Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)

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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; our capital structure and the sufficiency of our liquidity position to meet future cash requirements; compliance with covenants in our debt agreements; our expectations concerning our contingent liabilities and the sufficiency of related reserves and accruals including, but not limited to, cost estimates of future litigation and environmental remediation; expected capital expenditures; market and general economic conditions, including related influencing factors such as the trajectory of U.S. housing activity, repair and remodel activity, inflation trends and interest rates; our expectations about our future opportunities in emerging carbon offset and carbon capture and storage markets; and assumptions used in valuing incentive compensation and related expense.

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,” “maintain,” “may,” “plan,” “potential,” “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. There is no guarantee that any of the events anticipated by our forward-looking statements will occur. If any of the events occur, there is no guarantee what effect it will have on our operations, cash flows, or financial condition. We undertake no obligation to update our forward-looking statements after the date of this report. The factors listed below, as well as other factors not described herein because they are not currently known to us or we currently judge them to be immaterial, may cause our actual results to differ significantly from our forward-looking statements:

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the effect of general economic conditions, including employment rates, interest rate levels, inflation, housing starts, general availability and cost 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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our ability to hire and retain capable employees;

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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 as it relates to the cost of pension benefits 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 2022 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:

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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, loss on debt extinguishment or income taxes.

ECONOMIC AND MARKET CONDITIONS AFFECTING OUR OPERATIONS

Our market conditions and the strength of the broader U.S. economy are, and will continue to be, influenced by the trajectory of activity in the U.S. housing and repair and remodel segments, inflation trends and interest rates. 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, particularly 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. 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 oriented strand board (OSB) as well as the demand for biofuels, such as wood-burning pellets made from pulpwood. Our Timberlands segment is also influenced by the availability of harvestable timber. In general, Western log markets are highly tensioned by available supply, while Southern log markets have more available supply. However, additional mill capacity being added in the U.S. South has led to tightening of markets in certain geographies. Our Real Estate, Energy and Natural Resources segment is affected by a variety of factors, including the general state of the economy, local real estate market conditions, the level of construction activity in the U.S. and evolution of emerging renewable energy and carbon-related markets.

Over the past year, home sales and building activity slowed due in part to higher mortgage interest rates, reduced affordability and general macroeconomic conditions. During second quarter 2023, market conditions improved in response to a stabilization in mortgage rates and increased homebuilder sentiment. On a seasonally adjusted annual basis, as reported by the U.S. Census Bureau, housing starts for second quarter 2023 averaged 1.45 million units, a 4.5 percent increase from first quarter 2023. Single-family starts averaged 929 thousand units, an 11.4 percent increase from first quarter 2023. Multi-family starts averaged 518 thousand units in second quarter 2023, which was a 6.1 percent decrease from first quarter 2023. Sales of newly built, single-family homes averaged a seasonally adjusted annual rate of 694 thousand units for second quarter 2023, an increase of 8.8 percent from the prior quarter. Over the medium to long-term, we expect a favorable U.S. housing construction market supported by strong demographics in the key homebuying age cohorts, a decade of underbuilding and a historically low housing inventory.

Repair and remodeling expenditures decreased by 1.9 percent from first quarter 2023 to second quarter 2023 according to the Census Bureau Advance Retail Spending report. Do-it-yourself activity has been returning to more normalized levels while professionally contracted activities have benefited from larger projects and increases in home equity levels. Over the longer term, we expect this sector to return to pre-pandemic growth trends with healthy household balance sheets, elevated home equity and an aging U.S. housing stock, with a median age of 43 years.

In U.S. wood product markets, demand in early second quarter 2023 continued to be affected by softening in the housing market and ongoing macroeconomic uncertainty. As the quarter progressed, improvements in the housing market, combined with supply concerns resulting from a series of temporary and permanent mill curtailments and wildfires in Canada, led to moderately tighter markets. The Random Lengths Framing Lumber Composite price averaged $409/MBF and the OSB Composite averaged $360/MSF in second quarter 2023. Over the course of the second quarter, prices increased from $417/MBF to $438/MBF for lumber and from $297/MSF to $432/MSF for OSB.

In Western log markets, Douglas fir sawlog prices rose by 0.4 percent in second quarter 2023 compared with first quarter 2023, as reported by RISI Log Lines based on Weyerhaeuser’s sales mix. Overall, domestic prices in the West stayed consistent, with lower lumber prices offset by continued constraints in log supply. In the South, delivered sawlog prices remained flat in second quarter 2023 compared to first quarter 2023 and declined 1.5 percent from second quarter 2022 as reported by TimberMart-South, as log and haul capacity constraints eased somewhat.

Currency exchange rates, available supply from other countries and trade policy affect our export businesses. During second quarter 2023, end use demand softened in export markets, partially offset by continued disruptions in global log and lumber supply. In Japan, total housing starts decreased 1.6 percent year to date through May compared to the same period in 2022, while the key Post and Beam segment saw a 5.9 percent decrease. An increase in lumber imports to Japan from Europe placed downward pressure on market conditions. China demand has improved from low levels late in 2022 but remains subdued due to general economic conditions and increased supply of logs from New Zealand.

Interest rates affect our business primarily through their impact on mortgage rates and housing affordability, their general impact on the economy, and their influence on our capital management activities. Actions by the U.S. Federal Reserve, the overall condition of the economy and fluctuations in financial markets are all factors that influence long-term interest rates. 30-year mortgage rates, which are correlated with long-term interest rates, increased from 6.3 percent at the end of first quarter 2023 to 6.7 percent at the end of second quarter 2023. While mortgage rates remain elevated, home buyers have responded favorably to even small reductions. Builders have also been able to offset higher mortgage rates through discounts, loan subsidies and modifying product offerings such as home sizes and finishes. Higher rates have also locked-in many existing homeowners from selling, reducing inventories of existing homes for sale which has led to increased demand for available new homes.

Increased inflation affects the cost of our operations across each of our business segments, including costs for raw materials, transportation, energy and labor. The Consumer Price Index increased 3.0 percent year over year in June 2023, which is markedly down from its peak of over 9.0 percent in June 2022. While we can offset some of the impacts of inflation through our sales activities, our operational excellence initiatives and our procurement practices, not all of the costs associated with inflation can be fully mitigated or passed on to the consumer.

The condition of the labor market affects all of our businesses as it relates to our ability to attract and retain employees and contractors. The unemployment rate of 3.6 percent in June 2023 remained near historically low levels and increased 0.1 percent from the end of first quarter 2023. Labor force participation has increased to 62.6 percent in June 2023, from 62.2 percent in June 2022, approaching pre-Pandemic levels of 63 percent.

Governments and businesses across the globe are taking action on climate change and are making significant commitments towards decarbonizing operations and 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, carbon capture and storage and renewable energy activities.

CONSOLIDATED RESULTS

How We Did Second Quarter 2023 and Year-to-Date 2023

QUARTER ENDEDAMOUNT OF CHANGEYEAR-TO-DATE ENDEDAMOUNT OF CHANGE
DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURESJUNE 2023JUNE 20222023 VS. 2022JUNE 2023JUNE 20222023 VS. 2022
Net sales$1,997$2,973$(976)$3,878$6,085$(2,207)
Costs of sales$1,528$1,789$(261)$3,040$3,436$(396)
Operating income$319$1,047$(728)$555$2,391$(1,836)
Net earnings$230$788$(558)$381$1,559$(1,178)
Earnings per share, basic and diluted$0.31$1.06$(0.75)$0.52$2.09$(1.57)

Comparing Second Quarter 2023 with Second Quarter 2022

Net sales

Net sales decreased $976 million – 33 percent – primarily due to an $841 million decrease in Wood Products sales to unaffiliated customers attributable to decreased sales volumes and sales realizations across most product lines, as well as a $98 million decrease in Timberlands net sales to unaffiliated customers primarily attributable to decreased sales realizations and sales volumes in the Western region.

Costs of sales

Costs of sales decreased $261 million – 15 percent – primarily due to decreased sales volumes and raw material costs across most product lines and decreased freight costs within our Wood Products segment, as well as decreased export log freight costs and third-party log purchases within our Timberlands segment.

Operating income

Operating income decreased $728 million – 70 percent – primarily due to a $715 million decrease in consolidated gross margin, as discussed above.

Net earnings

Net earnings decreased $558 million – 71 percent – primarily due to the $728 million decrease in operating income, as discussed above.

This decrease in operating income was partially offset by a $159 million decrease in income tax expense (refer to Income Taxes).

Comparing Year-to-Date 2023 with Year-to-Date 2022

Net sales

Net sales decreased $2,207 million – 36 percent – primarily due to a $2,042 million decrease in Wood Products sales to unaffiliated customers attributable to decreased sales realizations and sales volumes across most product lines, as well as a $101 million decrease in Timberlands sales to unaffiliated customers attributable to decreased sales realizations in the Western region, partially offset by increased sales volumes in the Southern region and increased stumpage sales.

Costs of sales

Costs of sales decreased $396 million – 12 percent – primarily due to decreased sales volumes and raw material costs across most product lines within our Wood Products segment, as well as decreased freight costs.

Operating income

Operating income decreased $1,836 million – 77 percent – primarily due to a $1,811 million decrease in consolidated gross margin, as discussed above.

Net earnings

Net earnings decreased $1,178 million – 76 percent – primarily due to the $1,836 million decrease in operating income, as discussed above.

This decrease was partially offset by a $346 million decrease in income tax expense (refer to Income Taxes), as well as a $276 million pretax charge ($207 million after-tax) related to the early extinguishment of debt in first quarter 2022 (refer to Note 8: Long-Term Debt and Line of Credit).

TIMBER****LANDS

How We Did Second Quarter 2023 and Year-to-Date 2023

QUARTER ENDEDAMOUNT OF CHANGEYEAR-TO-DATE ENDEDAMOUNT OF CHANGE
DOLLAR AMOUNTS IN MILLIONSJUNE 2023JUNE 20222023 VS. 2022JUNE 2023JUNE 20222023 VS. 2022
Net sales to unaffiliated customers:
Delivered logs:
West$206$308$(102)$435$567$(132)
South162160233031416
North710(3)2425(1)
Subtotal delivered logs sales375478(103)789906(117)
Stumpage and pay-as-cut timber15114312011
Recreational and other lease revenue1716135332
Other(1)1010—24213
Subtotal net sales to unaffiliated customers417515(98)879980(101)
Intersegment sales150156(6)292317(25)
Total sales$567$671$(104)$1,171$1,297$(126)
Costs of sales$439$495$(56)$900$918$(18)
Operating income and Net contribution to earnings$104$153$(49)$224$335$(111)

(1)

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

Comparing Second Quarter 2023 with Second Quarter 2022

Net sales to unaffiliated customers

Net sales to unaffiliated customers decreased $98 million – 19 percent – primarily due to a $102 million decrease in Western log sales attributable to a 29 percent decrease in sales realizations and a 7 percent decrease in sales volumes, partially offset by a $4 million increase in stumpage and pay-as-cut timber sales.

Intersegment sales

Intersegment sales decreased $6 million – 4 percent – primarily due to a 9 percent decrease in sales realizations, partially offset by a 6 percent increase in sales volumes.

Costs of sales

Costs of sales decreased $56 million – 11 percent – primarily due to decreased Western third-party log purchases and export log freight costs.

Operating income and Net contribution to earnings

Operating income and net contribution to earnings decreased $49 million – 32 percent – primarily due to the change in the components of gross margin, as discussed above.

Comparing Year-to-Date 2023 with Year-to-Date 2022

Net sales to unaffiliated customers

Net sales to unaffiliated customers decreased $101 million – 10 percent – primarily due to a $132 million decrease in Western log sales attributable to a 22 percent decrease in sales realizations, partially offset by a $16 million increase in Southern log sales, attributable to a 5 percent increase in sales volumes, and an $11 million increase in stumpage and pay-as-cut timber sales.

Intersegment sales

Intersegment sales decreased $25 million – 8 percent – primarily due to a 9 percent decrease in sales realizations, partially offset by a 2 percent increase in sales volumes.

Costs of sales

Costs of sales decreased $18 million – 2 percent – primarily due to decreased Western third-party log purchases, partially offset by increased logging and hauling costs as well as increased Southern log sales volumes.

Operating income and Net contribution to earnings

Operating income and net contribution to earnings decreased $111 million – 33 percent – primarily due to the change in the components of gross margin, as discussed above.

Third-Party Log Sales Volumes and Fee Harvest Volumes

QUARTER ENDEDAMOUNT OF CHANGEYEAR-TO-DATE ENDEDAMOUNT OF CHANGE
VOLUMES IN THOUSANDSJUNE 2023JUNE 20222023 VS. 2022JUNE 2023JUNE 20222023 VS. 2022
Third-party log sales – tons:
West(1)1,6611,778(117)3,3353,382(47)
South4,3414,1671748,7278,302425
North98118(20)302328(26)
Total6,1006,0633712,36412,012352
Fee harvest volumes – tons:
West(1)2,2922,0852074,5374,325212
South6,4306,15927112,86212,001861
North175180(5)4604582
Total8,8978,42447317,85916,7841,075

(1)

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

REAL ESTATE, ENERGY A****ND NATURAL RESOURCES

How We Did Second Quarter 2023 and Year-to-Date 2023

QUARTER ENDEDAMOUNT OF CHANGEYEAR-TO-DATE ENDEDAMOUNT OF CHANGE
DOLLAR AMOUNTS IN MILLIONSJUNE 2023JUNE 20222023 VS. 2022JUNE 2023JUNE 20222023 VS. 2022
Net sales:
Real estate$47$90$(43)$119$187$(68)
Energy and natural resources3327662584
Total$80$117$(37)$181$245$(64)
Costs of sales$21$45$(24)$62$86$(24)
Operating income and Net contribution to earnings$52$65$(13)$105$146$(41)

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, 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 Second Quarter 2023 with Second Quarter 2022

Net sales

Net sales decreased $37 million – 32 percent – primarily due to a decrease in acres sold, partially offset by an increase in the average price per acre sold.

Costs of sales

Costs of sales decreased $24 million – 53 percent – primarily due to a decrease in acres sold, as well as a decrease in basis per acre sold.

Operating income and Net contribution to earnings

Operating income and net contribution to earnings decreased $13 million – 20 percent – primarily due to the change in the components of gross margin, as discussed above.

Comparing Year-to-Date 2023 with Year-to-Date 2022

Net sales

Net sales decreased $64 million – 26 percent – primarily due to a decrease in acres sold, partially offset by an increase in the average price per acre sold.

Costs of sales

Cost of sales decreased $24 million – 28 percent – primarily due to a decrease in acres sold, partially offset by an increase in basis per acre sold.

Operating income and Net contribution to earnings

Operating income and net contribution to earnings decreased $41 million – 28 percent – primarily due to the change in the components of gross margin, as discussed above.

REAL ESTATE SALES STATISTICS

QUARTER ENDEDAMOUNT OF CHANGEYEAR-TO-DATE ENDEDAMOUNT OF CHANGE
JUNE 2023JUNE 20222023 VS. 2022JUNE 2023JUNE 20222023 VS. 2022
Acres sold9,28126,906(17,625)30,03451,032(20,998)
Average price per acre$4,790$3,215$1,575$3,720$3,484$236

WOOD PRODUCTS

How We Did Second Quarter 2023 and Year-to-Date 2023

QUARTER ENDEDAMOUNT OF CHANGEYEAR-TO-DATE ENDEDAMOUNT OF CHANGE
DOLLAR AMOUNTS IN MILLIONSJUNE 2023JUNE 20222023 VS. 2022JUNE 2023JUNE 20222023 VS. 2022
Net sales:
Structural lumber$573$998$(425)$1,088$2,204$(1,116)
Oriented strand board215497(282)4231,061(638)
Engineered solid section215247(32)384443(59)
Engineered I-joists126168(42)213305(92)
Softwood plywood4453(9)85111(26)
Medium density fiberboard4253(11)80101(21)
Complementary building products204239(35)367454(87)
Other products produced(1)8186(5)178181(3)
Total$1,500$2,341$(841)$2,818$4,860$(2,042)
Costs of sales$1,218$1,414$(196)$2,377$2,690$(313)
Operating income and Net contribution to earnings$218$863$(645)$313$2,045$(1,732)

(1)

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

Comparing Second Quarter 2023 with Second Quarter 2022

Net sales

Net sales decreased $841 million – 36 percent – due to:

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a $425 million decrease in structural lumber sales attributable to a 38 percent decrease in sales realizations, as well as a 7 percent decrease in sales volumes;

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a $282 million decrease in oriented strand board sales attributable to a 56 percent decrease in sales realizations, as well as a 2 percent decrease in sales volumes;

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a $42 million decrease in engineered I-joists sales attributable to a 15 percent decrease in sales realizations, as well as a 10 percent decrease in sales volumes;

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a $35 million decrease in complementary building products sales attributable to decreased sales realizations and volumes for steel, concrete and cedar, as well as decreased sales volumes for siding and trim;

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a $32 million decrease in engineered solid section sales attributable to an 8 percent decrease in sales realizations, as well as a 6 percent decrease in sales volumes;

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an $11 million decrease in medium density fiberboard sales attributable to a 31 percent decrease in sales volumes, partially offset by a 14 percent increase in sales realizations;

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a $9 million decrease in softwood plywood sales attributable to a 36 percent decrease in sales realizations, partially offset by a 34 percent increase in sales volumes and

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a $5 million decrease in other products produced attributable to decreased sales volumes.

Costs of sales

Costs of sales decreased $196 million – 14 percent – primarily due to decreased sales volumes and raw material costs across most product lines, as well as decreased freight costs.

Operating income and Net contribution to earnings

Operating income and net contribution to earnings decreased $645 million – 75 percent – primarily due to the change in the components of gross margin, as discussed above.

Comparing Year-to-Date 2023 with Year-to-Date 2022

Net sales

Net sales decreased $2,042 million – 42 percent – due to:

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a $1,116 million decrease in structural lumber sales attributable to a 48 percent decrease in sales realizations, as well as a 4 percent decrease in sales volumes;

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a $638 million decrease in oriented strand board sales attributable to a 61 percent decrease in sales realizations, partially offset by a 3 percent increase in sales volumes;

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a $92 million decrease in engineered I-joist sales attributable to a 25 percent decrease in sales volumes, as well as a 6 percent decrease in sales realizations;

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an $87 million decrease in complementary building products sales attributable to decreased sales realizations and volumes for steel, concrete and cedar, as well as decreased sales volumes for siding and trim;

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a $59 million decrease in engineered solid section sales attributable to a 12 percent decrease in sales volumes, as well as a 2 percent decrease in sales realizations;

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a $26 million decrease in softwood plywood sales attributable to a 37 percent decrease in sales realizations, partially offset by a 22 percent increase in sales volumes and

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a $21 million decrease in medium density fiberboard sales attributable to a 33 percent decrease in sales volumes, partially offset by an 18 percent increase in sales realizations.

Costs of sales

Costs of sales decreased $313 million – 12 percent – primarily due to decreased sales volumes and raw material costs across most product lines, as well as decreased freight costs.

Operating income and Net contribution to earnings

Operating income and net contribution to earnings decreased $1,732 million – 85 percent – primarily due to the change in the components of gross margin, as discussed above.

Third-Party Sales Volumes

QUARTER ENDEDAMOUNT OF CHANGEYEAR-TO-DATE ENDEDAMOUNT OF CHANGE
VOLUMES IN MILLIONS**(1)**JUNE 2023JUNE 20222023 VS. 2022JUNE 2023JUNE 20222023 VS. 2022
Structural lumber – board feet1,1961,289(93)2,3402,446(106)
Oriented strand board – square feet (3/8”)720735(15)1,4931,45241
Engineered solid section – cubic feet6.06.4(0.4)10.712.1(1.4)
Engineered I-joists – lineal feet4449(5)7195(24)
Softwood plywood – square feet (3/8”)94702417714532
Medium density fiberboard – square feet (3/4”)3145(14)6089(29)

(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 ENDEDAMOUNT OF CHANGEYEAR-TO-DATE ENDEDAMOUNT OF CHANGE
VOLUMES IN MILLIONSJUNE 2023JUNE 20222023 VS. 2022JUNE 2023JUNE 20222023 VS. 2022
Structural lumber – board feet:
Production1,1641,232(68)2,3072,435(128)
Outside purchase3643(7)7585(10)
Total1,2001,275(75)2,3822,520(138)
Oriented strand board – square feet (3/8”):
Production727758(31)1,4881,497(9)
Outside purchase1966(47)36136(100)
Total746824(78)1,5241,633(109)
Engineered solid section – cubic feet:
Production5.96.4(0.5)10.512.1(1.6)
Outside purchase4.00.33.76.00.55.5
Total9.96.73.216.512.63.9
Engineered I-joists – lineal feet:
Production3850(12)6394(31)
Outside purchase—3(3)15(4)
Total3853(15)6499(35)
Softwood plywood – square feet (3/8”):
Production84671715813325
Outside purchase118323185
Total95752018115130
Medium density fiberboard – square feet (3/4"):
Production3348(15)6792(25)
Total3348(15)6792(25)

UNALLOCAT****ED 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 ENDEDAMOUNT OF CHANGEYEAR-TO-DATE ENDEDAMOUNT OF CHANGE
DOLLAR AMOUNTS IN MILLIONSJUNE 2023JUNE 20222023 VS. 2022JUNE 2023JUNE 20222023 VS. 2022
Unallocated corporate function and variable compensation expense$(32)$(36)$4$(59)$(67)$8
Liability classified share-based compensation(2)2(4)(2)3(5)
Foreign exchange gain (loss)23(1)13(2)
Elimination of intersegment profit in inventory and LIFO318(15)12(41)53
Other(26)(21)(5)(39)(33)(6)
Operating loss(55)(34)(21)(87)(135)48
Non-operating pension and other post-employment benefit costs(12)(11)(1)(21)(26)5
Interest income and other1811730—30
Net charge to earnings$(49)$(44)$(5)$(78)$(161)$83

Comparing Second Quarter 2023 with Second Quarter 2022

Net charge to earnings increased $5 million – 11 percent – primarily due to:

●

a $15 million increase in elimination of intersegment profit in inventory and LIFO and

●

a $5 million increase in other, primarily due to increased charges for environmental remediation.

These changes were partially offset by a $17 million increase in interest income and other due to an increase in the interest rate on our cash and short-term investment accounts.

Comparing Year-to-Date 2023 with Year-to-Date 2022

Net charge to earnings decreased $83 million – 52 percent – primarily due to a $53 million decrease in elimination of intersegment profit in inventory and LIFO, as well as a $30 million increase in interest income and other due to an increase in the interest rate on our cash and short-term investment accounts.

INTEREST EXPENSE

Our interest expense, net of capitalized interest, was:

●

$70 million for second quarter 2023 and $136 million year-to-date 2023;

●

$65 million for second quarter 2022 and $137 million year-to-date 2022.

Interest expense increased by $5 million compared to second quarter 2022 primarily due to an increase in weighted average outstanding debt in second quarter 2023. Year-to-date 2023 interest expense was comparable to year-to-date 2022 primarily due to the May 2023 issuance of debt securities that increased our weighted average outstanding debt, offset by a series of transactions performed in March 2022 that lowered our weighted average interest rate and extended our weighted average maturity.

Refer to Note 8: Long-Term Debt and Line of Credit for further information.

INCOME TAXES

Our provision for income taxes was:

●

a $25 million expense for second quarter 2023 and $47 million year-to-date 2023;

●

a $184 million expense for second quarter 2022 and $393 million year-to-date 2022.

Our provision for income taxes is primarily driven by earnings generated by our TRSs. Income tax expense decreased by $346 million compared to year-to-date 2022 primarily due to a decrease in our TRS earnings in 2023, as well as a decrease in our estimated annual effective tax rate.

Refer to Note 14: 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 June 30, 2023, we had approximately $1.1 billion in cash and cash equivalents, $665 million in short-term investments and $1.5 billion of availability on our line of credit, which expires in March 2028. We believe we have sufficient liquidity to meet our cash requirements for the foreseeable future.

CASH FROM OPERATIONS

Consolidated net cash from operations was:

●

$622 million for year-to-date 2023 and

●

$2,103 million for year-to-date 2022.

Net cash from operations decreased $1,481 million primarily due to decreased cash inflows from our business operations. This change was partially offset by a $336 million decrease in cash paid for income taxes.

CASH FROM INVESTING ACTIVITIES

Consolidated net cash from investing activities was:

●

$(818) million for year-to-date 2023 and

●

$(433) million for year-to-date 2022.

Net cash from investing activities decreased $385 million primarily due to a $664 million increase in cash paid for short-term investments. This change was partially offset by a $281 million decrease in cash paid for acquisition of timberlands.

Summary of Capital Spending by Business Segment

YEAR-TO-DATE ENDED
DOLLAR AMOUNTS IN MILLIONSJUNE 2023JUNE 2022
Timberlands$48$53
Wood Products9995
Unallocated Items53
Total$152$151

We anticipate our capital expenditures for 2023 to be approximately $440 million. The amount we spend on capital expenditures could change.

CASH FROM FINANCING ACTIVITIES

Consolidated net cash from financing activities was:

●

$(290) million for year-to-date 2023 and

●

$(1,938) million for year-to-date 2022.

Net cash from financing activities increased $1,648 million, primarily due to:

●

a $1,203 million decrease in cash used for payments on long-term debt;

●

a $414 million decrease in cash used for payments of dividends and

●

a $174 million decrease in cash used for repurchases of common stock.

These changes were partially offset by a $138 million decrease in net proceeds from issuance of long-term debt.

Line of Credit

In March 2023, we entered into a new $1.5 billion five-year senior unsecured revolving credit facility, which expires in March 2028 and replaced the existing facility which was set to expire in January 2025. Borrowings will bear interest at a floating rate based on either the adjusted term SOFR plus a spread or a mutually agreed upon base rate plus a spread. We had no outstanding borrowings on our $1.5 billion five-year senior unsecured revolving credit facility as of June 30, 2023 or December 31, 2022.

Refer to Note 8: Long-Term Debt and Line of Credit for further information.

Long-Term Debt

In July 2023, we repaid $118 million of our 7.125% notes at maturity. We have $860 million of long-term debt scheduled to mature during fourth quarter 2023.

In May 2023, we completed an offering of debt securities by issuing $750 million of 4.750 percent notes due in May 2026. The net proceeds after deducting the discount, underwriting fees and issuance costs were $743 million. Of these total net proceeds, $664 million was invested in short-term debt securities which are classified as held-to-maturity.

In March 2022, we completed a series of transactions that lowered our weighted average interest rate and extended our weighted average maturity by issuing $900 million in notes and using the net proceeds plus cash on hand to close cash tender offers for $931 million of principal in higher interest rate notes. We issued $450 million of 3.375 percent notes due in March 2033 and $450 million of 4.000 percent notes due in March 2052. The net proceeds after deducting the discount, underwriting fees and issuance costs were $444 million and $437 million, respectively. The net proceeds were used to retire $592 million of our 7.375 percent notes due in March 2032, $161 million of our 8.500 percent notes due in January 2025, $73 million of our 7.125 percent notes due in July 2023, $65 million of our 7.950 percent notes due in March 2025, and $40 million of our 7.850 percent notes due in July 2026. We paid holders an aggregate $1.2 billion in cash reflecting principal, premium to par and tender premium.

Refer to Note 8: Long-Term Debt and Line of Credit for further information.

Debt Covenants

As of June 30, 2023, Weyerhaeuser Company was in compliance with its debt covenants. There have been no significant changes to the debt covenants presented in our 2022 Annual Report on Form 10-K for our long-term debt instruments, and we expect to remain in compliance with our debt covenants for the foreseeable future.

Dividend Payments

We paid cash dividends on common shares of:

●

$938 million for year-to-date 2023 and

●

$1,352 million for year-to-date 2022.

The decrease in dividends paid is primarily due to a supplemental dividend of $0.90 per share based on 2022 financial results for a total of $660 million paid in first quarter 2023 in comparison to a supplemental dividend of $1.45 per share based on 2021 financial results for a total of $1,084 million paid in first quarter 2022.

Share Repurchases

We repurchased 1,689,874 common shares for approximately $50 million (including transaction fees) during second quarter 2023 and 2,805,434 common shares for approximately $85 million (including transaction fees) during year-to-date 2023 under the 2021 Repurchase Program. During second quarter 2022, we repurchased 3,784,787 common shares for approximately $138 million (including transaction fees) and we repurchased 6,982,462 common shares for approximately $259 million (including transaction fees) during year-to-date 2022 under the 2021 Repurchase Program. There were no unsettled shares as of June 30, 2023 and 223,548 unsettled shares (approximately $7 million) as of December 31, 2022. 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 ENDEDAMOUNT OF CHANGEYEAR-TO-DATE ENDEDAMOUNT OF CHANGE
DOLLAR AMOUNTS IN MILLIONSJUNE 2023JUNE 20222023 VS. 2022JUNE 2023JUNE 20222023 VS. 2022
Adjusted EBITDA by Segment:
Timberlands$172$219$(47)$360$466$(106)
Real Estate & ENR70107(37)159223(64)
Wood Products270912(642)4182,145(1,727)
5121,238(726)9372,834(1,897)
Unallocated Items(43)(33)(10)(73)(132)59
Adjusted EBITDA$469$1,205$(736)$864$2,702$(1,838)

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 June 30, 2023:

DOLLAR AMOUNTS IN MILLIONSTimberlandsReal Estate & ENRWood ProductsUnallocated ItemsTotal
Adjusted EBITDA by Segment:
Net earnings$230
Interest expense, net of capitalized interest70
Income taxes25
Net contribution (charge) to earnings$104$52$218$(49)$325
Non-operating pension and other post-employment benefit costs———1212
Interest income and other———(18)(18)
Operating income (loss)10452218(55)319
Depreciation, depletion and amortization685521126
Basis of real estate sold—13——13
Special items included in operating income (loss)(1)———1111
Adjusted EBITDA$172$70$270$(43)$469

(1)

Operating income (loss) for Unallocated Items includes a pretax special item consisting of an $11 million noncash environmental remediation charge.

The table below reconciles Adjusted EBITDA for the quarter ended June 30, 2022:

DOLLAR AMOUNTS IN MILLIONSTimberlandsReal Estate & ENRWood ProductsUnallocated ItemsTotal
Adjusted EBITDA by Segment:
Net earnings$788
Interest expense, net of capitalized interest65
Income taxes184
Net contribution (charge) to earnings$153$65$863$(44)$1,037
Non-operating pension and other post-employment benefit costs———1111
Interest income and other———(1)(1)
Operating income (loss)15365863(34)1,047
Depreciation, depletion and amortization663491119
Basis of real estate sold—39——39
Adjusted EBITDA$219$107$912$(33)$1,205

The table below reconciles Adjusted EBITDA for the year-to-date period ended June 30, 2023:

DOLLAR AMOUNTS IN MILLIONSTimberlandsReal Estate & ENRWood ProductsUnallocated ItemsTotal
Adjusted EBITDA by Segment:
Net earnings$381
Interest expense, net of capitalized interest136
Income taxes47
Net contribution (charge) to earnings$224$105$313$(78)$564
Non-operating pension and other post-employment benefit costs———2121
Interest income and other———(30)(30)
Operating income (loss)224105313(87)555
Depreciation, depletion and amortization13681053252
Basis of real estate sold—46——46
Special items included in operating income (loss)(1)———1111
Adjusted EBITDA$360$159$418$(73)$864

(1)

Operating income (loss) for Unallocated Items includes a pretax special item consisting of an $11 million noncash environmental remediation charge.

The table below reconciles Adjusted EBITDA for the year-to-date period ended June 30, 2022:

DOLLAR AMOUNTS IN MILLIONSTimberlandsReal Estate & ENRWood ProductsUnallocated ItemsTotal
Adjusted EBITDA by Segment:
Net earnings$1,559
Interest expense, net of capitalized interest137
Loss on debt extinguishment(1)276
Income taxes393
Net contribution (charge) to earnings$335$146$2,045$(161)$2,365
Non-operating pension and other post-employment benefit costs———2626
Interest income and other—————
Operating income (loss)3351462,045(135)2,391
Depreciation, depletion and amortization13171003241
Basis of real estate sold—70——70
Adjusted EBITDA$466$223$2,145$(132)$2,702

(1)

Loss on debt extinguishment is a special item consisting of a pretax charge of $276 million ($207 million after-tax) related to early debt retirement.

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 ENDEDYEAR-TO-DATE ENDED
DOLLAR AMOUNTS IN MILLIONSJUNE 2023JUNE 2022JUNE 2023JUNE 2022
Net earnings$230$788$381$1,559
Environmental remediation charge8—8—
Loss on debt extinguishment———207
Net earnings before special items$238$788$389$1,766

Net Earnings per Diluted Share Before Special Items

QUARTER ENDEDYEAR-TO-DATE ENDED
JUNE 2023JUNE 2022JUNE 2023JUNE 2022
Net earnings per diluted share$0.31$1.06$0.52$2.09
Environmental remediation charge0.01—0.01—
Loss on debt extinguishment———0.28
Net earnings per diluted share before special items$0.32$1.06$0.53$2.37

CRITICAL ACCOUNTING POLICIES

There have been no significant changes during year-to-date 2023 to the critical accounting policies presented in our 2022 Annual Report on Form 10-K.

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