10-K 1 d10k.htm ANNUAL REPORT ON FORM 10-K Annual Report on Form 10-K
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008

or

[    ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM                      TO                     

COMMISSION FILE NUMBER 1-4825

WEYERHAEUSER COMPANY

A WASHINGTON CORPORATION

91-0470860

(IRS EMPLOYER IDENTIFICATION NO.)

FEDERAL WAY, WASHINGTON 98063-9777 TELEPHONE (253) 924-2345

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

 

TITLE OF EACH CLASS   NAME OF EACH EXCHANGE ON WHICH REGISTERED:
Common Shares ($1.25 par value)   Chicago Stock Exchange
  New York Stock Exchange

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  [X] Yes  [    ] No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  [    ] Yes  [X] No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  [X] Yes  [    ] No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.

Large accelerated filer  [X]    Accelerated filer  [    ]    Non-accelerated filer  [    ]    Smaller reporting company  [    ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  [    ] Yes  [X] No

As of June 27, 2008, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $10,409,005,150 based on the closing sale price as reported on the New York Stock Exchange Composite Price Transactions.

As of February 2, 2009, 211,227,629 shares of the registrant’s common stock ($1.25 par value) were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Notice of 2009 Annual Meeting of Shareholders and Proxy Statement for the company’s Annual Meeting of Shareholders to be held April 16, 2009, are incorporated by reference into Part II and III.

 

WEYERHAEUSER COMPANY > 2008 ANNUAL REPORT AND FORM 10-K


Table of Contents

TABLE OF CONTENTS

 

PART I    
ITEM 1.   OUR BUSINESS   1
  WE CAN TELL YOU MORE   1
  WHO WE ARE   1
 

     OUR BUSINESS SEGMENTS

  1
 

     OUR HISTORY

  1
 

     CURRENT MARKET CONDITIONS

  1
 

     COMPETITION IN OUR MARKETS

  2
 

     SALES OUTSIDE THE U.S.

  2
 

     OUR EMPLOYEES

  2
 

     COMPARABILITY OF DATA

  2
  WHAT WE DO   3
 

     TIMBERLANDS

  3
 

     WOOD PRODUCTS

  8
 

     CELLULOSE FIBERS

  11
 

     REAL ESTATE

  13
 

     FINE PAPER

  15
 

     CONTAINERBOARD, PACKAGING AND RECYCLING

  15
 

     CORPORATE AND OTHER

  16
  NATURAL RESOURCE AND ENVIRONMENTAL MATTERS   17
 

     ENDANGERED SPECIES PROTECTIONS

  17
 

     REGULATIONS AFFECTING FORESTRY PRACTICES

  17
 

     FOREST CERTIFICATION STANDARDS

  17
 

     WHAT THESE REGULATIONS AND CERTIFICATION PROGRAMS MEAN TO US

  17
 

     CANADIAN ABORIGINAL RIGHTS

  18
 

     POLLUTION-CONTROL REGULATIONS

  18
 

     ENVIRONMENTAL CLEANUP

  18
 

     REGULATION OF AIR EMISSIONS IN THE U.S.

  18
 

     REGULATION OF AIR EMISSIONS IN CANADA

  19
 

     POTENTIAL CHANGES IN POLLUTION REGULATION

  19
  FORWARD-LOOKING STATEMENTS   20
ITEM 1A.   RISK FACTORS   21
  RISKS RELATED TO OUR INDUSTRIES AND BUSINESS   21
 

     MACROECONOMIC CONDITIONS

  21
 

     COMMODITY PRODUCTS

  21
  INDUSTRY SUPPLY OF LOGS, WOOD PRODUCTS AND PULP   21
 

     HOMEBUILDING MARKET AND ECONOMIC RISKS

  22
 

     CAPITAL MARKETS

  22
 

     CHANGES IN CREDIT RATINGS

  22
 

     SUBSTITUTION

  22
 

     CHANGES IN PRODUCT MIX OR PRICING

  23
 

     INTENSE COMPETITION

  23
 

     MATERIAL DISRUPTION OF MANUFACTURING

  23
 

     CAPITAL REQUIREMENTS

  23
 

     ENVIRONMENTAL LAWS AND REGULATIONS

  23
 

     CURRENCY EXCHANGE RATES

  24
 

     AVAILABILITY OF RAW MATERIALS AND ENERGY

  24
 

     TRANSPORTATION

  24
 

     LEGAL PROCEEDINGS

  25
 

     EXPORT TAXES

  25
 

     NATURAL DISASTERS

  25
  RISKS RELATED TO OWNERSHIP OF OUR COMMON STOCK   25
 

     STOCK-PRICE VOLATILITY

  25
ITEM 1B.   UNRESOLVED STAFF COMMENTS   26
ITEM 2.   PROPERTIES   26
ITEM 3.   LEGAL PROCEEDINGS   26
ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS   26
PART II    
ITEM 5.   MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES   27
ITEM 6.   SELECTED FINANCIAL DATA   29
ITEM 7.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   30
  WHAT YOU WILL FIND IN THIS MD&A   30
  ECONOMIC AND MARKET CONDITIONS AFFECTING OUR OPERATIONS   30
  HOW ECONOMIC AND MARKET CONDITIONS AFFECTED OUR OPERATIONS   30
  FINANCIAL PERFORMANCE SUMMARY   31
  RESULTS OF OPERATIONS   32
 

     CONSOLIDATED RESULTS

  32
 

     TIMBERLANDS

  34
 

     WOOD PRODUCTS

  36
 

     CELLULOSE FIBERS

  38
 

     REAL ESTATE

  40
 

     FINE PAPER

  42
 

     CONTAINERBOARD, PACKAGING AND RECYCLING

  43
 

     CORPORATE AND OTHER

  45
 

     INTEREST EXPENSE

  46
 

     INCOME TAXES

  46
 

     TAX BENEFITS, CHARGES AND CREDITS

  46
  LIQUIDITY AND CAPITAL RESOURCES   47
  WHERE WE GET CASH   47
  HOW WE USE CASH   49
  OFF-BALANCE SHEET ARRANGEMENTS   51
  ENVIRONMENTAL MATTERS, LEGAL PROCEEDINGS AND OTHER CONTINGENCIES   51
  ACCOUNTING MATTERS   51
 

     CRITICAL ACCOUNTING POLICIES

  51
 

     PROSPECTIVE ACCOUNTING PRONOUNCEMENTS

  54
ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   55
  LONG-TERM DEBT OBLIGATIONS   55
  OUR USE OF DERIVATIVES   55
  COMMODITY FUTURES, SWAPS AND COLLARS   55
ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA   56
  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   56
  CONSOLIDATED STATEMENT OF EARNINGS   57
  CONSOLIDATED BALANCE SHEET   58
  CONSOLIDATED STATEMENT OF CASH FLOWS   60
  CONSOLIDATED STATEMENT OF SHAREHOLDERS’ INTEREST AND COMPREHENSIVE INCOME   62
  INDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   63
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   64
ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE   112
ITEM 9A.   CONTROLS AND PROCEDURES   112
  EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES   112
  CHANGES IN INTERNAL CONTROL   112
  MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING   112
  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   113
ITEM 9B.   OTHER INFORMATION   114
PART III    
ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS   115
ITEM 11.   EXECUTIVE AND DIRECTOR COMPENSATION   119
ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS   119
ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS   119
ITEM 14.   PRINCIPAL ACCOUNTING FEES AND SERVICES   119
PART IV    
ITEM 15.   EXHIBITS AND FINANCIAL STATEMENT SCHEDULES   120
  EXHIBITS   120
  SIGNATURES   121
  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   122
  FINANCIAL STATEMENT SCHEDULE   123
  CERTIFICATIONS   124
  COMPANY OFFICERS   127


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OUR BUSINESS

We are a forest products company that primarily grows and harvests trees, builds homes and makes a range of forest products essential to everyday lives. Our goal is to do this safely, profitably and responsibly.

Our business has offices or operations in 10 countries and has customers worldwide. We manage 22 million acres of forests, and in 2008, we generated $8 billion in net sales from our continuing operations.

This portion of our Annual Report and Form 10-K provides detailed information about who we are, what we do and where we are headed. Unless otherwise specified, current information reported in this Form 10-K is as of the fiscal year ended December 31, 2008.

We break out financial information such as revenues, earnings and assets by the business segments that form our company. We also discuss the development of our company and the geographic areas where we do business.

We report our financial results and condition in two groups:

 

 

Weyerhaeuser – our forest products-based operations, principally the growing and harvesting of timber and the manufacture, distribution and sale of forest products; and

 

Real Estate – our real estate development and construction operations.

Throughout this Form 10-K, unless specified otherwise, references to “we,” “our,” “us” and “the company” refer to the consolidated company, including both Weyerhaeuser and Real Estate.

 

 

WE CAN TELL YOU MORE

 

AVAILABLE INFORMATION

We meet the information-reporting requirements of the Securities Exchange Act of 1934 by filing periodic reports, proxy statements and other information with the Securities and Exchange Commission (SEC). These reports and statements – information about our company’s business, financial results and other matters – are available at:

 

 

the SEC Internet site – www.sec.gov;

 

the SEC’s Public Conference Room, 100 F St. N.E., Washington, D.C., 20549, (800) SEC-0330; and

 

our Internet site – www.weyerhaeuser.com.

When we file the information electronically with the SEC, it also is added to our Internet site.

 

 

WHO WE ARE

 

OUR BUSINESS SEGMENTS

In the Consolidated Results section of Management’s Discussion and Analysis of Financial Condition and Results of Operations, you will find our overall performance results for our business segments:

 

 

Timberlands;

 

Wood Products;

 

Cellulose Fibers;

 

Real Estate;

 

Fine Paper (divested in 2007);

 

Containerboard, Packaging and Recycling (sold in 2008); and

 

Corporate and Other.

Detailed financial information about our business segments and our geographic locations is in Note 2: Business Segments and Note 25: Geographic Areas in the Notes to Consolidated Financial Statements, as well as in this section and in the Management’s Discussion and Analysis of Financial Condition and Results of Operations.

OUR HISTORY

We started out as Weyerhaeuser Timber Company, incorporated in the state of Washington in January 1900 when Frederick Weyerhaeuser and 15 partners bought 900,000 acres of timberland.

Our innovations and accomplishments through the years include:

 

 

establishing the nation’s first certified tree farm in 1941;

 

hand-planting 18.4 million seedlings through a foot or more of ash to transform 68,000 acres of devastated, heat-blasted landscape – left from the Mount St. Helens eruption in 1980 – into new forests that will be ready for harvesting in 2020; and

 

making our forests among the most productive in the world by using our High-Yield Forestry program – an approach that combines economic benefits with a concern for habitat, wildlife, water quality and other forest values.

CURRENT MARKET CONDITIONS

As a company, we are facing extraordinary conditions. The housing market has seen an incredible slowdown, consumer confidence remains at the lowest levels ever since tracking began in 1967 and tight credit poses a significant threat to customers. Against this backdrop, we are uncertain as to how long these challenging market conditions will continue.

 

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For additional information about market risks and the effects of current market conditions on our operations see Risk FactorsRisks Related to Our Industries and Business and Management’s Discussion and Analysis of Financial Condition and Results of OperationsEconomic and Market Conditions Affecting our Operations.

COMPETITION IN OUR MARKETS

Our major markets – both domestic and foreign – are highly competitive, with numerous companies selling similar products. Many of our products also compete against substitutes for wood and wood-fiber products. In real estate development, we compete against numerous regional and national firms. We compete in our markets primarily through price, product quality and service levels.

Our business segments’ competitive strategies are as follows:

 

 

Timberlands strives to extract maximum value for each acre.

 

Wood Products delivers high-quality lumber, engineered wood products and integrated solutions to the residential construction and industrial markets.

 

Cellulose Fibers concentrates primarily on value-added pulp products.

 

Weyerhaeuser Real Estate Company delivers its unique value propositions in target markets.

Our Containerboard, Packaging and Recycling segment was sold to International Paper in August 2008. Our Fine Paper segment was divested in a transaction with Domtar Inc. in March 2007.

SALES OUTSIDE THE U.S.

In 2008, $2.5 billion – 22 percent – of our total consolidated sales and revenues, including sales from discontinued operations, were to customers outside the U.S. The table below shows sales outside the U.S. for the last three years.

 

SALES OUTSIDE THE U.S. IN MILLIONS OF DOLLARS  
      2008     2007     2006  
Exports from the U.S.    $ 1,666        $ 2,020        $ 1,864     
Canadian export and domestic sales      240       583       1,326  
Other foreign sales      563       513       571  

Total

   $ 2,469     $ 3,116     $ 3,761  
Percent of total sales      22%       18%       17%  

OUR EMPLOYEES

We have approximately 19,850 employees. This number includes:

 

 

18,650 employed by our corporate operations and forest products-based business segments and

 

1,200 employed by our Real Estate segment.

 

Of these employees, approximately 4,100 are members of unions covered by multiyear collective-bargaining agreements.

COMPARABILITY OF DATA

Over the last five years, we have made an acquisition to complement our key operations and have exited businesses that did not fit our long-term strategic direction. As you review our results for the past five years, it may be helpful to keep in mind the following acquisition and divestitures and the segments affected.

Summary of Recent Divestitures and Acquisition

 

YEAR   TRANSACTION   SEGMENTS AFFECTED
2008   Containerboard, Packaging and Recycling segment – sold   Containerboard, Packaging and Recycling segment
2008   Australian operations – sold   Corporate and Other segment
2008   Uruguay operations – partition completed   Timberland and Corporate and Other segments
2007   Fine Paper and related assets – divested   Fine Paper, Timberlands and Wood Products segments
2007   New Zealand operations – sold   Corporate and Other segment
2007   Canadian wood products distribution centers – sold   Wood Products segment
2006   North American and Irish composite panel operations – sold   Wood Products and Corporate and Other segments
2006   Maracay Homes – acquired   Real Estate segment
2005   Coastal British Columbia operations and timberlands (B.C Coastal) – sold   Wood Products and Timberlands segments
2005   French composite panel operations – sold   Corporate and Other segment

Additional information related to our discontinued operations can be found in Note 3: Discontinued Operations and Assets Held for Sale in the Notes to Consolidated Financial Statements. Additional information related to our acquisition can be found in Note 24: Acquisitions in the Notes to Consolidated Financial Statements.

In addition to the divestitures and acquisition above, segment comparability is affected by the following:

International Operations

Effective July 2008, there were changes in senior management responsibility for Weyerhaeuser’s international operations outside of North America, which consist primarily of timberlands and related converting operations in South America. As a result, these operations, which previously were reported as part of the Corporate and Other segment, are now reported as part of the Timberlands segment.

 

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Allocation of Pension and Postretirement Credits (Costs)

Effective with the first quarter of 2008, our recurring pension credits (costs) are no longer being allocated to Weyerhaeuser operating segments. Effective with the third quarter of 2008, our recurring postretirement credits (costs) are no longer being allocated to Weyerhaeuser operating segments. These Weyerhaeuser pension and postretirement credits (costs) are reported in the Corporate and Other segment with the exception of certain union-negotiated postretirement benefits that are reflected in the Cellulose Fibers segment. Pension and postretirement credits (costs) related to real estate operations are reported in the Real Estate segment.

 

 

WHAT WE DO

 

This section provides information about how we:

 

 

grow and harvest trees,

 

manufacture and sell products made from them and

 

build and sell homes.

For each of our business segments, we provide details about what we do, where we do it, how much we sell and where we are headed.

TIMBERLANDS

Our Timberlands business segment manages 6.7 million acres of private commercial forestland worldwide. We own 6 million of those acres and lease the other 700,000 acres. In addition, we have renewable, long-term licenses on 15.2 million acres of forestland located in four Canadian provinces. The tables presented in this section include data from this segment’s business units as of the end of 2008.

Due to changes in senior management responsibility during 2008, we now report our international operations outside of North America – which consist primarily of timberlands and related converting operations in South America – as part of our Timberlands business segment. We previously reported these operations as part of our Corporate and Other business segment. We have reclassified business segment results for prior periods to be consistent with the current presentation.

WHAT WE DO

Forestry Management

Our Timberlands business segment is recognized as a leading forest manager. We:

 

 

grow and harvest trees for use as lumber, other wood and building products and pulp and paper;

 

export logs to other countries where they are made into products;

 

plant seedlings—and in parts of Canada we use natural regeneration—to reforest the harvested areas using the most effective regeneration method for the site and species;

 

monitor and care for the new trees as they grow to maturity; and

 

seek to sustain and maximize the timber supply from our forestlands while keeping the health of our environment a key priority.

Our goal is to achieve maximum returns by selling logs and stumpage to internal and external customers. We focus on solid wood and use intensive silviculture to improve forest productivity and returns while managing the forests on a sustainable basis to meet both customer and public expectations.

Wholly owned subsidiaries or joint ventures – for which we are the managing partner – run our international operations in this business segment. Our international assets consist principally of forest plantations, forest licenses and converting assets in South America. Weyerhaeuser is also the managing partner in Fujian Yong Hui Forestry Co. Ltd, a joint venture in China established in 2007. The joint venture is owned 51 percent by Weyerhaeuser and 49 percent by Fujian Yong’An Forestry Company. As of December 31, 2008, the joint venture managed 2,233 acres of timberlands with 56,000 seedlings planted in 2008.

Sustainable Forestry Practices

We are committed to responsible environmental stewardship wherever we operate, managing forests not only for wood production but also for the ecosystem services they provide. Most of the forests we manage include places with unique environmental, cultural, historical or recreational value. We manage these areas under regulatory requirements and voluntary standards to protect their unique qualities. Protecting forests with exceptional conservation value is part of implementing the Sustainable Forestry Initiative®(SFI) standard. All of the forests we own or manage in the United States have been independently certified as meeting the SFI standard. In addition, our forestlands in Uruguay are the model for the developing Uruguayan national forest certification standard, designed to be endorsed by the Program for the Endorsement of Forest Certification (PEFC).

Canadian Forestry Operations

In Canada, we are licensed to operate forestlands that provide the volume for our manufacturing units in various provinces. When the volume is harvested, we pay the provinces at stumpage rates that are set by the government and generally based on prevailing market prices. The economic benefit of growing the timber accrues to the provincial government. We do not generate any profit in the Timberlands segment from the harvest of timber from the licensed acres in Canada.

 

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Other Values From Our Timberlands

We use our geologic databases to identify and market opportunities for commercial mineral and geothermal development on our lands with a focus on the Pacific Northwest and southern United States. Revenue is primarily derived from:

 

 

royalty payments on oil and gas production,

 

bonus income from leasing activity and

 

the sale of mineral assets.

Timberlands Products

 

PRODUCTS   HOW THEY’RE USED
Logs   Logs are made into lumber, other wood and building products and pulp and paper products
Timberlands   Timberland tracts are exchanged to improve our timberland portfolio or are sold to third parties by our land development subsidiary within this segment
Timber   Standing timber may be sold to third parties or converted into chips and other raw materials to be made into pulp and paper products
Minerals, oil and gas   Sold into construction and energy markets
Other products   Includes seed and seedlings, poles, as well as plywood and hardwood lumber produced by our international operations, primarily in South America

HOW WE MEASURE OUR PRODUCT

Beginning this year, we have started to report Timberlands data in cubic meters. Cubic meters is a measure of the total volume of wood fiber in a tree or log that can be sold. Cubic meter volume is determined from the large- and small-end diameters and length and provides a more consistent and comparative measure of timber and log volume among operating regions, species, size and seasons of the year than other units of measure.

Previously, we recorded the measurable amount of fiber we can sell from a log in cunits, a similar volumetric measure where 1 cunit equals 100 cubic feet of solid wood. We changed the measurement because cubic meters is an internationally recognized measure of solid wood volume. One cunit is equal to 2.83 cubic meters.

We also use two other units of measure when transacting business including:

 

 

thousand board feet (MBF) – used in the West to measure the expected lumber recovery from a tree or log, but it does not include taper or recovery of nonlumber residual products; and

 

green tons – used in the South to measure weight, but factors used for conversion to product volume can vary by species, size, location and season.

 

Both of these measures are accurate for the regional purposes for which they are used, but they do not provide a meaningful basis for volumetric comparisons or comparisons between the regions.

The conversion rate for MBF to cubic meters varies based on several factors including diameter, length and taper of the timber being measured. The average conversion rate for MBF to cubic meters is approximately 6.7 cubic meters per MBF.

The conversion rate from green tons to cubic meters also varies based on the season harvested and the specific gravity of the wood for the region from which the timber is produced. An average conversion rate for green tons to cubic meters is approximately 0.825 cubic meters per green ton.

WHERE WE DO IT

Our balanced portfolio of timberlands assets are located primarily in North America. In the U.S. we own and manage sustainable forests – for use in wood products and pulp and paper manufacturing – in nine states. We own or lease:

 

 

4.2 million acres in the southern U.S. – which we refer to as our forests in the South; and

 

2.2 million acres in the Pacific Northwest – which we refer to as our forests in the West.

Our international operations are located primarily in Uruguay and China where, as of December 31, 2008, we own a total of 321,000 acres and have long-term leases on another 28,000 acres.

In addition, we have renewable, long-term licenses on 15.2 million acres of forestland that is owned by the provincial government of four Canadian provinces.

Our total timber inventory—including timber on owned and leased land in our U.S. and international operations—is approximately 319 million cubic meters. The timber inventory on licensed lands in Canada is approximately 382 million cubic meters. The amount of timber inventory does not translate into an amount of lumber or panel products because the quantity of end products:

 

 

varies according to the species, size and quality of the timber; and

 

will change through time as the mix of these variables adjust.

The relative value of our timberlands is affected by the species, size and grade of the trees.

 

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Summary of 2008 Timber Inventory and Timberland Locations

United States

 

GEOGRAPHIC AREA    MILLIONS
OF CUBIC
METERS
    THOUSANDS OF ACRES AT
DECEMBER 31, 2008
 
      TOTAL
INVENTORY
    FEE
OWNERSHIP
    LONG-
TERM
LEASES
    TOTAL
ACRES
 
U.S.                         

West

   173        2,218               2,218     

South

   140     3,445     696     4,141  
Total U.S.    313     5,663     696     6,359  

Our Western timberlands are composed primarily of Douglas fir, a species highly valued for its structural strength. We also have large volumes of western hemlock along the coastal areas to serve the whitewood markets. Our Southern timberlands are predominantly southern yellow pine, which provide grade logs to wood products facilities and chips and fiber logs to pulp and paper operations. Both regions have minor volumes of various hardwood species.

International

 

GEOGRAPHIC AREA    MILLIONS
OF CUBIC
METERS
   

THOUSANDS OF ACRES AT

DECEMBER 31, 2008

 
      TOTAL
INVENTORY
    FEE
OWNERSHIP
    LONG-
TERM
LEASES
    TOTAL
ACRES
 
Uruguay    6        321        26        347     
China(1)            2     2  
Total International    6     321     28     349  

(1)   Includes Weyerhaeuser percentage ownership of timberlands owned and managed through joint ventures

      

Our forestlands in Uruguay are composed of approximately 70 percent loblolly pine and 30 percent eucalyptus. The average age class of the timber in Uruguay is in the first third of its rotation age. It is entering into that part of the growth rotation when we will see increased volume accretion. Only 50 percent of the area to be planted has been afforested to date. The afforestation program is planned to be completed within the next four years.

 

Canada – Licensed Timberlands

 

GEOGRAPHIC AREA    MILLIONS
OF CUBIC
METERS
   

THOUSANDS OF ACRES AT

DECEMBER 31, 2008

 
      TOTAL
INVENTORY
LICENSED
STANDING
VOLUME
   

LICENSE

ARRANGEMENTS

    TOTAL
ACRES
 
Canada                   

Alberta

   246        5,356        5,356     

British Columbia

   23     2,255     2,255  

Ontario

   33     2,598     2,598  

Saskatchewan

   80     4,968     4,968  
Total Canada    382     15,177     15,177  

We lease and license forestland in Canada to secure the volume for our manufacturing units in the various provinces. We transfer logs from our harvest operations to our manufacturing facilities at cost. Any profit from the conversion of these logs is recognized in the Wood Products or Cellulose Fibers operating segment responsible for that activity.

All licenses managed in Canada have been independently certified using the Canadian Standards Association (CSA) standard.

Five-Year Summary of Timberlands Production

 

PRODUCTION IN THOUSANDS  
      2008     2007     2006     2005     2004  
Fee depletion – cubic meters:                               

West

   11,494        10,403        10,666        10,630        10,457     

South

   12,363     12,645     13,246     13,219     13,192  

Canada

               856     1,859  
Total    23,857     23,048     23,912     24,705     25,508  

Our Timberlands annual fee depletion represents the harvest of the timber assets we own. Depletion is a method of expensing the cost of establishing the fee timber asset base over the harvest or timber sales volume. The decline in fee depletion from 2004 through 2006 reflects the disposition of our B.C. Coastal operations in May 2005. The increase in volume in the West in 2008 reflects increased volume from salvage efforts following a December 2007 windstorm.

HOW MUCH WE SELL

Our net sales to unaffiliated customers over the last two years were:

 

 

$899 million in 2008 – down 2 percent from 2007; and

 

$922 million in 2007.

 

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Our intersegment sales over the last two years were:

 

 

$1.0 billion in 2008 – down 23 percent from 2007; and

 

$1.3 billion in 2007.

Five-Year Summary of Net Sales for Timberlands

 

NET SALES IN MILLIONS OF DOLLARS  
      2008     2007     2006     2005     2004  
To unaffiliated customers:                                         

Logs:

                                        

West

   $ 547        $ 565        $ 667        $ 625        $ 657     

South

     97       56       57       67       71  

Canada(1)

     20       38       58       69       94  

Total

     664       659       782       761       822  

Timberlands exchanges

     73       128       96       145       160  

Higher and better use land sales(2)

     11       33       35       39       57  

Minerals, oil and gas

     61       40       48       47       29  

Pay as cut timber sales

     32       25       32       33       16  

Products from international operations(3)

     40       12       6       3       1  

Other products

     18       25       24       22       18  
Subtotal sales to unaffiliated customers      899       922       1,023       1,050       1,103  
Intersegment sales:                                         

United States

     817       983       1,093       1,110       981  

Other

     217       363       593       691       642  
Subtotal intersegment sales      1,034       1,346       1,686       1,801       1,623  
Total    $ 1,933     $ 2,268     $ 2,709     $ 2,851     $ 2,726  

(1)   Reflects the divestiture of our B.C. Coastal operations in May 2005 and the Domtar Transaction in March 2007.

(2)   Higher and better use timberland is sold through Weyerhaeuser subsidiaries.

(3)   Includes logs, plywood and hardwood lumber harvested or produced by our international operations, primarily in South America.

      

     

      

Five-Year Trend for Total Net Sales in Timberlands

LOGO

 

Percentage of 2008 Sales to Unaffiliated Customers

LOGO

Log Sales Volumes

Logs sold to unaffiliated customers in 2008 increased approximately 1.5 million cubic meters – 17 percent – from 2007.

 

 

Sales volumes in the West increased 755,000 cubic meters – 12 percent. The Western increase was primarily due to a higher harvest level of salvage logging following the December 2007 windstorm. Our Western sales to unaffiliated customers is generally higher-grade logs sold into the export market and domestic-grade logs sold to West Coast sawmills.

 

Sales to unaffiliated customers in the South increased 766,000 cubic meters – 48 percent – as we continue to supply fiber to the containerboard mills sold to International Paper in August 2008. Prior to August, logs sold to those mills would have been accounted for as intersegment sales. Our southern sales volumes to unaffiliated customers are generally lower-grade fiber logs sold to pulp or containerboard mills. We use almost all of our high-grade logs in our own conversion facilities.

 

Sales volumes from Canada decreased 396,000 cubic meters – 43 percent – in 2008. This reduction in volume was primarily due to having fewer operations in Canada.

 

Sales volumes from our international operations increased in 2008 with the addition of our Uruguay operations – which were previously reported as joint ventures.

We have three primary grades of log sales – domestic grade, domestic fiber and export. Factors that may affect log sales in each of these categories include:

 

 

domestic grade log sales – lumber usage, primarily for housing starts and repair and remodel activity, the needs of our own mills and the availability of logs from both outside markets and our own timberlands;

 

domestic fiber log sales – demand for chips by pulp and containerboard mills; and

 

export log sales – level of housing starts in Japan, where most of our North American export logs are sold.

 

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All our domestic and export logs are sold to unaffiliated customers or transferred at market prices to our internal mills by the sales and marketing staff within our Timberlands business units.

Five-Year Summary of Log Sales Volumes to Unaffiliated Customers for Timberlands

 

SALES VOLUMES IN THOUSANDS  
      2008     2007     2006     2005     2004  
Logs – cubic meters:                               

West

   6,967        6,212        6,602        6,380        6,571     

South

   2,347     1,581     1,698     1,925     2,209  

Canada

   529     925     1,425     1,745     2,314  

International

   329         55     31      
Total    10,172     8,718     9,780     10,081     11,094  
Reflects the divestiture of our B.C. Coastal operations in May 2005 and the Domtar Transaction in March 2007.   

Log Prices

The majority of our log sales to unaffiliated customers are sales to the export market and to other domestic sawmills in the Pacific Northwest. Following is a five-year summary of selected export log prices.

Five-Year Summary of Selected Export Log Prices

(#2 Sawlog Bark On – $/MBF)

LOGO

 

Our log prices are affected by the supply of and demand for grade and fiber logs and are influenced by the same factors that affect log sales. Export log prices are particularly affected by the Japanese housing market.

Average 2008 log realizations in the West decreased from 2007 – primarily due to lower domestic log prices and an increased mix of lower-value whitewood in both our export and domestic volumes resulting from the salvage logging efforts following the December 2007 windstorm. These were slightly offset by increased log realizations in the South compared to 2007.

WHERE WE’RE HEADED

Our competitive strategies include:

 

 

managing forests on a sustainable basis to meet customer and public expectations;

 

reducing the time it takes to realize returns by practicing intensive forest management and focusing on the most advantageous markets;

 

efficiently delivering raw materials to internal supply chains;

 

building long-term relationships with external customers who rely on a consistent supply of high-quality raw material;

 

continuously reviewing our portfolio of land holdings to create the greatest value for the company;

 

investing in technology and advances in silviculture to improve yields and timber quality; and

 

positioning ourselves as one of the largest, lowest-cost growers of global softwood and hardwood timber.

In addition, we believe we will generate additional revenues from new products and services, such as wetland mitigation banking and conservation easements, and from participating in emerging carbon markets.

 

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WOOD PRODUCTS

We are one of the largest manufacturers and distributors of wood products in North America.

WHAT WE DO

Our wood products segment:

 

 

provides a family of high-quality softwood lumber, engineered lumber, structural panels and other specialty products to the residential structural frame market;

 

delivers innovative homebuilding solutions to help our customers quickly and efficiently meet their customers’ needs;

 

sells our products and services primarily through our own sales organizations and distribution facilities and supplements our product offerings with building materials that we purchase from other manufacturers;

 

sells certain products into the repair and remodel market through the wood preserving and home-improvement warehouse channels;

 

exports our engineered building materials and industrial hardwood products to Europe and Asia;

 

makes and sells hardwood and softwood lumber and panels to manufacturers of furniture and cabinetry in more than 40 countries; and

 

acquires raw materials at market price from our Timberlands business segment and from third parties.

Wood Products

 

PRODUCTS   HOW THEY’RE USED
Softwood lumber   Structural framing for residential and commercial structures

Engineered lumber

  Solid section

  I-joists

  Floor and roof joists, and headers and beams for residential and commercial structures

Structural panels

  Oriented strand board (OSB)

  Plywood

  Structural sheathing, subflooring and stair tread for residential and commercial structures
Veneer   Intermediate raw material for plywood and engineered lumber manufacturing
Hardwood lumber   Furniture, pallets, ties, moldings, panels, cabinets, architectural millwork, components and retail boards
Other products   Complementary building products such as cedar decking, siding, insulation, rebar and engineered lumber connectors

 

WHERE WE DO IT

We operate manufacturing facilities in the U.S. and Canada. We distribute through a combination of Weyerhaeuser and third-party locations. Information about the locations, capacities and actual production of our manufacturing facilities is included below.

Principal Manufacturing Locations

Locations of our principal manufacturing facilities as of December 31, 2008, by major product group were:

 

 

Softwood lumber

   

U.S. – Alabama, Arkansas, Louisiana, Mississippi, North Carolina, Oklahoma, Oregon and Washington

   

Canada – Alberta and British Columbia

 

Engineered lumber

   

U.S. – Alabama, Georgia, Kentucky, Louisiana, Minnesota, Oregon and West Virginia

   

Canada – British Columbia and Ontario

 

Oriented strand board

   

U.S. – Louisiana, Michigan, North Carolina and West Virginia

   

Canada – Alberta, Ontario and Saskatchewan

 

Plywood and veneer

   

U.S. – Alabama, Arkansas, Louisiana, Oregon and Washington

 

Hardwood lumber

   

U.S. – Michigan, Oregon, Washington and Wisconsin

Subsequent to year-end and through the date of this filing, we announced the permanent closures of one lumber mill and one veneer mill in Aberdeen, Washington, and the indefinite closures of one lumber mill and one veneer mill in Pine Hill, Alabama.

Summary of 2008 Wood Products Capacities

 

CAPACITIES IN MILLIONS               
      PRODUCTION
CAPACITY
    NUMBER OF
FACILITIES
 
Softwood lumber – board feet    5,960        27     
Engineered solid section – cubic feet    56     11  
Engineered I-joists – lineal feet    485     5  
Oriented strand board – square feet (3/8”)    3,485     7  
Plywood – square feet (3/8”)    460     2  
Veneer – square feet (3/8”)    1,355     6  
Hardwood lumber – board feet    300     7  

Capacities include:

-     announced closure or indefinite curtailment of two lumber facilities and two veneer mills in early 2009 – Aberdeen Lumber, Pacific Veneer and Pine Hill Lumber and Veneer;

-     indefinite curtailment of two engineered solid section facilities – Colbert Parallam and Deerwood Timberstrand;

-     indefinite curtailment of one engineered I-joist facility – Valdosta; and

-     indefinite curtailment of two oriented strand board mills – Wawa and Hudson Bay.

 

        

        

       

       

 

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Five-Year Summary of Wood Products Production

 

PRODUCTION IN MILLIONS  
      2008     2007     2006     2005     2004  
Softwood lumber –board feet(1)    4,451        5,490        6,355        6,986        7,187     
Engineered solid section – cubic feet(2)    22     28     41     41     42  
Engineered I-joists –lineal feet(2)    218     339     473     483     504  
Oriented strand board – square feet (3/8”)    2,468     3,428     4,166     4,078     4,081  
Plywood – square feet (3/8”)(3)    333     423     900     1,155     1,628  
Veneer – square feet (3/8”)(3)(4)    872     1,150     1,739     1,979     2,386  
Composite panels – square feet (3/4”) (1)    —       —       666     1,080     1,066  
Hardwood lumber – board feet    253     294     324     364     349  

(1)   Reflects the divestitures of our B.C. Coastal operations in May 2005, North American composite panel operations in July 2006 and the Domtar Transaction in March 2007.

(2)   Weyerhaeuser engineered I-joist facilities also may produce engineered solid section.

(3)   All Weyerhaeuser plywood facilities also produce veneer.

(4)   Veneer production represents lathe production and includes volumes that are used to produce plywood and engineered lumber products by our mills.

      

     

     

      

HOW MUCH WE SELL

Revenues of our Wood Products business segment come from sales to wood products dealers, do-it-yourself retailers, builders and industrial users. We provide products and services to the residential construction market under the iLevel®brand. In 2008, our net sales were $3.8 billion compared with $5.7 billion in 2007.

Five-Year Summary of Net Sales for Wood Products

 

NET SALES IN MILLIONS OF DOLLARS         
      2008     2007     2006     2005     2004  
Softwood lumber(1)    $ 1,443        $ 2,241        $ 2,997        $ 3,624        $ 3,915     
Engineered solid section      414       608       794       833       701  
Engineered I-joists      284       467       670       704       645  
Oriented strand board      416       589       939       1,164       1,390  
Plywood      202       366       529       735       929  
Hardwood lumber      291       355       398       390       365  
Other products produced(1)      225       226       214       277       374  
Other products purchased for resale      493       847       1,361       1,551       1,456  
Total    $ 3,768     $ 5,699     $ 7,902     $ 9,278     $ 9,775  

(1)   Reflects the divestitures of our B.C. Coastal operations in May 2005, North American composite panel operations in July 2006 and the Domtar Transaction in March 2007.

      

 

Five-Year Trend for Total Net Sales in Wood Products

LOGO

Percentage of 2008 Net Sales in Wood Products

LOGO

Wood Products Volume

The volume of wood products sold in 2008 declined from 2007 primarily due to a significant decline in market demand, resulting from the downturn of the homebuilding and repair and remodel markets. In response to these market conditions in 2007 and 2008, we sold or closed a number of facilities and curtailed production at several other mills. The sales and closures include:

 

 

Sales:

   

2008 – seven U.S. distribution centers; and

   

2007 – two plywood facilities and 16 Canadian distribution centers.

 

Closures:

   

2008 – three lumber mills, four U.S. distribution centers and two Canadian OSB mills that were curtailed in 2007; and

   

2007 – two lumber mills, one engineered lumber mill, two U.S. distribution centers, a plywood line and a veneer peeling operation.

 

Indefinite curtailment:

   

2008 – one Canadian OSB mill and one engineered lumber mill; and

   

2007 – two Canadian OSB mills and two engineered lumber mills.

 

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Five-Year Summary of Sales Volume for Wood Products

 

SALES VOLUMES IN MILLIONS  
      2008     2007     2006     2005     2004  

Softwood lumber(1)

– board feet

   4,722        6,538        7,871        8,650        8,890     
Engineered solid section – cubic feet    23     30     36     38     37  

Engineered I-joists

– lineal feet

   227     338     456     484     496  

Oriented strand

board – square feet (3/8”)

   2,438     3,466     4,096     3,948     4,213  

Plywood – square

feet (3/8”)

   565     1,049     1,663     2,180     2,629  

Hardwood lumber

– board feet

   324     363     412     427     417  

(1)   Reflects the divestiture of our B.C. Coastal operations in May 2005 and the Domtar Transaction in March 2007.

      

Wood Products Prices

Prices for wood products in 2008 declined from 2007.

In general, the following factors influence prices for wood products:

 

 

Overall demand for structural wood products used in new residential construction and the repair and remodel of existing homes affects prices. Residential construction is affected by the rate of household formation and other demographic factors, mortgage interest rates, the need for replacement of existing housing stock and the demand for secondary or vacation homes. Repair and remodel activity is affected by the size and age of existing housing inventory and access to home equity financing and other credit.

 

The availability of supply of commodity building products such as lumber and plywood affects prices. A number of factors can affect supply, including new capacity, weather, raw material quality and availability and rail and truck transportation availability.

 

Proprietary-grade products and services can command higher prices. Our ability to differentiate our products and services from other manufacturers and create demand for them in the marketplace could generate higher prices.

Demand for home construction fell dramatically from 2006 through 2008, with a corresponding drop in demand for the products that we produce and sell. The ongoing oversupply of products has put significant and prolonged downward pressure on prices. This is evident in the following graphs.

 

Five-Year Summary of Selected Published Lumber Prices – $/MBF

LOGO

Five-Year Summary of Selected Published Oriented Strand Board Prices – $/MSF

LOGO

Five-Year Summary of Selected Published Plywood Prices ( 1/2” CDX) – $/MSF

LOGO

 

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WHERE WE’RE HEADED

Our competitive strategies include:

 

 

responding to difficult market conditions by actively managing our network of production facilities to balance supply with market demand;

 

achieving operating excellence throughout the delivery chain;

 

taking advantage of our size, scale, expertise and breadth of products that make us unique in serving the residential structural-frame marketplace;

 

developing and delivering innovative homebuilding solutions, such as residential structural frame construction, to meet customers’ needs;

 

meeting international demands for hardwood products by aligning our global supply chain and strengthening our industrial wood products sales capability; and

 

continuing to meet the needs of home-improvement repair and remodel customers.

 

 

 

CELLULOSE FIBERS

Our cellulose fibers (pulp) products are distributed through a global direct sales network, and our liquid packaging products are sold directly to carton and food product packaging converters in North America and Asia. We also have a 50 percent interest in North Pacific Paper Corporation (NORPAC) – a joint venture with Nippon Paper Industries that produces newsprint and high-brightness publication papers.

WHAT WE DO

As one of the world’s largest softwood market pulp producers, we:

 

 

provide cellulose fibers for targeted specialty markets,

 

work closely with our customers to develop unique or specialized applications and

 

manufacture liquid packaging board used primarily for the production of containers for liquid products.

Cellulose Fibers Products

 

PRODUCTS   HOW THEY’RE USED

Pulp

  Fluff pulp (Southern softwood kraft fiber)

  Papergrade pulp (Southern and Northern softwood kraft fiber)

  Specialty chemical cellulose pulp

 

 

  Used in sanitary disposable products that require bulk, softness and absorbency

  Used in products that include printing and writing papers and tissue

 

  Used in textiles, absorbent products, specialty packaging, specialty applications and proprietary high-bulking fibers

Liquid packaging board   Converted into containers to hold liquid materials such as milk, juice and tea

Other products

  Slush pulp

  Wet lap pulp

  Used in the manufacture of paper products

WHERE WE DO IT

We have four pulp mills in the southern part of the U.S. and one pulp mill in Canada. We also have a converting facility for modified fibers in Mississippi. Our liquid packaging mill is located in Washington state.

Principal Manufacturing Locations

Locations of our principal manufacturing facilities by major product group are:

 

 

Pulp

   

U.S. – Georgia, Mississippi and North Carolina

   

Canada – Alberta

 

Modified fiber converting facility

   

U.S. – Mississippi

 

Liquid packaging board

   

U.S. – Washington

 

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Summary of 2008 Cellulose Fibers Capacities

 

CAPACITIES IN THOUSANDS  
      PRODUCTION
CAPACITY
    NUMBER OF
FACILITIES
 
Pulp – air-dry metric tons    1,790        5     
Liquid packaging board – tons    300     1  

Five-Year Summary of Cellulose Fibers Production

 

PRODUCTION IN THOUSANDS  
      2008     2007     2006     2005     2004  
Pulp – air-dry metric tons (1)    1,760        1,851        2,588        2,502        2,546     
Liquid packaging board – tons    297     283     282     264     266  

(1)   Reflects Domtar Transaction in March 2007.

     

HOW MUCH WE SELL

Revenues of our Cellulose Fibers segment come from sales to customers who use the products for further manufacturing or distribution and for direct use. Our net sales were approximately $1.8 billion in 2008 and 2007.

Five-Year Summary of Net Sales for Cellulose Fibers

 

NET SALES IN MILLIONS OF DOLLARS  
      2008     2007     2006     2005     2004  
Pulp (1)    $ 1,357        $ 1,478        $ 1,657        $ 1,482        $ 1,471     
Liquid packaging board      290       247       229       203       208  
Other products      118       107       70       51       43  
Total    $ 1,765     $ 1,832     $ 1,956     $ 1,736     $ 1,722  

(1)   Reflects Domtar Transaction in March 2007.

     

Five-Year Trend for Total Net Sales in Cellulose Fibers

LOGO

 

Percentage of 2008 Net Sales in Cellulose Fibers

LOGO

Pulp Volumes

Our sales volume of cellulose fiber products in 2008 was 1.7 million tons – a decrease of 18 percent compared with 2007. This reduction in volume was primarily due to the divestiture of five production facilities in the 2007 Domtar Transaction. Following the divestiture, we entered into a brokerage agreement with Domtar under which we bought and resold pulp for the remainder of 2007. This activity did not continue in 2008 – further reducing our sales volumes.

Other factors that affect sales volumes for cellulose fiber products include:

 

 

growth of the world gross domestic product and

 

demand for paper production and diapers.

Five-Year Summary of Sales Volume for Cellulose Fibers

 

SALES VOLUMES IN THOUSANDS  
      2008     2007     2006     2005     2004  
Pulp – air-dry metric tons (1)    1,704        2,070        2,621        2,502        2,558     
Liquid packaging board – tons    302     286     275     258     276  

(1)   Reflects the Domtar Transaction in March 2007.

     

Pulp Prices

Our average pulp prices in 2008 increased compared with 2007 due to:

 

 

the relative weakness of the U.S. dollar,

 

the level of demand and

 

the world economic environment.

 

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Five-Year Summary of Selected Published Pulp Prices – $/TON

LOGO

WHERE WE’RE HEADED

Our competitive strategies include:

 

 

focusing our Cellulose Fibers businesses on value-added products,

 

focusing research and development resources on new ways to expand and improve the range of applications for cellulose fibers and on new product opportunities,

 

providing our customers with access to our technical expertise,

 

improving our cost-competitiveness through operational excellence and noncapital solutions,

 

focusing capital investments on new and improved product capabilities and cost-reduction opportunities and

 

collaborating with third parties to develop new products.

 

 

 

REAL ESTATE

Our Real Estate business segment includes our wholly owned subsidiary Weyerhaeuser Real Estate Company (WRECO) and its subsidiaries. WRECO’s operations are concentrated in projected long-term, high-growth metropolitan areas in the United States.

WHAT WE DO

The Real Estate segment is focused on:

 

constructing single-family housing and

 

developing residential lots for our use and for sale.

Real Estate Products and Activities

 

PRODUCTS   HOW THEY’RE USED
Single-family housing   Residential living
Land development   Residential lots and land for construction and sale, master-planned communities
Other   Residential homebuilding investment management

WHERE WE DO IT

Our operations are concentrated in select metropolitan areas:

 

Single-family housing and land development

   

Arizona, California, Maryland, Nevada, Oregon, Texas, Virginia and Washington

 

Real estate investment management offices

   

California, Illinois and Washington

HOW MUCH WE SELL

We are one of the top 20 homebuilding companies in the U.S. as measured by annual single-family home closings.

Our revenues decreased to $1.4 billion in 2008 – 40 percent – from $2.4 billion in 2007, primarily due to a 28 percent decline in single-family closings. The decline in home closings is the result of weak financial markets, tight lending standards and the collapse of consumer confidence, which continues to put downward pressure on pricing.

The following factors affect revenues in our Real Estate business segment:

 

 

Market prices of the homes that we construct for sale may vary.

 

The product and geographic mix of sales vary based on the following:

   

We build in a variety of locations. Market conditions vary by geography, which affects total revenues.

 

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We provide homes at a range of price points to meet our target customers’ needs from entry-level products in Washington state to move-up, custom homes in Southern California and the Washington, D.C., metro area. The mix of these sales affects total revenues.

   

We build both traditional, single-family, detached homes and attached products such as town homes and condominiums. The mix of price points at which these products sell creates variability in our revenue from period to period.

 

Land and lot sales are a component of our activities. These sales do not occur evenly from year to year, but average approximately 5 percent to 15 percent of total Real Estate revenues annually.

 

From time to time, we sell apartment buildings we have constructed.

Five-Year Summary of Revenue for Real Estate

 

REVENUE IN MILLIONS OF DOLLARS  
      2008     2007     2006     2005     2004  
Single-family housing    $ 1,294        $ 2,079        $ 2,951        $ 2,686        $ 2,193     
Land development      99       213       310       202       284  
Other      15       67       74       27       18  
Total    $ 1,408     $ 2,359     $ 3,335     $ 2,915     $ 2,495  

Reflectsthe acquisition of Maracay Homes in February 2006.

 

Five-Year Trend for Total Net Sales in Real Estate

LOGO

 

Percentage Breakdown of 2008 Net Sales in Real Estate

LOGO

Five-Year Summary of Single-Family Unit Statistics

 

SINGLE-FAMILY UNIT STATISTICS  
      2008     2007     2006     2005     2004  
Homes sold    2,545        4,152        4,541        5,685        5,375     
Homes closed    3,188     4,427     5,836     5,647     5,264  
Homes sold but not closed    581     1,224     1,499     2,410     2,372  
Single-family gross margin – excluding impairments (%)(1)    11.5 %   21.2 %   27.6 %   32.8 %   29.7 %

(1)   Single-family gross margin equals revenue less cost of sales and period costs other than impairments.

       Reflects the acquisition of Maracay Homes in February 2006.

      

        

WHERE WE’RE HEADED

Our competitive strategies include:

 

 

delivering quality homes to satisfied customers – a principle we measure through “willingness to refer” rates from surveys of homebuyers;

 

focusing on reducing costs, generating cash and reducing debt;

 

applying distinct value propositions that target a specific market niche in each of our chosen geographies;

 

replicating best practices developed in each geographic area; and

 

reducing and rebalancing our land portfolio.

 

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FINE PAPER

On March 7, 2007, our fine paper operations and related assets were divested in the Domtar Transaction. As a result, the year ended December 30, 2007, includes nine weeks of fine paper operations. Subsequent to the first quarter of 2007, we no longer have results of operations for the Fine Paper segment.

Five-Year Summary of Net Sales for Fine Paper

 

NET SALES IN MILLIONS OF DOLLARS         
      2008     2007     2006     2005     2004  
Paper    $  –        $ 432        $ 2,470        $ 2,417        $ 2,226     
Coated groundwood            26       171       180       156  
Other products            1       4       3       11  
Total    $     $ 459     $ 2,645     $ 2,600     $ 2,393  
2007 includes nine weeks of operations prior to the divestiture of the Fine Paper business.  

Five-Year Summary of Sales Volume for Fine Paper

 

SALES VOLUMES IN THOUSANDS  
      2008     2007     2006     2005     2004  
Paper – tons(1)           461        2,749        2,996        2,876     
Coated groundwood – tons        38     234     232     243  
Paper converting – tons        318     1,932     1,964     1,839  

(1)   Paper sales include unprocessed rolls and converted paper volumes.

2007 includes nine week of operations prior to the divestiture of the Fine Paper business.

     

 

Five-Year Summary of Fine Paper Production

 

PRODUCTION IN THOUSANDS  
      2008     2007     2006     2005     2004  
Paper – tons(1)           444        2,796        3,060        3,006     
Coated groundwood – tons        43     230     234     240  
Paper converting – tons        318     1,931     1,950     1,838  

(1)   Paper production includes unprocessed rolls and converted paper volumes.

2007 includes nine weeks of operations prior to the divestiture of the Fine Paper business.

     

 

 

CONTAINERBOARD, PACKAGING AND RECYCLING

On August 4, 2008, our Containerboard, Packaging and Recycling business was sold to International Paper Company. As a result, the fiscal year ended December 31, 2008, includes 31 weeks of Containerboard, Packaging and Recycling operations.

Five-year Summary of Containerboard, Packaging and Recycling Production

 

PRODUCTION IN THOUSANDS  
      2008     2007     2006     2005     2004  
Containerboard – tons(1)    3,639        6,106        6,260        6,268        6,291     
Packaging – MSF(2)    44,376     77,221     79,851     78,089     77,822  
Recycling – tons(3)    3,923     6,655     6,829     6,743     6,718  
Kraft bags and sacks – tons    52     93     82     88     94  

(1)   Containerboard production represents machine production and includes volumes that are further processed into packaging and kraft bags and sacks by company facilities.

(2)   Packaging production capacity is based on corrugator production.

(3)   Recycling production includes volumes processed in Weyerhaeuser recycling facilities that are consumed by company facilities and brokered volumes.

2008 includes 31 weeks of operations prior to the sale of the Containerboard, Packaging and Recycling business.

      

     

      

  

Five-Year Summary of Net Sales for Containerboard, Packaging and Recycling

 

NET SALES IN MILLIONS OF DOLLARS  
      2008     2007     2006     2005     2004  
Containerboard    $ 301        $ 457        $ 377        $ 395        $ 368     
Packaging      2,449       4,019       3,931       3,710       3,584  
Recycling      275       413       345       352       347  
Kraft bags and sacks      56       96       88       83       80  
Other products      88       183       171       167       156  
Total    $ 3,169     $ 5,168     $ 4,912     $ 4,707     $ 4,535  
2008 includes 31 weeks of operations prior to the sale of the Containerboard, Packaging and Recycling business.   

Five-Year Summary of Sales Volume for Containerboard, Packaging and Recycling

 

SALES VOLUMES IN THOUSANDS         
      2008     2007     2006     2005     2004  
Containerboard – tons    603        957        856        1,046        1,001     
Packaging – MSF    42,566     73,572     74,867     73,631     72,885  
Recycling – tons    1,556     2,580     2,875     2,728     2,694  
Kraft bags and sacks – tons    56     99     89     89     95  
2008 includes 31 weeks of operations prior to the sale of the Containerboard, Packaging and Recycling business.   

 

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CORPORATE AND OTHER

WHAT WE DO

Our Corporate and Other segment includes:

 

 

governance-related corporate support activities and companywide initiatives such as major system and infrastructure deployments;

 

transportation operations – including Westwood Shipping Lines and five short-line railroads – which provide services to our manufacturing operations and to third parties; and

 

results of international operations that have been disposed of and results of our investment in Uruguay prior to its restructuring in the second quarter of 2008.

We also record certain gains or charges in the Corporate and Other segment related to dispositions or events that generally are not related to an individual operating segment.

The following changes were made to the Corporate and Other segment during 2008:

International Operations

Ongoing operations outside of North America, which previously were reported as part of the Corporate and Other segment, are reported as part of the Timberlands segment. Segment results for prior periods have been recast to present information consistent with the current presentation.

Pension and Postretirement Credits (Costs)

Allocation of credits (costs) to the forest products operating segments ceased as of the beginning of 2008 for pension and as of the beginning of the third quarter for postretirement. Prior periods were not recast to reflect the change in allocation methodology. Except as listed below, pension and postretirement credits (costs) are now held in the Corporate and Other segment.

 

 

Certain union-negotiated postretirement benefits are reflected in the Cellulose Fibers segment.

 

Pension and postretirement credits (costs) related to real estate operations are reported in the Real Estate segment.

WHERE WE DO IT

Our transportation operations include our marine operations, which provide shipping between North America and Asia, and our railroad operations, which are located in the western and southern U.S.

As part of our strategic restructuring of our international holdings, we:

 

 

sold our Irish composite panels operation – November 2006;

 

restructured our investment in our Uruguay joint ventures in preparation for a partitioning of the assets with the joint venture owners – June 2007;

 

sold our investment in our New Zealand joint venture, Nelson Forests – October 2007;

 

completed the partitioning of assets related to our Uruguay joint ventures – April 2008; and

 

sold our investment in our Australian operations – July 2008.

See Note 7: Equity Affiliates in the Notes to Consolidated Financial Statements for more information related to our joint ventures.

HOW MUCH WE SELL

Sales and revenues for our Corporate and Other segment are primarily related to our marine transportation and discontinued international operations. In 2008, our net sales were $392 million compared with $432 million in 2007. The decline in revenues is primarily due to the sale of the Australian operations in July 2008.

Factors that affect revenues in our transportation operations include:

 

 

international trade levels between North America and its trading partners in Asia,

 

the profile of our competition within our shipping lanes and

 

overall demand for forest products.

Five-Year Summary of Revenue for Corporate and Other

 

REVENUE IN MILLIONS OF DOLLARS         
      2008     2007     2006     2005     2004  
Transportation    $ 259        $ 223        $ 198        $ 203        $ 194     
International wood products(1)(2)      133       209       277       386       380  
Other                  2       9        
Total    $ 392     $ 432     $ 477     $ 598     $ 574  

(1)   Restated to exclude ongoing international operations now reported as part of the Timberlands segment.

(2)   Reflects the divestitures of our French composite panels operations in December 2005 and our Irish composite panels operation in November 2006.

      

      

Five-Year Trend for Total Net Sales in Corporate and Other

LOGO

 

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NATURAL RESOURCE AND ENVIRONMENTAL MATTERS

 

Many social values are expressed in the laws and regulations that pertain to growing and harvesting timber. We participate in voluntary certification of our timberlands to assure that we sustain their values including the protection of wildlife and water. Changes in law and regulation can significantly affect local or regional timber harvest levels and market values of timber-based raw materials.

ENDANGERED SPECIES PROTECTIONS

In the U.S., a number of fish and wildlife species that inhabit geographic areas near or within our timberlands have been listed as threatened or endangered under the federal Endangered Species Act (ESA) or similar state laws. Some of these listed species include the northern spotted owl, the marbled murrelet, a number of salmon species, bull trout and steelhead trout in the Pacific Northwest and the red-cockaded woodpecker, gopher tortoise and American burying beetle in the Southeast. Additional species or populations may be listed as threatened or endangered as a result of pending or future citizen petitions or petitions initiated by federal or state agencies.

Federal and state requirements to protect habitat for threatened and endangered species have resulted in restrictions on timber harvest on some timberlands, including some of our timberlands. Additional listings of fish and wildlife species as endangered, threatened or sensitive under the ESA or similar state laws as well as regulatory actions taken by federal or state agencies to protect habitat for these species may, in the future, result in additional restrictions on our timber harvests and other forest management practices. They also could increase our operating costs and affect timber supply and prices in general.

In Canada, the federal Species at Risk Act (SARA) was enacted in 2002. SARA enacted protective measures for species identified as being at risk and for critical habitat. To date, SARA has not had a significant effect on our operations; however, it is anticipated that SARA will, over time, result in some additional restrictions on timber harvests and other forest management practices and increase some operating costs for operators of forestlands in Canada. For these reasons, SARA is expected to affect timber supply and prices in the future.

REGULATIONS AFFECTING FORESTRY PRACTICES

In the U.S., regulations established by federal, state and local governments or agencies to protect water quality and wetlands could affect future harvests and forest management practices on some of our timberlands. Forest practice acts in some states in the U.S. increasingly affect present or future harvest and forest management activities. For example, in some states, these acts limit the size of clearcuts, require some timber to be left unharvested to protect water quality and fish and wildlife habitat, regulate construction and maintenance of forest roads, require reforestation following timber harvest and contain procedures for state agencies to review and approve proposed forest practice activities. Some states and local governments regulate certain forest practices through various permit programs. Each state in which we own timberlands has developed best management practices to reduce the effects of forest practices on water quality and aquatic habitats. Additional and more stringent regulations may be adopted by various state and local governments to achieve water-quality standards under the federal Clean Water Act, protect fish and wildlife habitats, or achieve other public policy objectives.

Our forest operations in Canada are carried out on public forestlands under forest licenses. All forest operations are subject to forest practices and environmental regulations, and operations under licenses also are subject to contractual requirements between us and the relevant province designed to protect environmental and other social values.

FOREST CERTIFICATION STANDARDS

We operate in the U.S. under the Sustainable Forestry Initiative®. This is a certification standard designed to supplement government regulatory programs with voluntary landowner initiatives to further protect certain public resources and values. The Sustainable Forestry Initiative® is an independent standard, overseen by a governing board consisting of conservation organizations, academia, the forest industry and large and small forest landowners. Compliance with the Sustainable Forestry Initiative® may result in some increases in our operating costs and curtailment of our timber harvests in some areas. In Canada, we participate in the Canadian Standards Association Sustainable Forest Management System standard, a voluntary certification system that further protects certain public resources and values. Compliance with this standard will result in some increases in our operating costs and curtailment of our timber harvests in some areas in Canada.

WHAT THESE REGULATIONS AND CERTIFICATION PROGRAMS MEAN TO US

The regulatory and nonregulatory forest management programs described above have increased our operating costs, resulted in changes in the value of timber and logs from our timberlands, and contributed to increases in the prices paid for wood products and wood chips during periods of high demand. These kinds of programs also can make it more difficult for us to respond to rapid changes in markets, extreme weather or other unexpected circumstances. One additional effect may be further reductions in the usage of, or substitution of other products for,

 

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lumber and plywood. We believe that these kinds of programs have not had, and in 2009 will not have, a significant effect on the total harvest of timber in the U.S. or Canada. However, these kinds of programs may have such an effect in the future. We expect we will not be disproportionately affected by these programs as compared with typical owners of comparable timberlands. We also expect that these programs will not significantly disrupt our planned operations over large areas or for extended periods.

CANADIAN ABORIGINAL RIGHTS

Many of the Canadian forestlands also are subject to the constitutionally protected treaty or common-law rights of the aboriginal peoples of Canada. Most of British Columbia (B.C.) is not covered by treaties, and as a result the claims of B.C.’s aboriginal peoples relating to forest resources are largely unresolved, although many aboriginal groups are actively engaged in treaty discussions with the governments of B.C. and Canada. Final or interim resolution of claims brought by aboriginal groups is expected to result in additional restrictions on the sale or harvest of timber and may increase operating costs and affect timber supply and prices in Canada. We believe that such claims will not have a significant effect on our total harvest of timber or production of forest products in 2009, although they may have such an effect in the future. In 2008, the Forest Products Association of Canada (FPAC), of which we are a member, signed a Memorandum of Understanding with the Assembly of First Nations, under which the parties agree to work together to strengthen Canada’s forest sector through economic-development initiatives and business investments, strong environmental stewardship and the creation of skill-development opportunities particularly targeted to aboriginal youth.

POLLUTION-CONTROL REGULATIONS

Our operations also are subject to federal, state, provincial and local pollution controls with regard to air, water and land; solid and hazardous waste management; and disposal and remediation laws and regulations in all areas in which we have operations. We also are subject to market demands with respect to chemical content of some of our products. Compliance with these laws, regulations and demands usually involves capital expenditures as well as additional operating costs. We cannot easily quantify the future amounts of capital expenditures we might have to make to comply with these laws, regulations and demands or the effects on our operating costs because in some instances compliance standards have not been developed or have not become final or definitive. In addition, when we make changes in operations to comply with regulatory standards, we frequently are making changes for other purposes as well. These purposes might include the extension of facility life, an increase in capacity, changes in raw material requirements, or an increase in the economic value of assets or products.

It is difficult to isolate the environmental component of most manufacturing capital projects, but we estimate that our capital expenditures for environmental compliance were approximately $16 million in 2008 (approximately 4 percent of total capital expenditures, excluding acquisitions and Real Estate). Based on our understanding of current regulatory requirements in the U.S. and Canada, we expect that capital expenditures for environmental compliance will be approximately $5 million in 2009 (approximately 2 percent of expected total capital expenditures, excluding acquisitions and Real Estate).

ENVIRONMENTAL CLEANUP

We are involved in the environmental investigation or remediation of numerous sites we presently own or formerly owned. Of these sites, we may have the sole obligation to remediate or may share that obligation with one or more parties. In some instances, several parties have joint and several obligations to remediate. Some sites are Superfund sites where we have been named as a potentially responsible party. Our liability with respect to these various sites ranges from insignificant to substantial. The amount of liability depends on the quantity, toxicity and nature of materials at the site and depends on the number and economic viability of the other responsible parties.

We spent approximately $9 million in 2008 and expect to spend approximately $7 million in 2009 on environmental remediation of these sites. It is our policy to accrue for environmental-remediation costs when we determine it is probable that such an obligation exists and can reasonably estimate the amount of the obligation. We currently believe it is reasonably possible that our costs to remediate all the identified sites may exceed our current accruals of $37 million. The excess amounts required may be insignificant or could range, in the aggregate, up to approximately $36 million over several years. This estimate of the upper end of the range of reasonably possible additional costs is much less certain than the estimates we currently are using to determine how much to accrue. The estimate of the upper range also uses assumptions less favorable to us among the range of reasonably possible outcomes.

REGULATION OF AIR EMISSIONS IN THE U.S.

The United States Environmental Protection Agency (EPA) has promulgated regulations for air emissions from pulp and paper manufacturing facilities, wood products facilities and industrial boilers. These regulations cover hazardous air pollutants that require use of maximum achievable control technology (MACT) and controls for pollutants that contribute to smog and haze. In recent D.C. Circuit Court decisions, the MACT standards for air

 

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emissions from industrial boilers and process heaters were vacated and the standards for plywood and composite wood products were remanded to the EPA. The EPA must promulgate supplemental MACT standards for plywood and composite products and new MACT standards for boilers. Pending final action by the EPA, some states may implement MACT requirements for boilers on a case-by-case basis. We anticipate that we might spend as much as $30 million to $100 million over the next few years to comply with the MACT standards after they have been determined by the EPA and the states. We cannot currently quantify the amount of capital we will need in the future to comply with new regulations being developed by the EPA or Canadian environmental agencies because final rules have not been promulgated. However, at this time we anticipate that compliance with the new regulations will not result in capital expenditures in any year that is material in relation to our annual capital expenditures.

In 2006, we adopted a goal of reducing greenhouse gas emissions by 40 percent by 2020 compared with our emissions in 2000, assuming a comparable portfolio and regulations. We intend to achieve this goal by increasing energy efficiency and using more greenhouse gas-neutral, biomass fuels instead of fossil fuels. During 2007, we divested our Fine Paper operations and related assets and during 2008 we completed the sale of our Containerboard, Packaging and Recycling business. These transactions removed several high greenhouse gas-emitting operations from our manufacturing portfolio. In accord with generally accepted, voluntary greenhouse gas accounting standards, we will adjust our baseline year 2000 values and subsequent year greenhouse gas inventory values to reflect these changes.

In 2007, the U.S. Supreme Court ruled that greenhouse gases are pollutants that can be subject to regulation under the Clean Air Act. As a result of this ruling, the EPA may regulate greenhouse gas emissions. Some state governments also have released policy proposals that indicate they may regulate greenhouse gas emissions in the future. In addition, we anticipate Congress will consider and adopt new legislation regulating greenhouse gas emissions within the next few years. It is not yet known when and to what extent these federal and state policy activities may come into force or how any future federal and state greenhouse gas regulatory programs may relate to each other. A multistate and federal greenhouse gas emissions reduction trading system may be put in place in the future with potentially significant implications for all U.S. businesses. We believe these measures have not had, and in 2009 will not have, a significant effect on Weyerhaeuser’s operations, although they may have such an effect in the future. We expect we will not be disproportionately affected by these measures as compared with typical owners of comparable operations. We also expect that these measures will not significantly disrupt our planned operations.

REGULATION OF AIR EMISSIONS IN CANADA

We actively participate in negotiations between the FPAC and Natural Resources Canada to define industry obligations for complying with Canada’s national plan for reducing greenhouse gas emissions over the next several years. FPAC continues to work with international, national and regional policy makers in their efforts to develop technically sound and economically viable policies, practices and procedures for measuring, reporting and managing greenhouse gas emissions.

In 2007, the Canadian federal government proposed a regulatory framework for air emissions that adopts some aspects of the Kyoto Protocol. The federal framework calls for mandatory reductions in greenhouse gas emissions for heavy industrial emissions producers, among other measures, to be put in place by 2010. Canadian provincial governments also are working on emissions-reduction strategies. For example, the province of Alberta has adopted rules requiring mandatory reporting and reduction of greenhouse gas emissions by large emitters. One of the company’s pulp mills is subject to these rules, but we believe the mill will be able to comply with the rules as a result of productivity and energy systems currently in place. It is not yet known what final requirements will come into force or how any provincial and federal plans that may be put into place will relate to each other. A Canadian emissions trading system may be put in place in the future with potentially significant implications for Canadian businesses. We believe these measures have not had, and in 2009 will not have, a significant effect on Weyerhaeuser’s operations, although they may have such an effect in the future. We expect we will not be disproportionately affected by these measures as compared with typical owners of comparable operations. We also expect that these measures will not significantly disrupt our planned operations.

POTENTIAL CHANGES IN POLLUTION REGULATION

The EPA has repealed the regulations promulgated in 2000 that would have required states to develop total maximum daily load (TMDL) allocations for pollutants in water bodies determined to be water-quality-impaired. However, states continue to promulgate TMDL requirements. State TMDL requirements may set limits on pollutants that may be discharged to a body of water or set additional requirements, such as best management practices for nonpoint sources, including timberland operations, to reduce the amounts of pollutants. It is not possible to estimate the capital expenditures that may be required for us to meet pollution allocations across the various proposed state TMDL programs until a specific TMDL is promulgated.

 

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FORWARD-LOOKING STATEMENTS

 

This report contains statements concerning our future results and performance that are forward-looking statements according to the Private Securities Litigation Reform Act of 1995. These statements:

 

 

use forward-looking terminology,

 

are based on various assumptions we make and

 

may not be accurate because of risks and uncertainties surrounding the assumptions we make.

Factors listed in this section – as well as other factors not included – may cause our actual results to differ from our forward-looking statements. There is no guarantee that any of the events anticipated by our forward-looking statements will occur. If any of the events occur, there is no guarantee what effect it will have on our operations or financial condition.

We will not update our forward-looking statements after the date of this report.

FORWARD-LOOKING TERMINOLOGY

Some forward-looking statements discuss our plans, strategies and intentions. They use words such as expects, may, will, believes, should, approximately, anticipates, estimates and plans. In addition, these words may use the positive or negative or a variation of those terms.

STATEMENTS

We make forward-looking statements of our expectations regarding the first quarter of 2009, including:

 

 

our markets,

 

earnings and performance of our business segments,

 

demand and pricing for our products,

 

reduced fee harvest volumes,

 

decreased sales and closing of homes,

 

losses from operations in Wood Products as a result of continuing poor market conditions,

 

decreased price of pulp in Cellulose Fibers businesses and increased maintenance costs,

 

energy costs and

 

decreased capital expenditures.

In addition, we base our forward-looking statements on the expected effect of:

 

 

the economy;

 

foreign exchange rates, primarily the Canadian dollar and the euro;

 

adverse litigation outcomes and the adequacy of reserves;

 

regulations;

 

changes in accounting principles;

 

contributions to pension plans;

 

projected benefit payments;

 

projected tax rates;

 

loss of tax credits; and

 

other related matters.

RISKS, UNCERTAINTIES AND ASSUMPTIONS

Major risks and uncertainties – and assumptions that we make – that affect our business include, but are not limited to:

 

 

general economic conditions, including the level of interest rates, strength of the U.S. dollar and housing starts;

 

market demand for our products, which is related to the strength of the various U.S. business segments;

 

availability of capital;

 

energy prices;

 

raw material prices;

 

chemical prices;

 

performance of our manufacturing operations including unexpected maintenance requirements;

 

successful execution of our internal performance plans and cost-reduction initiatives;

 

level of competition from domestic and foreign producers;

 

forestry, land use, environmental and other governmental regulations;

 

weather;

 

loss from fires, floods, windstorms, pest infestations and other natural disasters;

 

transportation costs;

 

legal proceedings;

 

performance of pension fund investments and derivatives;

 

changes in accounting principles;

 

the effect of timing of retirements and changes in the market price of our common stock on charges for share-based compensation; and

 

other factors described under Risk Factors.

EXPORTING ISSUES

We are a large exporter, affected by changes in:

 

 

economic activity in Europe and Asia – especially Japan and China;

 

currency exchange rates – particularly the relative value of the U.S. dollar to the euro and the Canadian dollar; and

 

restrictions on international trade or tariffs imposed on imports.

 

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RISK FACTORS

We are subject to certain risks and events that, if one or more of them occur, could adversely affect our business, our financial condition, our results of operations and the trading price of our common stock.

You should consider the following risk factors, in addition to the other information presented in this report and the matters described in “Forward-Looking Statements,” as well as the other reports and registration statements we file from time to time with the SEC, in evaluating us, our business and an investment in our securities.

The risks below are not the only risks we face. Additional risks not currently known to us or that we currently deem immaterial also may adversely affect our business.

 

 

RISKS RELATED TO OUR INDUSTRIES AND BUSINESS

 

MACROECONOMIC CONDITIONS

The industries in which we operate are sensitive to macroeconomic conditions and consequently highly cyclical.

The overall levels of demand for the products we manufacture and distribute and consequently our sales and profitability reflect fluctuations in levels of end-user demand, which depend in part on general macroeconomic conditions in North America and worldwide as well as on local economic conditions. The current significant recession in the United States and the global economic downturn, combined with the dislocation in the financial markets and decreased availability of credit, has resulted in a significant downturn for the homebuilding industry (including the company’s Real Estate businesses), increased inventories of available new homes, significant declines in home prices, loss of home-equity values and loss of consumer confidence and demand. Our Wood Products segment is highly dependent on the strength of the homebuilding industry and the downturn in that industry has resulted in significant decreases in the prices of and demand for wood products and building materials. This has been further reflected in declining prices and demand for logs and reduced harvests in our Timberland segment. The global economic downturn also has adversely affected demand for consumer products generally, including products containing pulp, resulting in significant decreases in the price of pulp. The length and magnitude of industry cycles have varied over time and by product but generally reflect changes in macroeconomic conditions. Consumer demand could continue to decline as a result of the current economic conditions, further adversely affecting our businesses.

 

COMMODITY PRODUCTS

Many of our products are commodities that are widely available from other producers.

Because commodity products have few distinguishing properties from producer to producer, competition for these products is based primarily on price, which is determined by supply relative to demand and competition from substitute products. Prices for our products are affected by many factors outside of our control, and we have little influence over the timing and extent of price changes, which often are volatile. Our profitability with respect to these products depends, in part, on managing our costs, particularly raw material and energy costs, which represent significant components of our operating costs and can fluctuate based upon factors beyond our control. Prices of and demand for many of our products have declined significantly in recent quarters, while many of our raw material or energy costs have increased. This has adversely affected both our sales and profitability.

INDUSTRY SUPPLY OF LOGS, WOOD PRODUCTS AND PULP

Excess supply of products may adversely affect prices and margins.

Industry supply of logs, wood products and pulp is subject to changing macroeconomic and industry conditions that may cause producers to idle or permanently close individual machines or entire mills or to decrease harvest levels. To avoid substantial cash costs in connection with idling or closing a mill, some producers choose to continue to operate at a loss, which could prolong weak prices due to oversupply. Oversupply of products also may result from producers introducing new capacity or increasing harvest levels in response to favorable short-term pricing trends. Industry supplies of pulp also are influenced by overseas production capacity, which has grown in recent years and is expected to continue to grow. While the weakness of the U.S. dollar in recent years has improved the company’s competitive position and mitigated the levels of imports, the recent strengthening of the U.S. dollar and decreases in demand for consumer products in emerging markets may result in increased imports of pulp from overseas,

resulting in lower prices. Continuation of these factors could materially and adversely affect sales volumes and margins of our operations.

 

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HOMEBUILDING MARKET AND ECONOMIC RISKS

The homebuilding industry is in the midst of a significant downturn and a continuing decline in demand coupled with an increase in the inventory of available homes could continue to adversely affect our sales volume, pricing and margins and result in further impairments.

Demand for homes is sensitive to changes in economic conditions such as the level of employment, consumer confidence, consumer income, the availability of financing and interest rate levels. During 2007 and 2008, the mortgage industry experienced significant instability and increasing default rates, particularly with regard to subprime and other nonconforming loans, causing many lenders to tighten credit requirements and reduce the number of mortgage loans available for financing home purchases. The turmoil in the financial and credit markets increased significantly during the fourth quarter of 2008, including the failure or sale of various financial institutions and an unprecedented level of intervention from the U. S. government. The significant increase in unemployment during 2008, coupled with accelerating foreclosure rates and distress sales of houses, increasing inventories of unsold homes, significant declines in home values and a collapse of consumer confidence has resulted in significant declines in demand for new homes and increasing cancellation rates in all of our markets, as homebuyers sometimes find it more advantageous to forfeit a deposit than to complete the purchase of the home. These factors have resulted in reduced margins and prices and a higher level of sales incentives in many of our markets.

The company has traditionally carried a larger supply of land for development than many of our competitors. Some of the land was purchased during the last few years. Land prices have fallen in these markets and may continue to fall. We also hold options to purchase land at prices that no longer are attractive or in areas that may not be attractive for development in the near future. As new housing demand in our markets has fallen significantly, we have elected to sell some of our land and lots at a loss or declined to exercise high price options, even though that required us to forfeit deposits and write off preacquisition land-development costs. We also have changed our competitive strategies in some markets and elected to discontinue or postpone development in other markets in response to the downturn. As a result, we have been required to take substantial write-downs of the carrying value of our land inventory.

CAPITAL MARKETS

Recent deterioration in economic conditions and the credit markets could adversely affect our access to capital.

Financial and credit markets have been experiencing a period of turmoil that has included the failure or sale of various financial institutions and an unprecedented level of intervention from the United States government. While it is difficult to predict the ultimate results of these events, they may impair the company’s ability to borrow money. Similarly, our customers may be unable to borrow money to fund their operations.

Continued deteriorating or volatile market conditions could:

 

 

adversely affect our ability to access credit markets on terms acceptable to us,

 

limit our capital expenditures for repair or replacement of existing facilities or equipment,

 

adversely affect our compliance with covenants under existing credit agreements,

 

result in adverse changes in the credit ratings of our debt securities,

 

have an adverse effect on our customers and suppliers and their ability to purchase our products,

 

adversely affect the banks providing financial security for the transaction structures used to defer taxes related to several major sales of timber,

 

adversely affect the performance of our pension plans requiring additional company contributions and

 

reduce our ability to take advantage of growth and expansion opportunities.

CHANGES IN CREDIT RATINGS

Changes in credit ratings issued by nationally recognized sta- tistical rating organizations could adversely affect our cost of financing and have an adverse effect on the market price of our securities.

Credit rating agencies rate our debt securities on factors that include our operating results, actions that we take, their view of the general outlook for our industry and their view of the general outlook for the economy. Actions taken by the rating agencies can include maintaining, upgrading or downgrading the current rating or placing the company on a watch list for possible future downgrading. Downgrading the credit rating of our debt securities or placing us on a watch list for possible future downgrading could limit our access to the credit markets, increase our cost of financing, and have an adverse effect on the market price of our securities.

SUBSTITUTION

Some of our products are vulnerable to declines in demand due to competing technologies or materials.

Our products may compete with nonfiber-based alternatives or with alternative products in certain market segments. For example, plastic, wood/plastic or composite materials may be used by builders as alternatives to the products produced by our Wood Products businesses such as lumber, veneer, plywood and oriented strand board. Changes in prices for oil,

 

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chemicals and wood-based fiber can change the competitive position of our products relative to available alternatives and could increase substitution of those products for our products. As the use of these alternatives grows, demand for our products may further decline.

CHANGES IN PRODUCT MIX OR PRICING

Our results of operations and financial condition could be materially adversely affected by changes in product mix or pricing.

Our results may be affected by a change in our sales mix. Our outlook assumes a certain volume and product mix of sales. If actual results vary from this projected volume and product mix of sales, our operations and our results could be negatively affected. Our outlook also assumes we will be successful in implementing previously announced price increases as well as future price increases. Delays in acceptance of price increases could negatively affect our results. Moreover, price discounting, if required to maintain our competitive position, could result in lower than anticipated price realizations.

INTENSE COMPETITION

We face intense competition in our markets, and the failure to compete effectively could have a material adverse effect on our business, financial condition and results of operations.

We compete with North American and, for many of our product lines, global producers, some of which may have greater financial resources and lower production costs than we do. The principal basis for competition is selling price. Our ability to maintain satisfactory margins depends in large part on our ability to control our costs. Our industries are also particularly sensitive to other factors including innovation, design, quality and service, with varying emphasis on these factors depending on the product line. To the extent that one or more of our competitors become more successful with respect to any key competitive factor, our ability to attract and retain customers could be materially adversely affected. If we are unable to compete effectively, such failure could have a material adverse effect on our business, financial condition and results of operations.

MATERIAL DISRUPTION OF MANUFACTURING

A material disruption at one of our manufacturing facilities could prevent us from meeting customer demand, reduce our sales or negatively affect our results of operation and financial condition.

Any of our manufacturing facilities, or any of our machines within an otherwise operational facility, could cease operations unexpectedly due to a number of events, including:

 

 

unscheduled maintenance outages;

 

prolonged power failures;

 

an equipment failure;

 

a chemical spill or release;

 

explosion of a boiler;

 

the effect of a drought or reduced rainfall on its water supply;

 

labor difficulties;

 

disruptions in the transportation infrastructure, including roads, bridges, railroad tracks and tunnels;

 

fires, floods, windstorms, earthquakes, hurricanes or other catastrophes;

 

terrorism or threats of terrorism;

 

governmental regulations; and

 

other operational problems.

Any such downtime or facility damage could prevent us from meeting customer demand for our products and/or require us to make unplanned capital expenditures. If one of these machines or facilities were to incur significant downtime, our ability to meet our production targets and satisfy customer requirements could be impaired, resulting in lower sales and income.

CAPITAL REQUIREMENTS

Our operations require substantial capital.

The company has substantial capital requirements for expansion and repair or replacement of existing facilities or equipment. Although we maintain our production equipment with regular scheduled maintenance, key pieces of equipment may need to be repaired or replaced periodically. The costs of repairing or replacing such equipment and the associated downtime of the affected production line could have a material adverse effect on our financial condition, results of operations and cash flows.

We believe our capital resources will be adequate to meet our current projected operating needs, capital expenditures and other cash requirements. If for any reason we are unable to provide for our operating needs, capital expenditures and other cash requirements on economic terms, we could experience a material adverse effect on our business, financial condition, results of operations and cash flows.

ENVIRONMENTAL LAWS AND REGULATIONS

We could incur substantial costs as a result of compliance with, violations of or liabilities under applicable environmental laws and regulations.

We are subject to a wide range of general and industry-specific laws and regulations relating to the protection of the environment, including those governing:

 

 

air emissions;

 

wastewater discharges;

 

harvesting;

 

silvicultural activities;

 

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the storage, management and disposal of hazardous substances and wastes;

 

the cleanup of contaminated sites;

 

landfill operation and closure obligations;

 

forestry operations and endangered species habitat; and

 

health and safety matters.

In particular, the pulp and paper industry in the U.S. is subject to Cluster Rules and Boiler Maximum Achievable Control Technology Rules that further regulate effluent and air emissions. These laws and regulations will require us to obtain authorizations from and comply with the authorization requirements of the appropriate governmental authorities, which have considerable discretion over the terms and timing of permits.

We have incurred, and we expect to continue to incur, significant capital, operating and other expenditures complying with applicable environmental laws and regulations and as a result of remedial obligations. We also could incur substantial costs, such as civil or criminal fines, sanctions and enforcement actions (including orders limiting our operations or requiring corrective measures, installation of pollution control equipment or other remedial actions), cleanup and closure costs, and third-party claims for property damage and personal injury as a result of violations of, or liabilities under, environmental laws and regulations.

As the owner and operator of real estate, including in our homebuilding business, we may be liable under environmental laws for cleanup, closure and other damages resulting from the presence and release of hazardous substances on or from our properties or operations. The amount and timing of environmental expenditures is difficult to predict, and in some cases, our liability may exceed forecasted amounts or the value of the property itself. The discovery of additional contamination or the imposition of additional cleanup obligations at our sites or third-party sites may result in significant additional costs. Any material liability we incur could adversely affect our financial condition or preclude us from making capital expenditures that otherwise would benefit our business.

We also anticipate public policy developments at the state, federal and international level regarding climate change and energy access, security and competitiveness. We expect these developments to address emission of carbon dioxide, renewable energy and fuel standards, and the monetization of carbon. Compliance with regulations that implement new public policy in these areas might require significant expenditures. Enactment of new environmental laws or regulations or changes in existing laws or regulations, or the interpretation of these laws or regulations, might require significant expenditures.

 

CURRENCY EXCHANGE RATES

We will be affected by changes in currency exchange rates.

We have manufacturing operations in Canada, Uruguay and Brazil, and we are also a large exporter and, as a result, are affected by changes in currency exchange rates, particularly the value of the U.S. dollar relative to the euro and the Canadian dollar.

AVAILABILITY OF RAW MATERIALS AND ENERGY

Our business and operations could be materially adversely affected by changes in the cost or availability of raw materials and energy.

We rely heavily on certain raw materials (principally wood fiber and chemicals) and energy sources (principally natural gas, electricity, coal and fuel oil) in our manufacturing processes. Our ability to increase earnings has been, and will continue to be, affected by changes in the costs and availability of such raw materials and energy sources. We may not be able to fully offset the effects of higher raw material or energy costs through hedging arrangements, price increases, productivity improvements or cost-reduction programs.

TRANSPORTATION

We depend on third parties for transportation services and increases in costs and the availability of transportation could materially adversely affect our business and operations.

Our business depends on the transportation of a large number of products, both domestically and internationally. We rely primarily on third parties for transportation of the products we manufacture and/or distribute as well as delivery of our raw materials. In particular, a significant portion of the goods we manufacture and raw materials we use are transported by railroad or trucks, which are highly regulated.

If any of our third-party transportation providers were to fail to deliver the goods we manufacture or distribute in a timely manner, we may be unable to sell those products at full value – or at all. Similarly, if any of these providers were to fail to deliver raw materials to us in a timely manner, we may be unable to manufacture our products in response to customer demand. In addition, if any of these third parties were to cease operations or cease doing business with us, we may be unable to replace them at reasonable cost.

Any failure of a third-party transportation provider to deliver raw materials or finished products in a timely manner could harm our reputation, negatively affect our customer relationships and have a material adverse effect on our financial condition and results of operation.

 

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In addition, an increase in transportation rates or fuel surcharges could materially adversely affect our sales and profitability.

LEGAL PROCEEDINGS

We are a party to a number of legal proceedings, and adverse judgments in certain legal proceedings could have a material adverse effect on our financial condition.

The costs and other effects of pending litigation against us and related insurance recoveries cannot be determined with certainty. Although the disclosure in Note 16: Legal Proceedings, Commitments and Contingencies of Notes to Consolidated Financial Statements contains management’s current views of the effect such litigation will have on our financial results, there can be no assurance that the outcome of such proceedings will be as expected.

For example, there have been several lawsuits filed against us alleging that we violated U.S. antitrust laws. Several lawsuits have been filed since 2000 in U.S. District Court in Oregon alleging we had monopoly power or attempted to gain monopoly power for alder logs and finished alder lumber in the Pacific Northwest market (the Alder Cases). In 2006, a series of lawsuits against us and other manufacturers of oriented strand board (OSB) were consolidated into one case in the U.S. District Court in Pennsylvania on behalf of purchasers of OSB. The lawsuit alleged that the manufacturers conspired to fix and raise OSB prices and caused the purchasers of OSB to pay artificially inflated prices. In the event liability is found in an antitrust case, the damages proved at trial are trebled. Jury verdicts and damages imposed against us in two of the Alder Cases were vacated as a result of a ruling by the U.S. Supreme Court in our favor in one of the Alder Cases and we have settled three of these cases, but one case is still pending. In the OSB case, the U.S. District Court issued a number of rulings approving class-action status for various classes of direct and indirect purchasers for the period June 2002 through February 2006. We settled with both classes of purchasers in first quarter 2008.

It is possible that there could be adverse judgments against us in some or all major litigation against us and that we could be required to take a charge for all or a portion of any damage award. Any such charge could materially and adversely affect our results of operations for the quarter or year in which we record it.

EXPORT TAXES

We may be required to pay significant export taxes or countervailing and anti-dumping duties for exported products.

We may experience reduced revenues and margins on some of our businesses as a result of export taxes or countervailing and anti-dumping duty applications. For example, in 2001, a group of companies filed petitions with the U.S. Department of Commerce and the International Trade Commission claiming that production of softwood lumber in Canada was being subsidized by Canada and that imports into the U.S. from Canada were being sold in U.S. markets at less than their fair value. We have softwood lumber facilities in Canada that export lumber into the U.S. We paid a total of $370 million in deposits for countervailing duty and anti-dumping tariffs from 2002 through 2006 related to those lumber exports. The U.S. and Canadian governments reached a settlement of the dispute in 2006. As a result of the settlement, we received a refund of $344 million in the fourth quarter of 2006. However, our Canadian softwood lumber facilities will have to pay an export tax when the price of lumber is at or below a threshold price. The export tax could be as high as 22.5 percent if a province exceeds its total allotted export share. Similar types of actions have been initiated from time to time against us and other U.S. producers of products such as paper or lumber by countries such as China and Korea. It is possible that countervailing duty and antidumping tariffs, or similar types of tariffs could be imposed on us in the future. We may experience reduced revenues and margins in any business that is subject to such tariffs or to the terms of the settlements of such international disputes. These tariffs or settlement terms could have a material adverse effect on our business, financial results and financial condition, including facility closures or impairments of assets.

NATURAL DISASTERS

Our business and operations could be adversely affected by weather, fire, infestation or natural disasters.

Our timberlands assets may be damaged by adverse weather, severe wind and rainstorms, fires, pest infestation or other natural disasters. Because our manufacturing processes primarily use wood fiber, in many cases from our own timberlands, in the event of material damage to our timberlands, our operations could be disrupted or our production costs could be increased.

 

 

RISKS RELATED TO OWNERSHIP OF OUR COMMON STOCK

 

STOCK-PRICE VOLATILITY

The price of our common stock may be volatile.

The market price of our common stock may be influenced by many factors, some of which are beyond our control, including those described above under “Risks Related to our Industries and Business” and the following:

 

 

actual or anticipated fluctuations in our operating results or our competitors’ operating results;

 

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announcements by us or our competitors of new products, capacity changes, significant contracts, acquisitions or strategic investments;

 

our growth rate and our competitors’ growth rates;

 

the financial market and general economic conditions;

 

changes in stock market analyst recommendations regarding us, our competitors or the forest products industry generally, or lack of analyst coverage of our common stock;

 

sales of our common stock by our executive officers, directors and significant stockholders or sales of substantial amounts of common stock; and

 

changes in accounting principles.

In addition, there has been significant volatility in the market price and trading volume of securities of companies operating in the forest products industry that often has been unrelated to the operating performance of particular companies.

Some companies that have had volatile market prices for their securities have had securities litigation brought against them. If litigation of this type is brought against us, it could result in substantial costs and would divert management’s attention and resources.

UNRESOLVED STAFF COMMENTS

There are no unresolved comments that were received from the SEC staff relating to our periodic or current reports under the Securities Exchange Act of 1934.

 

PROPERTIES

Details about our facilities, production capacities and locations are found in the Our Business What We Do section of this report.

 

 

For details about our Timberlands properties, go to Our Business/What We Do/Timberlands/Where We Do It.

 

For details about our Wood Products properties, go to Our Business/What We Do/Wood Products/Where We Do It.

 

For details about our Cellulose Fibers properties, go to Our Business/What We Do/Cellulose Fibers/Where We Do It.

 

For details about our Real Estate properties, go to Our Business/What We Do/Real Estate/Where We Do It.

Production capacities listed represent annual production volume under normal operating conditions and producing a normal product mix for each individual facility. Production capacities do not include any capacity for facilities that were sold or permanently closed as of year-end 2008.

LEGAL PROCEEDINGS

See Note 16: Legal Proceedings, Commitments and Contingencies in the Notes to Consolidated Financial Statements for a summary of legal proceedings.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 2008.

 

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MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Our common stock trades on the following exchanges under the symbol WY:

 

 

New York Stock Exchange and

 

Chicago Stock Exchange

As of December 31, 2008, there were approximately 11,088 holders of record of our common shares. Dividend-per-share data and the range of closing market prices for our common stock for each of the four quarters in 2008 and 2007 are included in Note 26 of Notes to Consolidated Financial Statements.

On December 19, 2008, we announced a new share-repurchase program. The board of directors authorized the repurchase of up to $250 million of our outstanding common shares. No shares were repurchased during 2008.

 

INFORMATION ABOUT SECURITIES AUTHORIZED FOR ISSUANCE UNDER OUR EQUITY COMPENSATION PLAN

 

      NUMBER OF
SECURITIES TO BE
ISSUED UPON
EXERCISE OF
OUTSTANDING
OPTIONS,
WARRANTS AND
RIGHTS (A)
   WEIGHTED
AVERAGE EXERCISE
PRICE OF
OUTSTANDING
OPTIONS, WARRANTS
AND RIGHTS (B)
  

NUMBER OF

SECURITIES

REMAINING AVAILABLE

FOR FUTURE ISSUANCE

UNDER EQUITY

COMPENSATION PLANS

(EXCLUDING

SECURITIES REFLECTED

IN COLUMN (A))

(C)

Equity compensation plans approved by security holders(1)(2)    12,568,031    $ 65.82    6,700,392
Equity compensation plans not approved by security holders    N/A      N/A    N/A
Total    12,568,031    $ 65.82    6,700,392

(1)   Includes 453,396 performance share units at the maximum award level. Because there is no exercise price associated with performance share units, such share units are not included in the weighted average price calculation.

(2)   Includes 673,261 restricted stock units. Because there is no exercise price associated with restricted stock units, such stock units are not included in the weighted average price calculation.

 

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COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN

Weyerhaeuser Company, S&P 500 and Performance Peer Group

LOGO

 

PERFORMANCE GRAPH ASSUMPTIONS

 

 

Assumes $100 invested on December 31, 2003, in Weyerhaeuser common stock, the S&P 500 and Weyerhaeuser’s current performance peer group described below.

 

Total return assumes dividends are reinvested quarterly.

 

Measurement dates are the last trading day of the calendar year shown.

In 2006, we adopted a new peer group for performance comparisons. Recent consolidation in the forest products industry has decreased the number of our direct peers in the sector, and shareholders measure our performance against a broader set of peers. The compensation committee of the board of directors selected a broader-sized range of basic materials companies that typically have been used by shareholders as benchmarks for our performance. The performance peer group currently includes Alcoa, Air Products & Chemicals, Ball Corp., Celanese AG, Domtar Inc., Dow Chemical, DuPont, Eastman Chemical, Huntsman, International Paper, Louisiana-Pacific, MeadWestvaco, Monsanto, Nucor, Owens-Illinois, Praxair, PPG Industries, Rohm & Haas, Smurfit-Stone and U.S. Steel.

 

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SELECTED FINANCIAL DATA

DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURES

 

PER SHARE                                          
     2008     2007     2006     2005     2004     2003  
Basic earnings (loss) from continuing operations before effect of accounting changes   $ (8.61 )       (1.15 )       3.45        3.65        4.39        0.94     
Basic earnings (loss) from discontinued operations(1)     3.04     4.75     (1.60 )   (0.65 )   1.06     0.36  
Effect of accounting changes(2)                         (0.05 )
Basic net earnings (loss)   $ (5.57 )   3.60     1.85     3.00     5.45     1.25  
Diluted earnings (loss) from continuing operations before effect of accounting changes   $ (8.61 )   (1.15 )   3.44     3.63     4.37     0.94  
Diluted earnings (loss) from discontinued operations(1)     3.04     4.75     (1.60 )   (0.65 )   1.06     0.36  
Effect of accounting changes(2)                         (0.05 )
Diluted net earnings (loss)   $ (5.57 )   3.60     1.84     2.98     5.43     1.25  
Dividends paid   $ 2.40     2.40     2.20     1.90     1.60     1.60  
Shareholders’ interest (end of year)   $ 22.78     37.80     38.17     39.97     38.17     31.95  
FINANCIAL POSITION                                          
     2008     2007     2006     2005     2004     2003  
Total assets:(1)                                      

Weyerhaeuser

  $ 14,080     20,026     23,238     25,322     27,482     26,595  

Real Estate

    2,655     3,780     3,624     2,907     2,472     2,004  
Total   $ 16,735     23,806     26,862     28,229     29,954     28,599  
Long-term debt (net of current portion):                                      

Weyerhaeuser:

                                     

Long-term debt

  $ 5,153     6,059     7,069     7,404     9,277     11,503  

Capital lease obligations

        2     44     64     86     3  
Total   $ 5,153     6,061     7,113     7,468     9,363     11,506  

Real Estate:

                                     

Long-term debt

  $ 404     461     605     601     853     870  
Shareholders’ interest   $ 4,814     7,981     9,085     9,800     9,255     7,109  
Percent earned on average shareholders’ interest     (18.4 )%   9.3 %   4.8 %   7.7 %   15.7 %   4.0 %
OPERATING RESULTS                                          
     2008     2007     2006     2005     2004     2003  
Net sales and revenues:                                      

Weyerhaeuser

  $ 6,610        8,465        10,138        11,013        11,204        9,556     

Real Estate

    1,408     2,359     3,335     2,915     2,495     2,029  
Total   $ 8,018     10,824     13,473     13,928     13,699     11,585  
Earnings (loss) from continuing operations before effect of accounting changes:                                      

Weyerhaeuser

  $ (972 )   (380 )   394     435     657     (37 )

Real Estate

    (847 )   129     451     458     376     245  

Subtotal

    (1,819 )   (251 )   845     893     1,033     208  
Earnings (loss) from discontinued operations(1)     643     1,041     (392 )   (160 )   250     80  
Effect of accounting changes(2)                         (11 )
Net earnings (loss)   $ (1,176 )   790     453     733     1,283     277  
STATISTICS (UNAUDITED)                                          
     2008     2007     2006     2005     2004     2003  
Number of employees     19,843        37,857        46,737        49,887        53,646        55,162     
Number of shareholder accounts at year-end:                                      

Common

    11,088     10,489     11,471     12,151     12,819     13,726  

Exchangeable

        1,037     1,169     1,227     1,320     1,388  
Number of shares outstanding at year-end (thousands):                                      

Common

    211,289     209,546     236,020     243,138     240,360     220,201  

Exchangeable

        1,600     1,988     2,045     2,111     2,293  
Weighted average shares outstanding – basic (thousands)     211,258     219,305     244,931     244,447     235,453     221,595  

 

(1)   A summary of our discontinued operations is presented in Note 3: Discontinued Operations and Assets Held for Sale in the Notes to Consolidated Financial Statements.
(2)   We adopted the provisions of Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations, as of the beginning of 2003.

 

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MANAGEMENT’S DISCUSSION

AND ANALYSIS (MD&A) OF

FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

 

 

WHAT YOU WILL FIND IN THIS MD&A

 

Our MD&A includes the following major sections:

 

 

economic and market conditions affecting our operations;

 

financial performance summary;

 

results of our operations – consolidated and by segment;

 

liquidity and capital resources – where we discuss our cash flows;

 

off-balance sheet arrangements;

 

environmental matters, legal proceedings and other contingencies; and

 

accounting matters – where we discuss critical accounting policies and areas requiring judgments and estimates.

 

 

ECONOMIC AND MARKET CONDITIONS AFFECTING OUR OPERATIONS

 

A variety of market conditions in both the U.S. and global economies influenced demand and pricing for our products and affected our operating results in 2008. Those market conditions included the following:

ECONOMIC GROWTH

Although the U.S. economy grew only 1.3 percent on average in 2008, it declined dramatically in the second half of the year. Gross domestic product (GDP) contracted in the last two quarters of the year and job losses accelerated. Unemployment was 4.9 percent in the first quarter, but was near 7 percent in the fourth quarter of 2008.

Global economic growth also slowed dramatically in 2008. This includes developing Asian markets, particularly China, which is an important market for our pulp products.

INTEREST RATES

Due to turmoil in the financial markets, the U.S. Federal Reserve took measures to lower short-term interest rates 4.3 percent over the course of 2008. However, that did not translate into lower mortgage rates since most investors were selling private long-term debt instruments and were buying treasury securities for safety.

 

HOUSING MARKET

U.S. single-family housing starts fell from 1.04 million units in 2007 to 622,000 units in 2008. This 40 percent decline masks the dramatic fall in the latter part of the year. By year- end, the annualized single-family start rate was near 400,000 units, a decline of 62 percent from 2007 totals. Home prices fell dramatically as well, ending the year 12.4 percent below fourth quarter 2007 levels.

U.S. DOLLAR

The U.S. dollar surged in value against the Canadian dollar and the euro in the second half of 2008 lowering the relative costs for competitors in Canada and Europe. The Canadian dollar is important for lumber and pulp prices, while the euro is important for pulp prices. Changes in the exchange rate of these currencies have a direct effect on prices of our products.

 

 

HOW ECONOMIC AND MARKET CONDITIONS AFFECTED OUR OPERATIONS

 

Major effects that economic and market conditions had on our operations in 2008 included:

 

 

Sales of new and existing homes fell sharply in 2008, leading to further decline in single-family starts. Housing prices fell in all of our Real Estate markets, as home buyers now have to meet more restrictive lending standards to qualify for loans. Mortgage lending contracted in 2008 due to the financial market conditions and rising foreclosure rates.

 

Consumption of lumber and structural panels fell due to lower levels of homebuilding and repair and remodeling.

 

Wood products prices fell further in 2008 because of declining demand and the stronger U.S. dollar in the second half of 2008.

 

Log prices fell throughout the year, following declines in lumber prices.

 

Consumption of softwood market pulp fell by an estimated 2.5 percent.

HOME SALES AND SINGLE-FAMILY STARTS DECREASED

Tighter lending standards and high inventories of homes available for sale led to a sharp drop in new-home sales and single-family starts in 2008.

LUMBER, STRUCTURAL PANEL AND ENGINEERED WOOD PRODUCT CONSUMPTION DECREASED

IN 2008

As single-family home starts fell further from the 2005 peak, demand for lumber, structural panels and engineered wood

 

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products decreased in 2008. The decrease in demand for wood products has resulted in a decrease in product prices.

DOMESTIC AND EXPORT LOG PRICES FELL

Log prices typically follow product prices, but with a lag that varies by region. The lag for Southern log prices is longer than in the western U.S. markets. Domestic log prices in the western U.S. decreased 16 percent in 2008 compared with 2007. Lower housing starts in Japan and the drop in domestic log prices caused export log prices to decline in 2008.

MARKET PULP PRICES ROSE SLIGHTLY IN 2008

Market pulp prices rose 5 percent in 2008 despite a fourth-quarter plunge due to a sharp decline in demand and the appreciation of the U.S. dollar. High fiber costs in Europe and Canada, a weak U.S. dollar, and tight operating conditions supported pulp prices through the first half of 2008.

WHERE WE ARE HEADED

At this time, market conditions for 2009 are extremely difficult to anticipate. We expect economic activity will continue to be weak through the first quarter of 2009 and are uncertain when recovery will occur. It is difficult to predict the ultimate result of the unprecedented level of intervention from the U.S. government or the actions by the Federal Reserve. It also remains an extremely uncertain period for the key factors affecting our businesses.

 

 

FINANCIAL PERFORMANCE SUMMARY

 

Net Sales and Revenues by Segment

LOGO

Contribution (Charge) to Pretax Earnings by Segment

LOGO

 

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RESULTS OF OPERATIONS

 

In December 2008, the board of directors approved an amendment to our bylaws to adopt a December 31 fiscal year-end, effective for the fiscal year-end 2008. Prior to 2008, our fiscal year ended on the last Sunday of the calendar year. As a result, the number of weeks in our fiscal year varied. For the last three years:

 

 

Fiscal year 2008 had 52 weeks and three days.

 

Fiscal year 2007 had 52 weeks.

 

Fiscal year 2006 had 53 weeks.

In reviewing our results of operations, it is important to understand these terms:

 

 

Price realizations refer to net selling prices – this includes selling price plus freight minus normal sales deductions.

 

Contribution to earnings refers to:

   

earnings before interest and income taxes for the Weyerhaeuser business segments and

   

earnings before income taxes for the Real Estate business segment. Interest that previously was capitalized to Real Estate assets that are sold is included in cost of products sold and in contribution to earnings for the Real Estate segment.

CONSOLIDATED RESULTS

Net sales and revenue and operating income numbers reported in our consolidated results do not include the activity of our discontinued operations:

 

 

Containerboard, Packaging and Recycling operations (sold in August 2008);

 

Australian operations (sold in July 2008);

 

Trus Joist®Commercial division (held for sale as of December 2008);

 

Fine Paper operations (divested in March 2007);

 

Irish composite panel operations (sold in November 2006); and

 

North American composite panel operations (sold in July 2006).

We report these activities and results as discontinued operations in our Consolidated Statement of Earnings. However, we include the results of these operations in the segment discussions that follow. See Note 3: Discontinued Operations and Assets Held For Sale in the Notes to Consolidated Financial Statements for more information about our discontinued operations.

 

HOW WE DID IN 2008

Net Sales and Revenues, Operating Income (Loss), Earnings From Discontinued Operations and Net Earnings (Loss)

 

DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURES  
                           AMOUNT OF CHANGE  
      2008     2007     2006     2008
vs.
2007
    2007
vs.
2006
 
Net sales and revenues    $ 8,018        $ 10,824        $ 13,473        $ (2,806 )       $ (2,649 )    
Operating income (loss)    $ (2,531 )   $ (77 )   $ 1,473     $ (2,454 )   $ (1,550 )
Earnings (loss) from discontinued operations, net of tax    $ 643     $ 1,041     $ (392 )   $ (398 )   $ 1,433  
Net earnings (loss)    $ (1,176 )   $ 790     $ 453     $ (1,966 )   $ 337  
Net earnings (loss) per share, basic    $ (5.57 )   $ 3.60     $ 1.85     $ (9.17 )   $ 1.75  
Net earnings (loss) per share, diluted    $ (5.57 )   $ 3.60     $ 1.84     $ (9.17 )   $ 1.76  

COMPARING 2008 WITH 2007

In 2008:

 

 

Asset impairments and related charges increased $1.8 billion.

 

Net sales and revenues decreased $2.8 billion – 26 percent.

 

Net earnings decreased $2 billion.

Asset Impairments and Related Charges

We continually monitor our assets for potential impairment, particularly in light of market conditions. The upheaval in financial markets during the fourth quarter of 2008 was accompanied by accelerated deterioration of housing markets and a continued decline in demand and pricing for most of our wood products. In addition, declining demand in emerging Asian markets, primarily China, adversely affected our Cellulose Fibers operations. We recognized significant asset impairments in our Real Estate segment during the first three quarters of 2008 and the accelerated deterioration of market conditions triggered additional impairments in the fourth quarter. The continued deterioration of market conditions also led to a fair-value analysis that indicated the carrying value of the goodwill in our Wood Products and Cellulose Fibers segments was impaired in fourth quarter 2008.

 

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Our asset impairments and related charges increased $1.8 billion – from approximately $320 million in 2007 to approximately $2.1 billion in 2008. The increase included:

 

 

$808 million in impairments of goodwill in our Wood Products and Cellulose Fibers segments and

 

$975 million in asset impairment and related charges in our Real Estate and Corporate and Other segments.

Partially offsetting these increased charges is a $23 million decrease in impairments recorded in connection with closures, curtailments or sales of operations.

Net Sales and Revenues

Net sales and revenues decreased significantly, primarily due to continued deterioration of the U.S. housing market. Declines in residential homebuilding throughout the nation have resulted in lower demand for residential building products such as softwood lumber, oriented strand board (OSB) and engineered lumber. Sales of products within our Wood Products segment, excluding those of discontinued operations, were $1.9 billion – 34 percent – lower than 2007. These difficult market conditions also affected our Real Estate segment, where net sales and revenues decreased $ 951 million – 40 percent – from 2007.

Net Earnings

Net earnings decreased $2 billion primarily due to the factors listed below.

Reductions to pretax net earnings included:

 

 

$1.8 billion increase in pretax asset impairments and related charges discussed above;

 

$93 million increase in foreign exchange losses primarily due to an 18 percent decline in the U.S. dollar to Canadian dollar average exchange rate in 2008;

 

$270 million decrease in pretax earnings due to lower price realizations for softwood lumber, engineered products and hardwood lumber in our Wood Products segment;

 

$334 million increase in losses on land sales;

 

$253 million resulting from lower sales prices and higher land, construction and development costs of single-family homes in our Real Estate segment; and

 

$118 million decrease in pretax earnings from lower price realizations and a change in mix of log sales in our Timberlands segment.

Partially offsetting these reductions to pretax net earnings were:

 

 

$953 million increase in pretax gains on dispositions and investment restructuring.

 

   

Pretax gains of $1.6 billion recognized during 2008 included:

 

   

$1.2 billion from the sale of our Containerboard, Packaging and Recycling business;

   

$218 million from the sale of our Australian operations; and

   

$250 million gain from the restructuring of our joint venture in Uruguay.

 

   

Pretax gains of $690 million recognized in 2007 included:

 

   

$606 million from the Domtar Transaction and

   

$84 million from the disposition of property operating facilities and our New Zealand investments.

 

 

$173 million increase in sales realizations in our Cellulose Fibers segment.

 

$52 million gain from changes in our postretirement plans for current salaried employees in the U.S. in 2008.

In addition, income tax expense increased $211 million. Taxes related to gains from discontinued operation transactions increased approximately $1 billion primarily related to the sale of our Containerboard, Packaging and Recycling business in 2008. This change was largely offset by tax benefits related to our increased loss from continuing operations as compared with 2007 and a $57 million benefit we recognized related to timber provisions in the Food, Conservation and Energy Act (Tree Act) of 2008.

COMPARING 2007 WITH 2006

In 2007:

 

 

Net sales and revenues decreased $2.6 billion – 20 percent.

 

Net earnings increased $337 million.

Net Sales and Revenues

Net sales and revenues decreased primarily due to continued deterioration of the U.S. housing market. Declines in residential homebuilding throughout the nation have resulted in lower demand for residential building products such as softwood lumber, plywood, OSB and engineered lumber. Sales of these products within our Wood Products segment, excluding those of discontinued operations, were $2.2 billion – 28 percent – lower than 2006. These difficult market conditions also affected our Real Estate segment, where net sales and revenues decreased $976 million – 29 percent – from 2006.

The decreases in our Wood Products and Real Estate segments were partially offset by improved market conditions for core products in our Containerboard, Packaging and Recycling segment, which resulted in increased net sales and revenues of $256 million.

 

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Net Earnings

Net earnings increased $337 million primarily due to several significant, but largely offsetting, factors.

Increases to pretax net earnings included:

 

 

$719 million reduction in pretax charges for the impairment of goodwill – $30 million recognized in our Wood Products segment during 2007 compared with $749 million recognized in our Fine Paper business during 2006;

 

$327 million increased contributions from improved price realizations for pulp in our Cellulose Fibers segment and from corrugated packaging in our Containerboard, Packaging and Recycling segment; and

 

$594 million increase in pretax gains on dispositions.

 

   

Pretax gains of $690 million recognized during 2007 included:

 

   

$606 million from the Domtar Transaction and

   

$84 million from the disposition of property operating facilities and our New Zealand investments.

 

   

Pretax gains of $96 million recognized in 2006 included:

 

   

$51 million on the sale of our North American composite panel operations and

   

$45 million on the sale of our Irish composite panel operations.

Reductions to pretax net earnings included:

 

 

$640 million decreased earnings on the sale of softwood lumber, structural panels and engineered lumber products in our Wood Products segment – $510 million from lower price realizations and $130 million from lower volume;

 

$376 million decreased gross margins on sales of single-family homes in our Real Estate segment;

 

$450 million decrease in pretax income related to legal matters – 2007 included income of $12 million compared with income of $462 million in 2006, which included a $344 million pretax refund of countervailing and anti-dumping deposits; and

 

$197 million increased pretax charges for closures, restructuring and the impairment of operating assets and investments primarily in the Wood Products and Real Estate segments.

In addition, income tax expense decreased $566 million. Pretax earnings from continuing operations were substantially lower in 2007 and the significant gain recognized on the U.S. portion of the Domtar Transaction was nontaxable.

 

TIMBERLANDS

HOW WE DID IN 2008

We report sales volume and annual production data for our Timberlands business segment in Our Business/What We Do/Timberlands.

Here is a comparison of net sales and revenues to unaffiliated customers, intersegment sales, and contribution to earnings for the last three years:

Net Sales and Revenues and Contribution to Earnings for Timberlands

 

DOLLAR AMOUNTS IN MILLIONS         
                          AMOUNT OF CHANGE  
     2008     2007     2006    

2008

vs.
2007

   

2007

vs.
2006

 
Net sales and revenues to unaffiliated customers:                                        

Logs

                                       

West

  $ 547     $ 565     $ 667     $ (18 )   $ (102 )

South

    97       56       57       41       (1 )

Canada

    20       38       58       (18 )     (20 )

Total

    664       659       782       5       (123 )

Timberlands exchanges

    73       128       96       (55 )     32  

Higher and better-use land sales(1)

    11       33       35       (22 )     (2 )

Minerals, oil and gas

    61       40       48       21       (8 )

Pay as cut timber sales

    32       25       32       7       (7 )

Products from international operations(2)

    40       12       6       28       6  

Other products

    18       25       24       (7 )     1  
Subtotal sales to unaffiliated customers     899       922       1,023       (23 )     (101 )
Intersegment sales                                        

United States

    817       983       1,093       (166 )     (110 )

Other

    217       363       593       (146 )     (230 )
Subtotal intersegment sales     1,034       1,346       1,686       (312 )     (340 )
Total   $ 1,933     $ 2,268     $ 2,709     $ (335 )   $ (441 )
Contribution to earnings   $ 384     $ 627     $ 764     $ (243 )   $ (137 )

(1)   Higher and better use timberland is sold through Weyerhaeuser subsidiaries.

(2)   Includes logs, plywood and hardwood lumber harvested or produced by our international operations, primarily in South America.

     

      

COMPARING 2008 WITH 2007

In 2008:

 

 

Net log sales and revenues to unaffiliated customers increased $5 million – 1 percent.

 

Other sales and revenues to unaffiliated customers decreased $28 million – 11 percent.

 

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Intersegment sales decreased $312 million – 23 percent.

 

Contribution to earnings declined $243 million – 39 percent.

Net Sales and Revenues – Unaffiliated Customers

The $23 million decrease in net sales and revenues to unaffilia