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; our provision for income taxes; expected capital expenditures; expected returns on pension plan assets; 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,” “maintain,” “may,” “potential,” and “will,” 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;

●

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;

●

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;

●

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:

●

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, 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 third quarter 2023, market conditions continued to shift towards sales of new homes as existing inventory remained near record-low levels. On a seasonally adjusted annual basis, as reported by the U.S. Census Bureau, housing starts for third quarter 2023 averaged 1.36 million units, a 6.2 percent decrease from second quarter 2023. Single-family starts averaged 961 thousand units in third quarter 2023, a 3.4 percent increase from second quarter 2023. Multi-family starts averaged 398 thousand units in third quarter 2023, which was a 23.5 percent decrease from second quarter 2023. Single-family construction is the primary driver for our business as compared to multi-family due to the amount of wood products used. Sales of newly built, single-family homes averaged a seasonally adjusted annual rate of 724 thousand units for third quarter 2023, an increase of 4.8 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 were steady from second quarter 2023 to third 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 third quarter 2023 helped lift prices in mid-summer. By the end of the third quarter, this had been offset by macroeconomic and housing market uncertainty, including an increase in interest and mortgage rates. Temporary and permanent curtailments provided some balance to the market. OSB demand was strong for most of the quarter, as customer inventories were not sufficient to meet current building activity. The Random Lengths Framing Lumber Composite price averaged $438/MBF and the OSB Composite averaged $540/MSF in third quarter 2023. Over the course of the third quarter, prices for lumber decreased from $438/MBF to $422/MBF and prices for OSB increased from $432/MSF to $454/MSF.

In Western log markets, Douglas fir sawlog prices decreased by 0.2 percent in third quarter 2023 compared with second quarter 2023, as reported by RISI Log Lines based on Weyerhaeuser’s sales mix. Overall, domestic prices in the West declined due to compressed mill margins, but this was partially offset by continued constraints in log supply. In the South, delivered sawlog prices decreased 0.3 percent in third quarter 2023 compared to second quarter 2023 and declined 2.0 percent from third quarter 2022 as reported by TimberMart-South. Favorable harvest conditions later in the quarter provided sufficient supply to meet mills' needs.

Currency exchange rates, available supply from other countries and trade policy affect our export businesses. During third 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 3.7 percent year to date through August compared to the same period in 2022, while the key Post and Beam segment saw a 5.7 percent decrease. 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 steady supply of logs from New Zealand and rough lumber from Russia.

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 6.7 percent at the end of second quarter 2023 to 7.3 percent at the end of third quarter 2023, according to economic data from the St. Louis Federal Reserve. Many builders have been able to offset higher mortgage rates through discounts, mortgage rate buydowns 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 3.7 percent year over year in September 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 3.8 percent in September 2023 remained near historically low levels and increased 0.2 percent from the end of second quarter

2023. Labor force participation has increased to 62.8 percent in September 2023, from 62.3 percent in September 2022, approaching pre-pandemic levels.

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 Third Quarter 2023 and Year-to-Date 2023

		QUARTER ENDED								AMOUNT OF CHANGE				YEAR-TO-DATE ENDED								AMOUNT OF CHANGE
DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURES		SEPTEMBER 2023				SEPTEMBER 2022				2023 VS. 2022				SEPTEMBER 2023				SEPTEMBER 2022				2023 VS. 2022
Net sales		$	2,022			$	2,276			$	(254	)		$	5,900			$	8,361			$	(2,461	)
Costs of sales		$	1,520			$	1,694			$	(174	)		$	4,560			$	5,130			$	(570	)
Operating income		$	353			$	457			$	(104	)		$	908			$	2,848			$	(1,940	)
Net earnings		$	239			$	310			$	(71	)		$	620			$	1,869			$	(1,249	)
Earnings per share, basic and diluted		$	0.33			$	0.42			$	(0.09	)		$	0.85			$	2.51			$	(1.66	)

Comparing Third Quarter 2023 with Third Quarter 2022

Net sales

Net sales decreased $254 million – 11 percent – primarily due to a $230 million decrease in Wood Products sales to unaffiliated customers attributable to decreased sales volumes and sales realizations across most product lines.

Costs of sales

Costs of sales decreased $174 million – 10 percent – primarily due to decreased sales volumes across most product lines within our Wood Products segment, as well as decreased freight costs.

Operating income

Operating income decreased $104 million – 23 percent – primarily due to an $80 million decrease in consolidated gross margin, as discussed above.

Net earnings

Net earnings decreased $71 million – 23 percent – primarily due to the $104 million decrease in operating income, as discussed above.

This decrease was partially offset by a $23 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 $2,461 million – 29 percent – primarily due to a $2,272 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 $162 million decrease in Timberlands sales to unaffiliated customers attributable to decreased sales realizations in the Western region.

Costs of sales

Costs of sales decreased $570 million – 11 percent – primarily due to decreased sales volumes across most product lines within our Wood Products segment, as well as decreased freight costs and Western third-party log purchases.

Operating income

Operating income decreased $1,940 million – 68 percent – primarily due to a $1,891 million decrease in consolidated gross margin, as discussed above.

Net earnings

Net earnings decreased $1,249 million – 67 percent – primarily due to the $1,940 million decrease in operating income, as discussed above.

This decrease was partially offset by a $369 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 Third Quarter 2023 and Year-to-Date 2023

		QUARTER ENDED								AMOUNT OF CHANGE				YEAR-TO-DATE ENDED								AMOUNT OF CHANGE
DOLLAR AMOUNTS IN MILLIONS		SEPTEMBER 2023				SEPTEMBER 2022				2023 VS. 2022				SEPTEMBER 2023				SEPTEMBER 2022				2023 VS. 2022
Net sales to unaffiliated customers:
Delivered logs:
West		$	176			$	224			$	(48	)		$	611			$	791			$	(180	)
South			155				166				(11	)			485				480				5
North			11				15				(4	)			35				40				(5	)
Subtotal delivered logs sales			342				405				(63	)			1,131				1,311				(180	)
Stumpage and pay-as-cut timber			12				10				2				43				30				13
Recreational and other lease revenue			19				18				1				54				51				3
Other(1)			7				8				(1	)			31				29				2
Subtotal net sales to unaffiliated customers			380				441				(61	)			1,259				1,421				(162	)
Intersegment sales			141				133				8				433				450				(17	)
Total sales		$	521			$	574			$	(53	)		$	1,692			$	1,871			$	(179	)
Costs of sales		$	417			$	442			$	(25	)		$	1,317			$	1,360			$	(43	)
Operating income and Net contribution to earnings		$	78			$	107			$	(29	)		$	302			$	442			$	(140	)

(1)

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

Comparing Third Quarter 2023 with Third Quarter 2022

Net sales to unaffiliated customers

Net sales to unaffiliated customers decreased $61 million – 14 percent – primarily due to a $48 million decrease in Western log sales, attributable to a 25 percent decrease in sales realizations, as well as an $11 million decrease in Southern log sales, attributable to a 4 percent decrease in sales realizations and a 3 percent decrease in sales volumes.

Intersegment sales

Intersegment sales increased $8 million – 6 percent – primarily due to a 14 percent increase in sales volumes, partially offset by a 7 percent decrease in sales realizations.

Costs of sales

Costs of sales decreased $25 million – 6 percent – primarily due to decreased Western third-party log purchases and decreased Southern log sales volumes, partially offset by increased logging and hauling costs and increased Western log sales volumes.

Operating income and Net contribution to earnings

Operating income and net contribution to earnings decreased $29 million – 27 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 $162 million – 11 percent – primarily due to a $180 million decrease in Western log sales, primarily attributable to a 23 percent decrease in sales realizations, partially offset by a $13 million increase in stumpage and pay-as-cut timber sales.

Intersegment sales

Intersegment sales decreased $17 million – 4 percent – primarily due to a 9 percent decrease in sales realizations, partially offset by a 5 percent increase in sales volumes.

Costs of sales

Costs of sales decreased $43 million – 3 percent – primarily due to decreased Western third-party log purchases, partially offset by increased logging and hauling costs and increased log sales volumes.

Operating income and Net contribution to earnings

Operating income and net contribution to earnings decreased $140 million – 32 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 ENDED								AMOUNT OF CHANGE				YEAR-TO-DATE ENDED								AMOUNT OF CHANGE
VOLUMES IN THOUSANDS		SEPTEMBER 2023				SEPTEMBER 2022				2023 VS. 2022				SEPTEMBER 2023				SEPTEMBER 2022				2023 VS. 2022
Third-party log sales – tons:
West(1)			1,479				1,411				68				4,814				4,793				21
South			4,180				4,310				(130	)			12,907				12,612				295
North			148				177				(29	)			450				505				(55	)
Total			5,807				5,898				(91	)			18,171				17,910				261
Fee harvest volumes – tons:
West(1)			2,137				1,760				377				6,674				6,085				589
South			6,146				6,112				34				19,008				18,113				895
North			223				245				(22	)			683				703				(20	)
Total			8,506				8,117				389				26,365				24,901				1,464

(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 Third Quarter 2023 and Year-to-Date 2023

		QUARTER ENDED								AMOUNT OF CHANGE				YEAR-TO-DATE ENDED								AMOUNT OF CHANGE
DOLLAR AMOUNTS IN MILLIONS		SEPTEMBER 2023				SEPTEMBER 2022				2023 VS. 2022				SEPTEMBER 2023				SEPTEMBER 2022				2023 VS. 2022
Net sales:
Real estate		$	79			$	30			$	49			$	198			$	217			$	(19	)
Energy and natural resources			26				38				(12	)			88				96				(8	)
Total		$	105			$	68			$	37			$	286			$	313			$	(27	)
Costs of sales		$	43			$	14			$	29			$	105			$	100			$	5
Operating income and Net contribution to earnings		$	56			$	48			$	8			$	161			$	194			$	(33	)

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 price per acre will vary based on the location and physical characteristics of parcels sold.

Comparing Third Quarter 2023 with Third Quarter 2022

Net sales

Net sales increased $37 million – 54 percent – primarily due to an increase in acres sold, partially offset by a decrease in the average price per acre sold.

Costs of sales

Costs of sales increased $29 million – 207 percent – primarily due to an increase in acres sold.

Operating income and Net contribution to earnings

Operating income and net contribution to earnings increased $8 million – 17 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 $27 million – 9 percent – primarily due to decreases in average price per acre sold and royalty income from our Energy and Natural Resources business.

Costs of sales

Costs of sales increased $5 million – 5 percent – primarily due to an increase in basis per acre sold.

Operating income and Net contribution to earnings

Operating income and net contribution to earnings decreased $33 million – 17 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 2023				SEPTEMBER 2022				2023 VS. 2022				SEPTEMBER 2023				SEPTEMBER 2022				2023 VS. 2022
Acres sold			25,721				5,014				20,707				55,755				56,046				(291	)
Average price per acre		$	3,033			$	5,046			$	(2,013	)		$	3,403			$	3,624			$	(221	)

WOOD PRODUCTS

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

		QUARTER ENDED								AMOUNT OF CHANGE				YEAR-TO-DATE ENDED								AMOUNT OF CHANGE
DOLLAR AMOUNTS IN MILLIONS		SEPTEMBER 2023				SEPTEMBER 2022				2023 VS. 2022				SEPTEMBER 2023				SEPTEMBER 2022				2023 VS. 2022
Net sales:
Structural lumber		$	570			$	676			$	(106	)		$	1,658			$	2,880			$	(1,222	)
Oriented strand board			284				287				(3	)			707				1,348				(641	)
Engineered solid section			216				233				(17	)			600				676				(76	)
Engineered I-joists			122				166				(44	)			335				471				(136	)
Softwood plywood			42				47				(5	)			127				158				(31	)
Medium density fiberboard			40				50				(10	)			120				151				(31	)
Complementary building products			184				222				(38	)			551				676				(125	)
Other products produced(1)			79				86				(7	)			257				267				(10	)
Total		$	1,537			$	1,767			$	(230	)		$	4,355			$	6,627			$	(2,272	)
Costs of sales		$	1,195			$	1,360			$	(165	)		$	3,572			$	4,050			$	(478	)
Operating income and Net contribution to earnings		$	277			$	344			$	(67	)		$	590			$	2,389			$	(1,799	)

(1)

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

Comparing Third Quarter 2023 with Third Quarter 2022

Net sales

Net sales decreased $230 million – 13 percent – due to:

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a $106 million decrease in structural lumber sales attributable to a 13 percent decrease in sales realizations, as well as a 3 percent decrease in sales volumes;

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a $44 million decrease in engineered I-joists sales attributable to a 19 percent decrease in sales realizations, as well as an 11 percent decrease in sales volumes;

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a $38 million decrease in complementary building products sales attributable to decreased sales volumes across most products;

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a $17 million decrease in engineered solid section sales attributable to a 12 percent decrease in sales realizations, partially offset by a 5 percent increase in sales volumes;

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a $10 million decrease in medium density fiberboard sales attributable to an 18 percent decrease in sales volumes, as well as a 3 percent decrease in sales realizations;

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a $7 million decrease in other products produced sales attributable to decreased sales volumes for wood chips;

●

a $5 million decrease in softwood plywood sales attributable to a 23 percent decrease in sales realizations, partially offset by a 16 percent increase in sales volumes and

●

a $3 million decrease in oriented strand board sales attributable to a 4 percent decrease in sales volumes, partially offset by a 4 percent increase in sales realizations.

Costs of sales

Costs of sales decreased $165 million – 12 percent – primarily due to decreased sales volumes 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 $67 million – 19 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 $2,272 million – 34 percent – due to:

●

a $1,222 million decrease in structural lumber sales attributable to a 40 percent decrease in sales realizations, as well as a 4 percent decrease in sales volumes;

●

a $641 million decrease in oriented strand board sales attributable to a 48 percent decrease in sales realizations;

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a $136 million decrease in engineered I-joist sales attributable to a 20 percent decrease in sales volumes, as well as an 11 percent decrease in sales realizations;

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a $125 million decrease in complementary building products sales attributable to decreased sales volumes and sales realizations across most products;

●

a $76 million decrease in engineered solid section sales attributable to a 6 percent decrease in sales volumes, as well as a 5 percent decrease in sales realizations;

●

a $31 million decrease in medium density fiberboard sales attributable to a 28 percent decrease in sales volumes, partially offset by an 11 percent increase in sales realizations;

●

a $31 million decrease in softwood plywood sales attributable to a 33 percent decrease in sales realizations, partially offset by a 20 percent increase in sales volumes and

●

a $10 million decrease in other products produced attributable to decreased sales volumes.

Costs of sales

Costs of sales decreased $478 million – 12 percent – primarily due to decreased sales volumes 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 $1,799 million – 75 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 2023				SEPTEMBER 2022				2023 VS. 2022				SEPTEMBER 2023				SEPTEMBER 2022				2023 VS. 2022
Structural lumber – board feet			1,184				1,216				(32	)			3,524				3,662				(138	)
Oriented strand board – square feet (3/8”)			683				715				(32	)			2,176				2,167				9
Engineered solid section – cubic feet			6.2				5.9				0.3				16.9				18.0				(1.1	)
Engineered I-joists – lineal feet			42				47				(5	)			113				142				(29	)
Softwood plywood – square feet (3/8”)			86				74				12				263				219				44
Medium density fiberboard – square feet (3/4”)			33				40				(7	)			93				129				(36	)

(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 2023				SEPTEMBER 2022				2023 VS. 2022				SEPTEMBER 2023				SEPTEMBER 2022				2023 VS. 2022
Structural lumber – board feet:
Production			1,174				1,140				34				3,481				3,575				(94	)
Outside purchase			38				35				3				113				120				(7	)
Total			1,212				1,175				37				3,594				3,695				(101	)
Oriented strand board – square feet (3/8”):
Production			724				735				(11	)			2,212				2,232				(20	)
Outside purchase			19				18				1				55				154				(99	)
Total			743				753				(10	)			2,267				2,386				(119	)
Engineered solid section – cubic feet:
Production			5.6				6.0				(0.4	)			16.1				18.1				(2.0	)
Outside purchase			3.7				3.6				0.1				9.7				4.1				5.6
Total			9.3				9.6				(0.3	)			25.8				22.2				3.6
Engineered I-joists – lineal feet:
Production			42				47				(5	)			105				141				(36	)
Outside purchase			2				1				1				2				6				(4	)
Total			44				48				(4	)			107				147				(40	)
Softwood plywood – square feet (3/8”):
Production			77				64				13				235				197				38
Outside purchase			10				9				1				33				27				6
Total			87				73				14				268				224				44
Medium density fiberboard – square feet (3/4"):
Production			34				38				(4	)			101				130				(29	)
Total			34				38				(4	)			101				130				(29	)

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.

Net Charge to Earnings – Unallocated Items

		QUARTER ENDED								AMOUNT OF CHANGE				YEAR-TO-DATE ENDED								AMOUNT OF CHANGE
DOLLAR AMOUNTS IN MILLIONS		SEPTEMBER 2023				SEPTEMBER 2022				2023 VS. 2022				SEPTEMBER 2023				SEPTEMBER 2022				2023 VS. 2022
Unallocated corporate function and variable compensation expense		$	(33	)		$	(36	)		$	3			$	(92	)		$	(103	)		$	11
Liability classified share-based compensation			2				2				—				—				5				(5	)
Foreign exchange gain			—				9				(9	)			1				12				(11	)
Elimination of intersegment profit in inventory and LIFO			(4	)			2				(6	)			8				(39	)			47
Other			(23	)			(19	)			(4	)			(62	)			(52	)			(10	)
Operating loss			(58	)			(42	)			(16	)			(145	)			(177	)			32
Non-operating pension and other post-employment benefit costs			(12	)			(12	)			—				(33	)			(38	)			5
Interest income and other			24				9				15				54				9				45
Net charge to earnings		$	(46	)		$	(45	)		$	(1	)		$	(124	)		$	(206	)		$	82

Comparing Third Quarter 2023 with Third Quarter 2022

Net charge to earnings remained consistent primarily due to a $15 million increase in interest income and other due to an increase in the interest rate on our cash and short-term investment accounts, offset by a $9 million decrease in foreign exchange gain and a $6 million increase in elimination of intersegment profit in inventory and LIFO.

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

Net charge to earnings decreased $82 million – 40 percent – primarily due to:

●

a $47 million decrease in elimination of intersegment profit in inventory and LIFO;

●

a $45 million increase in interest income and other due to an increase in the interest rate on our cash and short-term investment accounts and

●

an $11 million decrease in unallocated corporate function and variable compensation expense.

These changes were partially offset by an $11 million decrease in foreign exchange gain, as well as a $10 million increase in other primarily due to an increase in environmental remediation charges.

INTEREST EXPENSE

Our interest expense, net of capitalized interest, was:

●

$72 million for third quarter 2023 and $208 million year-to-date 2023;

●

$67 million for third quarter 2022 and $204 million year-to-date 2022.

Interest expense increased by $5 million compared to third quarter 2022 and increased by $4 million compared to year-to-date 2022 primarily due to the May 2023 issuance of debt securities that increased our weighted average outstanding debt.

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

INCOME TAXES

Our provision for income taxes was:

●

a $54 million expense for third quarter 2023 and $101 million year-to-date 2023;

●

a $77 million expense for third quarter 2022 and $470 million year-to-date 2022.

Our provision for income taxes is primarily driven by earnings generated by our TRSs. Income tax expense decreased by $369 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 September 30, 2023, we had approximately $1.2 billion in cash and cash equivalents, $668 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:

●

$1,145 million for year-to-date 2023 and

●

$2,665 million for year-to-date 2022.

Net cash from operations decreased $1,520 million primarily due to decreased cash inflows from our business operations. This change was partially offset by a $406 million decrease in cash paid for income taxes, as well as a $21 million decrease in cash paid for interest.

CASH FROM INVESTING ACTIVITIES

Consolidated net cash from investing activities was:

●

$(982) million for year-to-date 2023 and

●

$(530) million for year-to-date 2022.

Net cash from investing activities decreased $452 million primarily due to a $664 million increase in cash paid for short-term investments. This change was partially offset by a $216 million decrease in cash paid for acquisition of timberlands.

Summary of Capital Spending by Business Segment

		YEAR-TO-DATE ENDED
DOLLAR AMOUNTS IN MILLIONS		SEPTEMBER 2023				SEPTEMBER 2022
Timberlands		$	74			$	75
Wood Products			168				163
Unallocated Items			9				7
Total		$	251			$	245

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:

●

$(571) million for year-to-date 2023 and

●

$(2,214) million for year-to-date 2022.

Net cash from financing activities increased $1,643 million, primarily due to:

●

a $947 million decrease in net cash used for payments on long-term debt;

●

a $409 million decrease in cash used for payments of dividends and

●

a $293 million decrease in cash used for repurchases of common stock.

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 September 30, 2023 or December 31, 2022.

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

Long-Term Debt

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 investments classified as held-to-maturity securities, which consist of a mixture of term deposits and Treasury bills.

In July 2023, we repaid $118 million of our 7.125 percent notes at maturity. We have $860 million of long-term debt scheduled to mature during fourth quarter 2023, and we anticipate the majority will be funded through cash on hand, including the proceeds from our short-term investments which also mature in the fourth quarter.

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 September 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:

●

$1,076 million for year-to-date 2023 and

●

$1,485 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 757,510 common shares for approximately $25 million (including transaction fees) during third quarter 2023 and 3,562,944 common shares for approximately $110 million (including transaction fees) during year-to-date 2023 under the 2021 Repurchase Program. During third quarter 2022, we repurchased 4,234,838 common shares for approximately $145 million (including transaction fees) and we repurchased 11,217,300 common shares for approximately $404 million (including transaction fees) during year-to-date 2022 under the 2021 Repurchase Program. There were 32,757 unsettled shares (approximately $1 million) as of September 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 ENDED								AMOUNT OF CHANGE				YEAR-TO-DATE ENDED								AMOUNT OF CHANGE
DOLLAR AMOUNTS IN MILLIONS		SEPTEMBER 2023				SEPTEMBER 2022				2023 VS. 2022				SEPTEMBER 2023				SEPTEMBER 2022				2023 VS. 2022
Adjusted EBITDA by Segment:
Timberlands		$	143			$	168			$	(25	)		$	503			$	634			$	(131	)
Real Estate & ENR			94				60				34				253				283				(30	)
Wood Products			328				395				(67	)			746				2,540				(1,794	)
			565				623				(58	)			1,502				3,457				(1,955	)
Unallocated Items			(56	)			(40	)			(16	)			(129	)			(172	)			43
Adjusted EBITDA		$	509			$	583			$	(74	)		$	1,373			$	3,285			$	(1,912	)

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, 2023:

DOLLAR AMOUNTS IN MILLIONS		Timberlands				Real Estate & ENR				Wood Products				Unallocated Items				Total
Adjusted EBITDA by Segment:
Net earnings																		$	239
Interest expense, net of capitalized interest																			72
Income taxes																			54
Net contribution (charge) to earnings		$	78			$	56			$	277			$	(46	)		$	365
Non-operating pension and other post-employment benefit costs			—				—				—				12				12
Interest income and other			—				—				—				(24	)			(24	)
Operating income (loss)			78				56				277				(58	)			353
Depreciation, depletion and amortization			65				4				51				2				122
Basis of real estate sold			—				34				—				—				34
Adjusted EBITDA		$	143			$	94			$	328			$	(56	)		$	509

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

DOLLAR AMOUNTS IN MILLIONS		Timberlands				Real Estate & ENR				Wood Products				Unallocated Items				Total
Adjusted EBITDA by Segment:
Net earnings																		$	310
Interest expense, net of capitalized interest																			67
Income taxes																			77
Net contribution (charge) to earnings		$	107			$	48			$	344			$	(45	)		$	454
Non-operating pension and other post-employment benefit costs			—				—				—				12				12
Interest income and other			—				—				—				(9	)			(9	)
Operating income (loss)			107				48				344				(42	)			457
Depreciation, depletion and amortization			61				5				51				2				119
Basis of real estate sold			—				7				—				—				7
Adjusted EBITDA		$	168			$	60			$	395			$	(40	)		$	583

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

DOLLAR AMOUNTS IN MILLIONS		Timberlands				Real Estate & ENR				Wood Products				Unallocated Items				Total
Adjusted EBITDA by Segment:
Net earnings																		$	620
Interest expense, net of capitalized interest																			208
Income taxes																			101
Net contribution (charge) to earnings		$	302			$	161			$	590			$	(124	)		$	929
Non-operating pension and other post-employment benefit costs			—				—				—				33				33
Interest income and other			—				—				—				(54	)			(54	)
Operating income (loss)			302				161				590				(145	)			908
Depreciation, depletion and amortization			201				12				156				5				374
Basis of real estate sold			—				80				—				—				80
Special items included in operating income (loss)(1)			—				—				—				11				11
Adjusted EBITDA		$	503			$	253			$	746			$	(129	)		$	1,373

(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 September 30, 2022:

DOLLAR AMOUNTS IN MILLIONS		Timberlands				Real Estate & ENR				Wood Products				Unallocated Items				Total
Adjusted EBITDA by Segment:
Net earnings																		$	1,869
Interest expense, net of capitalized interest																			204
Loss on debt extinguishment(1)																			276
Income taxes																			470
Net contribution (charge) to earnings		$	442			$	194			$	2,389			$	(206	)		$	2,819
Non-operating pension and other post-employment benefit costs			—				—				—				38				38
Interest income and other			—				—				—				(9	)			(9	)
Operating income (loss)			442				194				2,389				(177	)			2,848
Depreciation, depletion and amortization			192				12				151				5				360
Basis of real estate sold			—				77				—				—				77
Adjusted EBITDA		$	634			$	283			$	2,540			$	(172	)		$	3,285

(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 ENDED								YEAR-TO-DATE ENDED
DOLLAR AMOUNTS IN MILLIONS		SEPTEMBER 2023				SEPTEMBER 2022				SEPTEMBER 2023				SEPTEMBER 2022
Net earnings		$	239			$	310			$	620			$	1,869
Environmental remediation charge			—				—				8				—
Loss on debt extinguishment			—				—				—				207
Net earnings before special items		$	239			$	310			$	628			$	2,076

Net Earnings per Diluted Share Before Special Items

		QUARTER ENDED								YEAR-TO-DATE ENDED
		SEPTEMBER 2023				SEPTEMBER 2022				SEPTEMBER 2023				SEPTEMBER 2022
Net earnings per diluted share		$	0.33			$	0.42			$	0.85			$	2.51
Environmental remediation charge			—				—				0.01				—
Loss on debt extinguishment			—				—				—				0.28
Net earnings per diluted share before special items		$	0.33			$	0.42			$	0.86			$	2.79

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.