Weyerhaeuser Company Annual Analyst Meeting New York, New York May 12, 2006
Forward-looking Statement z
z
New York City
Some information in this pr esentation is der ived pr incipally fr om publicly 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 icing, 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,” “anticipates,” “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 icing 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 closings 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, including, but not limited to: the effect of gener al economic conditions, including 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 including 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 ictions on inter national tr ade or tar iffs imposed on impor ts, including 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 anticipated 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 Rogel Chairman, President and Chief Executive Officer
Strategic Direction Patty Bedient
Senior Vice President, Finance and Strategic Planning
Portfolio Principles
New York City
z
Cost of capital
z
Focused scale
z
Growth
Weyerhaeuser Revenue — 2005 Revenue: $23 Billion Containerboard, Packaging & Recycling 20% Cellulose Fiber 6% White Paper 12%
New York City
Other 3%
WRECO 13% Timberlands 5%
Wood Products 41%
Weyerhaeuser Real Estate (WRECO) Strategic Direction z Organic growth
New York City
z
Adjacent markets
z
New markets
Implementation z Record growth and returns in existing markets z Portland, Oregon; Sacramento z Maracay Homes, Phoenix
Wood Products — Residential Strategic Direction z
New York City
Providing framing solutions to the home building industry
Implementation Refocused value proposition z Launched iLevel brand z
Wood Products — Industrial Strategic Direction z
New York City
Explore opportunity for scale growth in hardwoods and appearance products
Implementation Sell Composite Panels z Refocus Southern Hemisphere investments to grow in South America z
Weyerhaeuser Revenue — 2005 Revenue: $23 Billion Containerboard, Packaging & Recycling 20% Cellulose Fiber 6% White Paper 12%
New York City
Other 3%
WRECO 13% Timberlands 5%
Wood Products 41%
White Paper Strategic Direction Improve Fine Paper business z Evaluate strategic alternatives z
New York City
Implementation Closed higher-cost capacity z Active discussions with 3rd parties z
Cellulose Fibers Strategic Direction z
New York City
Differentiated products
Implementation Aligned capital to strategy • Conversion of Port Wentworth • R&D investment in new products z Closed higher-cost capacity z Improve mill system performance z
Containerboard, Packaging & Recycling Strategic Direction z
Transform business model
Implementation z
Optimize supply system to be demand driven and lower cost • Organized around market segments • Increased integration and asset utilization by closing high-cost capacity
New York City
z
Improve pricing strategies
z
Align capital with strategy
Timberlands Strategic Direction z
New York City
Optimize and grow
Implementation Continue successful business model z Continue to pursue tax legislation z Evaluated alternative structures z
Financial Strategy Strategic Direction z
z
New York City
Return capital to shareholders
Disciplined capital program
Implementation Dividend • Increased by 25% in 2005 z Share repurchase • 18 million authorized z Maintain capital spending at less than 80% depreciation z
Summary
New York City
z
Strategic review delivered a course of action
z
Portfolio direction is set
z
Focus is on implementation
Strategic Update — Timberlands Dick Taggart
Executive Vice President, Chief Financial Officer
Timber Update Analysis ● Weyerhaeuser’s Timberlands business ● Industry ownership structures
New York City
z
Issues for transforming into a REIT
z
Conclusions and next steps
Weyerhaeuser Timberlands z
New York City
Business selling at market prices to internal and external customers
z
Softwood sawtimber focus with intensive silviculture
z
Add integration value through efficient conversion
z
Extract mineral, oil, gas and development values
z
Constantly reposition the portfolio to strategic core
z
Reinvest in highest returning regions
z
Forests managed sustainably and by SFI or CSA
Weyerhaeuser Timberlands Ownership Millions of Acres
9 8 7 6 5 4 3 2 1 0 1998
2002
2005
Average Log Price z
$/MBF
Average log price has remained relatively stable
800 700
Export
600 500
Domestic
400
(Avg. West & South)
300 200 100 1998
1999
2000
2001
2002
2003
2004
2005
Weyerhaeuser Timberlands Harvest z
Continued intensive management of long-term portfolio
Millions of CCF 10.00 8.00 6.00 4.00 2.00 1998
2002
2005
Weyerhaeuser Timberlands Business — Earnings $ Millions
900 800 700
Portfolio Optimization
600 500 400 300
Timber Operations
200 100 0 1998
2002
2005
Why Retain Timberlands? z z
New York City
We continuously evaluate hold vs. sell Divest when tax-adjusted market values exceed holding values
Different Ownership Structures for Timber Organizations
Public Owners C-Corp REIT
Private Owners Strategic Financial Direct Pooled
New York City
Tax Rate
35%
Pass through
Pass through
Mandatory Distributions
No
Yes
No
Debt / Leverage
Yes
Limited
Yes
Other Businesses
Yes
Limited
Strategic – Yes Financial – Unlikely
REIT Creation Issues z
Issues 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 Timberland REIT Conversion z
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 Timberland REIT Conversion (cont.) z
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
Precedence
Spin
None in timber
Spin / Merge
GP / Plum Creek 1996–2001
Convert / Elect
Rayonier / Potlatch
New York City
Timber Tax Equity z
z
New York City
Timber 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
Conclusions z
z z
z
New York City
Timberlands business continues to be value-creating for shareholders Highest value-creation is tax reform in the C-Corp structure At 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 company Continue to monitor value of alternatives as legislative process evolves and strategic actions unfold
Industry Outlook Lynn Michaelis
Vice President, Markets & Economic Research and Chief Economist
Agenda for Industry Outlook z z
New York City
Macroeconomic setting for forest products Outlook for • Wood Products • Cellulose Fiber (Pulp) • Containerboard, Packaging and Recycling
Macroeconomic Setting for Forest Products z z z z z
New York City
Economic growth remains healthy Dollar decline resumes U.S. industrial production growth continues Inflation and interest rates move higher Housing starts peak
Momentum Carries into 2006 Growth in World Real GDP Percent Change
Forecast*
5
4
3
2
1
0 1992 AMIOT03F
New York City
1994
1996
1998 Annual
2000
2002
2004
2006
Source: Global Insight, Weyerhaeuser*
Another Year of 3–4% Growth Growth in U.S. Real GDP Percent Change
Forecast*
5
4
3
2
1
0 1996 AMDGA01H
New York City
1998
2000
2002 Annual
2004
2006
Source: BEA , Weyerhaeuser*
Surge in Consumer Spending Fueled by Housing Refinance Boom U.S. Personal Savings Rate Percent 5 4 3 2 1 0 -1 1995 AMDOT32D
New York City
2000 Annual
2005 Source: BEA
Dollar Decline Resumes in 2006 Euro Exchange Rate
U.S.$/Euro (inverse)
Forecast*
0.7 Euro introduce
(X = 5/04)
0.9
1.1
1.3
1.5
1.7 1998 QMIEU09F
New York City
1999
2000
2001
2002
2003
Quarterly
2004
2005
2006
2007
Source: Wall Street Journal, Weyerhaeuser*
Current Account Deficit Got Even Bigger U.S. Current Account Balance as a Share of GDP Percent 1 0 -1 -2 -3 -4 -5 -6 -7 -8 1988 AMDOT78D
New York City
Q4 1992
1996 Annual
2000
2004 Source: BLS
Weaker Dollar and Strong Growth Boost U.S. Industrial Production Growth in Weighted** Index for U.S. Manufacturing Production Percent Change
Forecast*
4
2
0
-2
** 80% non-durable; 20% durable
-4 1998 AMDIP36E
New York City
1999
2000
2001
2002 Annual
2003
2004
2005
2006
Source: FRB, Weyerhaeuser*
Inflation Remains Above 3% U.S. Consumer Price Index (CPI) Inflation Rate Percent Change
Forecast*
4
3
2
1
0 1998 AMDIF01F
New York City
2000
2002 Annual
2004
2006
Source: BLS, Weyerhaeuser*
Result: FRB Moves Short Rates Higher U.S. Interest Rates Pe rce nt
Forecast*
10
8
Moody BAA Bonds
6
4
3-month Commercial
2
0 1997 AMDIR86G
New York City
1998
19 99
2000
2001
2002
Annual
2003
2004
2005
2006
Source: FRB, Weyerhaeuser*
Easy Money Fueled Housing Boom U.S. Single-family Housing Starts Million Units
Forecast*
1.8
1.6 Demographic Trend for 2000-10*
1.4
1.2
1.0
0.8 1992 AMDHO19N
New York City
1994
1996
1998 Annual
2000
2002
2004
2006
Source: Census, Weyerhaeuser*
Very Positive Long-term Trends for Single-family Housing Starts z z z
New York City
Demographics Average home size Housing finance: Efficiency and flexibility
Agenda for Industry Outlook z z
New York City
Macroeconomic setting for forest products Outlook for • Wood Products • Cellulose Fiber (Pulp) • Containerboard, Packaging and Recycling
Key Drivers for Lumber z
z
New York City
Demand primarily driven by residential construction — new and remodeling • Limited substitution Supply is more complex • Timber supply • Canadian delivered costs • Limited offshore competition
Another Record Demand Year in 2005 Demand on North American Lumber Mills vs. Capacity Billion Board Feet 80 75 70 65
Capacity
60 55 50 1988 AWDNALGD01E
New York City
Demand
1991
1994
1997 Annual
2000
2003 Source: RISI
Substitution Was Wood for Wood Board Feet/ Square Feet
Lumber Usage in U.S. Single-Family Housing
8 Engineered Wood
6
4 Lumber 2
0 1995 AWDG32C
New York City
2003 Annual
Source: NAHB Housing Survey
U.S. Lumber Output Keeps Growing U.S. Lumber Production Billion Board Feet 50
40
30
34.3 3.1
15.8
36 3.0
40.3 3.4
Other
18.6
South
6.6
Inland
West Coast
16.7
20
10
6.6
6.6
8.8
9.7
11.8
2001
2003
2005
0
AWDUSLGP10F
New York City
Annual
Source: WWPA
U.S. Imports in Perspective U.S. Softwood Lumber Imports (Billion Board Feet)
Canada Europe South America Other Total Source: RISI
New York City
2002
2005
2005 Share (%)
19.1 0.6 0.6 0.6
21.5 1.4 0.7 0.9
34 2 1 1
_____
_____
___
20.8
24.5
38
Crucial to U.S. Lumber Price Outlook Canadian Exchange Rate
U.S.$/C$ (inverse)
Forecast*
0.60 (X = 5/04) 0.70
0.80
0.90
1.00 2000 QMICA09F
New York City
2001
2002
2003
2004
Quarterly
2005
2006
2007
Source: Wall Street Journal, Weyerhaeuser*
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 Spruce-Pine-Fir 2x4 Lumber Price $/MBF 450 (X = April)
400 350 300
Reported Random Lengths
250 Estimated Mill Net
200 150
Cost Support in 2005
Cost Support in 2002
100 2001 QWDCLP07E
New York City
2002
2003
2004 Quarterly
2005
2006
2007
Source: RISI Mill Survey, Random Lengths
Tentative Agreement Was Reached April 27, 2006 z
z
New York City
Only rough structure of the deal is known, 2-3 months before full detail and agreement takes effect Most of accrued duty will be returned to producers — 80% to Canadian producers
Tentative Agreement Was Reached April 27, 2006 z
z
z
New York City
Only rough structure of the deal is known, 2-3 months before full detail and agreement takes effect Most of accrued duty will be returned to producers — 80% to Canadian producers Structure 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
Tentative Agreement Was Reached April 27, 2006 z
z
z
z
New York City
Only rough structure of the deal is known, 2-3 months before full detail and agreement takes effect Most of accrued duty will be returned to producers — 80% to Canadian producers Structure is a combination of export tax and volume restriction, where province can choose an option Bottom line: 10-15% export tax at cyclic bottom
U.S. Prices Track SPF Prices Douglas Fir 2x4 Green vs. Spruce-Pine-Fir 2x4 Mill Lumber Price $/MBF 500 Douglas Fi Green Spruce-Pine-Fir
450 400 350 300 250 200 1995 QWDWLP06A
New York City
(X = April)
1997
1999
2001 Quarterly
2003
2005
2007
Source: Random Lengths
Reflects Lumber Prices and New Capacity Douglas Fir/Domestic No. 2 Sawmill, Western Oregon and Washington $/MBF
(X = April)
700
600
500
400 1998 QTLP24A
New York City
1999
2000
2001
2002 2003 Quarterly
2004
2005
2006
2007
Source: Log Lines
Key Drivers for Oriented Strand Board (OSB) z z z
New York City
Demand primarily driven by new residential construction Substitution for plywood New capacity growth continues
Demand Pressed Capacity Limit in 2003–05 North America OSB Demand vs. Capacity Billion Square Feet 30
25
20
Capacity
Demand
15
10 1995 AWDNAPGD38G
New York City
1997
1999 Annual
2001
2003
2005 Source: RISI
Keeping Prices High N.C. Oriented Strand Board 7/16" Price $/MSF 500
400
300 April
200
100
0 1999 QWDPNLP04E
New York City
2000
2001
2002
2003 Quarterly
2004
2005
2006
2007
Source: Crow's
Costs Reflect Energy, Resin and Exchange Rates Variable Cost for an Average OSB Mill* (7/16”, $/MSF)
U.S. South Eastern Canada
* Based on RISI Survey Data
New York City
2002
2005(e)
% Change
116
144
24
88
140
59
Engineered Products Demand Continues to Grow North America I-Joist Demand Million Lineal Feet 1500
1000
500
0 1996 AWDG27G
New York City
1998
2000 Annual
2002
2004 Source: RISI
Agenda for Industry Outlook z z
New York City
Macroeconomic setting for forest products Outlook for • Wood Products • Cellulose Fiber (Pulp) • Containerboard, Packaging and Recycling
Key Drivers for Cellulose Fiber (Pulp) z
New York City
Global Market: Demand growth near 3% • Economic growth • China shift to wood pulp continues • Tissue and fluff end-uses
China Demand Growth Averaged 20% per Year for 2000–05 Period China Imports of Bleached Kraft Pulp Million Metric Tons 6 5
Softwood Hardwood
4 3 2 1 0 2002 APLOTG49A
New York City
2003
2004 Annual
2005 Source: Weyerhaeuser
Fluff Market Growing 3–4% per Year Fluff Market Pulp Consumption by Region Million Tons 4 Rest of World 3 Rest of Asia Japan 2 Europe 1 North America 0 2000 APLOTG02F
New York City
2005 Annual
Source: Weyerhaeuser
Key Drivers For Cellulose Fiber (Pulp) z z
New York City
Global Market: Demand growth near 3% Capacity / operating rate • Exchange rate is critical to price outlook • Continued expansion in hardwood capacity
Scan Costs Higher in U.S. Dollar Terms $/Tonne
Manufacturing Costs for Bleached Softwood Kraft Pulp
600 500
Typical Mill U.S. Canada
400
Sweden
300 200 100 0 2002
2005-06 Source: Weyerhaeuser
APLOTP84A
New York City
Softwood Capacity Declines in 2006 Change in World Capacity Bleached Softwood vs. Bleached Hardwood Percent Change 8 Softwood
Hardwood
Estimated*
6
4
2
0
-2 2003 APLOTG51F
New York City
2004
2005 Annual
2006
Source: PPPC, Public Announcements*
Pulp Prices Reflect Demand and Exchange Rates NBSKP vs. Eucalyptus Delivered Northern Europe $/Metric Ton 800 NBSKP Eucalyptus
700
600
500
400 (X= April) 300 2000 QINDP05A
New York City
2001
2002
2003
2004
Quarterly
2005
2006
2007
Source: RISI
Agenda for Industry Outlook z z
New York City
Macroeconomic setting for forest products Outlook for • Wood Products • Cellulose Fiber (Pulp) • Containerboard, Packaging and Recycling
Key Drivers for Containerboard, Packaging and Recycling z z z
New York City
Nondurable industrial production Capacity / operating rate crucial to prices New factor for OCC prices: Energy costs for OCC plants
Box Shipments Track Industrial Production Average Annual Percent Change
Weighted* Industrial Production and Annual Growth of U.S. Box Shipments
4 Industrial Production Box Shipments
3
2
1
0 * 80% non-durable; 20% durable
-1 1993-1997 ACBBX G82L
New York City
1998-2003
2004-05 Source: Fibre Box Association, FRB
No Capacity Growth Since 1997 Average Annual Percent Change
U.S. Containerboard Capacity
5 4 3 2 1 0 -1 1993-97 ACBOTG10H
New York City
1998-2003 Annual
2004-05 Source: AF&PA
Results in Another Very Tight Year Containerboard Operating Rate Percent 100 Tight Market
95
90
85
80 1998 QCBOTG09E
New York City
1999
2000
2001
2002 2003 Quarterly
2004
2005
2006
2007
Source: AFPA
The Bottom Line: Box Prices Will Follow U.S. Corrugated Box Price vs. Eastern U.S. Linerboard Price
Box $/MSF
Liner $/Short Ton
60
520 500
Box (left) Liner (right)
58
April
480
56
460 440
54
420
52
400 380
50 48 2000 QCBOTP01A
New York City
360 2001
2002
2003
2004
Quarterly
2005
2006
340 2007
Source: RISI and FBA
China’s OCC Demand Continues to Grow China OCC Imports
Million Metric Tons (Annual Rate) 10
8
Total From U.S.
6
4
2
0 1996
1998
2000
2002
2004
Annual ARCOCCG14A
New York City
Source: EU Consulting, China Foreign Trade Report
Why Did OCC Prices Fall? Recovered Paper OCC Price (Grade 11) (F.O.B. Packing Plant) (Chicago) $/Short Ton 120 100 80 April
60 40 20 0 1999 QRCOCCP16B
New York City
2000
2001
2002
2003 Quarterly
2004
2005
2006
2007
Source: Official Board Markets
Energy Cost Increase Hit OCC-Based Plants Manufacturing Cost $/SWT
Comparison of Virgin* vs. Recycled* Plant Costs Energy Other Manufacturing Fiber
300 250 200 150 100 50 0 2003-04 Virgin ARCOCCP14C
New York City
2005.4 Virgin
2003-04 Recycle
2005.4 Recyle * Lower cost mills Source: Weyerhaeuser
Summary of Key Messages z
z z z z
z z
New York City
Overall economic growth remains strong, but inflation and interest rates move higher Housing and wood products enter cyclic decline Higher delivered cost for Canadian lumber Modest cycle in U.S. timber values Pulp prices benefit from exchange rates and improving operating rate Containerboard and packaging markets do very well Overall message: normal shift near cyclic peak of economy
WRECO and iLevel Dan Fulton
President, Weyerhaeuser Real Estate Company
Weyerhaeuser Real Estate Company z
z
New York City
Single 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
Business Definition Homebuilding Pardee Quadrant
WRECO
Trendmaker Winchester Maracay
Builder Finance WRI
New York City
Business Definition — WRECO Operations
Office Locations z Maracay z Pardee z Quadrant z Trendmaker z Winchester
New York City
Business Definition Homebuilding Pardee Quadrant
WRECO
Trendmaker Winchester Maracay
Builder Finance WRI
New York City
Business Definition
New York City
WRECO Land Strategy z z
z
z
z
Most of our markets are land constrained Increasing regulation extends elapsed time for entitlements Land managed as “just in time” whenever possible Current 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.) z
Selling land is part of our business
z
Disciplined focus on ROI • Optimizes balance between margin and asset turnover
WRECO Growth Roadmap z
Organic growth is the Base Case for our growth strategy Strategic Direction Market Penetration
Organic Growth (Base Case)
New Products New Brands
Implementation Incremental Investment in Existing Markets Condominiums, Age-Restricted Camberley Homes
Adjacent Markets Adjacent Markets
Leverage Brand Equity
Portland, OR. (Quadrant) Northern California (Pardee)
Leverage Existing Management
New Markets
Acquisition Start-up
Phoenix (Maracay Homes, Feb 2006)
WRECO Is Positioned to Succeed z
Long-term favorable outlook for single-family housing
z
WRECO is a top performer • • • • •
z
New York City
Select markets Proven land strategy Experienced management team Focus on financial performance Leading financial results
Linkage to Weyerhaeuser
Homebuilding Industry Continues to Evolve z z
z
z
New York City
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
Homebuilders Continue to Consolidate Production Builder Market Share % of total closings 40 35
Top 100 – 37%
30 25 20
Top 10 – 21%
15 10 5 0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Source: Builder Magazine
New York City
Key Advantages of Large Homebuilders
New York City
z
First look at land and partnership deals
z
Product and geographic diversity
z
Strong balance sheets
z
Scale to leverage processes and supply agreements
z
Expertise to underwrite, control and process land
z
Attract and retain high talent work force
z
Greater relative investment in technology
Weyerhaeuser is a Leading Producer of Residential Building Materials 2005 Total 3rd-Party Sales = $9.4 Billion Other Products 23% Softwood Lumber 39%
Plywood / Veneer 8% Oriented Strand Board 12% Engineered Lumber Panels 18% New York City
Is Positioning for the Future z
Integration: 5 businesses into 1
z
Innovation: Driving profitability of our customers
z
Interaction: Transforming the way we do business
z
Information: Increasing the transparency of data
Value Proposition Overview z
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
z
Improve coordination across the supply channel
z
Balance common processes with unique regional needs
z
Capture the full value of Weyerhaeuser integration
New York City
Directed at the “Sweet Spot” of Homebuilders’ Cost Materials & Indirect 28%
Construction Labor 20% Marketing/Advert. 6% Overhead 6%
Land and related 22%
Profit 16%
Financing/other 2%
Source: Professional Builder Magazine, May 2006 (average of 6 th -31st largest builders)
New York City
Strategic Validation Harvard University, Joint Center for Housing Studies Key Findings: Homebuilder Distribution Study, 2005 z
z
Many builders have not yet implemented practices to promote efficient distribution operations Larger builders are early adopters, but have difficulty implementing innovative practices companywide
Builder performance can be improved by adopting innovative product and distribution practices
New York City
Expected Benefits %
Proprietary Product, Solutions and Whole House
>20%
100
Service Differentiated
Margins
80 60
Commodity