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Goldman Sachs Basic Materials Conference Presentation

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  • 1. Goldman Sachs Basic Materials Conference Dick Taggart, Executive Vice President and Chief Financial Officer Patty Bedient, Senior Vice President, Finance and Strategic Planning New York City New York City May 25, 2006 May 25, 2006 241 1 GS.ppt • 5/18/2006 • 1 New York City
  • 2. Forward-looking Statement 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 . 241 1 GS.ppt • 5/18/2006 • 2 New York City
  • 3. Business Conditions 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 As the economy nears a cyclic peak, a normal sector rotation is expected 241 1 GS.ppt • 5/18/2006 • 3 New York City
  • 4. Strategic Direction Patty Bedient Senior Vice President, Finance and Strategic Planning
  • 5. Portfolio Principles Cost of capital Focused scale Growth 241 1 GS.ppt • 5/18/2006 • 5 New York City
  • 6. Weyerhaeuser Revenue — 2005 Revenue: $23 Billion Other 3% WRECO 13% Containerboard, Packaging & Recycling Timberlands 5% 20% Cellulose Fiber 6% Wood Products 41% White Paper 12% 241 1 GS.ppt • 5/18/2006 • 6 New York City
  • 7. Weyerhaeuser Real Estate (WRECO) Strategic Direction Implementation Organic growth Record growth and returns in existing markets Adjacent markets Portland, Oregon; Sacramento New markets Maracay Homes, Phoenix 241 1 GS.ppt • 5/18/2006 • 7 New York City
  • 8. Wood Products — Residential Strategic Direction Implementation Providing framing Refocused value solutions to the home proposition building industry Launched iLevel brand 241 1 GS.ppt • 5/18/2006 • 8 New York City
  • 9. Wood Products — Industrial Strategic Direction Implementation Explore opportunity Sell Composite Panels for scale growth in Refocus Southern hardwoods and Hemisphere appearance products investments to grow in South America 241 1 GS.ppt • 5/18/2006 • 9 New York City
  • 10. Weyerhaeuser Revenue — 2005 Revenue: $23 Billion Other 3% WRECO 13% Containerboard, Packaging & Recycling Timberlands 5% 20% Cellulose Fiber 6% Wood Products 41% White Paper 12% 241 1 GS.ppt • 5/18/2006 • 10 New York City
  • 11. White Paper Strategic Direction Implementation Improve Fine Paper Closed higher-cost business capacity Evaluate strategic Active discussions alternatives with 3rd parties 241 1 GS.ppt • 5/18/2006 • 11 New York City
  • 12. Cellulose Fibers Strategic Direction Implementation Differentiated Aligned capital to strategy products • Conversion of Port Wentworth • R&D investment in new products Closed higher-cost capacity Improve mill system performance 241 1 GS.ppt • 5/18/2006 • 12 New York City
  • 13. Containerboard, Packaging & Recycling Strategic Direction Implementation Transform Optimize supply system to be business model demand driven and lower cost • Organized around market segments • Increased integration and asset utilization by closing high-cost capacity Improve pricing strategies Align capital with strategy 241 1 GS.ppt • 5/18/2006 • 13 New York City
  • 14. Timberlands Strategic Direction Implementation Optimize and grow Continue successful business model Continue to pursue tax legislation Evaluated alternative structures 241 1 GS.ppt • 5/18/2006 • 14 New York City
  • 15. Weyerhaeuser Timberlands Business selling at market prices to internal and external customers Softwood sawtimber focus with intensive silviculture Add integration value through efficient conversion Extract mineral, oil, gas and development values Constantly reposition the portfolio to strategic core Reinvest in highest returning regions Forests managed sustainably and by SFI or CSA 241 1 GS.ppt • 5/18/2006 • 15 New York City
  • 16. Weyerhaeuser Timberlands Business — Earnings $ Millions 900 800 Portfolio 700 Optimization 600 500 400 Timber 300 Operations 200 100 0 1998 2002 2005 241 1 GS.ppt • 5/18/2006 • 16 New York City
  • 17. REIT Creation Issues Issues on transition to create value from REIT conversion • Potential tax liability • Impact on remaining businesses • Constraints in implementing strategic plans 241 1 GS.ppt • 5/18/2006 • 17 New York City
  • 18. Timber Tax Legislation Timber tax proposal • 139 co-sponsors in the House; 30 in Senate • Strong bipartisan support and 3rd-party endorsements 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 241 1 GS.ppt • 5/18/2006 • 18 New York City
  • 19. Timberlands Implementation 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 earnings and profits 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 241 1 GS.ppt • 5/18/2006 • 19 New York City
  • 20. Financial Strategy Strategic Direction Implementation Return capital to Dividend shareholders • Increased by 25% in 2005 Share repurchase • 18 million authorized Disciplined capital Maintain capital spending at program less than 80% depreciation 241 1 GS.ppt • 5/18/2006 • 20 New York City
  • 21. Summary Strategic review delivered a course of action Portfolio direction is set Focus is on implementation Financial priorities remain returning cash to shareholders and selective growth 241 1 GS.ppt • 5/18/2006 • 21 New York City
  • 22. 241 1 GS.ppt • 5/18/2006 • 22 New York City

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