Category Archives: Forest and Paper Products

Weyerhaeuser Company – Revenue Analysis

The company recorded revenues of $16,308 million during the fiscal year ended December 2007 (FY2007), a decrease of 12.7% compared with FY2006. For the FY2007, the US, the company’s largest geographic market, accounted for 81.5% of the total revenues.

Weyerhaeuser generates revenues through seven business segments: wood products (33.8% of the total revenues during FY2007); containerboard, packaging and recycling (30.6%); real estate (14.0%); cellulose fibers (10.9%); timberlands (5.4%); fine paper (2.7%); and corporate and other (2.6%).

Revenues by Segment

During the FY2007, the wood products segment recorded revenues of $5,699 million, a decrease of 27.9% compared with FY2006.

The containerboard, packaging and recycling segment recorded revenues of $5168 million in FY2007, an increase of 5.2% over FY2006.

The real estate segment recorded revenues of $2359 million in FY2007, a decrease of 29.3% compared with FY2006.

The cellulose fibers segment recorded revenues of $1832 million in FY2007, a decrease of 6.3% compared with FY2006.

The timberlands segment recorded revenues of $910 million in FY2007, a decrease of 10.4% compared with FY2006.

The fine paper segment recorded revenues of $459 million in FY2007, a decrease of 82.6% compared with FY2006.

The corporate and other segment recorded revenues of $444 million in FY2007, a decrease of 8.3% compared with FY2006.

Revenues by Geography

The US, Weyerhaeuser’s largest geographical market, accounted for 81.5% of the total revenues in the FY2007. Revenues from the US reached $13,755 million in FY2007, a decrease of 25.6% compared with FY2006.

Other foreign countries accounted for 8.2% of the total revenues in the FY2007. Revenues from other foreign countries reached $1,391 million in FY2007, an increase of 17.8% over FY2006.

Canada accounted for 3.6% of the total revenues in the FY2007. Revenues from Canada reached $604 million in FY2007, a decrease of 47.9% compared with FY2006.

Japan accounted for 3.6% of the total revenues in the FY2007. Revenues from Japan reached $600 million in FY2007, a decrease of 20% compared with FY2006. Europe accounted for 3.1% of the total revenues in the FY2007. Revenues from Europe reached $521 million in 2007, a decrease of 22.2% compared with FY2006.

Weyerhaeuser Company – Major Products and Services

Weyerhaeuser is an integrated forest products company, engaged in the growing and harvesting of timber; the manufacture, distribution and sale of forest products; and real estate construction, development and related activities. The company’s key products and services include the following:

Timberlands:

  • Logs
  • Chips
  • Timber

Paper:

  • Business papers
  • Newsprint
  • Printing, publishing and converting papers

Wood products:

  • Composite panels
  • Engineered lumber
  • Hardwood lumber
  • Oriented strand board
  • Plywood Poles and piling
  • Softwood lumber
  • Structure wood Veneers

Cellulose fibers:

  • Absorbent fibers
  • Paper grade fibers
  • Specialty fibers
  • Liquid packaging board

Packaging:

  • Container board
  • Corrugated packaging
  • Kraft paper bags

Real estate operations:

  • Development of residential houses
  • Development of master-planned communities

Weyerhaeuser Company – SWOT Analysis

Weyerhaeuser, an integrated forest products company, is engaged in the growing and harvesting of timber; manufacturing, distribution and sale of forest products. It is also involved in real estate construction, development and related activities.The company has a diverse product portfolio which protects the company from adverse market conditions in any product segments. However imposition of countervailing and anti dumping duties on softwood lumber is exerting pressure on operating margins of the company.

Strengths

Weaknesses

Substantial manufacturing capability Broad product portfolio Higher Returns

Legal proceedings

Highly dependent on third parties

Overdependence on US

Opportunities

Threats

Growing demand for OSB Expanding home improvement market Booming packaging industry in emerging markets

Environmental regulation Lumber export taxes The Domtar transaction

Strengths

Substantial manufacturing capability

The company has substantial manufacturing capability for manufacturing of wood products, cellulose fibers and white papers, and containerboard, packaging and recycling.The wood products, cellulose fibers and white papers, and containerboard, packaging and recycling business segment has manufacturing facilities throughout the US and Canada. In the wood product segment the company has 28 manufacturing facilities for Softwood Lumber, two facilities for plywood, seven for veneer, nine for oriented strand board, eight for hardwood lumber, six joist and eleven for engineered solid section. The company has 6 manufacturing facilities for pulp, and one for liquid packaging board. The company’s huge manufacturing facilities enables it to meet the market demand.

Broad product portfolio

Weyerhaeuser has a broad product portfolio and is not over dependent on any of the business segments. Also all the segments are engaged in selling different type of products. In FY2007, the company’s largest segment, wood products, accounted for 34.9% of the total revenues, while other segments like containerboard, packaging and recycling (31.7%), real estate (14.5%), cellulose fiber (11.2%), and timberlands (5.6%) together accounting for 65.1% to the overall revenues. A broad product portfolio protects the company from adverse market conditions in any product segment which reduces its business risk.

Higher Returns

Weyerhaeuser experienced higher returns in FY2007. For FY2007, the company’s average returns on equity, asset, and investment were at 9.9%, 3.3%, and 0.1%, considerably higher than the previous year’s average of 5%, 1.7%, and 0% respectively. Similarly for the same period the company’s net margin at 4.8% was higher than the previous year’s average of 2.4%. Higher returns indicate operating efficiencies that help the company to enhance its profitability. Increasing net margin indicates the efficient cost management of the company. Higher returns and net margins enable the company to make its financial position strong.

Weaknesses

Legal proceedings

The company is involved in a number of legal proceedings. In FY2002, the Bankruptcy Court held the company liable for breaches of warranty and in the second quarter of FY2005 imposed damages of approximately $470 million. The company appealed the liability and damages determinations to the US District Court for the Northern District of Georgia, and posted a bond of $500 million.

A consolidated lawsuit was filed in US District Court in Pennsylvania in FY2006 seeking class action status for persons and entities that purchased oriented strand board (OSB) directly from Weyerhaeuser, Louisiana-Pacific, Georgia-Pacific, Potlatch, Ainsworth Lumber, Norbord and J.M. Huber, from 2002 through the present.The lawsuit alleges the defendants conspired to fix and raise OSB prices in the US during the class period and as a result, class members paid artificially inflated prices for OSB during that period. Additional lawsuits have also been filed and have been consolidated in the same court for discovery purposes on behalf of indirect purchasers of OSB in different states that have laws permitting such actions on behalf of indirect purchasers.The company’s involvement in a number of legal proceedings and adverse judgments in certain legal proceedings had a material adverse effect on the company’s financial condition.

Highly dependent on third parties

The company’s business is highly dependent on the transportation of a large number of products, both domestically and internationally. It relies primarily on third parties for transportation of the products manufacture and/or distribute as well as delivery of raw materials. In particular, a significant portion of the goods manufactured and raw materials that the company uses are transported by railroad or trucks, which are highly regulated.

Any failure of a third-party transportation provider to deliver raw materials or finished products in a timely manner could harm the company’s reputation, customer relationships and have a material adverse effect on financial condition and results of operation. In addition, an increase in transportation rates or fuel surcharges could materially adversely affect sales and profitability of the company.

Overdependence on US

Although the company has a global presence but its largest share of revenue is generated in the US market. The US accounted for around 81.5% of the company’s sales in the FY2007 and 83.1% in FY2006. The major competitors have more equitable distribution of revenues than the company. This overdependence makes the company vulnerable to the economic fluctuations of the US and might negatively affect its revenues.

Opportunities

Growing demand for OSB

Oriented strand board (OSB) has been fast replacing traditional plywood in North America, in FY2007. OSB is used in residential and commercial construction for walls, roof panels, sub floors, single-layer floors, structural insulated panels, floor joists and rim board. In North America it has captured 75% of the structural panel market for key applications. By 2006, production capacity in North America exceeded 24 million cubic meters.

The growth of production in the US was particularly strong, at about 5.5%, while production of Canadian mills advanced by slightly less than 5%.The total North American OSB annual production is projected to increase by approximately 8.0 billion square feet in the period from FY06-10 while plywood production is projected to decline by 7.8 billion square feet for the same period.The company being a producer of OSB could benefit from the growing demand for OSB.

Expanding home improvement market

The long-term outlook for the home improvement products market remains strong. Total market growth in FY2006-09 is expected to average 3.4% per year in constant dollars.With customer service centers across North America, Weyerhaeuser provides building materials and support to lumber dealers, home improvement warehouses, industrial manufacturers and the manufactured housing and recreational vehicle industries. High growth in the home improvement market would boost demand for the company’s products, thus enhancing its revenue and market share.

Booming packaging industry in emerging markets

The global packaging market is expected to grow at an annual rate of over 4% through FY2004-09. In particular, emerging markets such as India are expected to grow at high rates. The company exports its engineered building materials and industrial hardwood products to Europe and Asia.The

Indian packaging industry is set to reach $13 billion in FY09, an annualized growth of 14.2%. The packaging industry in the Central and Eastern Europe is also expected to witness high growth. Russia is likely to remain the region’s largest consumer, reaching $18.5 billion in FY2009. Expansion in emerging markets such as Australia, Europe, India, China and Japan would enable the company to reduce its dependence on North America.

Threats

Environmental regulation

The company’s business is subjected to numerous environmental laws and regulations.The company is involved in the environmental investigation or remediation of numerous sites.The company spent approximately $10 million in FY2006, and expects to spend equally in FY2008, on environmental remediation of these sites. Also, the United States Environmental Protection Agency (US EPA) has introduced regulations dealing with air emissions from pulp and paper manufacturing facilities, including regulations on hazardous air pollutants that require use of maximum achievable control technology (MACT) and controls for pollutants that contribute to smog and haze. The US EPA has also adopted MACT standards for air emissions from wood products facilities and industrial boilers. Compliance with these regulations will lead to higher costs and lower margins.

Lumber export taxes

The company paid significant lumber export taxes and/or countervailing and antidumping duties. In 2001, the Coalition for Fair Lumber Imports filed two petitions with the US Department of Commerce and the International Trade Commission claiming that production of softwood lumber in Canada was being subsidized by Canada and that imports from Canada were being dumped into the US market (sold at less than fair value). The Coalition asked that countervailing duty (CVD) and anti-dumping tariffs (AD) be imposed on softwood lumber imported from Canada.

During the FY2002-06, the company paid a total of $370 million in deposits for CVD and AD duties.

In 2006, the Canadian and the US governments announced a final settlement to this long-standing dispute. However, the Canadian softwood lumber facilities 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% if a province exceeds its total allotted export share. It is also expected that countervailing duty and antidumping tariffs, or similar types of tariffs could be imposed on the company in the future. The company may experience reduced revenues and margins in the softwood lumber business as a result of the application of the settlement agreement.

The Domtar transaction

The company combined its fine paper business and related assets with Domtar, a Canadian corporation, to form a new company, Domtar Corporation (Domtar). The transaction was tax-free to the company and its shareholders. In connection with the transaction, the company entered into a tax-sharing agreement with Domtar, for a two-year period, followed by closing of the transaction to avoid taking certain actions that might adversely affect the tax-free status of the transaction. To an extent, the tax-free status of the transaction was lost because of actions taken by Domtar. Domtar is generally required to indemnify the company for any resulting tax-related losses incurred. In future, the event conduct by Domtar would affect the tax-free status of the transaction and Domtar would unable to meet its obligation to indemnify the company and shareholders.

Weyerhaeuser Company – Top Competitors

The following companies are the major competitors of Weyerhaeuser Company:

  • Boise Cascade Corporation
  • Columbia Forest Products Inc.
  • Georgia-Pacific Group
  • Hampton Affiliates
  • Hokuetsu Paper Mills, Ltd.
  • International Paper Company
  • Koppers Inc.
  • Louisiana-Pacific Corporation
  • Menasha Corporation
  • North Pacific Group, Inc.
  • Oji Paper Co., Ltd.
  • Potlatch Corporation
  • Roseburg Forest Products Co.
  • Smurfit-Stone Container Corporation
  • Stora Enso Oyj
  • Temple-Inland Inc.
  • Newark Group
  • The UPM-Kymmene Corporation
  • Rayonier Inc.
  • Caraustar Industries, Inc.
  • Glatfelter Company
  • Pope & Talbot, Inc.
  • Wausau Paper Corporation
  • Bowater, Inc.
  • Greif Inc.
  • Tenon Limited
  • MeadWestvaco Corporation
  • Graphic Packaging Corporation

Weyerhaeuser Company – Company View

A statement by Steven R. Rogel, Chairman and Chief Executive Officer of the board of Weyerhaeuser is given below. The statement has been taken from the company’s 2007 annual report.

Photosynthesis is indeed at the heart of all we do here at Weyerhaeuser.Yet because it takes decades For this remarkable process to create mature trees, There exists a perception that our business also moves Slowly. Nothing could be farther from the truth.This is a time of unprecedented and dynamic change, And at weyerhaeuser, innovation continues to propel us forward.

LOOKING BACK: A YEAR OF TOUGH MARKETS, DECISIVE ACTION

Our 2007 performance reflects difficult market conditions but also reveals our ability to create shareholder value.

The most significant event of the year occurred in the first quarter, when we closed the groundbreaking spin-split merger that combined our fine paper assets with Domtar to create the largest fine paper producer in North America. This innovative transaction produced $1.35 billion in cash for Weyerhaeuser, which we used to pay down debt.

It also enabled us to reduce our outstanding shares by more than 25 million. Our remaining Cellulose Fibers business is now better positioned to leverage research and development expertise, boost mill efficiencies and margins, and capitalize on a strong worldwide market for absorbent pulp.

We followed this value-creating deal with the announcement that we are conducting a strategic review of our Containerboard, Packaging and Recycling business. We are pleased with the range of options that our board is able to consider and look forward to concluding the process.

Plummeting housing starts posed a significant challenge to our homebuilding and wood products businesses last year—and we don’t expect conditions to significantly improve in 2008. Despite this, our Real Estate business sustained leading financial performance among large homebuilders by relying on targeted strategies in each of its select markets and by taking swift action to prepare for weaker business conditions.

Meanwhile, our iLevel organization took aggressive action to balance production with customer demand throughout the year and will continue to do so as needed in the coming months. This business is streamlined, focused and well positioned to take full advantage of a housing rebound, which we anticipate based on favorable demographic trends over the long term.

To maximize value from our timberlands, we continue to consider a range of options, including ongoing support of the industry in its effort to pass the TREE Act of 2007-tax-reform legislation that would provide immediate value to investors. Significant progress was made in 2007, with a one-year provision of the TREE Act passed in both the House Energy and the Senate Farm bills. With this progress, along with the TREE Act’s strong bipartisan and broad regional support, we are well positioned for enactment in 2008. We continue to position our timber portfolio for growth in South

America and remain intensely focused on realizing all potential revenue from owning timberlands, beyond planting and harvesting trees.

Finally, a number of leadership changes made last year reflects the deep pool of talent we’ve cultivated to propel our company toward continued success. In the first quarter, Tom Gideon was appointed senior vice president, Containerboard, Packaging and Recycling, succeeding Jim Keller, who retired after 32 years with the company.

Mike Branson stepped in to fill Tom’s previous position as senior vice president of Timberlands. In the second quarter, Patty Bedient was appointed executive vice president and chief financial officer, succeeding Dick Taggart, who retired after 33 years with the company. And in the fourth quarter, we announced Dan Fulton would take over my duties as president, Weyerhaeuser Company, at the beginning of 2008.

He now oversees all our operations and a number of staff functions and is working closely with Rich Hanson to prepare for his planned retirement later this year. In addition, Debra Cafaro was elected to our board and adds a wealth of real estate and broad business knowledge to the breadth of skills on our board.

LOOKING AHEAD: CAPITALIZING ON INVENTIVE SOLUTIONS, UNIQUE EXPERTISE

The world continues to demand different and better products. People want safe, reliable shelter and products that make life easier. Businesses want innovative solutions that help them become more efficient and profitable. And we all seek sustainable, visionary products that anticipate what people—and our planet— will need in the future.

Our response to this challenge can be summed up with two words: trees and innovation. We have a strong track record of taking deliberate action to create shareholder value in the best possible way, wherever opportunity is present. Sometimes this means applying our industry-leading expertise to find new ways to use every part of the tree and the land it grows on.You’ve seen some outstanding examples in the first few pages of this report. Sometimes it means having the market knowledge and foresight to restructure a business, discover a more efficient or profitable way to operate it or, if necessary, sell, close or scale it back.

Sometimes it means creating a brand new approach to maximizing value from divestiture.

The recent announcement of our intention to partner with Chevron is a perfect example of our innovative thinking.

Our expertise in large-scale forest management and cellulose conversion matches well with Chevron’s expertise in energy production and markets.We expect this partnership to hasten the development of cellulosic ethanol as a renewable nonfood-based fuel for cars and trucks—an endeavor that represents not only innovative leadership in the face of one of the world’s most pressing needs but also an extraordinary opportunity to unlock additional value from our core timberlands.

Our ability to find creative solutions also applies to the way we report our sustainability performance. We’ve taken steps to become more transparent and timely by launching a comprehensive website, where stakeholders will have easy access to current information about our practices, policies and results.

Last year, we set a number of sustainability goals, including drafting a policy that confirms our commitment to human rights, which is now complete. We also analyzed our water consumption at primary mills and are identifying opportunities for improvement. Product certification remains a top priority, with 94 percent of our North American forest products currently certified to sustainable forestry standards. And we continue to support wide adoption of green building practices by taking a leadership role in the development of a National Green Building Standard by the National Association of Home Builders.

Our progress on these fronts and in other critical sustainability areas will be reported throughout the year at www.weyerhaeuser.com/sustainability.

As a leader in our industry, we have a responsibility to continually set stretch goals in all these areas and then exceed them. In doing so, our shareholders will benefit from the value we create, and customers, partners, communities and employees can be confident in the sustainability of our company and the forests from which we derive value.

This brings us back, as always, to the trees.They remain our core resource, our chief expertise and our greatest competitive advantage. By focusing on innovation, we will continue to unlock a whole new world of potential in our forests and ensure that shareholders receive the full benefits of these holdings. We have the formula for success, and with it we will not only weather change but also turn it into opportunity.