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;

●	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;

●	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;

●	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;

●	restrictions on international trade and tariffs imposed on imports or exports;

●	the availability and cost of shipping and transportation;

●	economic activity in Asia, especially Japan and China;

●	performance of our manufacturing operations, including maintenance and capital requirements;

●	potential disruptions in our manufacturing operations;

●	the level of competition from domestic and foreign producers;

●	the successful execution of our internal plans and strategic initiatives, including restructuring and cost reduction initiatives;

●

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;

●	raw material availability and prices;

●	the effect of weather;

●	changes in global or regional climate conditions and governmental response to such changes;

●	the risk of loss from fires, floods, windstorms, hurricanes, pest infestation and other natural disasters;

●	energy prices;

●	transportation and labor availability and costs;

●	federal tax policies;

●	the effect of forestry, land use, environmental and other governmental regulations;

●	legal proceedings;

●	performance of pension fund investments and related derivatives;

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

●	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;

●	changes in accounting principles; and

●	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.

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.

●	Net contribution (charge) to earnings does not include interest expense or income taxes.

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 percent in the second quarter of 2020 and the national unemployment rate soared to a record-high of nearly 15 percent in April 2020 driven by the restrictions imposed in response to the pandemic. Since that time the unemployment rate has fallen steadily, and U.S. GDP has rebounded significantly as states have continued to reopen their economies and loosen restrictions. Although market conditions across our businesses deteriorated rapidly in late first quarter and early second quarter 2020, they quickly rebounded as demand for housing and wood products proved resilient. Growth in repair and remodel demand and new residential construction activity resulted in increased demand for wood products. As a result, benchmark prices rose to record levels through May 2021 for most lumber products and into early July for oriented strand board (OSB). During the second quarter, lumber prices, followed by OSB, began a substantial correction as demand from the repair and remodel segment lessened during the summer months. Later in the third quarter, prices bottomed and began to rebound. Looking ahead to the remainder of 2021, our market conditions and the strength of the broader U.S. economy will continue to be influenced by the trajectory of U.S. housing activity, repair and remodel activity, the ongoing pace of reopening economic activities from COVID-related restrictions, inflation trends, interest rates, and the nature and extent of future government stimulus including the proposed infrastructure bill.

We have taken proactive steps to safeguard the health of our employees and preserve business continuity from the beginning of the pandemic. These actions have included detailed cleaning and disinfecting procedures, strict processes around masking, social distancing and personal hygiene, clear communication with our employees, contractors, vendors and visitors about our safety protocols, comprehensive guidance for response to any COVID-19 diagnoses or exposures in our operations, and a directive that employees work from home if feasible. In light of adjustments to federal, state and local health and safety restrictions, we began a phased-in approach to return some of our employees who have been working from home back to their work locations. We remain vigilant about employee safety and will continue to monitor developments, including but not limited to the spread of disease variants and their impact on local health systems.

Business Outlook

The demand for sawlogs within our Timberlands segment is directly affected by domestic production of wood-based building products. The strength of the U.S. housing market, especially new residential construction, strongly affects demand in our Wood Products segment, as does repair and remodeling activity. Seasonal weather patterns impact the level of construction activity in the U.S., which in turn affects demand for our logs and wood products. In the third quarter of 2021, wet weather constrained some harvest operations for producers in the U.S. South. In the West, wildfire activity resulted in some harvest restrictions in the third quarter. Our Timberlands segment, specifically the Western region, is also affected by export demand and trade policy. Japanese housing starts are a key driver of export log demand in Japan. The demand for pulpwood from our Timberlands segment is directly affected by the production of pulp, paper and OSB as well as the demand for biofuels, such as pellets made from pulpwood. The Timberlands segment is also influenced by the availability of harvestable timber. In general, Western log markets are highly tensioned while Southern log markets have more available supply. However, additional mill capacity being added in the U.S. South has led to some tightening of markets in certain geographies.

On a seasonally adjusted annual basis, as reported by the U.S. Census Bureau, housing starts for third quarter 2021 averaged 1.57 million units, a 1 percent decline from second quarter 2021. Single family starts averaged 1.1 million units, a 1 percent decline from second quarter 2021 but a 5 percent improvement over third quarter 2020. Multi-family starts averaged 475 thousand units in third quarter 2021, which was 1 percent lower than second quarter 2021 but 19 percent higher than third quarter 2020. Sales of newly built, single family homes averaged a seasonally adjusted annual rate of 738 thousand units for third quarter 2021, in line with the previous quarter’s sales and a 24 percent decline from third quarter 2020. After weakening during the summer months, sales in September strengthened to a seasonally adjusted annual rate of 800 thousand units.

Repair and remodeling expenditures declined by 3.5 percent from second quarter to third quarter 2021 according to the Census Bureau Advance Retail Spending report. A decrease in do-it-yourself activity contributed to lower sales at home improvement centers offset in part by a transition to larger projects undertaken by professional contractors.

In U.S. wood product markets, demand slowed during most of third quarter 2021 as dealers kept a watchful eye on inventory levels and continued to work through existing inventories. In turn, third quarter 2021 prices for lumber continued a sharp decline from record high prices reported in the second quarter, and OSB prices fell during the quarter as well. By the end of the quarter, prices for both lumber and OSB had bottomed and were increasing to levels more in line with historical demand and supply factors. The Random Lengths Framing Lumber Composite price averaged $493/MBF and the OSB Composite averaged $780/MSF in third quarter 2021.

In Western log markets, Douglas fir sawlog prices slightly increased by 1 percent in third quarter 2021 compared with second quarter 2021 as reported by RISI Log Lines. The strength in Western log prices was supported by multiple factors including continued demand in export markets. In the South, sawlog prices increased by 3 percent from second quarter 2021 and 17 percent from third quarter 2020 as reported by TimberMart-South. While weather events contributed to some of this increase, transportation constraints and additional mill demand also contributed to more tensioned log markets.

Exchange rates, available supply from other countries and trade policy affect our export businesses. During third quarter 2021, continued disruptions in global shipping, diversion of European log and lumber supply to other markets, and bans on Australian log imports to China generally had a positive impact on China’s demand for logs imported from the U.S. In Japan, total housing starts increased 4.7 percent year to date through August compared to the same period in 2020, while the key Post and Beam segment saw an 8.5 percent increase. Decreased lumber imports from Europe to Japan have continued to be favorable to our Japanese log export business.

Governments and businesses across the globe are taking action on climate change and are making significant commitments towards reducing greenhouse gas emissions to net zero. Achieving these commitments will require governments and companies to take major steps to modify operations, invest in low-carbon activities and purchase offsets to reduce environmental impacts. We believe we are uniquely positioned to help entities achieve these commitments through natural climate solutions, including forest carbon sequestration and carbon capture and storage activities.

CONSOLIDATED RESULTS

How We Did Third Quarter 2021 and Year-to-Date 2021

		QUARTER ENDED								AMOUNT OF CHANGE				YEAR-TO-DATE ENDED								AMOUNT OF CHANGE
DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURES		SEPTEMBER 2021				SEPTEMBER 2020				2021 VS. 2020				SEPTEMBER 2021				SEPTEMBER 2020				2021 VS. 2020
Net sales		$	2,345			$	2,110			$	235			$	7,995			$	5,469			$	2,526
Costs of sales		$	1,589			$	1,390			$	199			$	4,602			$	4,055			$	547
Operating income		$	649			$	510			$	139			$	3,034			$	993			$	2,041
Net earnings		$	482			$	283			$	199			$	2,191			$	505			$	1,686
Earnings per share, basic and diluted		$	0.64			$	0.38			$	0.26			$	2.92			$	0.68			$	2.24

Comparing Third Quarter 2021 with Third Quarter 2020

Net sales

Net sales increased $235 million – 11 percent – primarily due to a $157 million increase in Wood Products sales to unaffiliated customers attributable to increased sales realizations across most product lines, as well as a $78 million increase in Timberlands sales to unaffiliated customers attributable to increased sales realizations in the Western and Southern regions.

Costs of sales

Costs of sales increased $199 million – 14 percent – primarily due to increased freight costs and increased sales volumes for structural lumber within our Wood Products segment and increased sales volumes within our Timberlands segment, partially offset by decreased real estate acres sold in our Real Estate & ENR segment.

Operating income

Operating income increased $139 million – 27 percent – primarily due to an $80 million timber casualty loss recorded in third quarter 2020 related to the Oregon wildfires, as well as a $36 million increase in consolidated gross margin (see discussion of components above).

Net earnings

Net earnings increased $199 million – 70 percent – primarily due to the $139 million increase in operating income discussed above, as well as a $32 million decrease in interest expense and a $25 million decrease in income tax expense (refer to Income Taxes and Interest Expense).

Comparing Year-to-Date 2021 with Year-to-Date 2020

Net sales

Net sales increased $2,526 million – 46 percent – primarily due to a $2,365 million increase in Wood Products sales to unaffiliated customers attributable to increased sales realizations across all product lines.

Costs of sales

Costs of sales increased $547 million – 13 percent – primarily due increased freight costs and increased sales volumes within our Wood Products segment, as well as increased freight costs and third-party log purchases within our Timberlands segment, partially offset by decreased real estate acres sold in our Real Estate & ENR segment.

Operating income

Operating income increased $2,041 million – 206 percent – primarily due to a $1,979 million increase in consolidated gross margin (see discussion of components above), as well as an $80 million timber casualty loss recorded in third quarter 2020 related to the Oregon wildfires.

Net earnings

Net earnings increased $1,686 million – 334 percent – primarily due to the $2,041 million increase in operating income discussed above.

The increase was partially offset by a $431 million increase in income tax expense (refer to Incomes Taxes).

TIMBERLANDS

How We Did Third Quarter 2021 and Year-to-Date 2021

		QUARTER ENDED								AMOUNT OF CHANGE				YEAR-TO-DATE ENDED								AMOUNT OF CHANGE
DOLLAR AMOUNTS IN MILLIONS		SEPTEMBER 2021				SEPTEMBER 2020				2021 VS. 2020				SEPTEMBER 2021				SEPTEMBER 2020				2021 VS. 2020
Net sales to unaffiliated customers:
Delivered logs:
West		$	226			$	163			$	63			$	649			$	519			$	130
South			153				141				12				429				436				(7	)
North			13				13				—				38				37				1
Subtotal delivered logs sales			392				317				75				1,116				992				124
Stumpage and pay-as-cut timber			9				5				4				22				15				7
Recreational and other lease revenue			16				16				—				48				47				1
Other(1)			6				7				(1	)			21				31				(10	)
Subtotal net sales to unaffiliated customers			423				345				78				1,207				1,085				122
Intersegment sales			129				107				22				399				350				49
Total sales		$	552			$	452			$	100			$	1,606			$	1,435			$	171
Costs of sales		$	428			$	358			$	70			$	1,218			$	1,116			$	102
Operating income (loss) and Net contribution (charge) to earnings		$	133			$	(11	)		$	144			$	354			$	169			$	185

(1)	Other Timberlands sales include sales of seeds and seedlings from our nursery operations as well as wood chips.

Comparing Third Quarter 2021 with Third Quarter 2020

Net sales to unaffiliated customers

Net sales to unaffiliated customers increased $78 million – 23 percent – primarily due to a $63 million increase in Western log sales attributable to a 34 percent increase in sales realizations and a 4 percent increase in sales volumes, as well as a $12 million increase in Southern log sales attributable to a 6 percent increase in sales realizations and a 3 percent increase in sales volumes.

Intersegment sales

Intersegment sales increased $22 million – 21 percent – primarily due to a 14 percent increase in sales realizations, as well as a 6 percent increase in sales volumes.

Costs of sales

Costs of sales increased $70 million – 20 percent – primarily due to increased sales volumes, as discussed above, as well as increased freight costs and third-party log purchases.

Operating income and Net contribution to earnings

Operating income and net contribution to earnings increased $144 million primarily due to an $80 million timber casualty loss recorded in third quarter 2020 related to the Oregon wildfires, a $32 million gain on the sale of timberlands in the North Cascades region of Washington recorded in third quarter 2021 and the change in the components of gross margin discussed above.

Comparing Year-to-Date 2021 with Year-to-Date 2020

Net sales to unaffiliated customers

Net sales to unaffiliated customers increased $122 million – 11 percent – primarily due to a $130 million increase in Western log sales attributable to a 30 percent increase in sales realizations. The increase was partially offset by a $10 million decrease in other product sales.

Intersegment sales

Intersegment sales increased $49 million – 14 percent – primarily due to a 14 percent increase in sales realizations.

Costs of sales

Costs of sales increased $102 million – 9 percent – primarily due to increased freight costs and third-party log purchases, partially offset by decreased fee harvest volumes.

Operating income and Net contribution to earnings

Operating income and net contribution to earnings increased $185 million – 109 percent – primarily due to an $80 million timber casualty loss recorded in third quarter 2020 related to the Oregon wildfires, the change in the components of gross margin discussed above and a $32 million gain on the sale of timberlands in the North Cascades region of Washington recorded in third quarter 2021.

Third-Party Log Sales Volumes and Fee Harvest Volumes

		QUARTER ENDED								AMOUNT OF CHANGE				YEAR-TO-DATE ENDED								AMOUNT OF CHANGE
VOLUMES IN THOUSANDS		SEPTEMBER 2021				SEPTEMBER 2020				2021 VS. 2020				SEPTEMBER 2021				SEPTEMBER 2020				2021 VS. 2020
Third-party log sales – tons:
West(1)			1,555				1,489				66				4,702				4,887				(185	)
South			4,304				4,185				119				12,236				12,857				(621	)
North			195				234				(39	)			571				631				(60	)
Total			6,054				5,908				146				17,509				18,375				(866	)
Fee harvest volumes – tons:
West(1)			1,930				1,911				19				6,130				6,457				(327	)
South			5,912				5,596				316				17,144				17,640				(496	)
North			264				321				(57	)			800				901				(101	)
Total			8,106				7,828				278				24,074				24,998				(924	)

(1)	Western logs are primarily transacted in thousand board feet (MBF) but are converted to ton equivalents for external reporting purposes.

REAL ESTATE, ENERGY AND NATURAL RESOURCES

How We Did Third Quarter 2021 and Year-to-Date 2021

		QUARTER ENDED								AMOUNT OF CHANGE				YEAR-TO-DATE ENDED								AMOUNT OF CHANGE
DOLLAR AMOUNTS IN MILLIONS		SEPTEMBER 2021				SEPTEMBER 2020				2021 VS. 2020				SEPTEMBER 2021				SEPTEMBER 2020				2021 VS. 2020
Net sales:
Real estate		$	45			$	49			$	(4	)		$	212			$	192			$	20
Energy and natural resources			24				20				4				73				54				19
Total		$	69			$	69			$	—			$	285			$	246			$	39
Costs of sales		$	18			$	46			$	(28	)		$	93			$	156			$	(63	)
Operating income and Net contribution to earnings		$	45			$	17			$	28			$	174			$	72			$	102

The volume of real estate sales is a function of many factors, including the general state of the economy, demand in local real estate markets, the ability of buyers to obtain financing, the number of competing properties listed for sale, the seasonal nature of sales (particularly in the northern states), the plans of adjacent landowners, our expectation of future price appreciation, the timing of harvesting activities, and the availability of government and not-for-profit funding. In any period, the average sales price per acre will vary based on the location and physical characteristics of parcels sold.

Comparing Third Quarter 2021 with Third Quarter 2020

Net sales

Net sales remained consistent due to a $4 million decrease in real estate sales attributable to a decrease in real estate acres sold, partially offset by an increase in the average price per real estate acre sold. The decrease was offset by an equal increase in energy and natural resources sales of $4 million.

Costs of sales

Costs of sales decreased $28 million – 61 percent – primarily due to decreased real estate acres sold.

Operating income and Net contribution to earnings

Operating income and net contribution to earnings increased $28 million – 165 percent – primarily due to the change in the components of gross margin, as discussed above.

Comparing Year-to-Date 2021 with Year-to-Date 2020

Net sales

Net sales increased $39 million – 16 percent – primarily due to an increase in the average price per real estate acre sold, as well as an increase in mitigation bank sales, higher natural gas prices and an increase in production volumes of natural gas and construction materials, partially offset by decreased real estate acres sold.

Costs of sales

Costs of sales decreased $63 million – 40 percent – primarily due to decreased real estate acres sold.

Operating income and Net contribution to earnings

Operating income and net contribution to earnings increased $102 million – 142 percent – primarily due to the change in the components of gross margin, as discussed above.

REAL ESTATE SALES STATISTICS

		QUARTER ENDED								AMOUNT OF CHANGE				YEAR-TO-DATE ENDED								AMOUNT OF CHANGE
		SEPTEMBER 2021				SEPTEMBER 2020				2021 VS. 2020				SEPTEMBER 2021				SEPTEMBER 2020				2021 VS. 2020
Acres sold			11,037				34,917				(23,880	)			48,907				111,228				(62,321	)
Average price per acre		$	4,005			$	1,381			$	2,624			$	3,632			$	1,662			$	1,970

WOOD PRODUCTS

How We Did Third Quarter 2021 and Year-to-Date 2021

		QUARTER ENDED								AMOUNT OF CHANGE				YEAR-TO-DATE ENDED								AMOUNT OF CHANGE
DOLLAR AMOUNTS IN MILLIONS		SEPTEMBER 2021				SEPTEMBER 2020				2021 VS. 2020				SEPTEMBER 2021				SEPTEMBER 2020				2021 VS. 2020
Net sales:
Structural lumber		$	681			$	819			$	(138	)		$	3,020			$	1,865			$	1,155
Oriented strand board			470				290				180				1,513				659				854
Engineered solid section			183				135				48				491				373				118
Engineered I-joists			128				83				45				315				231				84
Softwood plywood			45				55				(10	)			170				128				42
Medium density fiberboard			52				47				5				143				124				19
Complementary building products			211				183				28				595				505				90
Other products produced(1)			83				84				(1	)			256				253				3
Total		$	1,853			$	1,696			$	157			$	6,503			$	4,138			$	2,365
Costs of sales		$	1,270			$	1,075			$	195			$	3,623			$	3,112			$	511
Operating income and Net contribution to earnings		$	517			$	566			$	(49	)		$	2,695			$	859			$	1,836

(1)	Other products produced sales include wood chips, other byproducts and third-party residual log sales from our Canadian Forestlands operations.

Comparing Third Quarter 2021 with Third Quarter 2020

Net sales

Net sales increased $157 million – 9 percent – due to:

●	a $180 million increase in oriented strand board sales attributable to a 75 percent increase in sales realizations, partially offset by a 7 percent decrease in sales volumes;

●	a $48 million increase in engineered solid section sales attributable to a 45 percent increase in sales realizations, partially offset by a 6 percent decrease in sales volumes;

●	a $45 million increase in engineered I-joists sales attributable to a 59 percent increase in sales realizations, partially offset by a 4 percent decrease in sales volumes;

●	a $28 million increase in complementary building products sales attributable to increased sales realizations and

●	a $5 million increase in medium density fiberboard sales attributable to a 9 percent increase in sales realizations.

These increases were partially offset by a $138 million decrease in structural lumber sales due to a 23 percent decrease in sales realizations, partially offset by a 9 percent increase in sales volumes, as well as a $10 million decrease in softwood plywood sales.

Costs of sales

Costs of sales increased $195 million – 18 percent – primarily due to increased freight costs and increased sales volumes for structural lumber, partially offset by decreased sales volumes across most other products.

Operating income and Net contribution to earnings

Operating income and net contribution to earnings decreased $49 million – 9 percent – primarily due to the change in the components of gross margin, as discussed above.

Comparing Year-to-Date 2021 with Year-to-Date 2020

Net sales

Net sales increased $2,365 million – 57 percent – primarily due to:

●	a $1,155 million increase in structural lumber sales attributable to a 60 percent increase in sales realizations, as well as a 1 percent increase in sales volumes;

●	an $854 million increase in oriented strand board sales attributable to a 151 percent increase in sales realizations, partially offset by a 9 percent decrease in sales volumes;

●	a $118 million increase in engineered solid section sales attributable to a 23 percent increase in sales realizations, as well as a 7 percent increase in sales volumes;

●	a $90 million increase in complementary building products sales attributable to increased sales realizations;

●	an $84 million increase in engineered I-joists sales attributable to a 28 percent increase in sales realizations, as well as a 6 percent increase in sales volumes;

●	a $42 million increase in softwood plywood sales attributable to a 75 percent increase in sales realizations, partially offset by a 24 percent decrease in sales volumes and

●	a $19 million increase in medium density fiberboard sales attributable to a 10 percent increase in sales volumes, as well as a 5 percent increase in sales realizations.

Costs of sales

Costs of sales increased $511 million – 16 percent – primarily due to increased freight costs and increased sales volumes for most products, as discussed above.

Operating income and Net contribution to earnings

Operating income and net contribution to earnings increased $1,836 million – 214 percent – primarily due to the change in the components of gross margin, as discussed above.

Third-Party Sales Volumes

		QUARTER ENDED								AMOUNT OF CHANGE				YEAR-TO-DATE ENDED								AMOUNT OF CHANGE
VOLUMES IN MILLIONS(1)		SEPTEMBER 2021				SEPTEMBER 2020				2021 VS. 2020				SEPTEMBER 2021				SEPTEMBER 2020				2021 VS. 2020
Structural lumber – board feet			1,320				1,216				104				3,717				3,663				54
Oriented strand board – square feet (3/8”)			681				736				(55	)			2,058				2,253				(195	)
Engineered solid section – cubic feet			5.9				6.3				(0.4	)			18.7				17.4				1.3
Engineered I-joists – lineal feet			49				51				(2	)			149				140				9
Softwood plywood – square feet (3/8”)			69				107				(38	)			240				315				(75	)
Medium density fiberboard – square feet (3/4”)			55				55				—				162				147				15

(1)	Sales volumes include sales of internally produced products and products purchased for resale primarily through our distribution business.

PRODUCTION AND OUTSIDE PURCHASE VOLUMES

Outside purchase volumes are primarily purchased for resale through our distribution business. Production volumes are produced for sale through our own sales organizations and through our distribution business. Production of oriented strand board and engineered solid section are also used to manufacture engineered I-joists.

		QUARTER ENDED								AMOUNT OF CHANGE				YEAR-TO-DATE ENDED								AMOUNT OF CHANGE
VOLUMES IN MILLIONS		SEPTEMBER 2021				SEPTEMBER 2020				2021 VS. 2020				SEPTEMBER 2021				SEPTEMBER 2020				2021 VS. 2020
Structural lumber – board feet:
Production			1,222				1,170				52				3,667				3,487				180
Outside purchase			56				55				1				160				164				(4	)
Total			1,278				1,225				53				3,827				3,651				176
Oriented strand board – square feet (3/8”):
Production			715				759				(44	)			2,140				2,278				(138	)
Outside purchase			62				77				(15	)			201				228				(27	)
Total			777				836				(59	)			2,341				2,506				(165	)
Engineered solid section – cubic feet:
Production			5.8				5.4				0.4				18.0				16.8				1.2
Outside purchase			0.2				0.2				—				0.7				0.4				0.3
Total			6.0				5.6				0.4				18.7				17.2				1.5
Engineered I-joists – lineal feet:
Production			49				43				6				144				128				16
Outside purchase			2				3				(1	)			6				8				(2	)
Total			51				46				5				150				136				14
Softwood plywood – square feet (3/8”):
Production			61				94				(33	)			203				267				(64	)
Outside purchase			12				17				(5	)			38				47				(9	)
Total			73				111				(38	)			241				314				(73	)
Medium density fiberboard – square feet (3/4"):
Production			55				57				(2	)			163				148				15
Total			55				57				(2	)			163				148				15

UNALLOCATED ITEMS

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.

Net Charge to Earnings – Unallocated Items

		QUARTER ENDED								AMOUNT OF CHANGE				YEAR-TO-DATE ENDED								AMOUNT OF CHANGE
DOLLAR AMOUNTS IN MILLIONS		SEPTEMBER 2021				SEPTEMBER 2020				2021 VS. 2020				SEPTEMBER 2021				SEPTEMBER 2020				2021 VS. 2020
Unallocated corporate function and variable compensation expense		$	(33	)		$	(36	)		$	3			$	(94	)		$	(78	)		$	(16	)
Liability classified share-based compensation			(1	)			(5	)			4				(2	)			1				(3	)
Foreign exchange gain (loss)			5				2				3				2				(3	)			5
Elimination of intersegment profit in inventory and LIFO			12				(9	)			21				(33	)			(4	)			(29	)
Other			(29	)			(14	)			(15	)			(62	)			(23	)			(39	)
Operating loss			(46	)			(62	)			16				(189	)			(107	)			(82	)
Non-operating pension and other post-employment benefit costs			(5	)			(9	)			4				(14	)			(28	)			14
Interest income and other			1				2				(1	)			4				5				(1	)
Net charge to earnings		$	(50	)		$	(69	)		$	19			$	(199	)		$	(130	)		$	(69	)

Comparing Third Quarter 2021 with Third Quarter 2020

Net charge to earnings decreased $19 million – 28 percent – primarily due to a $21 million decrease in elimination of intersegment profit in inventory and LIFO.

Comparing Year-to-Date 2021 with Year-to-Date 2020

Net charge to earnings increased $69 million – 53 percent – primarily due to:

●	a $29 million increase in elimination of intersegment profit in inventory and LIFO;

●	a $16 million increase in unallocated corporate function and variable compensation expense and

●	a $12 million legal benefit recognized in first quarter 2020.

INTEREST EXPENSE

Our interest expense, net of capitalized interest, was:

●	$79 million for third quarter 2021 and $236 million year-to-date 2021;

●	$111 million for third quarter 2020 and $299 million year-to-date 2020.

Interest expense decreased by $32 million compared to third quarter 2020 and by $63 million compared to year-to-date 2020. The decreases were primarily due to $23 million and $34 million in charges related to the early extinguishment of debt recorded in third quarter and year-to-date 2020, respectively, with no similar activity in third quarter and year-to-date 2021, as well as a decrease in average outstanding debt in third quarter and year-to-date 2021.

Refer to Note 9: Long-Term Debt and Line of Credit for further information.

INCOME TAXES

Our provision for income taxes was:

●	an $84 million expense for third quarter 2021 and a $597 million expense year-to-date 2021;

●	a $109 million expense for third quarter 2020 and a $166 million expense year-to-date 2020.

Our provision for income taxes is primarily driven by earnings generated by our TRSs. Income tax expense increased by $431 million compared to year-to-date 2020 primarily due to an increase in our TRS earnings in 2021.

Refer to Note 16: Income Taxes for further information.

LIQUIDITY AND CAPITAL RESOURCES

We are committed to maintaining an appropriate capital structure that provides flexibility and enables us to protect the interests of our shareholders and meet our obligations to our lenders, while also maintaining access to all major financial markets. As of September 30, 2021, we had over $2.3 billion in cash and cash equivalents and $1.5 billion of availability on our line of credit, which expires in January 2025. We believe we have sufficient liquidity to meet our cash requirements for the foreseeable future.

CASH FROM OPERATIONS

Consolidated net cash from operations was:

●	$2,665 million for year-to-date 2021 and

●	$1,085 million for year-to-date 2020.

Net cash from operations increased $1,580 million, primarily due to:

●	increased cash inflows from our business operations and

●	decreased cash used for interest payments.

These changes were partially offset by a $448 million increase in cash paid for income taxes.

CASH FROM INVESTING ACTIVITIES

Consolidated net cash from investing activities was:

●	$(108) million for year-to-date 2021 and

●	$311 million for year-to-date 2020.

Net cash from investing activities decreased $419 million, primarily due to:

●	a $362 million decrease in proceeds received from variable interest entities and

●	a $149 million increase in cash paid for timberlands acquisitions.

These changes were partially offset by a $116 million increase in proceeds from the sale of timberlands.

Summary of Capital Spending by Business Segment

		YEAR-TO-DATE ENDED
DOLLAR AMOUNTS IN MILLIONS		SEPTEMBER 2021				SEPTEMBER 2020
Timberlands		$	76			$	75
Wood Products			146				124
Unallocated Items			1				—
Total		$	223			$	199

We anticipate our capital expenditures for 2021 will be slightly below $460 million as a result of supply chain and contract labor constraints.

CASH FROM FINANCING ACTIVITIES

Consolidated net cash from financing activities was:

●	$(606) million for year-to-date 2021 and

●	$(695) million for year-to-date 2020.

Net cash from financing activities increased $89 million, primarily due to a $230 million decrease in net cash paid related to borrowings on our line of credit and a $37 million increase in cash received from exercise of stock options.

These changes were partially offset by:

●	a $128 million increase in cash paid for dividends;

●	a $26 million increase in cash used for repurchases of common shares and

●	a $21 million increase in net cash used for payments on long-term debt.

Line of Credit

We had no outstanding borrowings on our $1.5 billion five-year senior unsecured revolving credit facility as of September 30, 2021 or December 31, 2020. This credit facility expires in January 2025.

Refer to Note 9: Long-Term Debt and Line of Credit for further information.

Long-Term Debt

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.

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.

Refer to Note 9: Long-Term Debt and Line of Credit for further information.

Our revolving credit agreement utilizes the London Inter-bank Offered Rate (LIBOR) as a basis for one of the interest rate options available to the company to apply to outstanding borrowings. Publication of USD LIBOR is expected to cease between January 1, 2022 and July 1, 2023. We plan to transition our revolving credit facility to an alternate reference rate in 2022. We have included provisions in our revolving credit agreement that specifically contemplate the transition from LIBOR to a replacement benchmark rate.

Debt Covenants

As of September 30, 2021, Weyerhaeuser Company was in compliance with its debt covenants. There have been no significant changes to the debt covenants presented in our 2020 Annual Report on Form 10-K for our existing long-term debt instruments, and we expect to remain in compliance with our debt covenants for the foreseeable future.

Option Exercises

We received cash proceeds from the exercise of stock options of:

●	$46 million for year-to-date 2021 and

●	$9 million for year-to-date 2020.

Our average stock price was $35.41 and $24.67 for year-to-date 2021 and 2020, respectively.

Dividend Payments

We paid cash dividends on common shares of:

●	$382 million for year-to-date 2021 and

●	$254 million for year-to-date 2020.

On September 22, 2021, our board of directors declared an interim supplemental dividend of $0.50 per share that was paid on October 19, 2021. As a result, we recorded dividends payable of $375 million within “Accrued liabilities” on our Consolidated Balance Sheet as of September 30, 2021. In accordance with our dividend framework, we expect to pay a significant supplemental dividend based on our 2021 annual results to shareholders in first quarter 2022.

Share Repurchases

We repurchased over 780 thousand shares for approximately $26 million (including transaction fees) during third quarter 2021 under the 2019 Repurchase Program. We did not repurchase shares in 2020. There were no unsettled repurchases as of September 30, 2021 or December 31, 2020. Refer to Note 4: Net Earnings Per Share and Share Repurchases for further information.

PERFORMANCE MEASURES

Adjusted EBITDA by Segment

We use Adjusted EBITDA as a key performance measure to evaluate the performance of the consolidated company and our business segments. This measure should not be considered in isolation from, and is not intended to represent an alternative to, our results reported in accordance with U.S. generally accepted accounting principles (U.S. GAAP). However, we believe Adjusted EBITDA provides meaningful supplemental information for investors about our operating performance, better facilitates period to period comparisons and is widely used by analysts, lenders, rating agencies and other interested parties. Our definition of Adjusted EBITDA may be different from similarly titled measures reported by other companies. Adjusted EBITDA, as we define it, is operating income adjusted for depreciation, depletion, amortization, basis of real estate sold and special items.

		QUARTER ENDED								AMOUNT OF CHANGE				YEAR-TO-DATE ENDED								AMOUNT OF CHANGE
DOLLAR AMOUNTS IN MILLIONS		SEPTEMBER 2021				SEPTEMBER 2020				2021 VS. 2020				SEPTEMBER 2021				SEPTEMBER 2020				2021 VS. 2020
Adjusted EBITDA by Segment:
Timberlands		$	165			$	130			$	35			$	517			$	443			$	74
Real Estate & ENR			60				60				—				247				218				29
Wood Products			565				615				(50	)			2,840				997				1,843
			790				805				(15	)			3,604				1,658				1,946
Unallocated Items			(44	)			(60	)			16				(184	)			(114	)			(70	)
Adjusted EBITDA		$	746			$	745			$	1			$	3,420			$	1,544			$	1,876

We reconcile Adjusted EBITDA to net earnings for the consolidated company and to operating income (loss) for the business segments, as those are the most directly comparable U.S. GAAP measures for each.

The table below reconciles Adjusted EBITDA for the quarter ended September 30, 2021:

DOLLAR AMOUNTS IN MILLIONS		Timberlands				Real Estate & ENR				Wood Products				Unallocated Items				Total
Adjusted EBITDA by Segment:
Net earnings																		$	482
Interest expense, net of capitalized interest																			79
Income taxes																			84
Net contribution (charge) to earnings		$	133			$	45			$	517			$	(50	)		$	645
Non-operating pension and other post-employment benefit costs			—				—				—				5				5
Interest income and other			—				—				—				(1	)			(1	)
Operating income (loss)			133				45				517				(46	)			649
Depreciation, depletion and amortization			64				4				48				2				118
Basis of real estate sold			—				11				—				—				11
Special items included in operating income (loss)(1)			(32	)			—				—				—				(32	)
Adjusted EBITDA		$	165			$	60			$	565			$	(44	)		$	746

(1)	Operating income (loss) includes a pretax special item consisting of a $32 million gain on the sale of timberlands.

The table below reconciles Adjusted EBITDA for the quarter ended September 30, 2020:

DOLLAR AMOUNTS IN MILLIONS		Timberlands				Real Estate & ENR				Wood Products				Unallocated Items				Total
Adjusted EBITDA by Segment:
Net earnings																		$	283
Interest expense, net of capitalized interest(1)																			111
Income taxes																			109
Net contribution (charge) to earnings		$	(11	)		$	17			$	566			$	(69	)		$	503
Non-operating pension and other post-employment benefit costs			—				—				—				9				9
Interest income and other			—				—				—				(2	)			(2	)
Operating income (loss)			(11	)			17				566				(62	)			510
Depreciation, depletion and amortization			61				3				49				2				115
Basis of real estate sold			—				40				—				—				40
Special items included in operating income (loss)(2)			80				—				—				—				80
Adjusted EBITDA		$	130			$	60			$	615			$	(60	)		$	745

(1)	Interest expense, net of capitalized interest includes a pretax special item of $23 million related to a charge for the early extinguishment of debt.

(2)	Operating income (loss) includes a pretax special item consisting of an $80 million timber casualty loss.

The table below reconciles Adjusted EBITDA for the year-to-date period ended September 30, 2021:

DOLLAR AMOUNTS IN MILLIONS		Timberlands				Real Estate & ENR				Wood Products				Unallocated Items				Total
Adjusted EBITDA by Segment:
Net earnings																		$	2,191
Interest expense, net of capitalized interest																			236
Income taxes																			597
Net contribution (charge) to earnings		$	354			$	174			$	2,695			$	(199	)		$	3,024
Non-operating pension and other post-employment benefit costs			—				—				—				14				14
Interest income and other			—				—				—				(4	)			(4	)
Operating income (loss)			354				174				2,695				(189	)			3,034
Depreciation, depletion and amortization			195				11				145				5				356
Basis of real estate sold			—				62				—				—				62
Special items included in operating income (loss)(1)			(32	)			—				—				—				(32	)
Adjusted EBITDA		$	517			$	247			$	2,840			$	(184	)		$	3,420

(1)	Operating income (loss) includes a pretax special item consisting of a $32 million gain on the sale of timberlands.

The table below reconciles Adjusted EBITDA for the year-to-date period ended September 30, 2020:

DOLLAR AMOUNTS IN MILLIONS		Timberlands				Real Estate & ENR				Wood Products				Unallocated Items				Total
Adjusted EBITDA by Segment:
Net earnings																		$	505
Interest expense, net of capitalized interest(1)																			299
Income taxes																			166
Net contribution (charge) to earnings		$	169			$	72			$	859			$	(130	)		$	970
Non-operating pension and other post-employment benefit costs			—				—				—				28				28
Interest income and other			—				—				—				(5	)			(5	)
Operating income (loss)			169				72				859				(107	)			993
Depreciation, depletion and amortization			194				10				146				5				355
Basis of real estate sold			—				136				—				—				136
Special items included in operating income (loss)(2)			80				—				(8	)			(12	)			60
Adjusted EBITDA		$	443			$	218			$	997			$	(114	)		$	1,544

(1)	Interest expense, net of capitalized interest includes pretax special items of $34 million related to charges for the early extinguishment of debt.

(2)	Operating income (loss) includes pretax special items consisting of a $12 million noncash legal benefit within Unallocated Items, an $8 million product remediation insurance recovery within Wood Products and an $80 million timber casualty loss within Timberlands.

Net Earnings and Net Earnings per Diluted Share Before Special Items

We use net earnings before special items and net earnings per diluted share before special items as key performance measures to evaluate the performance of the consolidated company. These measures should not be considered in isolation from, and are not intended to represent an alternative to, our results reported in accordance with U.S. GAAP. However, we believe the measures provide meaningful supplemental information for investors about our operating performance, better facilitate period to period comparisons and are widely used by analysts, lenders, rating agencies and other interested parties.

Net Earnings Before Special Items

		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
Early extinguishment of debt charges			—				23				—				34
Gain on sale of timberlands			(32	)			—				(32	)			—
Legal benefit			—				—				—				(12	)
Product remediation recovery			—				—				—				(6	)
Timber casualty loss			—				80				—				80
Net earnings before special items		$	450			$	386			$	2,159			$	601

Net Earnings per Diluted Share Before Special Items

		QUARTER ENDED								YEAR-TO-DATE ENDED
		SEPTEMBER 2021				SEPTEMBER 2020				SEPTEMBER 2021				SEPTEMBER 2020
Net earnings per diluted share		$	0.64			$	0.38			$	2.92			$	0.68
Early extinguishment of debt charges			—				0.03				—				0.05
Gain on sale of timberlands			(0.04	)			—				(0.04	)			—
Legal benefit			—				—				—				(0.02	)
Product remediation recovery			—				—				—				(0.01	)
Timber casualty loss			—				0.11				—				0.11
Net earnings per diluted share before special items		$	0.60			$	0.52			$	2.88			$	0.81

CRITICAL ACCOUNTING POLICIES

There have been no significant changes during year-to-date 2021 to the critical accounting policies presented in our 2020 Annual Report on Form 10-K.