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Executives

Kathryn F. McAuley - Vice President of Investor Relations

Doyle R. Simons - Chief Executive Officer, President, Director, Member of Compensation Committee and Member of Finance Committee

Patricia M. Bedient - Chief Financial Officer and Executive Vice President

Analysts

William V. Selesky - Argus Research Company

Chip A. Dillon - Vertical Research Partners, LLC

George L. Staphos - BofA Merrill Lynch, Research Division

Gail S. Glazerman - UBS Investment Bank, Research Division

Joshua L. Zaret - Longbow Research LLC

Paul C. Quinn - RBC Capital Markets, LLC, Research Division

Weyerhaeuser Co. (WY) Investor Meeting December 17, 2013 8:30 AM ET

Kathryn F. McAuley

Good morning. Am I on? Okay. Good morning, and welcome. Thank you for joining us this morning. Before we begin, I'd like to draw your attention to the statement concerning forward-looking statements. It can be found in the beginning of your presentation materials and also on the screens behind me. We will be making forward-looking statements this morning in our presentation.

I would like to introduce Doyle Simons, President and Chief Executive Officer of Weyerhaeuser Company. Doyle?

Doyle R. Simons

Thank you, Kathy, and good morning, everybody, and welcome. It's nice to look around and see so many familiar faces in the audience.

Since joining Weyerhaeuser and becoming President and CEO on August 1, I've been primarily focused on answering 3 questions: Where are we today, where are we going and how are we going to get there? As part of that process, I spent my first 50 days out on the road, visiting our facilities and meeting our people. And at each stop, I asked 3 questions: What are we really good at, at Weyerhaeuser; what can we do better; and what do we need to do to make this a truly great company? And I've got some really good feedback from our employees. I also spent some time, during that first 50 days, visiting with investors and essentially asked investors the same 3 questions. And as you can imagine, I got some open and frank feedback from our investors.

I then spent the next 50 days hunker down with my senior management team saying, "Okay, if this is where we are, where do we want to go, and how we're going to get there?" And through that process, we created a vision. This is primarily an internal document, but I wanted to share with this group this morning. But the focus of today is going to be how we're creating a truly great company for our shareholders through great financial results, driven by operational excellence.

Two items I'd like to focus on, on this slide. First is operational excellence. Now it's a pretty common term in today's world, but at Weyerhaeuser, it has a very specific definition. It's delivering quality products that our customers want and are willing to pay for and doing it at the lowest possible cost. The other thing I want to focus on, on this slide is key behaviors, because what we're really focused on doing here at Weyerhaeuser is changing our culture. If we're not successful in changing our culture, we won't be successful in achieving our vision. As everybody knows, cultures are hard to change. Example I like to give is like a rubber band, right? You change, and you mold, and you do, and you do it, if you ever let up, it snaps right back. So like I said, changing a culture is hard, but we can do it at Weyerhaeuser.

Culture is nothing more than behaviors, so what we're talking about is changing our behaviors. First, we've got to act with urgency. We've got to improve the clock speed at Weyerhaeuser. And hopefully, some of the actions that we've done recently represent that new clock speed, but we have to act with urgency every day. Second thing we've got to do is we've got to be accountable. And when people hear accountable, oftentimes, people just think consequences. That's part of it. But to me, being accountable is making sure you have crystal-clear objectives, and you sure going to hear this morning, we have crystal-clear objectives now at Weyerhaeuser; got to make sure everybody knows exactly who is responsible for achieving those objectives; and then you've got to be accountable to ourselves, we've got to be accountable to ourselves; and we have to be accountable to our shareholders.

The third thing is we've got to be courageous. So what I mean by that, we've got to be willing to do things differently at Weyerhaeuser, not just do things the same way because that's the way we've always done it. And then finally, we've got to keep things simple. Sometimes, we let process get in the way of getting our work done. As I like to say, sometimes, our not-to-do list at Weyerhaeuser is just as important as our to-do list.

So that's just a little background on our vision. What I want to focus on this morning, though, is our path forward to create a truly great company for our shareholders. And at the end of this presentation, Patty is going to spend some time talking about markets, and we're really excited about where our markets are and really bullish about markets. But what I want to leave you with here today is what we're doing to fully capitalize on the upside in the markets that we have going forward, but also make sure that we're well-positioned for the inevitable downturn.

So what is our path forward? Let me start with our team. I'm a big believer, it's all about the people. And I can tell you, my board and I are committed to put the best team on the field every day, and I'm excited about the team we are assembling at Weyerhaeuser. I think it's a really good combination of some completely new faces to the company, which give a fresh perspective. We've got some folks who've been with the company for a while but are now on new roles, and then we've got some seasoned veterans.

Now in terms of the new faces, that's Adrian Blocker and myself. And I understand the jury is still out on me, but I can tell you, Adrian is going to be a fantastic addition to our team. Adrian runs our lumber operation and joins us after spending time at both West Fraser and International Paper.

Just last week, just last Friday, as a matter of fact, we named Rhonda Hunter as Head of our Timberlands operation. Now Rhonda has been with the company for a while, running our Southern Timberlands operations. She's done a really good job. And I can tell you, she's already hit the ground running, looking for opportunities to drive our earnings and cash flow in our Timberlands operations through operational excellence.

A couple of months ago, we named Cathy Slater as Head of our OSB, ELP and Distribution business. Cathy comes to us with extensive manufacturing experience. She started her career at Procter & Gamble and has now been at Weyerhaeuser for a number of years. Cathy has been instrumental in improving our OSB operation, as I'll show you in a little while.

Shaker Chandrasekaran runs our Cellulose Fiber business. I can tell you I've never met a person more intense than Shaker, and I can tell you, he's focused every day on driving the bottom line performance of our Cellulose Fiber operation. And then, of course, we have Patty. Patty has been a key member of our team in the past and will continue to be a key member going forward.

So what's our goal? Our goal is pretty simple. The way we're going to create a truly great company for shareholders is to grow shareholder values. As we think about how to do that, we think there are primarily 3 levers that we have in place to grow shareholder value. First is portfolio. Are we in the right businesses to drive value for shareholders? Second is performance. As you'll hear me talk a lot about this morning, we're going to drive our performance through operational excellence. Now this ain't real sexy stuff. This is your basic part blocking and tackling and having a relentless focus on execution every day. And then the third lever to grow shareholder value is capital allocation. And I can tell you, as markets continue to improve and as we improve our performance, then capital allocation is going to be a critical lever to drive shareholder value, and as we'll share with you this morning, we have some -- a very specific and disciplined approach to capital allocation going forward.

So what are our measures going to be? How are we going to know if we're making progress? As you know, we'll look at lots of measures. We'll look at ROI, we'll look at cash flow. But the bottom line is, I'm a big believer in relative measures in the businesses that we're in. This morning, we're going to spend a lot of time talking about relative EBITDA as we show you how we stack up versus competition. But the ultimate measure for our success is going to be our relative total shareholder return. Our goal is to have the highest shareholder return in the industry and be in the top third over a cycle.

This is just another way to look at TSR, including the 3 buckets: profit growth, change in multiple, and dividend and share repurchases, that make up total shareholder return, and then highlights the drivers of the levers that we have in push -- that have in place to impact each one.

Starting with profit growth. The way we're going to drive profit growth is through operational excellence and driving incremental profit as we improve our relative performance. All 3 of the levers, of course, can impact the change in multiple. We believe as we drive up our relative performance through operational excellence, as we focus on capital allocation and do a better job of allocating capital going forward and show we're good stewards of our investor capital and we focus our portfolio, we think that will have a positive impact on our multiple going forward.

And then the third key bucket, of course, is dividend and share repurchase. And as we think about capital allocation and our financial priorities going forward, I can tell you, first and foremost is returning cash to shareholders through dividends and share repurchases.

So now, what I want to do is spend a little time walking through each of the levers that we have in place, starting with portfolio. As everybody all know, earlier this year, we announced 2 key transactions. First is that we're acquiring the Longview timberland, 645,000 acres of some of the finest timberland in the Pacific Northwest. In addition, we announced we were looking at strategic alternatives for our home-building business, WRECO. And just last month, we announced a transaction between TRI Pointe and WRECO, which Patty will spend some more time talking about in just a little bit, and is scheduled to close in the second quarter of 2014.

Together, these 2 transactions have fundamentally changed our company. As you can see, before these transactions, Timberlands was less than 50% on a total asset basis -- a little less than 50% on a total asset basis of what we do, with the balance being roughly evenly between WRECO, Wood Products and Cellulose Fiber.

On the right-hand side, what you see is what Weyerhaeuser looks like after these 2 transactions are completed. Timberlands will be roughly 70% of what we do on a total asset basis, but the balance being made up roughly 20% by Cellulose Fiber and 10% by Wood Products. In addition, you can see we've grown our company from $10.4 billion in assets to $11.1 billion in assets.

A lot of key positives from these 2 transactions, but let me mention just a couple. Number one is we created a -- we will create a stand-alone homebuilder, and our investors will have the opportunity to invest in one of the best-positioned, largest homebuilders in the country. Second thing is the new Weyerhaeuser will be a truly focused forest products company committed to growing, harvesting and selling trees, and converting them at the lowest possible cost into products that our customers want and are willing to pay for.

This is just a quick snapshot. Most of you are all familiar with Weyerhaeuser, but this is just a quick snapshot of what Weyerhaeuser, or what I call the new Weyerhaeuser will look like once the WRECO transaction is completed. First, we are one of the largest owners of timberlands in the country, with 7 million acres, including 4 million acres in the South, 2.7 million acres in the Pacific Northwest and 300,000 acres in Uruguay. And you can see our last 12 months EBITDA on this business are $579 million.

Second is Wood Products. You can see the 4 businesses we're in: Lumber; OSB, oriented strand board; ELP, which is engineered lumber product; and distribution, and the last 12 months EBITDA in each of those businesses. And finally, we are a leading producer of fluff pulp through our Cellulose Fiber business. We have 6 mills, 2 converting facilities, and as indicated here, the last 12 months EBITDA in this business was roughly $351 million.

So now, what I want to do is just walk through each of our businesses that are currently in our portfolio and talk about what the near-term priority is, and near term being defined as roughly the next year and the mid-term priority is for each of our businesses. Starting with WRECO, as I previously mentioned, the plan is to exit that business in the second quarter of 2014. Next is our Timberlands. And as I mentioned, we have some of the finest timberland in the country, and we're really good at growing trees on that timberland. But I believe through operational excellence, we can drive additional cash flow and earnings in that business, and that's going to be our near-term priority.

In addition, we're focused every day on capturing the synergies and other opportunities associated with our Longview acquisition. And I think, long term, Longview, and we'll talk more about -- I'll talk more about. It's going to be a really fantastic acquisition that this company made for our shareholders. In the mid-term priority, it will be continued to optimize our cash and earnings, and look for opportunities to continue to grow this business on a disciplined basis.

Next, Wood Products, and specifically, lumber and OSB. So what I'll show you here in a little while, we've made a lot of progress in our performance in these businesses. We think we have additional opportunity to significantly improve our relative position in these businesses through operational excellence in driving our cash flow and earnings. So that will be the near-term priority in those businesses. Longer-term, again, next 2 to 3 years, we will look for opportunities to opportunistically grow this business, these 2 businesses. Now let me be very clear, we've got good scale in these businesses. We don't feel compelled to grow these businesses. Again, we've got good scale and good opportunity. But if we find opportunities on an opportunistic basis to grow these businesses, we'll look to do so.

Next is ELP and distribution. Unlike lumber and OSB where we performed well, we have underperformed in both of these businesses. So our near-term focus is to fix these businesses. And I can tell you, we have a full-court press on in both of these businesses, with very specific goals and measures for 2014. I'll just be real frank, if we don't fix these businesses in 2014, there's no need to talk about the mid-term priority because at that point, we will be considering option B. With that said, I am convinced, under Kathy's leadership and the changes we're making in both those businesses, that we will, in fact, improve those businesses significantly in 2014 and then we'll turn our focus to driving cash and earnings in the mid-term through operational excellence.

And finally, the Cellulose Fibers business. Much like our lumber and OSB business, we've made significant improvements in those -- in that business over the past few years, and we have additional opportunities to drive cash

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to earn the right to grow through our performance. We look to grow this company by acquisition, but we'll do it on a very disciplined basis. But let me be very clear, our near-term focus, our near-term opportunity is to run what we have better.

Now let me switch gears to our second lever, performance. And what I want to do in this section is go through each of our businesses, outline exactly where we are versus our competitor on a relative basis, but more importantly, talk about the step changes that we are driving through operational excellence to improve our relative position going forward. As everybody knows, we're basically in commodity products, so prices -- sales prices are going to move up, sales prices are going to move down, input prices are going to move up, input prices are going to move down. What we are focused on is step change in the controllables that will show up in terms of our relative performance. Now we know that our competitors aren't standing still, so they're improving as well. So what we've got to do is run faster than our competitors who are running, and as we do that, that will show up in our relative performance, and that's ultimately going to be our scorecard.

So let me start with Timberlands. As I mentioned earlier, we have some of the finest timberlands in the country, and we consistently produce leading EBITDA per acre owned, whether you look at it on the West or in the South, while always managing this asset on a sustainable basis. Now with that said, we think we can do more. And as we look at our Timberlands operations through the lens of operational excellence, we've identified somewhere in the neighborhood of $50 million to $70 million of opportunities to drive our relative performance. This includes opportunities in trucking and hauling, this includes opportunities in harvesting, pruning and thinning and finally, merchandising our logs and make sure they're going to the right place. Some of this will be new stuff that we haven't done before, but some will be just doing what we've done better, but having the commitment and the discipline to get it to the bottom line.

Above and beyond, what we're doing in operational excellence is, of course, our Longview Timber acquisition. We are now on schedule to get $22 million of synergies from that acquisition by year-end 2014. And just to remind you, that's our -- original goal of $20 million. In addition, we believe that on an ongoing run rate by the end of 2014, we should be in on a run rate of somewhere in $175 million to $185 million of EBITDA annually out of that business on a run rate.

So what the chart is meant to do on the right-hand side is tally up. We've got a lot going on in our Timberland operation, as I just walk us through. So what the -- this won't be exactly right and different parts will move different places, but it's just to give you a sense. But starting in 2012 at the base, as Patty is going to share with you, and as we've already started to see, we anticipate that log prices are going to continue to go up. Based on that alone, we think our earnings or our EBITDA in this business will improve by 40-plus percent 2012 into the 2016 to '18 timeframe. Above and beyond that is what I just said in Longview Timber, again, by the end of this year, we think we will be at a run rate of $175 million to $185 million of EBITDA from that acquisition. And then on top of that, of course, is the operational excellence, which will take some time to ultimately get to the bottom line.

Let me now turn to our lumber operation. As you can see on the left-hand side, we have gone from dead last in this business in 2011 to where we're closing the gap to the leaders. This has been primarily driven by margin spread on higher-value products. Going forward, our 2 strategic initiatives are to reduce our cost and achieve industry-leading cost structure and maintain our value-added product mix. As I like to say, in this business, we have good scale. We make the highest quality piece of lumber for our customers. And when we get our cost right, we're going to be unbeatable.

Now we've set a very aggressive target in terms of what we think our opportunity is in this business. We basically have taken mill best-in-class, not a system best-in-class, the individual mill best-in-class, and assuming we can get there with all of our mills, that's an opportunity to lower our controllable cost, our cost net of log by $100 million. Now to get there, we have to have a real focus on operational excellence. We're going to have to spend some capital. We're going to have to look at our overall cost structure, and it's going to take some time. But again, our ultimate scorecard will be our relative performance. As we all know, lumber prices move up, lumber prices move down, input cost, input cost move up, input cost move down. But as we drive towards closing that gap, that will show up in our relative position in this business.

OSB, as you can see in this business, we've gone from third to tied for first in terms of our EBITDA margin. That's been primarily driven by increasing productivity and enhancing our mix -- our product mix. Going forward, our 2 strategic initiatives in this business are to drive down our controllable costs by improving our reliability and by growing our higher-margin products. So we think the benefit of driving up our reliability to best-in-class levels is somewhere in the $50 million range. Now the good news is we know how to do this. Some of our mills are already producing at those levels. So what we're going to

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how our value product and have a different pulping process. Going forward, our goal will be to widen the gap between us and the bottom 2, and close the gap between us and Rayonier.

Our first strategic initiative in this business, Cellulose Fiber, is to reduce our controllable cost. We have set a target, an aggressive target of roughly $100 million, and that will primarily come from reductions in energy, chemical and maintenance costs going forward, with the biggest portion of that coming from a reduction in energy cost.

Our second strategic initiative in this business is to grow with global customers, both in emerging and mature markets. And finally, is to innovate higher margin products, both for our existing customers, where we're looking at finding ways to continue to differentiate the products that we provide to those customers and by looking at alternative uses for Cellulose Fibers as we move forward.

A very good example of both the second and third initiatives is just last year, we started up a plant in Gdansk, Poland to serve the growing baby care market in Eastern Europe, and we did that with one of our largest strategic partners, P&G.

Another way to improve our performance is to make sure that we have the appropriate capital structure -- I mean, the appropriate cost structure, I'll get to capital structure in a minute, the appropriate cost structure in this business going forward. Approximately $22 million of overhead was allocated to WRECO every year. So with WRECO no longer being part of the company starting in the second quarter of next year, we have to reduce our overhead by $22 million just to stay even. But we believe to be a truly great company and to outperform our competitors, both in the up-cycle and in the down-cycle, that we need to reduce our costs even further. Our goal is to reduce our cost -- our SG&A cost by $75 million. I can tell you we're already working on this initiative and hope to get it completed as soon as possible. But our goal would be to be at a run rate of $75 million in lower cost in -- by the end of 2014 compared to our 2013 pro forma SG&A cost.

So to wrap up on performance, I can tell you we're relentlessly focused every day on driving our relative performance through operational excellence and committed to where we have a gap, a negative gap, closing that gap, and where we're even or have positive gap, expanding that gap going forward.

Let me now turn to capital allocation. And in just a minute, I'm going to turn it over to Patty to walk through some of the specifics of capital allocation, as well as talk about the WRECO TRI Pointe transaction, which we are excited about, as well as talk about the improving markets that we have in front of us.

But before I do that, let me just tell you how we think, how I think about capital allocation on a fairly high level. When we think about our financial priorities, first and foremost, is returning cash to shareholders. We will do that primarily through a growing and sustainable dividend. And as we improve our performance and markets continue to improve, we think we'll have significant opportunity to grow our dividend going forward. In addition, we'll look at share repurchase as a way to return cash to shareholders where that's appropriate.

Second is investing in our businesses. We will do that primarily through high-return capital project, focused on lowering cost and improving our margin going forward. As I mentioned earlier, we will also look for opportunities to grow our company by acquisition, but we'll do so in a very disciplined manner.

And then finally, we are committed to maintaining the appropriate capital structure at Weyerhaeuser to support a growing and sustainable dividend and to position us for growth by acquisition in the future.

So with that, let me turn it over to Patty, and then I'll come back and wrap things up at the end.

Patricia M. Bedient

Thank you, Doyle, and good morning, everybody. It is great to see so many familiar faces in the audience this morning, and I'd like to welcome those of you who may be new to the Weyerhaeuser story.

Now we have made significant progress over the last couple of years, but what excites me the most is the opportunity in front of us to build on that foundation, to take it to the next level and to grow a truly great company.

So let me pick up on capital allocation. Our first priority for capital allocation is to return cash to shareholders through a sustainable and growing dividend.

Can we have the next slide, please? Thank you. So our targeted dividend policy is that we will pay out 75% of our funds available for distribution over the cycle. We define FAD as all cash flow not to include acquisition, disposition or other financing activities. We put this policy in place following our conversion to a real estate investment trust.

Now as we look forward, we do know that we are in cyclical businesses, so that percentage is going to vary from year-to-year. At the low part of the cycle where we have been and still continue, we will be above 75%. And as we near the top of the cycle, we will likely be below 75%. We will also use share repurchase to supplement the cash dividend.

So let's take a look at our progress. When we set our initial dividend back in February of 2011, we set the dividend at $0.15 per share per quarter. Our first dividend increase then came in October of 2012. And over the course of a year, we increased the dividend 3x, for a total increase of 47%. Our latest increase was just this past August in conjunction with the Longview Timber acquisition.

Now we know, in addition to share repurchase and cash dividend, share price appreciation is an important component of total shareholder return. And at the beginning of 2011, our stock was trading at just below $20 per share. And today, we're trading at about $30 per share or an increase of over 50%. But again, we believe, looking forward, that we can improve on that performance.

Let's take a look at our payout ratio. In 2011, our dividend vastly exceeded our funds available for distribution. But during that year, we had assets, sales, and so we had strong cash balances as we continued to focus and simplify the company's business mix.

In 2012, our payout ratio was 86%, and we would expect that this year will be somewhere in the 80%-plus range. Now we look forward to the opportunity to continue to grow our cash flow and increasing our dividend this coming year, although any further increases will likely come after the WRECO transaction closes in the second quarter of 2014, and I'll have more to say more about that transaction here in just a minute.

In addition to returning cash to shareholders, we will be investing in our existing businesses through targeted and disciplined capital projects. This year, the mix of our spend began to shift. Over the course of the last few years, we have consciously limited the spending in our Wood Products business as we focused on noncapital initiatives and improving our cost structure. We'll also look, as we go forward, to increasing the allocation to our Wood Products segment not only this year but in the coming year to further lower our cost structure, as well as capture debottlenecking opportunities, further leveraging on our progress that we've made today.

In our Cellulose Fibers business, this year, we lowered our capital spend because we have completed the facility in Poland, which was a new brand-new facility that was built to grow further with Procter & Gamble in a very strategic marketplace.

Timberlands investment, which was primarily reforestation, will increase slightly going forward as a result of the Longview acquisition.

Our total spend in 2014 will increase over -- or 2014 will increase over 2013, but we will still be spending well below our DD&A level. Our near-term focus is getting the most out of the assets that we have. There are no new greenfield projects on this capital slate. As we look forward, we will look and consider acquisition opportunities where we can bring additional value to shareholders.

A strong capital structure and liquidity further supports our ability to grow the dividends and invest in our existing businesses. At the end of the third quarter, we had $900 million in cash. And earlier this summer, we put in place a brand-new revolving credit facility for $1 billion. It doesn't expire until June of 2018, and we have no borrowings outstanding under that facility.

This quarter, we completed the financing for the Longview Timber acquisition, and we also repaid all third-party WRECO debt, and we'll end the year with a little under $5 billion in total debt. We have no maturities now for the next 3 years, not until 2017 when our total maturities will be just under $300 million. Our financial metrics have been improving, and we are investment-grade rated by both major rating agencies. While we're not yet at our target level for all metrics, they will continue to improve in the coming year as our performance continues to improve.

So now, I'd like to wrap up my discussion of capital allocation with a discussion of the very exciting transaction that we announced last month, and that announcement came as a result of the strategic evaluation of our real estate segment, which we first announced last June. WRECO will combine with TRI Pointe Homes in a tax-free transaction. This powerful combination will create a very strong stand-alone homebuilder, a leading homebuilder that has significant long-term potential for growth.

Under the terms of the transaction, Weyerhaeuser shareholders will receive 129.7 million shares of TRI Pointe stock. Now the number of shares to be received is fixed. What will vary is the value of those shares as the price of TRI Pointe Homes stock varies. But if we use the closing price of TRI Pointe as of the end of last Friday, which was $18.42 per share, the estimated value of those shares is approximately $2.4 billion. Combining that $2.4 billion with the $700 million of cash proceeds that we will also receive, brings a total transaction value to $3.1 billion. Now again, this transaction value is on a tax-free basis. A comparable value for a taxable transaction would have been approximately $4 billion.

We have a number of steps yet to complete the close of the transaction, such as regulatory approvals, TRI Pointe shareholder approval. And we will be filing the necessary registration statement before the end of the year, and we expect to close the transaction in the second quarter of the coming year.

We'll be distributing the stock that we will be receiving to Weyerhaeuser's shareholders. And while the value of that distribution will vary with the price of the stock, as I mentioned before, if we use the stock value from the previous slide, that equates to returning $2.4 billion to shareholders. We'll return that distribution in either a spin-off or a split-off transaction. Under a spin-off, all Weyerhaeuser shareholders will receive a pro rata share of the TRI Pointe shares. You can think about that as being similar to a special dividend. If a split-off is chosen, then we will file the necessary tender offering document, and Weyerhaeuser shareholders will have the choice to elect whether to receive -- whether to exchange their existing Weyerhaeuser shares, either a portion or all, for shares of the new combined company of TRI Pointe Homes and our WRECO business. So you can think about that as being similar to a share repurchase. Both methods will bring a significant value to Weyerhaeuser shareholders, and which method will be used will be determined by the Weyerhaeuser Board shortly before closing.

Now the cash that we'll be receiving is unrestricted and can be used to adjust the capital structure as appropriate, given that we are distributing a significant amount of equity to shareholders. Any remaining amount could be used for general corporate purposes, so we believe that this is a very exciting transaction for shareholders. It also will result in a more focused Weyerhaeuser going forward.

Now up to this point, we've been talking about actions that are within our control to improve our financial results. But we also have the opportunity to leverage these actions in the face of increasingly positive market outlook for our products. We're excited about the opportunity to improve our own performance, as well as the market improvement that we'll have. And we believe that, that has the potential to return compounded results for our shareholders.

So now, I'd like to walk through that market outlook in more detail. So as I said, we think that we have very positive trends for our products going forward. We expect higher demand in both -- in prices and demand for U.S. timber and wood products as a result of the recovering housing market, growing offshore demand, as well as the Canadian timber supply shortage. Global growth, especially in emerging markets, should lead to increased demand for fluff pulp, which is the primary product that is produced by our Cellulose Fibers business.

Now I'll walk through each one of those trends in a little more detail, starting with housing. Housing has started to recover, but we are still very much in the early stages of the housing recovery. While the exact shape of the recovery is difficult to predict, there's really no disagreement that the overall direction is up. We expect that we'll end 2013 somewhere in the 925,000 total housing starts. Since the government shutdown, we haven't gotten much additional information of late, not until since last August, although I understand that tomorrow, we'll be getting maybe a couple or 3 months of data, so we'll have a little more visibility as to what we'll really do in 2013.

But as we go forward into 2014, most forecasters are somewhere just under 1.2 million starts on our way to trend starts of 1.5 million or more, some time likely in the 2015 to 2016 timeframe. The Harvard Joint Center for Housing would estimate that we need somewhere between 1.6 million to 1.9 million starts, given the demographics of the country. The enablers of the housing recovery include job growth, as well as consumer confidence, and both are on positive trajectories.

In November, the unemployment rate dropped from -- or dropped to 7% from just under 8% at the beginning of the year, and private sector job growth appears to be picking up. Consumer research confirms that notwithstanding that severe downturn that we experienced, that most people still want to own a home today. And affordability, notwithstanding some rise in mortgage rates of late, still is at an all-time high by historic standard. So we believe housing will be very positive going forward.

We also expect to see growing export volume for both logs and lumber. Japan, Korea and China are the primary countries where we export logs off the Pacific Northwest Coast from our own port facility in Longview, Washington. We have long-standing customer relationships with the largest converters in Japan where our highest-value Douglas fir logs are made into lumber for housing applications, including the traditional post-and-beam construction in Japan. Japan accounts for the largest percentage of our export revenue, and export volumes to Japan have been steady over the last few years.

By contrast, in China, China has surged in the last few years. And we expect that, as we go forward, we will continue to experience strong demand for China as we are today, notwithstanding the fact that we had some pullback in 2012 as a result of government intervention. In addition, the growth in Chinese construction and housing has been extremely important in providing an additional outlet for Canadian lumber, which you can see has also increased significantly to China as a result of the need to accelerate the harvest in the forest of British Columbia because of the infestation of the Mountain Pine beetle. So we think that the outlook for log prices is extremely positive, and individual forecasters' forecasts will vary depending upon which analyst you consult, but the trajectory for all-log pricing, again, is a very positive forecast.

Now Weyerhaeuser timberlands are very well balanced between the West and the South from a geographic basis. You can see on the West that prices have already risen rapidly for our prime Douglas fir logs. This is a result of that robust export market that we just talked about on the previous slide, as well as housing starting to recover. By contrast, you can see in the South that prices have been relatively flat. That's because the South is more of a domestic housing play with very little export. But we expect that as now housing continues to recover and the supply of Canadian lumber further constricts, that we will start to see log prices move in the South as well. Also, those are very positive for Weyerhaeuser's log and lumber business.

Talking a little more about the constraints in Canada. You can see on the left-hand side of the chart that back in the last housing cycle, at the peak of the cycle, Canadian lumber accounted for just under 35% of the U.S. lumber market share. However, because of the damage that has been done by the Mountain Pine beetle in British Columbia, and British Columbia is the largest lumber producing province in Canada, so that, combined with the fact that the provinces in Eastern Canada have restricted their harvest as well, Canadian lumber has and will continue to lose share of the U.S. market as housing continues to recover. We would expect that by 2015 that, that share will drop to 25% from just under 35%, and will drop another 5% by 2020.

You can see on the right-hand side of the chart, the beneficiary of that gap is the U.S. South lumber production. So it has been increasing production to close that gap. And as a result of that, again, we see that, that will put upward pressure on prices in the South, again, benefiting both Weyerhaeuser's log and lumber business in the South.

We also see very positive trends for our oriented strand board business, as well as our engineered wood products business. In oriented strand board, we actually see that with this forecast, which this particular forecast comes from Forest Economic Advisors, which is a third-party consulting firm, but all forecast will tell a similar story. But Forest Economic Advisors actually has OSB demand surpassing the peak that we experienced back in 2005, but also because of the recovery in the U.S. housing market, but also OSB continuing to substitute for plywood in the repair and remodel business, as well as in new home construction. Engineered wood similarly has a very positive trend, although it will rely on new residential construction as more of a demand source.

Wrapping up now with the trends affecting our sale of fibers business, which is growth in fluff demand, our primary product produced by our sale of fibers business. We would expect that demand for fluff will grow on average about 3.5%. And our Southern Pine fiber is an ideal source for producing fluff because of the very high absorbent qualities of that fiber. Consumer products companies use our fluff pulp in the manufacture of baby diapers. So you all can appreciate why absorbency is a very important part of fiber. The emerging markets will continue to contribute to the demand for this product, as well as the weak dollar continues to benefit this business because we do export approximately 2/3 of our total production out of Cellulose Fibers, and we do that, we price all of those products in U.S. dollars.

So in summary, we are very much looking forward to the opportunity to leverage our own operational improvements into the face of rising demand and very positive market trends for our products.

And with that, I will turn it back to Doyle, and I look forward to your questions.

Doyle R. Simons

Thank you, Patty. And as I said earlier, at Weyerhaeuser, we are committed to making this company a truly great company for our shareholders. We think we understand the drivers of value. And I can tell you, we're focused every day on executing our strategic initiatives to drive up our relative performance.

As Patty just outlined, everything we're doing is against a backdrop of improving market in this industry. And we believe these markets still have a lot of runway in front of us, and we believe we have a lot of runway in front of us here at Weyerhaeuser.

So with that, we will pause and then open it up for questions. Patty and I will tag-team the questions. I'm going to give her the hard ones you all will give me. I'll take the easy ones. But as we do this, so that the folks joining us via webcast can hear, if you wait -- if you raise your hand, somebody will be bringing you a microphone, and then if you ask your question, please.

Question-and-Answer Session

Doyle R. Simons

Okay, we'll start right over here and kind of work around. Let's start with Bill.

William V. Selesky - Argus Research Company

First question is, if I add it all up in terms of the opportunity you talked about, Doyle, it seems like it's $400 million plus run rate, which appears largely to be a target for the end of 2014. So I mean, that's a pretty big number. I'm just wondering kind of how you could trust, what kind of confidence you have in your ability to get to that in 1 year? And do you need any growth to this number? Would this be -- would growth be incremental to any kind of savings you could achieve? And then finally, what kind of controls do you think need to be put in place in the organization to achieve this either operationally or financially, and what's in place already?

Doyle R. Simons

Well, thank you for the question because it gives us the opportunity to really clarify how we think about these potential opportunities in front of us. And I understand, I think the math, but I don't agree with the timing that you just laid out. So let me be very specific on how we see the timing on this. So let's start with the ones that will be at the run rate by the end of 2014. And specifically, what I said is in terms of our SG&A cost structure, we would anticipate by the end of 2014 that our SG&A cost would be approximately $75 million lower than they are today. The second thing we said in terms of specific 2014-type time frame with both ELP and distribution, and what I said was each one of those would improve -- we anticipate would improve $30 million to $40 million in 2014 compared to 2013. The other specific initiatives that I outlined, as I said, will take more time. Those are really step changes, structural changes that will be going in place to impact our overall cost structure. And it will, like I said, it's going to take time. In some instances, it's going to take capital, it's going to take a real focus on doing things differently at the organization. And what I tried to lay out was this is where we are. Here's where we need to go to be best-in-class, not just average, best-in-class, and here are some of the things that we need to do to get there. So each one of those will take a little more time, but it won't -- let me be very specific, we will not be at a run rate that identified as the gap in those. For example, in our Timberland operation, I said $50 million to $70 million. I outlined some of what those opportunities are. It will take time to realize all of those. Now as I said, we're on it today, and we will get some of that in 2014, but we will not get the entire $50 million to $70 million. Just like -- same thing in lumber. Again, to where we are today, best-in-class, here's what the gap is. And again, it will take time to get there. We're on it today. We will see some of the benefit in 2014, but it will take time to fully realize that, again, because the significance of the change and the fact that part of it will take capital to get there. So that's kind of the way we think about it. Thanks for asking the question. Your second part of your question, what will it take to be -- what do we need to do differently? If you -- yes?

Patricia M. Bedient

Now before you answer that, maybe just a couple of other things that I would say is, so in lumber, in particular, that was cost net of logs lowering our cost structure. Input cost, which obviously also are log costs, we hope goes up because that will also benefit our timber business. And we hope prices for the product goes up as well. In addition, I would also say that the capital that Doyle was talking about putting into place is in that capital slate that I shared with you. It will take some time for that capital to be put in place, to lower that cost structure, but we have accounted for the capital that we need in order to go forward into 2014.

Doyle R. Simons

Thank you, Patty. That's exactly right. And the other point I would make is, all this is measured in terms of relative performance because, as we know, we're in commodity products, right? So let's say, prices in lumber, I'll just give you an example. I don't -- we actually think it will happen just the other way, but so like prices go down by $40, $50, no matter what we do on the cost side, we won't be able to fully offset now. We'll fall less than our competitors will as we make these improvements, but that's the way we think about it and that's why I kept coming back to the fact that it's really the relative score card is the way we're going to measure ourselves going forward. In terms of what we need to do differently, I think it really boils down to just a couple of things. It's focus. It's okay, now we really understand what the objectives are, what the focus areas are, how we can move the dial, and then accountability. So your question of what we need to do differently, we just really need them. We've now narrowed the focus down of what the company's doing. We're focused on operational excellence. We've set some specific goals. So its having that focus and then, like I said, holding each other accountable for that going forward. Let's move over here and then we'll just kind of move around. Chip?

Chip A. Dillon - Vertical Research Partners, LLC

You mentioned that Longview should add about $175 million to $180 million in annual run rate EBITDA by the end of '14. And I suppose 22 -- if you could tell us what the base was when you bought it? I guess you're going to get 22 above that base from synergies. And then what else are you getting maybe in terms of either volume or price? And then as we go beyond 2014, should we see further improvements in either of those volume or price categories?

Doyle R. Simons

Patty, why don't you address that and I'll add...

Patricia M. Bedient

Sure. So if we look at Longview in terms of our performance this year, as well as the performance by Brookfield, the first 7 months of the year, which they had, I think that, that would come to EBITDA roughly about 150, 160. So probably about just, I think, a little over 150. So that, combined with getting the synergies in place, as well as just continuing to look for more synergies, even above and beyond the 22, there is some price appreciation as well, but prices were really good in the export market in the first half of 2013. So even with the prices, that would be at that level. We feel very good about that particular acquisition.

Doyle R. Simons

Mark?

Unknown Attendee

Doyle, just curious, if I think back to 15 or 16 years ago when Steve Rogel took over the company, we heard a lot of talk about internal velocity being improved to try to make it a faster and quicker and more responsive company. I understand that today, this is a much different Weyerhaeuser than it was, and you're in a lot less businesses and it's a much more focused company. But what's different this time around in terms of making this company faster, more efficient, more market-focused?

Doyle R. Simons

It's interesting, Mark. When I went around, as I said in my first 50 days and talked to employees, many of them referenced exactly what you just said. Evidently, in the time period that you outlined, the mantra was speed, simplicity and decisiveness was the words, and people tell you not only did we not make improvements on that, that arguably when we went back to your point of a much different company then, how much more complex company. What's different this time? That's why I started the presentation, only I wouldn't go through a vision, I wouldn't talk about culture. But to your exact point, what we have to change to ultimately be successful in driving our vision is the culture of this company. I can tell you why I'm so encouraged that it's going to happen is the things that I said we need to change -- or what I said is what our employees told me that we needed to change. Our employees want to change this company. And I can tell you I am convinced through a relentless focus, and it's going to be hard work, Mark, changing the culture is hard. You got to be committed to it every day, you got to be focused on, you got to be relentless about it. You use every lever you can pull. You do it through your own actions, you do it through making changes in leadership, you do it in lots and lots of different ways to drive a change in culture. But I'll tell you what I believe is different is I believe we're going to have an immense amount of focus on that and we're going to be committed to doing it every day and, we're going to hold people accountable for that changes. Now it starts with me, then goes down to our senior management team, it goes to the entire organization. And I can tell you, just over the 3 months, 3.5 months I've been here, I can start to see some of the change taking place. Again, it's because people are excited about it. People want to change. People care about this company of Weyerhaeuser, and people want to be part of a winning team. Now I'm a big believer. I'm probably off the chart in terms of my own competitiveness, but I'm a believer that most people want to win. And we now define winning as changing those key behaviors, as changing the culture. And I'm convinced that a year from now, 3 years from now, we're all going to look back and we will have made significant progress on exactly the things that you just outlined.

Patricia M. Bedient

I also think, Mark, that as I spoke to, we have a great foundation now to build off of. So the company is focused. We can go forward, build on that and really continue to grow the company. The other thing is that we are all very excited about, as a senior management team, and Doyle talked about the team going forward, to not just be a benchmark company. We want to be a truly great company. Now that's a very high aspiration, but we all are focused on getting there. And in order to be a truly great company, we have to really step shift our performance of the company. But as one of those seasoned veterans that Doyle talked about, although I'm a little less seasoned than a lot of folks because I wasn't here when Steve Rogel first came, that I truly believe that we can get there, but it will be a focus every day. And as Doyle said, we've already started.

Doyle R. Simons

George?

George L. Staphos - BofA Merrill Lynch, Research Division

Two questions. First of all, as you look at the performance improvement that you're projecting to gain in Wood Products, are there any analogies with how you're going to be running the business here with how perhaps in the past, you tried to change the game in the box business, so is it going to be running the business harder, bringing the assets harder, maybe even using more in the way of shifts and running 24/7 where it's possible or is it totally different, and if you could explain on that? Secondly, again, around the investment required to get the performance improvements, ultimately, the $400 million that was referenced, how much many -- how many more years do you need to spend at the, I think you had $390 million in your slide deck, to be able to get that $400 million?

Doyle R. Simons

Thank you, George, and I'll address the first question and I'll ask Patty to address the second one because by the time I addressed the first one, I will have forgotten the second. So in terms of how we're going to run our Wood Products business going forward, George, I think Wood Products, as you know, is a very different business than the container board and box business. So while there are always some learnings you can bring from one business to another, I wouldn't say that, by any means, is going to be the model for running our Wood Products business. Now I will say, some of the learnings that I've had from running Wood Products before may be more applicable. But it's really, George, it's taking the assets that we have and making sure we run those assets more efficiently and at lower costs. That's what it really boils down to. As I said, we've made a lot of improvements in our Wood Products business over the past couple of years, and I'm talking specifically about lumber. You see those on the chart. We've got good scale in those businesses. We've got a fantastic customer base. We make the highest quality products for our customers, in my opinion, in both lumber and OSB. So as I said, as we can continue to improve our reliability, as we can continue to drive down our costs, we believe we can absolutely win in both of those businesses going forward.

Patricia M. Bedient

Okay. In terms of capital, I hope that we spend every bit of the $390 million, and that we will likely have projects that will be at the $400 million, maybe even as much as $450 million in the following year. We will only spend that amount of money though if the performance improves in those businesses. As I mentioned, in Wood Products, we did constrain to a lower level in our Wood Products business because we really needed to get the performance up so we focused on noncapital solution. So we have great opportunities. As the lumber market, you saw those demand trends going forward, especially in the South. So we have projects. I know this won't surprise you, but our businesses have plenty of places to put money to work, but we will do that on a very disciplined basis as we look at projects where we will get a good return going forward. So we don't -- there's not a multiple of those dollars by any matter of means. But I would say, probably $400 million, maybe $450 million on some years, again, depending it's kind of a good base level, still below our level of DD&A going forward.

Doyle R. Simons

Come back across here. Let's get Mark, and then Gail. So right in the middle?

Unknown Attendee

Doyle, you already have more experience dealing with investors than a lot of your CEO peers and probably a wider range of investors. How do you...

Doyle R. Simons

Well said. I'm not sure if that's good or bad, but well said. Yes.

Unknown Attendee

I'll leave that right there. How would you describe the most appropriate investor for the Weyerhaeuser that you are trying to build over the next couple of years? What's their investment horizon, what's their style, and how do you think about them?

Doyle R. Simons

Good question. I would say we, at Weyerhaeuser, we welcome all investors. Now the time horizon, to your specific point, is like I said earlier, we're on it. We are about making change to this company that will show up in 2014, but we're also about making change to this company that will continue to show up in many years ahead. I mean, clearly, Timberlands is our largest assets that I highlighted. It takes a long time to grow a tree. So with that said, we're focused on things we can drive additional cash flow and earnings in the near term and in the long term, but we'll always manage that asset on a sustainable book basis. But -- so my answer to your question would be, we are driving as much cash flow and earnings as we can in the shorter term, shorter term being not 1 year, but 3 years, 5 years, whatever the case may be, but again, always managing the assets, specifically the Timberlands, on a sustainable basis. In terms of our other operations, I kind of walked you through what the near-term and mid-term priorities are. So I guess my bottom line answer to your question is, hopefully, we laid out where the company is today, where we're going, how we're going to get there, and the investors we want are the ones who kind of understand what we said and are willing to go along for the ride as we make this a truly great company going forward.

Unknown Attendee

And just one more question. You talked about accountability in terms of the need for a cultural change. How do you think of yourself and your management team as being more accountable than Dan and his team?

Doyle R. Simons

Well, I won't ever go back and compare me versus other. I mean, as we highlighted, there were a lot of really positive things that happened at Weyerhaeuser over the past few years under Dan's leadership in a very, very tough market. So I have the greatest respect for Dan and his team, and what they were able to accomplish in a very difficult period that we all lived through, I lived through personally at a different company. So that's what I would say about that. Let's go -- I promised Gail next.

Gail S. Glazerman - UBS Investment Bank, Research Division

A couple of questions. In terms of the $100 million target on pulp, is the maintenance portion you referenced kind of the $24 million that I think you've talked about in the past from extending outages or is that all incremental? And then we're approaching -- 2014 is getting very close. When you talk about kind of consensus, housing starts forecast of 1.2 million, is there anything that you're seeing in WRECO, hearing from your customers that gives you confidence at this point that that's going to be achievable from the base of 9 25 [ph]?

Doyle R. Simons

Let me address the first one. Again, I'll ask Patty to address the second one. To your specific question on the $100 million, overall improvement in our Cellulose Fiber business, Gail, a portion of that is made up of exactly what you said, which is the lowering in maintenance cost by going to the 18-months schedule as opposed to the 12-month schedule. As we all know and as we said before, that takes time. We had 1 mill this year that was on the 18-month schedule. We'll have 2 next year, and then 3 the following year. So that will take time, but that is included in the $100 million. The other big bucket that will make up that $100 million is energy cost. As everybody I think knows, we've reduced our overall energy cost in that business from roughly $80 million to $40 million over the past few years, and we have the opportunity to have a similar reduction over the next few years, some of it through noncapital and some of it through capital investment going forward. So that just gives you a sense, Gail, of a part of what makes up that $100 million. Patty?

Patricia M. Bedient

So I think, Gail, in terms of housing, the 9 25 [ph] is a little lower than what we would've thought maybe mid-summer for this year. We had the government shutdown that took place. We had lots of concern about government gridlock. We still have some of that in front of us. As I said, we'll get a little more visibility as to what's been going on in the last few months here as soon as tomorrow when we get that 3 months worth of data. So we'll get more visibility. I said that we'd probably be somewhere a little under the 1.2 million for '14, which is also a little down from some of the earlier forecasts earlier in the year. Now I think a positive sign -- a little sign, but a positive sign is that Senator Murray and Congressman Ryan were able to talk to each other, first of all, and then get a budget deal going forward. So I think that's a positive sign that's on the horizon. Certainly, what we are seeing from our customers, especially in California, is a lot of pent-up demand. So we see that as a positive sign. I think if we can get a little help from our government that we're very excited about what 2014 could be.

Doyle R. Simons

Okay, right here.

Unknown Attendee

Just a question on your portfolio management. I mean, I know you talked about ELP and Distribution segment, and fixing that is important. And if you -- if it's not going to happen, or it's not going to happen to your liking, that you need to figure out some strategically to do. And I think that's important, no question about it, and I'm not going to like try and make that insignificant. But as far as fixing it, it would improve it, but it doesn't move the needle as much as, say, some other portfolio management moves, such as WRECO. I was just wondering if the Cellulose Fibers is something that you consider long-term to be a part of the portfolio or you would consider spinning that off or if that makes sense to keep within the fold of the company. That's my first question.

Doyle R. Simons

Yes, sure. We like the Cellulose Fiber business. I like the Cellulose Fiber business. It's a business that uses the fiber that we produce on our Timberland. It's a business, as I said, that we've made a lot of improvement in over the past few years. The fluff business is a growing paper business. As we all know, not all the paper businesses have growth in terms of on the demand side. And the other thing I'd say that I like about Cellulose Fiber business is it tends to be countercyclical to our other businesses. I've done a lot of work on this, and my prior life gain [ph] is to always understand exactly why some of these businesses are countercyclical. But if you look at it, Cellulose Fiber does tend to be countercyclical. We sure enjoyed it back in the 2009 -- 2008, 2009 time frame, when housing hit rolled over. So for all of those reasons, we like the Cellulose Fiber business going forward.

Unknown Attendee

Okay. And so my follow-on to that, as you talked about acquisitions, would you consider acquisitions in that area? You talked about acquisitions once you sort of get through some of the operational changes you've made. Or would you consider more in the Timberland? I'm just kind of trying to get where you're headed at towards allocating shareholder capital to -- for strategic options.

Doyle R. Simons

Yes. I think maybe we'll have opportunities to grow all of our businesses going forward. Cellulose Fibers, I think, would be in a much smaller weight growing with our global customers, like I said in our -- the facility in Gdansk, Poland. I think to your point, I think our biggest opportunity is the one that can make the table shake going forward. In terms of acquisitions, we'll probably be in Timberlands. One question over here?

Unknown Attendee

Could you explain Slide 16 SG&A and the $480 million target a little bit. My sense is that you're not...

Doyle R. Simons

$480 million target.

Unknown Attendee

Fat cats with a lot of spending.

Patricia M. Bedient

$75 million.

Unknown Attendee

And that the traditional G&A part of it is a few tens of millions, but there's a lot of retiree benefits. Do you still have the research department? Do you have an engineering department? But could you sort of break it down into the fungible building blocks of the SG&A?

Doyle R. Simons

Yes, and we just -- as I mentioned, we just kicked off this process. We've got a -- some work to come up with what the target is. But to your point, I mean, it all started when it was staggered by the fact that WRECO was going away, right? And with WRECO going away, we had to look at our overall cost structure because, with a much smaller company in terms of that being part of it and, again, roughly $22 million was allocated to WRECO, we had to step back and say, "Okay, what does this cost structure need to be of this company going forward?" As part of that, we did some benchmarking work and some other things. And based on all of that, we determined that the target should be to reduce our overall SG&A costs by approximately $75 million. I can't bucketize it to you at this point. We've got a lot of work to still do. I can't tell you it's going to be in this bucket or this bucket or where exactly it's going to fall. I'd say we've kicked that work off, and we'll be reporting back to you as we make progress on that initiative going forward. Okay, maybe I didn't.

Unknown Attendee

How much of it is past service employee benefit [indiscernible] untouchable and other things that you can manage that easily [ph]?

Doyle R. Simons

Okay.

Patricia M. Bedient

Well, we do have significant retirement liabilities, as you pointed out, and that is also an area that we are looking at as well. We have made the decision to close our defined benefit plans to new employees, so we will have our existing plan for existing employees, but we will close that plan as of the end of this month. We will also -- or are also looking at ways that we can limit the liability for some of our postretirement benefits that we have been paying. Those costs are included. You referenced R&D. We'll look at R&D as well. There's about $30 million of third outside -- third-party reported R&D. That is included in this pro forma number, as a footnote there tells you, so we'll take a hard look at that as well. And we're looking at all parts of the company. With WRECO divesting as of the second quarter, we will have opportunity for lowering some of our SG&A as well. So it will come from a number of different areas across the company. But the way we got to this number was we came together as a senior team, so this wasn't one number somebody thought of in a corner and just threw it over the fence to everybody. The senior team came together, set across the company what could be our opportunity for our run rate. So our SG&A for the year of 2014 will not be at this number, but we will be at a run rate by the end of 2014 going forward. So that's a little bit of the -- what goes into the $75 million.

Doyle R. Simons

Josh?

Joshua L. Zaret - Longbow Research LLC

Okay, 2 questions. First, any opportunity to monetize non-strategic Timberlands or to enhance minerals, maybe wood pellets or something like there that we're not aware of, that's helpful?

Doyle R. Simons

Yes. Josh, I mean, we're constantly looking at opportunities to make sure we're maximizing the value of our minerals. We're well positioned to capitalize on biomass opportunities. So all of those things are things that we're -- we have focused on and we'll continue to focus on going forward.

Joshua L. Zaret - Longbow Research LLC

Is there a step-jump coming in any of those areas or -- that you could see?

Doyle R. Simons

Again, I wouldn't say there are step changes coming in those other areas necessarily, but we're looking at pulling every lever that we have. And like I said, especially on some of the biomass issues in those type of things, we are very well positioned to capitalize on those going forward.

Joshua L. Zaret - Longbow Research LLC

All right. Second question, the North American lumber export market, growing very fast, 3 billion to 6 billion board feet last 2 years, and it's always been the province of the Canadians. They got 80% share. With the coming timber squeeze-up in Canada, does that now revert down to the U.S.? And obviously, you would be the best position to that. Is that something you need to retool for? Is it -- and is that a needle moving potential for you?

Doyle R. Simons

Patty, why don't you?

Patricia M. Bedient

Well, I think as we look at the Canadian lumber -- total lumber output, total Canadian production will actually increase over this period. It will just lose share in the U.S. marketplace. Canada will not be able to produce going forward over the course of time as much as what they have produced in the peak. And so I think that is an opportunity for us, potentially, off the West Coast in our domestic mills. But also we have 3 mills in Canada. They just happen to be in the 3 locations that are not impacted by the Mountain Pine beetle. So I think it really is also an opportunity for our Canadian operations that do export some lumber today. And I think there'll be an additional opportunity for those facilities as well.

Joshua L. Zaret - Longbow Research LLC

Does it require retooling?

Patricia M. Bedient

No. No.

Doyle R. Simons

Let's go to Mark [ph].

Unknown Attendee

Can you share with us what the key variables that you'll be considering when determining whether to do a split or spin on the TRI Pointe transaction?

Patricia M. Bedient

Sure. It really comes down to how you think about a dividend of distributing shares to all shareholders. So a spin is arguably much simpler to execute because all you do is distribute on a pro rata basis to your existing shareholder base. Now what that does do, though, is that gives everybody shares of a stand-alone pure play homebuilder, and maybe not all our shareholders want to invest in homebuilding. The benefit, as I said, of the split is that shareholders have a choice. So if you want to exchange your Weyerhaeuser shares, and there will be an exchange ratio that the board would set in conjunction with doing the tender offer, that's the choice. So shareholders will have a choice as to whether they want to own the shares of this stock. In that way, as I said, it does place the shares with its more natural investor base, putting less -- arguably less pressure on those shares once they're distributed. So we will maintain the flexibility to take either choice. Even though the split is more complicated than the spin, the split-off is pretty close to the same transaction that we executed in 2007 when we did the Domtar distribution. So we've been through it, we know how to do it, and we will make the choice -- the board will make the choice based upon which is the best alternative in their mind when we get to that point, which won't be until just before we close the transaction.

Unknown Attendee

Doyle, you referenced opportunistic growth opportunities in Wood Products, and I was wondering if you could just tell us, maybe over the next 2, 3 years, where you see opportunities, specifically lumber versus OSB, and your preference for buy versus build. And then, obviously, there's been some consolidation in the OSB industry recently. Do you think there's room for further consolidation, and would Weyerhaeuser potentially participate in that?

Doyle R. Simons

Okay. So let me start buy -- on the buy versus build because, clearly, as Patty said, greenfield capacity, new mills is not something we're considering or talking about, so that's first. In terms -- as I mentioned in -- earlier, we have good scale in our lumber and our OSB businesses. We're making significant -- we've made significant improvements, and we have further opportunity in front of us, so we don't feel compelled to go grow those businesses. As we look forward, however, if we can find opportunities to make acquisition, whether it be a one-off mill or something differently, that's something we could -- we'd consider if we thought we could drive additional value for shareholders through that type of acquisition going forward. So to have a preference for -- specifically for lumber or OSB, no. We'll look at whatever opportunities are out there. And again, if they make sense from a driving value for shareholder perspective, that's something we would consider. Other questions? Okay, we'll circle back over here. Let's start here. Yes, Paul?

Paul C. Quinn - RBC Capital Markets, LLC, Research Division

Paul Quinn, RBC Capital Markets. Just had -- I like the Slide 3 here, how we win, and just want to bring back with the key management behaviors, what you talked about is urgency, accountability and being courageous. So with that in mind, I was hoping that you provide some more details on the $100 million gap in lumber, the $60 million OSB, and in Cellulose Fibers, how you're going to get that $100 million, so the time frame, and then also what's the CapEx required in each of those sub-businesses.

Doyle R. Simons

Sure. So let's talk about each of those businesses. And to your point and as I mentioned earlier, we're on it. We are acting with urgency. We are doing things differently. We will hold ourselves accountable to ourselves and to our shareholders. So in terms of the $100 million in lumber, as I mentioned, that's taking -- and I want to be very clear about what we're doing, we're taking best in mill, what is the best-in-class mill, not a system, but the best-in-class mill. And if we get all 18 of our mills to best in class, that's what the gap is. So we're doing -- we've taken a pretty aggressive approach. As I also said, it's going to take a real focus on operational excellence, making sure, for example, do we have the right cost structure in each one? Do we have the right staffing levels? Do we have the right technology? We're doing some things in our kilns to improve our drying. We've had some progress there. We've got more opportunity in front of us to do more of that. So it's those type of things that we'll be doing in order to accomplish that $100 million gap. It's not going to happen tomorrow. It's not going to happen all in 2014. What we will do and the commitment I'll make to you is we'll give you periodic, probably annual updates of exactly where we are on that process. I can't give you a specific time frame, other than to say we're on it. You're going to see incremental improvements. And the ultimate scorecard is going to be what we do versus our competitors because, again, these are step changes. OSB, similar type deal, again, we -- the big driver there is the reliability factor. Some of our mills are already running at world-class reliability levels. Some of them are not. So what we got to do is make sure every OSB mill that we have is running at world-class, best-in-class reliability levels. Again, that's going to take some capital. That's going to take some time. But again, we're on it, and we'll provide you with annual updates exactly where we are in that process going forward. The other portion of that was enhancing our product mix. We're known as the foreign company in OSB. We provide very high-quality products for our customers. We think as housing continues to grow, we're going to have opportunities to upgrade our product mix even further and not only to add an additional amount. And then finally, in Cellulose Fibers, I'll walk through some of the -- what those buckets were. One of the biggest one is energy. We've got some capital project, some noncapital projects, all in line with the capital that Patty outlined earlier. We had success. We've driven our energy costs from $80 million a year to $40 million a year. Over the next 2 to 3 years, we think we're going to make that basically 0. That's by basically making sure that our energy efficiency or every bit of black liquor that we burn and biomass that we burn, that we're producing the most energy. Some of our mills are, in fact, producing more energy than they need, and we're selling that out on the grid. So that's an example there of what we're doing. On the chemical side, we're figuring out how to reduce our chemical usage while still maintaining the quality of the product. And as Gail alluded to earlier, we're moving to an 18-month out of schedule versus the 12-months out of schedule. Again, I'd walk you through the ramp-up of that. So again, on that one, we'll give you periodic or annual updates of exactly where we are. So these, again, back to -- these are very aggressive a target. You can't snap your fingers and make it happen. We're on it. We understand what needs to happen to get us from Point A to Point B, and it will just take a little bit of time to get there. And again, the way you can measure our performance, in my opinion, is on a relative basis because if we do these quicker than what our -- we're not sitting here to say our competition is sitting still because they're not, right? But we think these are incremental changes above and beyond, running faster than what our competition is doing, and that should show up in our relative performance versus our peers. So, Patty, do you have anything to add to that?

Patricia M. Bedient

So, Paul, maybe just a couple of other things, specifically in the lumber business because I think that was the first one that you referenced. We have benchmarked every mill that we have, and that's the best benchmark in the geography that we operate in, looking at cost net of logs. And as you know, that is a very high benchmark because most of the cost of producing lumber is wood, but we've taken every mill, looked at the cost per 1,000 board feet as to where we are today and where the best-in-class mill is, and we have specific opportunities for each one of our facilities to get to that benchmark. Do we know exactly every step? No, but we believe that it is doable. Some specifics would be in the drying area. So we were putting in dry kilns. That has given us an opportunity, as we go forward, to not only lower our energy cost, get better recovery from that, but also it does provide some of those debottlenecking opportunities that I talked about before. So it really is focused on lowering costs, getting more production, but production that comes from projects at lower cost. So I think a good example of that might be in our Idabel sawmill in Oklahoma, where we are putting in -- have put in this year a new continuous dry kiln that allows us to dry more lumber. Because the sawmill could actually produce more green lumber, we didn't have the drying capacity, and the marketplace didn't need that additional production a few years ago. Today, as the pricing and the production is needed, we'll put that into the marketplace, lower our cost. And that's just one example of the kinds of projects that we're looking at across the 18-mill system that we have. So we have a lot of leverage to do that. So any projects that we're doing, we're focused on how does it lower cost, how does it get maybe a little more production. But rather than say production first, costs later, we're costs first, and then the production will come with that as well.

Doyle R. Simons

Let me circle back over here, Mark [ph], before -- yes. You go right there.

Unknown Attendee

Two quick questions. First, as being through the consolidation that we've seen through the downturn, will it drive material improved returns in the OSB business over the current cycle versus the previous one?

Doyle R. Simons

Well, I think the consolidation that is occurring in OSB will probably be a positive as we go forward. How exactly that's going to play out and what's it going to look like remains to be seen. But I think net-net, that is a positive for the OSB industry.

Unknown Attendee

And on your U.S. South Timberlands base, what impact do you expect the continuing growth in wood panel, what's the production in the South to have on that business?

Doyle R. Simons

Yes. As I mentioned earlier when I was responding to Josh's question, as we see pellets, as we see biomass, as we see different things, with 4 million acres of Timberland in the South, to your specific point, we're very well positioned to capitalize on those. The more pressure that comes into those markets in various forms, I think, will have an impact on pricing going forward. Other than the direct impact on pricing, the numbers that we showed you in Timberland didn't have a lot of that. So I would tell you is, if that materializes as some people think it may, that would be additive to kind of what we outlined in the Timberland section. So back to -- we'll make sure everybody -- we go over here, Mark [ph] and then we will make sure everybody has a chance.

Unknown Attendee

Two questions. On the Timberland projected EBITDA of over $800 million, what are the rough pricing and volume assumptions there? Did that you just take like the FEA pricing forecast and put them in? And what about volume?

Doyle R. Simons

Yes, the rough pricing projections were in line with what Patty showed in terms of the acceleration, both in the West and the South, at the combination, as she indicated, of different pricing projections, none of us will get it right with that overall trend, we think is right and that's what's factored in on the pricing side that's headed. And the part of the bar that we showed, 2012 to 2016, '17, '18 on the pricing front. Other than the Columbia -- we call it Columbia Longview acquisition, the -- that doesn't factor in a big change. Again, exclusive of Longview, which adds volume, of course, it doesn't factor in a big change in volume in that period of time.

Unknown Attendee

Do you have some rough way of thinking about -- I know it's different in the West and the South, but incremental margins on volume or how sensitive the business is to volume growth?

Doyle R. Simons

Well, what I would say is there is limitations on how much we grow volume in any given year based on environmental regulations and all that type of thing. But I would say, in any given year, we can probably increase volume by 10-plus percent, and that would flow through kind of exactly how you would think it would on an incremental basis. I don't have those exact sensitivity, but I can tell you that's the kind of leverage that we have in any given year to affect volume.

Patricia M. Bedient

And I would address your question because I think you asked directly about the FEA log price forecast going forward. I can tell you that we look at a number of forecasts. If we use the FEA forecast, that price appreciation would be bigger. We probably, in those out-years, would have had to redraw the chart to utilize the FEA forecast. Having said that, we're pulling for them to be right. That would be wonderful, but we haven't factored that aggressive of a price forecast into our numbers.

Unknown Attendee

Okay. And just one other question, if I could. So with the divestiture of WRECO, the capital the company was spending on, on land for the homebuilding business will be eliminated, I think there was something like $240 million a year, roughly, that the company was spending on, on land acquisition. Did -- in isolation, does that increase the funds available for distribution by that amount? Is that the way you were looking at the payout ratio?

Patricia M. Bedient

So as you think about WRECO, you're right, the capital that needs to be invested to grow that business will not be needed. We also will not have the EBITDA from WRECO. So I think on Page 38 of the presentation that you have back in the Appendix, you can see what the last 12-month EBITDA was from WRECO. I think it was $170-some million, and that would be projected to grow as housing continues to recover. So they're not exactly a 1 for 1, although I would say that in order to get the increased EBITDA, you would have to put in additional capital, probably above and beyond the $240 million as well. So that was also part of the calculus in terms of deciding what to do with that business.

Doyle R. Simons

Okay, back to Mark [ph].

Unknown Attendee

Well, I just had some cleanups. I wondered in the Wood Products business, you've talked about taking down costs. Is there anything to be gained on the other side from just being better commercially in these businesses and how you go to market? And then for Patty, I wondered if you could just speak in the near term to the impact that we're all reading about in terms of fluff pulp markets being very, very rough on a short-term spot basis, a little bit the same thing in the dissolving pulp market, which is an issue for you at Pearl. And then also, if you could talk longer-term in Timberlands about how important land sales will be, what we should assume for land sales in terms of the earnings in that segment.

Patricia M. Bedient

Okay. If I forget those various parts, please remind me, but I'll let Doyle go first.

Doyle R. Simons

Yes, thanks for the question on the commercial side. So, Mark, there's always opportunity to get better, right? And as I mentioned in OSB, for example, we produce a probably higher mix of higher-value products than most of our competitors. But one of our goal is to do even more of that going forward because, again, that provides additional value to our customers and gives us an opportunity for incremental profit growth going forward. So we need to make sure we're making the right product that our customers want and are willing to pay for. And again, that's part of operational excellence, and we need to make sure we're getting it to the right customer at the right time. In terms of lumber, I said -- like I said earlier, we are very fortunate from the standpoint that we make the highest-quality piece of lumber out to anybody -- out to everybody. That's one thing that I've consistently heard from our customers as I've gone around and gotten to know this company. So with that, we need to make sure that we're getting that piece of lumber that has the higher quality to the customers that want and need that and appreciate it and that we get value for doing that. So yes, we're looking at both sides. You always look at both sides. I think our biggest opportunity, specifically in lumber, as I mentioned, is on the cost side, but we'll look to further -- for further improvement on the commercial side as well.

Patricia M. Bedient

Okay. Starting first with fluff pulp and Cellulose Fibers. One of the things that's key for us in that business is the innovation around project -- products. So we do produce primarily fluff out of the Cellulose Fibers business, but they are -- there's a high percentage of proprietary products for our large consumer -- customers like a Procter & Gamble. So what's really important to P&G is that they get consistent high-quality product. And so just swinging into commodity fluff isn't something that they would consider in terms of their product needs. So that helps us in terms of the overall strategy. For example, our Crosslink product that we produce goes into every one of P&G's diapers, so really important from that perspective. As we think about the Chinese tariff on dissolving pulp, you referenced Pearl, and Pearl is an important product to us, but it is still very small in terms of the volume. So it's not a big -- it is a negative, but it's not a big negative. And the mill that we produce Pearl at, which is our Port Wentworth mill, is a mill that can swing to Pearl, to fluff, to even NBSK, so we will moderate that. So it's a negative trend, but it's not as negative for us as, perhaps, it could be for other people. And then timber, you had something on timber?

Unknown Attendee

How much of the earnings in that segment going forward?

Patricia M. Bedient

Oh, on nonstrategic land sales. So we wouldn't look for it to really be any particularly different than what you've seen in the past. It's been anywhere from, I think, $50 million up in terms of earnings. We're really looking at third party, 3-way exchanges because they are still very much more tax efficient for us, given the low tax basis in that. So since we converted to the REIT in 2010, for the next 10 years, we would still pay built-in gains tax on cash sales. So we'll probably still, as a primary method, utilize 3-way exchanges. So I don't see a step shift coming from that. And certainly, there was not a step shift in the numbers that Doyle shared with you.

Doyle R. Simons

Okay. We'll take a couple more questions. Chip, you first, and then we'll go over to George.

Chip A. Dillon - Vertical Research Partners, LLC

Shifting gears to Wood Products, a couple questions. One, quickly, it's a little bit where your thoughts are, and I know you can't say a whole lot about the lumber tariff situation with Canada. As we see the -- their impact on the U.S. market looking to go down, do you see that possibly changing? And secondly, if it almost might not want to be changed because it seems to help provide a floor, at least it seems that way. And then I guess, an unrelated point, you mentioned that both lumber and OSB were pulling their way and possibly candidates for growth in the medium term. It seems obvious to me that lumber would be easier to grow through acquisition than OSB, but am I correct in that assumption?

Doyle R. Simons

So look at the order here, yes.

Patricia M. Bedient

So let's -- I'm going to go first.

Doyle R. Simons

Exactly, you go first.

Patricia M. Bedient

You can take the second one.

Doyle R. Simons

Exactly.

Patricia M. Bedient

And your first question was on lumber tariffs coming into Canada -- or coming into the U.S. from Canada. So one of the things that many of you are probably aware of is there are given prices on the sales price for lumber. There are opportunities when that price drop for lumber below a certain level that there is a duty that Canada must pay on a lumber that's shipped into the U.S. However, given the price of lumber, we really haven't seen that duty come into play, and we don't see it coming into play at the beginning of 2014 either. So while it is a very important mechanism, especially when prices are lower, it really hasn't had a big impact. And so as we go forward, we don't think that it will be that big of an impact as long as prices do stay relatively strong, which would be our indication for the coming year.

Doyle R. Simons

And, Chip, to your -- I guess, your other question regarding growing lumber versus OSB, I agree with your premise. I think it will be potentially easier. The question I answered earlier was, do I have a preference for which one I'd grow, and I answered that with, basically, no. I do agree with your premise. So it would be easier to grow lumber because it is a more fragmented industry. There are more one-off mills. And I think, as a result, there may be more opportunities to grow our lumber business going forward as compared to the OSB business.

Patricia M. Bedient

And the one thing I would say about lumber businesses as well is because, as I referenced earlier, there's such a big part of the cost structure of producing lumber is logs. So in conjunction with growing lumber, we'll also look at the trees, that fee, and whatever additional acquisition might be as well, so there is a synergy there.

Doyle R. Simons

Very good point. And then our last question we'll take is from George.

George L. Staphos - BofA Merrill Lynch, Research Division

Well, the pressure is on, I guess.

Patricia M. Bedient

Make it good, George.

George L. Staphos - BofA Merrill Lynch, Research Division

I keep giving the last question and your last, I would say. Just a couple things. One, in terms of ELP, you mentioned that you need to lower the cost structure, and that's all well and good. Do you actually think that you have the bones within Trus Joist in your ELP business to do that? Do you feel you have sufficient manure capacity in a period where

[Audio Gap]

Doyle R. Simons

[Audio Gap]

manufacturing sense [ph], we got the marketing side down that's comes with it. We -- it's on the manufacturing side. Part of the reason that I talked about Cathy Slater earlier, who is running our OSB business and driven those improvement, we talked about her background on the manufacturing side. And as I mentioned, we've recently put her over the ELP business. She's going to bring that expertise, along with her team, to make the changes in our ELP business, where we're good not only on the marketing side and on the brand side but also on the manufacturing and cost side, nail those 2 things together, and that's what's going to drive that to be a successful business going forward.

Patricia M. Bedient

So I think your other 2 questions were: one, on the Longview acquisition; and then on REIT side. So we do believe that the Longview acquisition will be a good acquisition for us given the price that we paid, which was high, but the timber that is on that particular acquisition is probably the last great acquisition of that type of quality and size. And it just does happen to sit very nicely where we can take advantage of the things that we've done in our own Western Timberlands. An interesting thing, as you look at the slide that Doyle shared with you this morning on Timberland, where you saw West and South, I don't know if you noticed that, the EBITDA per acre in the West is significantly higher than the South because there is more on an acre in the West than there is on the South. And what grows on the land in the West is Douglas fir, which is very priced, as I talked about in the export markets. As well as, as we see the domestic market coming back, especially in California, where we can shift green Douglas fir, I think that will also have a very positive impact on not only our legacy Western lands but also on the lands that we acquired with that particular acquisition. As it relates to tax status for REIT, I think it's all sort of tied up with anything the Congress does on tax reform, although we are not hearing any concern, really, about REIT status as it relates to tax reform. So we stay very close to that. As you might well imagine, we have lots of company because there are not only timber REITs, but there is a lot of other kinds of REITS that, that would be important, too, as well. So we'll stay very close to that going forward, but nothing negative to report at this time.

Doyle R. Simons

I'd just like to close by thanking everybody for being here today, thank you for your interest in our company, and I just wish everybody a very happy holiday.

Patricia M. Bedient

Thank you very much.

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