As the new CEO, I’m a different face on the 2008 Weyerhaeuser annual report. Yet the remarkable resilience of this company has never changed, whether we’re facing technological hurdles or natural disasters. It’s an ability not only to survive downturns, market fluctuations and changing customer demands but also to prosper despite them. It has rarely been easy, but our commitment to science and innovation has made it possible. In the current state of our market and the global economy, we are marshaling that resilience once again.

First, let’s be clear: As a company, we’re facing extraordinary conditions. The housing market has seen a devastating slowdown, consumer confidence remains extremely depressed after hitting its lowest levels since tracking began in 1967, and tight credit poses a significant threat to near-term economic recovery. Against this backdrop, we expect our markets will remain difficult through 2009. To counter the effects of this challenging landscape, we are taking all necessary action to emerge stronger and more competitive than ever. It’s been a tough year, especially in the U.S. housing market, but our real estate and iLevel leaders have operated in challenging markets before. They are reducing costs and adjusting product supply to meet decreased demand. We are well equipped to successfully manage through the near term and to benefit as markets transition to recovery.

One of the most significant changes in 2008 was the $6 billion sale in August of our Containerboard, Packaging and Recycling business to International Paper. Last year, we announced a strategic review of this business, and the resulting transaction strengthened our balance sheet. As a company, we are smaller and more tightly focused now, which positions us well for the kind of growth we see possible in the future.

In addition to cost reductions in our housing and iLevel businesses, we took other steps in the second quarter by announcing the beginning of a $375 million annual cost-savings initiative, including eliminating 1,500 corporate support positions to better reflect the needs of our more focused businesses. At year-end 2008, we had already achieved 50 percent of the targeted annual savings, with goals to reach 90 percent by the end of 2009 and the balance in 2010.

While it is never easy to make those decisions, it was necessary to improve our financial and competitive position. And as we manage the current downturn, we will continue to make additional changes to find sustainable savings. In December, we announced actions complementing our initiative to reduce support costs, including dividend and planned capital spending reductions and a freeze of employee and executive salaries.

For the fiscal year 2008, we reported net sales of $8 billion and a loss of $1.176 billion. We recorded significant goodwill impairment charges in some businesses in the fourth quarter, as well as real estate–related charges triggered by the dramatic upheaval in financial markets, depressed housing and credit markets, and lack of consumer confidence.

These results are not acceptable, and moving into 2009, we are taking significant steps toward improvement. They begin, as always, with the core of Weyerhaeuser—the more than 6 million acres of timberlands we intensively manage to gain maximum value on a long-term, sustainable basis. But our efforts also extend beyond trees, using innovation and the expertise of our people to discover new uses for all our assets and provide additional shareholder value from our land.

Weyerhaeuser has actively managed mineral, oil and gas leases on our land for decades, and today they continue to provide revenue. But when we look at our land—and below it—these kinds of opportunities are just the beginning. A good example is our recent agreement with AltaRock to explore more than 610,000 acres of our land holdings in Washington, Oregon and California to determine the potential of developing sustainable electric power from our geothermal resources. If developed, the resulting leases could provide significant revenue while contributing clean, renewable energy to the U.S. power grid. Other ways we are exploring creating new opportunities from our assets include generating more green energy from biomass, channeling wind energy, developing carbon fiber from lignin, and capitalizing on the potential future value of carbon credits.

Collaboration plays an important role in efforts throughout our businesses. You’ve seen in this report how we’re working with Austria’s Lenzing to develop profitable, sustainable, cutting-edge products from our meltblown lyocell. Together with Chevron, we formed Catchlight Energy, which is researching and developing technology for converting cellulose-based biomass into economical, low-carbon liquid transportation biofuels. And our forestry joint venture recently established in China helps us develop new markets.

One of the other keys to growth is how we structure our company. We will implement the right structure, at the right time, for the right reasons to support our business strategy. To preserve our options, we made the necessary technical changes at the end of 2008 that would allow us to elect REIT status if we believe it is in the best interests of shareholders. We’re also working on an extension of the TREE Act legislation, which expires in May 2009. The TREE Act reduced the capital gains tax rate on timber harvest.

We are committed to managing our company sustainably. Trees are a renewable resource that play a critical role in mitigating climate change by storing carbon. We are continuously improving our forest management to enrich their performance, whether that means thinning timberlands to provide trees with more nutrients or growing trees faster to make forests more productive. Our research into growing switchgrass between our trees has the potential for contributions to the biofuel industry—a natural extension of sustainable forestry. And in our operations, we are striving to meet a host of goals for safety and environmental performance, including reducing water use in our cellulose fibers mills 20 percent by 2012. We’ve also certified 99 percent of our North American–made forest products, with plans to reach 100 percent by mid-year. For more information about our progress on sustainability, please visit www.wy.com/sustainability.

There will always be challenges for leaders like Weyerhaeuser. Yet even in the most uncertain of times, a focus on innovation and the resilience of our people will allow us to seize the opportunities these challenges present, unlock the full potential in every asset we possess, and continue to deliver value to shareholders over the long term. I look forward to sharing our progress with you in the year ahead.

Daniel S. Fulton,
President and Chief Executive Officer