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Weyerhaeuser Co. (NYSE:WY)

2012 Investor Meeting

May 10, 2012 9:00 am ET

Executives

Kathryn F. McAuley - Vice President of Investor Relations

Daniel S. Fulton - Chief Executive Officer, President, Director and Member of Executive Committee

Thomas F. Gideon - Executive Vice President of Timberlands

Lawrence B. Burrows - Senior Vice President of Residential Wood Products

Peter M. Orser - Chief Executive Officer of WRECO and President of WRECO

Shaker Chandrasekaran

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

Analysts

George L. Staphos - BofA Merrill Lynch, Research Division

Chip A. Dillon - Vertical Research Partners Inc.

Joshua L. Zaret - Longbow Research LLC

Gail S. Glazerman - UBS Investment Bank, Research Division

Mark Wilde - Deutsche Bank AG, Research Division

Mark A. Weintraub - The Buckingham Research Group Incorporated

Mark W. Connelly - Credit Agricole Securities (NYSE:USA) Inc., Research Division

David J. Wallack - T. Rowe Price Associates, Inc.

Heather K. McPherson - T. Rowe Price Associates, Inc.

Joshua A. Barber - Stifel, Nicolaus & Co., Inc., Research Division

Anthony Pettinari - Citigroup Inc, Research Division

Albert Curtis Sebastian

Kathryn F. McAuley

Good morning. Thank you for joining us this morning at Weyerhaeuser's 2012 Investor Meeting. I am Kathy McAuley, Vice President, Investor Relations.

Before we begin, I would like to draw your attention to the safety information that was included in the material that's at your chair. Please familiarize yourself with this information regarding procedures in the event of an emergency. The exit to the street is through the door at the front of the room to your right.

Please take note of the forward-looking statements that appears on the screen behind me and the forward-looking statement also appears in the beginning of your presentation books. Throughout the morning, we will be making forward-looking comments and this statement lays out the risks associated with these comments.

On each seat is a copy of our fact book, which provides important data regarding our operations. Now let me begin by introducing Dan Fulton, President and CEO of Weyerhaeuser company. Weyerhaeuser will start -- excuse me, Dan will start this morning's presentation. Dan?

Daniel S. Fulton

Thanks, Kathy. Good morning, everyone. It's good to see you all here today. Thanks for joining us at our 2012 Analyst Meeting. This morning, I'd like to begin my remarks by providing you with a brief summary of the company's strategy. Our business leaders will then present in depth updates of their business segments. Then Patty Bedient, our CFO, will provide the a report on financial progress and capital allocation. And then finally, I'll provide a brief wrap up before moving on to your questions.

To help frame my introductory remarks, I'd like to show you a slide that depicts our company's strategy. Land and Forest are at the center of our company's strategy. We own some of the most attractive, sustainably managed, privately owned Timberlands in the world. This valuable asset is the centerpiece of who we are and what we do. As you can see, the ring that surrounds our land and forests highlights our 4 business segments. Timberlands, Wood Products, Real Estate and I'll switch to WRECO for the balance of the morning as I talk about Real Estate and Cellulose Fibers.

Our strategy is built on 3 pillars that are shown on the next ring, and that is performance, people and the planet. We'll focus most of our time this morning talking about performance. This includes the improvements that we've made since we were together here one year ago, as well as actions we've taken to position ourselves for improved performance in the future. Before doing so, however, I'd like to address 2 other key elements of our strategy that define Weyerhaeuser and enable the company to grow and to succeed long term. We talk a lot about our Timberlands and our operating business assets, but it's the people that makes Weyerhaeuser great. This has been true now as it has been through our entire history.

Today, we have approximately 13,000 of the most talented individuals in our industry. And thanks to them, we operate safely and efficiently. They allow us to serve our customers and contribute to the communities in which we operate all around the globe. One expression of our commitment to our people is the role that safety plays in Weyerhaeuser. Safety is one of our core values and the focus of everything that we do. We believe that there's a strong correlation between safety performance and operating performance. We have applied a consistent discipline to reducing risk across the entire company. We still have room for further improvement along our path to injury-free, but we're proud of the progress you can see on this chart that tracks the recordable incident rate for company employees from the year 2001 to the first quarter of this year. We've been unrelenting in our focus on workplace safety and we'll continue to drive to eliminate workplace injuries.

By caring about and investing in our employees and ensuring everyone's safety, we are better able to run efficiently to meet our customers' needs and create value for shareholders. It's the right thing to do for our employees and their families and it makes good business sense.

Part of doing business well is operating in a responsible and a sustainable manner. We've shown this for years and it's reflected in our approach to the stewardship of our Timberland assets. We provide renewable resource solutions across our businesses, not just our sustainably managed Timberlands, but also in our manufacture of Wood Products, Cellulose Fibers and Homes and Communities. This commitment to the planet is the second pillar of our company's strategy.

We constantly monitor our operations to ensure that we properly manage all of our businesses, that our businesses operate with a commitment to environmental and regulatory compliance and that we manufacture safe products from renewable material. Our efforts have not gone unnoticed. Third-party recognition of our operating practices validates our leadership in this important area. This public recognition is important to our customers who are interested in environmental issues and sustainability.

Increasingly, customers demand that raw materials come from credible, certified sources, such as those governed by the Sustainable Forestry Initiative. For some customers, it's a prerequisite for entry into a relationship. We believe that it's another factor in creating long-term, sustainable, competitive advantage for us in the marketplace. Investors notice as well. Our inclusion in such measures as the Dow Jones Sustainability Index is an important differentiator.

Now lets turn to performance, the reason that we're all gathered here today. Leading financial performance is critical for the long-term sustainability of our company. This morning, each of our business segment leaders will review their strategies to further improve business performance in the context of current market conditions. They will also describe their steady progress in implementing ongoing initiatives that will help us grow revenue and earnings into the future. Three of our 4 businesses, Timberlands, Wood Products and WRECO are directly affected by the U.S. new home construction activity. The cost the company has leveraged to the housing recovery as the precursor approved our business leaders' comments, I want to address the state of the housing market and update you on our forecast.

As the chart on this slide reminds us, the level of U.S. housing starts to build precipitously from a peak in 2005. The current level of starts remains well below historic activity. In recent years, high unemployment and volatile financial markets have weighed on consumer confidence in spite of low mortgage rates. The overhang of foreclosed homes across the country has created additional uncertainty for potential homebuyers. We're now beginning to see improving employment data and growing consumer confidence. These factors provide some encouragement for renters and children still living in their parents' basements to own a home. They also encourage existing homeowners to renovate.

As I shared on our last 2 earnings calls, we're beginning to see modest, slow improvement in the national numbers and more encouraging improvement in select submarkets. The housing market is improving at a gradual pace and we're optimistic about the future, but we expect 2012 to still be a challenging year. Two weeks ago, on our quarterly call, I reported that our first quarter Home Sales in WRECO were up 30% from the same period one year ago, starting to build a much depleted backlog.

New home sales eventually become orders for the Wood Products that are needed to build these homes and the pick-up in activity in our lumber mills will show up in demand for logs. Though the pace of recovery remains uncertain, we're excited about the long-term opportunity in front of us.

The demographics are directionally predictable and we're confident that total U.S. housing starts will return to long-term trend levels of 1.6 million to 1.9 million. This is the forecast by Harvard's Joint Center for Housing Studies, as represented by the hashmarks on the right hand axis of this chart.

We're now seeing slow but continued improvement in U.S. housing. We can't call the full timing a recovery, but we're encouraged by a number of factors. As a result, we increased our forecast for U.S. starts in 2012 by an additional 8%, from 665,000 to 720,000. Our forecast assumes 500,000 single-family and 220,000 multi-family starts. This chart also shows forecasts by 4 other forecasters for we track a number of economic advisory services and we find it helpful to look at the range that we see from these various forecasters, and what you see is that our number of 720,000 is about in the range, and perhaps, somewhat a little bit lower and more cautious than some of the outside forecasters.

It's important to note that we anticipate a return to trend levels and we've taken steps to ensure that each of our businesses is prepared to compete in today's market. As the market recovers, we're uniquely positioned to benefit from the significant operating leverage that we have in our Timberlands, Wood Products and Real Estate businesses.

The current state of the housing market in our near-term forecast created context for this morning's discussion. Now the senior leaders of each of our business segments will discuss their business strategies and execution. But first, let me introduce them.

Tom Gideon heads up our Timberlands segment. Tom will discuss our Timberlands strategy, trends and opportunities and our approach to maximizing value from our world-class Timber holdings. Larry Burrows heads our Wood Products segment. Larry will address how we're improving in operating performance and adapting to the market challenges today. And he'll provide an update on the segment's progress towards profitability and the improvements that will position this segment appropriate from the housing recovery. Peter Orser, head of WRECO, will share how our Home Building business has been evolving and growing in this tough environment and he will comment on the competitive strength that positioned us for improving housing markets. Shaker Chandrasekaran leads our Cellulose Fibers segment, has contrasted to our businesses types housing, our Cellulose Fibers segment has been performing at peak levels for the past few years and Shaker will speak to our strategy to continue to improve the business and grow with key strategic customers.

Following our business leaders, Patty Bedient, our Executive Vice President and Chief Financial Officer, will provide a progress report on a range of company wide initiatives and discuss how we think about capital allocation. And then I'll return for closing remarks, and then open it up for your questions. So now let me introduce Tom Gideon to discuss our Timberlands segment. Tom?

Thomas F. Gideon

Thanks, Dan, and good morning. Timberland is our core at Weyerhaeuser. We believe we hold the world's most valuable, privately owned sawtimber inventory. We manage our timberlands using precision-forestry regimes that allow us to be the industry leader in growing high-value trees, faster and at lower cost and do it sustainably. Over the next several slides, I will discuss what we own, our potential to create value and how we are managing every aspect of our land and forest resources to generate maximum returns for our shareholders.

We start with world-class timberlands located in U.S. West and South, as well as South America. We also have a small joint venture in China. Our location, scale and species provide us with an unmatched access to a broad range of domestic and international markets and has enabled us to develop deep and long-term relationships with our customers through our internal leaders in the markets from which we serve. Our scale and infrastructure allows us to minimize cost and market our logs with their highest value.

We manage our Timberlands to optimize cash flows today while building our future return potential. Through our innovative silvicultural practices, we produce higher values of final harvest than our competitors. Our scale of operation creates significant opportunity, cost advantages in virtually every area of our supply chain, from harvest and haul to log marketing.

In summary, we're growing financially attractive and sustainable harvest. We apply the market knowledge and skill to create additional value by optimizing our harvest rotation, diversifying our export and domestic log sales and leveraging efficient harvest and haul logistics. All of this taken together translates to a sustainable competitive advantage.

Our timberlands are located in some of the best tree-growing regions in the world. The species we grow are well suited to these regions and respond well to intensive forestry and then they produce products that are desired by our customers.

In the west, our ownership is almost evenly divided between Washington and Oregon. We primarily grow Douglas fir, which is valued for its superior strength and structural application in the U.S. and Asian markets. Our 4 million acres in the South span across 7 states and we concentrate on growing loblolly pine. Loblolly pine is unmatched in its characteristics for absorbing pulp and has the structural qualities required by the U.S. markets.

In Uruguay, we grow loblolly pine and eucalyptus. We manage our stance to generate primarily pillar grade logs, which are used to produce structural as well as appearance grade panels used in furniture and interior applications. In all of our regions, our focus in on sawlogs, which generate higher realizations than regions, which are dedicated to providing fiber for pulp and paper applications.

Weyerhaeuser understands that well-managed forests where wood is produced in a renewable cycle, are a critical part of the solution to sustaining forests worldwide. We manage our forests for optimum wood production by applying sound science while protecting significant ecosystem value. All of our North American forest lands are independently certified to sustainable forestry standards. And given our long-term history of excellent Forest stewardship, we have received public recognition for our environmental leadership, and we're once again selected for inclusion in the Dow Jones Sustainability Index.

The financial future looks promising for Weyerhaeuser Timberlands. By leveraging our competitive advantages to fully participate in favorable demand trends for our logs, we have the potential to significantly improve the financial performance from our forest assets over the next 15 years. This slide demonstrates the EBITDA potential we could have from our current ownership. I will describe the incremental improvement from each category, starting at the 2011 base level and moving to the top of the chart.

First, we anticipate our harvest levels during this period and we will generate our genetic mix at time of harvest. We are just starting to harvest the first generation of improved genetic stock in the South now, so significantly increased levels of harvest won't occur until after 2020, when improved genetics begin to be harvested in greater volumes and our forests in Uruguay reach maturity. Between now and then, growth improvements will mainly allow us to lower our rotation ages and improve our mix while maintaining our volume per acre.

The second factor is our execution and logistical advantages. We add margin by maximizing our export application and capturing value by producing more "clear" wood and reducing knot defects through pruning. We utilize our scale and technology to produce top-quartile performance in logging, hauling and silvicultural costs.

Third, as markets recover from the severe economic downturn, we expect improved pricing in the export market environment to lead the significant increases in EBITDA. Finally, we ought to recognize that there is the prospect for pipe inflation. Assuming timber simply keeps pace with the producer price index, our EBITDA would rise in nominal terms, potentially providing an inflation edge. The opportunity is significant and I'll spend the rest of the presentation describing how we will realize this potential.

For 2011, our sources of revenue were a combination of domestic and export market. Domestic revenue, our fiber and grade log sales to third parties, while the U.S. segment is comprised of fiber and grade logs to our internal Cellulose Fibers and wood product mills. Export revenue is from sawlog sales to Japan, China and Korea. With respect to Canada, we have licenses from provincial governments in Alberta, British Columbia, Ontario and Saskatchewan, to secure volume for our Cellulose Fibers and wood product manufacturing facilities located in those provinces.

Timberlands receives no margin on this revenue as we transfer the logs to the mills at costs, which includes stumpage, harvest and hauling fees. The other category includes revenue from our international operations, mineral, HBU and land

[indiscernible].

As housing starts to return to trend, we'll see an increased demand for lumber. At the same time, we will see constrained supply from Canada due to the impact of the mountain pine beetle infestation and the emergence of a long-term export market for Canadian lumber in China. The combination of these 3 factors: rising U.S. demand, lower Canadian production and the presence of sustained offshore markets, will apply upward prices -- upward pressure on U.S. prices.

This chart puts into perspective the inability of Canada to supply historical levels of lumber in the future. Most of the supply reduction comes from declines in the British Columbia interior lumber production. Nearly 1/3 of the pine growing stock in British Columbia has been filled and as the full effect of the mountain pine beetle epidemic comes into play, the future allowable cut in British Columbia will decline dramatically. Additionally, the shares of sawlogs in the harvest is forecast to fall due to the wood quality issues associated with beetle-filled timber.

At the same time, offshore exports are expected to grow. Just this week, the report from international Wood Products announced that Canadian lumber imports to China had increased 3.7% in the first quarter of 2012 compared to the first quarter of 2011. And Canada has also increased its market share, the 47% of total import of lumber into China. Taken together, these 2 factors highlight that Canada will only be able to supply about 20% of the U.S. lumber needs by 2020, down from 34% in 2005.

As I mentioned earlier, one of our competitive strengths is our unique ability to serve the international markets due to our strategically located Timberlands, operation of our own log parks and long-term relationships with key customers. Combining these attributes, we manage the most comprehensive and efficient supply system to service Asian markets. We provide consistent quality and on-time delivery at the most competitive total delivered costs, basically enabling our largest customers to realize the benefits of a one-stop shop for their logs supply needs.

As you can see, export sales accounted for 22% of Timberlands revenue in 2011. Japan utilizes higher-quality and higher-value Douglas fir, used primarily in post-and-beam house construction. Post-and-beam houses are about 40% of Japanese housing starts. Our major competition is the laminated structural products from Europe. China purchased lower-quality Douglas fir, Hemlock and spruce, for almost primarily for industrial construction, packaging material and furniture components.

The key competition is logs and lumber from Russia, New Zealand and Canada. The Korean marketplace purchases mostly hemlock, although they are increasing their volume of Douglas fir. Our wood is used in housing, construction and export packaging. Our major competition is logs from New Zealand and Canada.

Japan remains our largest export market and we have long-term relationships with the largest mills serving the Japanese post-and-beam market. Our 2 largest customers account for 22% of the total post- and-beam market. Looking at beam sales only, their share would be 35% and it's growing. A photo on this page is our export log port located in Longview, Washington, from which most of our volume to Japan is shipped. It is one of the world's largest and most efficient log loading ports and we have the capacity to load 2 ships at the same time.

Our largest customer, Chugoku Mokuzai, has the largest lumber producer in Japan. They operate the 2 largest Douglas fir sawmill complexes in Japan, as well as 5 sawmills spending domestic species. They are the second largest pre-cutting company in Japan and have 8 lumber distribution centers. They rely on us for 100% of their Douglas fir logs supply and they are located 5,000 miles away and only have about 7 to 10 days of log storage at their mill. They absolutely depend on us to leverage our supply chain and ensure they have a consistent supply of just-in-time inventory. Every 6 to 7 days, they ship, paying 1,200 truckloads of Weyerhaeuser wood arrive at one of their mills. For over 20 years, we have met their supply needs and they have experienced not 1 day of downtime due to lack of log.

We get consistent take away for a large of board feet harvest at significant margins over our domestic alternative. They receive stable supply of Douglas fir volume to grow their business and participate in the savings of the most competitive log supply system by utilizing one-port loading and discharge. Our direct sales relationship has enabled us to effectively collaborate and to respond to changing market conditions. The photos on this slide display the primary uses of logs and lumber in China: concrete forming for construction and industrial packaging. Unlike Japan, the Chinese customer base is much more fragmented and many buy from multiple suppliers. The customer base ranges from large, state-owned enterprises that deal in multiple materials like coal, steel and wood, to small family sawmills. Typical market channels are Japanese trading companies, large log brokers or direct sales to state-owned enterprises, wholesalers or owners of significant manufacturing facilities. Weyerhaeuser made an early choice to targeting mix of customers for broader access to the market, diversify risk and provide in-depth market knowledge. We chose not to sell through trading companies, even though we have established relationships with them. We wanted to have a direct, unfiltered view of market dynamics and are also aware of the cultural preference in China for direct business relationships.

We also chose to work with a single sales representative in Shanghai who was a former Weyerhaeuser China manager. This focus allows us to better target specific customers, to have a strong market presence, are well-funded and who expect to be successful in the long-term. We sell directly to our customer base that consists primarily of larger wholesalers and sawmill owners located in the area from Shanghai to Dalian in the North. We also sell some volumes to large state-owned enterprises in the Jiangsu province.

One of our market strengths is our reputation. The feedback from our customers and the market is that Weyerhaeuser is considered a preferred log supplier. We provide consistent supply into specified mix and quality, our shipments are accurate scale, price discount and consistent conversion to cubic meters. And lastly, our customers know we can be flexible with respect to volume, timing, species, and point of discharge to meet their needs.

Weyerhaeuser is a recognized leader in silviculture technology and management. We have over 100 years experience managing Douglas fir, 50 years managing loblolly pine and over a decade growing eucalyptus and pine in the southern hemisphere. This experience provides the foundation for growing high-value sawtimber, faster, better and cheaper. We have refined our approaches over time based on field performance, new technologies and market drivers. We employ a total force management system on a systematic basis. We start with improved ceilings deployed at scale, we prepare the site for treatments, and then we apply the appropriate stand and harvest technique such as controlling vegetation, fertilizing and stemming before final harvests to produce high-quality sawlogs in the shortest time. And each silvicultural activity is evaluated to ensure we get the optimum growth and return from our investments.

We also leverage technology to help us continually improve the cost and value effectiveness of our silvicultural treatment. For example, we use remote sensing techniques to cost-effectively and accurately update our inventories, to evaluate the effects of our silvicultural practices and apply fertilizer only to those acres where the growth response is known and can well produce return.

As part of our overall research platform and in the woods experience, Weyerhaeuser is engaged in comprehensive tree improvement for decades. Our loblolly Pine and Douglas fir genetic program have advanced through more cycles of improvement than others in the industry. We are 2 to 3 generations of improvement ahead in loblolly pine and 1 to 2 in Douglas fir. Each successive generation produces another 5% to 10% improvement in yield. Not only do our seedlings grow more wood, but we also select the wood quality characteristics and the ability of trees to thrive where they are planted. Because we know the pedigree of the genetic selection, we can select the wood quality characteristics that meet or exceed current averages and still provide more volume. We can also implement these improved selections into the field more rapidly.

Weyerhaeuser has been focused on improving sawlog growth since the 1960s, with the goal of continuously improving our ability to produce a richer mix of logs. The charts on the right is displaying the relative volume per acre per year increase over a rotation for a series of planting periods. And I would note that each planting period represents a different silvicultural regime and rotation. I will describe the West as an example.

We started the index at 100 and described the volume growth for natural and planted stance established in the 1950s and '60s with no genetically improved seedling and with little or no intensive forestry management. Beginning in the 1970s and '80s, we started our first plantation for site preparation and fertilization. But again, with no improved genetics. By the early 1990s, we were planting first generation ceiling and a full suite of intensive treatments. And beginning in 2005, we were planting second-generation seedlings and refined and improved our silvicultural treatment. Now the south is ahead of the west due to its shorter rotation edge towards Southern Yellow Pine. The bottom line is that we have improved our rate of growth by 60% in the West and 100% in the South over this time frame to improve genetics, more robust seedlings and improved execution and targeting our silvicultural descriptions.

As I mentioned earlier, we focus on producing high-value grade logs in the shortest time. This chart shows our current and projected harvest mix. In the South, our early stemming leads to lower volumes of pulpwood being produced and the remaining trees are grown into the end of the rotation to produce higher value grade logs. This results in a higher proportion of grade logs at harvest compared to the industry standard where stemming occurs at a later age. We apply our forest management expertise to improve the growth and reduce our rotation age. This allows us to realize the benefits of increased volume and grade log prices sooner than others. We expect the percentage of grade logs to hold steady in the West and to improve in the South and in Uruguay.

We maximize the production of sawlogs because they consistently trade at a higher price in the marketplace. This chart shows the various cycles sawtimber -- this chart shows 3 various cycles sawtimber has retained its premium over smaller chip-n-saw grade logs and pulpwood over the 2005 to 2012 timeframe. And we expect these trends to continue for a foreseeable future.

We expect harvest points to improve over the next 20 years as demand for our log increases and we anticipate improved log prices. I would note that for purposes of this chart, our ownership is kept constant at today's level. In the near term, harvest will be relatively steady as we work through the left of our natural and first-generation spend. Depending on markets and prices, we could adjust harvest upwards by about 10% in the U.S. South and West. Volumes from Uruguay will more than triple by 2021 as our forests reach maturity. Over this period, we will see our harvest volumes increase as we get more volume per acre due to improved genetics and keeps with the full effect of our silvicultural regimes, which will also produce a richer mix of grade logs. We will be harvesting second-generation trees in the South in 2018. In the West, given the longer rotations, we won't see the benefits of improved genetics and improved silviculture until after 2020. By 2030, we expect our harvest in the West and in the South to be 30% higher than they are today.

Key to sustaining our competitive advantage is continued improvement in our operational execution. In harvesting, we are increasing our mechanization. For example, we are using self-leveling equipment that can work on steeper slopes, which improves our productivity. In the West, we've introduced new technology in our processors, which increases operator productivity and machine up time while also improving our value recovery from each tree. We have implemented centrally dispatched hauling throughout our western and southern operations, which allow us to track the same amount of logs with fewer truck hour. We are utilizing computerized allocation tools to minimize haul distances and cost on every truckload. And this is significant as we manage over 3,000 truckloads everyday.

At our export operations, we have applied lean concepts to reduce costs and efficiency in handling additional volume to serve the expanding Asian market. To share one example of the effectiveness of our focus on operational excellence, we have been able to keep our logging costs in the West at 1997 cost levels after adjusting them for inflation. Taken altogether, the savings from all of these efforts are significant and ongoing.

In addition to the returns generated from the sale of logs, we optimize revenue, nearly $70 million in 2011, from other value streams as well. We have retained mineral rights in $7.1 million acres and have aggressively developed our mineral ownership base. Our team has established revenue streams from the sale of our license of rights related to oil, natural gas, mineral and aggregates.

We generated over $40 million in revenue from oil and gas last year. This revenue is about evenly split between oil and gas production and revenue from leasing, bonuses and rents. While we have seen some impact from the decline in natural gas prices, we are encouraged by early drilling and testing for oil on our ownership in the Tuscaloosa Marine Shale region.

Revenue from recreational leasing on 90% of our southern ownership exceeded $17 million in 2011 and we continue to explore opportunities to enhance our revenue from renewable energy environment. Last June, we started our Weyerhaeuser solutions business to offer our expertise to assist energy, mining, forestry and manufacturing industries reduce their carbon footprint, source bio energy and manage their landscapes for water supply and quality. We are still in the early stages, but we have already secured some consulting and management arrangements with major companies.

To recap, we manage the most productive Timberlands portfolio in some of the best tree growing geographies in the world. We apply our forest management and technology leadership to improve growth, generate increasingly more grade logs and reduce our operating costs. We leverage our competitive advantages to ensure we market our logs at their highest value across a broad spectrum of domestic and international customers. Taking these advantages and evaluated them against the prospects, our return to trend housing starts, limited future lumber supply from Canada and expanding export market, it is clear we are well positioned to significantly grow our EBITDA and asset value in the coming years. Thank you. And I'll now turn it over to Larry Burrows who will discuss Wood products.

Lawrence B. Burrows

Thanks, Tom and good morning. What I want to do this morning is to take you through the steps that we have taken and the steps that we are taking in returning Wood Products to profitability. Our imperative is to safely make money in today's market, at today's prices and at today's volumes. We expect to accomplish that in the second quarter to be EBIT breakeven and generate approximately $30 million of EBITDA. If Q2 prices and volumes for the balance holds for the balance of the year, we would generate approximately $100 million of EBITDA in 2012. Now, breaking even, where generating $100 million worth of EBITDA, is not our aspiration. Our aspiration is to significantly leverage our upside. This leverage comes from continuing to execute our business improvement initiative and then leverage those improvements as the housing market recovers.

At $1 million total U.S. housing starts, we forecast an EBITDA range of $250 million to $300 million. Now, $1 million U.S. housing starts is greater than today's level, but it is appreciably below trend levels. We still have a lot of work to do, but we are making progress. We have 3 primary initiatives to drive our performance. These initiatives are improving our costs, as well as growing the top line. Specifically, we are focused on selling more to existing customers, finding new customers and new markets, innovating and quickly bringing those products to market with higher value margins and lowering our costs and improving our operating performance. These 3 initiatives, while very basic, touch every aspect of our P&L, and as a result, each business is challenging every aspect of their P&L to drive improvement. To execute these initiatives and drive our improvement, we structured ourselves into 4 businesses. This chart describes the state of capacity for each of our businesses.

In organizing our sales into 4 businesses, we decided to operate either the Weyerhaeuser and Trus Joist brands because the Weyerhaeuser and Trus Joist brands have great recognition and great resonance. We moved from a supply chain to these 4 businesses to give each business better end-to-end focus, visibility, responsibility and accountability. This end-to-end accountability and visibility forces each business to attack every aspect of its P&L, both its revenues, as well as its costs.

In growing our revenues, our product mix is a competitive advantage. Our diverse mix is attractive to our customers for the efficiency and cost-effectiveness of one-stop shopping. Over 50% of our customers buy from multiple businesses, with over 85% of our top 50 customers doing so. Looking at the chart in the left, our 2011 $2.3 billion of third-party sales, about 1/2 of them were comprised in lumber with the other 1/2 split roughly equally amongst engineered wood, OSB, and specialty products and others. Specialty products reflects our distribution businesses, third-party sales and other Reflex [ph] ships that we sell to third parties.

Looking at the chart at the right, we have a broad market reach. About 68% of our products serve the residential market through dealers and builders, 6% are sold into export, with the remaining 26% serving the repair, remodel, industrial, treater and remanufacturing markets. While the residential market is our main market, our broad reach gives us a diversified customer base and makes us a little less reliant on North American housing.

Let me know describe how each business is capitalizing on this diversity. Our 18 lumber mills are strategically located to serve the North American and export markets. In the South, a Southern Yellow Pine market, we concentrate on premium grades for the residential, repair and remodel and treater markets. With the Southern Yellow Pine design value changes, we have a full complement of products to serve our customers.

In the West, the Doug fir and Hem fir market, the mills produce higher-grade market products for the residential and repair and remodel markets. As the residential market remains challenged, we are adjusting by adding dried Doug fir to our mix. We are finding additional outlets for dried Doug fir for in the repair and remodel market, as well as in the residential market, profitably shipping dried Doug fir to the mountain states, as well as into New England.

In Canada, a spruce pine fir market, we emphasize higher-margin products such as J-grade exports to Japan and higher-value grades to the residential markets in Canada and in the upper Midwest. We are also building a market presence in China.

Tom previously took you through the slide, but it is worth repeating due to its positive impact on our lumber business. Canada shares supply in the U.S. housing market has diminished from 34% in 2005 to a projected 25% in 2015 and its share is projected to continue to decline beyond that. There are a variety of reasons for this, but it's largely due to the pine beetle devastation. Fortunately, our 3 Canadian lumber mills are not impacted as they are located outside of the affected area.

The impact of the pine beetle would constrain supplies and this will be a positive trend for our lumber business. We remain well positioned to respond to any market changes that may occur and we will continue to provide our customers with a full complement of products.

Our 6 OSB mills cover the North American and serve the Asian export market. We have increased our OSB volume year-over-year through intentional actions such as growing our share of the flooring market, producing more sheathing for those flooring customers, as well as others and securing additional customers, including the repair and remodel centers and exporting to Asia. We've also improved our product mix, producing higher-value products such as flooring, Webstock, Radiant Barrier Sheathing and stair treads.

In Engineered Wood Products, we have 10 mills in total, 8 are operating, 2 are indefinitely closed. Of the 8 operating, 5 produce I-Joist or solid section beams such as Parallam, Microllam and TimberStrand. And 3 produce Veneer, Veneer which is a critical raw material component.

Our mills cover the North American market and also serve the Asian export market. Our Trus Joist brand is the most well-recognized and used product according to 2012 Builder Magazine. Engineered lumber is a high-touch business. We work with builders and dealers to help them optimize the structural frame through detailed design and value engineer. Our distribution business is a key partner in delivering about 1/2 of our engineered lumber to the market.

The Engineered lumber market is significantly dependent upon new residential construction and as this market has languished, we are finding new outlets and new customers, specifically multi-family, bringing our single-family structural frame skill to the multi-family market, exporting largely to Asia and industrial, where our products are used as remanufacturing components or for high-value structural grade.

Our 22 distribution centers reach approximately 80% of the U.S. housing starts. We are in the markets where we want to be. Our distribution business has 2 important roles. First, they distribute our internally produced products, principally engineered lumber, to the market. As I previously mentioned, the high-touch work with design and engineering often translates into pre-cut jobs packages that our distribution business prepares and delivers. Second, they serve our dealers and built. These customers want the efficiency and one-stop shop of buying Weyerhaeuser and Trus Joist products, along with complementary products such as siding, steel, decking, among others.

Distribution also serves the repair and remodel markets, providing similar complementary products such as seedings and steel. With our current footprint, we are growing our distribution business through selling more of our products, as well as selling more complementary third-party products.

Let me now take you through our 3 improvement initiatives I outlined before: grow, innovate and improve operating performance. One of our 3 primary initiatives, obviously, is to grow our business, and we are. We are growing with our existing dealers, builders, as well as our repair and remodel attempts.

As part of our profitable growth initiatives, we are also securing new customers and developing new markets. For example, we are capturing new multi-family customers, we're developing new Asian export markets for our OSB in engineered lumber and we are cutting and bending steel to sell to our repair and remodel customers.

Another of our 3 primary initiatives is to innovate with new products and to bring these products to market quickly with higher value margins. These are 3 recent examples. On the upper right, you'll see our Framer Series Lumber, which stays straight as the crown mark and has stain and mold resistance. Down Pore has improved our edge gold OSB flooring by quickly draining water from the OSB panels. This is important during the new construction process where the home is often open and exposed to the elements. If you look closely at the bottom left, you'll see in the picture the water draining from the OSB floor.

Many building and fire codes require -- are requiring 1 hour of fire rating at the floor assembly. To achieve that rating, the builder has a provide a couple layers of gyp board. With our Trus Joist Flak Jacket protection, we achieve that 1 hour fire rating with a single layer of gyp board. As a former homebuilder, I appreciate both the value and the time-saving of these new products.

A final cornerstone of our initiative improvement is reducing our costs and improving our operating performance. Better filling our mills, the customer growth I discussed allows us to run more, improving our utilization rate. But in addition to running more, we are also improving our manufacturing efficiency, reducing our per-unit manufacturing costs, 5% to 9% in 2011 over 2010. And over the same period of time, we have reduced our SG&A by 23%.

We still have a lot of work to do but we are making progress and I appreciate all of the hard work and the fiber wood products associates. My expectation is that we safely make money in today's market. We will start by breaking even in the second quarter. My expectation is that we build on that momentum as we relentlessly execute our initiative, capturing customer diversity, innovating products and driving top line performance improvements. We are advancing in today's market and we are well positioned as the market recovers. Thanks. And I'll now turn the floor over to Peter.

Peter M. Orser

Thank you, Larry. Good morning, everyone. I'm looking forward to providing you with an overview of our business and how we are taking advantage of the encouraging signs we are seeing. I want to start by reviewing WRECO's competitive advantages, which you can see on this slide. WRECO is not your typical homebuilder. We have a unique business model that allows us to be nimble while at the same time allowing us to capitalize on our larger footprint and deliver superior results. Our people are our most valuable asset and our leaders all have long tenures and are very experienced in every facet of the business. We have strong and recognizable brands, each with a unique application in the individual markets. Our markets are desirable. Each has experienced unprecedented challenges, but all enjoy strong fundamentals and are experiencing positive growth today. We benefit from scale and have the systems in place to make our scale valuable. Finally, our industry-leading customer satisfaction and margins reflect the benefit of our competitive advantages.

Today, I would like to describe our key areas of focus both to demonstrate why we are profitable in the current market and to give you a sense of the opportunity we see ahead as U.S. housing market recovered. WRECO includes 5 regional homebuilding companies, each with its own focus and discrete submarkets Quadrant Homes in the Pacific Northwest, Pardee in Southern California and Nevada, Maracay in Phoenix and Tucson, Trendmaker in Houston and finally, Winchester and Camberley homes in the Virginia and Maryland markets. Our business model is our competitive advantage. We take advantage of our scale-to-leverage opportunities such as national contracting. We also leverage prominent back office system applications and certain homebuilding functional disciplines. Yet on the front lines, where we are face-to-face with the customer, we have empowered each of our regional homebuilders to apply their market acumen and make independent decisions to make sure their local value propositions resonate.

According to professional Builder Magazine, WRECO was the 17th largest homebuilder by volume in 2011, a position we have held through both the recent market peak and value. In terms of revenue, we rank 12th, largely due to our average home price derived from the premium market where we operate.

There's nothing new or dramatic here. Last year I spoke of many of these same strategies, control the controllables, distinguish ourselves in the marketplace by delivering innovative products and services, reposition our land portfolio to ensure our capital is efficiently and strategically deployed and finally, leverage our platforms in the markets where we currently operate. We have a clear strategy. We are sticking with these fundamentals and we'll continue to execute at a high-level. As you will see, this is proving to be an effective approach. The triangles on this chart represent the volume of closing, which you can see on the right-hand axis. And the bar's represent pre-tax income, which is on the left-hand axis.

The most important takeaway here is that WRECO is 1 of only 4 profitable homebuilders in 2011, and we achieved this on the lowest volume in the 14-member public homebuilder peer group. We believe our operating strategy is the key to this success, and while size can be of benefit, it is isn't always the most important factor. We like the markets we're in and we like the way we go to market, with unique value propositions as executed by seasoned local leaders. It has not been easy by any means and we've had to pull every lever available to us to remain profitable through the downturn. One of our local presidents put it best when he said, we've been through every chapter of the homebuilding handbook twice and written a few of our own along the way.

Managing our product has offered as the most opportunity to remove costs from the systems -- system. We not only delivered new, more efficient plans but we have engineered our processes to enable customer choice without eroding our margins or compromising cycle times. We plan to create opportunities for value engineering, which is always best done with our subcontractors. Our long-standing relationships with quality subcontractors provide many benefits along the way. Beyond those local relationships, we also have the ability to leverage our total size in national contracts that provide significant cost benefits through volume discounts.

Finally, we've been particularly focused on cycle times. The estimate time it takes to build a house has been the primary focus. With the time to deliver a plan, obtain a permit or literally any process with more than 2 steps has been a priority.

SG&A has been a particular focus area. As an example, our headcount is down 65% from the peak, and we've continued to right-size the organization this year with an additional 5% decrease, even as we delivered stronger year-over-year sales. And we're not done yet. This is a never-ending process that is firmly embedded in our operational culture. We have relearned a valuable principal: Just when you think there are no more savings to be found, you discover the next opportunity. Probably the biggest takeaway here is the leverage it creates. We believe we are well positioned in our more lean configuration to grow from this very efficient platform. Certainly, production capacity in the field will have to flex up with volume, where the back office has the potential to do more with less.

Now let's talk about product innovation. Each subsidiary is innovated in different ways. This is the power of our secret sauce: local entrepreneurs executing against local market conditions. In this case, Quadrant has moved slightly up the value chain with the new approach called Built Your Way, which allows a wider range of choices for customers to personalize their home. Westmont Vista, one of Quadrant's newest communities, is close to the Seattle job center and offers product at a price higher than is typical for Quadrant. The combination of product changes and operating model adjustments, together with a superior location, has resonated with the market, translating to an average of 6 sales a month.

Similar story in Las Vegas. Pardee purchased 74 lots in Las Vegas, each approximately 1/3 acre in size. This allowed them to put more square footage on the lot, offer more single-story configurations as well as offer a 4-car garage and a detached casita as an option. While more upscale than you might expect for the Las Vegas market, it is an example of how the Pardee local knowledge and historical experience with the product played a role in finding the best-performing niche in the market. Since February, this community has been selling at a rate of 7 per month.

There's no question green plays a role in a homebuyer's purchase decision. And this is another example of our successful innovation. Our customers are, of course, most interested in how the green features of their new home can save them money every month, in addition to reducing their impact on the environment. The environmental benefit certificate you see on this slide is much like an MPG sticker on a new car. It reflects both an energy rating and a water consumption measure, as well as other environmental benefits. This particular format is used by Pardee and is displayed in every home. For our business, sustainability is a value, part of our license to operate, and we have engaged in sustainable practices from the beginning. Where we excel isn't how we tell the story, how we make it real for our customer. Pardee does it better than anyone and have been pioneers since pushing the sustainability frontier.

We showed you the LivingSmart brand last year. The story this year is the value we are able to create across WRECO by drafting off Pardee's original work. Today, all the subsidiaries enjoy the benefits of the program development, value engineering and LivingSmart trademark, another example of leveraging both the value of independence and collaborations in our business model.

We measure our success through the willingness to refer metric, which is included in surveys completed by every customer after move-in. It is a reflection of the many elements of our brand promise, including the quality of construction, timely delivery and warranty service, among others. We have taken our focus on the customer to a new level. I call it embracing the customer, and it comes in many forms but none more impactful than the services we have developed to help our customer through the challenges of buying a new home today. Today, our willingness to refer metric stands at 98%. And based on the scores of our peers that use the same sampling service, we lead in the industry. But willingness to refer will often translate to an actual referral. Pardee San Diego offer -- operation's most recent surveys indicated an actual referral rate of 44.8%, meaning that nearly half the homes sold there are the result of an actual referral from friend or relative. By industry standards, that is off the charts. Embracing the customer is clearly having a measurable effect. It is driving traffic and sales while reducing our marketing expenses.

Another important metric is our cancellation rate and it shows further evidence of our embrace-the-customer approach. In today's market, buying a home may actually be easier than financing it. We work hand-in-hand with prospective buyers to help them through the process. This has helped us reduce cancellations dramatically. And today, our cancellation rate is lower than the industry average, again further evidence of how we embrace the customer. And let me show you a few examples of how we provide innovative services to our customer.

Our relationship with Smart Move Advantage has resulted in a dramatic increase in traffic and a boost to our weekly sales in those regions where we offer it. It is designed for customers who already have a home but their circumstances have changed in some ways, whether job, baby on the way, mother-in-law moving in or something else that makes them want to buy a new home. As you can imagine, they are often faced with a value for current home that is less than the original purchase price. As a result, they are trapped and don't want to sell until the market comes back and improves their situation, but they need to move now.

Smart Move Advantage, which is an independent company, not WRECO, provides the homebuyer with a guaranteed rental income for their home for a 3-year period. In fact, Smart Move Advantage will actually manage the rental for them and guarantee an agreed-upon rental payment if the home becomes vacant. This income does not generally qualify as reportable income for the next purchase, but it has been surprising how many people actually qualify for 2 mortgages and are happy to rent their current home and buy a new home. There is a similar third-party program that guarantee an income stream for 6 months if you lose your job.

We also offer several programs that we generally describe as credit repair, which help our customers with budgeting, strategies for paying down credit card debt as well as working with credit agencies to ensure their credit score is accurate. While this customer cannot buy immediately, this service innovation helps us build loyal customers who will be buyers 3 to 9 months later.

WRECO is both a homebuilder and land developer. The value we add to homebuilding margins through our skills as a developer can be considerable. In some cases, we are a developer because that's the only way to get access to lots. California in general, but San Diego specifically, is a good example. San Diego has historically driven some of our highest margins and strongest sales. It is a market where we want to continue to build on our brand awareness. To do so requires considerable expertise as a land developer. Not every community is designed to be build exclusively for our account. In some cases, having other builders participate in our communities creates more product diversity and traffic, as well as accelerates the overall land absorption. In addition, we often create parcels in our master-planned communities that are important to the community but not pertinent to our Single-family homebuilding operations. The sale of such parcels has become a relatively stable source of revenue, and while volatile quarter to quarter, it generally does not fluctuate very much as a percentage of our total annual revenue.

However, with the sale of Cross Creek in April, you will see a spike in land sale revenue in the second quarter of 2012 as the size of that sale was larger than is typical for WRECO. In this case, we saw an opportunity to access finished lots in the Houston market without the large current and future investments required to maintain our position as a developer in Cross Creek Ranch. So not only did we profitably monetized this investment, we also retained multiple product segment opportunities in this community and secured newer opportunities to build in other communities currently held by the buyer. The combination of these factors is a win-win win.

Today, we have approximately 74 active communities. As you can see on this slide, we are achieving a sales rate of 3.3 sales per community per month, which leads the way against our peer group of public builders. It also reflects a 32% increase against our own performance from the previous year. While growing our community count is certainly on our radar screen, those opportunities do not come easily and we have chosen to focus on getting the most we can from each of our existing communities. It is a daily balance between price and velocity. Our sales efficiency is impressive as it reflects a continuous effort to raise prices wherever and whenever we can, without dousing the embers of a modest recovery.

While this intense execution formula -- with this intense execution formula in mind, our opportunity is to, one, replace communities as we sell out; and two, create modest growth in our store count to continue to drive those numbers higher. We will actually close out 25 communities this year and open roughly 30 communities this year, so our land acquisition expertise will be critical. We are surgical and strategic in how we buy land and you can be sure the WRECO allocation process is very focused on creating value. Once purchased, we can begin flawlessly executing on delivering our value propositions, extracting every sale we can every month.

Now that we have discussed the diversity of our market -- markets and products and our focused efforts in homebuilding and land development, we can talk about the effect of mix on our margins. As I've already said, we think all our efforts from product to innovation and execution are additive and make us a top workout performer. However, when you look at the chart on the right, depicting our Single-family margins over the last 5 years, you can see some modest volatility. As you have heard repeatedly on our quarterly calls, this is a function of mix. And I thought I would take this opportunity to explain that in a little more detail.

"Location, location, location," is the oldest real estate adage in the book and it is certainly the most influential element of mix. Don't be overly influenced by the national headlines that tend to blend all geographies into one. While the influence of geography starts at the state level for us, it quickly funnels down to market, such as San Diego, then submarket, then community and quite literally down to the block-by-block level as an indicator of value. Product size; product pipe, such as one-story versus two-story; and features included in the product all have an impact on margins.

Recently, we have seen more attached product from Winchester Homes, and because of size and other factors, these products tends to have less margin but it's still critical to the integrity of a community or required as a part of the overall community entitlement. The lower margins we achieved in the first quarter reflect lower closing volume from high-margin locations like DC and San Diego, compounded by more closing from markets like Seattle and Phoenix with lower margins.

I will say we are raising prices in both of those lower-margin markets today as they progress on their path to recovery. As our volumes grow, you should see less volatility in this number as no one particular factor will unduly influence the total.

Thank you for the opportunity to review some of our accomplishments this past year and to discuss our prospects for the future. It's a clear and focused strategy, and we have demonstrated our ability to execute it. In the end, I am confident our operating excellence and the inevitable return to trend housing demand, suggested by the basic demographics of our markets, will allow us to continue to be profitable and position us for growth and value creation. Thank you.

Shaker, you're next.

Shaker Chandrasekaran

Thank you, Peter. Good morning, ladies and gentlemen.

Team Cellulose Fibers. Our team has built a culture of disciplined execution. As a result, we have delivered consistent financial performance. In fact, our culture of discipline has resulted in 2 record years, namely 2010 and 2011. Our focus now going forward is to build on our strengths and continue to deliver sustainable results in our journey to become the best in class. With this in mind, let us review the drivers of this key performance.

One, value-added products; strategic relationships with our global customers who are growing globally; going to market direct through our own sales teams in 9 locations in the world; innovating by working with key customers for higher margins, I would like to note we do not innovate in isolation; continuing to improve manufacturing reliability; lastly, our manufacturing sites are strategically located for access to fiber baskets and global markets.

Let me now describe how our products are used. They go into 4 broad categories. First is fluff, which is our core product for baby care, fem hygiene, adult incontinence. Next is our specialty grades: crosslink for baby care, Pearl for textiles and other grades for nonwovens. The third is the northern softwood pulp for Premium towel and issues. Lastly, the liquid packaging board for various beverages.

At the bottom of this slide, you will see some of the end users. And these are created from our fibers. This chart here shows the global market size for various pulp grades in million metric tons. The arrow going from the bottom to the top denotes the increasing value of these grades in dollar per ton. As shown on the slide, we are not in commodity paper grade pulp. Therefore, we do not compete with the northern bleached sulphate kraft producers from Canada or Scandinavia, nor do we compete with the bleached eucalyptus kraft producers from South America.

I should add here that we are also not a player in the spot market. Globally, we have 10% of the towel and tissue market and 24% of the fluff market. Greater than 90% of these volumes are contracted with our key strategic customers globally. Also, we have highlighted with 2 arrows 2 other grades: crosslink and Pearl. These grades are positioned with respect to other grades, and I'm showing where they are positioned.

Now let us look at the global demand growth of fluff. As shown on this slide, by our own estimates, growth in developed nations is significantly below the projected global growth, which is above 3%, but the emerging markets will lead the growth, with China standing on the very top, which is approximately more than double than the growth of the global average. I will show in the next slide that our business is a global business. We have a strong presence in emerging markets, and as our customers say, they go where the babies are and we go with our key customers.

Next the pie chart on the right shows where our revenues come from. Almost 2/3 of the operating revenues in our business come from outside North America. The revenues from Non-Japan Asia, namely the emerging markets, are about 25%: China is at 15%, almost equal to Japan at 16% for our segment. In brief, we reach the emerging markets by growing with customers who are growing globally.

Let me now talk about the liquid packaging board business, another global business. As shown here, 84% of our revenues come from outside North America. We are very proud that over 40 years ago we were the first U.S. producer qualified by a leading Japanese converter to sell liquid packaging board in Japan. From that time on, we have grown, we have continued to build our relationship with Japanese converters and today, we have become a leader in Japan with 60% of the market share. So where are we going next? We are expanding in other emerging markets, for example, Korea.

Let me now describe the dual strategy in our business. On one hand, it is innovation. On the other hand, it is operational excellence, doing the most with what we do in our assets. Let me start with the innovation strategy.

We reduce -- we -- I'm sorry, we introduced the next-generation crosslink fibers a few years ago. We are now developing the next-generation Pearl as well as a few proprietary fibers for specialty applications, for example, pulp in plastics. We are also delivering innovative solutions in liquid packaging board. As I have mentioned earlier, we innovate with targeted customers and not in isolation.

Let me now provide an example of what I mean by growing with key global customers. More than 15 years ago, we developed and patented a special fiber called crosslink. We achieved this by chemically modifying the fluff pulp to enhance its absorbent characteristics. With growth in emerging markets for baby care, especially with thinner diapers, this product has a strong long-term demand, which is why we are building the second modified fiber plant in Gdansk, Poland. Our current capacity in Columbus, Mississippi, operation is about 210,000 metric tons per year. After we start up the Poland plant, the new combined capacity will be 277,000 tons per year. Let me also highlight that our future capacity is already sold out to our strategic partner.

Here is another example of innovation for higher margin. You have heard us talk about the introduction of Pearl. It's a cost-effective substitute in the manufacture of viscose staple fibers for textiles. We launched it successfully in China last year, grew the volume from 0 tons in early 2011 and, by the end of the year, to 64,000 tons. Let me point out that Pearl is produced in one of our own U.S. pulp mills and not in China and it has higher margins than our other grades. Currently, we are concentrating on the Chinese market, primarily because China is the leading producer of viscose staple fibers with nearly 60% of world's capacity.

I mentioned our second strategy is operational excellence. Let me now describe what I mean by that. Here, our focus is consistently on consistently achieving world-class industry efficiency in our manufacturing, meaning maximizing the uptime of the equipment, maximizing the prime quality, the product quality we produce. We also diligently work to reduce our cash manufacturing cost. And I will provide a few good examples of our performance in the next slide.

Last year, I explained to you that we had begun our homework to move the mill maintenance outages from 12-month frequency to 18-month frequency. It is a quick report: We have made progress. We are working diligently to fulfill the boiler inspection requirements for safety, the local codes as well, while we protect the equipment reliability for performance. We estimate approximately $24 million cost savings per year with a small increase in capacity of about 21,000 tons. Systemwide, we expect to have this initiated, fully implemented by the end of 2014.

On this slide, on the -- below the cash line manufacturing cost breakdown, I would like to emphasize here that all of our initiatives, both capital and non-capital, are geared towards improving the fiber yield, maximizing the chemical efficiency in our systems, optimizing freight and reducing energy. We know cost reduction is a must, and we call it a relentless daily pursuit.

Here are a few examples of our accomplishments. We reduce the cash manufacturing cost every year and move the mills from second and third quartile, and that is the RISI ranking a few years ago, to first and second quartile. We reduced the energy cost approximately 39% since 2008. We have what we call "N plus 1" mantra, continuous improvement journey. With that, we have increased fluff production by 8%. With respect to the maintenance cost, I've already mentioned that we are working on reducing the annual shutdown frequency, thereby reducing the cost.

As I mentioned in my introduction, our focus on disciplined execution of the dual strategy has enabled us to achieve record earnings in 2010 and '11. We delivered nearly $600 million EBITDA in 2011. Even though the markets are softer, we are generating strong cash flow this year as well. Also, with the discipline we have put in place, we are confident we will continue to be a strong performer in the coming years.

Here is a map that shows all the manufacturing locations in our business. Let me start with the 4 mills, which you see in the southeastern part of the United States, and those are the mills where we make specialty pulp and, most importantly, fluff, our core product.

We produce them from southern pine. Southern pine is unique because its fibers have approximately 18% to 20%, 20x more fluid, mainly water-holding capacity, than other fibers in the world. If you go to Canada in Grande Prairie, Alberta, we produce pulp for Premium towel and tissues from northern softwood. In Pacific Northwest, at our mill in Longview, Washington, we produce liquid packaging board from Douglas fir.

In summary, if you look at our locations, all of our manufacturing sites offer 2 significant advantages: one, strategic access to strategic fiber baskets; two, access to global markets. In fact, 6 out of 7 manufacturing sites are located near the port. In addition to other strengths I had already talked about in our business, this feature further enhances our ability to achieve 2/3 of our operating revenues from outside North America.

I would like to close by assuring you that our journey to excellence continues by executing our dual strategy, innovating for higher margin, prudently investing capital and strengthening relationships with key global customers. We will do all this with a keen eye on disciplined execution, and that's what we call relentless daily pursuit of excellence.

Thank you very much. Let me now turn it over to Patty Bedient.

Patricia M. Bedient

Thanks, Shaker, and good morning, everybody. I want to start by saying how great it is to see so many familiar faces in the audience this morning. And I also want to welcome the new ones.

So you've heard from each of the business leaders this morning about the strategies that we've been executing by business, as well as exciting opportunities in front of them. I want to talk about our progress from a total Weyerhaeuser Company perspective, first looking back on some of the significant accomplishments of the last 3 years and then looking forward to how we're positioned to grow EBITDA and outflows, with a discussion of our priorities for capital allocation.

I want to start with company structure. We're now well into our third year of operating at the timber REIT. Many of you are well acquainted with our REIT conversion journey, but for those of you who may not be as familiar, I'll review how this structure creates value for our shareholders.

In the past, many of you have heard me say that structure follows strategy. As Dan stated in his remarks, our strategy is -- starts with timberlands, land and forest at the core. In order to maximize the strategy, it was imperative that we place our valuable timberland holdings in a structure that enabled us to be competitive. Our structure has Weyerhaeuser Company, the REIT, holding most of our timberlands. Essentially, earnings from the majority of our Timberland segment are not subject to corporate-level tax if they are distributed to shareholders. Importantly, for our shareholders, most of our distributions are capital gains. Our taxable REIT subsidiary holds a portion of our Timberlands business that does not qualify for retreatment, as well as our manufacturing and homebuilding businesses. Earnings from these businesses, net of interest expense, are subject to corporate tax. As a result of this structure and our core competency of extracting value from our timberlands, we are well positioned to increase Timberland earnings and take advantage of growth opportunities. At the same time, our other businesses are well positioned to generate significant cash flow, especially as the housing market returns. Now there are a number of technical requirements of operating in this structure, but we believe these requirements are very manageable and this structure best enhances the strategic direction of Weyerhaeuser Company.

This morning, you've heard some common themes from the business leaders detailing how we've improved our performance. Those themes have focused on growing our revenues despite the weak U.S. housing market, managing costs and disciplined use of capital. I've chosen a few examples to illustrate the collective effort of these company-wide focus areas.

Despite the economic downturn, we've had an intense focus on growing top line revenue. An important element of this focus has been growing our global presence. Most of our products are produced in North America, but we have grown sales to global markets, both in absolute dollars and as a percentage of revenue. This diversification of markets has been an important source of revenue expansion.

In managing our costs, we've had a relentless focus on lowering our SG&A expense. This slide shows our SG&A expense from continuing operations over the last 3 years. To better illustrate the total reduction, this chart excludes amounts for noncash pension and other post-retirement benefits. We've made significant reductions amounting to almost $200 million or 25% over this time frame. At the same time that we reduced expenses, we grew total revenue by over $1.1 billion or an increase of 23%. This disciplined cost focus will result in continued leverage as we continue to grow our top line revenue.

Now much of the decrease in SG&A cost is the direct result of reduced headcount. From the end of 2008 to the end of 2011, we reduced headcount by 45%. Consistent with the presentation on the previous page, these numbers do not reflect the reductions in direct headcount associated with the sale of our discontinued businesses. Other examples of cost management include the important steps that we've taken to control health care costs. Through the use of wellness programs, health spending accounts and high deductible medical plans, we have more actively engaged our associates in managing health care costs. In addition, our improving safety performance, which Dan discussed, has had a positive effect on our workers' compensation costs. We've also restructured our incentive compensation plans to more closely align pay with performance. Today, we are a much leaner, more effective organization.

Looking forward. We're well positioned to grow EBITDA. As you've heard from our business leaders, we have instilled the disciplines of cost reduction and operational excellence across the company. We will continue to build on the results we've achieved in these areas. We'll also maintain our focus on innovation, developing new products and services to profitably differentiate ourselves in the eyes of our customers. Our continued focus against these initiatives will help position each of our businesses to take full advantage of the increased demand that will accompany a U.S. housing recovery. The increased revenue from our U.S. operations, coupled with continued growth in our global presence, will enable us to generate additional cash flow as markets recover.

Now I'd like to talk a little bit about priorities for capital allocation. We have 3 primary priorities for capital allocation. Our major focus will be on returning cash to shareholders. Our near-term debt reduction will result in an improved capital structure and declining interest expense. We will continue to manage our retirement liabilities. We will invest in our businesses to maintain and grow cash flow. This will include disciplined capital expenditures and investment in growth opportunities. Now I'll discuss each of these priorities further, starting with returning cash to shareholders.

Over the cycle, we anticipate a dividend payout ratio of 75% of our funds available for distribution. Our current dividends of $0.15 per share per quarter or $0.60 annually will likely exceed this ratio in 2012, given that we have yet to see significant economic improvement. But we believe that our strong liquidity supports this higher ratio for 2012 and that the current dividend strikes the right balance. It's sustainable, and given our improving operations and capital structure, we are well positioned to grow it over time.

While our primary focus for returning cash to shareholders is dividends, we will consider share repurchase as well. Last year, for example, we used nearly $40 million to repurchase approximately 2.3 million shares. And we've made -- and we have $233 million of this authorization remaining. We expect to use this authorization on an opportunistic basis.

We are committed to a strong capital structure. At the end of 2011, we had a cash balance of over $900 million. Our debt maturities over the next 3 years are approximately $600 million, well below our existing cash balance. In addition, we have a $1 billion credit facility, with no borrowings outstanding. Increased cash flow from operations will improve our credit ratios. A strong capital structure also supports our ability to sustain and grow our dividend.

Another important element of improving our capital structure is effective management of our retirement liabilities. At the end of 2011, the discount rate that we were required to use for valuation of our U.S. qualified pension plan liability decreased by 90 basis points. This adversely affected the funded status of the plan. As interest rates increase, our funded status will improve. To give you some feel for the sensitivity of that, a 1% increase in the discount rate would increase the funded status of our U.S. qualified pension plans by over $500 million. After 2013, required cash contributions to our pension plans are expected to decrease significantly.

We've also taken steps to reduce the liability associated with other post-employment benefit plans. At the end of 2011, we announced that, as of July 1, 2012, we would no longer accept new entrants to our U.S. salaried retiree medical plans. This action reduced our liability as of the end of 2011 by approximately $100 million.

This slide illustrates our disciplined capital spending. In recent years, our Cellulose Fibers business has been allocated the largest share of our capital expenditures. As Shaker discussed, these expenditures were focused on high-payback projects that lowered our cost for energy, chemicals and fiber and enabled us to meet growing customer demand, such as our converting facility in Poland. In addition to these projects, we will increase our ability to transition from an annual maintenance schedule to an 18-month frequency.

Our Timberlands capital expenditures relate largely to reforestation and road paths. In Wood Products, we have focused primarily on maintenance and safety, given that we had unused capacity. This business has been spending at the rate of 20% to 30% of depreciation. However, given the improved performance, we have allocated modest additional capital in 2012 for high-return projects, supporting improving operating efficiency and increasing cash flow.

Our company-wide capital expenditures over the last 3 years have totaled less than 50% of depreciation. In 2012, this percentage will increase, primarily as a result of our expansion in Poland and the continued decline of our depreciation expense. As we look forward, we will invest our capital in a disciplined manner, giving priority to projects that maintain our current earnings capabilities and contribute to increased cash flow. We will consider growth opportunities with the priority to acquire timberlands, enabling us to build on our success as a leader in extracting value through applying our timberlands management expertise and further leveraging our scale, infrastructure and market access. We will focus on growth opportunities that generate cash flow and create shareholder value.

With that, I'll turn the podium back to Dan. And I look forward to your questions.

Daniel S. Fulton

Thanks, Patty. I want to close our prepared remarks by summarizing a few reasons for investors to own Weyerhaeuser.

First, it's our valuable, sustainably managed timberlands, over 6 million acres in the United States. We own some of the most attractive softwood timberlands in the world and we're a leader in adding value to and extracting value from these timberlands. All of our businesses have the size and scale to compete and generate cash and earnings. We're positioned to benefit from the recovery in housing and capturing glowing -- growing global sales. And finally, we're committed to delivering a sustainable dividend that we expect to grow over time.

We're focused on creating value for our shareholders through the management of our valuable timberlands resource and increasing the profitability of all of our businesses.

With that, I'd like to thank you all for your time this morning and your attention during our remarks and invite your questions. And since we have all of our business leaders on the panel, we have the ability this morning for you to ask individual business questions or general-purpose questions. I would ask that, if you do have a question, raise your hand, and we will get a microphone to you. And as you ask your question, I would appreciate it if you could identify yourself and your affiliation for the benefit of our transcript and for those that are listening on our webcast.

Question-and-Answer Session

Daniel S. Fulton

First question, George Staphos.

George L. Staphos - BofA Merrill Lynch, Research Division

I appreciate all the details. George Staphos from BofA. 2 questions for Peter. Peter, we've talked, obviously, over the last few months about how geographic mix has really been a factor in terms of the margins within the business. Could you ballpark at all as you look out to the next-minute cycle, how product type or features and changes therein might actually affect margins? And if you don't expect there to be any kind of margin change from that, could you explain why? The second question I had, you mentioned that, in the region, in the field, you'll have to flex sales as the market picks up. If you in fact hit your housing forecast over the next 2 years, would you actually need to add people in the field, realizing like you said, the back office should be relatively stable, is that what you implied?

Peter M. Orser

Good questions, both, and really speak to the future, which is cloudy at best. We're really optimistic right now. And I guess the thing I can say most clearly about margin is we've consistently delivered, as you saw on the graph, in the 20s, and there's no reason why we can't continue to do that. We've been a leader through peak markets and value markets, thick and thin, and so there will be changes in product and mix. And all of those factors come into play. But I don't see any reason why we can't continue to be a leader and deliver industry-leading margins well into the future. The flex question is really a function of the volume that you reach. And that is something we'll have to look at as we go to each milestone of growth. And I spoke to the production side, the back office side. At certain points, you will have to add people and systems to manage that kind of growth, but those are incremental decisions that we would make as we get to them. I think that the most important thing is we're starting from a very low base and we can get a lot of leverage out of that. And we'll make those decisions as we move forward on the growth curve.

Daniel S. Fulton

Next question, Chip Dillon?

Chip A. Dillon - Vertical Research Partners Inc.

Chip Dillon from Vertical Research Partners. I just had a couple of questions. I found an interesting chart on Page 9 where you talk about U.S. lumber for consumption. And it looks like you actually expect Canada's imports into the U.S. to actually grow by about 33% between 2011 and 2015 and then start to go down. And I just wanted to know what the latest thoughts were on the pine beetle situation. And in fact, does that mean that the real impact is really pushed out once again maybe through the 2016 and later period?

Daniel S. Fulton

Okay. I think we'll split the answer on this one. We've talked about the pine beetle and its effect on timberlands and with products. So Tom, let me -- let's start with you and you can address the timberland side of that.

Thomas F. Gideon

Yes, Chip. You -- we are going to see between the 2012 and 2015 time frame an increase in Canadian production as they work through the availability of mountain pine beetle volume. And then at the time, it will significantly start to decrease and you'll get to the levels we're talking about by the 2020, '25 timeframe. So it will go up, and it will come down pretty precipitously.

Daniel S. Fulton

Okay, Josh Zaret? Josh, if you could identify yourself and your affiliation.

Joshua L. Zaret - Longbow Research LLC

Joshua Zaret, Longbow Research. I just want to follow up on Chip's question. You said production's going up, but assuming that's mostly salvaged timber, what about structurally sound timber, would that be going down? Or when does that start to go down? Because I think there has to be a difference.

Thomas F. Gideon

Well, you're right Josh. 2 things are happening. There is, at this point, still a significant amount of structurally sound timber that is coming out. It's being diminished over time. As we go to the latter part of the decade, you will see less and less of that. That would be what we would call two and better, and that will be available to come into the U.S. And you're seeing it today, some of the rise. In fact, a significant part of the rise of export lumber into China is timber and wouldn't necessarily be appropriate for the U.S. marketplace. So that trend will continue.

Daniel S. Fulton

Gail Glazerman?

Gail S. Glazerman - UBS Investment Bank, Research Division

A couple of questions. One, on the chart where you're talking about the EBITDA potential within Timberlands, I guess you -- there's not a huge amount of near-term volume upside. I'm wondering how you might see the mix progress as we get into a housing recovery. And then second, across the businesses, across timber, Wood Products, WRECO, are there any bottlenecks that you see in terms of the industry's ability to ramp up to the recovery?

Daniel S. Fulton

Start with the Timberlands question. And then I'll tackle the bottlenecks, but then I'll get some help from each of the business leaders that are going to be affected by that, Gail.

Thomas F. Gideon

Gail, if I understood your question about mix, with respect to Timberlands, we'll continue to see a high level of sawlog mix that will go into both domestic and export over the next few years. We're at 93% sawlog timber out of the West, and we'll increasingly see higher percentages of sawlog both in terms of 12-inch-plus as well as chip-n-saw. In the South, we're currently at 60%, and we'll see that migrate over the remainder of the decade into getting close to our 65% at final harvest. So we'll actually have more volume available to go into the structural application market.

Daniel S. Fulton

So as you talk about concerns in a recovery, I can say I'm really encouraged because everybody's talking about the recovery now. We would have impacts in Wood Products and we would have some impacts in WRECO. So Larry, could you touch on any concerns that you would have around Wood Products production? And then Peter, why don't you address homebuilding?

Lawrence B. Burrows

I would say, Gail, that -- finding good-skilled people who want to come into our industry, so that would be one. And I think we've got a pretty good and active program to be able to go address that. And then secondly would be logistics, being able to get rails or wheels, if you will, under our product. And again, we've got a very specific focus with our logistics folks in being able to make sure that we have the capacity to do that. But those would be 2 key places that we're focused on.

Peter M. Orser

And just quickly, I would agree with the skills, labor in the field. Framers and the like have left the marketplace and it will be hard to bring them back, so there'll be some training regimens that need to occur. But from my perspective, and really the industry is -- are going to need to start buying new, finished lots. And we've been working off of a distressed portfolio and so bringing new lots to market is going to be a bottleneck. It's a place where we actually have a good position, but as an industry, the demand for finished lots is going to be strong. And they've not been creating them at the same rate as we have historically.

Daniel S. Fulton

Tom, how about the infrastructure for harvesting of timber?

Thomas F. Gideon

Well, similar to what Larry and Peter said, one of the potential constraints that we have in increasing the harvest levels in the U.S. is going to be contractor limitation, not just in the harvest component but more significantly in the hauling, trucking transportation, both in terms of number of trucks availability as well as qualified drivers as an issue. And that's going to be a limiting factor in the -- in how quickly the industry will be able to ramp up there over this time frame.

Daniel S. Fulton

Mark Wilde.

Mark Wilde - Deutsche Bank AG, Research Division

Mark Wilde with Deutsche Bank. I've got a couple of questions for Larry. I wondered if he could talk about the potential he sees for more consolidation rationalization in the different wood products sectors as we hit the upturn. I mean, it strikes me a lot of these businesses are still pretty fragmented, and we've also got some big competitors that are on my PE firm. And then secondly, I wondered if you could just talk a little bit about the distribution business and sort of any issues for the building products distribution business overall, and then for Weyerhaeuser's business, in an upturn.

Daniel S. Fulton

First of all, let me just jump in. We don't really speculate about consolidation in the industry, so I'll have Larry address the balance of your question.

Lawrence B. Burrows

We're focused on -- in our sandbox and making our assets the kind of the most attractive and the most productive, and so that we're spending a -- making good progress there and we're going to continue to focus on that. Distribution, it serves 2 really kind of critical purposes for ourselves. It is the vehicle that we get our engineered products to market, largely our engineered lumber. We move some OSB and some lumber to market in that way. And that's important for us and that is a high-touch business and our distribution folks do a really good job with that. But also, as we deal with other customers, both builders and dealers from our distribution centers, they're saying, when that truck comes and it has Weyerhaeuser and Trus Joist's products on it, it needs to be full, right? And so we need you to be also to be able to provide us the other complementary things that we want either fill our yard or to fill our job site. And so that's been a focus of what they've been working on growing that. And as housing markets continue to get better and broaden, I would expect there'll be more demand for those kind of products.

Mark Wilde - Deutsche Bank AG, Research Division

And will Home Depot and Lowe's -- will they play a bigger role than they have in the past going forward?

Lawrence B. Burrows

Yes. In their builder site, they -- each of them have kind of their own approach to that. I would -- I suspect that they will, but we also, through our distribution center, do a fair amount of work with both of those centers in being able to provide them and their contractor, typically their contractor windows, products that they need more.

Daniel S. Fulton

Mark Weintraub.

Mark A. Weintraub - The Buckingham Research Group Incorporated

Mark Weintraub, Buckingham Research. Question on wood products pricing going on right now. We've had quite a rally, and we are still having a rally, not just in lumber, but also in as talents as well, certainly some of the things going on in British Columbia with the explosions that are perhaps are playing a role. If you could talk a little bit about the potential impact and how that may play out. And then also, what's causing this rally? And is that embedded because I'm kind of surprised that you're stuck with a breakeven for the second quarter on wood products, given that pricing, et cetera, has clearly done a lot better than I think anybody would have anticipated, even a month ago.

Daniel S. Fulton

Larry?

Lawrence B. Burrows

Yes. First of all, let me just, as Dan obviously teed this up in his opening remarks with safety, I mean, it's just a tragedy what has occurred with those mills. And as a company that really values and pays a lot of attention to safety and understands what you really need to do to have people engaged, kind of our hearts go out to that. Our program -- and so you listen and you learn. We actually have a very proactive program in terms of dust control. In our BC mill and Princeton, we actually have had the province come in and kind of look at what we're doing. And we got -- we have a pretty proactive program there, and we clean and we have vacuum trucks and all that, so we're actively managing that. You had, tragically, capacity that's been taken out. Some of the other mills probably have some cleanup work to do, and so you may see some what you've seen now in SPF prices getting some floor and some push-up on that. Prices are, as you said, are a little higher than several weeks ago. We're waiting through the quarter, and we're rooting for it. But the fact of the matter is that we don't get to control that. What we get to control is how we execute. So we're going to continue to execute. If we execute well, it should be breakeven, if prices get a lot better then, we'll see what happens.

Daniel S. Fulton

Mark Connelly.

Mark W. Connelly - Credit Agricole Securities (USA) Inc., Research Division

First question for Patty. When you look at that TRS and the volatility of the assets that are in it, obviously, you've got your work out for you and try to figure out what those things are going to do, and how they're going to fit within the band. So if we get a faster-than-expected recovery, God forbid, do you have a lot of adjusting that you're going to have to do and potentially moving things around in and out of the TRS in the next year?

Patricia M. Bedient

Mark, yes, you're right, that's the problem that I would really look forward to having to work really hard on. But I can tell you that as we do our cash for each quarter as required by the REIT rules, we use a forward-looking EBITDA as opposed to the current, just to make sure that we are well ahead of any potential that might develop there, and I can tell you that as we sit here today, we have plenty of room in the way that we've structured the company. But I look forward to having more work to do in that area as markets recover.

Daniel S. Fulton

And let's not express too much concern about a stronger recovery, okay?

David J. Wallack - T. Rowe Price Associates, Inc.

It's David Wallack from T. Rowe Price. This is a question for Larry. Your industry is a unusual predicament in that you've been in a great depression for the last 6 or 7 years. And you've obviously done a lot of work to reduce costs and right-size the organization, I guess, is the right expression. But it looks as if you are on track to have the sixth or seventh year in a row of losses. And the organization has obviously made the decision to live with a certain level of losses until the business comes back. So my question is what are your specific business objectives in this environment? I mean you refer to them, and I apologize if I didn't really understand. What are you driving to do specifically? What are your financial targets, what are the targets that the board is looking for you to achieve that are related to your incentive compensation? And what companies do you benchmark yourself against?

Lawrence B. Burrows

In today's market, with these low level of starts and with still low pricing notwithstanding, the run-offs that we've had here recently, our focus is to be breakeven, which would mean, on an EBITDA basis, you'd have maybe $120 million, that's our focus is for the business to be able to deliver that. How we're doing that is we are really kind of focusing on our execution. We are looking to find new customers, profitably grow with good customers that we already have, find new customers, both domestically, as well as abroad. We're also looking to really improve and continue to improve our operating performance in terms of our efficiency, our productivity at our mills. And those are the things that we're focused on. And in this environment, as starts go up, as prices may change, then obviously, we'll get leverage from that.

In terms of benchmarking, we look at -- of the public competitors that we can -- we have information on, we look at 8 competitors that are in all the businesses, that are in distribution, engineered OSB and lumber.

Daniel S. Fulton

Follow-on question, Larry, was incentives. And you can talk about it or I can talk about it. How we -- how that fits into our management in the business. That's an important question.

Lawrence B. Burrows

Yes. For kind of our -- most of our senior folks, we're focused on -- a large portion of that is return, 80% of incentive compensation is based upon hitting a threshold return. And if we don't get it, we'll hit that return, which is 6%, we don't get paid. The other 20% is focused on some very specific business objectives that we, and then obviously the Board reviews and approves. And for us, it's really focused on being able to get to breakeven and generate cash and improve our operating performance this year.

Patricia M. Bedient

And it's improvement against the benchmark. So it doesn't entail that your question about venture.

Lawrence B. Burrows

Relative to our competitors.

Patricia M. Bedient

Yes.

Daniel S. Fulton

Yes. So generally answer even beyond wood product is that we do have an incentive compensation system that's organized, Patty mentioned this changing. It is focused on our individual operating business segments. They have clear return on investment criteria that affects the majority of short-term incentive compensation and then other business metrics that we do measure. We benchmark religiously for each of our businesses or in a quarterly basis in the performance against those benchmarks and the progress against those benchmarks is shared with our Board on a routine basis. Heather?

Heather K. McPherson - T. Rowe Price Associates, Inc.

Heather McPherson with T Rowe Price. I have one other question after I ask this, so don't go away. Just to follow on David's question, what would you say are the normalized margins then? You said there's going to be a lot of leverage from these levels if things improve. So if you think about what normalized housing starts might be, can you tell us what you think that is? And then what the normalized margins might be in this business?

Lawrence B. Burrows

Well, I mean, in doing a forecast, we look at, let's say $1 million total U.S. housing starts, and we thought 70%, single-family; 30%, multi-family. And then we essentially looked at in terms of the bucket prices, lumber prices maybe being about $50 higher than today. So probably in the $375 range, OSB prices in around $200 range, which frankly is a little less than today's. And in our engineered wood prices, essentially going foreward about the same that they are today, maybe a little bit higher. And so using that is what we -- and those kind of parameters is what got us to the $250 million to $300 million of EBITDA to the degree that we continue to improve our performance and prices are different or better than that, then obviously you have leverage to the upside.

Patricia M. Bedient

And the $1 million -- of the $1 million housing starts that Larry is talking about is total U.S...

Lawrence B. Burrows

Yes, absolutely, yes.

Patricia M. Bedient

Single and multi-family and $1 million is well below trend levels. So Heather to your question about whether normalized housing starts -- so I just want to make sure that the $1 million housing starts will go through $1 million before we get to trends. So we wanted to give you something that was a little closer, but from a normalized housing starts, they'll be much higher than that.

Daniel S. Fulton

There's a question there. We'll get you a microphone.

Unknown Analyst

Eric Sanya from Karsch Capital. Question -- 2 questions for Tom. Just on the timberland side, where does that trend $1 million total housing starts get you in terms of EBITDA? I learned, I guess, from Larry that $304 wood products. And the second question is China. Just how do exports look right now? What are inventory levels in China. Are you seeing the pickup April, May that we're seeing, I guess, in wood products import from China and expectation for the second half?

Thomas F. Gideon

On our EBITDA chart that we displayed, it reflects the return to our housing starts trend that has been expressed to getting closer to USD $1.5 million, so that's not included in that ramp-up that's is in there. With respect to China, they're still on a situation of supply/demand imbalance, they're working through that. We expect to see some improvement late third quarter, early fourth quarter. And we expect then, given that they have about an 8% GDP this year, expect that to continue. We see that they have relaxed some of their credit restrictions on housing and construction projects, that we'll start to see a rebound in late fourth quarter continuing into 2013.

Daniel S. Fulton

Okay. The one in the back, Josh?

Joshua A. Barber - Stifel, Nicolaus & Co., Inc., Research Division

Josh Barber with Stifel, Nicolaus. Can you talk about the potential changes to the Southern pine lumber design and what that could mean for your 2 idle mills in that particular region?

Lawrence B. Burrows

We don't have any idle mills in lumber -- in engineered. In terms of the Southern yellow pine design changes, obviously, they're transitioning, and they're going to go into effect coming up here soon at the beginning of next month. What we saw is people not buying toward the end of last year, starting to come into the channel and buying, typically regular products, and then less higher design grades. And then they started kind of engaging us, on okay,

what does this really mean, particularly for truss manufacturers and whatnot and some of our dealers. And as we begin getting closer to kind of the deadline, if you will, we're finding lots of interest in being able to either -- and that's a nice thing about us, we have a full complement to being able to go after it. We can either sell more of our existing lumber or we can sell them some machine-graded lumber or we have some customers that are looking at maybe upgrading to engineered. But I don't think the design value changes in the South are going to make a difference in terms of our engineered mills and whether those get turned on or not. But the good news is that whatever the customer needs, we are able to provide them a solution. I think that's what they particularly value right now.

Daniel S. Fulton

Down in the front, Mark Wilde.

Mark Wilde - Deutsche Bank AG, Research Division

Dan, in your core business in timberland, you've got a lot of knowledge, you've got a lot of goodwill, a lot of, I would say reputational kind of goodwill across governments and NGOs. What are the ways that you might be able to leverage that and deliver more value to your shareholders over the next 5 or 10 years?

Daniel S. Fulton

Well, we have 2 significant ways to leverage our expertise in timberlands. First is by growing our timberland asset base, and at the stated objective of ours, and over time it is our goal to increase our investment in an ownership of timberland. Our primary focus today would be on the United States that we would look beyond the U.S. market if there were favorable opportunities. The other way that we are leveraging that experience and reputation and expertise is through our new Weyerhaeuser Solutions business, which is providing management and consulting for third parties. Tom touched on that briefly in his comments. This was a business that we started up last year. We're engaged in initial consulting contract with some large companies that have come to us for the reasons that you articulate, reputation, experience. And we have the ability to help them in managing their timberlands, helping them to manage, in some cases, their carbon footprint, where we may have industrial companies that have determined that owning or investing in timberlands provides them an offset for their manufacturing activities. And we have been developing a particular expertise in biomass. So to the knowledge of timberlands, it's logistical efficiencies that we bring to our own lands where we have knowledge and we can work with others. Tom, would you like to expand on that at all?

Thomas F. Gideon

Dan, I might like this on a slightly different track, and that is we believe that forest lands should be managed on a sustainable basis. And the appropriate regulation for that should be based on sound science. We're leaders in research and development, a long history of understanding the practice, and we're very well involved in the application of science in terms of adaptive practices for forest lands, and we continue to be a strong voice for that and we use a lot of activities, both at the state and local, as well as federal level to influence that based on a sound science approach to ensure we have good sustainable force practices that also allow us to return the maximum return to our shareholders.

Daniel S. Fulton

Anthony?

Anthony Pettinari - Citigroup Inc, Research Division

Anthony Pettinari from Citi. You talked about your desire to potentially be inquisitive in timberlands in the future. And I'm just wondering, is this something that you're or you're aggressively looking at Timberland properties now? Or you would potentially wait until your other businesses are generating kind of more of a normalized earnings level? And I was wondering if you could just speak to kind of the U.S. timberland market that you're seeing now in terms of values and transactions.

Daniel S. Fulton

I'll ask Tom to address values in the marketplace now because he is leading the business that he's looking all the time. And I would say that we are always looking for opportunities to acquire. We do that in a variety of ways. Historically, we have engaged in a consistent level of transactions through exchanges where we would be upgrading our own timberland ownership through the sale of parcels that we felt had reached maturity or had a lower yield as we look forward and replacing them and supplementing them with new land, but we felt like we could add the value that Tom talked about and grow value over time. Our focus in timberlands generally, in all of our businesses, gets back to capital allocation and ensuring that we're making appropriate investments with proper returns and cash flow characteristics in order to grow value for our shareholders and to increase value for the company. Tom, you want to talk just a little bit about timberland activity because you're engaged in that all the time?

Thomas F. Gideon

As an asset class, timberland values have held up relatively well compared to other assets during the period of severe economic distress. Despite the fact that some of the cash flow fundamentals are significantly lower than they might have been a few years ago. As a result of that, even though we see good activity and interest, we still see a gap between buyer and seller expectations. And that's continuing. There's a lot of interest from a wide range of investors who have different post- financial and strategic perspectives as to why they would want to be in this asset class. And we're going to continue to see that work out over time. In the meantime, I think you'll see some individual sales that will occur,and that'll be those unique situations where, as I said, the financial strategic aspirations of the seller and the buyer overlap.

Daniel S. Fulton

Josh Zaret?

Joshua L. Zaret - Longbow Research LLC

Josh Zaret, Longbow Research. Again, I want to follow up on the last 2 questions, which has to do with timberland growth. I want to focus on China, where you said you had the small joint venture. So my question is where are you today? And where do you see this in 5 to 10 years, given obviously China's great need for timber and the need for a very reputable and trustworthy manager?

Daniel S. Fulton

Okay. Tom, why don't you to talk about our existing operation? And then I'll take on the geopolitical issues.

Thomas F. Gideon

We have managed about 20,000 hectares in Fujian province. We went there to apply our forest management expertise to improve both the growth in yield, as well as the value of the Timberlands there. That's gone well. We continue to see progress there and then that's a cash flow positive enterprise. With respect to our involvement in China, we expect to fully participate through our export program off the West Coast as appropriately there. And we see that there's great opportunity that will continue as well. We'll look at all, as Dan mentioned, while we're concentrating our focus on potential acquisitions in the U.S. We'll always look at opportunities wherever that may arise if they have superior value to our timberlands portfolio and our shareholders.

Joshua L. Zaret - Longbow Research LLC

Are they [indiscernible] Economics of any sense?

Thomas F. Gideon

I think the main constraint that you will see and then -- and there's a lot going on in the press today about China. The main constraint is understanding what would be the long-term potential to apply expertise in value creation opportunities there and enable them to realize the harvest levels that would make those realizable through government policies.

Daniel S. Fulton

Fundamentally, this is a long-term business, where you need long-term predictability. As we get outside of this country, there are some other countries in the world that could be attractive to operate in. But this is the one that we know best, both our own operations, rule of law here, key ownership is important. As we look at how to realize returns or investment, and if we're operating offshore then you get into international tax regimes also. So I wouldn't rule out only, quite frankly, we're much more comfortable operating in this country given our knowledge just in our backyard. Gail Glazerman.

Gail S. Glazerman - UBS Investment Bank, Research Division

Gail Glazerman, UBS. 2 quick questions. In pulp, you're showing a 3% forecasted growth rate for fluff. I think in the past, you might have used 4%. I know it's a small change, but I'm just wondering if there's something different that you're seeing. And then going back to the timberland EBITDA slide, can you give any sort of insight into the price assumptions that you've taken to that?

Daniel S. Fulton

So 2-part question. First one, pulp and pulp prices. Let's make sure we understand your question.

Shaker Chandrasekaran

Yes. Can I hear that question, Gail?

Gail S. Glazerman - UBS Investment Bank, Research Division

You're showing 3% kind of forecasted demand growth -- you're showing 3% forecasted demand growth. I think in the past you've talked about something slightly higher. And I'm just wondering if there's anything material and you're thinking that might created that change?

Shaker Chandrasekaran

Okay. Yes, Gail. The growth we forecasted was about 4% for a few years until recently when the -- particularly the emerging market, due to the economic factors that is a slowdown, but this number could change as things change in the next couple of years. So I would -- we don't look at that as anything very significant at this point.

Daniel S. Fulton

And the other question related to timberland EBITDA.

Thomas F. Gideon

Well the fundamental methodology that we use, Gail, on the timberland price forecast is that we tie that to what we -- our review of our lumber forecast. We look at regional cost and supply, and then we override that with the demand based on macroeconomics of U.S. and Canada, both in housing in terms of general economic improvement. And it's a combination of those that lead us to our long-term forecasts for timberlands, which is located and reflected in this chart.

Shaker Chandrasekaran

Gail, I would like to come back and add a little bit more clarity to that answer I provided. Our volumes are contacted with key global customers, and they see a strong demand in terms of their presence where they are growing. And we have not seen any impact in terms of what we produce today. Our mill's not running full.

Daniel S. Fulton

Mark Connelly?

Mark W. Connelly - Credit Agricole Securities (USA) Inc., Research Division

Mark Connelly, CLSA, again. 2 questions, first, if we go back to the Canadian beetle question. We can look back 15 years and hear about what a great opportunity this was going to be. And then the weather didn't work for awhile and then the softwood lumber agreement got in the way, and now housing has got in the way. Can you think about the scale of the Canadian beetle opportunity relative to a new fiber that we wouldn't have expected to be here before housing collapsed? That's the first question. We've got this -- our estimates 5 years ago, wouldn't have as much fiber base in the U.S. because we would have thought we were harvesting more of this and building more houses. So I'm just curious if you can scale those 2 for us. And the second question is a simpler one. Weyerhaeuser, I think this is probably true to say that Weyerhaeuser has been the most consistently focused on silviculture advances of any public company. Weyerhaeuser used to talk about a lot, but companies like GP came and went. Is there really a way to monetize that beyond your existing timberlands, given the gross cycles? The timber company used to say it's going to but it never showed up in earnings

Thomas F. Gideon

With respect to the mountain pine beetle, you're right. A couple of things happened along the way. One is the Great Depression as we talked about, so it's hard to really forecast with any certainty what was the true offsets that are there. What we do know is that the production that we would have expected from British Columbia interior, is going to decline about 50% from what we would have expected it to have been. So it will go down from roughly $18 billion board feet a year down to about $9 billion going forward. So we don't -- we have at least that impact from Canada. And it's a little mixed, Mark, in talking about what would be the impact in the U.S. because we did see a period of significant deferrals of harvest because of the recession. And so I really don't have an exact volume amount that I can give you other than to say it's the bottom line. Here is we'll see less supply from Canada. We'll see the ability to improve supply from the U.S. and that'll put upward pressure on prices. And if you could rephrase your question?

Mark W. Connelly - Credit Agricole Securities (USA) Inc., Research Division

Sure. The bottom line question on seed is, is there a way to monetize your seed in silviculture advantage, what you seem to have over a bunch of people outside of your timber base? And given how long the growing cycle it takes forever to monetize it inside the company.

Thomas F. Gideon

Well, there's a couple of aspects on how we do that. First of all, we like to try to monetize it inside the company by improving our yield and reducing our rotation. But we also do sell our seedlings and some of our improved stock to third partied outside, so that's an ongoing component of our revenue stream that we have. And we are also looking at some of our technology that we use in the manufactured seed and clonal technology that we have to go into licensing with non-forest tree-related enterprises, such as agriculture. And we are underway today in discussions with that, and in fact, we have a few contacts to provide our technology that they can utilize in their field. And so that's another way that we can monetize some of the value that we've gained through our silviculture improvements over time.

Daniel S. Fulton

Chip?

Chip A. Dillon - Vertical Research Partners Inc.

I'm Chip Dillon, Vertical Research. I have 2 quick questions. One is for Shaker. You talked a little bit about the Crosslink fiber and we know Procter and others and emerging markets have really gotten to a very thin diaper model with more superabsorbent polymers. And I've heard buzz here and there that perhaps they would try to introduce that technology in the U.S. Is that something that would concern you about the ultimate demand growth or even maybe decline of fluff, if the thinner, the superthin diapers take hold here. And then an unrelated question to Patty is, obviously the term structure, the maturity is fabulous, 1/5 in the next 6 years. However, with this crazy yield curve, are there still opportunities to maybe refinance at lower rates that would make sense?

Shaker Chandrasekaran

All right. I'll go to the first question. 2-part answers, one, with respect to Crosslink, P&G is the only company in the world that knows how to apply the technology, and that is why we agreed with them. The thinner diaper market and the properties of the emerging markets that you are looking for, as well as potentially in this country, even though P&G may not need that much fluff because they can compensate for the absorbent properties of the Crosslink as a substitute, if you look at the rest of the global players who do not have the Crosslink technology, they have to compete, they have to find the balance between superabsorbent polymer, which is a petroleum polymer, versus the green polymer, which is what we call a cellulose. Therefore, the second answer is even though P&G may not need that much fluff, at the end, after a few years of developing this thinner diaper, others are continuing to see a need for more fluff.

Patricia M. Bedient

It's a great question, and it's something that we look at on an ongoing basis. As you know, the maturities in 2012 at one time, were well over $1 billion, so we have traded off buying that debt in. Our issue today on those near-term maturity, specifically the 2013, is that the economics of buying it in today versus what it's costing us, it would cost us more to buy it in than it would what it's costing us from an interest perspective. We would love to be able to make that trade. But even in this uncertain economic environment, I think it speaks to the credit and reputation of Weyerhaeuser in terms of our bondholders, not wanting to give up that -- those bonds. And as we sit here today speaking now totally from a company size perspective -- current company size perspective, we don't need more liquidity. So that's the other piece that we continue to look at. So it's a great question and it's something that just need our Treasurer and I look at on an ongoing basis.

Daniel S. Fulton

George Staphos.

George L. Staphos - BofA Merrill Lynch, Research Division

George Staphos from BofA. 2 questions for Shaker. Shaker, when we look at the cellulose fibers business, you've clearly tried to take volatility out of it. You try to move it more and more into fluff and that's terrific. But it's still ultimately going to be driven, to some degree, by what's happening in the commodity markets. You mentioned on your slide deck that you have some additional high return projects for the business in years ahead. What capital costs, what hurdle rate are you using for that business on a going forward basis? And the second part of the question is you outlined the cost savings from a new maintenance program, that's terrific. In total, what kind of dollar controllable EBITDA return should we expect for the business over the next 2 to 3 years?

Shaker Chandrasekaran

First, with respect to the higher-margin products. We double up the products with targeted customers for specific use. We look at our 4-mill system. They can swing between a number of grades. We produce the grades, and we launch the Pearl, which is a -- we have entered the low tier of the dissolving wood pulp. Dissolving wood pulp is poised to grow at the rate of about 9% to 10%. 90% of the dissolving wood pulp for the viscose staple fiber, all those productions resides in the Asia region, 60% in China. We will continue to move a play between fluff as a core and we branch off to higher-quality products. We are not working with a specific number because we are taking advantage of our customers who are trialing our products as they qualify more, we will continue to move towards that. In terms of hurdle rate, I'm still not clear with the exact question. Can you go back, if you don't mind?

George L. Staphos - BofA Merrill Lynch, Research Division

I'm just being basic about it, pulp, ultimately, the very volatile business. What kind of cost of capital are you using in terms of the products that you're evaluating, you said were high-return projects.

Shaker Chandrasekaran

Patricia, you want to talk?

Patricia M. Bedient

Okay. I'll take that one, George since it's really is a capital allocation question. So I can tell you that what we look at when Shaker comes and presents projects that are attractive projects, we're looking at the return. I can tell you it is well in excess of our cost to capital. So the projects that he's been executing focus primarily on reducing costs have been 20% or higher. And it's a combination of return and payback because, as you know, in the pulp business, when we put capital in, that capital usually runs for a number of years. So it has a little bit higher timeframe in terms of that return. So we're also looking at the return relative to how quickly will we get that cash back. So it's focused on really lowering our costs, helping our margin, which is good, regardless of what pulp prices do. And if in that process we get a little bit more extra volume from de-bottlenecking of constraints or being able to run more reliably, that's good as well. But the primary focus is lowering our cost and increasing the margin.

Shaker Chandrasekaran

Also I would like to add, for example, Pearl, that's a good example that we introduced last year. It was more of being the #1 in the world, using the craft process, the craft chemistry as opposed to sulfide process, which others use. We were able to come up with a product with a certain level of purity and that did not require a large investment. So our objective and our innovation is to use our existing chemistry and not branch off into significantly vastly different chemistry and do it very cost effectively for a higher margin.

Patricia M. Bedient

Yes. I think Shaker brings up a good point. As we look at capital, especially in the last couple of 3 years, we have really focused on asking the questions of have we exhausted every noncapital solution? So where historically maybe capital was, maybe one of the first things that we're asked for, we have really focused on, have we done everything that we can in the business with what we have before we spend more money? And I think Shaker's business is a good example of that.

Daniel S. Fulton

Mark Weintraub?

Mark A. Weintraub - The Buckingham Research Group Incorporated

Question on the dividend. There are 2 statements that you make in a presentation, which are consistent with what we've always said in the past that it's something you want to be sustainable and that you intend to grow over time and that you expect to pay about 75% of free cash flow over time. Now we're hearing about if we go to $1 million total housing starts type of EBITDA increased cash flow increases that we can expect in the different businesses. When you all add that up and you take 75% of it, you probably get a lot higher than the $0.60 dividend that you are paying out today. Are you going to potentially be willing to increase the dividend in a significant fashion relatively quickly as we see these earnings and cash flow ramp-up? Or are you going to be more inclined to do it in a more gradual process and look for reaffirmation that there's continuity in the cash flows, et cetera?

Daniel S. Fulton

Really, it's a Board decision. And what you're talking about is directionally, would we be more aggressive or more cautious. Given where we've been, our stated goal, we've been very clear. We are very comfortable with the sustainability of the dividend today. Our objective is to grow it over time. We do need to have some comfort that this recovery is sustainable. And so I think we will approach it on a basis of looking at our results, looking at our near-term and longer-term forecast and we'll be measured in how we decide -- how aggressive to be. But directionally, I think it's important to express the fact that our goal is to grow it over time because we have significant operating leverage that we talked about this morning in this businesses. Our experience over the last 3, 4 years and even in the last year, is that this is a recovery that we believe in. We believe in the long-term trend level of starts, but we have to temper our enthusiasm with the reality that we do have significant election year issues. We have some tax issues that we're facing as a country. And so as we monitor that, we'll be much better positioned to gain some comfort as to the trajectory and the speed of recovery in EBITDA.

Patricia M. Bedient

But I would just like to underscore, Mark, the $1 million housing start numbers that many of the business leaders have used today, in no way should be equilibrated with when we say trend housing. It's still well below trend housing. So we just wanted to give you some feel for the fact that EBITDA changes pretty quickly, even in a low-housing start environment. I think someone said, maybe it was David earlier that said, we've been in a depression level of housing starts. So this isn't something that these low levels or something that we would expect to return to even in the next down cycle.

Daniel S. Fulton

And as Patty shared in her comments, we've made a lot of changes over the last 3 or 4 years, in bringing down SG&A and eliminating some liabilities so that as we start to experience this recovery, more should flow to the bottom line and we have a little bit of different in every one of our businesses, but we are well positioned today. The numbers that I showed earlier in my remarks showed a range of estimates for 2012 and 2013, and they happened before forecast. Clearly, those forecasts for next year, '12 -- '13 versus '12, are all up around 25%. So we're coming off a very low level, and we're looking forward to enjoying the results of all the changes that we've made and the cost efficiencies that we built in, in order to show improved profitability in the upturn. Questions?

Albert Curtis Sebastian

Al Sebastian, Prospect Advisors. 2 questions, on the -- on your pulp business, what year do you expect to complete the -- extending the mill outages from 12 to 18 months? What's the CapEx associated with the $24 million cost savings? And also, are any of your competitors currently or maybe moving to an 18-month maintenance program?

Shaker Chandrasekaran

Question number one, systemwide, we expect to accomplish that by the end of 2014. Question number two, CapEx associated with it is not significant. It is more, going back to what Patty said, very disciplined, predictive, preventive maintenance so our equipment can run reliably to do what we call cold dark shutdowns, meaning boilers and generators should run that long. So it is more about disciplined repairs and maintenance, which is part of what we do every year, every month. The third question, I really cannot talk about the competition as to what they are doing because nothing has been said in public. It's about what we want to ask, we ask prior to do, which is extend this from 12 to 18 for cash -- cost reduction, because we know that's how we can improve our position.

Albert Curtis Sebastian

And what is -- what are your biological growth rates in timberlands, both for the West and the South?

Peter M. Orser

They're above published levels both in the West and the South. We don't give out the specific information.

Daniel S. Fulton

Pete Rushmore [ph]?

Unknown Attendee

Pete Rushmore [ph], investor. I have a question, I guess for Patty. It's a capital allocation question. If you start with the enterprise value of the company and use the trading comps of your peers in the non-timber assets, you back into an implied residual value of your timberlands. If you think of that in terms of that value per unit of Weyerhaeuser inventory, and then compare that to the asking prices of timberlands in the marketplace, how -- a, how does it compare? And b, how does it impact your capital allocation thought process, if that's a fair way to look at it?

Patricia M. Bedient

Well I think in valuing the company, one of the questions always is people come down to the timberland value, so we always say is that the valuation of the timberland or is it the valuation of the assets and the TRS. And I think that, especially based on the work that we've done over the last couple of 3 years, we will see much better cash flow generation out of the TRS. And that cash flow generation will be an important factor in our ability to increase the dividend mark that you talked about. So that's really the primary focus for that. As we think about timberland acquisitions, certainly the ability of each potential opportunity and the way we think about it is that each opportunity is unique in terms of not only what is value within the marketplace to investors generally, but what, as we look at the way that we practice our silviculture and the infrastructure and market access that we have. How can we utilize that potentially in a way that others cannot to drive additional value. So there is no one set formula as we think about that. And then the other piece that we also look at as it relates to use of capital allocation is share price. So all of those things are evaluated on their merits of where we are at any one point in time. And it is a balance and a trade-off against what that acquisition, from a timberland perspective, could do for value creation versus how we could create value in other ways.

Daniel S. Fulton

Heather?

Heather K. McPherson - T. Rowe Price Associates, Inc.

Heather McPherson, T. Rowe Price. Peter, can you talk about the different markets and what you're seeing in the different geographical markets? And then what percent of your SG&A in the homebuilder unit is fixed versus variable?

Peter M. Orser

Sure. We're in 9 different markets, and there's a lot of variety in each of them. What I've been most surprised to see is markets like the Las Vegas and Phoenix, the lowest of the low. It's really come back extraordinarily strong. I gave you the Phoenix -- the Las Vegas example. Phoenix's sales are 100% year-over-year. But all the markets are responding pretty well to the science that we're seeing out there. And so we like our markets, and are seeing good signs in all of those. Quite frankly, I can't specifically exactly tell you what the fixed number is on SG&A. The S part of SG&A is a good thing from my perspective, the more S, the more sales. And so I like where we are there. The G&A piece is a continuous process for us. And as I've said, I've seen a lot of improvement, but what we're looking foreward to is our volumes go up, those percentages actually fall dramatically. And we're looking at something in the 11% to 13% range for SG&A.

Daniel S. Fulton

I just want to -- did you have a follow-up, Heather?

Unknown Analyst

Sorry. 11% to 13% onward sales say -- you're saying?

Peter M. Orser

Say it again?

Heather K. McPherson - T. Rowe Price Associates, Inc.

You're looking at SG&A at 11% to 13% at what roughly sales phase?

Peter M. Orser

It would be more than we are today, and so it's probably an aspirational number. Last year, we were just slightly below 2,000. So as we move towards 3,000, that's probably where we'll find that sweet spot.

Heather K. McPherson - T. Rowe Price Associates, Inc.

And those numbers are closings' numbers?

Peter M. Orser

Yes, right. I'm sorry. Closings' numbers.

Daniel S. Fulton

So let me just take a minute, number one, to thank you for being here. We appreciate the turn out, we appreciate the long association that we have with many of you in the room. And as Patty mentioned, for those of you that are here the first time, we thank you for being here. I've had a number of people of comment to me, just talking about the last couple of earnings calls, that the tone feels a little different. And I would say, we are feeling more positive today, and it's a reflection of the improvement in housing sales and what that means for our wood products business and what it means for our timberlands business. It is also -- I think we're optimistic because we feel like we've made a lot of progress over the last couple of years in improving operations across the country. What we wanted to do today was to share with you the vision of this growing, very significant timberlands assets. As Tom mentioned, we have volume growth, we have an improving mix, and then we have, what we believe, are improving supply/demand dynamics. And so we talked about that a little bit, there are still issue in British Columbia or the new export market for Canadian lumber, which gives them another outlook -- outlet rather coming into the U.S. So we're bullish on the long-term value of our timberland assets. We have made continues improvement in our operations, and as Patty shared, bringing down corporate expense. All of which puts us in a better position to have more significant operating leverage in a housing recovery. And in that housing recovery, we have scale and we have breadth. And so it is the size of our wood products operations, once you start to see incremental increases in price, and once the volume starts to pick up, that means a lot to us, in our timberlands operations, $6 million acres across the U.S., that scale really pays big dividends.

And then finally, I want to acknowledge the strong leadership team that we've got here in front of you today. This team has been tireless, and they have been working together now for a period of time because this is a group -- and some of these people were introduced to you for the first time last year, but we are working together with 3 objectives: Growing earnings, growing cash flow and growing shareholder value. And we're committed to it and we look forward to continued conversations, that I want to thank you all for taking the time today. We really appreciate it. Thanks.

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