As I begin this morning, I want to start by introducing members of our Senior Management Team who are seated up front immediately behind our directors. Since we met together last year, we've had a few retirements, so we have some new members of our senior team, and some of our leaders have taken on new responsibilities.
As I introduce our leaders, I'd like to ask them to stand up and remain standing as I recognize them.
Patty Bedient is Executive Vice President and Chief Financial Officer.
Larry Burrows is Senior Vice President, Wood Products.
Shaker Chandrasekaran is Senior Vice President, Cellulose Fibers.
Miles Drake is Senior Vice President, R&D and Chief Technology Officer.
Tom Gideon is Executive Vice President, Timberlands.
John Hooper is Senior Vice President, Human Resources.
Sandy McDade is Senior Vice President, General Counsel.
Peter Orser is President, Weyerhaeuser Real Estate Company.
Sarah Kendall is Vice President, Sustainability and Corporate Affairs.
Betsy Seaton is Vice President, Strategic Planning.
I want to start this morning by first sharing my own gratitude to Arny Langbo, for his contributions to Weyerhaeuser as a member of our board.
When he joined us in 1999, Arny brought with him the broad experience and wisdom that he had demonstrated during his successful career as Chairman and CEO of Kellogg, plus he was a highly talented corporate director, serving as a long time board member of both Johnson & Johnson, as well as Whirlpool.
From his history at Kellogg, Arny brought a sharp focus on meeting customer needs, growing market share, and maintaining public trust.
His experience on the Whirlpool board connected him to the homebuilding industry, and I developed a valued relationship with Arny when I managed Weyerhaeuser Real Estate Company. Arny always wanted to talk about WRECO, and how we were performing compared with our competitors -- and he really got excited if the conversation turned to laundry appliances!
When our Board identified a need to form a Finance Committee in order to provide guidance, oversight and support of our corporate finance function, Arny was the natural choice to lead our new committee.
At the request of both management and his fellow board members, Arny agreed to defer his retirement from the board in order to help us navigate our complex conversion to a Real Estate Investment Trust. With that mission now accomplished, Arny today concludes his service to our company.
Looking back over the past several years at the economic crisis that so severely impacted our country and our company, I think there is a greater appreciation by investors, the general public, and the government of the critical role of proper corporate governance.
At the same time, I don't believe that there is full understanding of the personal commitment and sacrifice that is made by directors in fulfilling their fiduciary responsibilities.
The time spent in six bi-monthly board meetings a year has been far eclipsed by time spent in committee meetings, special board meetings, expanded preparation time, and travel.
I can say that there's no one who has brought more enthusiasm and commitment in meeting his responsibilities than Arny.
Turning now to the state of the company, I want to start my comments by saying that today feels different from the previous years that I've addressed this meeting -- and that's a good thing!
Yes, we still operate in the challenging markets that I highlighted two years ago, when I drew an analogy between our situation, and that of those living through the Dust Bowl in the mid-1930's, as was described in author Tim Egan's book, The Worst Hard Times.
And we still have work to do before we reach the ultimate performance levels I envisioned last year, when I encouraged us to remember the resolve of the athletes competing in the Vancouver Winter Olympics, and I connected our own company performance to what it takes to be a winner in Team Pursuit Speed Skating.
This year, it feels like there are reasons to celebrate and acknowledge the great progress we've made.
Today, we're a stronger company, a better performing company, and a more focused company.
Our future is more promising than ever, as we focus on achieving our vision of delivering "Superior Sustainable Solutions to the World."
Reaching this point hasn't been easy, and we're still not getting much help from the US housing market. The credit for progress that we've made, therefore, goes to our employees, who have worked so hard as we've transformed Weyerhaeuser.
I know there is more work ahead, but on behalf of the Board and the Senior Management Team, I want to acknowledge our employees, and thank them for their dedication to our future. Thanks to you, Weyerhaeuser is increasingly viewed as the premier company in the forest products industry.
You could say I'm biased in making that assessment, and I am. I have the privilege of seeing every day the progress we're making. But you don't have to take my word for it -- others feel the same way.
Just last month, FORTUNE magazine named us "the most admired forest and paper products company in the world."
For those unfamiliar with FORTUNE's "Most Admired Companies" annual list, it is widely considered the definitive measure of corporate performance and reputation.
To compile the list, approximately 15,000 senior executives, outside directors, and other major non-U.S. companies and financial analysts are asked to rate companies according to eight criteria.
I'm proud to say that Weyerhaeuser ranked first in our industry in five of those categories:
In addition, we tied for 10th for social responsibility among all 350 companies included in the survey.
To me, this recognition says we're a company that sets high standards, and then keeps the commitments necessary to achieve them.
Our investors support the work we've completed to convert to a Real Estate Investment Trust.
As I've discussed at previous shareholder meetings, our board and senior management team reached the decision to make the conversion after a deliberate review of our strategic alternatives.
In the end, we determined that since land and forests form the core of this company, it was in our best interest to own this asset in the most tax-efficient structure possible.
Given the history of our company dating back to 1900, our conversion to a REIT was arguably one of the most complex financial transactions that we've ever completed. Skilled professionals from across the company contributed to this successful transition -- every staff support group, including finance, treasury, tax, human resources, legal, communications, corporate secretary, investor relations -- all working closely with our talented Timberlands business team.
On behalf of all shareholders, I want to express my thanks and appreciation for a job well done.
Converting to a REIT has made us more attractive to existing, as well as to potential new investors. I believe that investors are excited about Weyerhaeuser -- not just for who we are today, but because of a belief in what we will be.
I've said before that "structure follows strategy," and operating as a REIT gives us a structure which best supports our strategy, by improving the value and competitiveness of our valuable and sustainable core Timberlands asset, while at the same time we continue to operate our manufacturing businesses -- Wood Products, Cellulose Fibers, and Real Estate -- in a taxable REIT subsidiary.
It is the productivity and profitability of the entire company which will provide the earnings and cash flow to service our debt, increase dividends over time, and give us the capacity to take advantage of profitable new opportunities to grow the company in the future.
Our business strategy starts with our valuable timberlands.
Today, we control more than six million acres of the most valuable, sustainably-managed softwood timber in the United States, combined with lands owned in Uruguay, and timberlands managed under licenses in Canada and China.
As we look to the future, we see opportunities to grow our holdings in the United States and internationally.
Investors also recognize our leadership position in adding value to timberlands. We established the nation's first commercial tree farm over 60 years ago in Southwest Washington, and we continue to manage this valuable resource to generate maximum long term, sustainable income.
Obviously, much of this income comes from the trees themselves, but we're also unlocking the value of other opportunities such as minerals, fossil fuels, and renewable energy, including biomass, geothermal energy and wind power.
Our other businesses contribute earnings and cash flow today -- and have significant potential to improve performance in the future.
I don't need to remind all of you that it's been a very tough homebuilding market the past several years. We stand here today in 2011, having lived through five very challenging years for the US housing market. We've faced conditions as tough as any period in our company's history since the Great Depression, for our wood products, homebuilding, as well as our timberlands businesses.
During this extended downturn, our Timberlands business has deferred harvest levels in order to preserve value for the future, but last year we leveraged our strategically located western lands and well-developed logistics and infrastructure to take advantage of an improving export log market that grew by 18 percent.
Much of this volume went to traditional customers in Japan and Korea, but we saw a significant increase in demand from China, as that country looked to North America to fill the void created by fewer imports from other countries. Japan still accounts for 80% of our export volume, but revenues from Chinese demand increased over 300% last year.
I don't want to overstate the impact of the Chinese market due to its small position the year before, and its relative size compared to our Japan trade, but this type of growth highlights our agility in capitalizing on new demand for our valuable timber resource.
When the market begins to recover and return to long term trend levels for US housing construction -- and it will -- we're looking forward to putting our employees and contractors back to work in the woods as we increase harvest levels to meet recovering market demand.
The protracted downturn in the housing market has continued to buffet our Wood Products and Real Estate businesses, but due to work we've done, we're in a better position today to drive sustainable growth from these businesses when the market recovers.
Wood Products is in a much stronger place now than it was a year ago. Given the significant challenges this business continues to face, our Wood Products team continues to focus on improved manufacturing capacity utilization, as well as margin improvement coming from cost reduction and price improvement. As the market recovers, we'll be in an even better position to take advantage of those opportunities.
Meanwhile, our Real Estate business continues to leverage the distinct local value propositions of our five regional homebuilding companies. This allows them to focus product and marketing resources on profitable segments within each geographic market. In 2010, WRECO was one of the few profitable large scale homebuilders in the country, achieving this performance by containing costs, adjusting to changing market conditions and focusing on improving profit margins.
While our businesses which are tied to US housing waited for recovery, the balance in our business portfolio was demonstrated last year by the performance of our Cellulose Fibers segment, which turned in a record profit,while continuing to innovate to meet evolving needs of strong, growing, global customers.
Looking to the future, to fully capitalize on our potential across the entire company, and to continue to receive support from you, our shareholders, we need to perform.
We must become better at everything we do, delighting our customers, and making the most efficient use of our resources.
That's why performance is so important, and why I talk about it when I meet with employees and shareholders.
We're building a culture where we challenge ourselves to outperform our competitors, regardless of market conditions. To do so, we must strive for continuous improvement.
Shaker Chandrasekaran, Senior Vice President of our Cellulose Fibers segment, has a saying that captures our vision of improvement -- "N plus 1."
Those three simple words summarize an important concept, and inspire us all to do better. What Shaker is saying is that whatever we do today, we can do it just that much better tomorrow. It doesn't require a great deal of improvement at any one time, but a continuous series of small improvements over time results in a huge change.
We've seen the power of Shaker's words. Under his leadership, our Cellulose Fibers mills have focused on doing everything a little better, and in so doing, we've steadily improved their operational efficiency while reducing costs. Last year, that work paid off by generating improved cash flow for the company at a time when we really needed it.
As I end my remarks this morning, I want to take a moment to acknowledge last month's horrific earthquake and tsunami in Japan.
Our company has a rich history with Japan, dating back to 1923, when we supplied lumber to rebuild Tokyo and Yokohama following what the history books refer to as the "Great Kanto Earthquake."
Over the decades, the Japanese people have become more than customers -- they've become employees, friends and partners.
In 2010, over 10% of company revenue came from sales to Japan.
We have 25 employees in Japan who represent company interests -- who serve the needs of customers who buy our Cellulose Fibers products, our logs, and our wood products. Additionally, our Westwood Shipping Line serves as a critical oceangoing carrier serving Japan for us and for others.
Throughout this trying period, our employees in Japan have operated safely, meeting the needs of our customers, as they have redrawn supply chains.
I've received a daily situation report from Japan since the beginning of this incident -- sent by our local manager, Hiro Iwabuchi, who has provided essential, confident leadership.
Hiro is in Federal Way this week for Westwood Shipping meetings, and I asked him to join us today so that he can take back a message to our employees and our customers of our care and concern.
I'd like to invite all of you to join me in expressing our appreciation for his leadership during this most challenging time for Japan.
When Japan begins to rebuild its infrastructure and its housing, we'll be there, as we have been throughout the past 80+ years, to help supply the materials that are needed to rebuild.
As we became aware of the severity of the destruction from this natural disaster, we wanted to respond quickly in a significant way as a show of support and leadership. Accordingly, the company made a $500,000 contribution to the American Red Cross.
In addition, our employees and our Board have to date added over $60,000 to that amount, through generous personal contributions. The American Red Cross is directing these funds to the Japanese Red Cross Society, which is providing needed relief to victims of the earthquake and tsunami.
After making this donation, I received a letter last week from the Consul General of Japan in Seattle, Mr. Kiyokazu Ota. I'd like to share an excerpt from Consul General Ota's letter:
"Dear Mr. Fulton,
...Weyerhaeuser has historically stood by Japan, helping in substantial ways to rebuild the country after the 1923 Kanto earthquake and the 1995 Hanshin earthquake. In these dark times, true friendship like yours shines a light of hope into our lives..."
Our responsiveness to the special needs of our customers and our communities throughout our history reflects our values as a company.
It's part of who we are, and I believe that it's one of the many reasons why we continue to earn the respect and loyalty of our stakeholders.
In closing this morning, on behalf of employees, our Senior Leadership Team, and our Board, I pledge to you our committment to achieving the vast potential of our company, and to earning your continued support.
Thank you for being part of our journey.
