filings.toolsWeyerhaeuser 10-Q 2021-09-30
Filed 2021-10-29. 7 sections, 131K characters. Original on sec.gov · Markdown · JSON
Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021
or
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 1-4825
WEYERHAEUSER COMPANY
(Exact name of registrant as specified in its charter)
| Washington | 91-0470860 | |
|---|---|---|
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |
| 220 Occidental Avenue South Seattle, Washington | 98104-7800 | |
| (Address of principal executive offices) | (Zip Code) |
(206) 539-3000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
|---|---|---|---|---|
| Common Stock, par value $1.25 per share | WY | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☒ | Accelerated filer | ☐ | |
|---|---|---|---|---|
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
As of October 25, 2021, 749,045 thousand shares of the registrant’s common stock ($1.25 par value) were outstanding.
TABLE OF CONTENTS
| PART I | FINANCIAL INFORMATION | |
|---|---|---|
| ITEM 1. | FINANCIAL STATEMENTS: | |
| CONSOLIDATED STATEMENT OF OPERATIONS | 1 | |
| CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME | 2 | |
| CONSOLIDATED BALANCE SHEET | 3 | |
| CONSOLIDATED STATEMENT OF CASH FLOWS | 4 | |
| CONSOLIDATED STATEMENT OF CHANGES IN EQUITY | 5 | |
| INDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | 6 | |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | 7 | |
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A) | 15 |
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 28 |
| ITEM 4. | CONTROLS AND PROCEDURES | 28 |
| PART II | OTHER INFORMATION | |
| ITEM 1. | LEGAL PROCEEDINGS | 29 |
| ITEM 1A. | RISK FACTORS | 29 |
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 29 |
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES – NOT APPLICABLE | |
| ITEM 4. | MINE SAFETY DISCLOSURES – NOT APPLICABLE | |
| ITEM 5. | OTHER INFORMATION – NOT APPLICABLE | |
| ITEM 6. | EXHIBITS | 31 |
| SIGNATURES | 32 |
PART I – FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
WEYERHAEUSER COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
| QUARTER ENDED | YEAR-TO-DATE ENDED | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURES | SEPTEMBER 2021 | SEPTEMBER 2020 | SEPTEMBER 2021 | SEPTEMBER 2020 | ||||||||||||
| Net sales (Note 3) | $ | 2,345 | $ | 2,110 | $ | 7,995 | $ | 5,469 | ||||||||
| Costs of sales | 1,589 | 1,390 | 4,602 | 4,055 | ||||||||||||
| Gross margin | 756 | 720 | 3,393 | 1,414 | ||||||||||||
| Selling expenses | 24 | 22 | 68 | 62 | ||||||||||||
| General and administrative expenses | 98 | 96 | 283 | 254 | ||||||||||||
| Other operating costs (income), net (Note 15) | (15 | ) | 92 | 8 | 105 | |||||||||||
| Operating income | 649 | 510 | 3,034 | 993 | ||||||||||||
| Non-operating pension and other post-employment benefit costs (Note 7) | (5 | ) | (9 | ) | (14 | ) | (28 | ) | ||||||||
| Interest income and other | 1 | 2 | 4 | 5 | ||||||||||||
| Interest expense, net of capitalized interest | (79 | ) | (111 | ) | (236 | ) | (299 | ) | ||||||||
| Earnings before income taxes | 566 | 392 | 2,788 | 671 | ||||||||||||
| Income taxes (Note 16) | (84 | ) | (109 | ) | (597 | ) | (166 | ) | ||||||||
| Net earnings | $ | 482 | $ | 283 | $ | 2,191 | $ | 505 | ||||||||
| Earnings per share, basic and diluted (Note 4) | $ | 0.64 | $ | 0.38 | $ | 2.92 | $ | 0.68 | ||||||||
| Weighted average shares outstanding (in thousands) (Note 4): | ||||||||||||||||
| Basic | 750,105 | 746,996 | 749,657 | 746,809 | ||||||||||||
| Diluted | 751,443 | 748,450 | 750,999 | 747,530 |
See accompanying Notes to Consolidated Financial Statements.
WEYERHAEUSER COMPANY
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
| QUARTER ENDED | YEAR-TO-DATE ENDED | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2021 | SEPTEMBER 2020 | SEPTEMBER 2021 | SEPTEMBER 2020 | ||||||||||||
| Net earnings | $ | 482 | $ | 283 | $ | 2,191 | $ | 505 | ||||||||
| Other comprehensive income (loss): | ||||||||||||||||
| Foreign currency translation adjustments | (25 | ) | 11 | (1 | ) | (14 | ) | |||||||||
| Changes in unamortized actuarial loss, net of tax expense of $10, $6, $55 and $30 | 29 | 19 | 170 | 86 | ||||||||||||
| Changes in unamortized net prior service credit, net of tax expense of $0, $0, $0 and $0 | 1 | — | 2 | 2 | ||||||||||||
| Total other comprehensive income | 5 | 30 | 171 | 74 | ||||||||||||
| Total comprehensive income | $ | 487 | $ | 313 | $ | 2,362 | $ | 579 |
See accompanying Notes to Consolidated Financial Statements.
WEYERHAEUSER COMPANY
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
| DOLLAR AMOUNTS IN MILLIONS, EXCEPT PAR VALUE | SEPTEMBER 30, 2021 | DECEMBER 31, 2020 | ||||||
|---|---|---|---|---|---|---|---|---|
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 2,326 | $ | 495 | ||||
| Receivables, net | 497 | 450 | ||||||
| Receivables for taxes | 72 | 82 | ||||||
| Inventories (Note 5) | 499 | 443 | ||||||
| Prepaid expenses and other current assets | 146 | 139 | ||||||
| Total current assets | 3,540 | 1,609 | ||||||
| Property and equipment, less accumulated depreciation of $3,559 and $3,432 | 1,924 | 2,013 | ||||||
| Construction in progress | 169 | 73 | ||||||
| Timber and timberlands at cost, less depletion | 11,606 | 11,827 | ||||||
| Minerals and mineral rights, less depletion | 258 | 268 | ||||||
| Deferred tax assets | 52 | 120 | ||||||
| Other assets | 543 | 401 | ||||||
| Total assets | $ | 18,092 | $ | 16,311 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Current liabilities: | ||||||||
| Current maturities of long-term debt (Note 9) | $ | 150 | $ | 150 | ||||
| Accounts payable | 264 | 204 | ||||||
| Accrued liabilities (Note 8) | 1,110 | 596 | ||||||
| Total current liabilities | 1,524 | 950 | ||||||
| Long-term debt, net (Note 9) | 5,100 | 5,325 | ||||||
| Deferred tax liabilities | 28 | 24 | ||||||
| Deferred pension and other post-employment benefits (Note 7) | 711 | 911 | ||||||
| Other liabilities | 360 | 370 | ||||||
| Total liabilities | 7,723 | 7,580 | ||||||
| Commitments and contingencies (Note 11) | ||||||||
| Equity: | ||||||||
| Common shares: $1.25 par value; authorized 1,360 million shares; issued and outstanding: 749,037 thousand shares at September 30, 2021 and 747,385 thousand shares at December 31, 2020 | 936 | 934 | ||||||
| Other capital | 8,242 | 8,208 | ||||||
| Retained earnings | 1,842 | 411 | ||||||
| Accumulated other comprehensive loss (Note 12) | (651 | ) | (822 | ) | ||||
| Total equity | 10,369 | 8,731 | ||||||
| Total liabilities and equity | $ | 18,092 | $ | 16,311 |
See accompanying Notes to Consolidated Financial Statements.
WEYERHAEUSER COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
| YEAR-TO-DATE ENDED | ||||||||
|---|---|---|---|---|---|---|---|---|
| DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2021 | SEPTEMBER 2020 | ||||||
| Cash flows from operations: | ||||||||
| Net earnings | $ | 2,191 | $ | 505 | ||||
| Noncash charges (credits) to earnings: | ||||||||
| Depreciation, depletion and amortization | 356 | 355 | ||||||
| Basis of real estate sold | 62 | 136 | ||||||
| Deferred income taxes, net | 16 | 20 | ||||||
| Pension and other post-employment benefits (Note 7) | 46 | 55 | ||||||
| Share-based compensation expense (Note 13) | 23 | 22 | ||||||
| Gain on sale of timberlands (Note 14) | (32 | ) | — | |||||
| Timber casualty loss (Note 15) | — | 80 | ||||||
| Change in: | ||||||||
| Receivables, net | (47 | ) | (192 | ) | ||||
| Receivables and payables for taxes | 93 | 103 | ||||||
| Inventories | (55 | ) | 2 | |||||
| Prepaid expenses and other current assets | (21 | ) | 5 | |||||
| Accounts payable and accrued liabilities | 116 | 3 | ||||||
| Pension and post-employment benefit contributions and payments | (56 | ) | (21 | ) | ||||
| Other | (27 | ) | 12 | |||||
| Net cash from operations | 2,665 | 1,085 | ||||||
| Cash flows from investing activities: | ||||||||
| Capital expenditures for property and equipment | (184 | ) | (158 | ) | ||||
| Capital expenditures for timberlands reforestation | (39 | ) | (41 | ) | ||||
| Acquisition of Alabama timberlands (Note 14) | (149 | ) | — | |||||
| Proceeds from note receivable held by variable interest entities (Note 6) | — | 362 | ||||||
| Proceeds from sale of timberlands (Note 14) | 261 | 145 | ||||||
| Other | 3 | 3 | ||||||
| Net cash from investing activities | (108 | ) | 311 | |||||
| Cash flows from financing activities: | ||||||||
| Cash dividends on common shares | (382 | ) | (254 | ) | ||||
| Net proceeds from issuance of long-term debt (Note 9) | — | 732 | ||||||
| Payments on long-term debt (Note 9) | (225 | ) | (936 | ) | ||||
| Proceeds from borrowings on line of credit (Note 9) | — | 550 | ||||||
| Payments on line of credit (Note 9) | — | (780 | ) | |||||
| Proceeds from exercise of stock options | 46 | 9 | ||||||
| Repurchases of common shares (Note 4) | (26 | ) | — | |||||
| Other | (19 | ) | (16 | ) | ||||
| Net cash from financing activities | (606 | ) | (695 | ) | ||||
| Net change in cash, cash equivalents and restricted cash | 1,951 | 701 | ||||||
| Cash, cash equivalents and restricted cash at beginning of period | 495 | 139 | ||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 2,446 | $ | 840 | ||||
| Cash paid (received) during the period for: | ||||||||
| Interest, net of amount capitalized of $3 and $3 | $ | 237 | $ | 278 | ||||
| Income taxes, net of refunds | $ | 494 | $ | 46 |
See accompanying Notes to Consolidated Financial Statements.
WEYERHAEUSER COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(UNAUDITED)
| QUARTER ENDED | YEAR-TO-DATE ENDED | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURES | SEPTEMBER 2021 | SEPTEMBER 2020 | SEPTEMBER 2021 | SEPTEMBER 2020 | ||||||||||||
| Common shares: | ||||||||||||||||
| Balance at beginning of period | $ | 937 | $ | 933 | $ | 934 | $ | 932 | ||||||||
| Issued for exercise of stock options and vested units | — | — | 3 | 1 | ||||||||||||
| Repurchases of common shares (Note 4) | (1 | ) | — | (1 | ) | — | ||||||||||
| Balance at end of period | 936 | 933 | 936 | 933 | ||||||||||||
| Other capital: | ||||||||||||||||
| Balance at beginning of period | 8,258 | 8,166 | 8,208 | 8,152 | ||||||||||||
| Issued for exercise of stock options | 1 | 3 | 44 | 9 | ||||||||||||
| Repurchases of common shares (Note 4) | (25 | ) | — | (25 | ) | — | ||||||||||
| Share-based compensation | 8 | 7 | 23 | 22 | ||||||||||||
| Other transactions, net | — | 2 | (8 | ) | (5 | ) | ||||||||||
| Balance at end of period | 8,242 | 8,178 | 8,242 | 8,178 | ||||||||||||
| Retained earnings (accumulated deficit): | ||||||||||||||||
| Balance at beginning of period | 1,861 | (37 | ) | 411 | (3 | ) | ||||||||||
| Net earnings | 482 | 283 | 2,191 | 505 | ||||||||||||
| Dividends on common shares | (501 | ) | — | (760 | ) | (256 | ) | |||||||||
| Balance at end of period | 1,842 | 246 | 1,842 | 246 | ||||||||||||
| Accumulated other comprehensive loss: | ||||||||||||||||
| Balance at beginning of period | (656 | ) | (860 | ) | (822 | ) | (904 | ) | ||||||||
| Other comprehensive income | 5 | 30 | 171 | 74 | ||||||||||||
| Balance at end of period (Note 12) | (651 | ) | (830 | ) | (651 | ) | (830 | ) | ||||||||
| Total equity: | ||||||||||||||||
| Balance at end of period | $ | 10,369 | $ | 8,527 | $ | 10,369 | $ | 8,527 | ||||||||
| Dividends paid per common share | $ | 0.17 | $ | — | $ | 0.51 | $ | 0.34 |
See accompanying Notes to Consolidated Financial Statements.
INDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE QUARTERS AND YEAR-TO-DATE PERIODS ENDED SEPTEMBER 30, 2021 AND 2020
NOTE 1: BASIS OF PRESENTATION
Our consolidated financial statements provide an overall view of our results of operations, financial condition and cash flows. They include our accounts and the accounts of entities we control, including majority-owned domestic and foreign subsidiaries. They do not include our intercompany transactions and accounts, which are eliminated. Throughout these Notes to Consolidated Financial Statements, unless specified otherwise, references to “Weyerhaeuser,” “we,” “the company” and “our” refer to the consolidated company.
The accompanying unaudited Consolidated Financial Statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods presented. Except as otherwise disclosed in these Notes to Consolidated Financial Statements, such adjustments are of a normal, recurring nature. The Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission pertaining to interim financial statements. Certain information and footnote disclosures normally included in our annual Consolidated Financial Statements have been condensed or omitted. These quarterly Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2020. Results of operations for interim periods should not necessarily be regarded as indicative of the results that may be expected for the full year.
NOTE 2: BUSINESS SEGMENTS
We are principally engaged in growing and harvesting timber; manufacturing, distributing and selling products made from trees; maximizing the value of every acre we own through the sale of higher and better use (HBU) properties; and monetizing the value of surface and subsurface assets through leases and royalties. Our business segments are categorized based primarily on products and services which include:
| ● | Timberlands – Logs, timber, recreational leases and other products; |
|---|
| ● | Real Estate, Energy and Natural Resources (Real Estate & ENR) – Real Estate (sales of timberlands) and ENR (rights to explore for and extract hard minerals, construction materials, natural gas, and wind and solar resources) and |
|---|
| ● | Wood Products – Structural lumber, oriented strand board, engineered wood products and building materials distribution. |
|---|
A reconciliation of our business segment information to the respective information in the Consolidated Statement of Operations is as follows:
| QUARTER ENDED | YEAR-TO-DATE ENDED | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2021 | SEPTEMBER 2020 | SEPTEMBER 2021 | SEPTEMBER 2020 | ||||||||||||
| Sales to unaffiliated customers: | ||||||||||||||||
| Timberlands | $ | 423 | $ | 345 | $ | 1,207 | $ | 1,085 | ||||||||
| Real Estate & ENR | 69 | 69 | 285 | 246 | ||||||||||||
| Wood Products | 1,853 | 1,696 | 6,503 | 4,138 | ||||||||||||
| 2,345 | 2,110 | 7,995 | 5,469 | |||||||||||||
| Intersegment sales: | ||||||||||||||||
| Timberlands | 129 | 107 | 399 | 350 | ||||||||||||
| Total sales | 2,474 | 2,217 | 8,394 | 5,819 | ||||||||||||
| Intersegment eliminations | (129 | ) | (107 | ) | (399 | ) | (350 | ) | ||||||||
| Total | $ | 2,345 | $ | 2,110 | $ | 7,995 | $ | 5,469 | ||||||||
| Net contribution (charge) to earnings: | ||||||||||||||||
| Timberlands | $ | 133 | $ | (11 | ) | $ | 354 | $ | 169 | |||||||
| Real Estate & ENR | 45 | 17 | 174 | 72 | ||||||||||||
| Wood Products | 517 | 566 | 2,695 | 859 | ||||||||||||
| 695 | 572 | 3,223 | 1,100 | |||||||||||||
| Unallocated items(1) | (50 | ) | (69 | ) | (199 | ) | (130 | ) | ||||||||
| Net contribution to earnings | 645 | 503 | 3,024 | 970 | ||||||||||||
| Interest expense, net of capitalized interest | (79 | ) | (111 | ) | (236 | ) | (299 | ) | ||||||||
| Earnings before income taxes | 566 | 392 | 2,788 | 671 | ||||||||||||
| Income taxes | (84 | ) | (109 | ) | (597 | ) | (166 | ) | ||||||||
| Net earnings | $ | 482 | $ | 283 | $ | 2,191 | $ | 505 |
| (1) | Unallocated items are gains or charges not related to, or allocated to, an individual operating segment. They include all or a portion of items such as share-based compensation, pension and post-employment costs, elimination of intersegment profit in inventory and LIFO, foreign exchange transaction gains and losses, interest income and other as well as legacy obligations. |
|---|
NOTE 3: REVENUE RECOGNITION
A reconciliation of revenue recognized by our major products:
| QUARTER ENDED | YEAR-TO-DATE ENDED | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2021 | SEPTEMBER 2020 | SEPTEMBER 2021 | SEPTEMBER 2020 | ||||||||||||
| Net sales to unaffiliated customers: | ||||||||||||||||
| Timberlands segment | ||||||||||||||||
| Delivered logs: | ||||||||||||||||
| West | ||||||||||||||||
| Domestic sales | $ | 76 | $ | 80 | $ | 235 | $ | 238 | ||||||||
| Export grade sales | 150 | 83 | 414 | 281 | ||||||||||||
| Subtotal West | 226 | 163 | 649 | 519 | ||||||||||||
| South | 153 | 141 | 429 | 436 | ||||||||||||
| North | 13 | 13 | 38 | 37 | ||||||||||||
| Subtotal delivered logs sales | 392 | 317 | 1,116 | 992 | ||||||||||||
| Stumpage and pay-as-cut timber | 9 | 5 | 22 | 15 | ||||||||||||
| Recreational and other lease revenue | 16 | 16 | 48 | 47 | ||||||||||||
| Other(1) | 6 | 7 | 21 | 31 | ||||||||||||
| Net sales attributable to Timberlands segment | 423 | 345 | 1,207 | 1,085 | ||||||||||||
| Real Estate & ENR segment | ||||||||||||||||
| Real estate | 45 | 49 | 212 | 192 | ||||||||||||
| Energy and natural resources | 24 | 20 | 73 | 54 | ||||||||||||
| Net sales attributable to Real Estate & ENR segment | 69 | 69 | 285 | 246 | ||||||||||||
| Wood Products segment | ||||||||||||||||
| Structural lumber | 681 | 819 | 3,020 | 1,865 | ||||||||||||
| Oriented strand board | 470 | 290 | 1,513 | 659 | ||||||||||||
| Engineered solid section | 183 | 135 | 491 | 373 | ||||||||||||
| Engineered I-joists | 128 | 83 | 315 | 231 | ||||||||||||
| Softwood plywood | 45 | 55 | 170 | 128 | ||||||||||||
| Medium density fiberboard | 52 | 47 | 143 | 124 | ||||||||||||
| Complementary building products | 211 | 183 | 595 | 505 | ||||||||||||
| Other(2) | 83 | 84 | 256 | 253 | ||||||||||||
| Net sales attributable to Wood Products segment | 1,853 | 1,696 | 6,503 | 4,138 | ||||||||||||
| Total net sales | $ | 2,345 | $ | 2,110 | $ | 7,995 | $ | 5,469 |
| (1) | Other Timberlands sales include sales of seeds and seedlings from our nursery operations as well as wood chips. |
|---|
| (2) | Other Wood Products sales include wood chips, other byproducts and third-party residual log sales from our Canadian Forestlands operations. |
|---|
NOTE 4: NET EARNINGS PER SHARE AND SHARE REPURCHASES
Our basic and diluted earnings per share were:
| ● | $0.64 during third quarter 2021 and $2.92 during year-to-date 2021; |
|---|
| ● | $0.38 during third quarter 2020 and $0.68 during year-to-date 2020. |
|---|
Basic earnings per share is net earnings divided by the weighted average number of our outstanding common shares, including stock equivalent units where there is no circumstance under which those shares would not be issued. Diluted earnings per share is net earnings divided by the sum of the weighted average number of our outstanding common shares and the effect of our outstanding dilutive potential common shares.
| QUARTER ENDED | YEAR-TO-DATE ENDED | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| SHARES IN THOUSANDS | SEPTEMBER 2021 | SEPTEMBER 2020 | SEPTEMBER 2021 | SEPTEMBER 2020 | ||||||||||||
| Weighted average common shares outstanding – basic | 750,105 | 746,996 | 749,657 | 746,809 | ||||||||||||
| Dilutive potential common shares: | ||||||||||||||||
| Stock options | 293 | 401 | 318 | 246 | ||||||||||||
| Restricted stock units | 730 | 570 | 709 | 297 | ||||||||||||
| Performance share units | 315 | 483 | 315 | 178 | ||||||||||||
| Total effect of outstanding dilutive potential common shares | 1,338 | 1,454 | 1,342 | 721 | ||||||||||||
| Weighted average common shares outstanding – dilutive | 751,443 | 748,450 | 750,999 | 747,530 |
We use the treasury stock method to calculate the dilutive effect of our outstanding stock options, restricted stock units and performance share units.
Potential Shares Not Included in the Computation of Diluted Earnings per Share
The following shares were not included in the computation of diluted earnings per share because they were either antidilutive or the required performance or market conditions were not met. Some or all of these shares may be dilutive potential common shares in future periods.
| QUARTER ENDED | YEAR-TO-DATE ENDED | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| SHARES IN THOUSANDS | SEPTEMBER 2021 | SEPTEMBER 2020 | SEPTEMBER 2021 | SEPTEMBER 2020 | ||||||||||||
| Stock options | 789 | 2,260 | 789 | 2,260 | ||||||||||||
| Performance share units | 1,067 | 729 | 1,067 | 729 |
Share Repurchase Program
On September 22, 2021, we announced that our board of directors approved a new share repurchase program (the 2021 Repurchase Program) under which we are authorized to repurchase up to $1 billion of outstanding shares. Concurrently, the board terminated the remaining repurchase authorization under the share repurchase program approved by the board in February 2019 (the 2019 Repurchase Program).
During year-to-date 2021, we repurchased 780,228 common shares for approximately $26 million under the 2019 Repurchase Program. As of September 30, 2021, we had remaining authorization of $1 billion for future share repurchases under the 2021 Repurchase Program. We did not repurchase shares during year-to-date 2020.
All common stock repurchases under the 2019 Repurchase Program were made in open-market transactions. We record share repurchases upon trade date as opposed to the settlement date when cash is disbursed. We record a liability for repurchases that have not yet been settled as of period end. There were no unsettled repurchases as of September 30, 2021 or December 31, 2020.
NOTE 5: INVENTORIES
Inventories include raw materials, work-in-process, finished goods, as well as materials and supplies.
| DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 30, 2021 | DECEMBER 31, 2020 | ||||||
|---|---|---|---|---|---|---|---|---|
| LIFO inventories: | ||||||||
| Logs | $ | 22 | $ | 24 | ||||
| Lumber, plywood, panels and fiberboard | 64 | 59 | ||||||
| Other products | 13 | 9 | ||||||
| Moving average cost or FIFO inventories: | ||||||||
| Logs | 52 | 64 | ||||||
| Lumber, plywood, panels, fiberboard and engineered wood products | 113 | 84 | ||||||
| Other products | 121 | 100 | ||||||
| Materials and supplies | 114 | 103 | ||||||
| Total | $ | 499 | $ | 443 |
LIFO – the last-in, first-out method – applies to major inventory products held at our U.S. locations. The moving average cost method or FIFO – the first-in, first-out method – applies to the balance of our U.S. raw material and product inventories, all material and supply inventories and all foreign inventories.
NOTE 6: VARIABLE INTEREST ENTITIES
From 2002 through 2004, we sold certain nonstrategic timberlands. As a result of these sales, buyer-sponsored and monetization variable interest entities, or special purpose entities (SPEs), were formed. We were the primary beneficiary and consolidated the assets and liabilities of the SPEs involved in these transactions.
The assets of the buyer-sponsored SPEs were financial investments which consisted of bank guarantees. These bank guarantees were in turn backed by bank notes, which were the liabilities of the monetization SPEs. Interest earned from the financial investments within the buyer-sponsored SPEs was used to pay interest accrued on the corresponding monetization SPE’s note.
During first quarter 2020, we received $362 million in proceeds from our final buyer-sponsored SPE at maturity. The corresponding $302 million in liabilities of this SPE was paid in third quarter 2019.
NOTE 7: PENSION AND OTHER POST-EMPLOYMENT BENEFIT PLANS
The components of net periodic benefit cost are:
| PENSION | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| QUARTER ENDED | YEAR-TO-DATE ENDED | |||||||||||||||
| DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2021 | SEPTEMBER 2020 | SEPTEMBER 2021 | SEPTEMBER 2020 | ||||||||||||
| Service cost | $ | 11 | $ | 9 | $ | 32 | $ | 27 | ||||||||
| Interest cost | 24 | 35 | 73 | 104 | ||||||||||||
| Expected return on plan assets | (51 | ) | (59 | ) | (153 | ) | (175 | ) | ||||||||
| Amortization of actuarial loss | 29 | 31 | 86 | 92 | ||||||||||||
| Amortization of prior service cost | 1 | 1 | 2 | 3 | ||||||||||||
| Total net periodic benefit cost – pension | $ | 14 | $ | 17 | $ | 40 | $ | 51 |
| OTHER POST-EMPLOYMENT BENEFITS | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| QUARTER ENDED | YEAR-TO-DATE ENDED | |||||||||||||||
| DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2021 | SEPTEMBER 2020 | SEPTEMBER 2021 | SEPTEMBER 2020 | ||||||||||||
| Interest cost | $ | — | $ | 1 | $ | 2 | $ | 3 | ||||||||
| Amortization of actuarial loss | 2 | 1 | 4 | 2 | ||||||||||||
| Amortization of prior service credit | — | (1 | ) | — | (1 | ) | ||||||||||
| Total net periodic benefit cost – other post-employment benefits | $ | 2 | $ | 1 | $ | 6 | $ | 4 |
For the periods presented, service cost is included in “Costs of sales,” “Selling expenses,” and “General and administrative expenses” with the remaining components included in “Non-operating pension and other post-employment benefit costs” in the Consolidated Statement of Operations.
Fair Value of Pension Plan Assets and Obligations
In our year-end reporting process, we estimate the fair value of pension plan assets based upon the information available at that time. For certain assets, primarily private equity funds, the information available consists of net asset values as of an interim date, cash flows between the interim date and the end of the year and market events. We update the year-end estimated fair value of pension plan assets in the second quarter of each year to incorporate final net asset values reflected in financial statements received after we have filed our Annual Report on Form 10-K.
During second quarter 2021, we recorded an increase to the beginning of the year fair value of the pension assets of $155 million, or 5 percent. We also updated our census data that is used to estimate our beginning of the year projected benefit obligation for our pension plans, which resulted in a projected benefit obligation increase of $17 million, or less than 1 percent. The net effect of these updates was a $138 million improvement in funded status. This change in funded status was reflected on our Consolidated Balance Sheet as of June 30, 2021.
NOTE 8: ACCRUED LIABILITIES
Accrued liabilities were comprised of the following:
| DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 30, 2021 | DECEMBER 31, 2020 | ||||||
|---|---|---|---|---|---|---|---|---|
| Compensation and employee benefit costs | $ | 207 | $ | 204 | ||||
| Current portion of lease liabilities | 23 | 26 | ||||||
| Customer rebates, volume discounts and deferred income | 177 | 111 | ||||||
| Dividends payable | 375 | — | ||||||
| Interest | 84 | 87 | ||||||
| Taxes payable | 165 | 75 | ||||||
| Other | 79 | 93 | ||||||
| Total | $ | 1,110 | $ | 596 |
NOTE 9: LONG-TERM DEBT AND LINE OF CREDIT
In October 2021, we repaid our $150 million 9.00 percent notes at maturity.
In May 2021, we repaid our $225 million variable-rate term loan that was scheduled to mature in July 2026.
In September 2020, we redeemed our $325 million 3.25 percent notes due in March 2023. A pretax charge of $23 million was included in “Interest expense, net of capitalized interest” in the Consolidated Statement of Operations in third quarter 2020 for the make-whole premium in connection with the early extinguishment of the $325 million notes.
In March 2020, we issued $750 million of 4.00 percent notes due in April 2030. The net proceeds after deducting the discount, underwriting fees and issuance costs were $732 million. In May 2020, a portion of the net proceeds was used to redeem our $569 million 4.70 percent notes due in March 2021. A net pretax charge of $11 million was included in “Interest expense, net of capitalized interest” in the Consolidated Statement of Operations in second quarter 2020 for the make-whole premium in connection with the early extinguishment of the $569 million notes, partially offset by the write-off of an unamortized fair value step-up adjustment.
In January 2020, we refinanced and extended our $1.5 billion five-year senior unsecured revolving credit facility, which expires in January 2025. Borrowings are at LIBOR plus a spread or at other interest rates mutually agreed upon between the borrower and the lending banks. We had no outstanding borrowings on our credit facility as of September 30, 2021 and December 31, 2020.
NOTE 10: FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values and carrying values of our long-term debt and line of credit consisted of the following:
| SEPTEMBER 30, 2021 | DECEMBER 31, 2020 | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| DOLLAR AMOUNTS IN MILLIONS | CARRYING VALUE | FAIR VALUE (LEVEL 2) | CARRYING VALUE | FAIR VALUE (LEVEL 2) | ||||||||||||
| Long-term debt (including current maturities) and line of credit: | ||||||||||||||||
| Fixed rate | $ | 5,250 | $ | 6,467 | $ | 5,250 | $ | 6,718 | ||||||||
| Variable rate | — | — | 225 | 225 | ||||||||||||
| Total debt | $ | 5,250 | $ | 6,467 | $ | 5,475 | $ | 6,943 |
To estimate the fair value of fixed rate long-term debt, we used the market approach, which is based on quoted market prices we received for the same types and issues of our debt. We believe that our variable rate long-term debt and line of credit instruments have net carrying values that approximate their fair values with only insignificant differences. The inputs to these valuations are based on market data obtained from independent sources or information derived principally from observable market data. The difference between the fair value and the carrying value represents the theoretical net premium or discount we would pay or receive to retire all debt at the measurement date.
Fair Value of Other Financial Instruments
We believe that our other financial instruments, including cash and cash equivalents, short-term investments, and receivables and payables, have net carrying values that approximate their fair values with only insignificant differences. This is primarily due to the short-term nature of these instruments and the allowance for doubtful accounts.
NOTE 11: LEGAL PROCEEDINGS, COMMITMENTS AND CONTINGENCIES
Legal Proceedings
We are party to various legal proceedings arising in the ordinary course of business. We are not currently a party to any legal proceeding that management believes could have a material adverse effect on our Consolidated Statement of Operations, Consolidated Balance Sheet or Consolidated Statement of Cash Flows.
Environmental Matters
Site Remediation
Under the federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) – commonly known as the “Superfund” – and similar state laws, we:
| ● | are a party to various proceedings related to the cleanup of hazardous waste sites and |
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| ● | have been notified that we may be a potentially responsible party related to the cleanup of other hazardous waste sites for which proceedings have not yet been initiated. |
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As of September 30, 2021, our total accrual for future estimated remediation costs on active Superfund sites and other sites for which we are potentially responsible was approximately $64 million. These amounts are recorded in "Accrued liabilities" and "Other liabilities" on our Consolidated Balance Sheet.
NOTE 12: ACCUMULATED OTHER COMPREHENSIVE LOSS
Changes in amounts included in our accumulated other comprehensive loss by component are:
| QUARTER ENDED | YEAR-TO-DATE ENDED | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2021 | SEPTEMBER 2020 | SEPTEMBER 2021 | SEPTEMBER 2020 | ||||||||||||
| Pension(1) | ||||||||||||||||
| Balance at beginning of period | $ | (924 | ) | $ | (1,060 | ) | $ | (1,064 | ) | $ | (1,128 | ) | ||||
| Other comprehensive income (loss) before reclassifications | 6 | (6 | ) | 102 | 14 | |||||||||||
| Amounts reclassified from accumulated other comprehensive loss to earnings(2) | 23 | 24 | 67 | 72 | ||||||||||||
| Total other comprehensive income | 29 | 18 | 169 | 86 | ||||||||||||
| Balance at end of period | $ | (895 | ) | $ | (1,042 | ) | $ | (895 | ) | $ | (1,042 | ) | ||||
| Other Post-Employment Benefits(1) | ||||||||||||||||
| Balance at beginning of period | $ | (10 | ) | $ | (11 | ) | $ | (12 | ) | $ | (12 | ) | ||||
| Other comprehensive income (loss) before reclassifications | (1 | ) | 1 | (1 | ) | 1 | ||||||||||
| Amounts reclassified from accumulated other comprehensive loss to earnings(2) | 2 | — | 4 | 1 | ||||||||||||
| Total other comprehensive income | 1 | 1 | 3 | 2 | ||||||||||||
| Balance at end of period | $ | (9 | ) | $ | (10 | ) | $ | (9 | ) | $ | (10 | ) | ||||
| Translation Adjustments and Other | ||||||||||||||||
| Balance at beginning of period | $ | 278 | $ | 211 | $ | 254 | $ | 236 | ||||||||
| Translation adjustments | (25 | ) | 11 | (1 | ) | (14 | ) | |||||||||
| Total other comprehensive income (loss) | (25 | ) | 11 | (1 | ) | (14 | ) | |||||||||
| Balance at end of period | 253 | 222 | 253 | 222 | ||||||||||||
| Accumulated other comprehensive loss, end of period | $ | (651 | ) | $ | (830 | ) | $ | (651 | ) | $ | (830 | ) |
| (1) | Amounts presented are net of tax. |
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| (2) | Amounts of actuarial loss and prior service (cost) credit are components of net periodic benefit cost (credit). See Note 7: Pension and Other Post-Employment Benefit Plans. |
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NOTE 13: SHARE-BASED COMPENSATION
Share-based compensation activity during year-to-date 2021 included the following:
| SHARES IN THOUSANDS | GRANTED | VESTED | ||||||
|---|---|---|---|---|---|---|---|---|
| Restricted stock units (RSUs) | 784 | 781 | ||||||
| Performance share units (PSUs) | 354 | 229 |
A total of 2.4 million shares of common stock were issued as a result of RSU vestings, PSU vestings and stock option exercises.
Restricted Stock Units
The weighted average fair value of the RSUs granted in 2021 was $34.38. The vesting provisions for RSUs granted in 2021 were consistent with prior year grants.
Performance Share Units
The weighted average grant date fair value of PSUs granted in 2021 was $38.50. The final number of shares granted in 2021 will vest between a range of 0 percent to 150 percent of each grant's target, depending upon actual company performance compared against an industry peer group. PSUs granted in 2021 will vest at a maximum of 100 percent of target value in the event of negative absolute company total shareholder return.
Weighted Average Assumptions Used in Estimating the Value of Performance Share Units Granted in 2021
| PERFORMANCE SHARE UNITS | |||
|---|---|---|---|
| Performance period | 2/11/2021 – 12/31/2023 | ||
| Valuation date average stock price(1) | $34.14 | ||
| Expected dividends | 1.99% | ||
| Risk-free rate | 0.02% – 0.20% | ||
| Expected volatility | 32.87% – 52.82% |
| (1) | Calculated as an average of the high and low prices on grant date. |
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NOTE 14: TIMBERLAND ACQUISITIONS AND DIVESTITURES
Washington Divestiture
On April 30, 2021, we announced an agreement to sell 145 thousand acres of timberlands in the North Cascades region of Washington. On July 7, 2021, we completed the sale for $261 million in cash proceeds, which is net of purchase price adjustments and closing costs. This transaction was structured as a like-kind exchange along with the Alabama acquisition discussed below. As a result of the sale, a gain of $32 million was recorded in the Timberlands segment in our third quarter 2021 Consolidated Statement of Operations.
This divestiture is not considered a strategic shift that has, or will have, a major effect on our operations or financial results and therefore does not meet the requirements for presentation as discontinued operations.
Alabama Acquisition
On February 25, 2021, we announced an agreement to purchase 69 thousand acres of southwest Alabama timberlands for approximately $149 million. We completed the purchase on April 27, 2021 and recorded $148 million of timberland assets in “Timber and timberlands at cost, less depletion” and $1 million of related assets in “Property and equipment, net” on our Consolidated Balance Sheet. As discussed above, this transaction was structured as a like-kind exchange.
Montana Divestiture
On December 17, 2019, we announced an agreement to sell 630 thousand acres of Montana timberlands, which was part of our Timberlands business segment. On March 26, 2020, we completed the sale for $145 million in cash proceeds, which is net of purchase price adjustments and closing costs. Due to the impairment recorded during fourth quarter 2019, no material gain or loss was recorded as a result of this sale.
The divestiture was not considered a strategic shift that had, or will have, a major effect on our operations or financial results and therefore did not meet the requirements for presentation as discontinued operations.
NOTE 15: OTHER OPERATING COSTS (INCOME), NET
Other operating costs (income), net were comprised of the following:
| QUARTER ENDED | YEAR-TO-DATE ENDED | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2021 | SEPTEMBER 2020 | SEPTEMBER 2021 | SEPTEMBER 2020 | ||||||||||||
| Foreign exchange losses (gains), net | $ | (5 | ) | $ | (2 | ) | $ | (2 | ) | $ | 3 | |||||
| Gain on sale of timberlands | (32 | ) | — | (32 | ) | — | ||||||||||
| Litigation expense, net | 5 | 7 | 11 | 9 | ||||||||||||
| Product remediation recovery | — | — | — | (8 | ) | |||||||||||
| Research and development expenses | 1 | 1 | 3 | 4 | ||||||||||||
| Timber casualty loss | — | 80 | — | 80 | ||||||||||||
| Other, net | 16 | 6 | 28 | 17 | ||||||||||||
| Total other operating costs (income), net | $ | (15 | ) | $ | 92 | $ | 8 | $ | 105 |
Timber Casualty Loss
In September 2020, forest fires in the state of Oregon, commonly referred to as the Holiday Farm, Beachie Creek, Riverside, and Archie Creek fires, spread from adjacent lands onto portions of our Oregon timberland properties. We recorded a timber casualty loss of $80 million in third quarter 2020 which represented the estimated book value of timber and related assets that could not be salvaged based on information available at that time. The loss was attributable to our Timberlands segment and was recorded within “Other operating costs (income), net” in the Consolidated Statement of Operations. During year-to-date 2021, we have harvested a substantial majority of our planned salvage volume in Oregon. The additional information obtained from our salvage operations has not resulted in a change to the estimated loss previously recorded.
NOTE 16: INCOME TAXES
As a real estate investment trust (REIT), we generally are not subject to federal corporate income taxes on REIT taxable income that is distributed to shareholders. We are required to pay corporate income taxes on earnings of our wholly-owned Taxable REIT Subsidiaries (TRSs), which includes our Wood Products segment earnings and portions of our Timberlands and Real Estate & ENR segments' earnings.
The quarterly provision for income taxes is based on our current estimate of the annual effective tax rate and is adjusted for discrete taxable events that have occurred during the year. Our 2021 estimated annual effective tax rate, excluding discrete items, differs from the U.S. federal statutory tax rate of 21 percent primarily due to state and foreign income taxes and tax benefits associated with our nontaxable REIT earnings.
NOTE 17: RESTRICTED CASH
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported on our Consolidated Balance Sheet that sum to the total of the amounts shown in the Consolidated Statement of Cash Flows:
| DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 30, 2021 | SEPTEMBER 30, 2020 | ||||||
|---|---|---|---|---|---|---|---|---|
| Cash and cash equivalents | $ | 2,326 | $ | 787 | ||||
| Restricted cash included in other assets(1) | 120 | 53 | ||||||
| Total cash, cash equivalents and restricted cash | $ | 2,446 | $ | 840 |
| (1) | Amounts included in restricted cash as of September 30, 2021 are comprised of proceeds held by a qualified intermediary that are intended to be reinvested in timber and timberlands through a like-kind exchange transaction. Amounts included in restricted cash as of September 30, 2020 were primarily comprised of proceeds held by a qualified intermediary that were subsequently reinvested in timber and timberlands through a like-kind exchange transaction, as well as additional funds held in escrow related to that transaction. |
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)
NOTE ABOUT FORWARD-LOOKING STATEMENTS
This report contains statements concerning our future results and performance that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include, without limitation, statements relating to: our expected future financial and operating performance; our plans, strategies, intentions and expectations; estimated taxes and tax provision; our capital structure and the sufficiency of our liquidity position to meet future cash requirements; future debt maturities, compliance with our debt agreements and the effect on our financial position of the expected discontinuation of LIBOR; expected results of litigation and other legal proceedings and contingent liabilities, and the sufficiency of litigation and other contingent liability reserves and related accruals; expected uses of cash, including future dividends and expected capital expenditures; expected effects of certain acquisitions and divestitures on our operations and financial results; market and general economic conditions, including related influencing factors such as trends in U.S. housing activity, inflation, interest rates, the nature and extent of future government stimulus, and the timing of when, and the extent to which, COVID-related restrictions are lifted; laws and regulations relevant to our businesses; assumptions used in valuing incentive compensation and related expense; and our expectations relating to returns on invested pension plan assets and expected benefit payments.
Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often involve use of words such as “anticipate,” “believe,” “committed,” "continue,” “estimate,” “expect,” “foreseeable,” “future,” “intend,” “maintain,” “may,” “plan,” “potential,” “project,” “will,” and “would,” or similar words or terminology. They may use the positive, negative or another variation of those and similar words. These forward-looking statements are based on our current expectations and assumptions and are not guarantees of future events or performance. The realization of our expectations and the accuracy of our assumptions are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties include, but are not limited to:
| ● | the effect of general economic conditions, including employment rates, interest rate levels, inflation, housing starts, general availability of financing for home mortgages and the relative strength of the U.S. dollar; |
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| ● | the effect of COVID-19 and other viral or disease outbreaks, including but not limited to any related regulatory restrictions or requirements, and their potential effects on our business, results of operations, cash flows, financial condition and future prospects; |
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| ● | market demand for the company's products, including market demand for our timberland properties with higher and better uses, which is related to, among other factors, the strength of the various U.S. business segments and U.S. and international economic conditions; |
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| ● | changes in currency exchange rates, particularly the relative value of the U.S. dollar to the Japanese yen, the Chinese yuan, and the Canadian dollar, and the relative value of the euro to the yen; |
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| ● | restrictions on international trade and tariffs imposed on imports or exports; |
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| ● | the availability and cost of shipping and transportation; |
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| ● | economic activity in Asia, especially Japan and China; |
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| ● | performance of our manufacturing operations, including maintenance and capital requirements; |
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| ● | potential disruptions in our manufacturing operations; |
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| ● | the level of competition from domestic and foreign producers; |
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| ● | the successful execution of our internal plans and strategic initiatives, including restructuring and cost reduction initiatives; |
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| ● | the successful and timely execution and integration of our strategic acquisitions, including our ability to realize expected benefits and synergies, and the successful and timely execution of our strategic divestitures, each of which is subject to a number of risks and conditions beyond our control including, but not limited to, timing and required regulatory approvals or the occurrence of any event, change or other circumstances that could give rise to a termination of any acquisition or divestiture transaction under the terms of the governing transaction agreements; |
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| ● | raw material availability and prices; |
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| ● | the effect of weather; |
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| ● | changes in global or regional climate conditions and governmental response to such changes; |
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| ● | the risk of loss from fires, floods, windstorms, hurricanes, pest infestation and other natural disasters; |
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| ● | energy prices; |
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| ● | transportation and labor availability and costs; |
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| ● | federal tax policies; |
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| ● | the effect of forestry, land use, environmental and other governmental regulations; |
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| ● | legal proceedings; |
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| ● | performance of pension fund investments and related derivatives; |
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| ● | the effect of timing of employee retirements and changes in the market price of our common stock on charges for share-based compensation; |
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| ● | the accuracy of our estimates of costs and expenses related to contingent liabilities and the accuracy of our estimates of charges related to casualty losses; |
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| ● | changes in accounting principles; and |
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| ● | other risks and uncertainties described in this report under Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) and in our 2020 Annual Report on Form 10-K, as well as those set forth from time to time in our other public statements, reports, registration statements, prospectuses, information statements and other filings with the SEC. |
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It is not possible to predict or identify all risks and uncertainties that might affect the accuracy of our forward-looking statements and, consequently, our descriptions of such risks and uncertainties should not be considered exhaustive. There is no guarantee that any of the events anticipated by these forward-looking statements will occur, and if any of the events do occur, there is no guarantee what effect they will have on the company's business, results of operations, cash flows, financial condition and future prospects.
Forward-looking statements speak only as of the date they are made, and we undertake no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events, or otherwise.
RESULTS OF OPERATIONS
In reviewing our results of operations, it is important to understand these terms:
| ● | Sales realizations for Timberlands and Wood Products refer to net selling prices. This includes selling price plus freight, minus normal sales deductions. Real Estate transactions are presented at the contract sales price before commissions and closing costs, net of any credits. |
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| ● | Net contribution (charge) to earnings does not include interest expense or income taxes. |
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ECONOMIC AND MARKET CONDITIONS AFFECTING OUR OPERATIONS
Overview
In March 2020, COVID-19 was officially declared a global pandemic by the World Health Organization, and a national emergency was declared by the United States. The immediate economic effects of the pandemic were severe, as U.S. gross domestic product (GDP) declined 31
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
LONG-TERM INDEBTEDNESS OBLIGATIONS
The following summary of our long-term indebtedness obligations includes:
| ● | scheduled principal repayments for the next five years and after; |
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| ● | weighted average interest rates for debt maturing in each of the next five years and after and |
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| ● | estimated fair values of outstanding obligations. |
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We estimate the fair value of our debt instruments using quoted market prices we received for the same types and issues of our debt or on the discounted value of the future cash flows using market yields for the same type and comparable issues of debt. Changes in market rates of interest affect the fair value of our fixed-rate debt.
Summary of Long-Term Indebtedness Principal Obligations as of September 30, 2021
| DOLLAR AMOUNTS IN MILLIONS | 2021 | 2022 | 2023 | 2024 | 2025 | THEREAFTER | TOTAL(1) | FAIR VALUE | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Fixed-rate debt | $ | 150 | $ | — | $ | 1,051 | $ | — | $ | 436 | $ | 3,638 | $ | 5,275 | $ | 6,467 | ||||||||||||||||
| Average interest rate | 9.00 | % | — | % | 5.56 | % | — | % | 8.33 | % | 5.94 | % | 6.15 | % | N/A |
| (1) | Excludes $25 million of unamortized discounts, capitalized debt expense and business combination fair value adjustments. |
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Item 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Disclosure controls are controls and other procedures that are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, to allow timely decisions regarding required disclosure. The company’s principal executive officer and principal financial officer have concluded that the company’s disclosure controls and procedures were effective as of September 30, 2021, based on an evaluation of the company’s disclosure controls and procedures as of that date.
CHANGES IN INTERNAL CONTROLS
No changes occurred in the company’s internal control over financial reporting during year-to-date 2021 that have materially affected, or are reasonably likely to materially affect, the company’s internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Refer to Note 11: Legal Proceedings, Commitments and Contingencies. SEC regulations require us to disclose certain information about proceedings arising under federal, state or local environmental provisions if we reasonably believe that such proceedings may result in monetary sanctions above a stated threshold. In accordance with these regulations, the company uses a threshold of $1 million for purposes of determining whether disclosure of any such proceedings is required pursuant to this item.
Item 1A. RISK FACTORS
The following supplements and updates the risk factors in Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2020. If any of the risks discussed below or in our Annual Report on Form 10-K occur, our business, prospects, liquidity, financial condition and results of operations could be materially and adversely affected.
Catastrophic events may adversely affect the markets for our products and our business, results of operations, cash flows and financial condition.
We are subject to the risk of various catastrophic events, including but not limited to the occurrence of significant fires on one or more of our properties, severe regional or local weather events or trends, major earthquakes, significant geopolitical conditions or developments such as significant international trade disputes, terrorist attacks, armed conflict, domestic political unrest and regional health epidemics or global health pandemics. Any one or more of these events or conditions, or other catastrophic events or developments, could significantly affect our ability to operate our businesses and adversely affect domestic and global general economic conditions and thus market demand for our products.
In March 2020, the World Health Organization declared the outbreak of a novel strain of coronavirus (“COVID-19”) a global pandemic. In response, federal, state and local governments in the United States, as well as governments throughout the world, declared states of emergency and ordered preventative measures to contain and mitigate the spread of the virus. These measures, which have included shelter-in-place and similar mandates for individuals and closure or significant curtailment of many businesses, have caused significant economic disruption and uncertainty as well as disruption and volatility in global capital markets. As a result, there have been periodic adverse effects on the demand for our timber and wood products and disruptions to our supply chain and the manufacturing, distribution and export of our timber and wood products, all of which could worsen in the future. Any one or more of these consequences of COVID-19, as well as other unpredictable events, could materially adversely affect our business, results of operations, cash flows and financial condition. The COVID-19 outbreak continues to rapidly evolve, with periods of improvement followed by periods of higher infection rates in various geographical locations throughout the world. The extent to which COVID-19 may further affect our business, results of operations, cash flows and financial condition, as well as our plans and decisions relating to various capital expenditures, other discretionary items and capital allocation priorities, including the timing and amount of our dividends to shareholders, are therefore highly uncertain and will depend on future developments, which cannot be predicted with confidence. Such developments include, but are not limited to: the future rate of occurrence or further mutation of COVID-19 or the outbreak of another virulent disease; continuation of or changes in governmental responses to disease outbreak, including without limitation the impact of any future vaccine mandates and testing requirements and employee and company contractor responses to such mandates and requirements; the duration of disease outbreak and consequential restrictions and business disruptions; the effectiveness of responsive government actions to contain and manage the disease; and the timing and effectiveness of treatment and testing options, including the ongoing efficacy and availability of vaccines.
The impacts of the COVID-19 outbreak and related restrictions have led to significant periodic increases in national unemployment since the outset of the pandemic. An extended continuation or worsening of domestic unemployment may adversely affect demand for our products and thus negatively impact our business, results of operations, cash flows and financial condition. In addition, the impact of COVID-19 or other virulent disease may also trigger the occurrence, or exacerbate, other risks discussed herein, any one of which could have a material adverse effect on our business, results of operations, cash flows and financial condition. For more discussion on the current effects of COVID-19 on our business and operations, see our discussion under Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) – Economic and Market Conditions Affecting our Operations.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
The following table provides information with respect to purchases of common stock made by the company during third quarter 2021:
| COMMON SHARE REPURCHASES DURING THIRD QUARTER | TOTAL NUMBER OF SHARES PURCHASED | AVERAGE PRICE PAID PER SHARE | TOTAL NUMBER OF SHARES PURCHASED AS PART OF PUBLICLY ANNOUNCED PROGRAMS | APPROXIMATE DOLLAR VALUE OF SHARES THAT MAY YET BE PURCHASED UNDER THE PROGRAMS | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| July 1 - July 31 | — | $ | — | — | $ | 440,016,723 | ||||||||||
| August 1 - August 31 | 741,132 | $ | 33.81 | 741,132 | $ | 414,960,812 | ||||||||||
| September 1 - September 30 | 39,096 | $ | 33.99 | 39,096 | $ | 1,000,000,000 | ||||||||||
| Total | 780,228 | $ | 33.82 | 780,228 |
On February 7, 2019, we announced that our board of directors had authorized a share repurchase program under which we were authorized to repurchase up to $500 million of outstanding shares (the 2019 Repurchase Program). During third quarter 2021, we repurchased 780,228 common shares for approximately $26 million (including transaction fees) under the 2019 Repurchase Program in open-market transactions. Transaction fees incurred for repurchases are not counted as use of funds authorized for repurchases under the 2019 Repurchase Program.
On September 22, 2021, we announced that our board had approved a new share repurchase program (the 2021 Repurchase Program) under which we are authorized to repurchase up to $1 billion of outstanding shares. Concurrently, the board terminated the remaining repurchase authorization under the 2019 Repurchase Program.
Item 6. EXHIBITS
| 31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended. |
| 31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended. |
| 32 | Certification pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350). |
| 101.INS | XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, has been formatted in Inline XBRL. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| WEYERHAEUSER COMPANY | ||
|---|---|---|
| (Registrant) | ||
| Date: October 29, 2021 | By: | /s/ David M. Wold |
| David M. Wold | ||
| Vice President and Chief Accounting Officer | ||
| (Principal Accounting Officer and Duly Authorized Officer) |