnerships with its neighbors
… and we continue to strengthen our partnerships with the people of Oregon.
I hope you'll join me in embracing the challenges and the opportunities
that lie ahead as we write the next chapter of Weyerhaeuser’s history in
Oregon.
Thank you for hosting me tonight – and for all
you do to keep your community strong and opportunity alive along the North
Coast.
