filings.toolsItem 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; our cash dividend framework, including our target percentage return to shareholders of Adjusted Funds Available for Distribution, including expected supplemental cash dividends and/or future share repurchases; 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; expected market and general economic conditions, including related influencing factors such as the trajectory of U.S. housing construction activity, repair and remodel activity, inflation trends and interest rates; our expected lumber production operating rates in fourth quarter 2024; our expectations about our future opportunities in emerging carbon credit 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,” "plan," “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 rates, inflation rates, housing starts, general availability and cost of financing for home mortgages and the relative strength of the U.S. dollar;
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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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the effects of significant geopolitical conditions or developments such as significant international trade disputes or domestic or foreign terrorist attacks, armed conflict and political unrest;
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the occurrence of regional or global health epidemics and their potential effects on our business, results of operations, cash flows, financial condition and future prospects;
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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 2023 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 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 moderated in part due to continued elevated mortgage interest rates, reduced affordability and general macroeconomic conditions. Specifically, multi-family construction has been hampered by a large supply of recently completed projects as well as higher interest rates and other factors constraining the underwriting of proposed projects. In contrast, new single-family home construction has remained resilient, as existing homeowners continued to be constrained by the lock-in effect of lower mortgage rates. On a seasonally adjusted annual basis, as reported by the U.S. Census Bureau, housing starts for third quarter 2024 averaged 1.3 million units, a 1.1 percent decrease from second quarter 2024. Single-family starts averaged 1.0 million units in third quarter 2024, a 4.1 percent decrease from second quarter 2024. Multi-family starts averaged 363 thousand units in third quarter 2024, which was a 7.9 percent increase from second quarter 2024. 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 2024, an increase of 4.5 percent from second quarter 2024, supported by builder mortgage rate buydowns and other incentives. Over the medium to long-term, we expect a favorable U.S. housing construction market supported by strong demographics in the key home buying age cohorts, a decade of under building and historically low housing inventory.
Repair and remodeling expenditures increased by 1.8 percent from second quarter 2024 to third quarter 2024 according to the Census Bureau Advance Retail Spending report. While there continues to be steady demand due to growing home equity and the lock-in effect of having lower mortgage rates compared to current rates, many homeowners have become more cautious in discretionary spending on large projects. Additionally, some repair and remodeling activity was accelerated during the pandemic which has had some impact on the level of spending. This softness has been reflected in both the do-it-yourself (DIY) and professionally built segments. Over the longer term, we expect this sector to resume pre-pandemic growth trends with healthy household balance sheets, elevated home equity and an aging U.S. housing stock, with a median age of 42 years.
In U.S. wood product markets, demand for lumber and OSB was influenced by continued cautious buyer sentiment at the outset of third quarter 2024. As the quarter progressed, demand was mixed as continued strength in single-family housing starts was offset by weaker multi-family construction and restrained repair and remodel activity. The Random Lengths Framing Lumber Composite price averaged $383/MBF and the OSB Composite averaged $346/MSF in third quarter 2024. Over the course of the third quarter, composite prices for lumber increased from $366/MBF to $396/MBF and composite prices for OSB decreased from $352/MSF to $344/MSF. Increased curtailments, in addition to an increase in duties on Canadian lumber imports, contributed to the moderate recovery in lumber prices. In light of these conditions, we reduced our operating rates in third quarter 2024, resulting in a 10.1 percent decrease in lumber production from second quarter 2024 to third quarter 2024, which includes the previously announced indefinite curtailment of our lumber mill in New Bern, North Carolina. We expect to return to more normalized operating rates in fourth quarter 2024.
In Western log markets, Douglas fir sawlog prices decreased 3.7 percent in third quarter 2024 compared with second quarter 2024, as reported by Fastmarkets RISI Log Lines based on Weyerhaeuser’s sales mix. Overall, domestic log demand and prices faced downward pressure through the quarter, as mills continued to adjust to a soft lumber market and worked through elevated log inventories. In the South, delivered sawlog prices increased 1.0 percent in third quarter 2024 compared to second quarter 2024 and declined 0.4 percent from third quarter 2023, as reported by TimberMart-South. While there continued to be demand for logs across the region, sawlog markets were generally soft given ample supply and in response to mills carrying elevated log inventories and adjusting operations in a soft lumber market. Mill adjustments during the quarter included a series of curtailments and permanent closures.
Currency exchange rates, available supply from other countries and trade policy affect our export businesses. During third quarter 2024, end use demand in export markets moderated. In Japan, total housing starts decreased 4.0 percent year to date through August compared to the same period in 2023, while the key Post and Beam segment saw a 5.0 percent decrease. Lumber imports to Japan from Europe increased, which placed some pressure on log sales. China’s weaker end-use demand for logs and lumber led to a decrease in pricing for logs from the West.
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, decreased from 6.9 percent in second quarter 2024 to 6.1 percent in third quarter 2024, according to economic data from Freddie Mac. 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 at an annual rate of 2.4 percent as of September 2024 compared to 3.0 percent in June 2024. This rate 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, operational excellence initiatives and procurement practices, not all 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 remained flat at 4.1 percent from second quarter 2024 to third quarter 2024.
Governments and businesses across the globe are taking action on climate change and are making significant commitments toward 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 credits 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 2024 and Year-to-Date 2024
| QUARTER ENDED | AMOUNT OF CHANGE | YEAR-TO-DATE ENDED | AMOUNT OF CHANGE | |||||||||||||||||||||
| DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURES | SEPTEMBER 2024 | SEPTEMBER 2023 | 2024 VS. 2023 | SEPTEMBER 2024 | SEPTEMBER 2023 | 2024 VS. 2023 | ||||||||||||||||||
| Net sales | $ | 1,681 | $ | 2,022 | $ | (341 | ) | $ | 5,416 | $ | 5,900 | $ | (484 | ) | ||||||||||
| Costs of sales | $ | 1,431 | $ | 1,520 | $ | (89 | ) | $ | 4,407 | $ | 4,560 | $ | (153 | ) | ||||||||||
| Operating income | $ | 78 | $ | 353 | $ | (275 | ) | $ | 544 | $ | 908 | $ | (364 | ) | ||||||||||
| Net earnings | $ | 28 | $ | 239 | $ | (211 | ) | $ | 315 | $ | 620 | $ | (305 | ) | ||||||||||
| Earnings per share, basic and diluted | $ | 0.04 | $ | 0.33 | $ | (0.29 | ) | $ | 0.43 | $ | 0.85 | $ | (0.42 | ) |
Comparing Third Quarter 2024 with Third Quarter 2023
Net sales
Net sales decreased $341 million – 17 percent – primarily due to:
a $302 million decrease in Wood Products net sales to unaffiliated customers, attributable to decreased sales realizations and sales volumes across most product lines;
a $23 million decrease in Timberlands net sales to unaffiliated customers attributable to decreased sales volumes and sales realizations and
a $16 million decrease in Real Estate, Energy and Natural Resources net sales to unaffiliated customers attributable to a decrease in acres sold, as well as a decrease in average price per acre sold.
Costs of sales
Costs of sales decreased $89 million – 6 percent – primarily due to decreased sales volumes across most product lines in our Wood Products segment, as well as a decrease in acres sold in our Real Estate, Energy and Natural Resources segment.
Operating income
Operating income decreased $275 million – 78 percent – primarily due to a $252 million decrease in consolidated gross margin (see discussion of components above), as well as a $10 million noncash impairment charge related to the indefinite curtailment of our New Bern lumber mill recorded in third quarter 2024 (refer to Note 13: Other Operating Costs, Net).
Net earnings
Net earnings decreased $211 million – 88 percent – primarily due to the $275 million decrease in operating income, as discussed above, partially offset by a $69 million decrease in income tax expense (refer to Income Taxes).
Comparing Year-to-Date 2024 with Year-to-Date 2023
Net sales
Net sales decreased $484 million – 8 percent – primarily due to a $397 million decrease in Wood Products net sales to unaffiliated customers attributable to decreased sales realizations and sales volumes across most product lines, as well as a $106 million decrease in Timberlands net sales to unaffiliated customers attributable to decreased sales volumes and sales realizations. These decreases were partially offset by a $19 million increase in Real Estate, Energy and Natural Resources net sales to unaffiliated customers attributable to an increase in acres sold, partially offset by a decrease in average price per acre sold.
Costs of sales
Costs of sales decreased $153 million – 3 percent – primarily due to decreased sales volumes across most product lines in Wood Products, as well as decreased sales volumes in our Timberlands segment, partially offset by an increase in acres sold in Real Estate, Energy and Natural Resources.
Operating income
Operating income decreased $364 million – 40 percent – primarily due to a $331 million decrease in consolidated gross margin (see discussion of components above), as well as a $10 million noncash impairment charge related to the indefinite curtailment of our New Bern lumber mill recorded in third quarter 2024. These decreases were partially offset by a $25 million product remediation recovery recorded in second quarter 2024 (refer to Note 13: Other Operating Costs, Net).
Net earnings
Net earnings decreased $305 million – 49 percent – primarily due to the $364 million decrease in operating income, as discussed above, partially offset by a $63 million decrease in income tax expense (refer to Income Taxes).
TIMBER****LANDS
How We Did Third Quarter 2024 and Year-to-Date 2024
| QUARTER ENDED | AMOUNT OF CHANGE | YEAR-TO-DATE ENDED | AMOUNT OF CHANGE | |||||||||||||||||||||
| DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2024 | SEPTEMBER 2023 | 2024 VS. 2023 | SEPTEMBER 2024 | SEPTEMBER 2023 | 2024 VS. 2023 | ||||||||||||||||||
| Net sales to unaffiliated customers: | ||||||||||||||||||||||||
| Delivered logs: | ||||||||||||||||||||||||
| West | $ | 158 | $ | 176 | $ | (18 | ) | $ | 539 | $ | 611 | $ | (72 | ) | ||||||||||
| South | 149 | 155 | (6 | ) | 453 | 485 | (32 | ) | ||||||||||||||||
| North | 11 | 11 | — | 33 | 35 | (2 | ) | |||||||||||||||||
| Subtotal delivered logs sales | 318 | 342 | (24 | ) | 1,025 | 1,131 | (106 | ) | ||||||||||||||||
| Stumpage and pay-as-cut timber | 14 | 12 | 2 | 38 | 43 | (5 | ) | |||||||||||||||||
| Recreational and other lease revenue | 19 | 19 | — | 57 | 54 | 3 | ||||||||||||||||||
| Other(1) | 6 | 7 | (1 | ) | 33 | 31 | 2 | |||||||||||||||||
| Subtotal net sales to unaffiliated customers | 357 | 380 | (23 | ) | 1,153 | 1,259 | (106 | ) | ||||||||||||||||
| Intersegment sales | 136 | 141 | (5 | ) | 416 | 433 | (17 | ) | ||||||||||||||||
| Total sales | $ | 493 | $ | 521 | $ | (28 | ) | $ | 1,569 | $ | 1,692 | $ | (123 | ) | ||||||||||
| Costs of sales | $ | 410 | $ | 417 | $ | (7 | ) | $ | 1,275 | $ | 1,317 | $ | (42 | ) | ||||||||||
| Operating income | $ | 57 | $ | 78 | $ | (21 | ) | $ | 217 | $ | 302 | $ | (85 | ) | ||||||||||
| Interest income and other | — | — | — | 1 | — | 1 | ||||||||||||||||||
| Net contribution to earnings | $ | 57 | $ | 78 | $ | (21 | ) | $ | 218 | $ | 302 | $ | (84 | ) |
(1)
Other Timberlands sales include sales of seeds and seedlings from our nursery operations as well as wood chips.
Comparing Third Quarter 2024 with Third Quarter 2023
Net sales to unaffiliated customers
Net sales to unaffiliated customers decreased $23 million – 6 percent – primarily due to an $18 million decrease in Western log sales attributable to a 7 percent decrease in sales volumes and a 4 percent decrease in sales realizations, as well as a $6 million decrease in Southern log sales attributable to a 3 percent decrease in sales volumes.
Intersegment sales
Intersegment sales decreased $5 million – 4 percent – primarily due to a 6 percent decrease in sales realizations, partially offset by a 3 percent increase in sales volumes.
Costs of sales
Costs of sales decreased $7 million – 2 percent – primarily due to decreased sales volumes.
Operating income and Net contribution to earnings
Operating income and net contribution to earnings decreased $21 million – 27 percent – primarily due to the change in the components of gross margin, as discussed above.
Comparing Year-to-Date 2024 with Year-to-Date 2023
Net sales to unaffiliated customers
Net sales to unaffiliated customers decreased $106 million – 8 percent – primarily due to a $72 million decrease in Western log sales attributable to a 7 percent decrease in sales volumes and a 6 percent decrease in sales realizations, as well as a $32 million decrease in Southern log sales attributable to a 5 percent decrease in sales volumes and a 2 percent decrease in sales realizations.
Intersegment sales
Intersegment sales decreased $17 million – 4 percent – primarily due to a 5 percent decrease in sales realizations.
Costs of sales
Costs of sales decreased $42 million – 3 percent – primarily due to decreased sales volumes.
Net contribution to earnings
Net contribution to earnings decreased $84 million – 28 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 2024 | SEPTEMBER 2023 | 2024 VS. 2023 | SEPTEMBER 2024 | SEPTEMBER 2023 | 2024 VS. 2023 | ||||||||||||||||||
| Third-party log sales – tons: | ||||||||||||||||||||||||
| West(1) | 1,379 | 1,479 | (100 | ) | 4,499 | 4,814 | (315 | ) | ||||||||||||||||
| South | 4,062 | 4,180 | (118 | ) | 12,305 | 12,907 | (602 | ) | ||||||||||||||||
| North | 160 | 148 | 12 | 453 | 450 | 3 | ||||||||||||||||||
| Total | 5,601 | 5,807 | (206 | ) | 17,257 | 18,171 | (914 | ) | ||||||||||||||||
| Fee harvest volumes – tons: | ||||||||||||||||||||||||
| West(1) | 2,184 | 2,137 | 47 | 6,753 | 6,674 | 79 | ||||||||||||||||||
| South | 6,070 | 6,146 | (76 | ) | 18,353 | 19,008 | (655 | ) | ||||||||||||||||
| North | 247 | 223 | 24 | 676 | 683 | (7 | ) | |||||||||||||||||
| Total | 8,501 | 8,506 | (5 | ) | 25,782 | 26,365 | (583 | ) |
(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 2024 and Year-to-Date 2024
| QUARTER ENDED | AMOUNT OF CHANGE | YEAR-TO-DATE ENDED | AMOUNT OF CHANGE | |||||||||||||||||||||
| DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2024 | SEPTEMBER 2023 | 2024 VS. 2023 | SEPTEMBER 2024 | SEPTEMBER 2023 | 2024 VS. 2023 | ||||||||||||||||||
| Net sales: | ||||||||||||||||||||||||
| Real estate | $ | 59 | $ | 79 | $ | (20 | ) | $ | 220 | $ | 198 | $ | 22 | |||||||||||
| Energy and natural resources | 30 | 26 | 4 | 85 | 88 | (3 | ) | |||||||||||||||||
| Total | $ | 89 | $ | 105 | $ | (16 | ) | $ | 305 | $ | 286 | $ | 19 | |||||||||||
| Costs of sales | $ | 31 | $ | 43 | $ | (12 | ) | $ | 118 | $ | 105 | $ | 13 | |||||||||||
| Operating income and Net contribution to earnings | $ | 51 | $ | 56 | $ | (5 | ) | $ | 170 | $ | 161 | $ | 9 |
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 2024 with Third Quarter 2023
Net sales
Net sales decreased $16 million – 15 percent – primarily due to a decrease in acres sold, as well as a decrease in average price per acre sold.
Costs of sales
Costs of sales decreased $12 million – 28 percent – primarily due to a decrease in acres sold.
Operating income and Net contribution to earnings
Operating income and net contribution to earnings decreased $5 million – 9 percent – primarily due to the change in the components of gross margin, as discussed above.
Comparing Year-to-Date 2024 with Year-to-Date 2023
Net sales
Net sales increased $19 million – 7 percent – primarily due to an increase in acres sold, partially offset by a decrease in average price per acre sold.
Costs of sales
Costs of sales increased $13 million – 12 percent – primarily due to an increase in acres sold.
Operating income and Net contribution to earnings
Operating income and net contribution to earnings increased $9 million – 6 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 2024 | SEPTEMBER 2023 | 2024 VS. 2023 | SEPTEMBER 2024 | SEPTEMBER 2023 | 2024 VS. 2023 | |||||||||||||||||||
| Acres sold | 17,441 | 25,721 | (8,280 | ) | 74,880 | 55,755 | 19,125 | |||||||||||||||||
| Average price per acre | $ | 2,808 | $ | 3,033 | $ | (225 | ) | $ | 2,650 | $ | 3,403 | $ | (753 | ) |
WOOD PRODUCTS
How We Did Third Quarter 2024 and Year-to-Date 2024
| QUARTER ENDED | AMOUNT OF CHANGE | YEAR-TO-DATE ENDED | AMOUNT OF CHANGE | |||||||||||||||||||||
| DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2024 | SEPTEMBER 2023 | 2024 VS. 2023 | SEPTEMBER 2024 | SEPTEMBER 2023 | 2024 VS. 2023 | ||||||||||||||||||
| Net sales: | ||||||||||||||||||||||||
| Structural lumber | $ | 451 | $ | 570 | $ | (119 | ) | $ | 1,414 | $ | 1,658 | $ | (244 | ) | ||||||||||
| Oriented strand board | 206 | 284 | (78 | ) | 749 | 707 | 42 | |||||||||||||||||
| Engineered solid section | 175 | 216 | (41 | ) | 543 | 600 | (57 | ) | ||||||||||||||||
| Engineered I-joists | 95 | 122 | (27 | ) | 301 | 335 | (34 | ) | ||||||||||||||||
| Softwood plywood | 38 | 42 | (4 | ) | 121 | 127 | (6 | ) | ||||||||||||||||
| Medium density fiberboard | 42 | 40 | 2 | 123 | 120 | 3 | ||||||||||||||||||
| Complementary building products | 158 | 184 | (26 | ) | 475 | 551 | (76 | ) | ||||||||||||||||
| Other products produced(1) | 70 | 79 | (9 | ) | 232 | 257 | (25 | ) | ||||||||||||||||
| Total | $ | 1,235 | $ | 1,537 | $ | (302 | ) | $ | 3,958 | $ | 4,355 | $ | (397 | ) | ||||||||||
| Costs of sales | $ | 1,132 | $ | 1,195 | $ | (63 | ) | $ | 3,424 | $ | 3,572 | $ | (148 | ) | ||||||||||
| Operating income and Net contribution to earnings | $ | 27 | $ | 277 | $ | (250 | ) | $ | 351 | $ | 590 | $ | (239 | ) |
(1)
Other products produced sales include wood chips, other byproducts and third-party residual log sales from our Canadian Forestlands operations.
Comparing Third Quarter 2024 with Third Quarter 2023
Net sales
Net sales decreased $302 million – 20 percent – primarily due to:
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a $119 million decrease in structural lumber sales attributable to a 16 percent decrease in sales realizations, as well as a 6 percent decrease in sales volumes;
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a $78 million decrease in oriented strand board sales attributable to a 27 percent decrease in sales realizations;
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a $41 million decrease in engineered solid section sales attributable to a 13 percent decrease in sales volumes, as well as a 6 percent decrease in sales realizations;
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a $27 million decrease in engineered I-joists sales attributable to a 14 percent decrease in sales volumes, as well as an 8 percent decrease in sales realizations;
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a $26 million decrease in complementary building products sales attributable to decreased sales volumes across most products and
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a $9 million decrease in other products produced primarily attributable to decreased sales realizations for wood chips.
Costs of sales
Costs of sales decreased $63 million – 5 percent – primarily due to decreased sales volumes across most product lines.
Operating income and Net contribution to earnings
Operating income and net contribution to earnings decreased $250 million – 90 percent – primarily due to the change in the components of gross margin, as discussed above, as well as a $10 million noncash impairment charge related to the indefinite curtailment of our New Bern lumber mill recorded in third quarter 2024 (refer to Note: 13: Other Operating Costs, Net).
Comparing Year-to-Date 2024 with Year-to-Date 2023
Net sales
Net sales decreased $397 million – 9 percent – primarily due to:
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a $244 million decrease in structural lumber sales attributable to an 11 percent decrease in sales realizations, as well as a 4 percent decrease in sales volumes;
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a $76 million decrease in complementary building products sales attributable to decreased sales volumes across most products;
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a $57 million decrease in engineered solid section sales attributable to a 9 percent decrease in sales realizations;
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a $34 million decrease in engineered I-joists sales attributable to an 11 percent decrease in sales realizations;
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a $25 million decrease in other products produced attributable to decreased sales realizations for wood chips and
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a $6 million decrease in softwood plywood sales attributable to a 3 percent decrease in sales realizations, as well as a 2 percent decrease in sales volumes.
These decreases were partially offset by a $42 million increase in oriented strand board sales attributable to a 10 percent increase in sales realizations, partially offset by a 4 percent decrease in sales volumes.
Costs of sales
Costs of sales decreased $148 million – 4 percent – primarily due to decreased sales volumes across most product lines.
Operating income and Net contribution to earnings
Operating income and net contribution to earnings decreased $239 million – 41 percent – primarily due to the change in the components of gross margin, as discussed above, as well as a $10 million noncash impairment charge related to the indefinite curtailment of our New Bern lumber mill recorded in third quarter 2024, partially offset by a $25 million product remediation recovery recorded in second quarter 2024 (refer to Note: 13: Other Operating Costs, Net).
Third-Party Sales Volumes
| QUARTER ENDED | AMOUNT OF CHANGE | YEAR-TO-DATE ENDED | AMOUNT OF CHANGE | |||||||||||||||||||||
| VOLUMES IN MILLIONS**(1)** | SEPTEMBER 2024 | SEPTEMBER 2023 | 2024 VS. 2023 | SEPTEMBER 2024 | SEPTEMBER 2023 | 2024 VS. 2023 | ||||||||||||||||||
| Structural lumber – board feet | 1,116 | 1,184 | (68 | ) | 3,386 | 3,524 | (138 | ) | ||||||||||||||||
| Oriented strand board – square feet (3/8”) | 675 | 683 | (8 | ) | 2,093 | 2,176 | (83 | ) | ||||||||||||||||
| Engineered solid section – cubic feet | 5.4 | 6.2 | (0.8 | ) | 16.8 | 16.9 | (0.1 | ) | ||||||||||||||||
| Engineered I-joists – lineal feet | 36 | 42 | (6 | ) | 114 | 113 | 1 | |||||||||||||||||
| Softwood plywood – square feet (3/8”) | 88 | 86 | 2 | 259 | 263 | (4 | ) | |||||||||||||||||
| Medium density fiberboard – square feet (3/4”) | 35 | 33 | 2 | 104 | 93 | 11 |
(1)
Sales volumes include 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 2024 | SEPTEMBER 2023 | 2024 VS. 2023 | SEPTEMBER 2024 | SEPTEMBER 2023 | 2024 VS. 2023 | ||||||||||||||||||
| Structural lumber – board feet: | ||||||||||||||||||||||||
| Production | 1,046 | 1,174 | (128 | ) | 3,294 | 3,481 | (187 | ) | ||||||||||||||||
| Outside purchase | 25 | 38 | (13 | ) | 97 | 113 | (16 | ) | ||||||||||||||||
| Total | 1,071 | 1,212 | (141 | ) | 3,391 | 3,594 | (203 | ) | ||||||||||||||||
| Oriented strand board – square feet (3/8”): | ||||||||||||||||||||||||
| Production | 683 | 724 | (41 | ) | 2,162 | 2,212 | (50 | ) | ||||||||||||||||
| Outside purchase | 17 | 19 | (2 | ) | 55 | 55 | — | |||||||||||||||||
| Total | 700 | 743 | (43 | ) | 2,217 | 2,267 | (50 | ) | ||||||||||||||||
| Engineered solid section – cubic feet: | ||||||||||||||||||||||||
| Production | 5.0 | 5.6 | (0.6 | ) | 16.8 | 16.1 | 0.7 | |||||||||||||||||
| Outside purchase | 2.6 | 3.7 | (1.1 | ) | 8.9 | 9.7 | (0.8 | ) | ||||||||||||||||
| Total | 7.6 | 9.3 | (1.7 | ) | 25.7 | 25.8 | (0.1 | ) | ||||||||||||||||
| Engineered I-joists – lineal feet: | ||||||||||||||||||||||||
| Production | 31 | 42 | (11 | ) | 115 | 105 | 10 | |||||||||||||||||
| Outside purchase | 1 | 2 | (1 | ) | 3 | 2 | 1 | |||||||||||||||||
| Total | 32 | 44 | (12 | ) | 118 | 107 | 11 | |||||||||||||||||
| Softwood plywood – square feet (3/8”): | ||||||||||||||||||||||||
| Production | 81 | 77 | 4 | 235 | 235 | — | ||||||||||||||||||
| Outside purchase | 7 | 10 | (3 | ) | 24 | 33 | (9 | ) | ||||||||||||||||
| Total | 88 | 87 | 1 | 259 | 268 | (9 | ) | |||||||||||||||||
| Medium density fiberboard – square feet (3/4"): | ||||||||||||||||||||||||
| Production | 37 | 34 | 3 | 105 | 101 | 4 | ||||||||||||||||||
| Total | 37 | 34 | 3 | 105 | 101 | 4 |
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 2024 | SEPTEMBER 2023 | 2024 VS. 2023 | SEPTEMBER 2024 | SEPTEMBER 2023 | 2024 VS. 2023 | ||||||||||||||||||
| Unallocated corporate function and variable compensation expense | $ | (32 | ) | $ | (33 | ) | $ | 1 | $ | (107 | ) | $ | (92 | ) | $ | (15 | ) | |||||||
| Liability classified share-based compensation | (2 | ) | 2 | (4 | ) | — | — | — | ||||||||||||||||
| Foreign exchange gain | 1 | — | 1 | — | 1 | (1 | ) | |||||||||||||||||
| Elimination of intersegment profit in inventory and LIFO | 5 | (4 | ) | 9 | 5 | 8 | (3 | ) | ||||||||||||||||
| Other | (29 | ) | (23 | ) | (6 | ) | (92 | ) | (62 | ) | (30 | ) | ||||||||||||
| Operating loss | (57 | ) | (58 | ) | 1 | (194 | ) | (145 | ) | (49 | ) | |||||||||||||
| Non-operating pension and other post-employment benefit costs | (10 | ) | (12 | ) | 2 | (31 | ) | (33 | ) | 2 | ||||||||||||||
| Interest income and other | 14 | 24 | (10 | ) | 42 | 54 | (12 | ) | ||||||||||||||||
| Net charge to earnings | $ | (53 | ) | $ | (46 | ) | $ | (7 | ) | $ | (183 | ) | $ | (124 | ) | $ | (59 | ) |
Comparing Third Quarter 2024 with Third Quarter 2023
Net charge to earnings increased $7 million – 15 percent – primarily due to a $10 million decrease in interest income and other, attributable to a decrease in our cash and short-term investment accounts, and a $4 million increase in liability classified share-based compensation. These changes were partially offset by a $9 million decrease in elimination of intersegment profit in inventory and LIFO.
Comparing Year-to-Date 2024 with Year-to-Date 2023
Net charge to earnings increased $59 million – 48 percent – primarily due to a $15 million increase in unallocated corporate function and variable compensation expense and a $12 million decrease in interest income and other, primarily attributable to a decrease in our cash and short-term investment accounts.
INTEREST EXPENSE
Our interest expense, net of capitalized interest, was:
●
$69 million for third quarter 2024 and $203 million year-to-date 2024;
●
$72 million for third quarter 2023 and $208 million year-to-date 2023.
Interest expense decreased by $3 million compared to third quarter 2023 and decreased by $5 million compared to year-to-date 2023 primarily due to a series of debt issuances and retirements during 2023 that decreased our 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 $15 million benefit for third quarter 2024 and a $38 million expense year-to-date 2024;
●
a $54 million expense for third quarter 2023 and a $101 million expense year-to-date 2023.
Our provision for income taxes is primarily driven by earnings generated by our TRSs. Income tax expense decreased by $63 million compared to year-to-date 2023 primarily due to a decrease in our TRS earnings in 2024, 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 financial 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, 2024, we had $877 million in cash and cash equivalents 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:
●
$790 million for year-to-date 2024 and
●
$1,145 million for year-to-date 2023.
Net cash from operations decreased $355 million primarily due to decreased cash flows from our business operations, as well as an $11 million increase in cash paid for income taxes.
CASH FROM INVESTING ACTIVITIES
Consolidated net cash from investing activities was:
●
$(381) million for year-to-date 2024 and
●
$(982) million for year-to-date 2023.
Net cash from investing activities increased $601 million primarily due to a $664 million decrease in cash paid for short-term investments, partially offset by a $65 million increase in cash paid for acquisitions of timberlands.
Summary of Capital Spending by Business Segment
| YEAR-TO-DATE ENDED | ||||||||
| DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2024 | SEPTEMBER 2023 | ||||||
| Timberlands | $ | 74 | $ | 74 | ||||
| Wood Products | 177 | 168 | ||||||
| Unallocated Items | 16 | 9 | ||||||
| Total | $ | 267 | $ | 251 |
We anticipate our capital expenditures for 2024 to be approximately $420 million. The amount we spend on capital expenditures could change.
CASH FROM FINANCING ACTIVITIES
Consolidated net cash from financing activities was:
●
$(674) million for year-to-date 2024 and
●
$(571) million for year-to-date 2023.
Net cash from financing activities decreased $103 million primarily due to a $743 million decrease in net proceeds from issuance of long-term debt, partially offset by a $537 million decrease in cash used for payments of dividends, as well as a $118 million decrease in cash used for payments of long-term debt.
Line of Credit
We had no outstanding borrowings on our $1.5 billion five-year senior unsecured revolving credit facility as of September 30, 2024 or December 31, 2023. This credit facility expires in March 2028.
Refer to Note 8: Long-Term Debt and Line of Credit for further information.
Long-Term Debt
We have $210 million of long-term debt, with a weighted average interest rate of 8.314 percent, scheduled to mature during first quarter 2025.
In July 2023, we repaid $118 million of our 7.125 percent notes at maturity.
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.
Refer to Note 8: Long-Term Debt and Line of Credit for further information.
Debt Covenants
As of September 30, 2024, Weyerhaeuser Company was in compliance with its debt covenants. There have been no significant changes to the debt covenants presented in our 2023 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:
●
$539 million for year-to-date 2024 and
●
$1,076 million for year-to-date 2023.
The decrease in dividends paid is primarily due to a supplemental dividend of $0.14 per share based on 2023 financial results for a total of $102 million paid in first quarter 2024 in comparison 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.
Under our cash return framework, we plan to supplement our base dividend with an additional return of variable cash, as appropriate, in the form of a supplemental cash dividend and/or share repurchase to achieve a targeted total return to shareholders of 75 to 80 percent of annual Adjusted Funds Available for Distribution (Adjusted FAD). For further information on Adjusted FAD see Performance and Liquidity Measures.
Share Repurchases
We repurchased 820,706 common shares for approximately $26 million (including transaction fees) during third quarter 2024 and 3,962,220 common shares for approximately $125 million (including transaction fees) during year-to-date 2024 under the 2021 Repurchase Program. During third quarter 2023, we repurchased 757,510 common shares for approximately $25 million (including transaction fees) and 3,562,944 common shares for approximately $110 million (including transaction fees) during year-to-date 2023 under the 2021 Repurchase Program. There were 11,564 unsettled shares (less than $1 million) as of September 30, 2024 and 13,866 unsettled shares (approximately $1 million) as of December 31, 2023. Refer to Note 4: Net Earnings Per Share and Share Repurchases for further information.
PERFORMANCE AND LIQUIDITY 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 2024 | SEPTEMBER 2023 | 2024 VS. 2023 | SEPTEMBER 2024 | SEPTEMBER 2023 | 2024 VS. 2023 | ||||||||||||||||||
| Adjusted EBITDA by Segment: | ||||||||||||||||||||||||
| Timberlands | $ | 122 | $ | 143 | $ | (21 | ) | $ | 413 | $ | 503 | $ | (90 | ) | ||||||||||
| Real Estate & ENR | 77 | 94 | (17 | ) | 273 | 253 | 20 | |||||||||||||||||
| Wood Products | 91 | 328 | (237 | ) | 500 | 746 | (246 | ) | ||||||||||||||||
| 290 | 565 | (275 | ) | 1,186 | 1,502 | (316 | ) | |||||||||||||||||
| Unallocated Items | (54 | ) | (56 | ) | 2 | (188 | ) | (129 | ) | (59 | ) | |||||||||||||
| Adjusted EBITDA | $ | 236 | $ | 509 | $ | (273 | ) | $ | 998 | $ | 1,373 | $ | (375 | ) |
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, 2024:
| DOLLAR AMOUNTS IN MILLIONS | Timberlands | Real Estate & ENR | Wood Products | Unallocated Items | Total | |||||||||||||||
| Adjusted EBITDA by Segment: | ||||||||||||||||||||
| Net earnings | $ | 28 | ||||||||||||||||||
| Interest expense, net of capitalized interest | 69 | |||||||||||||||||||
| Income taxes | (15 | ) | ||||||||||||||||||
| Net contribution (charge) to earnings | $ | 57 | $ | 51 | $ | 27 | $ | (53 | ) | $ | 82 | |||||||||
| Non-operating pension and other post-employment benefit costs | — | — | — | 10 | 10 | |||||||||||||||
| Interest income and other | — | — | — | (14 | ) | (14 | ) | |||||||||||||
| Operating income (loss) | 57 | 51 | 27 | (57 | ) | 78 | ||||||||||||||
| Depreciation, depletion and amortization | 65 | 3 | 54 | 3 | 125 | |||||||||||||||
| Basis of real estate sold | — | 23 | — | — | 23 | |||||||||||||||
| Special items included in operating income (loss)(1) | — | — | 10 | — | 10 | |||||||||||||||
| Adjusted EBITDA | $ | 122 | $ | 77 | $ | 91 | $ | (54 | ) | $ | 236 |
(1)
Operating income (loss) for Wood Products includes a pretax special item consisting of a $10 million noncash impairment charge related to the indefinite curtailment of our New Bern lumber mill.
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 year-to-date period ended September 30, 2024:
| DOLLAR AMOUNTS IN MILLIONS | Timberlands | Real Estate & ENR | Wood Products | Unallocated Items | Total | |||||||||||||||
| Adjusted EBITDA by Segment: | ||||||||||||||||||||
| Net earnings | $ | 315 | ||||||||||||||||||
| Interest expense, net of capitalized interest | 203 | |||||||||||||||||||
| Income taxes | 38 | |||||||||||||||||||
| Net contribution (charge) to earnings | $ | 218 | $ | 170 | $ | 351 | $ | (183 | ) | $ | 556 | |||||||||
| Non-operating pension and other post-employment benefit costs | — | — | — | 31 | 31 | |||||||||||||||
| Interest income and other | (1 | ) | — | — | (42 | ) | (43 | ) | ||||||||||||
| Operating income (loss) | 217 | 170 | 351 | (194 | ) | 544 | ||||||||||||||
| Depreciation, depletion and amortization | 196 | 10 | 164 | 6 | 376 | |||||||||||||||
| Basis of real estate sold | — | 93 | — | — | 93 | |||||||||||||||
| Special items included in operating income (loss)(1) | — | — | (15 | ) | — | (15 | ) | |||||||||||||
| Adjusted EBITDA | $ | 413 | $ | 273 | $ | 500 | $ | (188 | ) | $ | 998 |
(1)
Operating income (loss) for Wood Products includes pretax special items consisting of a $25 million product remediation recovery and a $10 million noncash impairment charge related to the indefinite curtailment of our New Bern lumber mill.
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.
Adjusted FAD
We use Adjusted Funds Available for Distribution (Adjusted FAD) to evaluate the company’s liquidity and measure cash generated during the period (net of capital expenditures and significant non-recurring items) that is available for dividends, repurchases of common shares, debt reduction, acquisitions and other discretionary and nondiscretionary capital allocation activities. Adjusted FAD should not be considered in isolation from, and is not intended to represent an alternative to, our results reported in accordance with U.S. GAAP. However, we believe the measure provides meaningful supplemental information for our investors about our liquidity. Adjusted FAD, as we define it, is net cash from operations adjusted for capital expenditures and significant non-recurring items. Our definition of Adjusted FAD may be different from similarly titled measures reported by other companies, including those in our industry. We reconcile Adjusted FAD to net cash from operations, as that is the most directly comparable U.S. GAAP measure.
The table below reconciles Adjusted FAD to net cash from operations:
| QUARTER ENDED | YEAR-TO-DATE ENDED | |||||||||||||||
| DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2024 | SEPTEMBER 2023 | SEPTEMBER 2024 | SEPTEMBER 2023 | ||||||||||||
| Net cash from operations | $ | 234 | $ | 523 | $ | 790 | $ | 1,145 | ||||||||
| Capital expenditures | (97 | ) | (99 | ) | (267 | ) | (251 | ) | ||||||||
| FAD | 137 | 424 | 523 | 894 | ||||||||||||
| Cash from product remediation recovery | — | — | (25 | ) | — | |||||||||||
| Adjusted FAD | $ | 137 | $ | 424 | $ | 498 | $ | 894 | ||||||||
| Net cash from investing activities | $ | (161 | ) | $ | (164 | ) | $ | (381 | ) | $ | (982 | ) | ||||
| Net cash from financing activities | $ | (171 | ) | $ | (281 | ) | $ | (674 | ) | $ | (571 | ) |
Net Earnings and Net Earnings per Diluted Share Before Special Items (Income Tax Affected)
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 2024 | SEPTEMBER 2023 | SEPTEMBER 2024 | SEPTEMBER 2023 | ||||||||||||
| Net earnings | $ | 28 | $ | 239 | $ | 315 | $ | 620 | ||||||||
| Environmental remediation charge | — | — | — | 8 | ||||||||||||
| Product remediation recovery | — | — | (19 | ) | — | |||||||||||
| Restructuring, impairments and other charges | 7 | — | 7 | — | ||||||||||||
| Net earnings before special items | $ | 35 | $ | 239 | $ | 303 | $ | 628 |
Net Earnings per Diluted Share Before Special Items
| QUARTER ENDED | YEAR-TO-DATE ENDED | |||||||||||||||
| SEPTEMBER 2024 | SEPTEMBER 2023 | SEPTEMBER 2024 | SEPTEMBER 2023 | |||||||||||||
| Net earnings per diluted share | $ | 0.04 | $ | 0.33 | $ | 0.43 | $ | 0.85 | ||||||||
| Environmental remediation charge | — | — | — | 0.01 | ||||||||||||
| Product remediation recovery | — | — | (0.02 | ) | — | |||||||||||
| Restructuring, impairments and other charges | 0.01 | — | 0.01 | — | ||||||||||||
| Net earnings per diluted share before special items | $ | 0.05 | $ | 0.33 | $ | 0.42 | $ | 0.86 |
CRITICAL ACCOUNTING E****STIMATES
There have been no significant changes during year-to-date 2024 to the critical accounting estimates presented in our 2023 Annual Report on Form 10-K.
Previous: Item 1. FINANCIAL STATEMENTS · Next: Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK