UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 20152018
or
[ ] o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-4825
WEYERHAEUSER COMPANY
A WASHINGTON CORPORATION
91-0470860
(IRS EMPLOYER IDENTIFICATION NO.)
33663 WEYERHAEUSER WAY220 OCCIDENTAL AVENUE SOUTH, FEDERAL WAY,SEATTLE, WASHINGTON 98063-977798104-7800 TELEPHONE (253) 924-2345(206) 539-3000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B)12(b) OF THE ACT:
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| TITLE OF EACH CLASS | | NAME OF EACH EXCHANGE ON WHICH REGISTERED: |
| Common Shares ($1.25 par value) | | ChicagoNew York Stock Exchange |
| | | New York Stock Exchange |
6.375% Mandatory Convertible Preference Shares, Series A ($1.00 par value) | | New York Stock ExchangeSecurities registered pursuant to Section 12(g) of the Act: None |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [X]x Yes [ ]o No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. [ ]o Yes [X]x No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X]x Yes [ ]o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X]x Yes [ ]o No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” andfiler,” “smaller reporting company”company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [X] x Accelerated filer [ ] o Non-accelerated filer [ ]o
Smaller reporting company [ ]o Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). [ ]o Yes [X]x No
As of June 30, 2015,2018, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $16.0$28.0 billion based on the closing sale price as reported on the New York Stock Exchange Composite Price Transactions.
As of January 29, 2016, 510,492,965February 4, 2019, 746,524 thousand shares of the registrant’s common stock ($1.25 par value) were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Notice of 20162019 Annual Meeting of Shareholders and Proxy Statement for the company’s Annual Meeting of Shareholders to be held May 20, 2016,17, 2019, are incorporated by reference into Part II and III.
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K
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OUR BUSINESS
We are one of the world's largest private owners of timberlands. We own or control nearly 712.2 million acres of timberlands primarily in the U.S., and manage an additional 14.0 million acres of timberlands under long-term licenses in Canada. We manage these timberlands on a sustainable basis in compliance with internationally recognized forestry standards. Our objective is to maximize the long-term value of timberlands we own. We analyze each timberland acre comprehensively to understand its highest-value use. We realize this value in many ways, particularly through growing and harvesting the trees, but also by selling properties when we can create incremental value. In addition, we focus on opportunities to realize value for oil and natural gas production, construction aggregates and mineral extraction, wind and solar power, communication tower leases and transportation rights of way that exist in our ownership.
We are also one of the largest manufacturers of wood products in North America. We manufacture and distribute high-quality wood products, including structural lumber, oriented strand board (OSB), engineered wood products and other specialty cellulose fibers products. These products are primarily supplied to the residential, multi-family, industrial, light commercial and repair and remodel markets. We operate 35 manufacturing facilities in the United States and Canada.
Our company is a real estate investment trust (REIT).
WeSustainability and citizenship are committedpart of our core values. In addition to operate as apracticing sustainable company and are listed on the Dow Jones World Sustainability Index. Weforestry, we focus on increasing energy and resource efficiency, reducing greenhouse gas emissions, reducing water consumption, conserving natural resources and offering sustainable products that meet human needs with superior sustainability attributes.our customers' needs. We operate with world class safety results, understand and address the needs ofactively support the communities in which we operate and present ourselves transparently.strive to communicate transparently with our investors and other stakeholders. We are the only North American forest products company included on the Dow Jones Sustainability North America Index, and we also are recognized for our leading performance in the areas of ethics, citizenship and gender equality.
In 20152018, we generated $7.1$7.5 billion in net sales and employed approximately 12,6009,300 people who serve customers worldwide.
This portion of our Annual Report andon Form 10-K provides detailed information about who we are, what we do and where we are headed. Unless otherwise specified, current information reported in this Form 10-K is as of or for the fiscal year ended December 31, 20152018.
We break out financial information such as revenues, earnings and assets by the business segments that form our company. We also discuss the development of our company and the geographic areas where we do business.
Throughout this Form 10-K, unless specified otherwise, references to “we,” “our,” “us” and “the company” refer to the consolidated company.
AVAILABLE INFORMATION
We meet the information-reporting requirements of the Securities Exchange Act of 1934 by filing periodic reports (annual reports on Form 10-K, quarterly reports on Form 10-Q), current reports on Form 8-K, proxy statements and other information with the Securities and Exchange Commission (SEC). These reports and statements — information about our company’s business, financial results and other matters — and amendments to these reports and statements are available at:
the SEC website — www.sec.gov;
the SEC’s Public Conference Room, 100 F St. N.E., Washington, D.C., 20549, (800) SEC-0330; and
our website (free of charge) — www.weyerhaeuser.com.
When we file the information electronically with the SEC, it also is posted to our website.
We started outwere incorporated as Weyerhaeuser Timber Company incorporated in the state of Washington in January 1900, when Frederick Weyerhaeuser and 15 partners bought 900,000 acres of timberland. Today, we are working to grow a truly greatbe the world's premier timber, land, and forest products company for our shareholders, customers and employees. We grow and harvest trees and manufacture and sell products made from trees.
REAL ESTATE INVESTMENT TRUST (REIT) ELECTION
Starting with our 2010 fiscal year, we elected to be taxed as a REIT. We expect to derive most of our REIT income from investments in timberlands, including the sale of standing timber through pay-as-cut sales contracts and lump sum timber deeds. REIT income can be distributed to shareholders without first paying corporate level tax, substantially eliminating the double taxation on income. A significant portionWe expect to derive most of our timberland segment earnings receives this favorable tax treatment.REIT income from our timberlands, including gains from the sales of our standing timber and rent from recreational leases. We continue to be required to pay federal corporate income taxes on earnings of our Taxable REIT Subsidiary (TRS), which includes our manufacturing businessesWood Products segment and thea portion of our Timberlands segment income included in the TRS.
PENDING MERGER WITH PLUM CREEK
On November 6, 2015 Weyerhaeuser Company and Plum Creek Timber Company, Inc. (“Plum Creek”) entered into an AgreementReal Estate, Energy and Plan of Merger (“Merger Agreement”) pursuant to which Plum Creek will merge with and into Weyerhaeuser Company with Weyerhaeuser continuing as the surviving corporation. Under the terms of the Merger Agreement, Plum Creek shareholders will receive 1.60 shares of Weyerhaeuser common shares for each share of Plum Creek common stock at the closing date. Plum Creek is a REIT that owns and manages more than 6 million acres of timberland in the United States. In addition Plum Creek produces wood products, develops opportunities for mineral and other natural resource extraction, and develops and sells real estate properties. SeeNote 4: Acquisitionsin the Notes to Consolidated Financial Statements for further information about the pending merger.Natural Resources segments.
OUR BUSINESS SEGMENTS
Timberlands,Timberlands;
Real Estate, Energy and Natural Resources (Real Estate & ENR); and
Wood Products and
Cellulose Fibers.Products.
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 1
On November 8, 2015 Weyerhaeuser announced that the board authorized the exploration of strategic alternatives for its Cellulose Fibers business. At this time there can be no assurance that the board's evaluation process will result in any transaction or that any transaction, if pursued, will be consummated.
EFFECT OF MARKET CONDITIONS
The health of the U.S. housing market strongly affects the performance of all our Wood Products and Timberlandsbusiness segments. Wood Products primarily sells into the new residential building and repair and remodel markets. Demand for logs from our Timberlands segment is affected by the production of wood-based building products as well as export demand. Cellulose FibersReal Estate is primarily affected by globallocal real estate market conditions, such as the level of supply or demand for properties sharing the same or similar characteristics as our timberlands. Energy and the relative strength of the U.S. dollar.Natural Resources is affected by underlying demand for commodities, including oil and gas.
COMPETITION IN OUR MARKETS
We operate in highly competitive domestic and foreign markets, with numerous companies selling similar products. Many of our products also face competition from substitutes for wood and wood-fiber products. We compete in our markets primarily through price, product quality, service levels and service levels.price. We are relentlessly focused on improving operational excellence, to ensure a competitive cost structure and producing quality products customers want and are wilingwilling to pay for.for, at the lowest possible cost.
Our business segments’ competitive strategies are as follows:
Timberlands — ExtractDeliver maximum timber value from eachevery acre we own or manage.
Real Estate & ENR — Deliver premiums to timberland value by identifying and monetizing higher and better use lands and capturing the full value of surface and subsurface assets.
Wood Products — DeliverManufacture high-quality lumber, structural panels, and engineered wood products, andas well as deliver complementary building products for residential, multi-family, industrial and light commercial applications at competitive costs.
Cellulose Fibers — Concentrate on value-added pulp products and low cost manufacturing assets.
SALES OUTSIDE THE U.S.
In 2015, $2.3 billion — 32 percent — of our total consolidated sales from continuing operations were to customers outside the U.S. Our sales outside the U.S. are generally denominated in U.S. dollars. The table below shows sales outside the U.S. for the last three years.
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| SALES OUTSIDE THE U.S. IN MILLIONS OF DOLLARS |
| 2015 |
| 2014 |
| 2013 |
|
| Exports from the U.S. | $ | 1,719 |
| $ | 1,892 |
| $ | 1,891 |
|
| Canadian export and domestic sales | 400 |
| 472 |
| 488 |
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| Other foreign sales | 144 |
| 150 |
| 114 |
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| Total | $ | 2,263 |
| $ | 2,514 |
| $ | 2,493 |
|
| Percent of total sales | 32 | % | 34 | % | 29 | % |
OUR EMPLOYEES
We have approximately 12,6009,300 employees. This number includes:
11,700 employed in North America and
900 employed by our operations outside of North America.
This section provides information about how we:
grow and harvest trees,
maximize the value of every acre we own and
manufacture and sell products made from them.wood products.
For each of our business segments, we provide details about what we do, where we do it, how much we sell and where we are headed.
TIMBERLANDS
Our Timberlands segment manages 6.912.2 million acres of private commercial timberlands worldwide.in the U.S. We own 6.311.4 million of those acres and havecontrol the remaining acres through long-term leases on the other 0.6 million acres.contracts. In addition, we have renewable, long-term licenses on 14.0 million acres of Canadian timberlands. The tables presented in this section include data from this segment's business units as of the end of 2015.
2018.
WHAT WE DO
Forestry Management
Our Timberlands segment:
grows and harvests trees to be converted into lumber, other wood and building products and pulp and paper;
exports logs to other countries where they are made into products;
plants seedlings to reforest harvested areas using the most effective regeneration method for the site and species (in(natural regeneration is employed and managed in parts of Canada natural regeneration is employed)and the northern U.S.);
monitors and cares formanages our timberlands as the planted trees as they grow to maturity;
harvests trees to be converted into lumber, wood products, pellets, pulp and paper;
strives to sustain and maximize the timber supply from our timberlands while keepingmanages the health of our environment a key priority.forests to sustainably maximize harvest volumes, minimize risks, and protect unique environmental, cultural, historical and recreational value; and
Our goal isoffers recreational access.
We seek to maximize the returns from our timberlands by selling delivered logs and through stumpage sales to both internal and external customers. We focus on solid woodleverage our expertise in forestry and use intensive silviculture to improve forest productivity and returns while managing our forests on a sustainable basisbasis. We use our scale, infrastructure and supply chain expertise to deliver reliable and consistent supply to our customers.
Competitive factors within each of our market areas generally include price, species, grade, quality, proximity to wood consuming facilities and the ability to consistently meet customer requirements. We compete in the marketplace through our ability to provide customers with a consistent and public expectations.
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K2
Tablereliable supply of Contentshigh-quality logs at scale volumes and competitive prices. Our customers also value our status as a Sustainable Forestry Initiative® (SFI) certified supplier.
Sustainable Forestry Practices
We manage our forests intensively to maximize the value of every acre and produce a sustainable supply of wood fiber for our customers. At the same time, we are committedcareful to responsibleprotect biological diversity, water quality and other ecosystem values. Our working forests also provide unique environmental, stewardship wherever we operate,cultural, historical and recreational value. We work hard to protect these and other qualities, while still managing our forests to produce financially mature timber while protecting the ecosystem services they provide. Our working forests include places with unique environmental, cultural, historical or recreational value. To protect their unique qualities, wetimber. We follow regulatory requirements, voluntary standards and implement the Sustainable Forestry Initiative® (SFI) standard. Independent auditingcertify 100 percent of all of the forests we own or manage in the United States and Canada certifies that we meetour North American timberlands under the SFI standard. Our timberlands in Uruguay are certified under the Forest Stewardship Council (FSC) standard or the Uruguayan national forestry management standard which is endorsed by the Program for the Endorsement of Forest Certification (PEFC).Management Standard.
Canadian Forestry Operations
In Canada, we manage timberlands under long-term licenses that provide the primary source of the raw material for our manufacturing facilities in various provinces. When we harvest trees, we pay the provinces at stumpage rates set by the government, which generally are based on prevailing market prices.government. We transfer logs to our
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K2
manufacturing facilities at cost and do not generate any significant profit in the Timberlands segment from the harvest of timber from the licensed acres in Canada.
Other Values From Our Timberlands
In the United States, we actively manage mineral, oil and gas leases on our land and use geologic databases to identify and market opportunities for commercial mineral and geothermal development. We recognize leasing, bonus, and option revenue over the terms of agreements with customers. Revenue primarily comes from:
royalty payments on oil and gas production;
bonus payments from oil and gas leasing and exploration activity;
royalty payments on hard minerals (rock, sand and gravel);
geothermal lease and option revenues; and
the sale of mineral assets.
In managing mineral resources, we generate revenue related to our ownership of the minerals and, separately, related to our ownership of the surface. The ownership of mineral rights and surface acres may be held by two separate parties. Materials that can be mined from the surface, and whose value comes from factors other than their chemical composition, typically belong to the surface owner. Examples of surface materials include rock, sand, gravel, dirt and topsoil. The mineral owner holds the title to commodities that derive value from their unique chemical composition. Examples of mineral rights include oil, gas, coal (even if mined at the surface) and precious metals. If the two types of rights conflict, then mineral rights generally are superior to surface rights. A third type of land right is geothermal, which can belong to either the surface or mineral owner. We routinely reserve mineral and geothermal rights when selling surface timberlands acreage.
Timberlands Products
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| | |
| PRODUCTS | HOW THEY’RE USED |
Logs | LogsDelivered logs: • Grade logs • Fiber logs | Grade logs are made into lumber, plywood, veneer and other woodproducts used in residential homes, commercial structures, furniture, industrial and buildingdecorative applications. Fiber logs are sold to pulp, paper, and oriented strand board mills to make products used for printing, writing, packaging, homebuilding and pulpconsumer products, as well as into renewable energy and paper products.pellets. |
Timberlands | Timberland tracts are sold or exchanged to maximize value or improve our timberland portfolio. |
| Timber | Standing timber is sold to third parties.parties through stumpage sales. |
Minerals, oil and gas | Minerals, oil and gasRecreational leases | Timberlands are sold into construction and energy markets.leased or permitted for recreational purposes. |
| Other products | Seed and seedlings grown in the U.S.U.S and chips. We previously produced plywood produced at our mill in Uruguay are sold (1). |
| |
HOW WE MEASURE OUR PRODUCT
We report Timberlands data in cubic meters. Cubic meters measure the total volume of wood fiber in a tree or log that we can sell. Cubic meter volume is determined from the large and small-end diameters and length and provides a comparative measure of timber and log volume among operating regions, species, size and seasons of the year.
We also use multiple units of measure when transacting business including:
Thousand board feet (MBF) — used in the West to measure the expected lumber recovery from a tree or log. This measure does not include taper or recovery of non-lumber residual products.
Hundred cubic feet (CCF) — used in the West to measure the volume of a log. The measure does not include any calculation for expected lumber recovery.log; and
Green tons (GT) — used in the South to measure weight; factors used for conversion to product volume can vary by species, size, location and season.
We report Timberlands volumes in ton equivalents.
WHERE WE DO IT
Our timberlands assets are located primarily in North America. In the U.S. we own andWe sustainably manage sustainable timberlands in nine states for usetwenty states. This includes owned or contracted acres in wood productsthe following locations:
2.9 million acres in the western U.S. (Oregon and pulp and paper manufacturing. We own or lease:Washington);
4.06.9 million acres in the southern U.S. (Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, North Carolina, Oklahoma, South Carolina, Texas and Texas)Virginia); and
2.62.4 million acres in the Pacific Northwest (Oregonnorthern U.S. (Maine, Michigan, Montana, New Hampshire, Vermont, West Virginia and Washington)Wisconsin).
We also own and operate nurseries and seed orchards in Washington, Oregon, South Carolina and Georgia.
Our international operations are located in Uruguay, where we own 298,000 acres and have long-term leases on 25,000 acres. In Canada, we manage timberlands under long-term licenses that provide raw material for our manufacturing facilities. These licenses are in Alberta, British Columbia, Ontario (license is managed by partnership) and Saskatchewan.Saskatchewan (license is managed by partnership).
Our total timber inventory — including timber on owned and leasedcontracted land— is approximately 350626 million cubic meters.tons. The amount of timber inventory does not translate into an amount of lumber or panel products because the quantity of end products:
products varies according to the species, size and quality of the timber; and
will change through time as the mix of these variables adjust.
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K3
The species, size and grade of the trees affects the relative value of our timberlands.
We maintain our timber inventory in an integrated resource inventory system and geographic information system (“GIS”). The resource inventory component of the system is proprietary and is largely based on internally developed technologies,methods, including growth and yield models developed by our research and development organization. The GIS component is based on GIS software that is viewed as the standard in our industry.
Timber inventory data collection and verification techniques include the use of industry standard field sampling procedures as well as proprietary remote sensing technologies in some geographies where they generate improved estimates.geographies. The data is collected and maintained at the timber stand level.
United StatesWe also own and operate nurseries and seed orchards in Alabama, Arkansas, Georgia, Louisiana, Mississippi, Oregon, South Carolina, and Washington.
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K3
Summary of 2015 United States2018 Standing Timber Inventory
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| GEOGRAPHIC AREA | MILLIONS OF CUBIC METERSTONS AT
DECEMBER 31, 20152018 |
|
| TOTAL INVENTORY(1) |
|
West:U.S.: | |
| West | |
| Douglas fir/Cedar | 153160 |
|
| Whitewood | 3133 |
|
| Hardwood | 1214 |
|
| Total West | 196207 |
|
South:South | |
| Southern yellow pine | 113263 |
|
| Hardwood | 29 |
|
| 14284 |
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Total U.S.South | 338347 |
|
| North | |
| Conifer | 32 |
|
| Hardwood | 40 |
|
| Total North | 72 |
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| Total Company | 626 |
|
(1) Inventory includes all conservation and set asidenon-harvestable areas. |
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K4
Summary of 2015 United States2018 Timberland Locations
| | | GEOGRAPHIC AREA | THOUSANDS OF ACRES AT
DECEMBER 31, 2015 | | THOUSANDS OF ACRES AT
DECEMBER 31, 2018 | |
| FEE OWNERSHIP |
| LONG- TERM LEASES |
| TOTAL ACRES(1) |
| FEE OWNERSHIP |
| LONG-TERM CONTRACTS |
| TOTAL ACRES(1) |
|
| U.S.: | | | | |
| West | 2,594 |
| — |
| 2,594 |
| | |
| Oregon | | 1,596 |
| — |
| 1,596 |
|
| Washington | | 1,314 |
| — |
| 1,314 |
|
| Total West | | 2,910 |
| — |
| 2,910 |
|
| South | 3,403 |
| 630 |
| 4,033 |
| | |
| Total U.S. | 5,997 |
| 630 |
| 6,627 |
| |
| (1) Acres include all conservation and set aside areas. | |
| Alabama | | 388 |
| 228 |
| 616 |
|
| Arkansas | | 1,211 |
| 18 |
| 1,229 |
|
| Florida | | 226 |
| 85 |
| 311 |
|
| Georgia | | 618 |
| 50 |
| 668 |
|
| Louisiana | | 1,023 |
| 351 |
| 1,374 |
|
| Mississippi | | 1,131 |
| 75 |
| 1,206 |
|
| North Carolina | | 563 |
| — |
| 563 |
|
| Oklahoma | | 494 |
| — |
| 494 |
|
| South Carolina | | 278 |
| — |
| 278 |
|
| Texas | | 29 |
| 2 |
| 31 |
|
| Virginia | | 123 |
| — |
| 123 |
|
| Total South | | 6,084 |
| 809 |
| 6,893 |
|
| North | | | |
| Maine | | 838 |
| — |
| 838 |
|
| Michigan | | 556 |
| — |
| 556 |
|
| Montana | | 658 |
| — |
| 658 |
|
| New Hampshire | | 24 |
| — |
| 24 |
|
| Vermont | | 86 |
| — |
| 86 |
|
| West Virginia | | 256 |
| — |
| 256 |
|
| Wisconsin | | 4 |
| — |
| 4 |
|
| Total North | | 2,422 |
| — |
| 2,422 |
|
| Total Company | | 11,416 |
| 809 |
| 12,225 |
|
| (1) Acres include all conservation and non-harvestable areas. | | (1) Acres include all conservation and non-harvestable areas. |
We provide a constant year roundyear-round flow of logs to internal and third-partyexternal customers. We sell grade and fiber logs to millsmanufacturers that manufactureproduce a diverse range of products including lumber, plywood and veneer. We also sell chips and fiber logs to pulp, paper and oriented strand board mills.products. We also sell standing timber to third parties.parties and lease land for recreational purposes. Our timberlands are generally well located to take advantage of road, logging and transportation systems for efficient delivery of logs to these customers.
Western United States
Our Western acrestimberlands are well situated to serve the wood productproducts and pulp markets in Oregon and Washington. In addition,Additionally, our location on the West Coast provides access to higher-value export markets for Douglas fir and whitewood logs into Japan, China and Korea. Our largest export market is Japan, where Douglas fir is the preferred species for higher-valued post and beam homebuilding. The size and quality of our Western Timberlands,timberlands, coupled with their proximity to several deep-water port facilities, competitively positions us to meet the needs of Pacific Rim log markets. For the year ended December 31, 2018, we sold 24 percent of our total western log sales volume internally.
Our landsholdings are composed primarily of Douglas fir, a species highly valued for its structural strength.strength, stiffness and visual appearance. Most of our lands are located on the west side of the Cascade Mountain Range with soil and rainfall conditions considered favorable for growing this species. Approximately 80 percent of our lands are in established Douglas fir plantations. Our coastal lands also containremaining holdings include a mix of whitewood and have a higher proportion of hemlock and other whitewoods than our interior holdings. hardwood.
Our management systems and supply chain expertise provide us a competitive operating advantage in a number of areas including forestry and range from research, and forestry, to technical planning models, mechanized harvesting, and marketing, and logistics.
On July 23, 2013, we purchased 100 percent Additionally, our scale, diversity of the equity interests in Longview Timber LLC (Longview Timber) for $1.58 billion cash and assumed debt of $1.07 billion, for an aggregate purchase price of $2.65 billion. Longview Timber was a privately-held Delaware limited liability company engaged in thetimberlands ownership and management ofinfrastructure on the West Coast allow us to consistently and reliably supply logs to our internal and external customers year-round.
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K4
2015 Western U.S. Inventory by Species
2015 Western U.S. Inventory by Age / Species
The average age of timber harvested in 2015 was 52 years. Most of our U.S. timberland is intensively managed for timber production, but some areas are conserved for environmental, historical, recreational or cultural reasons. Some of our older trees are protected in acreage set aside for conservation, and some are not yet logged due to harvest rate regulations. While over the long term our average harvest age will decrease in accordance with our sustainable forestry practices, we harvest generally 2 percent of our Western acreage each year.
Southern United States
Our Southern acres predominantly contain southern yellow pine and encompass timberlands in seven states.
We intensively manage our timber plantations using forestry research and planning systems to optimize grade log production. We also actively manage our land to capture revenues from our oil, gas and hard minerals resources. We do this while providing quality habitat for a range of animals and birds. We lease more than 94 percent of our acres to the public and state wildlife agencies for recreational purposes.
2015 Southern U.S. Inventory by Species
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 5
2015 Southern2018 Western U.S. Inventory by Species
2018 Western U.S. Inventory by Age / Species
The average age of timber harvested from our Western timberlands in 20152018 was 31 years for southern yellow pine.51 years. In accordance with our sustainable forestry practices, we harvest generally 3approximately 2 percent of our Western acreage each year in the South.year.
International
Summary of 2015 International Standing Timber Inventory
|
| | |
GEOGRAPHIC AREA | MILLIONS OF CUBIC METERS AT
DECEMBER 31, 2015 |
|
| TOTAL
INVENTORY
|
|
Uruguay: | |
Pine | 8 |
|
Eucalyptus | 4 |
|
Total International | 12 |
|
Summary of 2015 International Timberland Locations
|
| | | | | | |
| GEOGRAPHIC AREA | THOUSANDS OF ACRES AT
DECEMBER 31, 2015 | |
| | FEE OWNERSHIP |
| LONG-TERM LEASES |
| TOTAL ACRES |
|
| Uruguay | 298 |
| 25 |
| 323 |
|
Our Southern timberland acres in Uruguayownership, covering 11 states, is well situated to serve domestic wood products and pulp markets, including third-party customers and our own mills. For the year ended December 31, 2018, we sold 24 percent of our total southern log sales volume internally. Additionally, our Atlantic and Gulf coastal locations position us to serve a developing Asian log export market. Our holdings are split approximately 49comprised of 76 percent loblollySouthern yellow pine and 5124 percent eucalyptus. Loblolly pine compriseshardwoods.
We intensively manage our Southern timber plantations using:
forestry research and planning systems to optimize log production,
customized silviculture prescriptions which increase productivity across our acreage and
innovative planting and harvesting techniques on varying Southern terrain.
Operationally, we focus on efficiently harvesting and hauling logs from our ownership and capitalizing on our scale and supply chain expertise to consistently and reliably serve a broad range of customers through seasonal and weather-related events year-round.
We lease more than 94 percent of our timber inventory due to its older age. On average, the timber in Uruguay is in the second third of its rotation age. It is entering into that part of the growth rotation when we will see increased volume accretion. About 97 percent of the area to be planted has been afforested to date.owned Southern acreage for recreational purposes.
2015 International
2018 Southern U.S. Inventory by Species (Uruguay)
In Uruguay, the target rotation ages are 21 to 22 years for pine and 14 to 17 years for eucalyptus. We manage both species to a grade (appearance) regime.
We also operate a plywood mill in Uruguay with a production capacity of 250,000 cubic meters. Production volume reached 218,000 cubic meters in 2015.
In Brazil, we were a managing partner in a joint venture that operated a hardwood sawmill. We sold our interest in this joint venture during 2014.
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 6
2018 Southern U.S. Inventory by Age / Species
The average age of timber harvested from our Southern timberlands in 2018 was 31 years. In accordance with our sustainable forestry practices, we harvest approximately 3 percent of our acreage each year in the South.
Northern United States
We are one of the largest private owners of northern hardwood timberlands. Our Northern acres contain a diverse mix of temperate broadleaf hardwoods and mixed conifer species across timberlands located in seven states. We grow over 50 species and market over 600 product grades to a diverse mix of customers.
Our large-diameter cherry, red oak and hard maple saw logs and veneer logs serve domestic and export furniture markets. Our maple and other appearance woods are used in furniture and high-value decorative applications. In addition to high value hardwood saw logs, our mix includes hardwood fiber logs for pulp and OSB applications. Hardwood pulpwood is a significant market in the Northern region and we have long term supply agreements, primarily at market rates, for nearly 83 percent of our hardwood pulp production.
We also grow softwood logs that supply our Montana medium density fiberboard (MDF), lumber and plywood mills and other customers. Our competitive advantages include a merchandising program to capture the value of the premium hardwood logs.
Regeneration is predominantly natural, augmented by planting where appropriate.
2018 Northern U.S. Inventory by Species
2018 Northern U.S. Inventory by Age / Species
The average age of timber harvested from our Northern timberlands in 2018 was 62 years. Timber harvested in the North is sold predominantly as delivered logs to domestic mills, including our manufacturing facilities located in Montana and West Virginia. For the year ended
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K7
December 31, 2018, we sold 13 percent of our total northern log sales volume internally. In accordance with our sustainable forestry practices, we harvest approximately 1 percent of our acreage each year in the North.
Canada — Licensed Timberlands
We manage timberlands in Canada under long-term licenses from the provincial governments to secure volume for our manufacturing facilities in various provinces. The provincial governments regulate the volume of timber that may be harvested each year through Annual Allowable Cuts (AAC), which are updated every 10 years. As of December 31, 20152018, our AAC by province was:
Alberta — 3,9062,914 thousand cubic meters,tons,
British Columbia — 804547 thousand cubic meters,tons,
Ontario — 146154 thousand cubic meterstons and
Saskatchewan — 788634 thousand cubic meters.tons.
When the volume is harvested, we pay the province for that volume at stumpage rates set by the government and generally based on prevailing market prices.government. The harvested logs are transferred to our manufacturing facilities at cost (stumpage plus harvest, haul and overhead costs less any margin on selling logs to third parties). Any profit from harvesting the log through to converting it to a finished productproducts is recognized at the respective mill in either the Cellulose Fibers orour Wood Products segment.
A small amount of harvested volumes are sold to unaffiliated customers.
|
| | |
| GEOGRAPHIC AREA | THOUSANDS OF ACRES AT
DECEMBER 31, 20152018 |
|
TOTAL ACRES UNDER LICENSE ARRANGEMENTS | TOTAL
LICENSE
ARRANGEMENTS
|
|
Canada:Province: | |
| Alberta | 5,3065,398 |
|
| British Columbia | 1,0081,014 |
|
Ontario(1) | 2,574 |
|
Saskatchewan(1) | 4,987 |
|
| Total Canada | 13,87513,973 |
|
| (1) License is managed by partnership. |
Five-Year Summary of Timberlands Fee Harvest Volumes
|
| | | | | | | | | | |
| FEE HARVEST VOLUMES IN THOUSANDS |
| 2015 |
| 2014 |
| 2013 |
| 2012 |
| 2011 |
|
| Fee harvest volume – cubic meters: | |
| | | | |
| West | 11,130 |
| 11,173 |
| 8,907 |
| 7,170 |
| 6,595 |
|
| South | 11,568 |
| 11,676 |
| 11,596 |
| 11,488 |
| 9,738 |
|
| International | 889 |
| 990 |
| 818 |
| 763 |
| 854 |
|
| Total | 23,587 |
| 23,839 |
| 21,321 |
| 19,421 |
| 17,187 |
|
Our Timberlands annual fee harvest volumes represents the depletion of the timber assets we own. Depletion is a method of expensing the cost of establishing the fee timber asset base over the harvest or timber sales volume.HOW MUCH WE HARVEST
Our fee harvest volumes are managed sustainably across all regions to ensure the preservation of long-term economic value of the timber and to capture maximum value from the markets. This is accomplished by ensuring annual harvest schedules target financially mature timber and reforestation activities align with the growing of timber through its life cycle to financial maturity.
Five-Year Summary of Timberlands Fee Harvest Volumes
|
| | | | | | | | | | |
FEE HARVEST VOLUMES IN THOUSANDS OF TONS(1) |
| 2018 |
| 2017 |
| 2016 |
| 2015 |
| 2014 |
|
| Fee harvest volume – tons: | |
| | | | |
| West | 9,571 |
| 10,083 |
| 11,083 |
| 10,563 |
| 10,580 |
|
| South | 26,708 |
| 27,149 |
| 26,343 |
| 14,113 |
| 14,276 |
|
| North | 2,129 |
| 2,205 |
| 2,044 |
| — |
| — |
|
Uruguay(2) | — |
| 822 |
| 1,119 |
| 980 |
| 1,091 |
|
Other(3) | — |
| 1,384 |
| 701 |
| — |
| — |
|
| Total | 38,408 |
| 41,643 |
| 41,290 |
| 25,656 |
| 25,947 |
|
|
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K8
Five-Year Summary of Timberlands Fee Harvest Volumes - Percentage of Grade and Fiber
| | PERCENTAGE OF GRADE AND FIBER | | | 2015 |
| 2014 |
| 2013 |
| 2012 |
| 2011 |
| | 2018 |
| 2017 |
| 2016 |
| 2015 |
| 2014 |
|
| West | Grade | 87 | % | 89 | % | 90 | % | 90 | % | 90 | % | Grade | 90 | % | 89 | % | 87 | % | 87 | % | 89 | % |
| Fiber | 13 | % | 11 | % | 10 | % | 10 | % | 10 | % | Fiber | 10 | % | 11 | % | 13 | % | 13 | % | 11 | % |
| South | Grade | 59 | % | 59 | % | 57 | % | 59 | % | 58 | % | Grade | 51 | % | 52 | % | 52 | % | 59 | % | 59 | % |
| Fiber | 41 | % | 41 | % | 43 | % | 41 | % | 42 | % | Fiber | 49 | % | 48 | % | 48 | % | 41 | % | 41 | % |
| International | Grade | 65 | % | 63 | % | 60 | % | 67 | % | 55 | % | |
| Fiber | 35 | % | 37 | % | 40 | % | 33 | % | 45 | % | |
| North | | Grade | 46 | % | 49 | % | 47 | % | — | % | — | % |
| Fiber | 54 | % | 51 | % | 53 | % | — | % | — | % |
Uruguay (2) | | Grade | — | % | 69 | % | 66 | % | 65 | % | 63 | % |
| Fiber | — | % | 31 | % | 34 | % | 35 | % | 37 | % |
Other (3) | | Grade | — | % | 47 | % | 45 | % | — | % | — | % |
| Fiber | — | % | 53 | % | 55 | % | — | % | — | % |
| Total | Grade | 73 | % | 73 | % | 69 | % | 71 | % | 70 | % | Grade | 62 | % | 63 | % | 64 | % | 73 | % | 73 | % |
| Fiber | 27 | % | 27 | % | 31 | % | 29 | % | 30 | % | Fiber | 38 | % | 37 | % | 36 | % | 27 | % | 27 | % |
| | |
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K7
HOW MUCH WE SELL
Our net sales to unaffiliated customers over the last two years were:
$1.41.9 billion in 2015 — down 10 percent from 2014;2018 and
$1.51.9 billion in 2014.2017.
Our intersegment sales over the last two years were:
$830802 million in 2015 — down 4 percent from 2014;2018 and
$867762 million in 20142017.
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K9
Five-Year Summary of Net Sales for Timberlands
| | NET SALES IN MILLIONS OF DOLLARS | | 2015 |
| 2014 |
| 2013 |
| 2012 |
| 2011 |
| 2018 |
| 2017 |
| 2016 |
| 2015 |
| 2014 |
|
| To unaffiliated customers: | | | | | | |
| Logs: | | | | |
| Delivered Logs: | | | | |
| West | $ | 830 |
| $ | 972 |
| $ | 828 |
| $ | 559 |
| $ | 545 |
| $ | 987 |
| $ | 915 |
| $ | 865 |
| $ | 830 |
| $ | 972 |
|
| South | 241 |
| 257 |
| 256 |
| 233 |
| 196 |
| 625 |
| 616 |
| 566 |
| 241 |
| 257 |
|
| Canada | 24 |
| 22 |
| 19 |
| 19 |
| 17 |
| |
| North | | 99 |
| 95 |
| 91 |
| — |
| — |
|
Other(2) | | 41 |
| 59 |
| 38 |
| 24 |
| 22 |
|
| Total | 1,095 |
| 1,251 |
| 1,103 |
| 811 |
| 758 |
| 1,752 |
| 1,685 |
| 1,560 |
| 1,095 |
| 1,251 |
|
| Chip sales | 15 |
| 12 |
| 9 |
| 18 |
| 19 |
| |
Timberlands sales and exchanges(1) | 62 |
| 52 |
| 65 |
| 59 |
| 77 |
| |
Higher and better use land sales(1) | 14 |
| 19 |
| 19 |
| 22 |
| 25 |
| |
| Minerals, oil and gas | 26 |
| 32 |
| 32 |
| 31 |
| 53 |
| |
Products from international operations(2) | 87 |
| 96 |
| 90 |
| 106 |
| 86 |
| |
| Other products | 51 |
| 35 |
| 25 |
| 30 |
| 26 |
| |
| Stumpage and pay-as-cut timber | | 59 |
| 73 |
| 85 |
| 37 |
| 18 |
|
Uruguay operations(3) | | — |
| 63 |
| 79 |
| 87 |
| 88 |
|
| Recreational lease revenue | | 59 |
| 59 |
| 44 |
| 25 |
| 22 |
|
Other products(4) | | 45 |
| 62 |
| 37 |
| 29 |
| 36 |
|
| Subtotal sales to unaffiliated customers | 1,350 |
| 1,497 |
| 1,343 |
| 1,077 |
| 1,044 |
| 1,915 |
| 1,942 |
| 1,805 |
| 1,273 |
| 1,415 |
|
| Intersegment sales: | | | | | | |
| United States | 559 |
| 576 |
| 518 |
| 447 |
| 424 |
| 537 |
| 520 |
| 590 |
| 559 |
| 576 |
|
| Other | 271 |
| 291 |
| 281 |
| 236 |
| 222 |
| |
| Canada | | 265 |
| 242 |
| 250 |
| 271 |
| 291 |
|
| Subtotal intersegment sales | 830 |
| 867 |
| 799 |
| 683 |
| 646 |
| 802 |
| 762 |
| 840 |
| 830 |
| 867 |
|
| Total | $ | 2,180 |
| $ | 2,364 |
| $ | 2,142 |
| $ | 1,760 |
| $ | 1,690 |
| $ | 2,717 |
| $ | 2,704 |
| $ | 2,645 |
| $ | 2,103 |
| $ | 2,282 |
|
(1) Significant dispositions of higher and better use timberland and some nonstrategic timberlands are made through subsidiaries. (2) Products include logs, plywood and hardwood lumber harvested or produced by our international operations. Includes sales from our operations in Uruguay, Brazil (sold in 2014) and China (sold in 2012). | |
(2) Other delivered logs include sales to unaffiliated customers in Canada and sales from timberlands managed for the Twin Creeks Venture. Our management agreement for the Twin Creeks Venture began in April 2016 and terminated in December 2017. For additional information see Note 9: Related Parties in Notes to Consolidated Financial Statements. (4) Other products include sales of seeds and seedlings from our nursery operations, chips and sales from our operations in Brazil (operations sold in 2014). | | (2) Other delivered logs include sales to unaffiliated customers in Canada and sales from timberlands managed for the Twin Creeks Venture. Our management agreement for the Twin Creeks Venture began in April 2016 and terminated in December 2017. For additional information see Note 9: Related Parties in Notes to Consolidated Financial Statements. (4) Other products include sales of seeds and seedlings from our nursery operations, chips and sales from our operations in Brazil (operations sold in 2014). |
Five-Year Trend for Total Net Sales in Timberlands
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 810
Percentage of 20152018 Sales Dollars to Unaffiliated Customers
Log Sales VolumesVolume
LogsOur sales volume includes fee timber, as well as logs purchased in the open market. Domestic and export logs are sold at market prices to both unaffiliated customers and our internal mills.
Our log sales volumes to unaffiliated customers over the last two years were:
28,250 thousand tons in 2015 decreased 0.5 million cubic meters — 3 percent — from 2014.2018 and
Sales volumes29,420 thousand tons in the West decreased 0.3 million cubic meters — 3 percent — primarily due to lower export sales to China and Korea.
Sales to unaffiliated customers in the South decreased 378 thousand cubic meters — 7 percent — primarily due to lower fee log harvest production.
Sales volumes from Canada increased 95 thousand cubic meters — 16 percent — in 2015. The increase in volume to unaffiliated customers was primarily due to an increase in delivered log sales versus stumpage sales.
Sales volumes from our international operations increased 44 thousand cubic meters — 7 percent — in 2015. The increase in volume was primarily due to increased fiber log sales in Uruguay.
2017.We sell three grades of logs — domestic grade, domestic fiber and export. Factors that may affect log sales in each of these categories include:
domestic grade log sales — lumber usage, primarily for housing starts and repair and remodel activity, the needs of our own mills and the availability of logs from both outside markets and our own timberlands;
domestic fiber log sales — demand for chips by pulp, containerboard mills, pellet mills and OSB mills; and
export log sales — the level of housing starts in Japan and construction in China.
Our sales volumes include logs purchased in the open market and all our domestic and export logs that are sold to unaffiliated customers or transferred at market prices to our internal mills.
Five-Year Summary of Log Sales VolumesVolume to Unaffiliated Customers for Timberlands
|
| | | | | | | | | | |
| SALES VOLUMES IN THOUSANDS |
| 2015 |
| 2014 |
| 2013 |
| 2012 |
| 2011 |
|
Logs – cubic meters: | | | | | |
| West | 8,672 |
| 8,980 |
| 7,708 |
| 5,898 |
| 5,267 |
|
| South | 5,300 |
| 5,678 |
| 5,888 |
| 5,575 |
| 4,879 |
|
| Canada | 687 |
| 592 |
| 511 |
| 531 |
| 479 |
|
| International | 648 |
| 604 |
| 357 |
| 343 |
| 314 |
|
| Total | 15,307 |
| 15,854 |
| 14,464 |
| 12,347 |
| 10,939 |
|
|
| | | | | | | | | | |
SALES VOLUME IN THOUSANDS(1) |
| 2018 |
| 2017 |
| 2016 |
| 2015 |
| 2014 |
|
| Logs – tons: | | | | | |
| West | 7,858 |
| 8,202 |
| 8,713 |
| 8,212 |
| 8,504 |
|
| South | 18,008 |
| 17,895 |
| 15,967 |
| 6,480 |
| 6,941 |
|
| North | 1,628 |
| 1,574 |
| 1,500 |
| — |
| — |
|
Uruguay (2) | — |
| 291 |
| 470 |
| 714 |
| 667 |
|
Other (3) | 756 |
| 1,458 |
| 943 |
| 551 |
| 474 |
|
| Total | 28,250 |
| 29,420 |
| 27,593 |
| 15,957 |
| 16,586 |
|
|
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K9
Log Prices
The majority of our log sales to unaffiliated customers involve sales to domestic sawmills and the export market. Log prices in the following tables are on a delivered (mill) basis:basis.
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K11
Five-Year Summary of Published Domestic Log Prices (#2 Sawlog Bark On — $/MBF)
Five-Year Summary of Export Log Prices (#2 Sawlog Bark On — $/MBF)
Our logLog prices are affected by the supply of and demand for grade and fiber logs and are influenced by the same factors that affect log sales.logs. Export log prices are particularly affected by the Japanese housing market and Chinese demand.
Our average 2015 log realizations in the West decreased from 2014 — primarily due to weaker export log markets. Our average 2015 log realizations in the South were flat from 2014.
Minerals and Energy Products
Mineral revenue was down in 2015 as royalty revenue from natural gas declined amid weaker oil and gas prices and construction aggregates declined.
WHERE WE’RE HEADED
Our competitive strategies include:
continuing to capitalize on our scale of operations, silviculture and supply chain expertise and sustainability practices;
maximizingimproving cash flow through operational excellence initiatives such asincluding merchandising for value, harvest and transportation efficiencies and flexing harvestas well as focused silviculture investments to seasonal and short term opportunities;improve forest productivity;
sustainingleveraging our export and domestic market access, infrastructure and strong customer relationships;
increasing our recreational lease revenue; and
increasing non-timber revenue streams.continuing to maximize the value of our timberlands portfolio by managing the acres with the highest and best use in mind.
On November 6, 2015 we entered into a Merger Agreement with Plum Creek. Plum Creek is among the largest and most geographically diverse private landowners in the United States with more than 6 million acres of timberlands in 19 states, including significant holdings in proximity to our Western and Southern timberlands. Pending the completion of the merger, the combined company will own more than 13 million acres of timberlands.
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 1012
REAL ESTATE, ENERGY AND NATURAL RESOURCES
Our Real Estate & ENR segment maximizes the value of our timberland ownership through application of our asset value optimization (AVO) process and captures the full value of surface and subsurface assets, such as oil, natural gas, minerals and wind and solar resources.
WHAT WE DO
Real Estate
Properties that exhibit higher use value than as commercial timberlands are monetized by our Real Estate business over time. We analyze our existing U.S. timberland holdings using a process we call AVO. We start with understanding the value of a parcel operating as commercial timberlands and then assess the specific real estate attributes of the parcel and its corresponding market. The assessment includes demographics, infrastructure and proximity to amenities and recreation to determine the potential to realize a premium value to commercial timberland. Attributes can evolve over time, and accordingly, the assignment of value and opportunity can change. We continually revisit our AVO assessment of all of our timberland acres.
These properties are acres we expect to sell for recreational, conservation, commercial or residential purposes over time. We will entitle a small amount of acres to support development. Development, outside of entitlement activities, is typically performed by third parties. Some of our real estate activities are conducted through our taxable REIT subsidiary.
Occasionally, we sell a small amount of timberlands acreage in areas where we choose to reduce our market presence, and we can capture a price that exceeds the value derivable from holding and operating as commercial timberlands. These transactions will vary based on factors including the locations and physical characteristics of the timberlands.
The timing of real estate sales is a function of many factors, including the general state of the economy, demand in local real estate markets, the ability of buyers to obtain financing, the number of competing properties listed for sale, the seasonal nature of sales (particularly in the Northern states), the plans of adjacent landowners, our expectation of future price appreciation, the timing of the harvesting activities, and the availability of government and not-for-profit funding. In any period, the average sales price per acre will vary based on the location and physical characteristics of parcels sold.
Energy and Natural Resources
We focus on maximizing potential opportunities for oil, natural gas, construction materials, industrial minerals, coal, renewable energy and rights of way easements on our timberlands portfolio and retained mineral interests.
As the owner of mineral rights and interests, we typically do not invest in development or operations but instead enter into contracts with operators granting them the rights to explore and sell energy and natural resources produced from our property in exchange for rents and royalties. Our primary sources of revenue are:
rentals and royalties from the exploration, extraction, production and sale of aggregates and industrial minerals, oil and natural gas, coal and wind energy production;
rental payments from, or sale of, communication, energy and transportation rights of way; and
the occasional sale of mineral assets.
We generally reserve mineral rights when selling timberlands acreage. Some Energy and Natural Resources activities are conducted through our taxable REIT subsidiary.
Real Estate, Energy and Natural Resources Sources of Revenue |
| | | |
| SOURCES | ACTIVITIES |
| Real Estate | Select timberland tracts are sold for recreational, conservation, commercial or residential purposes. |
| Energy and Natural Resources
| • Rights are sold to explore and extract construction aggregates (rock, sand and gravel), coal, industrial materials and oil and natural gas for sale into energy markets. • Ground leases and easements are granted to wind and solar developers to generate renewable electricity from our timberlands. • Rights are granted to access and utilize timberland acreage for communications, pipeline, powerline and transportation rights of way. |
|
|
WHERE WE DO IT
Our Real Estate business identifies opportunities to realize premium value for our U.S. owned timberland acreage.
Our significant Energy and Natural Resources revenue sources are located in Oregon, South Carolina and Georgia (construction material royalties); the Gulf South (oil and natural gas royalties); and West Virginia (coal reserves).
HOW MUCH WE SELL
Our net sales to unaffiliated buyers over the last two years were:
$306 million in 2018 and
$280 million in 2017.
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K13
Five-Year Summary of Net Sales for Real Estate, Energy and Natural Resources
|
| | | | | | | | | | | | | | | |
| NET SALES IN MILLIONS OF DOLLARS |
| 2018 |
| 2017 |
| 2016 |
| 2015 |
| 2014 |
|
| Net Sales: | | | | | |
| Real Estate | $ | 229 |
| $ | 208 |
| $ | 172 |
| $ | 75 |
| $ | 72 |
|
| Energy and Natural Resources | 78 |
| 73 |
| 54 |
| 26 |
| 32 |
|
| Total | $ | 307 |
| $ | 281 |
| $ | 226 |
| $ | 101 |
| $ | 104 |
|
Five-Year Summary of Real Estate Sales Statistics
|
| | | | | | | | | | | | | | | |
| REAL ESTATE SALES STATISTICS |
| 2018 |
| 2017 |
| 2016 |
| 2015 |
| 2014 |
|
| Acres sold | 131,575 |
| 97,235 |
| 82,687 |
| 27,390 |
| 24,583 |
|
| Average price per acre | $ | 1,701 |
| $ | 2,079 |
| $ | 2,072 |
| $ | 2,490 |
| $ | 2,428 |
|
WHERE WE’RE HEADED
Our competitive strategies include:
continuing to apply the AVO process to identify opportunities to capture a premium to timber value;
maintaining a flexible, low-cost execution model by continuing to leverage strategic relationships with outside real estate brokers;
capturing the full value of our oil and natural gas, aggregates and industrial minerals, and wind renewable energy resources; and
delivering the most value from every acre.
WOOD PRODUCTS
We are a large manufacturer and distributor of wood products primarily in North America and Asia.America.
WHAT WE DO
Our wood products segment:
provides a family of high-quality softwoodstructural lumber, oriented strand board (OSB), engineered wood products structural panels and other specialty products to the residential, multi-family, industrial, light commercial and repair and remodel markets;
distributes our products as well as complementary building products that we purchase from other manufacturers; and
exports our softwoodstructural lumber oriented strand board (OSB) and engineered wood products, primarily to Asia.
Wood Products
|
| |
| PRODUCTS | HOW THEY’RE USED |
| Structural lumber | Structural framing for new residential, repair and remodel, treated applications, industrial and commercial structures |
Engineered wood products
• Solid section
• I-joists
Oriented strand board | Floor and roof joists, and headers and beams for residential, multi-family and commercial structures |
Structural panels
• OSB
• Softwood plywood
| Structural sheathing, subflooring and stair tread for residential, multi-family and commercial structures
|
Engineered wood products • Solid section • I-joists • Softwood plywood • Medium density fiberboard | Structural elements for residential, multi-family and commercial structures such as floor and roof joists, headers, beams, subflooring, and sheathing.
Medium density fiberboard products are used for store fixtures, molding, doors, and cabinet components. |
| Other products | Wood chips and other byproducts |
ComplimentaryComplementary building products | Complementary building products such as cedar, decking, siding, insulation and rebar sold in our distribution facilities |
WHERE WE DO IT
We operate manufacturing facilities in the United States and Canada. We distribute through a combination of Weyerhaeuser distribution centers and third-party locations.distributors. Information about the locations, capacities and actual production of our manufacturing facilities is included below.
Principal Manufacturing Locations
LocationsWEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K14
Structural lumber
– U.S. — Alabama, Arkansas, Louisiana, Mississippi, North Carolina, Oklahoma, Oregon and Washington
– Canada — Alberta and British Columbia
Engineered wood products
– U.S. — Alabama, Louisiana, Oregon and West Virginia
– Canada — British Columbia and Ontario
Oriented strand board
– U.S. — Louisiana, Michigan, North Carolina and West Virginia
– Canada — Alberta and Saskatchewan
Softwood plywood
– U.S. — Arkansas and Louisiana
We also own or lease 17 distribution centers in the U.S. where our major products and complementary building products are sold. During 2015, we decided to close our distribution centers in Baltimore, Pittsburgh, Chicago, and St. Paul.
Summary of Wood Products Capacities and Principal Manufacturing Locations as of December 31, 20152018
| | | CAPACITIES IN MILLIONS | CAPACITIES IN MILLIONS | CAPACITIES IN MILLIONS | |
| PRODUCTION CAPACITY |
| NUMBER OF FACILITIES |
| PRODUCTION CAPACITY |
| NUMBER OF FACILITIES |
| FACILITY LOCATION |
| Structural lumber – board feet | 4,750 |
| 18 |
| 5,025 |
| 19 |
| Alabama, Arkansas, Louisiana (2), Mississippi (3), Montana, North Carolina (3), Oklahoma, Oregon (2), Washington (2), Alberta (2), British Columbia |
| Oriented strand board – square feet (3/8”) | | 3,035 |
| 6 |
| Louisiana, Michigan, North Carolina, West Virginia, Alberta, Saskatchewan |
Engineered solid section – cubic feet(1) | 43 |
| 6 |
| 43 |
| 6 |
| Alabama, Louisiana, Oregon, West Virginia, British Columbia, Ontario |
| Oriented strand board – square feet (3/8”) | 3,035 |
| 6 |
| |
| Softwood plywood – square feet (3/8”) | 460 |
| 2 |
| 610 |
| 3 |
| Arkansas, Louisiana, Montana |
| (1) Three engineered wood products facilities also produce engineered I-Joists to meet market demand. 2015 production of I-Joists was 185 million lineal feet. | |
| Medium density fiberboard – square feet (3/4") | | 265 |
| 1 |
| Montana |
| (1) This represents total press capacity. Three facilities also produce I-Joist to meet market demand. In 2018, approximately 25 percent of the total press production was converted into 191 lineal feet of I-Joist. | | (1) This represents total press capacity. Three facilities also produce I-Joist to meet market demand. In 2018, approximately 25 percent of the total press production was converted into 191 lineal feet of I-Joist. |
Production capacities listed represent annual production volume under normal operating conditions and producing a normal product mix for each individual facility. Production capacities do not include any capacity for facilities that were sold or permanently closed as of the end of 2015.
We also operate a facilityown or lease 18 distribution centers in Foster, Oregon that produces veneer, primarily for use inthe U.S. where our engineered wood products facilities.
In 2014, we decided to reopen our Evergreen, Alabama engineered woodand complementary building products facility. This facility was previously indefinitely closed.are sold.
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K11
Five-Year Summary of Wood Products Production
| | PRODUCTION IN MILLIONS | | 2015 |
| 2014 |
| 2013 |
| 2012 |
| 2011 |
| 2018 |
| 2017 |
| 2016 |
| 2015 |
| 2014 |
|
| Structural lumber – board feet | 4,252 |
| 4,152 |
| 4,084 |
| 3,846 |
| 3,528 |
| 4,541 |
| 4,509 |
| 4,516 |
| 4,252 |
| 4,152 |
|
| Oriented strand board – square feet (3/8”) | | 2,837 |
| 2,995 |
| 2,910 |
| 2,847 |
| 2,749 |
|
Engineered solid section – cubic feet(1) | 20.9 |
| 20.4 |
| 18.0 |
| 15.4 |
| 13.4 |
| 24.3 |
| 25.1 |
| 22.8 |
| 20.9 |
| 20.4 |
|
Engineered I-joists – lineal feet(1) | 185 |
| 182 |
| 168 |
| 147 |
| 122 |
| 191 |
| 213 |
| 184 |
| 185 |
| 182 |
|
| Oriented strand board – square feet (3/8”) | 2,847 |
| 2,749 |
| 2,723 |
| 2,511 |
| 2,127 |
| |
Softwood plywood – square feet (3/8”)(2) | 248 |
| 252 |
| 241 |
| 214 |
| 197 |
| 404 |
| 370 |
| 396 |
| 248 |
| 252 |
|
(1) Weyerhaeuser engineered I-joist facilities also may produce engineered solid section. (2) All Weyerhaeuser plywood facilities also produce veneer. | |
| Medium density fiberboard – square feet (3/4") | | 220 |
| 232 |
| 209 |
| — |
| — |
|
(1) Weyerhaeuser engineered solid section facilities also may produce engineered I-joists. (2) All Weyerhaeuser plywood facilities also produce veneer. | | (1) Weyerhaeuser engineered solid section facilities also may produce engineered I-joists. (2) All Weyerhaeuser plywood facilities also produce veneer. |
HOW MUCH WE SELL
Revenues of our Wood Products segment come from sales to wood products dealers, do-it-yourself retailers, builders and industrial users. Wood Products net sales were $3.9$5.3 billion in 20152018 and $4$5.0 billion in 20142017.
Five-Year Summary of Net Sales for Wood Products
| | NET SALES IN MILLIONS OF DOLLARS | | 2015 |
| 2014 |
| 2013 |
| 2012 |
| 2011 |
| 2018 |
| 2017 |
| 2016 |
| 2015 |
| 2014 |
|
| Structural lumber | $ | 1,741 |
| $ | 1,901 |
| $ | 1,873 |
| $ | 1,400 |
| $ | 1,087 |
| $ | 2,258 |
| $ | 2,058 |
| $ | 1,839 |
| $ | 1,741 |
| $ | 1,901 |
|
| Oriented strand board | | 891 |
| 904 |
| 707 |
| 595 |
| 610 |
|
| Engineered solid section | 428 |
| 402 |
| 353 |
| 279 |
| 235 |
| 521 |
| 500 |
| 450 |
| 428 |
| 402 |
|
| Engineered I-joists | 284 |
| 277 |
| 247 |
| 190 |
| 161 |
| 336 |
| 336 |
| 290 |
| 284 |
| 277 |
|
| Oriented strand board | 595 |
| 610 |
| 809 |
| 612 |
| 354 |
| |
| Softwood plywood | 129 |
| 143 |
| 144 |
| 115 |
| 66 |
| 200 |
| 176 |
| 174 |
| 129 |
| 143 |
|
| Other products produced | 189 |
| 176 |
| 171 |
| 167 |
| 142 |
| |
| Medium density fiberboard | | 177 |
| 183 |
| 158 |
| — |
| — |
|
Other products produced (1) | | 288 |
| 276 |
| 201 |
| 189 |
| 176 |
|
| Complementary building products | 506 |
| 461 |
| 412 |
| 295 |
| 231 |
| 584 |
| 541 |
| 515 |
| 506 |
| 461 |
|
| Total | $ | 3,872 |
| $ | 3,970 |
| $ | 4,009 |
| $ | 3,058 |
| $ | 2,276 |
| $ | 5,255 |
| $ | 4,974 |
| $ | 4,334 |
| $ | 3,872 |
| $ | 3,970 |
|
| (1) Includes wood chips and other byproducts. | | (1) Includes wood chips and other byproducts. |
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K15
Five-Year Trend for Total Net Sales in Wood Products
Percentage of 20152018 Net Sales Dollars in Wood Products
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K12
Wood Products Volume
The volume of structural lumber, OSB, and engineered wood products sold in 2015 increased from 2014 due to increased demand.
Five-Year Summary of Sales Volume for Wood Products
| | | SALES VOLUMES IN MILLIONS | |
SALES VOLUME(1) IN MILLIONS | | SALES VOLUME(1) IN MILLIONS |
| 2015 |
| 2014 |
| 2013 |
| 2012 |
| 2011 |
| 2018 |
| 2017 |
| 2016 |
| 2015 |
| 2014 |
|
| Structural lumber – board feet | 4,588 |
| 4,463 |
| 4,436 |
| 4,031 |
| 3,586 |
| 4,684 |
| 4,658 |
| 4,723 |
| 4,588 |
| 4,463 |
|
| Oriented strand board – square feet (3/8”) | | 2,827 |
| 2,971 |
| 2,934 |
| 2,972 |
| 2,788 |
|
| Engineered solid section – cubic feet | 21.3 |
| 20.0 |
| 18.2 |
| 15.4 |
| 12.3 |
| 24.3 |
| 25.1 |
| 23.3 |
| 21.3 |
| 20.0 |
|
| Engineered I-joists – lineal feet | 188 |
| 184 |
| 177 |
| 152 |
| 128 |
| 204 |
| 220 |
| 195 |
| 188 |
| 184 |
|
| Oriented strand board – square feet (3/8”) | 2,972 |
| 2,788 |
| 2,772 |
| 2,508 |
| 1,977 |
| |
| Softwood Plywood – square feet (3/8”) | 381 |
| 395 |
| 402 |
| 340 |
| 249 |
| 459 |
| 453 |
| 481 |
| 381 |
| 395 |
|
| Sales volumes include sales of internally produced products and complementary building products sold primarily through our distribution centers. | |
| Medium density fiberboard – square feet (3/4") | | 212 |
| 222 |
| 206 |
| — |
| — |
|
| (1) Sales volume includes sales of internally produced products and complementary building products sold primarily through our distribution centers. | | (1) Sales volume includes sales of internally produced products and complementary building products sold primarily through our distribution centers. |
Wood Products Prices
Prices for commodity wood products — Structural lumber, OSB and Plywood — decreasedincreased in 20152018 from 2014.2017.
In general, the following factors influence pricessales realizations for wood products:
Demand for wood products used in residential and multi-family construction and the repair and remodel of existing homes affects prices. Residential and multi-family construction is influenced by factors such as population growth and other demographics, availability of labor and lots, the level of employment, consumer confidence, consumer income, availability of financing and interest rate levels, and the supply and pricing of existing homes on the market. Repair and remodel activity is affected by the size and age of existing housing inventory and access to home equity financing and other credit.
The availability of supply of commodity building products such as structural lumber, OSB and plywood affects prices. A number of factors can influence supply, including changes in production capacity and utilization rates, weather, raw material supply and availability of transportation.
The North American housing marketDemand for wood products continued to show steady but slow improvementimprove in 2015. Oversupply and weak Canadian currency resulted in generally lower lumber commodity pricing in 2015.2018. The following graphs reflect product price trends for the past five years.
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K16
Five-Year Summary of Published Lumber Prices — $/MBF
Five-Year Summary of Published Oriented Strand Board PricesPrice — $/MSF
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K13
WHERE WE’RE HEADED
Our competitive strategies include:
reduceAchieve industry leading controllable manufacturing costs through operational excellence and disciplined capital execution;
maintain a value-added product mix;strong alignment with fiber supply;
leverage our brand and reputation as the preferred provider of quality building products; and
pursue disciplined, profitable sales growth.growth in target markets.
CELLULOSE FIBERS
Our cellulose fibers segment is one of the world’s largest producers of absorbent fluff pulp used in products such as diapers. We also manufacture liquid packaging board and other pulp products. We have a 50 percent interest in North Pacific Paper Corporation (NORPAC) — a joint venture with Nippon Paper Industries that produces primarily high-brightness publication papers and newsprint.
WHAT WE DO
Our cellulose fibers segment:
provides cellulose fibers for absorbent products in markets around the world;
works closely with our customers to develop unique or specialized applications;
manufactures liquid packaging board used primarily for the production of containers for liquid products; and
is largely energy self sufficient, with over 80 percent of its energy derived from black liquor produced at the mills and biomass.
Cellulose Fibers Products
|
| |
PRODUCTS | HOW THEY’RE USED |
Pulp
• Fluff pulp (Southern softwood kraft fiber)
• Softwood papergrade pulp
• Specialty chemical cellulose pulp
| • Used in sanitary disposable products that require bulk, softness and absorbency
• Used in products that include printing and writing papers and tissue
• Used in textiles, absorbent products, specialty packaging, specialty applications and proprietary high-bulking fibers
|
Liquid packaging board | Converted into containers to hold liquids such as milk, juice and tea |
Other products
• Slush pulp
• Wet lap pulp
| Used in the manufacture of paper products |
WHERE WE DO IT
Our cellulose fibers products are distributed globally through a direct sales network. Locations of our principal manufacturing facilities by major product group are:
Pulp Manufacturing
– U.S. — Georgia (2), Mississippi and North Carolina
– Canada — Alberta
Pulp Converting
– U.S. — Mississippi
– Poland
Liquid packaging board
– U.S. — Washington
Summary of Cellulose Fibers Capacities as of December 31, 2015
|
| | | | |
| CAPACITIES IN THOUSANDS |
| PRODUCTION CAPACITY |
| NUMBER OF FACILITIES |
|
| Pulp – air-dry metric tons | 1,870 |
| 5 |
|
| Liquid packaging board – metric tons | 315 |
| 1 |
|
Production capacities listed represent annual production volume under normal operating conditions and producing a normal product mix for each individual facility.
Five-Year Summary of Cellulose Fibers Production
|
| | | | | | | | | | |
| PRODUCTION IN THOUSANDS |
| 2015 |
| 2014 |
| 2013 |
| 2012 |
| 2011 |
|
| Pulp – air-dry metric tons | 1,822 |
| 1,859 |
| 1,815 |
| 1,773 |
| 1,769 |
|
| Liquid packaging board – metric tons | 255 |
| 265 |
| 279 |
| 265 |
| 279 |
|
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 1417
HOW MUCH WE SELL
Revenues of our Cellulose Fibers segment come from sales to customers who use the products for further manufacturing or distribution and for direct use. Our net sales were $1.9 billion in 2015 and 2014.
Five-Year Summary of Net Sales for Cellulose Fibers
|
| | | | | | | | | | | | | | | |
| NET SALES IN MILLIONS OF DOLLARS |
| 2015 |
| 2014 |
| 2013 |
| 2012 |
| 2011 |
|
| Pulp | $ | 1,499 |
| $ | 1,559 |
| $ | 1,501 |
| $ | 1,433 |
| $ | 1,617 |
|
| Liquid packaging board | 305 |
| 310 |
| 326 |
| 332 |
| 346 |
|
| Other products | 56 |
| 67 |
| 75 |
| 89 |
| 95 |
|
| Total | $ | 1,860 |
| $ | 1,936 |
| $ | 1,902 |
| $ | 1,854 |
| $ | 2,058 |
|
Five-Year Trend for Total Net Sales in Cellulose Fibers
Percentage of 2015 Net Sales Dollars in Cellulose Fibers
Pulp Volumes
Our sales volumes of cellulose fiber products were 1.8 million tons in 2015 and 2014.
Factors that affect sales volumes for cellulose fiber products include:
growth of the world gross domestic product,
demand for absorbent hygiene products and paper and
relative strength of the U.S. dollar.
Five-Year Summary of Sales Volume for Cellulose Fibers
|
| | | | | | | | | | |
| SALES VOLUMES IN THOUSANDS |
| 2015 |
| 2014 |
| 2013 |
| 2012 |
| 2011 |
|
| Pulp – air-dry metric tons | 1,821 |
| 1,826 |
| 1,866 |
| 1,762 |
| 1,756 |
|
| Liquid packaging board – metric tons | 255 |
| 249 |
| 277 |
| 262 |
| 269 |
|
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K15
Pulp Prices
Our average pulp prices in 2015 decreased compared with 2014 due to a stronger US dollar and available supply.
Five-Year Summary of Published NBSK Pulp Prices — $/ADMT
WHERE WE’RE HEADED
Our competitive strategies include:
profitably growing with long-term strategic customers;
developing enhanced products for existing and new markets;
continued execution of operational excellence initiatives such as manufacturing reliability and quality management systems; and
focusing capital investments on cost reduction, green energy opportunities and product quality.
On November 8, 2015 Weyerhaeuser announced that the board authorized the exploration of strategic alternatives for its Cellulose Fibers business. At this time there can be no assurance that the board's evaluation process will result in any transaction or that any transaction, if pursued, will be consummated.
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K16
|
|
| EXECUTIVE OFFICERS OF THE REGISTRANT |
PatriciaAdrian M. BedientBlocker, 62, has been executive vice president and chief financial officer since 2007. She was senior vice president, Finance and Strategic Planning from February 2006 to 2007. She served as vice president, Strategic Planning from 2003, when she joined the company, to 2006. Prior to joining the company, she was a partner with Arthur Andersen LLP (Independent Accountant) from 1987 to 2002 and served as the managing partner for the Seattle office and as the partner in charge of the firm’s forest products practice from 1999 to 2002. She is on the board of directors for Alaska Air Group and Oregon State University and also serves as Treasurer and a board member of Overlake Hospital Medical Center. She is a CPA and member of the American Institute of CPAs.
Adrian M. Blocker, 59, has been senior vice president, Wood ProductsTimberlands, since January 2015.2019. Previously, he served as senior vice president, LumberWood Products, from August 2013January 2015 to December 2014.January 2019. He joined the company in May 2013 as vice president, Lumber. Prior to joining the company, he served as CEO of the Wood Products Council. He has held numerous leadership positions in the industry focused on forest management, fiber procurement, consumer packaging, strategic planning, business development and manufacturing, including at West Fraser, International Paper and Champion International.
Rhonda D. HunterRussell S. Hagen, 53, has been senior vice president Timberlands,and chief financial officer since January 2014.February 2016. Previously, shehe served as senior vice president, Business Development, at Plum Creek from December 2011 to February 2016. Prior to this he was vice president, Southern Timberlands from 2010 to 2014. SheReal Estate Development, overseeing the development activities of the company's real estate, oil and gas, construction materials and bioenergy businesses. Mr. Hagen began his career in 1988 with Coopers and Lybrand, where he was a certified public accountant and led the audits of public clients in technology, banking and natural resource industries. He joined Plum Creek in 1993 as Manager of Internal Audit and held a number of leadershipdirector-level positions in accounting, financial operations, risk management and information technology.
Kristy T. Harlan, 45, has been senior vice president, general counsel and corporate secretary since January 2017. She leads the Southern Timberlands organization and has experience in inventory and planning, regional timberlandscompany's Law department, with responsibility for global legal, compliance, enterprise risk management, environmental and work systems, financeprocurement and land acquisition. She joined Weyerhaeuser in 1987title functions. Before joining the company, she was a partner at K&L Gates LLP since 2007. Previously, she worked as an accountant.attorney at Preston Gates & Ellis LLP and Akin Gump Strauss Hauer & Feld LLP.
James A. Kilberg, 62, has been senior vice president, Real Estate, Energy and Natural Resources, since April 2016. In this position, he oversees the company's real estate development, land asset management, conservation, mitigation banking, recreational lease management, oil and gas, construction materials, heavy minerals, wind and solar. Prior to joining the company, he served as Plum Creek's senior vice president, Real Estate, Energy and Natural Resources, from 2006 until February 2016, and as Plum Creek’s vice president, Land Management, from 2001 until 2006. Prior to joining Plum Creek, Mr. Kilberg held several executive positions in real estate, asset management and development. He currently serves on the board of the Georgia Chamber of Commerce and the Alliance Theater, as well as the Corporate Council of the Land Trust Alliance.
Denise M. Merle, 52,55, has been senior vice president and chief administration officer, since February 2018. Previously, she served as senior vice president, Human Resources and Information Technology, from February 2016 to February 2018 and senior vice president, Human Resources and Investor Relations, since August 2014.from February 2014 to February 2016. She served as senior vice president, Human Resources beginning February 2014. Prior to that, she was director, Finance and Human Resources, for the Lumber business from 2013 to 2016. Prior to that, she was director, Compliance & Enterprise Planning, from 2009 to 2013, and director, of Internal Audit, from 2004 to 2009. She has also held various roles in the company’scompany's paper and packaging businesses, including finance, capital planning and analysis, and business development. She joined the company in 1981. She is a licensed CPA in the state of Washington. She serves on the Board of Advisors of the Seattle University business school.
Doyle R. SimonsKeith J. O'Rear, 52,56, has been senior vice president, Wood Products, since January 2019. Previously, he was vice president of Wood Products sales and marketing from 2017 to 2018 and vice president of Wood Products Manufacturing for the company's Mid-South region from 2014 to 2017. Mr. O'Rear led the company's Timberlands operations in Oklahoma and Arkansas from 2013-2014, and prior to that he held various manufacturing leadership roles at the company's lumber mills in Dierks, Arkansas, and Idabel, Oklahoma. He also led a variety of initiatives for the company in the areas of safety, reliability, strategic planning and large capital projects. Mr. O'Rear joined Weyerhaeuser in 1989.
Devin W. Stockfish, 45, has been president and chief executive officer since August 2013 and a directormember of the companycompany’s board of directors since June 2012. He was appointed chief executive officer-elect and an executive officer of the company in June 2013. Prior to joining the company,January 2019. Previously, he served as chairman and chief executive officer of Temple-Inland, Inc. from 2008 until February 2012 when it was acquired by International Paper Company. He held various management positions with Temple-Inland, including executive vice president from 2005 through 2007 and chief administrative officer from 2003 to 2005. Prior to joining Temple-Inland in 1992, he practiced real estate and banking law with Hutcheson and Grundy, L.L.P. He also serves on the Board of Fiserv, Inc.
Catherine I. Slater, 52, has been senior vice president, Cellulose Fibers effective January 2015. She has served as senior vice president, Engineered ProductsTimberlands, from January 2018 to December 2018 and Distribution since August 2013 andas vice president, OSBWestern timberlands, from 2011January 2017 to 2013. Prior to that role, she held a number of other leadership positions in the company’s Wood Products business, including vice president for both engineered wood products manufacturing and veneer technologies. Before joining the Wood Products team, she held positions in Cellulose Fibers business, including leadership roles at Flint River and Port Wentworth pulp mills, and leadership oversight for the company’s operations in Alberta, Canada, which included pulp, timberlands, OSB, lumber, and engineered wood products. Prior to joining the company in 1992, she held several leadership roles at Procter and Gamble.
Devin W. Stockfish, 42, has beenDecember 2017. He also served as senior vice president, general counsel and corporate secretary, sincefrom July 2014 to December 2016 and as assistant general counsel from March 2013 to July 2014. He leads the company's Law & Corporate Affairs department, with responsibility for global Legal, Compliance, Government Affairs, Real Estate Services, Land Title, and Environmental, Health and Safety functions. He joinedBefore joining the company in March 2013, as corporate secretary and assistant general counsel. Before joining the company, he was vice president &and associate general counsel at Univar Inc. where he focused on mergers and acquisitions, corporate governance and securities law. Previously, he was an attorney in the law department at Starbucks Corporation and practiced corporate law at K&L Gates LLP. Before he began practicing law, Mr. Stockfish was an engineer with the Boeing Company.
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 1718
|
|
| NATURAL RESOURCE AND ENVIRONMENTAL MATTERS |
We are subject to a multitude of laws and regulations in the operation of our businesses. We also participate in voluntary certification of our timberlands to assureensure that we sustain their valuesoverall quality, including the protection of wildlife and water quality. Changes in law and regulation, or certification standards, can significantly affect our business.
REGULATIONS AFFECTING FORESTRY PRACTICES
In the United States, regulations established by federal, state and local government agencies to protect water quality, wetlands and wetlandsother wildlife habitat could affect future harvests and forest management practices on some of our timberlands. Forest practice laws and regulations that affect present or future harvest and forest management activities in certain states include:
limits on the size of clearcuts,
requirements that some timber be left unharvested to protect water quality and fish and wildlife habitat,
regulations regarding construction and maintenance of forest roads,
rules requiring reforestation following timber harvest and
various related permit programs.
Each state in which we own timberlands has developed best management practices to reduce the effects of forest practices on water quality and aquatic habitats. Additional and more stringent regulations may be adopted by various state and local governments to achieve water-quality standards under the federal Clean Water Act, protect fish and wildlife habitats, human health, or achieve other public policy objectives.
In Canada, our forest operations are carried out on public timberlands under forest licenses with the provinces. All forest operations in Canada are subject to:
forest practices and environmental regulations, and
license requirements established by contract between us and the relevant province designed to:
- protect environmental values, and
- encourage other stewardship values.
In Canada, 21 member companies of the Forest Products Association of Canada (FPAC), including Weyerhaeuser’s Canadian subsidiary, announced in May 2010 the signing of a Canadian Boreal Forest Agreement (CBFA) with nine environmental organizations. The CBFA applies to approximately 72 million hectares of public forests licensed to FPAC members and, when fully implemented, iswas expected to lead to the conservation of significant areas of Canada’s boreal forest and protection of boreal species at risk, in particular, woodland caribou. While the CBFA mandate came to an end in 2017, CBFA signatories continue to work on management plans with provincial governments, and seek the participation of aboriginal and local communities in advancing the goals of the CBFA. Progress under the CBFA is measured and reported on by an independent auditor.
ENDANGERED SPECIES PROTECTIONS
In the United States, a number of fish and wildlife species that inhabit geographic areas near or within our timberlands have been listed as threatened or endangered under the federal Endangered Species Act (ESA) or similar state laws, such as:including but not limited to:
the northern spotted owl, the marbled murrelet, a number of salmon species, bull trout and steelhead trout in the Pacific Northwest,Northwest;
several freshwater mussel and sturgeon species,species; and
the red-cockaded woodpecker, gopher tortoise, dusky gopher frog, American burying beetle and Northern long-eared bat in the South or Southeast.
Additional species or populations may be listed as threatened or endangered as a result of pending or future citizen petitions or petitions initiated by federal or state agencies. In addition, significant citizen litigation seeks to compel the federal agencies to designate "critical habitat" for ESA-listed species, and many cases have resulted in settlements under which designations will be implemented over time. Such designations may adversely affect some management activities and options. Restrictions on timber harvests can result from:
federal and state requirements to protect habitat for threatened and endangered species,species;
regulatory actions by federal or state agencies to protect these species and their habitat,habitat; and
citizen suits under the ESA.
Such actions could increase our operating costs and affect timber supply and prices in general. To date, we do not believe that these measures have had, and we do not believe that in 20162019 they will have, a significant effect on our harvesting operations. We anticipate that likely future actions will not disproportionately affect Weyerhaeuser as compared with comparable operations of U.S. competitors.
In Canada:
The federal Species at Risk Act (SARA) requires protective measures for species identified as being at risk and for their critical habitat, pursuanthabitat. Pursuant to SARA, Environment Canada continues to identify and assess species deemed to be at risk and their critical habitat, and
habitat.inIn October 2012, the Canadian Minister of the Environment released a strategy for the recovery of the boreal population of woodland caribou under the SARA. The population and distribution objectives for boreal caribou across Canada are to (1) maintain the current status of existing, self-sustaining local caribou populations and (2) stabilize and achieve self-sustaining status for non-self-sustaining local caribou populations. Critical habitat for boreal caribou is identified for all boreal caribou ranges, except for northern Saskatchewan’s Boreal Shield range (SK1) where additional information is required for that population. Species assessment and recovery plans are developed in consultation with aboriginal communities and stakeholders.
In 2017, the Provinces were required to update the federal government on any progress associated with their draft caribou range plans. These draft plans will be further evaluated in 2019, and any additional information on potential effects to forest harvest operations will be released.
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K19
The identification and protection of habitat and the implementation of range plans and land use action plans may, over time, result in additional restrictions on timber harvests and other forest management practices that could increase operating costs for operators of timberlands in Canada. To date, we do not believe that these Canadian measures have had, and we do not believe that in 20162019 they will have, a significant effect on our harvesting operations. We anticipate that likely future measures will not disproportionately affect Weyerhaeuser as compared with similar operations of Canadian competitors.
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K18
FOREST CERTIFICATION STANDARDS
We operate in North America under the Sustainable Forestry Initiative(SFI®)(SFI). This is a certification standard designed to supplement government regulatory programs with voluntary landowner initiatives to further protect certain public resources and values. SFI® is an independent standard, overseen by a governing board consisting of:
conservation organizations,
academia,
large and small forest landowners.
Ongoing compliance with SFI® may result in some increases in our operating costs and curtailmentreduction of our timber harvests in some areas. There is also is competition from other private certification systems, primarily the Forest Stewardship Council (FSC), coupled with efforts by supporters to further those systems by persuading customers of forest products to require products certified to their preferred system. Certain features of the FSC system could impose additional operating costs on timberland management. Because of the considerable variation in FSC standards, and variability in how those standards are interpreted and applied, if sufficient marketplace demand develops for products made from raw materials sourced from other than SFI-certified forests, we could incur substantial additional costs for operations and be required to reduce harvest levels.
WHAT THESE REGULATIONS AND CERTIFICATION PROGRAMS MEAN TO US
The regulatory and nonregulatorynon-regulatory forest management programs described above have:
increased our operating costs,costs;
resulted in changes in the value of timber and logs from our timberlands,timberlands;
contributed to increases in the prices paid for wood products and wood chips during periods of high demand,demand;
sometimes made it more difficult for us to respond to rapid changes in markets, extreme weather or other unexpected circumstances,circumstances; and
potentially encouraged further reductions in the use of, or substitution of other products for, lumber, oriented strand board, engineered wood products and plywood.
We believe that these kinds ofregulations and programs have not had, and in 20162019 will not have, a significant effect on our total harvest of timber in the United States or Canada. However, these kinds of programs may have such an effect in the future. We expect we will not be disproportionately affected by these programs as compared with typical owners of comparable timberlands. We also expect that these programs will not significantly disrupt our planned operations over large areas or for extended periods.
CANADIAN ABORIGINAL RIGHTS
Many of the Canadian timberlands are subject to the constitutionally protected treaty or common-law rights of aboriginal peoples of Canada. Most of British Columbia (B.C.) is not covered by treaties, and as a result the claims of B.C.’s aboriginal peoples relating to forest resources have been largely unresolved. On June 26, 2014 the Supreme Court of Canada ruled that the Tsilhqot’in Nation holds aboriginal title to approximately 1,900 square kilometers in B.C. This was the first time that the court has declared title to exist based on historical occupation by aboriginal peoples. Many aboriginal groups continue to be engaged in treaty discussions with the governments of B.C., other provinces and Canada.
Final or interim resolution of claims brought by aboriginal groups can be expected to result in:
additional restrictions on the sale or harvest of timber,
potential increase in operating costs and
impact toeffect on timber supply and prices in Canada.
We believe that such claims will not have a significant effect on our total harvest of timber or production of forest products in 20162019, although they may have such an effect in the future. In 2008, FPAC, of which we are a member, signed a Memorandum of Understanding with the Assembly of First Nations, under which the parties agree to work together to strengthen Canada’s forest sector through economic-development initiatives and business investments, strong environmental stewardship and the creation of skill-development opportunities particularly targeted to aboriginal youth.
POLLUTION-CONTROL REGULATIONS
Our operations are subject to various laws and regulations, including:
including federal,
state,
provincial and
local pollution controls.
These laws and regulations, as well as market demands, impose controls with regard to:
air, water and land,land;
solid and hazardous waste management,management;
waste disposal,disposal;
remediation of contaminated sites,sites; and
the chemical content of some of our products.
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Compliance with these laws, regulations and demands usually involves capital expenditures as well as additional operating costs. We cannot easily quantify the future amounts of capital expenditures we might have to make to comply with these laws, regulations and demands or the effects on our operating costs because in some instances compliance standards have not been developed or have not become final or definitive. In addition, it is difficult to isolate the environmental component of most manufacturing capital projects.
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Our capital projects typically are designed to:
enhance safety,
extend the life of a facility,
increase capacity,lower costs and improve efficiency,
improve reliability,
increase efficiency,capacity,
facilitate raw material changes and handling requirements,
increase the economic value of assets or products, and
comply with regulatory standards.
We had capital expenditures of $23 million relating primarily to environmental compliance in 2015. Based on our understanding of current regulatory requirements in the U.S. and Canada, we expect no material capital expenditures relating primarily to environmental compliance in 2016.
ENVIRONMENTAL CLEANUP
We are involved in the environmental investigation or remediation of numerous sites. Of these sites:
we may have the sole obligation to remediate,
we may share that obligation with one or more parties,
several parties may have joint and several obligations to remediate orand
we may have been named as a potentially responsible party for contaminated sites, including those designated as U.S. Superfund sites.
Our liability with respect to these various sites ranges from insignificant to substantial. The amount of liability depends on:on the:
the quantity, toxicity and nature of materials at the site,site; and
the number and economic viability of the other responsible parties.
We spent approximately $7$13 million in 20152018 and expect to spend approximately $7$6 million in 20162019 on environmental remediation of these sites.
It is our policy to accrue for environmental-remediation costs when we:
determine it is probable that such an obligation exists and
can reasonably estimate the amount of the obligation.
We currently believe it is reasonably possible that our costs to remediate all the identified sites may exceed our current accruals of $37 million. The excess amounts required$62 million. Based on currently available information and analysis, remediation costs for all identified sites may be insignificant or could range, in the aggregate,exceed our existing reserves by up to $116 million over several years.$126 million. This estimate of the upper end of the range of reasonably possible additional costs is much less certain than the estimates we currently are using to determine how much to accrue. The estimate of the upper range also uses assumptions less favorable to us among the range of reasonably possible outcomes.
REGULATION OF AIR EMISSIONS IN THE U.S.
The United States Environmental Protection Agency (EPA) has promulgated regulations for air emissions from:
pulp and paper manufacturing facilities,
wood products facilities and
industrial boilers.
These regulations cover:
hazardous air pollutants that require use of maximum achievable control technology (MACT); and
controls and/or monitoring for pollutants that contribute to smog, haze and more recently, greenhouse gases.
Between 2011 and 2015, the EPA issued three related portions of new MACT standards for industrial boilers and process heaters. In July 2016, a court decision was issued that requires EPA had completed a technology and residual risk review for MACTto re-issue certain of the emissions standards. Some of these re-issued emissions standards will be applicable to pulping and bleaching operations at pulp and paper manufacturing facilities in 2012 and in 2014 had issued a revised New Source Performance Standard for kraft pulpsmall number of our wood products mills. These latter two rules apply on a project specific basisBecause we do not know specifically how or when certain thresholds are exceeded; as a result,the EPA will implement the final court decision, we cannot predict whether or when those rulesthe emission standard revisions may have a material impacteffect on future projects. Regarding other recent final actions by the EPA, weregulatory compliance costs at our mills. We do not expect any material expenditures in 20162019 necessary to comply with MACT standards.
The EPA must still promulgate:
technology and residual risk review standards for additional operations at pulp and paper manufacturing facilities and
promulgate supplemental MACT standards for plywood, lumber and composite wood products facilities.
We cannot currently quantify the amount of capital we will need in the future to comply with new regulations being developed by the EPA because final rules have not been promulgated.
In 2010, the EPA issued a final greenhouse gas rule limiting the growth of emissions from new projects meeting certain thresholds. On June 23, 2014, the US Supreme Court issued a decision that removed potential applicability of the underlying 2010 regulations based solely on greenhouse gas emissions and limited application of the rule’s technology requirements to larger emission sources as a result of new emissions from non-greenhouse gas pollutants. As a result of this Supreme Court ruling, EPA is expected to issueproposed a new regulationsregulation in 2016 to set thresholds for when the greenhouse gas technology requirements apply if the non-greenhouse gas emissions trigger the rule in the first instance. EPA to date has not finalized this regulation. The impacteffect of the Supreme Court ruling is to end the potential applicability of the technology requirements for our smaller manufacturing operations and limit the applicability for our other operations.
In 2015, the EPA issued an extensive regulatory program for new and existing electric utility generating units to scale back emissions of greenhouse gas carbon dioxide (CO2) arising from fossil fuel use to generate electricity. EPA also proposed additional, supplemental regulations related to how states and federal agencies may implement the requirements finalized in 2015. ThisSubsequent actions include in 2016 a US Supreme Court stay of the 2015 rule pending resolution of lower court challenges to the rule, in 2017 the withdrawal by EPA of the proposed supplemental regulations and a proposal to rescind the 2015 final rule, and in 2018 an EPA proposal of a substantially different replacement rule. Depending on the final outcomes, this regulatory program potentially will have indirect impactseffects on our operations, such as from rising purchased electricity prices or from mandated energy demand reductions that could apply to our mills and other facilities that we operate. We are evaluatingcontinue to track and evaluate the regulationslitigation and additional proposalsregulatory development but are not able to predict whether the regulations, when complete and implemented, will have a material impacteffect on our operations.
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We use significant biomass for energy production at our mills. EPA is currently working on rules regarding regulation of biomass emissions.
The impacteffect of these greenhouse gas and biomass rules, as well as recent court decisions, on our operations remains uncertain.
To address concerns about greenhouse gases as a pollutant, we:
closely monitor legislative, regulatory and scientific developments pertaining to climate change;
adopted in 2006, as part of the Company'scompany's sustainability program, a goal of reducing greenhouse gas emissions by 40 percent by 2020 compared with our emissions in 2000, assuming a comparable portfolio and regulations;
determined to achieve this goal by increasing energy efficiency and using more greenhouse gas-neutral, biomass fuels instead of fossil fuels; and
reduced greenhouse gas emissions by approximately 2544 percent considering changes in the asset portfolio according to 20142017 data, compared to our 2000 baseline.
Additional factors that could affect regulation of greenhouse gas emissions in the future include:
policy proposals by federal or state governments regarding regulation of greenhouse gas emissions,
Congressional legislation regulating or taxing greenhouse gas emissions within the next several years and
establishment of a multistate or federal greenhouse gas emissions reduction trading systemssystem with potentially significant implications for all U.S. businesses.
We believe these developments have not had, and in 20162019 will not have, a significant effect on our operations. Although these measures could have a material adverse effect on our operations in the future, we expect that we will not be disproportionately affected by these measures as compared with owners of comparable operations. We maintain an active forestry research program to track and understand any potential effect from actual climate change related parameters that could affect the forests we own and manage and do not anticipate any disruptions to our planned operations.
REGULATION OF AIR EMISSIONS IN CANADA
In addition to existing provincial air quality regulations, the Canadian federal government has proposed an air quality management system (AQMS) as a comprehensive national approach for improving air quality in Canada. The federal proposed AQMS includes:
ambient air quality standards for outdoor air quality management across the country,country;
a framework for air zone air management within provinces and territories that targets specific sources of air emissions,emissions;
regional airsheds that facilitate coordinated action across borders,borders;
industrial sector based emission requirements that set a national base level of performance for major industries in Canada,Canada; and
improved intergovernmental collaboration to reduce emissions from the transportation sector.
In 2016, Environment Canada is developingreleased the Pan-Canadian Framework on Clean Growth and Climate Change, a “Greenhouse"Greenhouse Gas Emission Framework” that is expected to be proposed in 2016 with implementation in 2020.Framework." The framework will put in place a national, sector-based greenhouse gas reduction program applicable to a number of industries, including pulp and paper manufacturing.ours.
All Canadian provincial governments:
have greenhouse gas reporting requirements,,
are working on reduction strategies, and
together with the Canadian federal government, are considering new or revised emission standards.
In addition, British Columbia has adopted a carbon tax and Alberta has a mandatory GHGgreenhouse gas emission reduction regulation. Our Grande Prairie, Alberta cellulose fiber mill generates and sells carbon credits.
We believe these measures have not had, and in 2019 will not have, a significant effect on our operations. Although these measures could have a material adverse effect on our operations in the future, we expect that we will not be disproportionately affected by these measures as compared with owners of comparable operations. We also expect that these measures will not significantly disrupt our planned operations.
REGULATION OF WATER
In the U.S., as a result of litigation under the federal Clean Water Act, additional federal or state permits are now required in some states for the application of pesticides, including herbicides, on timberlands. Those permits have entailed payment of additional costs. In 2015, federal regulatory agencies adopted rules that potentially expand the definition of waters subject to federal Clean Water Act jurisdiction, which could increase the scope and number of permits required for forestry-related activities and entail additional costs for Weyerhaeuser and other forest landowners in the U.S. Those rules were challenged in various federal courts by numerous parties and states, and a nationwide injunction was issued against the rule by the Sixth Circuit Court of Appeals, but was dissolved in 2018 due to action by the U.S. Supreme Court. Other injunctions still block the rule in several states. In January 2018, federal agencies took regulatory action to further delay the 2015 rules from going into effect until February 2020; however, that action was enjoined in September 2018 by a South Carolina court. Challenges to the substance of the 2015 rule are being pursued in other pending cases challenging the 2015 rules. Meanwhile, the federal agencies have proposed repeal of the 2015 rules entirely and replacement of them with a new rule, which is now open for public comment. We are not able to predict the ultimate resolution of these pending legal and regulatory actions.
In 2016, Washington State Department of Ecology (WA DOE) adopted human health-based water quality criteria. The EPA subsequently promulgated its own water quality standards for Washington state for the protection of human health for certain pollutants. It is unclear what effect, if any, these rules will have on our manufacturing operations in Washington state.
In addition, in 2013, amendments to the Canadian Federal Fisheries Act came into force. These amendments changed the focus from habitat protection to fisheries protection and increased penalties. We expect further changes to these regulations subsequent to review and regulatory consultations that took place in 2016, but we cannot predict the scope or potential effect, if any, on our operations.
We believe the above developments have not had, and in 20162019 will not have, a significant effect on our operations. Although these measures could have a material adverse effect on our operations in the future, we expect that we will not be disproportionately affected by these measures as compared with owners of comparable operations. We also expect that these measures will not significantly disrupt our planned operations.
REGULATION OF AIR EMISSIONS IN POLAND AND URUGUAY
The European Union’s “Clean Air Programme” includes new air quality objectives that Poland and other European Union countries will implement through 2030. Some provinces in Uruguay have established air quality monitoring networks and ambient air objectives have been proposed for the region where our Los Piques mill is located.
We believe these measures have not had, and in 2016 will not have, a significant effect on our operations. Although these measures could have a material adverse effect on our operations in the future, we expect that we will not be disproportionately affected by these measures as compared with owners of comparable operations. We also expect that these measures will not significantly disrupt our planned operations.
REGULATION OF WATER
In the U.S., as a result of litigation under the federal Clean Water Act, additional federal or state permits are now required in some states for the application of pesticides, including herbicides, on timberlands. Those permits have entailed additional costs. In addition, there are continuing regulatory developments and continuing litigation in the federal courts that may result in permit requirements for pollution discharges from forest roads and other drainage features on timberland, which would entail additional costs for forest landowners including Weyerhaeuser. Finally, federal regulatory agencies adopted rules in 2015 that potentially expand the definition of waters subject to federal Clean Water Act jurisdiction, which could increase the scope and number of permits required for forestry-related activities and entail additional costs for Weyerhaeuser and other forest landowners in the U.S. Those rules have been challenged in federal court by multiple parties and states and an injunction has been entered that prevents them from going into effect. We are not able to predict the ultimate resolution of these pending legal actions.
In August 2014 EPA issued a final regulation on thermal cooling water intakes for the protection of aquatic resources. The final rule is not expected to have a material impact although the technology requirements to protect aquatic resources outlined in the rule may be applied on a case-by-case basis when water permits are renewed.
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In 2015, Washington State Department of Ecology (WA DOE) and the regional federal EPA proposed rules to update the Human Health Water Quality Criteria for the protection of human health. It is unclear what effect, if any, the proposed rules will have on our manufacturing operations in Washington State.
In addition:
In 2013, amendments to the Canadian Federal Fisheries Act came into force. These amendments change the focus from habitat protection to fisheries protection and increase penalties. We expect further changes to these regulations in 2016, but we cannot predict the scope or potential impact, if any, on our operations.
Uruguay's national policy for water includes regulation of river basin planning, management and water use permits. Wastewater discharge authorization is required for industry, including our Los Piques mill.
In response to an European Union Water Framework Directive, in 2015 Polish authorities announced their intention to develop a water management plan to reduce total nitrogen and phosphorous loads in municipal waste water by 75 percent. The plan could impact our Poland facility, although it is unclear what effect, if any, the water management plan may have on our operation in Poland until the plan is complete.
We believe the above developments have not had, and in 2016 will not have, a significant effect on our operations. Although these measures could have a material adverse effect on our operations in the future, we expect that we will not be disproportionately affected by these measures as compared with owners of comparable operations. We also expect that these measures will not significantly disrupt our planned operations.
POTENTIAL CHANGES IN POLLUTION REGULATION
State governments continue to promulgate total maximum daily load (TMDL) requirements for pollutants in water bodies that do not meet state or EPA water quality standards. State TMDL requirements may:may set:
set limits on pollutants that may be discharged to a body of water; or
set additional requirements, such as best management practices for nonpoint sources, including timberland operations, to reduce the amounts of pollutants.
It is not possible to estimate the capital expenditures that may be required for us to meet pollution allocations across the various proposed state TMDL programs until a specific TMDL is promulgated.
In Canada, various levels of government have been working to address water issues including use, quality and management. Recent areas of focus include water allocation, regional watershed protection, protection of drinking water, water pricing and a national water quality index.
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| 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 statements:statements often reference or describe our expected future financial and operating performance; our plans, strategies, intentions and expectations; our operational excellence and other strategic initiatives, including those pertaining to operating and other costs, product development and production; estimated taxes and tax rates; future debt payments; future restructuring charges; expected results of litigation and other legal proceedings and contingent liabilities, and the sufficiency of litigation and other contingent liability reserves; expected uses of cash, including future dividends and share repurchases; expected capital expenditures; expected economic conditions, including markets, pricing and demand for our products; laws and regulations relevant to our businesses; and our expectations relating to pension contributions, returns on invested plan assets and expected benefit payments.
Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often involve use of words such as expects, may, should, will, believes, anticipates, estimates, projects, intends, plans, targets or approximately, 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 variousour current expectations and assumptions we make, and
may are not be accurate becauseguarantees 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 surroundingthat could cause actual results to differ materially from those described in the assumptions we make.
These statements reflect our current views with respect to future events. Factorsforward-looking statements. The factors include those listed in this section, factors discussedbelow and those described under "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this report, and as well as other factors not included, may cause our actual resultsdescribed herein because they are not currently known to differ significantly from our forward-looking statements.us or we currently judge them to be immaterial. There is no guarantee that any of the events anticipated by our forward-looking statements will occur. Or 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.
FORWARD-LOOKING TERMINOLOGY
Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often use words such as expects, may, should, will, believes, anticipates, estimates, projects, intends, plans, targets or approximately. They may use the positive or negative or a variation of those and similar words.
STATEMENTS
In this report we make forward-looking statements concerning our plans, strategies, intentions and expectations, including with respect to our strategic corporate initiatives; operational excellence initiatives, including costs and product development and production; estimated taxes and tax rates; future dividends; future restructuring charges; expected results of litigation and the sufficiency of litigation reserves; expected uses of cash, including share repurchases; expected capital expenditures; expected economic conditions, including markets, pricing and demand for our products; laws and regulations relevant to our businesses; and our expectations relating to pension contributions and benefit payments.
RISKS, UNCERTAINTIES AND ASSUMPTIONS
Major risks and uncertainties, and assumptions that we make, that affect our business and may cause actual results to differ materially from the content of these forward-looking statements include, but are not limited to:
the effect of general economic conditions, including employment rates, interest rate levels, housing starts, general availability of financing for home mortgages and the relative strength of the U.S. dollar;
market demand for the company's products, including market demand for our products,timberland properties with higher and better uses, which is related to, among other factors, the strength of the various U.S. business segments and U.S. and international economic conditions;
changes in currency exchange rates, particularly the relative value of the U.S. dollar to the Japanese yen, the Chinese yuan, and the Canadian dollar, and the relative value of the euro to the yen;
restrictions on international trade and tariffs imposed on imports or exports;
the availability and cost of shipping and transportation;
economic activity in Asia, especially Japan and China;
performance of our manufacturing operations, including maintenance and capital requirements;
potential disruptions in our manufacturing operations;
the level of competition from domestic and foreign producers;
our ability to successfully realize the expected benefits from the merger with Plum Creek;
the results of our strategic alternatives review of the Cellulose Fibers business;
the successful execution of our internal plans and strategic initiatives, including restructuringsrestructuring and cost reduction initiatives;
the successful and timely execution and integration of our strategic acquisitions, including our ability to realize expected benefits and synergies, and the successful and timely execution of our strategic divestitures, each of which is subject to a number of risks and conditions beyond our control including, but not limited to, timing and required regulatory approvals;
raw material availability and prices;
the effect of weather;
changes in global or regional climate conditions and governmental response to such changes;
the risk of loss from fires, floods, windstorms, hurricanes, pest infestationsinfestation and other natural disasters;
energy prices;
transportation and labor availability and costs;
federal tax policies;
the effect of forestry, land use, environmental and other governmental regulations;
legal proceedings;
performance of pension fund investments and related derivatives;
the effect of timing of employee retirements and changes in the market price of our common stock on charges for share-based compensation;
the accuracy of our estimates of costs and expenses related to contingent liabilities;
changes in accounting principles; and
other factors described under Risk Factors.
EXPORTING ISSUES
We are a large exporter. Our business is affected by:
economic activity in Europe and Asia, especially Japan and China;
currency exchange rates, particularly the relative value of the U.S. dollar to the euro and the Canadian dollar, and the relative value of the euro to the yen; and
restrictions on international trade, tariffs imposed on imports and the availability and cost of shipping and transportation.
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RISK FACTORS
We are subject to various risks and events that could adversely affect our business, our financial condition, our results of operations, our cash flows and the price of our common stock.
The risks discussed below are not the only risks we face. Additional risks not currently known to us or that we currently deem immaterial also may adversely affect our business.
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RISKS RELATED TO OUR INDUSTRIES AND BUSINESSINDUSTRY |
MACROECONOMIC CONDITIONS
The industries in which we operate are sensitive to macroeconomic conditions and consequently are highly cyclical.
The overall levels of demand for the products we manufacture and distribute reflect fluctuations in levels of end-user demand, which consequently impactaffect our sales and profitability. End-user demand depends in large part on general macroeconomic conditions, both in the U.S. and globally, as well as on local economic conditions. Current economic conditions in the United States reflect growth at or below historical trendsenhanced by tax cuts passed in 2018, the effect of which may be adversely affected by increases in interest rates and general business uncertainty.other factors in 2019. Global economic conditions reflect issues such as inflationvolatile and slowingsporadic growth in emerging countries. The constructioncountries and homebuilding industries continue to slowly recover from the severe downturn caused by the overall collapse of credit markets and recession of 2009. However, construction activity remains below pre-recession and trend levels. Our Wood Products segment is highly dependent on the strength of the homebuilding industry. The decline in home construction activity due to the recession resulted in depressed prices of and reduced demand for wood products and building materials. This resulted in lower prices and demand for logs and reduced harvests in our Timberlands segment.uncertainty over international trade. The length and magnitude of industry cycles vary over time, both by market and by product, but generally reflect changes in macroeconomic conditions and levels of industry capacity. Those conditions have improved since the recession, but ifAny decline or stagnation in macroeconomic conditions do not continuecould cause us to improve we could experience lower sales volumesvolume and smallerreduced margins.
COMMODITY PRODUCTS
Many of our products are commodities that are widely available from other producers.
Because commodity products have few distinguishing properties from producer to producer, competition for these products is based primarily on price, which is determined by supply relative to demand and competition from substitute products. In addition, prices for our products are affected by many other factors outside of our control. As a result, we have little influence over the timing and extent of price changes, which often are volatile. Our profitability with respect to these products depends, in part, on managing our costs, particularly raw material, labor (including contract labor) and energy costs, which represent significant components of our operating costs and can fluctuate based upon factors beyond our control. Both sales and profitability of our products are subject to volatility due to market forces beyond our control.
INDUSTRY SUPPLY OF LOGS AND WOOD PRODUCTS AND PULP
Excess supply of logs and wood products may adversely affect prices and margins.
Oversupply of productsOur industry may result from producers introducing new capacity for manufactured products or increasingincrease harvest levels, in responsewhich could lead to favorable short-term pricing trends. Industry suppliesan oversupply of pulp are also influenced by global productionlogs. Wood products producers may likewise expand manufacturing capacity, which has grown in recent years and is expectedcould lead to continuean oversupply of manufactured wood products. Any increase of industry supply to grow. Continuation of these factorsour markets could adversely affect our sales volumesprices and margins.
HOMEBUILDING MARKET AND ECONOMIC RISKS
High unemployment, low demand and low levels of consumer confidence can adversely affect our business and results of operations.
Our business is dependent upon the health of the U.S. housing market. Demand for homes is sensitive to changes in economic conditions such as the level of employment, consumer confidence, consumer income, the availability of financing and interest rate levels. The legacy of the housing bubble, its collapse and ensuing credit crisis was tightened credit requirements and a reduced number of mortgage loans available for financing home purchases. Although credit conditions have eased, they remain more restrictive than prior to the housing bubble. DemandOther factors that could limit or adversely affect demand for new homes, also has been adversely affected byand hence demand for our products, include factors such as unemployment and lower job participation, limited wage growth, increases in non-mortgage consumer debt, any weakening in consumer confidence, and weak consumer confidence. Additionally, rising student loan debt among younger adults is limiting access to mortgage financing and home ownership. Foreclosureany increase in foreclosure rates and distress sales of houses, have fallen significantly and are less of an impact compared to the years immediately following the housing collapse.houses.
Homebuyers’ ability to qualify for and obtain affordable mortgages could be affected by changes in interest rates, changes in home loan underwriting standards and government sponsored entities and private mortgage insurance companies supporting the mortgage market.
Access to affordable mortgage financing is critical to the health of the U.S. housing market. Generally, increases in interest rates make it more difficult for home buyers to obtain mortgage financing, which could negatively affect demand for housing and, in turn, negatively affect demand for our wood products. After an extended period during which the U.S. Federal Reserve kept its benchmark interest rate at historically low levels, it began raising rates again in 2016 and continued through 2018. The federal government has historically had a significant role in supporting mortgage lending through its sponsorshipnumber and extent of Fannie Mae and Freddie Mac. As a result of turbulence in credit marketsfurther rate increases is uncertain.
Credit requirements were severely tightened, and the number of mortgage finance industry inloans available for financing home purchases were severely reduced, during the last few years,most recent recession and ensuing credit crisis. Although the effectavailability of credit has improved modestly since that time, the federal government’s conservatorship of these government sponsored entities on the short-term and long-term demand for new housing remains unclear.homes could be limited or adversely affected if credit requirements were to again tighten or become more restrictive for any reason.
The liquidity provided to the mortgage industry by Fannie Mae and Freddie Mac, both of which purchase home mortgages and mortgage-backed securities originated by mortgage lenders, ishas been critical to the housing market. ThereAny political or other developments that would have been significant concerns about the future purposeeffect of Fannie Mae and Freddie Mac and a number of proposals to curtail their activities over time are under review. Limitationslimiting or restrictions onrestricting the availability of financing by these government sponsored entities could also adversely affect interest rates and the availability of mortgage financing. Whether resulting from direct increases in borrowing rates, tightened underwriting standards on mortgage loans or reduced federal support of the mortgage lending industry, a challenging mortgage financing whichenvironment could reduce demand for housing and, therefore, adversely affect demand for our products.
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Changes in regulations relating to tax deductions for mortgage interest expense and real estate tax regulationstaxes could harm our future sales and earnings.
Significant costs of homeownership include mortgage interest expense and real estate taxes, both of which are generally deductible for an individual’s federal and, in some cases, state income taxes. AnyRecent federal legislation reduced the amount of mortgage interest and real estate taxes that certain taxpayers may deduct. These and any similar changes to income tax laws by the federal government or by a state government to eliminate or substantially reduce these income tax deductions, as has been considered from time to time, wouldor any significant increase the after-tax cost of owning a home. Increases in real estateproperty taxes by local governmental authorities would alsogovernments, may increase the cost of homeownership. Any such increases to the cost of homeownership and thus could adversely affect the demand for our products.
CAPITAL MARKETS
DeteriorationTRANSPORTATION
We depend on third parties for transportation services and any disruptions in economic conditionsthe availability of transportation or increases in transportation costs could materially adversely affect our business and operations.
Our business depends heavily on the credit marketsavailability of third-party service providers for the transportation of our wood products and wood fiber; we are therefore materially affected by the availability and cost of these services. Any significant increase in the operating costs to our service providers, including without limitation the cost of fuel or labor, could have a material negative effect on our financial results by increasing the cost of these services to us, as well as result in an overall reduction in the availability of these services altogether.
Our third-party transportation providers are also subject to several events outside of their control, such as disruption of transportation infrastructure, labor issues and natural disasters. Any failure of a third-party transportation provider to timely deliver our products, including delivery of our wood products and wood fiber to our customers and delivery of wood fiber to our mills, could harm our supply chain, negatively affect our customer relationships and have a material adverse effect on our financial condition, results of operations and our reputation.
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| RISKS RELATED TO OUR BUSINESS |
MANAGING COMMERCIAL TIMBERLANDS RISKS
Our ability to harvest and deliver timber may be subject to limitations which could adversely affect our results of operations.
Our primary assets are our timberlands. Weather conditions, timber growth cycles, access to capital.
Upset financial or credit market conditions can impair the company’s ability to borrow money or otherwise access credit markets on terms acceptable to us, whichlimitations, and availability of contract loggers and haulers may among other impacts, reduceadversely affect our ability to take advantageharvest our timberlands. Other factors that may adversely affect our timber harvest include damage to our standing timber by fire or by insect infestation, disease, prolonged drought, flooding, severe weather and other natural disasters. Changes in global climate conditions could intensify one or more of these factors. Although damage from such causes usually is localized and affects only a limited percentage of standing timber, there can be no assurance that any damage affecting our timberlands will in fact be limited. As is common in the forest products industry, we do not maintain insurance coverage for damage to our timberlands. Our revenues, net income and cash flow from operations are dependent to a significant extent on the pricing of our products and our continued ability to harvest timber at adequate levels. Therefore, if we were to be restricted from harvesting on a significant portion of our timberlands for a prolonged period of time, or if material damage to a significant portion of our standing timber were to occur, we could suffer materially adverse effects to our results of operations.
Our timber harvest levels may be affected by acquisitions of additional timberlands, sales of existing timberlands and shifts in harvest from one region to another. Future timber harvest levels may also be affected by our ability to timely and effectively replant harvested areas, which depends on several factors including changes in estimates of long-term sustainable yield because of silvicultural advances, natural disasters, fires, pests, insects and other hazards, regulatory constraints, availability of logging contractors and other factors beyond our control.
Timber harvest activities are also subject to a number of federal, state and local regulations pertaining to the protection of fish, wildlife, water and other resources. Regulations, re-interpretations and litigation can restrict timber harvest activities and increase costs. Examples include federal and state laws protecting threatened, endangered and “at-risk” species, harvesting and forestry road building activities that may be restricted under the U.S. Federal Clean Water Act, state forestry practices laws, laws protecting aboriginal rights, and other similar regulations.
Our estimates of timber inventories and growth rates may be inaccurate and include risks inherent in calculating such estimates, which may impair our ability to realize expected revenues.
Whether in connection with managing our existing timberland portfolio or assessing potential timberland acquisitions, we make and rely on important estimates of merchantable timber inventories. These include estimates of timber inventories that may be lawfully and economically harvested, timber growth rates and end-product yields. Timber growth rates and yield estimates are developed by forest biometricians and other experts using statistical measurements of tree samples on given property. These estimates are central to forecasting our anticipated timber harvests, revenues and expected cash flows. While the company has confidence in its timber inventory processes and the professionals in the field who administer it, growth and expansion opportunities. Similarly,yield estimates are inherently inexact and uncertain. If these estimates are inaccurate, our customersability to manage our timberlands in a sustainable or profitable manner may be unablecompromised, which may cause our results of operations and our stock price to borrow money to fund their operations. Similarly, deterioratingbe adversely affected.
Our operating results and cash flows will be materially affected by supply and demand for timber.
A variety of factors affect prices for timber, including available supply, changes in economic conditions that affect demand, the level of domestic new construction and remodeling activity, interest rates, credit availability, population growth, weather conditions and pest infestation, and other factors. These factors vary by region, by timber type (i.e., sawlogs or volatile market conditionspulpwood logs) and by species.
Timber prices are affected by changes in demand on a local, national and international level. The closure of a mill in a region where we own timber could have ana material adverse effect on demand in that region, and therefore pricing. For example, as the demand for paper continues to decline, closures of pulp mills in some of our operating regions have adversely affected the regional demand for pulpwood and wood chips. Another example involves our export of logs to Asia. While recent demand from Asian markets has remained steady, some Asian markets, particularly in China, have a history of significant volatility. A decrease in demand for logs from one or more Asian markets could have a negative effect on log and lumber prices.
Timber prices are also affected by changes in timber availability at the local, national and international level. Our timberland ownership is concentrated in Alabama, Arkansas, Louisiana, Mississippi, North Carolina, Oklahoma, Oregon and Washington. In some of these states, much
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of the timberland is privately owned. Increases in timber prices often result in substantial increases in harvesting on private timberlands, including lands not previously made available for commercial timber operations, causing a short-term increase in supply that moderates such price increases. In western states such as Oregon and Washington, where a greater proportion of timberland is government-owned, any substantial increase in timber harvesting from government-owned land could significantly reduce timber prices. Any decrease in the demand from our log export markets could also result in significant downward pressure on timber prices, particularly in the western region. On a local level, timber supplies can fluctuate depending on factors such as changes in weather conditions and harvest strategies of local timberland owners, as well as occasionally high timber salvage efforts due to events such as pest infestations, fires or other natural disasters.
Timberlands make up a significant portion of our business portfolio.
Our real property holdings are primarily timberlands and we may make additional timberlands acquisitions in the future. As the owner and manager of approximately 12.2 million acres of timberlands, we are subject to the risks that are inherent in concentrated real estate investments. A downturn in the real estate industry generally, or the timber or forest products industries specifically, could reduce the value of our properties and adversely affect our results of operations. Such a downturn could also adversely affect our customers and suppliers and theirreduce the demand for our products, as well as our ability to purchaseexecute upon our products or sell products to us.strategy of selling nonstrategic timberlands and timberland properties that have higher and better uses at attractive prices. These risks may be more pronounced than if we diversified our investments outside of real property holdings.
CHANGES IN CREDIT RATINGS
Changes in credit ratings issued by nationally recognized rating organizationsMANUFACTURING AND SELLING WOOD PRODUCTS RISKS
A material disruption at one of our manufacturing facilities could adverselyprevent us from meeting customer demand, reduce our sales, and negatively affect our costresults of financingoperation and have an adverse effect on the market pricefinancial condition.
Any of our securities.
Credit rating agencies rate our debt securities on factors that include our operating results, actions that we take, their view of the general outlook for our industry and their view of the general outlook for the economy. Actions taken by the rating agencies can include maintaining, upgradingmanufacturing facilities, or downgrading the current rating or placing the company on a watch list for possible future downgrading. Downgrading the credit ratingany of our debt securitiesmachines within an otherwise operational facility, could cease operations unexpectedly due to a number of events, including:
unscheduled maintenance outages;
prolonged power failures;
equipment failure;
chemical spill or placing usrelease;
explosion of a boiler;
fires, floods, windstorms, earthquakes, hurricanes or other severe weather conditions or catastrophes, affecting the production of goods or the supply of raw materials (including fiber);
the effect of drought or reduced rainfall on a watch list for possible future downgrading could limit our access towater supply;
labor difficulties;
disruptions in transportation or transportation infrastructure, including roads, bridges, rail, tunnels, shipping and port facilities;
terrorism or threats of terrorism;
cyber attack;
governmental regulations; and
other operational problems.
We cannot predict the credit markets, increase our costduration of financing, and have an adverse effect on the market priceany such downtime or extent of facility damage. If one of our securities.
SUBSTITUTIONfacilities or machines were to incur significant downtime, our ability to meet our production targets and satisfy customer demand could be impaired, resulting in lower sales and income. Additionally, we may be required to make significant unplanned capital expenditures. Although some risks are not insurable and some coverage is limited, we purchase insurance on our manufacturing facilities for damage from fires, floods, windstorms, earthquakes, equipment failures and boiler explosions. Such insurance may not be sufficient to recover all of our damages.
Some of our wood products are vulnerable to declines in demand due to competing technologies or materials.
Our products may compete with nonfiber-basednon-fiber based alternatives or with alternative products in certain market segments. For example, plastic, wood/plastic or composite materials may be used by builders as alternatives to theour wood products produced by our Wood Products businesses such as lumber, veneer, plywood and oriented strand board. Changes in prices for oil, chemicals and wood-based fiber can change the competitive position of our products relative to available alternatives and could increase substitution of those products for our products. If use of these or other alternative products grows, demand for and pricing of our products could be adversely affected.
CHANGES IN PRODUCT MIX OR PRICING
Our results of operations and financial condition could be materially adversely affected by changes in product mix or pricing.
Our results may be materially adversely affected by a change in our product mix or pricing. Some of our wood products, such as lumber, veneer, plywood and oriented strand board, are commodities and are subject to fluctuations in market pricing. If pricing on our commodity products decreases and if we are not successful in increasing sales of higher-priced, higher-value products, or if we are not successful in implementing previously announced or future price increases, or in our plans to increase sales of higher-priced, higher-value products, or if there are delays in acceptance of price increases or failure of customers to accept higher-priced products, our results of operations and financial condition could be materially and adversely affected. Price discounting, if required to maintain our competitive position in one or more markets, could result in lower than anticipated price realizations.
INTENSE COMPETITIONrealizations and margins.
We face intense competition in our markets, and themarkets; any failure to compete effectively could have a material adverse effect on our business, financial condition and results of operations.
We compete with North American producers and, for manysome of our product lines, global producers, some of which may have greater financial resources and lower production costs than we do.do we. The principal basis for competition for many of our products is selling price. Our ability to maintain satisfactory margins depends in large part on our ability to control our costs. Our industries also are particularly sensitive to other factors including innovation, design, quality and service, with varying emphasis on these factors depending on the product line. To the extent that one or moreany of our competitors becomeare more successful with respect to any key competitive factor, our ability to attract and retain customers and maintain and increase sales could be materially adversely affected. If we are unableAny failure to compete effectively such failure could have a material adverse effect on our business, financial condition and results of operations.
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Historically, Canada has been a significant source of lumber for the U.S. market, particularly in the new home construction market. We produce lumber in our Canadian mills, but the bulk of our production is in the U.S. The Softwood Lumber Agreement (SLA) between Canada and the U.S., originally signed in October 2006, expired in October 2015. The 2006 SLA required Canadian softwood lumber facilities, including our mills, to pay an export tax when the price of lumber is at or below a threshold price. We are not able to predict when or if a new agreement will be reached or, if reached, what the terms of the agreement would be. We could experience downward pressure on timber and lumber prices caused by Canadian lumber imports.
Another emerging form of competition is between brands of sustainably produced products; customer demand for certain brands could reduce competition among buyers for our products or cause other adverse effects.
In North America, our forests are third party-certified toWe have adopted the Sustainable Forestry Initiative (SFI®) standard.(SFI) standard for wood fiber supplied to our manufacturing facilities, both from our timberlands and from third-party suppliers. Some of our customers have expressed a preference in certain of our product lines for products made from raw materials sourced from forests certified to different standards, including standards of the Forest Stewardship Council (FSC). If and to the extent thatcustomer preference for a sustainability standard other than SFI® increases, or if the SFIstandard falls into disfavorbecomes a customer requirement,, there may be reduced demand and lower prices for our products relative to competitors who can supply products sourced from forests certified to competing certification standards. If we seek to comply with such other standards, we could incur materially increased costs for our operations or be required to modify our operations, such as reducing harvest levels. FSC, in particular, employs standards that are geographically variable and could cause a material reduction in the harvest levels of some of our timberlands, most notably in the Pacific Northwest.
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MATERIAL DISRUPTION OF MANUFACTURING
A material disruption at one of our manufacturing facilitiesOur business and operations could prevent us from meeting customer demand, reduce our salesbe materially adversely affected by changes in the cost or negatively affect our results of operation and financial condition.
Any of our manufacturing facilities, or any of our machines within an otherwise operational facility, could cease operations unexpectedly due to a number of events, including:
unscheduled maintenance outages,
prolonged power failures,
equipment failure,
a chemical spill or release,
explosion of a boiler,
fires, floods, windstorms, earthquakes, hurricanes or other severe weather conditions or catastrophes, affecting the production of goods or the supplyavailability of raw materials (including fiber),and energy.
the effect of drought or reduced rainfallWe rely heavily on water supply,
labor difficulties,
disruptionscertain raw materials (principally wood fiber and chemicals) and energy sources (principally natural gas, electricity and fuel oil) in transportation infrastructure, including roads, bridges, rail, tunnels, shipping and port facilities,
terrorism or threats of terrorism,
governmental regulations, and
other operational problems.
Any such downtime or facility damage could prevent us from meeting customer demand for our products or require us to make unplanned capital expenditures. If one of our facilities or machines were to incur significant downtime, ourmanufacturing processes. Our ability to meet our production targetsincrease earnings has been, and satisfy customer requirements couldwill continue to be, impaired, resultingaffected by changes in lower salesthe costs and income. Although some risks areavailability of such raw materials and energy sources. We may not insurable and some coverage is limited, we purchase insurance protecting our manufacturing facilities from fires, floods, windstorms, earthquakes, equipment failures and boiler explosions.
STRATEGIC INITIATIVES
Our business and financial results may be adversely impacted if we are unable to successfully execute on important strategic initiatives.
There can be no assurance that we will be able to successfully implement important strategic initiativesfully offset the effects of higher raw material or energy costs through price increases, productivity improvements, cost-reduction programs or hedging arrangements.
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CAPITAL MARKETS
Deterioration in accordance with our expectations, which may result in an adverse impact on our businesseconomic conditions and financial results. These strategic initiatives are designed to improve our results of operations and drive long-term shareholder value, and include, among others: maximizing cash flow through operational excellence; reducing costs to achieve industry-leading cost structure; and innovating in higher-margin products.
We may be unsuccessful in carrying out our acquisition strategy.
We intend to strategically pursue acquisitions of timberland properties when market conditions warrant. As with any investment, our acquisitions may not perform in accordance with our expectations. In addition, we anticipate financing such acquisitions through cash from operations, borrowings under our unsecured credit facilities, proceeds from equity or debt offerings or proceeds from asset dispositions, or any combination thereof. Our inability to finance future acquisitions on favorable termscapital markets could adversely affect our resultsaccess to capital.
Challenging market conditions could impair the company’s ability to raise debt or equity capital or otherwise access capital markets on terms acceptable to us, which may, among other effects, reduce our ability to take advantage of operations.growth and expansion opportunities. Likewise, our customers and suppliers may be unable to raise capital to fund their operations, which could, in turn, adversely affect their ability to purchase products or sell products to us.
CREDIT RATINGS
Changes in credit ratings issued by nationally recognized rating organizations could adversely affect our cost of financing and have an adverse effect on the market price of our securities.
Credit rating agencies rate our debt securities on factors that include our operating results and balance sheet, actions that we take, their view of the general outlook for our industry and their view of the general outlook for the economy. Ratings decisions by these agencies include maintaining, upgrading or downgrading our current rating, as well as placing the company on a "watch list" for possible future ratings actions. Any downgrade of our credit rating, or decision by a rating agency to place us on a "watch list" for possible future downgrading could have an adverse effect on our ability to access credit markets, increase our cost of financing, and have an adverse effect on the market price of our securities.
CAPITAL REQUIREMENTS AND ACCESS TO CAPITAL
OurAccess to capital required for our operations require substantial capital.may be costly or impaired.
Our businesses require substantial capital for expansion and for repair or replacement of existing facilities or equipment. Although we maintain our production equipment with regular scheduled maintenance, key pieces of equipment may need to be repaired or replaced periodically. The costs of repairing or replacing such equipment and the associated downtime of the affected production line could have a material adversesignificant effect on our financial condition, results of operations and cash flows.
While we believe our capital resources will be adequate to meet our current projected operating needs, capital expenditures and other cash requirements, if for any reason we are unable to provideaccess capital for our operating needs, capital expenditures and other cash requirements on acceptable economic terms, or at all, we could experience a material adverse effect on our business, financial condition, results of operations and cash flows.
FOREIGN CURRENCY
We will be affected by changes in currency exchange rates.
We have manufacturing operations in Canada. We are also an exporter and compete with global producers of products very similar to ours. Therefore, we are affected by changes in the strength of the U.S. dollar, particularly relative to the Canadian dollar, euro, yuan and yen, and the strength of the euro relative to the yen. Changes in exchange rates could materially and adversely affect our sales volume, margins and results of operations.
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ENVIRONMENTAL LAWS AND REGULATIONS
We could incur substantial costs as a result of compliance with, violations of, or liabilities under applicable environmental laws and other laws and regulations.
We are subject to a wide range of general and industry-specific laws and regulations relating to the protection of the environment, including those governing:
air emissions,
wastewater discharges,
harvesting and other silvicultural activities,
forestry operations and endangered species habitat protection,
surface water management,
the storage, usage, management and disposal of hazardous substances and wastes,
the cleanup of contaminated sites,
landfill operation and closure obligations,
building codes, and
health and safety matters.
We have incurred, and we expect to continue to incur, significant capital, operating and other expenditures complying with applicable environmental laws and regulations and as a result of remedial obligations. We also could incur substantial costs, such as civil or criminal fines,
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sanctions and enforcement actions (including orders limiting our operations or requiring corrective measures, installation of pollution control equipment or other remedial actions), cleanup and closure costs, and third-party claims for property damage and personal injury as a result of violations of, or liabilities under, environmental laws and regulations.
As the owner and operator of real estate, we may be liable under environmental laws for cleanup, closure and other damages resulting from the presence and release of hazardous substances on or from our properties or operations. In addition, surface water management regulations may present liabilities and are subject to change. The amount and timing of environmental expenditures is difficult to predict, and in some cases, our liability may exceed forecasted amounts or the value of the property itself. The discovery of additional contamination or the imposition of additional cleanup obligations at our sites or third-party sites may result in significant additional costs.
We also lease some of our properties to third-party operators for the purpose of exploring, extracting, developing and producing oil, gas, rock and other minerals in exchange for fees and royalty payments. These activities are also subject to federal, state and local laws and regulations. These operations may create risk of environmental liabilities for any unlawful discharge of oil, gas or other chemicals into the air, soil or water. Generally, these third-party operators indemnify us against any such liability, and we require that that they maintain liability insurance during the term of our lease with them. However, if for any reason our third-party operators are not able to honor their indemnity obligation, or if the required liability insurance were not in effect, then it is possible that we could be deemed responsible for costs associated withenvironmental liability caused by such third-party operators.
Any material liability we incur as a result of activities conducted on our properties by us or by others with whom we have a business relationship could adversely affect our financial condition or preclude us from making capital expenditures that otherwise would benefit our business.condition.
We also anticipate public policy developments at the state, federal and international level regarding climate change and energy access, security and competitiveness. We expect these developments to address emission of carbon dioxide, renewable energy and fuel standards, and the monetization of carbon. Compliance with regulations that implement new public policy in these areas might require significant expenditures. These developments may also include mandated changes to energy use and building codes which could affect our homebuilding practices. Enactment of new environmental laws or regulations or changes in existing laws or regulations, or the interpretation of these laws or regulations, might require significant expenditures. We also anticipate public policy developments at the state, federal and international level regarding taxes and a number of other areas that could require significant expenditures.
Changes in global or regional climate conditions and governmental response to such changes at the international, U.S. federal and state levels may affect our operations or our planned or future growth activities.
There continue to be numerous international, U.S. federal and state-level initiatives and proposals to address domestic and global climate issues. Within the U.S. and Canada, some of these proposals would (and have in some Canadian provinces) regulate and/or tax the production of carbon dioxide and other “greenhouse gases”greenhouse gases to facilitate the reduction of carbon compound emissions into the atmosphere and provide tax and other incentives to produce and use “cleaner”cleaner energy. Climate change impacts,effects, if they occur, and governmental initiatives, laws and regulations to address potential climate concerns, could increase our costs and have a long-term adverse impacteffect on our businesses and results of operations. Future legislation or regulatory activity in this area remains uncertain, and its impacteffect on our operations is unclear at this time. However, it is possible that legislation or government mandates, standards or regulations intended to mitigate or reduce carbon compound or greenhouse gas emissions or other climate change impactseffects could adversely affect our operations. For example, such activities could limit harvest levels or result in significantly higher costs for energy and other raw materials. Because our manufacturing operations depend upon significant amounts of energy and raw materials, these initiatives could have an adverse impacteffect on our results of operations and profitability.
CURRENCY EXCHANGE RATESLEGAL MATTERS
We will be affected by changesare involved in currency exchange rates.
We have manufacturing operations in Canada, Polandvarious environmental, regulatory, product liability and Uruguay. We are also a large exporterother legal matters, disputes and compete with global producers of products very similar to ours. Therefore, we are affected by changes in the strength of the U.S. dollar, particularly relative to the Canadian dollar, euro and yen, and the strength of the euro relative to the yen. Changes in exchange rates could materially and adversely affect our sales volumes, margins and results of operations.
AVAILABILITY OF RAW MATERIALS AND ENERGY
Our business and operations could be materially adversely affected by changes in the costproceedings that, if determined or availability of raw materials and energy.
We rely heavily on certain raw materials (principally wood fiber and chemicals) and energy sources (principally natural gas, electricity, coal and fuel oil) in our manufacturing processes. Our ability to increase earnings has been, and will continue to be, affected by changes in the costs and availability of such raw materials and energy sources. We may not be able to fully offset the effects of higher raw material or energy costs through hedging arrangements, price increases, productivity improvements or cost-reduction programs.
PEOPLE
Our business is dependent upon attracting, retaining and developing key personnel.
We believe that our success depends, to a significant extent, upon our ability to attract, retain and develop key senior management and operations management personnel. Our failure to recruit, retain, and develop key personnel could adversely affect our financial condition or results of operations.
TRANSPORTATION
We depend on third parties for transportation services and increases in costs and disruptions in the availability of transportation could materially adversely affect our business and operations.
Our business depends on the transportation of a large number of products, both domestically and internationally. We rely primarily on third parties for transportation of the products we manufacture or distribute as well as delivery of our raw materials. A significant portion of the goods we manufacture and raw materials we use are transported by marine, rail and truck, each of which is highly regulated. In addition, each has historically been subject to periodic disruption due to labor issues.
If any of our third-party transportation providers were to fail to deliver the goods we manufacture or distributeconcluded in a timely manner we may be unableadverse to sell those products at full value, or at all. Similarly, if any of these providers were to fail to deliver raw materials to us in a timely manner, we may be unable to manufacture our products in response to customer demand. In addition, if any of these third parties were to cease operations or cease doing business with us, we may be unable to replace them at reasonable cost. Our third-party transportation providers are also subject to events outside of their control, such as disruption of transportation infrastructure due to labor issues or natural disasters.
Any failure of a third-party transportation provider to deliver raw materials or finished products in a timely mannerinterests, could harm our reputation, negatively affect our customer relationships and have a material adverse effect on our financial conditioncondition.
We are, from time to time, involved in a number of legal matters, disputes and resultsproceedings (legal matters), some of operation.
which involve on-going litigation. These include, without limitation, legal matters involving environmental clean-up and remediation, warranty and non-warranty product liability claims, regulatory issues, contractual and personal injury claims and other legal matters. In addition, an increasesome cases, all or a portion of any loss we experience in transportation rates or fuel surcharges could materially adversely affect our sales and profitability.connection with any such legal matters will be covered by insurance; in other cases, any such losses will not be covered.
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The outcome, costs and other effects of current legal matters in which we are involved, and any related insurance recoveries, cannot be determined with certainty. Although the disclosures in Note 15: Legal Proceedings, Commitments and Contingencies and Note 20: Income Taxes in the Notes to Consolidated Financial Statements contain management’s current views of the effect such legal matters could have on our financial results, there can be no assurance that the outcome of such legal matters will be as currently expected. It is possible that there could be adverse judgments against us in some or all major litigation matters against us, and that we could be required to take a charge and make cash payments for all or a portion of any related awards of damages. Any one or more of such charges or cash payment could materially and adversely affect our results of operations or cash flows for the quarter or year in which we record or pay it.
REIT STATUS AND TAX IMPLICATIONS
If we fail to remain qualified as a REIT, our taxable income would be subject to tax at corporate rates and we would not be able to deduct dividends to shareholders.
In any taxable year in which we fail to qualify as a REIT, unless we are entitled to relief under the Internal Revenue Code:
We would not be allowed to deduct dividends to shareholders in computing our taxable income.
We would be subject to federal and state income tax on our taxable income at applicable corporate rates.
We also would be disqualified from treatment as a REIT for the four taxable years following the year during which we lost qualification.
Qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code to our operations and the determination of various factual matters and circumstances not entirely within our control. There are only limited judicial or administrative interpretations of these provisions. Although we operate in a manner consistent with the REIT qualification rules, we cannot assure you that we are or will remain so qualified.
Certain of our business activities are subject to corporate-level income tax and potentially subject to prohibited transactions tax.
Under the Internal Revenue Code, REITs generally must engage in the ownership and management of income producing real estate. For the Company,
company, this generally includes owning and managing a timberland portfolio for the production and sale of standing timber. Accordingly, the harvesting and sale of logs, the development or sale of certain timberlands and other real estate, the manufacture and sale of wood products and the manufacture and sale of pulpwood products are conducted through one or more of our wholly-owned taxable REIT subsidiaries (TRSs), the net income of which is subject to corporate-level tax, because such activities could generate non-qualifying REIT income and thus could constitute “prohibited“prohibited transactions.” Prohibited transactions are defined by the Internal Revenue Code generally to be sales or other dispositions of property to customers in the ordinary course of a trade or business. By conducting our business in this manner, we believe that we satisfy the REIT requirements of the Internal Revenue Code and are notCode. However, if the IRS were to successfully assert that these or any of our activities conducted at the REIT constituted prohibited transactions, we could be subject to the 100 percent tax that could be imposed if a REIT were to conduct a prohibited transaction. Theon the net income of our TRSs is subject to corporate-level income tax.from such activities.
The extent of our use of our TRSTRSs may affect the price of our common shares relative to the share price of other REITs.
We conduct a significant portion of our business activities through one or more TRSs. OurThe use of our TRSs enables us to engage in non-REIT qualifying business activities such as the sale of logs, production and sale of wood products, and pulp products,the development and sale of HBUcertain higher and better use (HBU) property. Our TRSs are subject to corporate-level tax. Therefore, we pay income taxes on the income generated by our TRSs.tax. Under the Code, no more than 2520 percent (20 percent after December 31, 2017) of the value of the gross assets of a REIT may be represented by securities of one or more TRS.TRSs. This limitation may affect our ability to increase the size of our TRSs’TRSs’ operations. Furthermore, our use of TRSs may cause the market to value our common shares differently than the shares of other REITs, which may not use TRSs as extensively as we use them.
We may be limited in our ability to fund distributions using cash generated through our taxable REIT subsidiaries.TRSs.
The ability of the REIT to receive dividends from our TRSTRSs is limited by the rules with which we must comply to maintain our status as a REIT. In particular, at least 75 percent of gross income for each taxable year as a REIT must be derived from passive real estate sources including sales of our standing timber and other types of qualifying real estate income and no more than 25 percent of our gross income may consist of dividends from our TRSTRSs and other non-real estate income.
This limitation on our ability to receive dividends from our TRSs may affect our ability to fund cash distributions to our shareholders using cash flows from our TRSs. The net income of our TRSs is not required to be distributed, and TRS income that is not distributed to the REIT will not be subject to the REIT income distribution requirement.
Our cash dividends are not guaranteed and may fluctuate.fluctuate.
Generally, REITs are required to distribute 90 percent of their ordinary taxable income and 95 percent of their net capital gains income. Capital gains may be retained by the REIT but would be subject to corporate income taxes. If capital gains are retained rather than distributed, our shareholders would be notified, and they would be deemed to have received a taxable distribution, with a refundable credit for any federal income tax paid by the REIT. Accordingly, we believe that we are not required to distribute material amounts of cash since substantially all of our taxable income is treated as capital gains income. Our board of directors, in its sole discretion, determines the amount of quarterly dividends to be provided to our shareholders based on consideration of a number of factors. These factors include, but are not limited to, our results of operations, cash flow and capital requirements, economic conditions, tax considerations, borrowing capacity and other factors, including debt covenant restrictions that may impose limitations on cash payments, future acquisitions and divestitures, harvest levels, changes in the price and demand for our products and general market demand for timberlands including those timberland properties that have higher and better uses. Consequently, our dividend levels may fluctuate.
Changes in tax laws or their interpretation could adversely affect our shareholders and our results of operations.
Federal and state tax laws are constantly under review by persons involved in the legislative process, the Internal Revenue Service, the United States Department of the Treasury, and state taxing authorities. Changes to tax laws could adversely affect our shareholders or increase our effective tax rates. We cannot predict with certainty whether, when, in what forms, or with what effective dates, the tax laws applicable to us or our shareholders may be changed.
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LEGAL PROCEEDINGS
We are a party to a number of legal proceedings, and adverse judgments in certain legal proceedings could have a material adverse effect on our financial condition.
It is possible that there could be adverse judgments against us in some or all major litigation against us and that we could be required to take a charge and make cash payments for all or a portion of any damage award. Any such charge or cash payment could materially and adversely affect our results of operations or cash flows for the quarter or year in which we record or pay it.
IMPORT/EXPORT TAXES AND DUTIES
We may be required to pay significant taxes or tariffs on our exported products or countervailing and anti-dumping duties or tariffs on our imported products.
We export logs and finished wood products to foreign markets, and our ability to do so profitably is affected by U.S. and foreign trade policy. International trade disputes occur frequently and can be taken to an International Trade Court for resolution of unfair trade practices between countries. As an example, there have been many disputes and subsequent
U.S. international trade agreements regarding salespolicy could result in one or more of softwood lumber between Canada and the United States. The Softwood Lumber Agreement (SLA) between Canada and the U.S., originally signed in October 2006, expired in October 2015. A new agreement has not been reached. The SLA required Canadian softwood lumber facilities, including our mills,foreign export market jurisdictions adopting responsive trade policy making it more difficult or costly for us to pay an export tax when the price of lumber is at or below a threshold price, which could be as high as 22.5 percent if a province exceeds its total allotted export share, as well as potentially impose additional countervailing antidumping duties.our products to those countries. We could therefore experience reduced revenues and margins in any businessof our businesses that is subject to suchadversely affected by international trade tariffs, duties, taxes, customs or to the terms of the settlements of such international disputes.dispute settlement terms. To the extent such tariffstrade policies increase prices, they could also reduce the demand for our products. These tariffs or settlement termsproducts and could have a material adverse effect on our business, financial results and financial condition, including facility closures or impairments of assets. We cannot predict whetherfuture trade policy or when there will be a further extensionthe terms of the SLA or a new agreement or, if any extension or new agreement is completed, its impactsettlements of international trade disputes and their effect on our business.
DISTRIBUTION OF WRECO SHARESOUR MERGER WITH PLUM CREEK TIMBER COMPANY, INC.
We could incur substantial U.S. federal tax liability if the WRECO transaction were found not to qualify as a tax-free “reorganization” or the distribution of WRECO shares to Weyerhaeuser shareholders were found not to qualify as a tax-free distribution.
In 2014 we closed the divestiture ofin connection with our home building business, Weyerhaeuser Real Estate Company (WRECO), via a "Reverse Morris Trust" transaction pursuant to which a wholly-owned subsidiary of TRI Pointe Homes, Inc. (TRI Pointe) mergedmerger with and into WRECO, with WRECO surviving the merger and becoming a wholly-owned subsidiary of TRI Pointe. The Reverse Morris Trust transaction was structured to qualify as a tax-free reorganization and the associated distribution of WRECO shares to Weyerhaeuser shareholders as a tax-free distribution. If the transaction were determined not to qualify as a tax-free reorganization, or if the distribution does not qualify as a tax-free distribution, then Weyerhaeuser or its subsidiaries or Weyerhaeuser shareholders may be required to pay substantial U.S. federal income taxes.
If the transaction were determined not to qualify as a tax-free reorganization or the distribution not to qualify as a tax-free distribution, or if Weyerhaeuser were required to indemnify TRI Pointe and WRECO, such taxes and indemnification obligations could be substantial and could materially and adversely affect the company’s liquidity, financial condition and results of operations.
OUR MERGER WITH PLUM CREEK TIMBER COMPANY, INC.
The merger may not be completed on the terms currently contemplated, or at all.Plum Creek.
On November 6, 2015 Weyerhaeuser Company andFebruary 19, 2016, Plum Creek Timber Company, Inc. (“Plum Creek”) entered into an Agreement and Plan of Merger (“Merger Agreement”) pursuant to which Plum Creek will mergemerged with and into Weyerhaeuser Company, with Weyerhaeuser continuing as the surviving corporation. If the merger is not completed, our businesses may be adversely affected and we may be subject to various risks without realizing any of the benefits of having the merger completed, including the following:
We may be required, under certain circumstances, to pay a termination fee of $250 million.
We may be required to reimburse Plum Creek for all reasonable documented out-of-pocket fees and expenses incurred in connection with the Merger Agreement and the merger up to a maximum of $40 million.
We may experience negative reactions from the financial markets or from our customers, suppliers or employees.
We may be subject to litigation related to failure to complete the merger or to enforcement proceedings to perform our obligations under the Merger Agreement.
A delay in completing the merger, which is subject to a number of conditions, some of which are outside our control, may reduce or eliminate the expected benefits from the merger.
The merger is subject to a number of conditions, some of which are beyond our control, that could prevent, delay or otherwise materially adversely affect its completion. We cannot predict whether and when the conditions will be satisfied. In addition, several putative class action lawsuits relating to the mergercompany. Both companies have been filed and additional lawsuits may be filed, which could delay completion of the merger. We intend to vigorously defend the litigation but we cannot predict the outcome. The requirement to obtain certain regulatory approvals could delay the completion of the merger for a significant period of time or prevent it from occurring. A delay in completing the merger could cause the combined company not to realize some or all of the synergies and other benefits that it expects to achieve if the merger is successfully completed within its expected time frame. The Merger Agreement contains certain restrictions on the conduct of our business. If the merger is delayed, these restrictions could adversely affect our ability to execute business strategies or pursue attractive business opportunities. In addition, a delay could cause management to focus on completion of the merger instead of on other opportunities that could be beneficial to the company.
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K29
The merger will involve substantial costs, and the combined company may be unable to successfully integrate the businesses of the two companies and realize the anticipated benefits of the merger.
We have incurred and expect to continue to incur substantial costs and expenses relating directly to the merger, including fees and expenses payable to financial and other professional advisors, SEC filing fees, printing and mailing costs and other transaction-related costs, fees and expenses. We expect to incur substantial expenses in connection with the integration of the businesses, policies, procedures, operations, employees, technologies and systems of Plum Creek with those of Weyerhaeuser. There are a large number of systems that must be integrated, including management information, purchasing, accounting and finance, sales, billing, payroll and benefits, fixed asset and lease administration systems and regulatory compliance. Expenses related to this integration are by their nature difficult to estimate accurately. These expenses could, particularly in the near term, exceed the savings that we expect to achieve from the realization of economies of scale and cost savings and synergies related to the integration of the businesses. These integration expenses likely will result in significant charges against earnings following the completion of the merger, but the amount and timing of such charges are uncertain.
The merger involves the combination of two independently operated public companies. The merger will require management to devote significant attention and resources to integrating business practices and operations. The combined company may fail to realize some or all of the anticipated benefits of the merger if the integration process takes longer than expected or is more costly than expected.
Uncertainties associated with the merger may adversely affect our business and operations.
Uncertainties associated with the merger could cause customers, suppliers or other entities with whom we have a business relationship to delay or defer decisions, which could negatively impact our revenues, earnings and cash flows. In addition, customers or suppliers may elect to cease doing business with us or the combined company in anticipation of or following the merger, or seek to take advantage of potential uncertainty or disruption resulting from the merger to interfere with relationships with customers, suppliers or employees.
We are dependent on the valuable experience and industry knowledge of our officers and other employees to execute our business plans and successfully conduct operations. Our success after the merger will depend in part upon our ability to retain key personnel. Current and prospective employees may feel uncertain about their roles following the merger, which may materially adversely affect our ability to attract and retain key personnel.
The market price of our common stock may decline in the future as a result of the merger.
The market price of our common stock may decline in the future as a result of the merger for a number of reasons, including our inability to successfully integrate the two companies or our failure to achieve the perceived benefits of the merger, including financial results, as rapidly as or to the extent anticipated by financial or industry analysts. Failure to successfully integrate the two companies could negatively impact our revenues, earnings and cash flows, and could materially adversely affect our ability to pay dividends at historical levels, or at all.
The combined company may incur adverse tax consequences if either Weyerhaeuser or Plum Creek has failed or fails to qualify as a REIT for U.S. federal income tax purposes.
Each of Weyerhaeuser and Plum Creek has operated in a manner that it believes has allowed itintended to qualify them as a REIT“REITs” for U.S. federal income tax purposes under the Internal Revenue Code. See “REIT Status and Tax Implications” above for a description of the REIT requirements and consequences of failingour failure to maintain REIT status. We intend to operateHowever, even if we have operated in a manner that allows us to continue to qualify as a REIT after the merger. However, even if we have operated so as to retain our REIT status, if Plum Creek were deemed to losehave lost its REIT status for a taxable year before the merger or that includesthe taxable year in which the merger occurred, we willcould face serious tax consequences that could substantially reduce cash available for distribution to our shareholders and significantly impair our ability to expand our business and raise capital. IfIn addition, if the merger were determined not to qualify as a tax-free merger, we could incur substantial federal tax liability that could materially and adversely affect the company's liquidity,cash flows, financial condition and results of operations.
TIMBERLAND SPECIFIC RISKS
Our ability to harvest and deliver timber may be subject to limitations which could adversely affect our results of operations.
Our primary assets are our timberlands. Weather conditions, timber growth cycles, access limitations, and availability of contract loggers and haulers, may restrict our ability to harvest our timberlands. Other factors that may restrict our timber harvest include damage to our standing timber by fire or by insect infestation, disease, prolonged drought, flooding, severe weather and other natural disasters. Changes in global climate conditions could intensify one or more of these factors. Although damage from such causes usually is localized and affects only a limited percentage of standing timber, there can be no assurance that any damage affecting our timberlands will in fact be limited. As is common in the forest products industry, we do not maintain insurance coverage for damage to our timberlands. Our revenues, net income and cash flow from operations are dependent to a significant extent on the pricing of our products and our continued ability to harvest timber at adequate levels. Therefore, if we were to be restricted from harvesting on a significant portion of our timberlands for a prolonged period of time, or if material damage to a significant portion of our standing timber were to occur, we could suffer a materially adverse impact to our results of operations.
On a short-term basis, we may adjust our timber harvest levels in response to market conditions. Longer term, our timber harvest levels may be affected by acquisitions of additional timberlands, sales of existing timberlands and shifts in harvest from one region to another. In addition to timberland acquisitions and sales, future timber harvest levels may be affected by changes in estimates of long-term sustainable yield because of silvicultural advances, natural disasters, fires, pests, insects and other hazards, regulatory constraints and other factors beyond our control.
Timber harvest activities are also subject to a number of federal, state and local regulations pertaining to the protection of fish, wildlife, water and other resources. Regulations, re-interpretations and litigation can restrict timber harvest activities and increase costs. Examples are federal and state laws protecting threatened, endangered and “at-risk” species, harvesting and forestry road building activities that may be restricted under the U.S. Federal Clean Water Act, state forestry practices laws, laws protecting aboriginal rights, and other similar regulations.
Our estimates of timber inventories and growth rates may be inaccurate, include risks inherent to such estimates, and may impair our ability to realize expected revenues.
We rely upon estimates of merchantable timber inventories, which include judgments regarding inventories that may be lawfully and economically harvested, timber growth rates and end-product yields when acquiring and managing working forests. These estimates, which are inherently inexact and uncertain in nature, are central to forecasting our anticipated timber harvests, revenues and expected cash flows. Timber
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K30
growth rates and yield estimates are developed by forest biometricians and other experts using statistical measurements of a sample of trees on a given property. Timber growth equations are used that predict the rate of height and diameter growth of trees so that foresters can estimate the volume of timber that may be present in the tree stand at a given age. Tree growth varies by soil type, geographic area, and climate. Inappropriate application of growth equations in forest management planning may lead to inaccurate estimates of future volumes. If these estimates are inaccurate, our ability to manage our timberlands in a sustainable or profitable manner may be diminished, which may cause our results of operations and our stock price to be adversely affected.
Our operating results and cash flows will be materially affected by supply and demand for timber.A variety of factors affect prices for timber, including available supply, changes in economic conditions that impact demand, the level of domestic new construction and remodeling activity, interest rates, credit availability, population growth, weather conditions and pest infestation, and other factors. These factors vary by region, timber type (sawlogs or pulpwood logs) and species.
Timber prices are affected by changes in demand on a local, national or international level. The closure of a mill in the regions where we own timber can have a material adverse effect on demand, and therefore pricing. As the demand for paper continues to decline, closures of pulp mills have adversely affected the demand for pulpwood and wood chips in certain regions in which we operate. We export logs to Asia. While demand for Asia has remained steady, recently Asian markets have experienced a high degree of volatility, especially in China. A decrease in demand of logs from Asia may have a negative impact on log and lumber in the markets in which we compete.
Timber prices are affected by changes in timber availability at the local, national and international level. Our timberland ownership is concentrated in Alabama, Arkansas, Louisiana, Mississippi, North Carolina, Oklahoma, Oregon and Washington. In some of these states, much of the timberland is privately owned. Increases in timber prices often result in substantial increases in harvesting on private timberlands, including lands not previously made available for commercial timber operations, causing a short-term increase in supply that moderates price increases. In western states such as Oregon, and Washington, where a greater proportion of timberland is government owned, any substantial increase in timber harvesting from government-owned land could significantly reduce timber prices. On a local level, timber supplies can fluctuate depending upon factors such as changes in weather conditions and harvest strategies of local timberland owners, as well as occasionally high timber salvage efforts due to events such as unusual pest infestations or fires.
Timberlands make up a significant portion of our business portfolio.
Our real estate holdings are primarily timberlands and we may make additional timberlands acquisitions in the future. As the owner and manager of approximately 6.9 million acres of timberlands, we are subject to the risks that are inherent in concentrated real estate investments. A downturn in the real estate industry generally, or the timber or forest products industries specifically, could reduce the value of our properties and adversely affect our results of operations. Such a downturn could also adversely affect our customers and reduce the demand for our products. The risks we face may be more pronounced than if we diversified our investments outside real estate or outside timberlands.
CYBERSECURITY RISKS
We rely on information technology to support our operations and reporting environments. A security failure of that technology could impactaffect our ability to operate our businesses effectively, adversely affect our reported financial results, impactaffect our reputation and expose us to potential liability or litigation.
We use information systems to carry out our operational activities, and maintain our business records.records, collect and store sensitive data, including intellectual property, other proprietary and personally identifiable information. Some systems are internally managed and some are maintained by third-party service providers. We and our service providers employ what we believe are reasonably adequate security measures. Our ability to conduct businessmeasures, but notwithstanding these efforts, our systems could be materially and adversely affected if these systems or resources are compromised damaged or fail. This could beas a result of a cyber incident, natural disaster, hardware or software corruption, failure or error, telecommunications system failure, service provider error or failure, intentional or unintentional personnel actions or other disruption.
In the ordinary course of If by any cause our business, we collect and store sensitivesystems or information resources were compromised, or if our data including intellectual property, other proprietary information and personally identifiable information. If this data is compromised,were destroyed, misappropriated or inappropriately disclosed, itour business operations could have a material adverse effect, includingbe negatively affected. Additionally, we could suffer significant loss or incur significant liability, including: damage to our reputation,reputation; loss of customers,customer confidence or goodwill; and significant expensesexpenditures of time and money to address and resolve the issues,remediate resulting damages to affected individuals or business partners, or to defend ourselves in resulting litigation or other legal proceedings, by affected individuals, business partners and/or regulators.
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RISKS RELATED TO OWNERSHIP OF OUR COMMON STOCK |
PENSION PLAN LIABILITYInvestment returns on our pension assets may be lower than expected, or interest rates may decline, requiring us to make significant additional cash contributions to our benefit plans.
A portion of our current and former employees have accrued benefits under our defined benefit pension plans. Although the plans are not open to employees hired on or after January 1, 2014, current employees hired before that time continue to accrue benefits. Requirements for funding our pension plan liabilities are based on a number of actuarial assumptions, including the expected rate of return on our plan assets and the discount rate applied to our pension plan obligations. Fluctuations in equity market returns and changes in long-term interest rates could increase our costs under our plans and may significantly affect future contribution requirements. It is unknown what the actual investment return on our pension assets will be in future years and what interest rates may be at any given point in time. We cannot therefore provide any assurance of what our actual pension plan costs will be in the future, or whether we will be required under applicable law to make future material plan contributions. See Note 10: Pension and Other Postretirement Benefit Plans in the Notes to Consolidated Financial Statements for additional information about these plans, including funding status.
STOCK-PRICESTRATEGIC INITIATIVES
Our business and financial results may be adversely affected if we are unable to successfully execute on important strategic initiatives.
There can be no assurance that we will be able to successfully implement important strategic initiatives in accordance with our expectations, which may result in an adverse effect on our business and financial results. These strategic initiatives are designed to improve our results of operations and drive long-term shareholder value, and include, among others: optimizing cash flow through operational excellence; reducing costs to achieve industry-leading cost structure; and innovating in higher-margin products.
We may be unsuccessful in carrying out our acquisition strategy.
We intend to strategically pursue acquisitions of timberland properties when market conditions warrant. As with any investment, our acquisitions may not perform in accordance with our expectations. In addition, we anticipate financing such acquisitions through cash from operations,
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K31
borrowings under our unsecured credit facilities, proceeds from equity or debt offerings or proceeds from asset dispositions, or any combination thereof. Our inability to finance future acquisitions on favorable terms could adversely affect our results of operations.
WORKFORCE
Our business is dependent upon attracting, retaining and developing key personnel.
Our success depends, to a significant extent, upon our ability to attract, retain and develop senior management, operations management and other key personnel. Our financial condition or results of operations could be significantly adversely affected if we were to fail to recruit, retain, and develop such personnel, or if there were to occur any significant increase in the cost of providing such personnel with competitive total compensation and benefits.
Availability of Independent Contractors
We use independent third-party contract loggers and haulers to deliver our logs to our customers. As a result of the weak business conditions in the timber business that persisted for several years, there are fewer of these contractors available in certain markets to harvest and deliver logs. This shortage in logging and hauling contractors has resulted in an overall increase in logging and hauling costs and, in some cases, the general availability of these contractors. Any increase in harvest levels due to positive changes in macroeconomic conditions driving demand for logs could further strain the existing supply of logging and hauling contractors. This, in turn, could increase the cost of log supply and delivery, or prevent us from fully capitalizing on favorable market conditions by limiting our ability to access and deliver our logs to market.
STOCK PRICE VOLATILITY
The market price of our common stock may be influenced by many factors, some of which are beyond our control.
The market price of our common stock may be influenced by many factors, some of which are beyond our control, including without limitation those described above under "Risks Related to our Industries and Business" andelsewhere in this report, as well as the following: actual or anticipated fluctuations in our operating results or our competitors' operating results,results;
announcements by us or our competitors of new products, capacity changes, significant contracts, acquisitions or strategic investments,investments;
our growth rate and our competitors’ growth rates,rates;
general economic conditions,conditions;
conditions in the financial markets;
market interest rates and the relative yields on other financial instruments;
general perceptions and expectations regarding housing markets, interest rates, commodity prices, and currencies;
changes in stock market analyst recommendations regarding us, our competitors or the forest products industry generally, or lack of analyst coverage of our common stock,stock;
sales of our common stock by our executive officers, directors and significant stockholders,shareholders;
sales or repurchases of substantial amounts of common stock,stock;
changes in accounting principles,principles; and
changes in tax laws and regulations.
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K31
In addition, there has been significant volatility in the market price and trading volume of securities of companies operating in the forest products industry that often has been unrelated to theindividual company operating performance of particular companies.performance.
Some companies that have hadexperienced volatile market prices for their securities have had securities litigation brought against them. If litigation of this type is brought against us, it could result in substantial costs and divert management’s attention and resources.
PREFERENCE SHARES
Our common shares will rank junior to our mandatory convertible preference shares with respect to dividends and amounts payable in the event of our liquidation.
Our common shares will rank junior to our mandatory convertible preference shares with respect to the payment of dividends and amounts payable in the event of our liquidation, dissolution or winding-up. This means that, unless full cumulative dividends have been paid or set aside for payment on all outstanding mandatory convertible preference shares for all past dividend periods and the then current dividend period, no dividends may be declared or paid on our common shares. Likewise, in the event of our voluntary or involuntary liquidation, dissolution or winding-up, no distribution of our assets may be made to holders of our common shares until we have paid to holders of the mandatory convertible preference shares a liquidation preference equal to $50.00 per share plus accrued and unpaid dividends.
Certain provisions in the mandatory convertible preference shares could delay or prevent an otherwise beneficial takeover or takeover attempt of us and, therefore, the ability of holders to exercise their rights associated with a potential fundamental change.
Certain provisions in our mandatory convertible preference shares could make it more difficult or more expensive for a third party to acquire us. For example, if a fundamental change were to occur on or prior to July 1, 2016, holders of the mandatory convertible preference shares may have the right to convert their mandatory convertible preference shares, in whole or in part, at an increased conversion rate and be entitled to receive a fundamental change dividend make-whole amount equal to the present value of all remaining dividend payments on their mandatory convertible preference shares. These features of the mandatory convertible preference shares could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management.WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K32
UNRESOLVED STAFF COMMENTS
There are no unresolved comments that were received from the SEC staff relating to our periodic or current reports under the Securities Exchange Act of 1934.
PROPERTIES
Details about our facilities, production capacities and locations are found in the Our Business — What We Do section of this report.
LEGAL PROCEEDINGS
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K32
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock trades on the following exchanges under the symbol WY:
New York Stock Exchange and
Chicago Stock Exchangeunder the symbol WY.
INFORMATION ABOUT SECURITIES AUTHORIZED FOR ISSUANCE UNDER OUR EQUITY COMPENSATION PLAN
| | | | NUMBER OF SECURITIES TO BE ISSUED UPON EXERCISE OF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS |
| WEIGHTED AVERAGE EXERCISE PRICE OF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS |
| NUMBER OF SECURITIES REMAINING AVAILABLE FOR FUTURE ISSUANCE UNDER EQUITY COMPENSATION PLANS (EXCLUDING SECURITIES TO BE ISSUED UPON EXERCISE) |
| NUMBER OF SECURITIES TO BE ISSUED UPON EXERCISE OF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS |
| WEIGHTED AVERAGE EXERCISE PRICE OF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS |
| NUMBER OF SECURITIES REMAINING AVAILABLE FOR FUTURE ISSUANCE UNDER EQUITY COMPENSATION PLANS (EXCLUDING SECURITIES TO BE ISSUED UPON EXERCISE) |
|
Equity compensation plans approved by security holders(1) | 14,935,316 |
| $ | 22.74 |
| 17,317,903 |
| 9,180,693 |
| $ | 19.01 |
| 20,554,887 |
|
| Equity compensation plans not approved by security holders | N/A |
| N/A |
| N/A |
| N/A |
| N/A |
| N/A |
|
| Total | 14,935,316 |
| $ | 22.74 |
| 17,317,903 |
| 9,180,693 |
| $ | 19.01 |
| 20,554,887 |
|
| (1) Includes 1,104,621 restricted stock units and 685,535 performance share units. Because there is no exercise price associated with restricted stock units and performance share units, excluding these stock units the weighted average exercise price calculation would be $25.83. | |
| (1) Includes 1,592,843 restricted stock units and 1,040,582 performance share units. Because there is no exercise price associated with restricted stock units and performance share units, excluding these stock units the weighted average exercise price calculation would be $26.66. | | (1) Includes 1,592,843 restricted stock units and 1,040,582 performance share units. Because there is no exercise price associated with restricted stock units and performance share units, excluding these stock units the weighted average exercise price calculation would be $26.66. |
INFORMATION ABOUT COMMON SHARE REPURCHASES
The following table provides information with respect to purchases of common shares made by the company during fourth quarter 2018:
|
| | | | | | | | | | |
| COMMON SHARE REPURCHASE DURING FOURTH QUARTER 2018 | TOTAL NUMBER OF SHARES PURCHASED |
| AVERAGE PRICE PAID PER SHARE |
| TOTAL NUMBER OF SHARES PURCHASED AS PART OF PUBLICLY ANNOUNCED PLANS OR PROGRAMS |
| APPROXIMATE DOLLAR VALUE OF SHARES THAT MAY YET BE PURCHASED UNDER THE PLANS OR PROGRAMS(1) |
|
| October 1 - October 31 | 394,223 |
| $ | 26.13 |
| 394,223 |
| $ | 199,311,977 |
|
| November 1 - November 30 | 1,475,848 |
| 27.10 |
| 1,475,848 |
| 159,313,972 |
|
| December 1 - December 31 | 954,418 |
| 25.86 |
| 954,418 |
| 134,633,963 |
|
| Total | 2,824,489 |
| $ | 26.55 |
| 2,824,489 |
| $ | 134,633,963 |
|
| (1) During fourth quarter 2018, we repurchased 2.8 million shares of common stock for $75 million (including transaction fees) under the 2016 Share Repurchase Authorization. The 2016 Share Repurchase Authorization was approved in November 2015 by our Board of Directors and authorized management to repurchase up to $2.5 billion of outstanding shares subsequent to the closing of our merger with Plum Creek. Transaction fees incurred for repurchases are not counted as use of funds authorized for repurchase under the 2016 Share Repurchase Authorization. All common stock purchases under the stock repurchase program were made in open-market transactions. |
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 33
INFORMATION ABOUT COMMON STOCK REPURCHASES DURING 2015
|
| | | | | | | | | | |
| | TOTAL NUMBER OF SHARES (OR UNITS) PURCHASED |
| AVERAGE PRICE PAID PER SHARE (OR UNIT) |
| TOTAL NUMBER OF SHARES (OR UNITS) PURCHASED AS PART OF PUBLICLY ANNOUNCED PLANS OF PROGRAMS |
| MAXIMUM NUMBER (OR APPROXIMATE DOLLAR VALUE) OF SHARES (OR UNITS) THAT MAY YET BE PURCHASED UNDER THE PLANS OR PROGRAMS(1)(2) |
|
| Common Stock Repurchases During First Quarter: | | | | |
| January | 228,429 |
| $ | 35.85 |
| 228,429 |
| $ | 488,348,381 |
|
| February | 3,038,219 |
| $ | 35.21 |
| 3,038,219 |
| $ | 381,369,837 |
|
| March | 4,074,918 |
| $ | 33.69 |
| 4,074,918 |
| $ | 244,089,600 |
|
| Total repurchases during first quarter | 7,341,566 |
| $ | 34.39 |
| 7,341,566 |
| $ | 244,089,600 |
|
| Common Stock Repurchases During Second Quarter: | | | | |
| April | 1,949,315 |
| $ | 31.84 |
| 1,949,315 |
| $ | 182,017,591 |
|
| May | 1,570,276 |
| $ | 31.81 |
| 1,570,276 |
| $ | 132,064,000 |
|
| June | 1,322,926 |
| $ | 31.76 |
| 1,322,926 |
| $ | 90,047,982 |
|
| Total repurchases during second quarter | 4,842,517 |
| $ | 31.81 |
| 4,842,517 |
| $ | 90,047,982 |
|
| Common Stock Repurchases During Third Quarter: | | | | |
| July | — |
| — |
| — |
| $ | 90,047,982 |
|
| August | 145,720 |
| $ | 28.00 |
| 145,720 |
| $ | 585,967,414 |
|
| September | 3,112,428 |
| $ | 27.56 |
| 3,112,428 |
| $ | 500,190,226 |
|
| Total repurchases during third quarter | 3,258,148 |
| $ | 27.58 |
| 3,258,148 |
| $ | 500,190,226 |
|
| Common Stock Repurchases During Fourth Quarter: | | | | |
| October | 616,265 |
| $ | 28.76 |
| 616,265 |
| $ | 482,469,449 |
|
| November | 130,930 |
| $ | 30.75 |
| 130,930 |
| $ | 478,442,984 |
|
| December | — |
| $ | — |
| — |
| $ | 478,442,984 |
|
| Total repurchases during fourth quarter | 747,195 |
| $ | 29.11 |
| 747,195 |
| $ | 478,442,984 |
|
| Total common stock repurchases during 2015 | 16,189,426 |
| $ | 32.00 |
| 16,189,426 |
| $ | 478,442,984 |
|
(1) On August 13, 2014, our board of directors approved a stock repurchase program under which we were authorized to repurchase up to $700 million of outstanding shares (the 2014 Repurchase Program). The 2014 stock repurchase program replaced the prior 2011 stock repurchase program. During 2014, we repurchased $203 million of outstanding shares under the 2014 Repurchase Program. During 2015, we completed the 2014 Repurchase Program by purchasing $497 million of outstanding shares. All common stock purchases under the stock repurchase program were made in open-market transactions. (2) On August 27, 2015, our board of directors approved a new share repurchase program of up to $500 million of outstanding shares (the 2015 Repurchase Program), commencing upon completion of the 2014 Repurchase Program. During 2015, we repurchased $22 million of outstanding shares under the 2015 Repurchase Program. All common stock purchases under the stock repurchase program were made in open-market transactions. |
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K34
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN
Weyerhaeuser Company, S&P 500 and S&P Global Timber & Forestry Index
PERFORMANCE GRAPH ASSUMPTIONS
Assumes $100 invested on December 31, 20102013, in Weyerhaeuser common stock, the S&P 500 Index and the S&P Global Timber & Forestry Index.
Total return assumes dividends received are reinvested at month end.
Measurement dates are the last trading day of the calendar year shown.
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 3534
SELECTED FINANCIAL DATA
DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURES
| | PER COMMON SHARE | | 2015 |
| 2014 |
| 2013 |
| 2012 |
| 2011 |
| 2018 |
| 2017 |
| 2016 |
| 2015 |
| 2014 |
|
| Diluted earnings from continuing operations attributable to Weyerhaeuser common shareholders | $ | 0.89 |
| 1.40 |
| 0.82 |
| 0.58 |
| 0.50 |
| $ | 0.99 |
| $ | 0.77 |
| $ | 0.55 |
| $ | 0.71 |
| $ | 1.02 |
|
Diluted earnings from discontinued operations attributable to Weyerhaeuser common shareholders(1) | — |
| 1.78 |
| 0.13 |
| 0.13 |
| 0.11 |
| $ | — |
| $ | — |
| $ | 0.84 |
| $ | 0.18 |
| $ | 2.16 |
|
| Diluted net earnings attributable to Weyerhaeuser common shareholders | $ | 0.89 |
| 3.18 |
| 0.95 |
| 0.71 |
| 0.61 |
| $ | 0.99 |
| $ | 0.77 |
| $ | 1.39 |
| $ | 0.89 |
| $ | 3.18 |
|
| Dividends paid per common share | $ | 1.20 |
| 1.02 |
| 0.81 |
| 0.62 |
| 0.60 |
| |
| Dividends paid | | $ | 1.32 |
| $ | 1.25 |
| $ | 1.24 |
| $ | 1.20 |
| $ | 1.02 |
|
| Weyerhaeuser shareholders’ interest (end of year) | $ | 9.54 |
| 10.11 |
| 11.64 |
| 7.50 |
| 7.95 |
| $ | 12.12 |
| $ | 11.78 |
| $ | 12.26 |
| $ | 9.54 |
| $ | 10.11 |
|
FINANCIAL POSITION | | 2015 |
| 2014 |
| 2013 |
| 2012 |
| 2011 |
| 2018 |
| 2017 |
| 2016 |
| 2015 |
| 2014 |
|
| Total assets | $ | 12,486 |
| 13,265 |
| 14,372 |
| 12,609 |
| 12,523 |
| $ | 17,249 |
| $ | 18,059 |
| $ | 19,243 |
| $ | 12,470 |
| $ | 13,247 |
|
| Total long-term debt | $ | 4,891 |
| 4,891 |
| 4,891 |
| 4,291 |
| 4,478 |
| |
Total long-term debt, including current portion, and borrowings on line of credit (1) | | $ | 6,344 |
| $ | 5,992 |
| $ | 6,610 |
| $ | 4,787 |
| $ | 4,873 |
|
| Weyerhaeuser shareholders’ interest | $ | 4,869 |
| 5,304 |
| 6,795 |
| 4,070 |
| 4,263 |
| $ | 9,046 |
| $ | 8,899 |
| $ | 9,180 |
| $ | 4,869 |
| $ | 5,304 |
|
| Percent earned on average Weyerhaeuser shareholders’ interest | 9.1 | % | 29.5 | % | 9.9 | % | 9.2 | % | 7.5 | % | |
| Percent earned on average year-end Weyerhaeuser shareholders’ interest | | 8.3 | % | 6.4 | % | 14.3 | % | 9.1 | % | 29.5 | % |
OPERATING RESULTS | | 2015 |
| 2014 |
| 2013 |
| 2012 |
| 2011 |
| 2018 |
| 2017 |
| 2016 |
| 2015 |
| 2014 |
|
| Net sales | $ | 7,082 |
| 7,403 |
| 7,254 |
| 5,989 |
| 5,378 |
| $ | 7,476 |
| 7,196 |
| 6,365 |
| 5,246 |
| 5,489 |
|
| Earnings from continuing operations | $ | 506 |
| 828 |
| 491 |
| 312 |
| 270 |
| 748 |
| 582 |
| 415 |
| 411 |
| 616 |
|
Discontinued operations, net of income taxes(1) | — |
| 998 |
| 72 |
| 72 |
| 61 |
| — |
| — |
| 612 |
| 95 |
| 1,210 |
|
| Net earnings | 506 |
| 1,826 |
| 563 |
| 384 |
| 331 |
| 748 |
| 582 |
| 1,027 |
| 506 |
| 1,826 |
|
| Net loss (earnings) attributable to noncontrolling interest | — |
| — |
| — |
| 1 |
| — |
| |
| Net earnings attributable to Weyerhaeuser | 506 |
| 1,826 |
| 563 |
| 385 |
| 331 |
| |
| Dividends on preference shares | (44 | ) | (44 | ) | (23 | ) | — |
| — |
| — |
| — |
| (22 | ) | (44 | ) | (44 | ) |
| Net earnings attributable to Weyerhaeuser common shareholders | $ | 462 |
| 1,782 |
| 540 |
| 385 |
| 331 |
| $ | 748 |
| $ | 582 |
| $ | 1,005 |
| $ | 462 |
| $ | 1,782 |
|
CASH FLOWS | | 2015 |
| 2014 |
| 2013 |
| 2012 |
| 2011 |
| 2018 |
| 2017 |
| 2016 |
| 2015 |
| 2014 |
|
| Net cash from operations | $ | 1,064 |
| 1,088 |
| 1,004 |
| 581 |
| 291 |
| $ | 1,112 |
| $ | 1,201 |
| $ | 735 |
| $ | 1,075 |
| $ | 1,109 |
|
| Cash from investing activities | (487 | ) | 361 |
| (1,829 | ) | (192 | ) | 122 |
| |
| Cash from financing activities | (1,145 | ) | (704 | ) | 762 |
| (444 | ) | (927 | ) | |
| Net cash from investing activities | | (440 | ) | 367 |
| 2,559 |
| (487 | ) | 361 |
|
| Net cash from financing activities | | (1,162 | ) | (1,420 | ) | (3,630 | ) | (1,156 | ) | (725 | ) |
| Net change in cash and cash equivalents | $ | (568 | ) | 745 |
| (63 | ) | (55 | ) | (514 | ) | $ | (490 | ) | $ | 148 |
| $ | (336 | ) | $ | (568 | ) | $ | 745 |
|
STATISTICS (UNAUDITED) | | 2015 |
| 2014 |
| 2013 |
| 2012 |
| 2011 |
| 2018 |
| 2017 |
| 2016 |
| 2015 |
| 2014 |
|
| Number of employees | 12,600 |
| 12,800 |
| 13,700 |
| 13,200 |
| 12,800 |
| 9,300 |
| 9,300 |
| 10,400 |
| 12,600 |
| 12,800 |
|
| Number of common shareholder accounts at year-end | 7,700 |
| 8,248 |
| 8,859 |
| 9,227 |
| 9,724 |
| 14,525 |
| 15,138 |
| 15,504 |
| 7,700 |
| 8,248 |
|
| Number of common shares outstanding at year-end (thousands) | 510,483 |
| 524,474 |
| 583,548 |
| 542,393 |
| 536,425 |
| 746,391 |
| 755,223 |
| 748,528 |
| 510,483 |
| 524,474 |
|
| Weighted average common shares outstanding – diluted (thousands) | 519,618 |
| 560,899 |
| 571,239 |
| 542,310 |
| 539,879 |
| 756,827 |
| 756,666 |
| 722,401 |
| 519,618 |
| 560,899 |
|
| | |
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 3635
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)
|
|
| WHAT YOU WILL FIND IN THIS MD&A |
Our MD&A includes the following major sections:
economic and market conditions affecting our operations;
financial performance summary;
discussion of the softwood lumber agreement;
results of our operations — consolidated and by segment;
liquidity and capital resources — where we discuss our cash flows;
off-balance sheet arrangements;
environmental matters, legal proceedings and other contingencies; and
accounting matters — where we discuss critical accounting policies and areas requiring judgments and estimates.
|
|
| ECONOMIC AND MARKET CONDITIONS AFFECTING OUR OPERATIONS |
The demand for grade logs within our Timberlands segment is directly affected by production levels of domestic wood-based building products. The strength of the U.S. housing market strongly affects demand in our Wood Products segment, as does repair and remodeling activity. Our Timberlands segments. As publishedsegment, specifically the Western region, is also affected by the U.S. Census Bureau, total U.S.export demand and trade policy. Japanese housing starts for 2015 were 1,111,000 units, with single-family units accounting for 715,000are a key driver of the total. This represents a 10 percent increaseexport log demand in single-family starts from 2014, which were 648,000 units. Multi-family construction also increased in 2015 to 396,000 units compared with 358,000 in 2014. Expectations are for a similar increase in 2016. Consensus forecasts place expected total housing starts between 1.2 and 1.3 million units for 2016. Sources include IHS Global Insight, John Burns Real Estate and RISI. While housing has improved significantly since the recession of 2009, currentJapan. The demand for new housing continues to run below historic pre bubble averages. The 25-year period of 1976-2000 averaged 1.5 million total starts and 1.1 million single family starts, levels which have not yet been achieved in the post recession period.
Wood Products primarily sells into the new residential building and repair and remodel markets. Demand for wood products continued to improve in 2015 following the growth in home construction, however, growth in production also expanded and prices were lower in 2015 than 2014. The Random Lengths framing lumber composite was 14 percent lower in 2015 versus 2014 while oriented strand board (OSB) was 4 percent lower in 2015 as measured by Random Lengths North Central Price. Expectations are for similar to slightly higher wood product prices in 2016 as demand continues to increase with growth in housing starts and remodeling.
Demand for logspulpwood from our Timberlands segment is directly affected by the production of wood-based building productspulp, paper and OSB as well as the demand for biofuels, such as pellets made from pulpwood.
Due to the partial government shutdown that occurred through late January 2019, full-year 2018 housing data is unavailable, however, for the January 2018 through November 2018 period, housing starts were 1.18 million total units, which is 5 percent above the total of 1.12 units for the same period in 2017 according to the U.S. Census Bureau. Single family units totaled 825 thousand compared to 794 thousand in 2017, a 4 percent increase. Multifamily starts were 354 thousand units for the first 11 months of 2018, which is 8 percent higher than 2017 for the same period. We continue to expect improving U.S. housing starts and anticipate a level of approximately 1.30 million units in 2019 which would be a 3 percent gain over 2018, assuming the year to date gains continue into December. We attribute this continued improvement primarily to ongoing employment growth, strong consumer confidence and mortgage rates, which have stabilized and declined since peaking in late 2018 and remain affordable on a historic basis.
According to the Joint Center for Housing of Harvard University, the Leading Indicator of Remodeling Activity (LIRA) projects that the year-over-year increase in residential remodeling expenditures reached 7.2 percent in 2018 and is expected to average 6.5 percent in 2019, with expenditure growth tapering through the year and reaching the long term average level of 5.2 percent in the fourth quarter 2019.
In U.S. wood product markets, prices in 2018 were mixed, rising the first half of the year to post record levels in May and June, only to fall sharply in third and fourth quarter 2018, as supply issues related to transportation eased and producers increased output in response to high prices. According to Random Lengths, the framing lumber composite averaged $459/MBF in 2018, an 11 percent increase over 2017. According to Forest Economic Advisors, LLC, U.S. lumber consumption is expected to grow at a 3.5 percent rate in 2019, however, due to declines forecast in off-shore export volumes and increases in off-shore imports, the increase in overall demand on North American mills is expected to rise by 2.5 percent over 2018. Log markets in our Western holdings.the west were consistent with wood products manufacturing, exhibiting strong demand and pricing in the first half followed by slower demand and weaker market prices for western logs in the second half of 2018. In the South, Southern pine sawlogsouth, log supplies kept pace with demand, leaving prices flat throughout 2018.
Log inventories in Chinese ports decreased 0.9 percent in December 2018 compared to November 2018 as reported by International Wood Markets China Bulletin. While the decline in overall volume was slight, there was a greater decline in North American Hemlock and Douglas fir volumes. These species were flat to slightly higher in 2015 as available supplies continue to match or exceed growth in demand. Western log prices were5.9 percent lower in 2015 due primarilyDecember 2018 compared to November 2018 which has positive implications for demand at the start of 2019 as suppliers will need to re-build depleted inventories. Total North American volumes increased in 2018 by 3 percent over 2017 despite retaliatory tariffs imposed by the Chinese government against U.S. imports. In addition, exchange rates also have an effect on our export business to China. A weaker yuan relative to the pullbackU.S. dollar reduces the competitiveness of U.S. logs relative to those imported from other countries whose currencies have not appreciated in a similar manner. During 2018, the yuan weakened relative to the U.S. dollar, which affects the competitiveness of our export logs to China.
In Japan, housing starts for November year to date for 2018 were down 2.7 percent from the same period in 2017 while the key Post and Beam segment was 0.8 percent lower in the first 11 months of 2018 compared to 2017.
We expect demand from China which had been actively competing with domestic lumber producers for sawlogs. Expectations are for slightly improved log prices as off-shoreand Japan in 2019 to be similar to demand improves over 2015 and domestic wood products manufacturing output increases with rising housing starts creating increased log demand.experienced in 2018.
Cellulose FibersOur Real Estate & ENR segment is primarily affected by global supply and demand factors and the relative strengthhealth of the U.S. dollar. The slowdowneconomy and especially the U.S. housing sector of the economy. According to the Realtors Land Institute (RLI) of the National Association of Realtors, the dollar volume of rural properties sold, including timber, grew 2 percent in global growth2018, and reduced expectations for emerging economies slowed demand growth for pulpper acre prices were also up 2 percent on average. Additionally, RLI expects these trends to continue with prices and volumes of land transactions forecast to rise 3 percent in 2015. The U.S. dollar continued to strengthen versus the Euro in 2015, rising 12 percent due to stronger US economic growth and increasingly accommodative monetary policies in Eurozone economies. Consequently prices for benchmark NBSK pulp were 8% lower in 2015 versus 2014. Expectations are for similar to slightly lower prices in 2016 as global economic growth is expected to be weak, which will limit growth in demand for products made with cellulose fibers. Furthermore, the US dollar is expected to remain strong relative to other currencies including the euro and a weak euro has historically been associated with lower US dollar prices for cellulose fibers.2019.
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 3736
|
|
| FINANCIAL PERFORMANCE SUMMARY |
Net Sales by Segment
Contribution to Pretax Earnings by Segment
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 3837
|
|
| SOFTWOOD LUMBER AGREEMENT |
We operate a total of 19 softwood lumber mills with a total capacity of approximately 5 billion board feet. Three of these mills, located in Canada, produce approximately 900 million board feet annually, and sell products in Canada, Asia, and the U.S.
In April 2017, the U.S. Department of Commerce announced a preliminary determination that it would implement countervailing duties (CVD) on Canadian softwood lumber shipments to the U.S at the rate of 19.88 percent with a 90 day retroactive period. The preliminary countervailing duties were suspended in August 2017, at which time we effectively stopped accruing for the expense. The suspension of the countervailing duties was set to last until the US International Trade Commission reached its final determination of injury, which was issued in December 2017.
In June 2017, the U.S. Department of Commerce announced a preliminary determination that it would implement anti-dumping duties (AD) on Canadian softwood lumber shipments to the U.S. at the rate of 6.87 percent with a 90 day retroactive period.
Affirmative final determinations by the Department of Commerce (DOC) and the US International Trade Commission (USITC) in December 2017 issued CVD and AD duty orders on certain softwood lumber products from Canada. Based on these determinations, the CVD rate applicable to Weyerhaeuser is 14.19 percent and is assessed on entries of softwood lumber from Canada for consumption on or after April 28, 2017. The AD rate applicable to Weyerhaeuser is 6.04 percent and is assessed on entries of softwood lumber from Canada for consumption on or after June 30, 2017.
For the years ended December 31, 2018 and December 31, 2017, we have expensed CVD and AD duties at the final published rates totaling $21 million and $7 million, respectively. These costs are recorded in "Costs of sales" within the Wood Products segment.
In reviewing our results of operations, it is important to understand these terms:
Sales realizations refer to net selling prices — this includes selling price plus freight minus normal sales deductions.deductions;
Net contribution to earnings refers to earnings (loss) attributable to Weyerhaeuser shareholders before interest expense and income taxes.
Our merger with Plum Creek during first quarter 2016 affected the comparability of our consolidated operating results with 2016. Our results do not include pre-merger results of Plum Creek operations from January 1, 2016 through February 19, 2016.
CONSOLIDATED RESULTS
HOW WE DID IN 20152018
Summary of Financial Results
| | DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURES | | | AMOUNT OF CHANGE | | | AMOUNT OF CHANGE | |
| 2015 |
| 2014 |
| 2013 |
| 2015
vs.
2014 |
| 2014
vs.
2013 |
| 2018 |
| 2017 |
| 2016 |
| 2018
vs.
2017 |
| 2017
vs.
2016 |
|
| Net sales | $ | 7,082 |
| $ | 7,403 |
| $ | 7,254 |
| $ | (321 | ) | $ | 149 |
| $ | 7,476 |
| $ | 7,196 |
| $ | 6,365 |
| $ | 280 |
| $ | 831 |
|
| Costs of sales | | $ | 5,592 |
| $ | 5,298 |
| $ | 4,980 |
| $ | 294 |
| $ | 318 |
|
| Operating income | $ | 919 |
| $ | 1,320 |
| $ | 634 |
| $ | (401 | ) | $ | 686 |
| $ | 1,394 |
| $ | 1,131 |
| $ | 822 |
| $ | 263 |
| $ | 309 |
|
| Earnings from discontinued operations, net of tax | $ | — |
| $ | 998 |
| $ | 72 |
| $ | (998 | ) | $ | 926 |
| $ | — |
| $ | — |
| $ | 612 |
| $ | — |
| $ | (612 | ) |
| Net earnings attributable to Weyerhaeuser common shareholders | $ | 462 |
| $ | 1,782 |
| $ | 540 |
| $ | (1,320 | ) | $ | 1,242 |
| $ | 748 |
| $ | 582 |
| $ | 1,005 |
| $ | 166 |
| $ | (423 | ) |
| Basic earnings per share attributable to Weyerhaeuser common shareholders | $ | 0.89 |
| $ | 3.20 |
| $ | 0.95 |
| $ | (2.31 | ) | $ | 2.25 |
| $ | 0.99 |
| $ | 0.77 |
| $ | 1.40 |
| $ | 0.22 |
| $ | (0.63 | ) |
| Diluted earnings per share attributable to Weyerhaeuser common shareholders | $ | 0.89 |
| $ | 3.18 |
| $ | 0.95 |
| $ | (2.29 | ) | $ | 2.23 |
| $ | 0.99 |
| $ | 0.77 |
| $ | 1.39 |
| $ | 0.22 |
| $ | (0.62 | ) |
COMPARING 20152018 WITH 20142017
Net Sales
Net sales decreased $321increased $280 million — 4 percent — primarily due to:
lowerWood Products segment net sales to unaffiliated customers increased $281 million, primarily attributable to increased sales realizations across all product lines; and
Real Estate & ENR segment net sales to unaffiliated customers increased $26 million primarily attributable to increased acres sold.
These increases were offset by a decrease in Timberlands segment net sales to unaffiliated customers by $27 million, primarily attributable to decreased revenue resulting from the divestiture of our Uruguayan operations in third quarter 2017, partially offset by an increase in Western log sales realizations.
Costs of Sales
Costs of sales increased $294 million — $147 million6 percent — primarily due to lower averageincreased log sales realizations and export sales volumesfiber costs within our Wood Products and Timberlands segments as well as an increase in acres sold coupled with higher per acre basis of real estate sold within our Real Estate and ENR segment. Refer to additional analysis of fluctuations within our Timberlands, Real Estate, Energy and Natural Resources and Wood Products discussion below.
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K38
Operating Income
Operating income increased $263 million — 23 percent — primarily due to:
$290 million decrease in charges for product remediation; and
These increases were partially offset by the following:
$37 million decrease in environmental remediation insurance recoveries received; and
$14 million decreased consolidated gross margin, as described above.
Net Earnings Attributable to Weyerhaeuser Common Shareholders
Net earnings attributable to Weyerhaeuser common shareholders increased $166 million — 29 percent — primarily due to:
a$263 million increase to operating income, as described above;
a $75 million decrease in income tax expense; and
an $18 million decrease in interest expense, net of capitalized interest.
COMPARING 2017 WITH 2016
Net Sales
Net sales increased $831 million — 13 percent — primarily due to:
| |
| • | Wood Products net sales to unaffiliated customers increased $640 million primarily attributable to increased sales realizations across all product lines, as well as increased sales volumes within our oriented strand board, engineered I-joists, medium density fiberboard, and our engineered solid section product lines. Additionally, upon completion of the sales of our former Cellulose Fibers businesses, chips previously sold to Cellulose Fibers are now sales to unaffiliated customers. Refer to Note 4: Discontinued Operations and Other Divestitures in the Notes to Consolidated Financial Statementsfor further details regarding these divestitures. |
Timberlands net sales to unaffiliated customers increased $137 million, which is primarily attributable to increased Southern and lowerOther (includes our Canadian operations and timberlands included in the Twin Creeks Venture) delivered log sales volumes, as well as, an increase in the South;Western log sales prices.
lower Wood Products segmentReal Estate & ENR net sales to unaffiliated customers increased $54 million attributable to an increase in timberlands acres sold in Real Estate and an increase in royalties.
Costs of Sales
Operating Income
Operating income increased $309 million — 38 percent — primarily due to:
an increase to consolidated gross margin of $513 million, as described above;
an increase in other operating income, net of $75 million, which is primarily attributable to:
–a $42 million benefit related to environmental remediation insurance recoveries received in 2017; and
These increases were partially offset by higher structural lumber, OSB, and engineered solid section sales volumes and higher salesthe following:
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K39
lower Cellulose Fibers segment sales — $76 million — primarily due to lower pulp and liquid packaging board average sales realizations.
Net Earnings Attributable to Weyerhaeuser Common Shareholders
Our net earnings attributable to Weyerhaeuser common shareholders decreased $1,320$423 million primarily due to:
earnings from discontinued operation recognized in 2014 — $998 million. There were no42 percent — compared to 2016. Excluding earnings from discontinued operations, in 2015;
lower gross margin — $252 million — primarily due to lower average sales realizations in lumber and OSB in our Wood Products segment, lower average log sales realizations and sales volumes in our Timberlands segment, and lower average sales realizations for pulp and liquid packaging board, and higher operating costs due to scheduled maintenance outages and the West Coast port slowdown in our Cellulose Fibers segment;
lower other operating income — $219 million — primarily due to a $151 million pretax gain recognized in 2014 related to a previously announced postretirement plan amendment, a $22 million pretax gain recognized in 2014 on the salenet of a landfill in Washington State, $14 million of Plum Creek merger-related costs in 2015, and a $13 million noncash impairment charge related to a nonstrategic asset sale in 2015; and
losses from an equity affiliate in 2015 — $105 million — primarily due to an $84 million noncash asset impairment recorded by an equity affiliate in the fourth quarter 2015.
These decreases were partially offset by:
lower income taxes — $188 million — primarily due to lower earnings in our Taxable REIT Subsidiary (TRS) in 2015, an income tax, benefit recognized in the fourth quarter 2015 related to a noncash asset impairment recorded by an equity affiliate and the expiration of the company's built-in-gains tax period as a result of a change in U.S. tax legislation; and
lower general and administrative expenses — $49 million.
COMPARING 2014 WITH 2013
Net Sales
Net sales increased $149 million — 2 percent — primarily due to:
Timberlands segment sales increased $154 million, primarily due to higher log prices and increased sales volumes in the West, including our acquired Longview Timber holdings.
Cellulose Fibers segment sales increased $34 million primarily due to higher sales realizations for pulp.
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K39
These increases were partially offset by a $39 million decrease in our Wood Products segment sales, primarily due to lower sales realizations for OSB. This decrease in sales was partially offset by higher sales realizations and volumes for engineered wood products and lumber and increased sales from complementary building products.
Net Earnings Attributable to Weyerhaeuser Common Shareholders
Our net earnings attributable to Weyerhaeuser common shareholders increased $1,242$189 million — 48 percent — primarily due to:
to the increase in Operating income, as explained above. The increases in operating income were partially offset by a $926$110 million increase in earningsexpense related to non-operating pension and other postretirement benefits (costs) credits due to a decrease in the expected return on our plan assets as well as an increase in the amortization of actuarial losses.
Earnings from discontinued operations, primarily due to a $972net of tax, decreased $612 million net gain on the Real Estate Divestiture recognized— 100 percent — as all discontinued operations were sold in 2014;
a $333 million decrease in charges for restructuring, closure and asset impairments primarily related to a noncash impairment charge relating to a large master-planned community north of Las Vegas, Nevada which was retained by Weyerhaeuser in the divestiture of Weyerhaeuser Real Estate Company (WRECO);
a $206 million increase in gross margin in our Timberlands and Cellulose Fibers segments, primarily due to higher sales realizations and owning Longview Timber for a full year;
a $166 million increase in other operating income, primarily due to a $151 million pretax gain recognized in 2014 related to a previously announced postretirement plan amendment; and
a $79 million decrease in our selling, general and administrative expenses.2016.
These increases were partially offset by:
a $356 million change in income taxes from a benefit in 2013 to an expense in 2014 primarily related to a previously unrecognized tax benefit recorded in 2013 and higher earnings in our Taxable REIT Subsidiary (TRS) in 2014; and
a $140 million decrease in gross margin in our Wood Products segment, primarily due to lower sales realizations in OSB.
TIMBERLANDS
HOW WE DID IN 20152018
Here is a comparison of net sales to unaffiliated customers, intersegment sales, and net contribution to earnings for the last three years:
Net Sales and Net Contribution to Earnings for Timberlands | | DOLLAR AMOUNTS IN MILLIONS | | | AMOUNT OF CHANGE | | | AMOUNT OF CHANGE | |
| 2015 |
| 2014 |
| 2013 |
| 2015
vs.
2014 |
| 2014
vs.
2013 |
| 2018 |
| 2017 |
| 2016 |
| 2018
vs.
2017 |
| 2017
vs.
2016 |
|
| Net sales to unaffiliated customers: | | | | | | |
| Logs: | | | | |
Delivered logs(1): | | | | |
| West | $ | 830 |
| $ | 972 |
| $ | 828 |
| $ | (142 | ) | $ | 144 |
| $ | 987 |
| $ | 915 |
| $ | 865 |
| $ | 72 |
| $ | 50 |
|
| South | 241 |
| 257 |
| 256 |
| (16 | ) | 1 |
| 625 |
| 616 |
| 566 |
| 9 |
| 50 |
|
| Canada | 24 |
| 22 |
| 19 |
| 2 |
| 3 |
| |
| North | | 99 |
| 95 |
| 91 |
| 4 |
| 4 |
|
| Other | | 41 |
| 59 |
| 38 |
| (18 | ) | 21 |
|
| Total | 1,095 |
| 1,251 |
| 1,103 |
| (156 | ) | 148 |
| 1,752 |
| 1,685 |
| 1,560 |
| 67 |
| 125 |
|
| Chip sales | 15 |
| 12 |
| 9 |
| 3 |
| 3 |
| |
Timberlands exchanges(1) | 62 |
| 52 |
| 65 |
| 10 |
| (13 | ) | |
Higher and better-use land sales(1) | 14 |
| 19 |
| 19 |
| (5 | ) | — |
| |
| Minerals, oil and gas | 26 |
| 32 |
| 32 |
| (6 | ) | — |
| |
Products from international operations(2) | 87 |
| 96 |
| 90 |
| (9 | ) | 6 |
| |
| Other products | 51 |
| 35 |
| 25 |
| 16 |
| 10 |
| |
| Stumpage and pay-as-cut timber | | 59 |
| 73 |
| 85 |
| (14 | ) | (12 | ) |
Uruguay operations(2) | | — |
| 63 |
| 79 |
| (63 | ) | (16 | ) |
| Recreational and other lease revenue | | 59 |
| 59 |
| 44 |
| — |
| 15 |
|
Other products(3) | | 45 |
| 62 |
| 37 |
| (17 | ) | 25 |
|
| Subtotal sales to unaffiliated customers | 1,350 |
| 1,497 |
| 1,343 |
| (147 | ) | 154 |
| 1,915 |
| 1,942 |
| 1,805 |
| (27 | ) | 137 |
|
| Intersegment sales: | | | | | | |
| United States | 559 |
| 576 |
| 518 |
| (17 | ) | 58 |
| 537 |
| 520 |
| 590 |
| 17 |
| (70 | ) |
| Other | 271 |
| 291 |
| 281 |
| (20 | ) | 10 |
| 265 |
| 242 |
| 250 |
| 23 |
| (8 | ) |
| Subtotal intersegment sales | 830 |
| 867 |
| 799 |
| (37 | ) | 68 |
| 802 |
| 762 |
| 840 |
| 40 |
| (78 | ) |
| Total | $ | 2,180 |
| $ | 2,364 |
| $ | 2,142 |
| $ | (184 | ) | $ | 222 |
| |
| Net contribution to earnings | $ | 549 |
| $ | 613 |
| $ | 470 |
| $ | (64 | ) | $ | 143 |
| |
(1) Significant dispositions of higher and better use timberland and some nonstrategic timberlands are made through subsidiaries.
(2) Products include logs, plywood and hardwood lumber harvested or produced by our international operations. This includes sales from our operations in Uruguay and Brazil (sold in 2014). | |
| Total segment sales | | 2,717 |
| 2,704 |
| 2,645 |
| 13 |
| 59 |
|
| Costs of sales | | $ | 2,052 |
| $ | 2,043 |
| $ | 2,054 |
| $ | 9 |
| $ | (11 | ) |
| Operating income and Net contribution to earnings | | $ | 583 |
| $ | 532 |
| $ | 499 |
| $ | 51 |
| $ | 33 |
|
(1) The Western region includes Oregon and Washington. The Southern region includes Alabama, Arkansas, Georgia, Florida, Louisiana, Mississippi, North Carolina, Oklahoma, South Carolina, Texas and Virginia. The Northern region includes Maine, Michigan, Montana, New Hampshire, Vermont, West Virginia and Wisconsin. Other includes our Canadian operations and the timberlands of the Twin Creeks Venture that we managed. (Our management agreement for the Twin Creeks Venture began in April 2016 and terminated in December 2017. For additional information see Note 9: Related Parties in the Notes to Consolidated Financial Statements.
(2) Sales from our former Uruguayan operations included plywood and hardwood lumber. Our Uruguayan operations were divested on September 1, 2017. Refer to Note 4: Discontinued Operations and Other Divestitures in the Notes to Consolidated Financial Statements for further information on this divestiture.
(3) Other products sales include sales of seeds and seedlings from our nursery operations and chips. | | (1) The Western region includes Oregon and Washington. The Southern region includes Alabama, Arkansas, Georgia, Florida, Louisiana, Mississippi, North Carolina, Oklahoma, South Carolina, Texas and Virginia. The Northern region includes Maine, Michigan, Montana, New Hampshire, Vermont, West Virginia and Wisconsin. Other includes our Canadian operations and the timberlands of the Twin Creeks Venture that we managed. (Our management agreement for the Twin Creeks Venture began in April 2016 and terminated in December 2017. For additional information see Note 9: Related Parties in the Notes to Consolidated Financial Statements.
(2) Sales from our former Uruguayan operations included plywood and hardwood lumber. Our Uruguayan operations were divested on September 1, 2017. Refer to Note 4: Discontinued Operations and Other Divestitures in the Notes to Consolidated Financial Statements for further information on this divestiture.
(3) Other products sales include sales of seeds and seedlings from our nursery operations and chips. |
On July 23, 2013, we purchased 100COMPARING 2018 WITH 2017
Net Sales — Unaffiliated Customers
Net sales to unaffiliated customers decreased $27 million — 1 percent of— primarily due to the equity interests in Longview Timber LLC (Longview Timber) for cash and assumed debt. Thefollowing:
$63 million decreased net sales and net contribution to earningsresulting from the divestiture of our acquired entityUruguayan operations in third quarter 2017;
$18 million decreased net sales primarily attributable to lower sales volumes resulting from the acquisition date forward are included in the West resultstermination of our Timberlands segment. Longview Timber wasmanagement agreement for the Twin Creeks Venture in fourth quarter 2017; and continues
$17 million decreased net sales from Other products sold.
These decreases were partially offset by a $72 million increase in Western log sales attributable to be a supplier13 percent increase in Western log sales realizations, partially offset by a 4 percent decrease in delivered logs sales volumes.
Intersegment Sales
Intersegment sales increased $40 million — 5 percent — primarily due to
our Wood Products segment and thosean increase in Western log sales
are shown in intersegment sales. More information on this transaction can be found in Note 4: Acquisitions in the Notes to Consolidated Financial Statements.realizations, as explained above.
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 40
Costs of Sales
Costs of sales increased $9 million — less than 1 percent — primarily due to increased sourcing costs, driving a $96 million increase in the West, an $18 million increase in our Canadian operations and a $6 million increase in the South.
Operating Income and Net Contribution to Earnings
COMPARING 20152017 WITH 20142016
Net Sales — Unaffiliated Customers
Net sales to unaffiliated customers decreased $147increased $137 million — 10 percent — primarily due to a $142 million decrease in Western log sales as a result of lower average sales realizations and export sales volumes, and a $16 million decrease in Southern log sales due to lower sales volumes.
Intersegment Sales
Intersegment sales decreased $37 million — 4 percent — primarily due to a $20 million decrease in Canada due to lower translated revenues as a result of the strengthening U.S. dollar, and a $17 million decrease in the United States due to lower Southern log sales volumes and decreased Western average realizations.
Net contribution to earnings
Net contribution to earnings decreased $64 million — 108 percent — primarily due to:
lower averagea $50 million increase in Southern log sales realizationsattributable to a 12 percent increase in the West — $106 million and
lowerdelivered logs sales volumes, in the West and South — $46 million.
These decreases were partially offset by:by a 3 percent decrease in Southern log prices;
lower operating costs, primarily due to lower logging and silviculture costs in the South and lower log purchases in the West — $68 million;
higher average sales realizations in the South — $13 million; and
lower selling, general and administrative expenses — $11 million.
COMPARING 2014 WITH 2013
Net Sales — Unaffiliated Customers
Net sales to unaffiliated customers increased $154 million — 11 percent — primarily due to a $144$50 million increase in Western log sales dueattributable to higher log prices from our legacy Western timberlands and a 1712 percent increase in Western log prices, partially offset by a 6 percent decrease in delivered logs sales volumes including thevolumes;
a $25 million increase relatedin Other products, primarily attributable to the acquired Longview Timber holdings.increased chips sales to unaffiliated customers (prior to our 2016 divestitures of our Cellulose Fibers businesses, chips sales were primarily intersegment sales); and
Intersegment Sales
Intersegment sales increased $68a $21 million — 9 percent — increase in Other delivered logs, primarily due to:
higherto a 55 percent increase in delivered logs sales volume in the United States including the increase related to acquired Longview Timber holdings, and higher log prices in our legacy Western and Southern timberlands — $58 million; and
higher log and chip sales volumes in Canada — $10 million.
Net contribution to earningsvolumes.
Net contribution to earnings increased $143 million — 30 percent — primarily due to:
an $87 million increase as a result of owning Longview Timber for a full year;
a $59 million increase due to higher log prices in our legacy Western timberlands and Southern timberlands;
a $20 million increase due to higher sales volumes in our legacy Western timberlands; and
a $12 million decrease in selling, general and administrative expenses, excluding Longview Timber.
Intersegment Sales
Costs of Sales
Costs of sales decreased $11 million — 1 percent — primarily due to:
a $16 million decrease in the West, attributable to a decrease in delivered logs sales volumes.
These decreases were partially offset by a $19 million increase in operating costsCanada primarily attributable to an increase in delivered logs sales volumes.
Operating Income and Net Contribution to Earnings
Operating income and net contribution to earnings increased $33 million — 7 percent — primarily due to:
a $70 million increase in gross margin, as explained above.
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 41
REAL ESTATE, ENERGY AND NATURAL RESOURCES
HOW WE DID IN 2018
Net Sales and Net Contribution to Earnings for Real Estate, Energy and Natural Resources
|
| | | | | | | | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| | | | AMOUNT OF CHANGE | |
| 2018 |
| 2017 |
| 2016 |
| 2018
vs.
2017 |
| 2017
vs.
2016 |
|
| Net sales to unaffiliated buyers: | | | | | |
| Real estate | $ | 229 |
| $ | 208 |
| $ | 172 |
| $ | 21 |
| $ | 36 |
|
| Energy and natural resources | 77 |
| 72 |
| 54 |
| 5 |
| 18 |
|
| Subtotal sales to unaffiliated buyers | 306 |
| 280 |
| 226 |
| 26 |
| 54 |
|
| Intersegment sales | 1 |
| 1 |
| 1 |
| — |
| — |
|
| Total segment sales | $ | 307 |
| $ | 281 |
| $ | 227 |
| $ | 26 |
| $ | 54 |
|
| Costs of sales | $ | 155 |
| $ | 110 |
| $ | 134 |
| $ | 45 |
| $ | (24 | ) |
| Operating income | $ | 126 |
| $ | 145 |
| $ | 53 |
| $ | (19 | ) | $ | 92 |
|
| Interest income and other | 1 |
| 1 |
| 2 |
| — |
| (1 | ) |
| Net contribution to earnings | $ | 127 |
| $ | 146 |
| $ | 55 |
| $ | (19 | ) | $ | 91 |
|
The timing 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 to obtain entitlements,
the ability of buyers to obtain financing,
the number of competing properties listed for sale,
the seasonal nature of sales (particularly in the northern states),
the plans of adjacent landowners,
our expectations of future price appreciation,
the timing of harvesting activities, and
the availability of government and not-for-profit funding (especially for conservation sales).
In any period, the average sales price per acre will vary based on the location and physical characteristics of parcels sold.
COMPARING 2018 WITH 2017
Net Sales — Unaffiliated Buyers
Net sales to unaffiliated buyers increased $26 million — 9 percent — primarily attributable to increased acres sold, partially offset by a decrease in the average price per acre sold.
Costs of Sales
Costs of sales increased $45 million — 41 percent — primarily attributable to an increase in acres sold, as discussed above, as well as a higher per acre basis of real estate sold due to the regional mix of properties sold.
Net Contribution to Earnings
Net contribution to earnings decreased $19 million — 13 percent — attributable to the decrease in gross margin, discussed above.
COMPARING 2017 WITH 2016
Net Sales — Unaffiliated Buyers
Net sales to unaffiliated buyers increased $54 million — 24 percent — primarily due to:
a $36 million increase in net real estate sales primarily attributable to an 18 percent increase in volume of timberlands acres sold; and
a $18 million increase in net energy and natural resources sales primarily attributable to the increased operations acquired during our merger with Plum Creek. Our 2017 operations include a full twelve months of combined operations as compared to ten months of combined operations in 2016. The increase is further attributable to increases in royalties.
Costs of Sales
Costs of sales decreased $24 million — 18 percent — primarily due to the mix of properties sold in 2017 compared to 2016.
Net Contribution to Earnings
Net contribution to earnings increased $91 million — 165 percent — primarily due to increased gross margin discussed above. Additionally, our 2016 results include a $15 million asset impairment charge recorded for development projects. No comparable impairment charges were recorded within this segment during 2017.
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K42
WOOD PRODUCTS
HOW WE DID IN 20152018
Net Sales and Net Contribution to Earnings for Wood Products
| | DOLLAR AMOUNTS IN MILLIONS | | | AMOUNT OF CHANGE | | | AMOUNT OF CHANGE | |
| 2015 |
| 2014 |
| 2013 |
| 2015
vs.
2014 |
| 2014
vs.
2013 |
| 2018 |
| 2017 |
| 2016 |
| 2018
vs.
2017 |
| 2017
vs.
2016 |
|
| Net sales: | | | | | | |
| Structural lumber | $ | 1,741 |
| $ | 1,901 |
| $ | 1,873 |
| $ | (160 | ) | $ | 28 |
| $ | 2,258 |
| $ | 2,058 |
| $ | 1,839 |
| $ | 200 |
| $ | 219 |
|
| Oriented strand board | | 891 |
| 904 |
| 707 |
| (13 | ) | $ | 197 |
|
| Engineered solid section | 428 |
| 402 |
| 353 |
| 26 |
| 49 |
| 521 |
| 500 |
| 450 |
| 21 |
| 50 |
|
| Engineered I-joists | 284 |
| 277 |
| 247 |
| 7 |
| 30 |
| 336 |
| 336 |
| 290 |
| — |
| 46 |
|
| Oriented strand board | 595 |
| 610 |
| 809 |
| (15 | ) | (199 | ) | |
| Softwood plywood | 129 |
| 143 |
| 144 |
| (14 | ) | (1 | ) | 200 |
| 176 |
| 174 |
| 24 |
| 2 |
|
| Other products produced | 189 |
| 176 |
| 171 |
| 13 |
| 5 |
| |
| Medium density fiberboard | | 177 |
| 183 |
| 158 |
| (6 | ) | 25 |
|
Other products produced (1) | | 288 |
| 276 |
| 201 |
| 12 |
| 75 |
|
| Complementary building products | 506 |
| 461 |
| 412 |
| 45 |
| 49 |
| 584 |
| 541 |
| 515 |
| 43 |
| 26 |
|
| Total | $ | 3,872 |
| $ | 3,970 |
| $ | 4,009 |
| $ | (98 | ) | $ | (39 | ) | |
| Net contribution to earnings | $ | 258 |
| $ | 327 |
| $ | 441 |
| $ | (69 | ) | $ | (114 | ) | |
| Total segment sales | | $ | 5,255 |
| $ | 4,974 |
| $ | 4,334 |
| $ | 281 |
| $ | 640 |
|
| Costs of sales | | $ | 4,186 |
| $ | 3,880 |
| $ | 3,688 |
| $ | 306 |
| $ | 192 |
|
| Operating income and Net contribution to earnings | | $ | 838 |
| $ | 569 |
| $ | 512 |
| $ | 269 |
| $ | 57 |
|
| (1) Includes wood chips and other byproducts. | | (1) Includes wood chips and other byproducts. |
COMPARING 20152018 WITH 20142017
Net Sales
Net sales decreased $98increased $281 million — 26 percent — primarily due to an 11 percent decrease into:
$200 million increased structural lumber sales attributable to a 9 percent increase in average sales realizations and a 91 percent increase in sales volumes;
$43 million increased complementary building products sales due to higher realizations;
$24 million increased softwood plywood sales due to a 12 percent increase in realizations;
$21 million increased engineered solid section attributable to an 8 percent increase in average sales realizations, partially offset by a 3 percent decrease in OSBsales volumes; and
$12 million increased other products produced due to a 4 percent increase in chip sales.
These increases were partially offset by a $13 milliondecrease in oriented strand board sales primarily attributable to a 5 percent decrease in sales volumes, partially offset by a 4 percent increase in average sales realizations.
These decreases were partially offset by:
higherAs described in Economic and Market Conditions Affecting Our Operations, pricing for wood products, especially within the structural lumber and oriented strand board product lines, has experienced heightened volatility during 2018. The sales volumesrealizations discussed above reflect full year averages for each period.Costs of Sales
Costs of sales increased $306 million — 38 percent — primarily attributable to increased log and fiber costs across all product lines in the West and Canada.
higher OSB sales volumes — 7 percent,
higher engineered solid section sales volumes — 6 percentOperating Income and
higher sales of complementary building products — 10 percent.
Net Contribution to Earnings
NetOperating income and net contribution to earnings decreased $69increased $269 million — 21 percent — primarily due to:
lower average sales realizations in lumber and OSB — $258 million and
pretax restructuring charges related to the closure of four distribution centers — $8 million.
These decreases were partially offset by:
lower unit manufacturing costs due to lower resin and other input costs, higher operating rates, and lower translated Canadian operating costs due to the strengthening of the U.S. dollar — $96 million;
lower log costs due to decreasing log prices and lower translated Canadian costs due to the strengthening of the U.S. dollar— $45 million;
lower general and administrative expenses — $28 million;
lower freight costs due to declining fuel prices — $18 million and
higher sales volumes across most product lines — $17 million.
COMPARING 2014 WITH 2013
Net Sales
This increase was partially offset by the change in gross margin, as discussed above.
COMPARING 2017 WITH 2016
Net Sales
Net sales increased $640 million — 15 percent — primarily due to:
a $219 million increase in structural lumber sales, attributable to a 13 percent increase in average sales realizations, partially offset by a 1 percent decrease in OSB average sales realizations.volumes;
This decrease was partially offset by:
higher engineered solid section shipment volumes — 10a $197 million increase in oriented strand board sales, attributable to a 26 percent andincrease in average sales realizations — 4 percent;
higher sales of complementary building products — 12 percent;
higher engineered I-joists average sales realizations — 8 percent, and shipment volumes — 4 percent; and
higher structural lumber average sales realizations —as well as a 1 percent and shipment volumes — 1 percent.increase in sales volumes;
Net Contribution to Earnings
Net contribution to earnings decreased $114 million — 26 percent —primarily due to:
lower OSB sales realizations — $204 million and
higher log costs — $47 million.
These decreases were partially offset by:
lower lumber manufacturing costs primarily due to aggressive cost control — $40 million;
higher average sales realizations in engineered wood products and lumber — $35 million;
higher margins in our distribution business — $31 million;
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K42
lower selling, general and administrative expenses — $15 million;
higher shipment volumes primarily in engineered wood products and our distribution business — $10 million; and
an impairment charge in 2013 related to the decision to permanently close an engineered wood products facility — $9 million.
CELLULOSE FIBERS
HOW WE DID IN 2015
Here is a comparison of net sales and net contribution to earnings for the last three years:
Net Sales and Net Contribution to Earnings for Cellulose Fibers
|
| | | | | | | | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| | | | AMOUNT OF CHANGE | |
| 2015 |
| 2014 |
| 2013 |
| 2015
vs.
2014 |
| 2014
vs.
2013 |
|
| Net sales: | | | | | |
| Pulp | $ | 1,499 |
| $ | 1,559 |
| $ | 1,501 |
| $ | (60 | ) | $ | 58 |
|
| Liquid packaging board | 305 |
| 310 |
| 326 |
| (5 | ) | (16 | ) |
| Other products | 56 |
| 67 |
| 75 |
| (11 | ) | (8 | ) |
| Total | $ | 1,860 |
| $ | 1,936 |
| $ | 1,902 |
| $ | (76 | ) | $ | 34 |
|
| Net contribution to earnings: | | | | $ | — |
| $ | — |
|
| Operating income | $ | 224 |
| $ | 292 |
| $ | 197 |
| (68 | ) | 95 |
|
| Gain (Loss) from equity affiliates | (105 | ) | 1 |
| 3 |
| (106 | ) | (2 | ) |
| Total | $ | 119 |
| $ | 291 |
| $ | 200 |
| $ | (172 | ) | $ | 91 |
|
COMPARING 2015 WITH 2014
Net Sales
Net sales decreased $76 million — 4 percent — primarily due to the following:
pulp average sales realizations decreased $31 per ton — 4 percent;
liquid packaging board average sales realizations decreased $48 per ton — 4 percent; and
other products sales volumes decreased 12 percent.
These decreases were partially offset by increased sales volumes for liquid packaging board of 2 percent.
Net Contribution to Earnings
Net contribution to earnings decreased $172 million — 59 percent — primarily due to:
losses from an equity affiliate — $105 million — primarily due to an $84 million noncash asset impairment recorded in the fourth quarter 2015;
lower pulp average sales realizations — $58 million;
higher operating costs primarily due to scheduled maintenance outages and the West Coast port slowdown — $46 million;
lower liquid packaging board average sales realizations — $18 million; and
higher fiber costs — $13 million.
These decreases were partially offset by:
lower energy and chemical costs — $28 million,
lower translated Canadian operating costs due to the strengthening of the U.S. dollar — $27 million and
lower selling, general and administrative expenses — $10 million.
COMPARING 2014 WITH 2013
Net Sales
Net sales increased $34 million — 2 percent — primarily due to increased sales realizations for pulp of $50 per ton — 6 percent and liquid packaging board of $61 per ton — 6 percent.
This was partially offset by decreased sales volumes for pulp of 2 percent and liquid packaging board of 10 percent.
Net Contribution to Earnings
Net contribution to earnings increased $91 million — 46 percent — primarily due to:
higher pulp and liquid packaging board sales realizations — $108 million and
lower translated Canadian operating costs due to the strengthening of the U.S. dollar — $14 million.
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 43
These increases were partially offset by:
higher energy costs primarily due to reduced electricity sales and higher fuel prices — $13 million and
higher maintenance costs due to a scheduled machine rebuild in our liquid packaging board facility and pulp planned maintenance outages — $13 million.
UNALLOCATED ITEMS
Unallocated Items are gains or charges not related to or allocated to an individual operating segment. They include a portion of items such as: share-based compensation, pension and postretirement costs, foreign exchange transaction gains and losses associated with financing, and the elimination of intersegment profit in inventory and the LIFO reserve.
Net Contribution to Earnings for Unallocated Items
|
| | | | | | | | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| | | | AMOUNT OF CHANGE | |
| 2015 |
| 2014 |
| 2013 |
| 2015
vs.
2014 |
| 2014
vs.
2013 |
|
| Unallocated corporate function expenses | $ | (27 | ) | $ | (24 | ) | $ | (38 | ) | $ | (3 | ) | $ | 14 |
|
| Unallocated share-based compensation | 6 |
| (9 | ) | (8 | ) | 15 |
| (1 | ) |
| Unallocated pension and postretirement credits (costs) | 11 |
| 196 |
| (40 | ) | (185 | ) | 236 |
|
| Foreign exchange gains (losses) | (47 | ) | (27 | ) | (7 | ) | (20 | ) | (20 | ) |
| Elimination of intersegment profit in inventory and LIFO | 10 |
| (10 | ) | 15 |
| 20 |
| (25 | ) |
| Other | (65 | ) | (38 | ) | (392 | ) | (27 | ) | 354 |
|
| Operating income (loss) | (112 | ) | 88 |
| (470 | ) | (200 | ) | 558 |
|
| Interest income and other | 36 |
| 38 |
| 48 |
| (2 | ) | (10 | ) |
| Net contribution to earnings | $ | (76 | ) | $ | 126 |
| $ | (422 | ) | $ | (202 | ) | $ | 548 |
|
Unallocated Items in 2015 include:
| |
| • | $13a $75 million noncash impairment charge recognizedincrease in first quarter 2015other products produced, primarily attributable to increased chip sales. Chips were previously sold to our former Cellulose Fibers segment and were therefore considered intersegment sales until the sale of our Cellulose Fibers businesses which occurred in the second half of 2016. Upon completion of these divestitures, chips sold to those businesses were considered sales to unaffiliated customers. (Refer to Note 4: Discontinued Operations and Other Divestitures in the Notes to Consolidated Financial Statements for further details regarding these divestitures.); |
a $50 million increase in engineered solid section, primarily attributable to an 8 percent increase in sales volumes as well as a 3 percent increase in average sales realizations; and
a $46 million increase in engineered I-joists, primarily attributable to a 13 percent increase in sales volume as well as a 3 percent increase in average sales realizations.
Costs of Sales
Costs of sales increased $192 million — 5 percent — primarily attributable to an overall increase in sales volumes, as discussed above. This increase was offset by the mix of products sold during 2017 compared to 2016.
Operating Income and Net Contribution to Earnings
Operating income and net contribution to earnings increased $57 million — 11 percent — primarily due to increased gross margin, as discussed above. This was partially offset by:
a $68 million decrease in intersegment sales in 2017 compared to 2016, which is primarily attributable to decreased intersegment chip sales. Prior to our divestitures of our former Cellulose Fibers business, which occurred in the second half of 2016, chips sold to these businesses were considered intersegment sales. Upon completion of these divestitures, chips sold to our former Cellulose Fibers businesses were considered sales to unaffiliated customers.
| |
| • | a $7 million increase in other operating costs, net, related to countervailing and anti-dumping duties. Refer to Softwood Lumber Agreement for further information regarding these regulations. |
| |
• | $14 million Plum Creek merger-related costs which are recorded in "Other" above and "Other operating income, net" in our Consolidated Statement of Operations.
UNALLOCATED ITEMS Unallocated Items are gains or charges related to company level initiatives or previous businesses that are not allocated to our current business segments. They include a portion of items such as: share-based compensation, pension and postretirement costs, elimination of intersegment profit in inventory and LIFO, foreign exchange transaction gains and losses resulting from changes in exchange rates primarily related to our U.S. dollar denominated cash and debt balances that are held by our Canadian subsidiary, interest income and other, and legacy obligations, such as environmental remediation and workers compensation. Net Contribution to Earnings for Unallocated Items | | | | | | | | | | | | | | | | | | DOLLAR AMOUNTS IN MILLIONS | | | | | AMOUNT OF CHANGE | | | 2018 |
| 2017 |
| 2016 |
| 2018
vs.
2017 |
| 2017
vs.
2016 |
| Unallocated corporate function and variable compensation expense
| $ | (84 | ) | $ | (73 | ) | $ | (87 | ) | $ | (11 | ) | $ | 14 |
| | Liability classified share-based compensation | 10 |
| (9 | ) | (3 | ) | 19 |
| (6 | ) | | Foreign exchange gain (loss) | 3 |
| 1 |
| 6 |
| 2 |
| (5 | ) | | Elimination of intersegment profit in inventory and LIFO | 6 |
| (20 | ) | (18 | ) | 26 |
| (2 | ) | | Charges for integration and restructuring, closures and asset impairments | — |
| (34 | ) | (148 | ) | 34 |
| 114 |
| | Other | (88 | ) | 20 |
| 8 |
| (108 | ) | 12 |
| | Operating income (loss) | $ | (153 | ) | $ | (115 | ) | $ | (242 | ) | $ | (38 | ) | $ | 127 |
| | Non-operating pension and other postretirement benefit credits (costs) | (272 | ) | (62 | ) | 48 |
| (210 | ) | (110 | ) | | Interest income and other | 59 |
| 39 |
| 63 |
| 20 |
| (24 | ) | | Net contribution to earnings | $ | (366 | ) | $ | (138 | ) | $ | (131 | ) | $ | (228 | ) | $ | (7 | ) |
|
Unallocated Items in 20142018 include:
$39 million in charges related to our selling, general and administrative cost reduction initiative which is recorded in "Other" above.
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K44
Unallocated Items in 2017 include:
an increase in expense related to non-operating pension and other postretirement benefit credits (costs) due to a decrease in the expected return on our plan assets as well as an increase in the amortization of actuarial losses — $110 million;
a benefit in other primarily related to environmental remediation insurance recoveries received in 2017 — $42 million; and
Unallocated Items in 2016 include:
an increase in unallocated corporate function expenses primarily as a result of retaining costs allocated to our former Cellulose Fibers segment — $23 million; and
| |
| • | a gain related to the sale of our Federal Way, Washington headquarters campus, which is recorded in other operating costs (income), net in our Consolidated Statement of Operations – $36 million. |
INTEREST EXPENSE
Our net interest expense incurred for the last three years was:
$347375 million in 20152018,
$344393 million in 20142017 and
$369431 million in 20132016.
There were no changes in our amount of outstanding debt during 2015 and 2014. Our outstanding debt balane increased $600 million during 2013.
Interest expense in 2013 includes $11decreased by $18 million in fees related2018 as compared to 2017 primarily due to a bridge loan we did not draw fromdecrease in the acquisition of Longview Timberaverage outstanding long-term and $25 millioncurrent debt balance in pretax losses on early extinguishment of debt.2018 compared to 2017.
INCOME TAXES
As a REIT, we generally are not subject to federal corporate level income taxes on REIT taxable income that is distributed to shareholders. Historical distributions to shareholders, including amounts and tax characteristics, for the years ended December 31 are summarized in the table below.
|
| | | | | | | | | |
| AMOUNTS PER SHARE |
| 2018 |
| 2017 |
| 2016 |
|
| Preference - capital gain distribution | $ | — |
| $ | — |
| $ | 1.59 |
|
| Common - capital gain distribution | $ | 1.32 |
| $ | 1.25 |
| $ | 1.24 |
|
The table below summarizes the items of tax preference for alternative minimum tax (AMT) purposes which have been apportioned to shareholders for the years ended December 31. The recently enacted Tax Cuts and Jobs Act (Tax Act) (see below) eliminated the corporate alternative minimum tax adjustment to shareholders beginning with the 2018 tax year.
|
| | | | | | | | | |
| AMOUNTS PER SHARE |
| | 2018 |
| 2017 |
| 2016 |
|
| Preference - AMT | $ | — |
| $ | — |
| $ | 0.0120 |
|
| Common - AMT | $ | — |
| $ | 0.0097 |
| $ | 0.0094 |
|
On December 22, 2017, H.R. 1, commonly known as the Tax Cuts and Jobs Act (Tax Act), was enacted. The Tax Act contains significant changes to corporate taxation, including the reduction of the corporate tax rate from 35 percent to 21 percent, increased deductions for capital spending and limitations on interest expense deductions. The Tax Act does not affect our REIT status or the provisions that allow us to pay capital gain dividends to our shareholders.
As a result of the reduction in the corporate tax rate, we revalued our deferred tax assets and liabilities and recorded a tax expense of $74 million during 2017, which reduced our net deferred tax asset.
Our provision (benefit) for income taxes for our continuing operations over the last three years was:
$(3)59 million in 20152018,
$185134 million in 20142017 and
$(171)89 million in 20132016.
During 2015, our provision for income taxes decreased $188 million as compared with 2014, primarily due to lower earnings in our TRS in 2015. We also2018, we recorded a $13$41 million tax benefit for the expiration of the company’s built-in-gainsrelated to contributions made to our pension plan and deducted on our 2017 U.S. federal tax period duereturn and a $21 million tax charge related to a change in tax law in the fourth quarter 2015, and a $28 million tax benefit for the reduction in the deferred tax liability associated with an equity affiliate resulting from a non-cash impairment charge recorded by that entity. settlement charge.
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 4445
During 2013,2017, we recorded a $193$22 million tax benefit related to unrecognized tax benefits andthe repatriation of Canadian earnings.
During 2016, we recorded a $21$24 million tax charge related to the repatriation of Canadian earnings.
As a REIT, we generally are not subject to corporate level tax on income of the REIT that is distributed to shareholders. We are no longer subject to corporate taxes on built-in-gains (the excess of fair market value over tax basis at January 1, 2010) due to a change in tax law in the fourth quarter 2015, which statutorily shortened the built-in-gains tax period from 10 years to 5 years following the REIT conversion. We continue to be required to pay federal corporate income taxes on earnings of our TRS, which includes our manufacturing businesses and the portion of our timberlands segment income included in the TRS.
The table below summarizes the historical tax characteristics of distributions to shareholders for the years ended December 31:
|
| | | | | | | | | |
| AMOUNTS PER SHARE |
| 2015 |
| 2014 |
| 2013 |
|
| Preference - capital gain distribution | $ | 3.19 |
| $ | 3.19 |
| $ | 1.66 |
|
| Common - capital gain distribution | $ | 1.20 |
| $ | 1.02 |
| $ | 0.81 |
|
|
|
| LIQUIDITY AND CAPITAL RESOURCES |
We are committed to maintaining a sound, conservativean appropriate capital structure that enables us to:
protect the interests of our shareholders and lenders and
have access at all times to major financial markets.
CASH FROM OPERATIONS
Cash from operations includes:
cash received from customers;
cash paid to employees and suppliers;
cash paid for interest on our debt; and
cash paid or received for taxes.
Consolidated net cash provided by our operations was:
$1,0641,112 million in 2015,
2018,$1,0881,201 million in 20142017 and
$1,004735 million in 20132016 (includes continuing and discontinued operations).
COMPARING 20152018 WITH 2014
Net cash provided by operations decreased $24 million in 2015 as compared with 2014, primarily due to:
Cash received from customers decreased $296 million as sales decreased in our Timberlands, Wood Products, and Cellulose Fibers segments.
Net cash outflows related to income taxes decreased $66 million. We paid income taxes of $14 million in 2015 and received tax refunds of $52 million in 2014.
Cash paid for interest increased $28 million, primarily due to interest received related to tax refunds in 2014.
These outflows were partially offset by a $393 million decrease in cash paid to employees and suppliers.
COMPARING 2014 WITH 20132017
Net cash provided by our operations increased $84 million in 2014 as compared with 2013, primarily due to:
Cash received from customers increased $180 million as sales increased in our Timberlands and Cellulose Fibers segments.
Net cash inflows related to income taxes increased $70 million. We received income tax refunds of $52 million in 2014 and paid $18 million in 2013.
COMPARING 2017 WITH 2016
Net cash provided by our operations increased $466 million, primarily due to:
a decrease in cash paid for income taxes of debt$316 million, which is primarily attributable to taxes paid in 2013.connection with our divestitures of our former Cellulose Fibers businesses during 2016;
a decrease in cash paid for interest of $65 million corresponding with our decreased average indebtedness during 2017 compared to 2016; and
increased cash flows from our business segments.
These inflowsitems were partially offset by a $189 million increase inby:
decreased operating cash paid to employeesflows from discontinued operations of $196 million; and suppliers primarily due to increased production and the acquisition of Longview Timber.
Pension Contributions and Benefit Payments Made and Expected
During 20152018, we:
we contributed $33a total of $381 million for to our Canadian registered plan in accordance with minimum funding rulespension and respective provincial regulations;
contributed to or made benefit payments for our Canadian nonregistered pensionpostretirement plans, including a voluntary contribution of $3 million;
made benefit payments of $24$300 million for our U.S. nonqualified pension plans; and
made benefit payments of $23 million for our U.S. and Canadian other postretirement plans.
There was no minimum required contribution for our U.S. qualified plan for 2015, nor were any contributions made to this plan in 2015.
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K45
During 2016, based on estimated year-end assets and projections of plan liabilities, we expect to:
be required to contribute approximately $16 million for our Canadian registered plan;
be required to contribute or make benefit payments for our Canadian nonregistered plans of $3 million;
make benefit payments of $19 million for our U.S. nonqualified pension plans; and
make benefit payments of $22 million for our U.S. and Canadian other postretirement plans.
INVESTING IN OUR BUSINESS
Cash from investing activities includes:
acquisitions of property, equipment, timberlands and reforestation;
investments in or distribution from equity affiliates;reforestation and
proceeds from sale of assets and operations; and
purchases and redemptions of short-term investments.operations.
Consolidated net cash provided by (used in) investing activities was:
$(487)(440) million in 2015,
2018,$361367 million in 20142017 and
$(1,829)2,559 million in 2016 (includes continuing and discontinued operations).
WEYERHAEUSER COMPANY > 20132018 ANNUAL REPORT AND FORM 10-K.46
COMPARING 20152018 WITH 2014
Net cash from investing activities changed $848 million to an outflow in 2015 as compared with an inflow in 2014, primarily due to:
net proceeds from the Real Estate Divestiture, net of cash divested in 2014; and
higher capital spending in 2015.
COMPARING 2014 WITH 20132017
Net cash from investing activities changed $2,190decreased by $807 million to an inflow in 2014 as compared with an outflow in 2013, primarily due to:
the acquisition$57 million cash outflow for acquisitions of Longview Timbertimberlands during 2018; and
$22 million decrease in 2013;proceeds received from sales of nonstrategic assets.
COMPARING 2017 WITH 2016
Net cash from investing activities decreased $2.2 billion primarily due to:
a decrease of $78 million in proceeds from the Real Estate Divestiture, netsales of cash divestednonstrategic assets.
This activity was partially offset by:
| |
| • | $311 million in combined proceeds from the sale of land in our Southern timberlands region to Twin Creeks as well as the redemption of our ownership interest in Twin Creeks, both of which occurred during fourth quarter 2017 (refer to Note 9: Related Parties in the Notes to Consolidated Financial Statements for further details); and |
a $91 million decrease in 2014; and
higher capital spending in 2014.
LONGVIEW TIMBER PURCHASE
On July 23, 2013, we purchased 100 percent of the equity interests in Longview Timber LLC (Longview Timber) for $1.58 billion cash and assumed debt of $1.07 billion, for an aggregate purchase price of $2.65 billion. More information can be found in Note 4: Acquisitions in the Notes to Consolidated Financial Statements and the "Cash from financing activities" section below.REAL ESTATE DIVESTITURE
At the close of the Real Estate Divestiture in July 2014, WRECO used $744 million of the debt proceeds to repay intercompany debt and interest to Weyerhaeuser Company. The newly issued debt, remaining proceeds and other WRECO assets and liabilities, including $5 million cash on hand, were acquired by TRI Pointe Homes, Inc. (TRI Pointe) when WRECO became a wholly-owned subsidiary of TRI Pointe at the closing of the transaction. Additionally, $32 million relatedexpenditures primarily attributable to the adjustment amount payable pursuant to the termsdivestiture of the transaction agreement was paid to TRI Pointe. Our net cash proceedsour Cellulose Fibers business in connection with the Real Estate Divestiture totaled $707 million. More information can be found in Note 3: Discontinued Operations and the "Cash from Financing Activities" section below.2016.
Three-Year Summary of Capital Spending by Business Segment
| | DOLLAR AMOUNTS IN MILLIONS | | 2015 |
| 2014 |
| 2013 |
| 2018 |
| 2017 |
| 2016 |
|
| Timberlands | $ | 75 |
| $ | 74 |
| $ | 73 |
| $ | 117 |
| $ | 115 |
| $ | 116 |
|
| Real Estate & ENR | | — |
| 2 |
| 1 |
|
| Wood Products | 287 |
| 190 |
| 113 |
| 306 |
| 299 |
| 297 |
|
| Cellulose Fibers | 118 |
| 123 |
| 92 |
| |
| Unallocated Items | 3 |
| 4 |
| 5 |
| 4 |
| 3 |
| 11 |
|
| Discontinued operations | — |
| 4 |
| 10 |
| — |
| — |
| 85 |
|
| Total | $ | 483 |
| $ | 395 |
| $ | 293 |
| $ | 427 |
| $ | 419 |
| $ | 510 |
|
We expect our net capital expenditures for 20162019 to be down slightly compared to 2015, subject to the outcome of the strategic review of the Cellulose Fibers business and our transaction with Plum Creek.approximately $400 million. The amount we spend on capital expenditures could change due to:
future economic conditions,
environmental regulations,
changes in the composition of our business,
weather and
timing of equipment purchases.
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K46
NOTE RECEIVABLE
In 2014, we received $25 million in full payment of a note receivable and interest of $7 million made in connection with the divestiture of our hardwoods operations in 2011, which is recorded in "Other" in the "Cash flows from investing activities" in our Consolidated Statement of Cash Flows.VARIABLE INTEREST ENTITIES
In 2013, we repaid a $162 million note and received $184 million related to one of our timber monetization special-purpose entities (SPEs) undertaken in 2003. Net proceeds were $22 million. More information about these entities, which were formed in connection with the sale of nonstrategic timberlands in 2003, can be found in Note 10: Variable Interest Entities in the Notes to Consolidated Financial Statements and our annual report on Form 10-K for 2003.EQUITY AFFILIATES
PROCEEDS FROM THE SALE OF NONSTRATEGIC ASSETS
Proceeds received from the sale of various nonstrategic assets over the last three years were:
$28 million in 2014 and
FINANCING
Cash from financing activities includes:
issuances and payments of long-term debt,
borrowings and payments under revolving lines of credit,
changes in book overdrafts,
proceeds from stock offerings and option exercises and
payments offor cash dividends and repurchasing stock.
Consolidated net cash provided by (used in)used in financing activities was:
$(1,145)1,162 million in 20152018,
$(704)1,420 million in 20142017 and
$7623,630 million in 20132016 (includes continuing and discontinued operations).
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K47
COMPARING 20152018 WITH 20142017
Net cash used in financing activities increased $441decreased $258 million in 2015, primarily due to an increase in share repurchases and common stock dividends. This was partially offset by a decrease in stock option exercises.
COMPARING 2014 WITH 2013
Net cash provided by financing activities changed $1,466 million to an outflow in 2014 as compared with an inflow in 2013,2018, primarily due to the following:
$769 million decrease in cash paid for long-term debt; and
$425 million increase in net cash received related to borrowings on our line of credit. No borrowings on our line of credit were paid in 2018.
These were offset by the following:
$366 million cash used to repurchase common shares in 2018 with no similar activity in 2017;
$225 million cash proceeds from issuance of common and preference shares andlong-term debt received in 2013. This was partially offset by a decrease2017 with no similar activity in 2018;
$209 million payments on debt and share repurchasesheld by variable interest entities in 2014. We had no payments on debt in 20142018;
$76 million decreased cash received from exercise of stock options; and $1,567
$54 million in 2013. We repurchased $203 millionincreased cash used for payment of shares in 2014 and none in 2013.
LONGVIEW TIMBER PURCHASEdividends.
COMPARING 2017 WITH 2016
Net cash used in financing activities decreased $2,210 million in 2017, primarily due to:
a decrease of $2,003 million related to cash used to repurchase common shares on June 24, 2013, at the priceduring 2016; and
a decrease of $27.75 per share for net proceeds of $781 million;
4.4 million common shares on July 8, 2013, at the price of $27.75 per share for net proceeds of $116$1,592 million in connection withcash used for payments on long-term debt.
This activity was partially offset by a $1,473 million decrease in cash received from the exerciseissuance of an overallotment option;new long-term debt.
LONG-TERM DEBT
Our consolidated long-term debt (including current portion) was:
$5.9 billion as of December 31, 2018,
$6.0 billion as of December 31, 2017, and
13.8 million$6.6 billion as of December 31, 2016.
The decrease in our long-term debt during 2018 is attributable to the payment of our 6.375$62 million 7.00 percent Mandatory Convertible Preference Shares, Series A, par value $1.00 and liquidation preferencedebenture at maturity.
The decrease in our long-term debt during 2017 is attributable to the following activity:
We prepaid a $550 million variable-rate term loan during July 2017, which was originally set to mature in 2020 (2020 term loan). The 2020 term loan was repaid using available cash of $50.00 per share on June 24, 2013, for net$325 million as well as borrowing proceeds of $669 million.from a new $225 million variable-rate term loan set to mature in 2026.
We paid $11our $281 million in fees related to a bridge loan in 2013, which is recorded in "Other" in the "Cash flows from financing activities" in our Consolidated Statement of Cash Flows. As of the close of the Longview Timber purchase, we did not draw from the loan and these fees were expensed in 2013.6.95 percent debenture during August 2017. In order to repay the debt that we assumed in the acquisition of Longview Timber, in 2013 we issuedWe have $500 million of 4.625 percent notes duelong-term debt scheduled to mature during fourth quarter 2019.
REVOLVING CREDIT FACILITIES
During March 2017, we entered into a $550 million 7-year$1.5 billion five-year senior unsecured term loanrevolving credit facility maturingthat expires in March 2022. This replaced a $1 billion senior unsecured revolving credit facility that was set to expire September 2020 and borrowed $550 million.2018. Borrowings are at LIBOR plus a spread or at other interest rates mutually agreed upon between the borrower and the lending banks.
On October 15, 2013, As of December 31, 2018, we repaidhad $425 million of outstanding borrowings on the $1,118 million carrying value of the debt that we assumed in the acquisition of Longview Timber and related fees, expenses and premiums using the proceeds from the notes issued and the borrowings from our term loanrevolving credit facility borrowed in 2013. A pretax charge of $25and had an additional $1,075 million was included in our net interest expense in 2013, for early retirement premiums, unamortized debt issuance costs and other miscellaneous charges in connection with the early extinguishment of debt. See Note 4: Longview Timber Purchase in the Notes to Consolidated Financial Statements for more information.
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K47
DEBT
Our consolidated long-term debt was $4.9 billion as of December 31, 2015, December 31, 2014 and December 31, 2013. Long-term debt proceeds were $1,050 million in 2013.
During 2014, our wholly-owned subsidiary, WRECO, issued $450 million of unsecured and unsubordinated senior debt obligations bearing an interest rate of 4.375 percent due June 15, 2019 and $450 million of unsecured and unsubordinated senior debt obligations bearing an interest rate of 5.875 percent due June 15, 2024. The net proceeds were deposited into an escrow account. Upon closure of the transaction, the newly issued debt and remaining proceeds were acquired by TRI Pointe, along with other WRECO assets and liabilities.
available. There were no long-term debt retirements in 2015 and 2014. We retired $409 millionborrowings outstanding as of long-term debt according to its scheduled maturity in 2013. Additionally, we retired $1,158 million of long-term debt in 2013 prior to its scheduled maturity. The loss recognized on early extinguishment of debt and included in our net interest expense was $25 million.
There are no debt maturities in the next twelve months.
REVOLVING CREDIT FACILITIES
During September 2013, Weyerhaeuser Company and WRECO entered into a new $1 billion 5-year senior unsecured revolving credit facility that expires in September 2018. This replaced a $1 billion revolving credit facility that was set to expire June 2015. As of June 16, 2014, WRECO terminated its participation as a borrower in the facility.
There were no net proceeds from the issuance of debt or from borrowings (repayments) under our available credit facility in 2015, 2014 or 2013.
Debt covenants:
As of December 31, 2015, Weyerhaeuser Company:
had no borrowings outstanding under our credit facility and
was2017. We were in compliance with the revolving credit facility covenants.covenants as of December 31, 2018 and December 31, 2017.
Weyerhaeuser Company Covenants:
Key covenants related to Weyerhaeuser Company include the requirement to maintain:
a minimum defined net worthtotal adjusted shareholders' equity of $3.0 billion;billion and
a defined debt-to-total-capital ratio of 65 percent or less; and
ownership of, or long-term leases on, no less than four million acres of timberlands.less.
Weyerhaeuser Company’s defined net worthtotal adjusted shareholders' equity is comprised of:
total Weyerhaeuser shareholders’ interest,equity,
excluding accumulated comprehensive income (loss) related to pension and postretirement benefits,,
minus Weyerhaeuser Company’s investment in our unrestricted subsidiaries.
Total Weyerhaeuser Company capitalization is comprised of:
total Weyerhaeuser Company debt
plus total defined net worth.adjusted shareholders' equity.
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K48
As of December 31, 2015,2018, Weyerhaeuser Company had:
a defined net worthtotal adjusted shareholders' equity of $6.3$9.9 billion and
a defined debt-to-total-capital ratio of 4439.09 percent.
Bank and private note agreements that were assumed by Weyerhaeuser in the merger with Plum Creek were amended to materially conform key covenants with the covenants described above.
When calculating compliance in accordance with financial debt covenants as of December 31, 2017, we excluded the full amount of accumulated other comprehensive loss of $1,562 million. When calculating compliance in accordance with financial debt covenants as of December 31, 2018, we excluded the full amount of accumulated other comprehensive loss of $1,152 million. See Note 16: Shareholder's Interest in the Notes to Consolidated Financial Statements. CREDIT RATINGS
On January 21, 2015, Standard & Poor'sUpon completion of our merger with Plum Creek on February 19, 2016, S&P changed our long-term issuer credit ratings from BBB to BBB-. However, on May 9, 2017, S&P upgraded our long-term issuer credit ratings from BBB- back to BBB and short-term issuerBBB. There were no changes to our credit ratings from A-3 to A-2. On November 9, 2015, Standard & Poor's announced that our credit rating would likely be lowered from BBB to BBB- upon completion of our merger with Plum Creek.
On April 14, 2015, Moody's Investors Service upgraded our long-term issuer credit ratings from Baa3 to Baa2. On June 12, 2014, Moody's Investors Service changed their outlook on our senior unsecured notes to positive. On April 22, 2013, Moody's Investors Service upgraded our senior unsecured note rating to Baa3 from Ba1 and changed their outlook to stable.in 2018.
OPTION EXERCISES
Our cash proceeds from the exercise of stock options were:
$3452 million in 20152018,
$119128 million in 20142017 and
$16261 million in 20132016.
Our average stock price was $31.67, $31.89$33.30, $33.61 and $29.69$30.01 in 20152018, 20142017 and 20132016, respectively.
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K48
DIVIDENDS
We paid cash dividends on commonscommon shares of:
$619995 million in 20152018,
$563941 million in 20142017 and
$458932 million in 20132016.
Changes in the amount of dividends we paid were primarily due to:
an increase in our quarterly dividend from 1732 cents per share to 2034 cents per share in April 2013;
an increase in our quarterly dividend from 20 cents per share to 22 cents per share in August 2013;
an increase in our quarterly dividend from 22 cents per share to 29 cents per share in August 2014;third quarter 2018; and
an increase in our quarterly dividend from 2931 cents per share to 3132 cents per share in August 2015.fourth quarter 2017.
We paid cash dividends on preference shares of $44$22 million in 20152016. As all preference shares were converted to common shares on July 1, 2016, we did not pay any cash dividends on preference shares during 2017 or
85.88were $79.69 cents per share in August 2013February and May 2016.
79.69 cents per share in October 2013; February, April, August and October 2014; and February, May, August and October 2015.
On February 10, 2016, our board of directors declared a dividend of 31 cents per share, payable on March 18, 2016, to shareholders of record at the close of business March 8, 2016. Additionally, our board of directors declared a dividend of 79.69 cents per share on our 6.375 percent Mandatory Convertible Preference Shares, Series A, payable on April 1, 2016, to shareholders of record at the close of business March 15, 2016.
STOCKSHARE REPURCHASES
On August 13, 2014, our board of directors approved a stock repurchase program under which we were authorized to repurchase up to $700We repurchased 11 million of outstanding shares (the 2014 Repurchase Program). The 2014 Repurchase Program replacedfor $366 million (including transaction fees) during the prior 2011 stock repurchase program. During 2014, we repurchased 6,062,993 shares of common stock for $203 millionyear ended December 31, 2018, under the 20142016 Share Repurchase Program. During 2015 we completedAuthorization. We did not repurchase shares during the 2014 Repurchase Program by repurchasing 15,471,962 shares of common stock for $497 million. All common stock purchases under the stock repurchase program were made in open-market transactions.
On August 27, 2015 our board of directors approved a new share repurchase program of up to $500 million on outstanding shares (the 2015 Repurchase Program), commencing upon completion of the 2014 Repurchase Program. During 2015, we repurchased 717,464 shares of common stock for $22 million under the 2015 Repurchase Program. As ofyear ended December 31, 2015 we had remaining authorization of $478 million for future stock repurchases. All common stock purchases under the stock repurchase program2017. There were made in open-market transactions. We had 510,483,285 shares of common stock outstandingno unsettled repurchases as of December 31, 2015.
On November 8, 2015 Weyerhaeuser announced it intends to execute a $2.5 billion2018. For information on share
repurchase shortly after closing the merger with Plum Creek Timber Company, Inc. As of December 31, 2015 no portion of this announced repurchase has been completed. The remaining $478 million authorized for the 2015 Repurchase Program is expected to be used repurchases during 2018, seeNote 16: Shareholders' Interestin the announced post-merger repurchase.
OUR CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K49
Significant Contractual Obligations as of December 31, 20152018
|
| | | | | | | | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| | | | PAYMENTS DUE BY PERIOD | |
| | TOTAL |
| LESS THAN 1 YEAR |
| 1–3 YEARS |
| 3–5 YEARS |
| MORE THAN 5 YEARS |
|
| Long-term debt obligations | $ | 4,896 |
| $ | — |
| $ | 343 |
| $ | 1,050 |
| $ | 3,503 |
|
Interest(1) | 3,380 |
| 321 |
| 619 |
| 554 |
| 1,886 |
|
| Operating lease obligations | 210 |
| 27 |
| 47 |
| 31 |
| 105 |
|
Purchase obligations(2) | 146 |
| 84 |
| 41 |
| 4 |
| 17 |
|
Harvest commitments(3) | 1 |
| — |
| — |
| — |
| 1 |
|
Employee-related obligations(4) | 486 |
| 155 |
| 56 |
| 41 |
| 91 |
|
Liabilities related to unrecognized tax benefits(5) | 7 |
| — |
| — |
| — |
| — |
|
| Total | $ | 9,126 |
| $ | 587 |
| $ | 1,106 |
| $ | 1,680 |
| $ | 5,603 |
|
(1) Amounts presented for interest payments assume that all long-term debt obligations outstanding as of December 31, 2015 will remain outstanding until maturity, and interest rates on variable-rate debt in effect as of December 31, 2015 will remain in effect until maturity. (2) Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding on the company and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Purchase obligations exclude arrangements that the company can cancel without penalty. (3) Harvest commitments are purchased at market value and can be resold at market value in the future. (4) The timing of certain of these payments will be triggered by retirements or other events. These payments can include workers' compensation, deferred compensation and banked vacation, among other obligations. When the timing of payment is uncertain, the amounts are included in the total column only. Minimum pension funding is required by established funding standards and estimates are not made beyond 2016. Estimated payments of contractually obligated postretirement benefits are not included due to the uncertainty of payment timing. (5) We have recognized total liabilities related to unrecognized tax benefits of $7 million as of December 31, 2015, including interest of $1 million. The timing of payments related to these obligations is uncertain; however, none of this amount is expected to be paid within the next year. |
|
| | | | | | | | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| | | | PAYMENTS DUE BY PERIOD | |
| | TOTAL |
| LESS THAN 1 YEAR |
| 1–3 YEARS |
| 3–5 YEARS |
| MORE THAN 5 YEARS |
|
Long-term debt obligations, including current portion (Note 13)(1) | $ | 5,893 |
| $ | 500 |
| $ | 719 |
| $ | 1,876 |
| $ | 2,798 |
|
| 425 |
| — |
| — |
| — |
| — |
|
Interest(3) | 2,684 |
| 357 |
| 634 |
| 551 |
| 1,142 |
|
| Operating lease obligations | 210 |
| 35 |
| 55 |
| 42 |
| 78 |
|
Purchase obligations(4) | 440 |
| 135 |
| 147 |
| 79 |
| 79 |
|
Employee-related obligations(5) | 367 |
| 127 |
| 42 |
| 28 |
| 73 |
|
Liabilities related to unrecognized tax benefits (Note 21)(6) | 3 |
| — |
| — |
| — |
| — |
|
| Total | $ | 10,022 |
| $ | 1,154 |
| $ | 1,597 |
| $ | 2,576 |
| $ | 4,170 |
|
(3) Amounts presented for interest payments assume that all long-term debt obligations outstanding as of December 31, 2018, will remain outstanding until maturity, and interest rates on variable-rate debt in effect as of December 31, 2018, will remain in effect until maturity. (4) Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding on the company and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Purchase obligations exclude arrangements that the company can cancel without penalty. (5) The timing of certain of these payments will be triggered by retirements or other events. These payments can include workers' compensation, deferred compensation and banked vacation, among other obligations. When the timing of payment is uncertain, the amounts are included in the total column only. Minimum pension funding is required by established funding standards and estimates are not made beyond 2019. Estimated payments of contractually obligated postretirement benefits are not included due to the uncertainty of payment timing. (6) We have recognized total liabilities related to unrecognized tax benefits of $3 million as of December 31, 2018. The timing of payments related to these obligations is uncertain; however, none of this amount is expected to be paid within the next year. |
|
|
| OFF-BALANCE SHEET ARRANGEMENTS |
surety bonds,
letters of credit and guarantees and
information regarding variable interest entities.
|
|
| ENVIRONMENTAL MATTERS, LEGAL PROCEEDINGS AND OTHER CONTINGENCIES |
CRITICAL ACCOUNTING POLICIES
OurIn the preparation of our financial statements we follow established accounting policies and make estimates that affect both the amounts and timing of the recording of assets, liabilities, revenues and expenses. Some of these estimates require judgments about matters that are inherently uncertain. Accounting policies whose application may have a significant effect on the reported results of operations and financial position are considered critical accounting policies involve a higher degree of judgment and estimates. They also have a high degree of complexity.policies.
In accounting, we base our judgments and estimates on:
historical experience and
assumptions we believe are appropriate and reasonable under current circumstances.
Actual results, however, may differ from the estimated amounts we have recorded.
Our most critical accounting policies relate to our:
pension and postretirement benefit plans;
potential impairments of long-lived assets; and
legal, environmental and product liability reserves.
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K50
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K50
PENSION AND POSTRETIREMENT BENEFIT PLANS
We sponsor several pension and postretirement benefit plans for our employees. Key assumptionsestimates we use in accounting for the plans include our:
fair value of our plan assets,
expected long-term rate of return on plan assets and
discount rates,
anticipated trends in health care costs,
assumed increases in salaries and
mortality rates.
At the end of every year, we review our assumptionskey estimates with external advisers and make adjustments as appropriate. We use these estimates to calculate plan asset and liability information as of year-end as well as pension and postretirement expense for the following year. Actual experience that differs from our assumptionsestimates or any changes in our assumptionsestimates could have a significant effect on our financial position, results of operations and cash flows.
Other factors that affect our accounting for the plans include:
actual pension fund performance,
levelFair Value of lump sum distributions,
plan changes and amendments,
changes in plan participation or coverage and
portfolio changes and restructuring.
This section provides more information about our:
expected long-term rate of return and
discount rates.
Expected Long-Term Rate of Return on Plan Assets
Plan assets are assets of the pension plan trusts that fund the benefits provided under the pension plans. The fair value of our plan assets estimates the amount that would be received if we were to sell each asset in an orderly transaction between market participants at the reporting date. We estimate the fair value of these assets based on the information available during the year-end reporting process. In some cases, primarily private equity and hedge funds, the available information consists of net asset values as of an interim date, adjusted for known events occurring between the interim date and year-end.
We value the pension plan assets based on the observability of exit pricing inputs and classify pension plan assets based on the lowest level input that is significant to the fair value measurement of the pension plan assets in their entirety. These inputs are classified within the fair value hierarchy as follows:
Level 1: Inputs are unadjusted quoted prices for identical assets or liabilities traded in an active market.
Level 2: Inputs are quoted prices in non-active markets for which pricing inputs are observable either directly or indirectly at the reporting date.
Level 3: Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.
Assets that are measured at fair value using the net asset value per share as a practical expedient are not categorized within the fair value hierarchy.
In general, we value our pension plan assets, as follows:
cash and short-term investments are valued at cost, which approximates market;
fixed income investments are valued at exit prices quoted in the public market;
hedge funds, private equity funds and related fund units are valued based on the net asset value of the funds; and
derivative instruments are valued based upon valuation statements received from each derivative’s counterparty.
Assets that do not have readily available quoted prices in an active market require more judgment to value and have increased risk.
Expected Long-Term Rate of Return on Plan Assets
The expected long-term rate of return is our estimate of the long-term rate of return that our plan assets will earn. Our expected long-term rate of return is important in determining the net periodic benefit or cost we recognize for our plans.
Over the 30 years it has been in place, our U.S. pension trust investment strategy has achieved a 14.2 percent net compound annual return rate.
After considering available information at the end of 2015,2016, we continuedetermined that it was appropriate to assume an expectedreduce our assumption of long-term rate of return on plan assets from 9.0 percent for the year ended December 31, 2016, to 8.0 percent for the year ended December 31, 2017. This decision was based on a variety of 9.0 percent. Factors we considered include:
factors, including the net compounded annual return of 8.0 percent achieved by our U.S. pension trust investment strategy the past 5 years and
current and expected valuation levels in the global equity and credit markets. We continued to use an assumption of 8.0 percent for the year ended December 31, 2018.
As of the end of 2018, we have begun implementing a change in our asset strategy to an allocation that will more closely match the plan’s liability profile moving forward, resulting in a larger allocation of our assets into fixed income securities. With this change, we have determined that we will further reduce our assumption of long-term rate of return on plan assets to 7.0 percent for the year ended December 31, 2019.
Factors we considered include:
historical returns for a portfolio of assets similar to our expected allocation and
expected future performance of similar asset classes.
Our expected long-term rate of return is important in determining the net periodic benefit or cost we recognize for our plans. Every 0.5 percent50 basis point decrease in our expected long-term rate of return would increase expense or reduce a credit by approximately:
$2414 million for our U.S. qualified pension plans and
$4 million for our Canadian registered pension plans.
The actual return on plan assets in any given year may vary from our expected long-term rate of return. Actual returns on plan assets affect the funded status of the plans. Differences between actual returns on plan assets and the expected long-term rate of return are reflected as adjustments to cumulativeaccumulated other comprehensive income (loss),loss, a component of total equity.
Discount Rates
The discount rate is used to estimate the net present value of our plan obligations. Our discount rates as of December 31, 20152018, are:
4.54.4 percent for our U.S. pension plans — compared with 4.13.7 percent at December 31, 2014;
2017;4.04.2 percent for our U.S. postretirement plans — compared with 3.63.5 percent at December 31, 2014;
2017;4.03.7 percent for our Canadian pension plans — compared with 3.93.5 percent at December 31, 2014;2017; and
3.93.7 percent for our Canadian postretirement plans — compared with 3.83.4 percent at December 31, 20142017.
WEYERHAEUSER COMPANY > .2018 ANNUAL REPORT AND FORM 10-K51
We review our discount rates annually and revise them as needed.
The discount rates are selected at the measurement date by matching current spot rates of high-quality corporate bonds with maturities similar to the timing of expected cash outflows for benefits.
Pension and postretirement benefit expenses for 20162019 will be based on the 4.54.4 percent and 4.04.2 percent assumed discount rates for U.S. plans, respectively, and 43.7 percent and 3.9 percent assumed discount rates for the Canadian plans.
Our discount rates are important in determining the cost of our plans. A 0.5 percent50 basis point decrease in our discount rate would increase expense or reduce a credit by approximately:
$3515 million for our U.S. qualified pension plans and
$5 million for our Canadian registered pension plans.
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K51
LONG-LIVED ASSETS
We review the carrying value of our long-lived assets whenever eventsan event or changesa change in circumstances indicatecircumstance ("a triggering event") indicates that the carrying value of the assetsasset or asset group may not be recoverable through future operations. The carrying value is the amount assignedoriginal cost, less accumulated depreciation and any past impairments recorded. There were no significant triggering events during 2018.
If we evaluate recoverability, we are required to long-lived assetsestimate future cash flows and residual values of the asset or asset groups. Key assumptions used in our financial statements.developing these estimates would include probability of alternative outcomes, product pricing, raw material costs, and product sales.
An impairment occurs when the carrying value of a long-lived assets will notasset is greater than the amount that could be recovered from the estimated future cash flows of the asset and is moregreater than fair market value. Fair market value is the estimated(the amount we wouldcould receive if we were to sell the assets.
In determiningasset). Key assumptions used in developing estimates of fair market value and whether impairment has occurred, we are required to estimate:
would include the estimated future cash flows
residual values used to assess recoverability, discount rates, and
fair values of the assets.
Key assumptions we use in developing the estimates include:
probability of alternative outcomes,
product pricing,
raw material costs,
product sales and
discount rate.outcomes.
CONTINGENT LIABILITIES
We are subject to lawsuits, investigations and other claims related to environmental, product and other matters, and are required to assess the likelihood of any adverse judgments or outcomes to these matters, as well as potential ranges of probable losses.
We record contingent liabilities when:
it becomes probable that we will have to make payments and
the amount of loss can be reasonably estimated.
Assessing probability of loss and estimating probable losses requires analysis of multiple factors, including:
historical experience,
evaluations of relevant legal and environmental regulations,
judgments about the potential actions of third partythird-party claimants and courts and
recommendationsconsideration of legal counsel.potential environmental remediation methods.
In addition to contingent liabilities recorded for probable losses, we disclose contingent liabilities when there is a reasonable possibility that an ultimate loss may occur.
While we do our best in developing our projections, recorded contingent liabilities are based on the best information available and actual losses in any future period are inherently uncertain. If estimated probable future losses or actual losses exceed our recorded liability for such claims, we would record additional charges in other (income) expense, net.charges. These exposures and proceedings can be significant and the ultimate negative outcomes could be material to our operating results or cash flow in any given quarter or year. See Note 15: Legal Proceedings, Commitments and Contingencies in the Notes to Consolidated Financial Statements for more information.
PROSPECTIVE ACCOUNTING PRONOUNCEMENTS
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K52
We use Adjusted Earnings before Interest, Taxes, Depreciation, Depletion and Amortization (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 our investors about our operating performance, better facilitates period to period comparisons, and is widely used by analysts, lenders, rating agencies and other interested parties.Ourparties. 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 from continuing operations adjusted for depreciation, depletion, amortization, basis of real estate sold, pension and postretirement costs not allocated to business segments (primarily interest cost, expected return on plan assets, amortization of actuarial loss and amortization of prior service cost/credit), and special items and discontinued operations.items. Adjusted EBITDA excludes results from joint ventures.
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K52
Adjusted EBITDA by Segment
| | DOLLAR AMOUNTS IN MILLIONS | | | 2015 |
| 2014 |
| 2013 |
| 2018 |
| 2017 |
| 2016 |
|
| Timberlands | $ | 758 |
| $ | 820 |
| $ | 632 |
| $ | 902 |
| $ | 936 |
| $ | 865 |
|
| Real Estate & ENR | | 264 |
| 241 |
| 189 |
|
| Wood Products | 372 |
| 446 |
| 574 |
| 987 |
| 1,017 |
| 641 |
|
| Cellulose Fibers | 378 |
| 447 |
| 353 |
| |
| | 1,508 |
| 1,713 |
| 1,559 |
| 2,153 |
| 2,194 |
| 1,695 |
|
| Unallocated Items | (86 | ) | (79 | ) | (61 | ) | (121 | ) | (114 | ) | (112 | ) |
| Total | $ | 1,422 |
| $ | 1,634 |
| $ | 1,498 |
| $ | 2,032 |
| $ | 2,080 |
| $ | 1,583 |
|
We reconcile Adjusted EBITDA to net earnings for the consolidated company and to operating income for the business segments, as those are the most directly comparable U.S. GAAP measures for each.
The table below reconciles Adjusted EBITDA by segment to net income by segmentearnings during the year ended 2015:2018:
|
| | | | | | | | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| | Timberlands |
| Wood Products |
| Cellulose Fibers |
| Unallocated Items |
| Total |
|
| Net earnings | $ | 506 |
|
| Earnings from discontinued operations, net of taxes | — |
|
| Interest expense, net of capitalized interest | 347 |
|
| Income taxes | (3 | ) |
| Net contribution to earnings | $ | 549 |
| $ | 258 |
| $ | 119 |
| $ | (76 | ) | $ | 850 |
|
| Loss from equity affiliates | — |
| — |
| 105 |
| — |
| 105 |
|
| Interest income and other | — |
| — |
| — |
| (36 | ) | (36 | ) |
| Operating income | 549 |
| 258 |
| 224 |
| (112 | ) | 919 |
|
| Depreciation, depletion and amortization | 209 |
| 106 |
| 154 |
| 10 |
| 479 |
|
| Non-operating pension and postretirement credits | — |
| — |
| — |
| (11 | ) | (11 | ) |
Special items(1)(2) | — |
| 8 |
| — |
| 27 |
| 35 |
|
| Total | $ | 758 |
| $ | 372 |
| $ | 378 |
| $ | (86 | ) | $ | 1,422 |
|
(1) Special items included in Wood Products are pre-tax restructuring charges related to the closure of four distribution centers. (2) Special items included in Unallocated Items consist of a $13 million noncash impairment charge related to a nonstrategic asset that was sold in the second quarter and $14 million of Plum Creek merger-related costs.
|
|
| | | | | | | | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| | TIMBERLANDS |
| REAL ESTATE & ENR |
| WOOD PRODUCTS |
| UNALLOCATED ITEMS |
| TOTAL |
|
| Net earnings | $ | 748 |
|
| Interest expense, net of capitalized interest | 375 |
|
Income taxes(1) | 59 |
|
| Net contribution to earnings | $ | 583 |
| $ | 127 |
| $ | 838 |
| $ | (366 | ) | $ | 1,182 |
|
Non-operating pension and other postretirement benefit costs (credits)(2) | — |
| — |
| — |
| 272 |
| 272 |
|
Interest income and other(3) | — |
| (1 | ) | — |
| (59 | ) | (60 | ) |
| Operating income | 583 |
| 126 |
| 838 |
| (153 | ) | 1,394 |
|
| Depreciation, depletion and amortization | 319 |
| 14 |
| 149 |
| 4 |
| 486 |
|
| Basis of real estate sold | — |
| 124 |
| — |
| — |
| 124 |
|
Special items included in operating income(4) | — |
| — |
| — |
| 28 |
| 28 |
|
| Adjusted EBITDA | $ | 902 |
| $ | 264 |
| $ | 987 |
| $ | (121 | ) | $ | 2,032 |
|
(1) Income taxes include special items consisting of a $41 million tax benefit related to our pension contribution and a $21 million tax adjustment charge.
(2) Non-operating pension and other postretirement benefit costs (credits) include a pretax special item of a $200 million noncash settlement charge related to our U.S. qualified pension plan lump sum offer.
(3) Interest income and other includes a pretax special item of a $13 million gain on sale of a nonstrategic asset.
(4) Operating income for Unallocated Items includes a pretax special item consisting of a $28 million environmental remediation expense. |
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 53
The table below reconciles Adjusted EBITDA by segment to net income by segmentearnings during the year ended 2014:2017:
| | DOLLAR AMOUNTS IN MILLIONS | | | Timberlands |
| Wood Products |
| Cellulose Fibers |
| Unallocated Items |
| Total |
| TIMBERLANDS |
| REAL ESTATE & ENR |
| WOOD PRODUCTS |
| UNALLOCATED ITEMS |
| TOTAL |
|
| Net earnings | Net earnings | $ | 1,826 |
| Net earnings | $ | 582 |
|
| Earnings from discontinued operations, net of taxes | (998 | ) | |
| Interest expense, net of capitalized interest | Interest expense, net of capitalized interest | 344 |
| Interest expense, net of capitalized interest | 393 |
|
| Income taxes | Income taxes | 185 |
| Income taxes | 134 |
|
| Net contribution to earnings | $ | 613 |
| $ | 327 |
| $ | 291 |
| $ | 126 |
| $ | 1,357 |
| $ | 532 |
| $ | 146 |
| $ | 569 |
| $ | (138 | ) | $ | 1,109 |
|
| Loss from equity affiliates | — |
| — |
| 1 |
| — |
| 1 |
| |
| Non-operating pension and other postretirement benefit costs (credits) | | — |
| — |
| — |
| 62 |
| 62 |
|
| Interest income and other | — |
| — |
| — |
| (38 | ) | (38 | ) | — |
| (1 | ) | — |
| (39 | ) | (40 | ) |
| Operating income | 613 |
| 327 |
| 292 |
| 88 |
| 1,320 |
| 532 |
| 145 |
| 569 |
| (115 | ) | 1,131 |
|
| Depreciation, depletion and amortization | 207 |
| 119 |
| 155 |
| 12 |
| 493 |
| 356 |
| 15 |
| 145 |
| 5 |
| 521 |
|
| Non-operating pension and postretirement credits | — |
| — |
| — |
| (45 | ) | (45 | ) | |
Special items(1) | — |
| — |
| — |
| (134 | ) | (134 | ) | |
| Total | $ | 820 |
| $ | 446 |
| $ | 447 |
| $ | (79 | ) | $ | 1,634 |
| |
(1) Special items include: a $151 million pretax gain related to a previously announced postretirement plan amendment, $39 million in restructuring and closure charges related to our selling, general and administrative cost reduction initiative and a $22 million pretax gain on the sale of a landfill in Washington State.
| |
| Basis of real estate sold | | — |
| 81 |
| — |
| — |
| 81 |
|
| Unallocated pension service costs | | — |
| — |
| — |
| 4 |
| 4 |
|
Special items included in operating income(1)(2)(3) | | 48 |
| — |
| 303 |
| (8 | ) | 343 |
|
| Adjusted EBITDA | | $ | 936 |
| $ | 241 |
| $ | 1,017 |
| $ | (114 | ) | $ | 2,080 |
|
(1) Operating income for Timberlands includes pretax special items consisting of a $147 million noncash impairment charge of the Uruguay operations and a $99 million gain on a sale of Southern timberlands.
(2) Operating income for Wood Products includes pretax special items consisting of $290 million of product remediation charges, $7 million for countervailing and antidumping duties on softwood lumber, and a $6 million impairment on a nonstrategic asset.
(3) Operating income for Unallocated Items includes pretax special items consisting of $42 million for environmental remediation insurance recoveries and $34 million for Plum Creek merger-related costs. | | (1) Operating income for Timberlands includes pretax special items consisting of a $147 million noncash impairment charge of the Uruguay operations and a $99 million gain on a sale of Southern timberlands.
(2) Operating income for Wood Products includes pretax special items consisting of $290 million of product remediation charges, $7 million for countervailing and antidumping duties on softwood lumber, and a $6 million impairment on a nonstrategic asset.
(3) Operating income for Unallocated Items includes pretax special items consisting of $42 million for environmental remediation insurance recoveries and $34 million for Plum Creek merger-related costs. |
The table below reconciles Adjusted EBITDA by segment to net income by segmentearnings during the year ended 2013:2016:
| | DOLLAR AMOUNTS IN MILLIONS | | | Timberlands |
| Wood Products |
| Cellulose Fibers |
| Unallocated Items |
| Total |
| TIMBERLANDS |
| REAL ESTATE & ENR |
| WOOD PRODUCTS |
| UNALLOCATED ITEMS |
| TOTAL |
|
| Net earnings | Net earnings | $ | 563 |
| Net earnings | $ | 1,027 |
|
| Earnings from discontinued operations, net of taxes | Earnings from discontinued operations, net of taxes | (72 | ) | Earnings from discontinued operations, net of taxes | (612 | ) |
| Interest expense, net of capitalized interest | Interest expense, net of capitalized interest | 369 |
| Interest expense, net of capitalized interest | 431 |
|
| Income taxes | Income taxes | (171 | ) | Income taxes | 89 |
|
| Net contribution to earnings | $ | 470 |
| $ | 441 |
| $ | 200 |
| $ | (422 | ) | $ | 689 |
| $ | 499 |
| $ | 55 |
| $ | 512 |
| $ | (131 | ) | $ | 935 |
|
| (Earnings) loss from equity affiliates | — |
| — |
| (3 | ) | 2 |
| (1 | ) | |
| Non-operating pension and other postretirement benefit costs (credits) | | — |
| — |
| — |
| (48 | ) | (48 | ) |
| Interest income and other | (4 | ) | — |
| — |
| (50 | ) | (54 | ) | — |
| (2 | ) | — |
| (63 | ) | (65 | ) |
| Operating income | 466 |
| 441 |
| 197 |
| (470 | ) | 634 |
| 499 |
| 53 |
| 512 |
| (242 | ) | 822 |
|
| Depreciation, depletion and amortization | 166 |
| 123 |
| 156 |
| 13 |
| 458 |
| 366 |
| 13 |
| 129 |
| 4 |
| 512 |
|
| Non-operating pension and postretirement costs | — |
| — |
| — |
| 40 |
| 40 |
| |
Special items(1)(2) | — |
| 10 |
| — |
| 356 |
| 366 |
| |
| Total | $ | 632 |
| $ | 574 |
| $ | 353 |
| $ | (61 | ) | $ | 1,498 |
| |
(1) Special Items included in Wood Products consist of a $9 million noncash impairment charge and $1 million of restructuring charges related to the closure of our engineered wood products facility in Colbert, Georgia. (2) Special items included in Unallocated Items consists of a $356 million noncash impairment charge for Coyote Springs, a nonstrategic asset that was sold in 2014. | |
| Basis of real estate sold | | — |
| 109 |
| — |
| — |
| 109 |
|
| Unallocated pension service costs | | — |
| — |
| — |
| 5 |
| 5 |
|
Special items included in operating income(1)(2) | | — |
| 14 |
| — |
| 121 |
| 135 |
|
| Adjusted EBITDA | | $ | 865 |
| $ | 189 |
| $ | 641 |
| $ | (112 | ) | $ | 1,583 |
|
(1) Operating income for Real Estate & ENR includes pretax special items related to an asset impairment charge recorded for development projects. (2) Operating income for Unallocated Items includes pretax special items consisting of: $146 million Plum Creek merger-related costs, $36 million gain on sale of nonstrategic assets and $11 million of legal expense. | | (1) Operating income for Real Estate & ENR includes pretax special items related to an asset impairment charge recorded for development projects. (2) Operating income for Unallocated Items includes pretax special items consisting of: $146 million Plum Creek merger-related costs, $36 million gain on sale of nonstrategic assets and $11 million of legal expense. |
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 54
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
|
| LONG-TERM DEBT OBLIGATIONS |
The following summary of our long-term debt obligations includes:
scheduled principal repayments for the next five years and after,
weighted average interest rates for debt maturing in each of the next five years and after and
estimated fair values of outstanding obligations.
We estimate the fair value of long-term debt based on quoted market prices we received for the same types and issues of our debt or on the discounted value of the future cash flows using market yields for the same type and comparable issues of debt. Changes in market rates of interest affect the fair value of our fixed-rate debt.
SUMMARY OF LONG-TERM DEBT OBLIGATIONS AS OF DECEMBER 31, 20152018
| | DOLLAR AMOUNTS IN MILLIONS | | 2016 |
| 2017 |
| 2018 |
| 2019 |
| 2020 |
| THEREAFTER |
| TOTAL |
| FAIR VALUE |
| 2019 |
| 2020 |
| 2021 |
| 2022 |
| 2023 |
| THEREAFTER |
| TOTAL(1)(2) |
| FAIR VALUE |
|
| Fixed-rate debt | $ | — |
| $ | 281 |
| $ | 62 |
| $ | 500 |
| $ | — |
| $ | 3,503 |
| $ | 4,346 |
| $ | 5,070 |
| $ | 500 |
| $ | — |
| $ | 719 |
| $ | — |
| $ | 1,876 |
| $ | 2,573 |
| $ | 5,668 |
| $ | 6,345 |
|
| Average interest rate | — | % | 6.95 | % | 7.00 | % | 7.38 | % | — | % | 7.09 | % | 7.12 | % | N/A |
| 7.38 | % | — | % | 5.57 | % | — | % | 4.91 | % | 7.47 | % | 6.37 | % | N/A |
|
Variable-rate debt | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 550 |
| $ | — |
| $ | 550 |
| $ | 550 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 225 |
| $ | 225 |
| $ | 225 |
|
| Average interest rate | — | % | — | % | — | % | — | % | 2.07 | % | — | % | 2.07 | % | N/A |
| — | % | — | % | — | % | — | % | — | % | 4.12 | % | 4.12 | % | N/A |
|
(1) Excludes $26 million of unamortized discounts, unamortized debt expense and fair value adjustments (related to Plum Creek merger). (3) Excludes borrowings under our line of credit of $425 million as of December 31, 2018. Our line of credit expires in 2022, at which time all outstanding amounts must be repaid. The timing of the repayment of the current outstanding balance is uncertain. See Note 12: Lines of Credit in the Notes to Consolidated Financial Statements for further information on our line of credit. | | (1) Excludes $26 million of unamortized discounts, unamortized debt expense and fair value adjustments (related to Plum Creek merger). (3) Excludes borrowings under our line of credit of $425 million as of December 31, 2018. Our line of credit expires in 2022, at which time all outstanding amounts must be repaid. The timing of the repayment of the current outstanding balance is uncertain. See Note 12: Lines of Credit in the Notes to Consolidated Financial Statements for further information on our line of credit. |
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 55
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
|
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
The
To the Shareholders and Board of Directors and Shareholders
Weyerhaeuser Company:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Weyerhaeuser Company and subsidiaries (the Company) as of December 31, 20152018 and 2014, and2017, the related consolidated statements of operations, comprehensive income, cash flows, and changes in equity, and cash flows for each of the years in the three-yearthree‑year period ended December 31, 2015. 2018 and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 15, 2019 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includesmisstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Weyerhaeuser Company and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Weyerhaeuser Company’s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 17, 2016 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ KPMG LLP
We have served as the Company’s auditor since 2002.
Seattle, Washington
February 17, 201615, 2019
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 56
|
|
| CONSOLIDATED STATEMENT OF OPERATIONS |
FOR THE THREE-YEAR PERIOD ENDED DECEMBER 31, 20152018
| | DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURES | | 2015 |
| 2014 |
| 2013 |
| 2018 |
| 2017 |
| 2016 |
|
| Net sales | $ | 7,082 |
| $ | 7,403 |
| $ | 7,254 |
| $ | 7,476 |
| $ | 7,196 |
| $ | 6,365 |
|
| Costs of products sold | 5,694 |
| 5,763 |
| 5,716 |
| |
| Costs of sales | | 5,592 |
| 5,298 |
| 4,980 |
|
| Gross margin | 1,388 |
| 1,640 |
| 1,538 |
| 1,884 |
| 1,898 |
| 1,385 |
|
| Selling expenses | 113 |
| 112 |
| 125 |
| 88 |
| 87 |
| 89 |
|
| General and administrative expenses | 289 |
| 338 |
| 404 |
| 318 |
| 310 |
| 338 |
|
| Research and development expenses | 24 |
| 27 |
| 33 |
| 8 |
| 14 |
| 19 |
|
Charges for restructuring, closures and impairments (Note 18) | 25 |
| 44 |
| 377 |
| |
Other operating costs (income), net (Note 19) | 18 |
| (201 | ) | (35 | ) | |
Charges for integration and restructuring, closures and asset impairments (Note 18) | | 2 |
| 194 |
| 170 |
|
Charges (recoveries) for product remediation, net (Note 19) | | — |
| 290 |
| — |
|
Other operating costs (income), net (Note 20) | | 74 |
| (128 | ) | (53 | ) |
| Operating income | 919 |
| 1,320 |
| 634 |
| 1,394 |
| 1,131 |
| 822 |
|
Earnings (loss) from equity affiliates (Note 8) | (105 | ) | (1 | ) | 1 |
| |
| Non-operating pension and other postretirement benefit (costs) credits | | (272 | ) | (62 | ) | 48 |
|
| Interest income and other | 36 |
| 38 |
| 54 |
| 60 |
| 40 |
| 65 |
|
| Interest expense, net of capitalized interest | (347 | ) | (344 | ) | (369 | ) | (375 | ) | (393 | ) | (431 | ) |
| Earnings from continuing operations before income taxes | 503 |
| 1,013 |
| 320 |
| 807 |
| 716 |
| 504 |
|
Income taxes (Note 20) | 3 |
| (185 | ) | 171 |
| |
| | (59 | ) | (134 | ) | (89 | ) |
| Earnings from continuing operations | 506 |
| 828 |
| 491 |
| 748 |
| 582 |
| 415 |
|
Earnings from discontinued operations, net of income taxes (Note 3) | — |
| 998 |
| 72 |
| |
Earnings from discontinued operations, net of income taxes (Note 4) | | — |
| — |
| 612 |
|
| Net earnings | 506 |
| 1,826 |
| 563 |
| 748 |
| 582 |
| 1,027 |
|
| Dividends on preference shares | (44 | ) | (44 | ) | (23 | ) | — |
| — |
| (22 | ) |
| Net earnings attributable to Weyerhaeuser common shareholders | $ | 462 |
| $ | 1,782 |
| $ | 540 |
| $ | 748 |
| $ | 582 |
| $ | 1,005 |
|
Basic earnings per share attributable to Weyerhaeuser common shareholders (Note 5): | | | | |
Basic earnings per share attributable to Weyerhaeuser common shareholders (Note 6): | | | | |
| Continuing operations | $ | 0.89 |
| $ | 1.41 |
| $ | 0.82 |
| $ | 0.99 |
| $ | 0.77 |
| $ | 0.55 |
|
| Discontinued operations | — |
| 1.79 |
| 0.13 |
| — |
| — |
| 0.85 |
|
| Net earnings per share | $ | 0.89 |
| $ | 3.20 |
| $ | 0.95 |
| $ | 0.99 |
| $ | 0.77 |
| $ | 1.40 |
|
Diluted earnings per share attributable to Weyerhaeuser common shareholders (Note 5): | | | | |
Diluted earnings per share attributable to Weyerhaeuser common shareholders (Note 6): | | | | |
| Continuing operations | $ | 0.89 |
| $ | 1.40 |
| $ | 0.82 |
| $ | 0.99 |
| $ | 0.77 |
| $ | 0.55 |
|
| Discontinued operations | — |
| 1.78 |
| 0.13 |
| — |
| — |
| 0.84 |
|
| Net earnings per share | $ | 0.89 |
| $ | 3.18 |
| $ | 0.95 |
| $ | 0.99 |
| $ | 0.77 |
| $ | 1.39 |
|
| Dividends paid per common share | $ | 1.20 |
| $ | 1.02 |
| $ | 0.81 |
| |
Weighted average shares outstanding (in thousands) (Note 5): | | | | |
Weighted average shares outstanding (in thousands) (Note 6): | | | | |
| Basic | 516,371 |
| 556,705 |
| 566,329 |
| 754,556 |
| 753,085 |
| 718,560 |
|
| Diluted | 519,618 |
| 560,899 |
| 571,239 |
| 756,827 |
| 756,666 |
| 722,401 |
|
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 57
|
|
| CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME |
FOR THE THREE-YEAR PERIOD ENDED DECEMBER 31, 20152018
| | DOLLAR AMOUNTS IN MILLIONS | | | 2015 |
| 2014 |
| 2013 |
| 2018 |
| 2017 |
| 2016 |
|
| Comprehensive income: | | | | | | |
| Net earnings | $ | 506 |
| $ | 1,826 |
| $ | 563 |
| $ | 748 |
| $ | 582 |
| $ | 1,027 |
|
| Other comprehensive income (loss): | | | | | | |
| Foreign currency translation adjustments | (97 | ) | (50 | ) | (59 | ) | (54 | ) | 32 |
| 25 |
|
| Changes in unamortized net pension and other postretirement benefit gain (loss), net of tax expense (benefit) of $131 in 2015, ($323) in 2014, and $480 in 2013 | 282 |
| (554 | ) | 902 |
| |
| Changes in unamortized prior service credit (cost), net of tax expense (benefit) of ($1) in 2015, ($64) in 2014 and $23 in 2013 | (4 | ) | (103 | ) | 27 |
| |
| Changes in unamortized actuarial loss, net of tax expense (benefit) of $235 in 2018, ($2) in 2017 and ($151) in 2016 | | 733 |
| (132 | ) | (269 | ) |
| Changes in unamortized net prior service credit, net of tax benefit of $3 in 2018, $2 in 2017 and $0 in 2016 | | (7 | ) | (5 | ) | (4 | ) |
| Unrealized gains on available-for-sale securities | — |
| — |
| 2 |
| — |
| 2 |
| 1 |
|
| Total comprehensive income attributable to Weyerhaeuser shareholders | $ | 687 |
| $ | 1,119 |
| $ | 1,435 |
| |
| Total comprehensive income | | $ | 1,420 |
| $ | 479 |
| $ | 780 |
|
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 58
|
|
| CONSOLIDATED BALANCE SHEET |
| | | ASSETS | | |
DOLLAR AMOUNTS IN MILLIONS | | DECEMBER 31,
2015 |
| DECEMBER 31,
2014 |
| DECEMBER 31,
2018 |
| DECEMBER 31,
2017 |
|
| ASSETS | | ASSETS |
| Current assets: | | | | |
| Cash and cash equivalents | $ | 1,012 |
| $ | 1,580 |
| $ | 334 |
| $ | 824 |
|
| Receivables, less discounts and allowances of $3 and $3 | 487 |
| 525 |
| |
| Receivables, less discounts and allowances of $1 and $1 | | 337 |
| 396 |
|
| Receivables for taxes | 30 |
| 25 |
| 137 |
| 14 |
|
Inventories (Note 6) | 568 |
| 595 |
| |
| Prepaid expenses | 77 |
| 80 |
| |
| | 389 |
| 383 |
|
| Prepaid expenses and other current assets | | 152 |
| 98 |
|
Current restricted financial investments held by variable interest entities (Note 9) | | 253 |
| — |
|
| Total current assets | 2,174 |
| 2,805 |
| 1,602 |
| 1,715 |
|
Property and equipment, less accumulated depreciation of $6,294 and $6,324 (Note 7) | 2,586 |
| 2,623 |
| |
Property and equipment, less accumulated depreciation of $3,376 and $3,338 (Note 8) | | 1,857 |
| 1,618 |
|
| Construction in progress | 195 |
| 131 |
| 136 |
| 225 |
|
| Timber and timberlands at cost, less depletion charged to disposals | 6,480 |
| 6,530 |
| |
Investments in and advances to equity affiliates (Note 8) | 74 |
| 188 |
| |
| Goodwill | 40 |
| 40 |
| |
Deferred tax assets (Note 20) | 4 |
| 44 |
| |
| Timber and timberlands at cost, less depletion | | 12,671 |
| 12,954 |
|
| Minerals and mineral rights, less depletion | | 294 |
| 308 |
|
| | 15 |
| 268 |
|
| Other assets | 318 |
| 289 |
| 312 |
| 356 |
|
Restricted financial investments held by variable interest entities (Note 10) | 615 |
| 615 |
| |
Restricted financial investments held by variable interest entities (Note 9) | | 362 |
| 615 |
|
| Total assets | $ | 12,486 |
| $ | 13,265 |
| $ | 17,249 |
| $ | 18,059 |
|
LIABILITIES AND EQUITY | | Current liabilities: | | | | |
| | $ | 500 |
| $ | 62 |
|
Current debt (nonrecourse to the company) held by variable interest entities (Note 9) | | 302 |
| 209 |
|
Borrowings on line of credit (Note 12 and 14) | | 425 |
| — |
|
| Accounts payable | 326 |
| 331 |
| 222 |
| 249 |
|
Accrued liabilities (Note 11) | 549 |
| 587 |
| 490 |
| 645 |
|
| Total current liabilities | 875 |
| 918 |
| 1,939 |
| 1,165 |
|
Long-term debt (Notes 13 and 14) | 4,891 |
| 4,891 |
| 5,419 |
| 5,930 |
|
Long-term debt (nonrecourse to the company) held by variable interest entities (Note 10) | 511 |
| 511 |
| |
Deferred income taxes (Note 20) | 86 |
| 14 |
| |
Deferred pension and other postretirement benefits (Note 9) | 987 |
| 1,319 |
| |
Long-term debt (nonrecourse to the company) held by variable interest entities (Note 9) | | — |
| 302 |
|
| Deferred tax liabilities | | 43 |
| — |
|
Deferred pension and other postretirement benefits (Note 10) | | 527 |
| 1,487 |
|
| Other liabilities | 267 |
| 308 |
| 275 |
| 276 |
|
Commitments and contingencies (Note 15) | | | | |
| Total liabilities | 7,617 |
| 7,961 |
| 8,203 |
| 9,160 |
|
| Equity: | | | | |
Weyerhaeuser shareholders’ interest (Notes 16 and 17): | | | | |
Mandatory convertible preference shares, series A: $1.00 par value; $50.00 liquidation; authorized 40,000,000 shares; issued and outstanding: 13,799,711 and 13,800,000 shares (Note 4) | 14 |
| 14 |
| |
Common shares: $1.25 par value; authorized 1,360,000,000 shares; issued and outstanding: 510,483,285 and 524,474,315 shares (Note 4) | 638 |
| 656 |
| |
Other capital (Note 4) | 4,080 |
| 4,519 |
| |
| Common shares: $1.25 par value; authorized 1,360 million shares; issued and outstanding: 746,391 thousand shares at December 31, 2018 and 755,223 thousand shares at December 31, 2017 | | 933 |
| 944 |
|
| Other capital | | 8,172 |
| 8,439 |
|
| Retained earnings | 1,349 |
| 1,508 |
| 1,093 |
| 1,078 |
|
| Cumulative other comprehensive loss | (1,212 | ) | (1,393 | ) | |
Accumulated other comprehensive loss (Note 16) | | (1,152 | ) | (1,562 | ) |
| Total equity | 4,869 |
| 5,304 |
| 9,046 |
| 8,899 |
|
| Total liabilities and equity | $ | 12,486 |
| $ | 13,265 |
| $ | 17,249 |
| $ | 18,059 |
|
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 59
|
|
| CONSOLIDATED STATEMENT OF CASH FLOWS |
FOR THE THREE-YEAR PERIOD ENDED DECEMBER 31, 20152018
|
| | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| 2015 |
| 2014 |
| 2013 |
|
| Cash flows from operations: | | | |
| Net earnings | $ | 506 |
| $ | 1,826 |
| $ | 563 |
|
| Noncash charges (credits) to income: | | | |
| Depreciation, depletion and amortization | 479 |
| 500 |
| 472 |
|
Deferred income taxes, net (Note 20) | — |
| 205 |
| (29 | ) |
Pension and other postretirement benefits (Note 9) | 42 |
| (152 | ) | 101 |
|
Share-based compensation expense (Note 17) | 31 |
| 40 |
| 42 |
|
Charges for impairment of assets (Note 18) | 15 |
| 2 |
| 372 |
|
| (Earnings) loss from equity affiliates | 105 |
| 1 |
| (1 | ) |
Net gains on dispositions of assets and operations(1) (Note 3) | (38 | ) | (1,050 | ) | (58 | ) |
Foreign exchange transaction losses (Note 19) | 47 |
| 27 |
| 7 |
|
| Change in, net of acquisition: | | | |
| Receivables less allowances | 17 |
| 29 |
| (27 | ) |
| Receivable for taxes | (5 | ) | 76 |
| (6 | ) |
| Inventories | 10 |
| (66 | ) | (13 | ) |
| Real estate and land | — |
| (133 | ) | (166 | ) |
| Prepaid expenses | 3 |
| 17 |
| (26 | ) |
| Accounts payable and accrued liabilities | (35 | ) | (98 | ) | (51 | ) |
| Deposits on land positions and other assets | — |
| 15 |
| (18 | ) |
| Pension and postretirement contributions / benefit payments | (83 | ) | (101 | ) | (137 | ) |
| Other | (30 | ) | (50 | ) | (21 | ) |
| Net cash from operations | 1,064 |
| 1,088 |
| 1,004 |
|
| Cash flows from investing activities: | | | |
| Property and equipment | (443 | ) | (354 | ) | (261 | ) |
| Timberlands reforestation | (40 | ) | (41 | ) | (32 | ) |
| Acquisition of timberlands | (36 | ) | — |
| — |
|
Acquisition of Longview Timber LLC, net of cash acquired (Note 4) | — |
| — |
| (1,581 | ) |
Net proceeds from Real Estate Divestiture, net of cash divested (Note 3) | — |
| 707 |
| — |
|
| Proceeds from sale of assets and operations | 19 |
| 28 |
| 20 |
|
Net proceeds of investments held by special purpose entities (Note 10) | — |
| — |
| 22 |
|
| Other | 13 |
| 21 |
| 3 |
|
| Cash from investing activities | (487 | ) | 361 |
| (1,829 | ) |
| Cash flows from financing activities: | | | |
Net proceeds from issuance of common shares (Note 4) | — |
| — |
| 897 |
|
Net proceeds from issuance of preference shares (Note 4) | — |
| — |
| 669 |
|
Net proceeds from issuance of debt (Note 13) | — |
| — |
| 1,044 |
|
Net proceeds from issuance of Weyerhaeuser Real Estate Company (WRECO) debt (Note 3) | — |
| 887 |
| — |
|
Deposit of WRECO debt proceeds into escrow (Note 3) | — |
| (887 | ) | — |
|
| Cash dividends on common shares | (619 | ) | (563 | ) | (458 | ) |
| Cash dividends on preference shares | (44 | ) | (44 | ) | (23 | ) |
| Change in book overdrafts | — |
| (17 | ) | 7 |
|
Payments on debt (Note 13) | — |
| — |
| (1,567 | ) |
| Exercises of stock options | 34 |
| 119 |
| 162 |
|
Repurchase of common stock (Note 16) | (518 | ) | (203 | ) | — |
|
| Other | 2 |
| 4 |
| 31 |
|
| Cash from financing activities | (1,145 | ) | (704 | ) | 762 |
|
| Net change in cash and cash equivalents | (568 | ) | 745 |
| (63 | ) |
| Cash and cash equivalents at beginning of year | 1,580 |
| 835 |
| 898 |
|
| Cash and cash equivalents at end of year | $ | 1,012 |
| $ | 1,580 |
| $ | 835 |
|
| Cash paid (received) during the year for: | | | |
| Interest, net of amounts capitalized of $7 in 2015, $13 in 2014 and $21 in 2013 | $ | 347 |
| $ | 319 |
| $ | 366 |
|
| Income taxes | $ | 14 |
| $ | (37 | ) | $ | 8 |
|
| Noncash investing and financing activity: | | | |
Acquisition of Longview Timber LLC, debt assumed (Note 4) | $ | — |
| $ | — |
| $ | 1,070 |
|
Common shares tendered in WRECO divestiture (Note 3) | $ | — |
| $ | 1,954 |
| $ | — |
|
(1) Includes gain on timberland exchanges. |
| | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| 2018 |
| 2017 |
| 2016 |
|
| Cash flows from operations: | | | |
| Net earnings | $ | 748 |
| $ | 582 |
| $ | 1,027 |
|
| Noncash charges (credits) to income: | | | |
| Depreciation, depletion and amortization | 486 |
| 521 |
| 565 |
|
| Basis of real estate sold | 124 |
| 81 |
| 109 |
|
| Deferred income taxes, net | 72 |
| 44 |
| (159 | ) |
| Pension and other postretirement benefits | 309 |
| 97 |
| 5 |
|
| 42 |
| 40 |
| 60 |
|
| Charges for impairment of assets | 1 |
| 154 |
| 37 |
|
Net gains on disposition of discontinued and other operations (Note 4) | — |
| (1 | ) | (789 | ) |
| Net gains on sale of nonstrategic assets | (16 | ) | (16 | ) | (73 | ) |
Net gains on sale of southern timberlands (Note 9) | — |
| (99 | ) | — |
|
| Change in, net of acquisition: | | | |
| Receivables, less allowances | 62 |
| (35 | ) | (54 | ) |
| Receivable and payable for taxes | (103 | ) | (50 | ) | 106 |
|
| Inventories | (14 | ) | (39 | ) | 61 |
|
| Prepaid expenses and other current assets | (18 | ) | (12 | ) | 5 |
|
| Accounts payable and accrued liabilities | (154 | ) | 106 |
| 11 |
|
| Pension and postretirement contributions / benefit payments | (381 | ) | (78 | ) | (99 | ) |
| Other | (46 | ) | (94 | ) | (77 | ) |
| Net cash from operations | 1,112 |
| 1,201 |
| 735 |
|
| Cash flows from investing activities: | | | |
| Capital expenditures for property and equipment | (368 | ) | (358 | ) | (451 | ) |
| Capital expenditures for timberlands reforestation | (59 | ) | (61 | ) | (59 | ) |
Proceeds from disposition of discontinued and other operations (Note 4) | — |
| 403 |
| 2,486 |
|
| Proceeds from sale of nonstrategic assets | 4 |
| 26 |
| 104 |
|
Proceeds from sale of southern timberlands (Note 9) | — |
| 203 |
| — |
|
Proceeds from redemption of ownership in related party (Note 9) | — |
| 108 |
| — |
|
Proceeds from contribution of timberlands to related party (Note 9) | — |
| — |
| 440 |
|
| Other | (17 | ) | 46 |
| 39 |
|
| Net cash from investing activities | (440 | ) | 367 |
| 2,559 |
|
| Cash flows from financing activities: | | | |
| Cash dividends on common shares | (995 | ) | (941 | ) | (932 | ) |
| Cash dividends on preference shares | — |
| — |
| (22 | ) |
Proceeds from issuance of long-term debt (Note 13) | — |
| 225 |
| 1,698 |
|
| (62 | ) | (831 | ) | (2,423 | ) |
Proceeds from borrowings on line of credit (Note 12) | 425 |
| 100 |
| — |
|
| — |
| (100 | ) | — |
|
Payments on debt held by variable interest entities (Note 9) | (209 | ) | — |
| — |
|
| Proceeds from exercise of stock options | 52 |
| 128 |
| 61 |
|
| (366 | ) | — |
| (2,003 | ) |
| Other | (7 | ) | (1 | ) | (9 | ) |
| Net cash from financing activities | (1,162 | ) | (1,420 | ) | (3,630 | ) |
| Net change in cash and cash equivalents | $ | (490 | ) | $ | 148 |
| $ | (336 | ) |
| Cash and cash equivalents from continuing operations at beginning of year | $ | 824 |
| $ | 676 |
| $ | 1,011 |
|
| Cash and cash equivalents from discontinued operations at beginning of year | $ | — |
| $ | — |
| $ | 1 |
|
| Cash and cash equivalents at beginning of year | $ | 824 |
| $ | 676 |
| $ | 1,012 |
|
| Cash and cash equivalents from continuing operations at end of year | $ | 334 |
| $ | 824 |
| $ | 676 |
|
| Cash and cash equivalents from discontinued operations at end of year | $ | — |
| $ | — |
| $ | — |
|
| Cash and cash equivalents at end of year | $ | 334 |
| $ | 824 |
| $ | 676 |
|
| Cash paid (received) during the year for: | | | |
| Interest, net of amounts capitalized of $9 in 2018, $9 in 2017, and $8 in 2016 | $ | 358 |
| $ | 381 |
| $ | 446 |
|
| Income taxes | $ | 95 |
| $ | 169 |
| $ | 485 |
|
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 60
|
|
| CONSOLIDATED STATEMENT OF CHANGES IN EQUITY |
FOR THE THREE-YEAR PERIOD ENDED DECEMBER 31, 20152018
| | DOLLAR AMOUNTS IN MILLIONS | | | 2015 |
| 2014 |
| 2013 |
| 2018 |
| 2017 |
| 2016 |
|
| Mandatory convertible preference shares, series A: | | | |
| | | |
|
| Balance at beginning of year | $ | 14 |
| $ | 14 |
| $ | — |
| $ | — |
| $ | — |
| $ | 14 |
|
| New issuance | — |
| — |
| 14 |
| |
| | — |
| — |
| (14 | ) |
| Balance at end of year | $ | 14 |
| $ | 14 |
| $ | 14 |
| $ | — |
| $ | — |
| $ | — |
|
| Common shares: | | | |
| | | |
|
| Balance at beginning of year | $ | 656 |
| $ | 729 |
| $ | 678 |
| $ | 944 |
| $ | 936 |
| $ | 638 |
|
| New issuance | — |
| — |
| 42 |
| |
| — |
| (73 | ) | — |
| |
Preference shares converted to common shares (Note 16) | | — |
| — |
| 29 |
|
| Issued for exercise of stock options | 2 |
| 7 |
| 9 |
| 3 |
| 7 |
| 3 |
|
| Share repurchases | (20 | ) | (7 | ) | — |
| |
| | (15 | ) | — |
| (85 | ) |
| Release of vested restricted stock units | | 1 |
| 1 |
| 2 |
|
| Plum Creek acquisition | | — |
| — |
| 349 |
|
| Balance at end of year | $ | 638 |
| $ | 656 |
| $ | 729 |
| $ | 933 |
| $ | 944 |
| $ | 936 |
|
| Other capital: | | | | | | |
| Balance at beginning of year | $ | 4,519 |
| $ | 6,444 |
| $ | 4,731 |
| $ | 8,439 |
| $ | 8,282 |
| $ | 4,080 |
|
| New issuance | — |
| — |
| 1,509 |
| |
| — |
| (1,881 | ) | — |
| |
| Exercise of stock options | 32 |
| 112 |
| 152 |
| |
| Repurchase of common shares | (498 | ) | (196 | ) | — |
| |
| Issued for exercise of stock options | | 49 |
| 128 |
| 61 |
|
| | (351 | ) | — |
| (1,918 | ) |
| Share-based compensation | 32 |
| 35 |
| 42 |
| 42 |
| 35 |
| 35 |
|
| Plum Creek acquisition | | — |
| — |
| 6,046 |
|
| Other transactions, net | (5 | ) | 5 |
| 10 |
| (7 | ) | (6 | ) | (22 | ) |
| Balance at end of year | $ | 4,080 |
| $ | 4,519 |
| $ | 6,444 |
| $ | 8,172 |
| $ | 8,439 |
| $ | 8,282 |
|
| Retained earnings: | | | | | | |
| Balance at beginning of year | $ | 1,508 |
| $ | 294 |
| $ | 219 |
| $ | 1,078 |
| $ | 1,421 |
| $ | 1,349 |
|
| Net earnings attributable to Weyerhaeuser | 506 |
| 1,826 |
| 563 |
| |
| (621 | ) | (568 | ) | (465 | ) | |
Cash dividends on preference shares (Note 16) | (44 | ) | (44 | ) | (23 | ) | |
| Net earnings | | 748 |
| 582 |
| 1,027 |
|
| Dividends on common shares | | (995 | ) | (944 | ) | (933 | ) |
Adjustments related to new accounting pronouncements (Note 1) | | 262 |
| 19 |
| — |
|
| Cash dividends on preference shares | | — |
| — |
| (22 | ) |
| Balance at end of year | $ | 1,349 |
| $ | 1,508 |
| $ | 294 |
| $ | 1,093 |
| $ | 1,078 |
| $ | 1,421 |
|
| Cumulative other comprehensive loss: | | | | |
| Accumulated other comprehensive loss: | | | | |
| Balance at beginning of year | $ | (1,393 | ) | $ | (686 | ) | $ | (1,558 | ) | $ | (1,562 | ) | $ | (1,459 | ) | $ | (1,212 | ) |
| Annual changes – net of tax: | | | | |
| | |
| Foreign currency translation adjustments | (97 | ) | (50 | ) | (59 | ) | (54 | ) | 32 |
| 25 |
|
Changes in unamortized net pension and other postretirement benefit loss (Note 9) | 282 |
| (554 | ) | 902 |
| |
Changes in unamortized prior service credit (cost) (Note 9) | (4 | ) | (103 | ) | 27 |
| |
Changes in unamortized actuarial loss, net of tax (Note 10) | | 733 |
| (132 | ) | (269 | ) |
Changes in unamortized net prior service credit, net of tax (Note 10) | | (7 | ) | (5 | ) | (4 | ) |
| Unrealized gains on available-for-sale securities | — |
| — |
| 2 |
| — |
| 2 |
| 1 |
|
| Balance at end of year | $ | (1,212 | ) | $ | (1,393 | ) | $ | (686 | ) | |
| Total Weyerhaeuser shareholders’ interest: | | | | |
| Balance at end of year | $ | 4,869 |
| $ | 5,304 |
| $ | 6,795 |
| |
| Noncontrolling interests: | | | | |
| Balance at beginning of year | $ | — |
| $ | 37 |
| $ | 43 |
| |
| New consolidations, de-consolidations and other transactions | — |
| (37 | ) | (6 | ) | |
Adjustments related to new accounting pronouncements (Note 16) | | (262 | ) | — |
| — |
|
| Balance at end of year | $ | — |
| $ | — |
| $ | 37 |
| $ | (1,152 | ) | $ | (1,562 | ) | $ | (1,459 | ) |
| Total equity: | | | | | | |
| Balance at end of year | $ | 4,869 |
| $ | 5,304 |
| $ | 6,832 |
| $ | 9,046 |
| $ | 8,899 |
| $ | 9,180 |
|
| Dividends paid per common share | | $ | 1.32 |
| $ | 1.25 |
| $ | 1.24 |
|
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 61
|
|
| INDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
|
| | |
| NOTE 1: | | |
| NOTE 2: | | |
| NOTE 3: | | |
| NOTE 4: | ACQUISITIONS | |
| NOTE 5: | | |
| NOTE 6: | | |
| NOTE 7: | | |
NOTE 7:8: | | |
NOTE 8:9: | | |
NOTE 9:10: | | |
NOTE 10: | | |
| NOTE 11: | | |
| NOTE 12: | | |
| NOTE 13: | | |
| NOTE 14: | | |
| NOTE 15: | | |
| NOTE 16: | | |
| NOTE 17: | | |
| NOTE 18: | | |
| NOTE 19: | OTHER OPERATING COSTS (INCOME), | |
| NOTE 20: | | |
| NOTE 21: | | |
| NOTE 22: | | |
NOTE 22:23: | | |
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 62
|
|
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Our significant accounting policies describe:
our election to be taxed as a real estate investment trust,
how we report our results,
changes in how we report our results and
how we account for various items.
OUR ELECTION TO BE TAXED AS A REAL ESTATE INVESTMENT TRUST (REIT)
Starting with our 2010 fiscal year, we elected to be taxed as a REIT. REIT income can be distributed to shareholders without first paying corporate level tax, substantially eliminating the double taxation on income. We expect to derive most of our REIT income from investments in timberlands, including the sale of standing timber through pay-as-cut sales contracts.contracts and lump sum timber deeds.
We were no longer subject to the REIT income can be distributedbuilt-in gains tax as of December 31, 2014. Our built-in gains tax period expired in 2015 due to shareholders without first paying corporate levela change in U.S. tax substantially eliminatinglaw that statutorily shortened the double taxation on income. A significant portion of our timberland segment earnings receives this favorablebuilt-in gains tax treatment. Weperiod to 5 years from 10 years. This means we are no longer subject to federal corporate level income taxes on built-in-gains (the excesssales of REIT property that had a fair market value overin excess of tax basis atwhen we converted to a REIT on January 1, 2010) due to a change in tax law in the fourth quarter 2015, which statutorily shortened the built-in-gains tax period from 10 years to 5 years following the REIT conversion.2010. We continue to be required to pay federal corporate income taxes on earnings of our Taxable REIT Subsidiary (TRS), which includes our manufacturing businessesWood Products segment and the portionportions of our Timberlands segment income included in the TRS.and Real Estate, Energy and Natural Resources (Real Estate & ENR) segments.
HOW WE REPORT OUR RESULTS
Our report includes:
consolidated financial statements,
our business segments,
foreign currency translation,
estimates, and
fair value measurements.measurements and
CONSOLIDATED FINANCIAL STATEMENTSforeign currency translation.
Consolidated Financial Statements
Our consolidated financial statements provide an overall view of our results and financial condition. They include our accounts and the accounts of entities that we control, including:
majority-owned domestic and foreign subsidiaries and
variable interest entities in which we are the primary beneficiary.
They do not include our intercompany transactions and accounts, which are eliminated, and noncontrolling interests are presented as a separate component of equity.
We account for investments in and advances to unconsolidated equity affiliates using the equity method. We record our share of equity in net earnings of equity affiliates within "Earnings (loss) from equity affiliates" in our Consolidated Statement of Operationsin the period in which the earnings are recorded by our equity affiliates.eliminated.Throughout these Notes to Consolidated Financial Statements, unless specified otherwise, references to “Weyerhaeuser,” "the company," “we” and “our” refer to the consolidated company.
OUR BUSINESS SEGMENTSOur Business Segments
Reportable business segments are determined based on the company’s "management approach," as defined by Financial Accounting Standards Board (FASB) ASC 280, “Segment Reporting.” The management approach is based on the way the chief operating decision maker organizes the segments within a company for making decisions about resources to be allocated and assessing their performance.
We are principally engaged in:
growing and harvesting timber; and
manufacturing, distributing and selling products made from trees.trees;
maximizing the value of every acre we own through the sale of higher and better use (HBU) properties; and
monetizing reserves of minerals, oil, gas, coal, and other natural resources on our timberlands.
Our business segments are organized based primarily on products and services.
Our Business Segments and Products
|
| |
| SEGMENT | PRODUCTS AND SERVICES |
| Timberlands | Logs, timber and leased recreational access |
| Real Estate & ENR | Sales of timberlands, rights to explore for and extract hard minerals, construction materials, oil and gas production, wind, solar and international wood productscoal |
| Wood Products | Softwood lumber, engineered wood products, structural panels, medium density fiberboard and building materials distribution |
Cellulose Fibers | Pulp, liquid packaging board and an equity interest in a newsprint joint venture |
We also transfer raw materials, semifinishedsemi-finished materials and end products among our business segments. Because of this intracompany activity, accounting for our business segments involves:
involves pricing products transferred between our business segments at current market values andvalues.
allocating joint conversion and common facility costs according to usage by our business segment product lines.
GainsUnallocated Items are gains or charges not related to company level initiatives or previous businesses that are not allocated to an individual operating segment are held in Unallocated Items. This includesour current business segments. They include a portion of items such as:as share-based compensation; pension and postretirement costs; foreign exchange transaction gains and losses associated with financing; and the elimination of intersegment profit in inventory and the LIFO reserve.LIFO; foreign exchange transaction gains and losses resulting from changes in exchange rates primarily related to our U.S. dollar denominated cash and debt balances that are held by our Canadian subsidiary; interest income and other and legacy obligations such as environmental remediation and workers compensation.
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 63
FOREIGN CURRENCY TRANSLATION
Local currencies are the functional currencies for most of our operations outside the U.S. We translate foreign currencies into U.S. dollars in two ways:
assets and liabilities — at the exchange rates in effect as of our balance sheet date; and
revenues and expenses — at average monthly exchange rates throughout the year.
ESTIMATESEstimates
We prepare our financial statements according to U.S. generally accepted accounting principles (U.S. GAAP). This requires us to make estimates and assumptions during our reporting periods and at the date of our financial statements. The estimates and assumptions affect our:
reported amounts of assets, liabilities and equity;
disclosure of contingent assets and liabilities; and
reported amounts of revenues and expenses.
While we do our best in preparing these estimates, actual results can and do differ from those estimates and assumptions.
FAIR VALUE MEASUREMENTSFair Value Measurements
We use a fair value hierarchy in accounting for certain nonfinancial assets and liabilities including:
long-lived assets (asset groups) measured at fair value for an impairment assessment,assessment;
reporting unitspension plan assets measured at fair value in the first step of a goodwill impairment test,
nonfinancial assets and nonfinancial liabilities measured at fair value in the second step of a goodwill impairment assessment,
assets acquired and liabilities assumed in a business acquisitionvalue; and
asset retirement obligations initially measured at fair value.
The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon its own market assumptions.
The fair value hierarchy consists of the following three levels:
Level 1 —1: Inputs are unadjusted quoted prices for identical assets or liabilities traded in an active market.
Level 2: Inputs are quoted prices in activenon-active markets for identical assetswhich pricing inputs are observable either directly or liabilities.indirectly at the reporting date.
Level 2 — Inputs are:
– quoted prices for similar assets or liabilities in an active market;
– quoted prices for identical or similar assets or liabilities in markets that are not active; or
– inputs other than quoted prices that are observable and market-corroborated inputs, which are derived principally from or corroborated by observable market data.
Level 3 —3: Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.
Foreign Currency Translation
Local currencies are the functional currencies for most of our operations outside the U.S. We translate foreign currencies into U.S. dollars in two ways:
assets and liabilities — at the exchange rates in effect as of our balance sheet date; and
revenues and expenses — at average monthly exchange rates throughout the year.
CHANGES IN HOW WE REPORT OUR RESULTS
Changes in how we report our results come from:
accounting changes made upon our adoption of new accounting guidance and
our reclassification of certain balances and results from prior years to make them consistent with our current reporting.reporting and
RECLASSIFICATIONSaccounting changes made upon our adoption of new accounting guidance
Reclassifications
We have reclassified certain balances and results from the prior years to be consistent with our 20152018 reporting. This makes year-to-year comparisons easier. Our reclassifications had no effect on consolidated net earnings or Weyerhaeuser shareholders’ interest. Our reclassifications presentequity.
New Accounting Pronouncements
Lease Recognition
In February 2016, the resultsFASB issued Accounting Standards Update (ASU) 2016-02, which requires lessees to recognize assets and liabilities for the rights and obligations created by those leases and requires leases to be recognized on the balance sheet. The new guidance is effective for fiscal years beginning after December 15, 2018, and early adoption is permitted.
We adopted this standard on January 1, 2019, using the modified retrospective transition approach at the beginning of operations discontinuedthe adoption period through a cumulative-effect adjustment to retained earnings. With this adoption approach, financial information will not be updated and disclosures required under the new standard will not be provided for dates and periods before January 1, 2019. In addition, the standard provides a number of optional practical expedients in 2014 separatelytransition. The adoption resulted in the recognition of additional right-of-use assets and lease liabilities for operating leases of less than 2 percent of our total assets on our Consolidated StatementBalance Sheet. These leases are primarily related to vehicles, equipment, office and warehouse leases disclosed in Note 15: Legal Proceedings, Commitments and Contingencies. Reclassification of OperationsCertain Amounts from Accumulated Other Comprehensive Loss
In February 2018, the FASB issued ASU 2018-02, which allows for the reclassification of certain income tax effects related to the Tax Cuts and Jobs Act (Tax Act) between “Accumulated other comprehensive loss” and “Retained earnings.” This ASU provides that adjustments to deferred tax liabilities and assets related to a change in tax laws be included in “Income from continuing operations”, even in situations where the related items were originally recognized in “Other comprehensive income (loss).” The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. Adoption of this ASU is to be applied either in the related footnotes.period of adoption or retrospectively to each period in which the effect of the change in the tax laws was recognized. We adopted this ASU during first quarter 2018 using the period of adoption method, which resulted in a reclassification of $253 million from "Accumulated other comprehensive loss" to "Retained earnings" on our Note 3: Discontinued OperationsConsolidated Balance Sheet provides more information about our discontinued operations.due to changes in federal statutory and effective state rates. In general, tax effects unrelated to the Tax Act are released from accumulated other comprehensive loss using the portfolio approach. NEW ACCOUNTING PRONOUNCEMENTSIn January 2016, the FASB issued ASU 2016-01, which updates certain aspects of recognition, measurement, presentation and disclosure of financial instruments. We adopted ASU 2016-01 in first quarter 2018, which resulted in a reclassification of accumulated unrealized gains on available-for-sale securities of $9 million from "Accumulated other comprehensive loss" to "Retained earnings" on our Consolidated Balance Sheet.
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K64
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (FASB)FASB issued Accounting Standards Update (ASU)ASU 2014-09, a comprehensive new revenue recognition model that requires an entity to recognize revenue to depict the transfer of goods or services to customers at an amount that reflects the consideration it expects to receive in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14, which deferred the effective date of ASU 2014-09 for an additional year. In March 2016, FASB issued ASU 2016-08, which does not change the core principle of the guidance; however, it does clarify the implementation guidance on principal versus agent considerations. In April 2016, FASB issued ASU 2016-10, which clarifies two aspects of ASU 2014-09: identifying performance obligations and the licensing implementation guidance. In May 2016, FASB issued ASU 2016-12, which amends ASU 2014-09 to provide improvements and practical expedients to the new revenue recognition model. In December 2016, the FASB issued ASU 2016-20, which amends ASU 2014-09 for technical corrections and to correct for unintended application of the guidance. In February 2017, FASB issued ASU 2017-05, which clarifies the scope of ASC 610-20 and affects accounting for partial sales of nonfinancial assets.
We plan to adopt theadopted this accounting standard update on January 1, 2018 and may use either2018. The new standard is required to be applied retrospectively to each prior reporting period presented (full retrospective transition method) or retrospectively with the retrospective or cumulative effect transition method. We are evaluatingof initially applying it recognized at the impact that ASU 2014-09 will have on our consolidated financial statements and related disclosures.date of initial application (cumulative effect method). We have not yet selected a transition method nor determinedadopted using the cumulative effect method. The adoption of the standard onnew revenue recognition guidance does not materially affect our ongoing financial reporting.
In May 2015, FASB issued ASU 2015-07, which clarifies the presentation within the fair value hierarchy of certain investments held within our pension plan. The new guidance is effective retrospectively for fiscal periods starting after December 15, 2015 and early adoption is permitted. We expect to adopt ASU 2015-07 on January 1, 2016. This new guidance eliminates the requirement to categorize certain pension investments
Cash FlowsWEYERHAEUSER COMPANY > .2015 ANNUAL REPORT AND FORM 10-K64
in the fair value hierarchy. Upon adoption these investments will be presented separately from the fair value hierarchy and reconciled to total investments in our consolidated financial statements and related disclosures.
In July 2015, FASB issued ASU 2015-11, which simplifies the measurement of inventories valued under most methods, including our inventories valued under FIFO – the first-in, first-out – and moving average cost methods. Inventories valued under LIFO – the last-in, first-out method – are excluded. Under this new guidance, inventories valued under these methods would be valued at the lower of cost or net realizable value, with net realizable value defined as the estimated selling price less reasonable costs to sell the inventory. The new guidance is effective prospectively for fiscal periods starting after December 15, 2016 and early adoption is permitted. We expect to adopt ASU 2015-11 on January 1, 2017 and are evaluating the impact on our consolidated financial statements and related disclosures.
In September 2015, FASB issued ASU 2015-16, which requires an acquirer in a business combination to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The update also requires the acquirer to record, in the same period's financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects that result from the change to provisional amounts, calculated as if the accounting had been completed at the acquisition date, and to disclose the portion of the amount recorded in current period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The new guidance is effective prospectively for fiscal periods starting after December 15, 2015 and early adoption is permitted. We expect to adopt ASU 2015-16 on January 1, 2016 and have determined that its adoption will not have a material impact on our consolidated financial statements and related disclosures at that time.
In November 2015, FASB issued ASU 2015-17, which simplifies the presentation of deferred income taxes by no longer requiring deferred tax assets and liabilities to be classified as current or noncurrent, instead requiring that all deferred tax assets and liabilities be classified as noncurrent. The new guidance is effective for annual periods starting after December 15, 2017 and early adoption is permitted. We elected to adopt ASU 2015-17 effective October 1, 2015 and have reclassified deferred tax assets and liabilities accordingly in our consolidated balance sheet and in related disclosures for all periods presented.
HOW WE ACCOUNT FOR VARIOUS ITEMS
This section provides information about how we account for certain key items related to:
capital investments,
financing our business and
operations.
ITEMS RELATED TO CAPITAL INVESTMENTS
Key items related to accounting for capital investments pertain to property and equipment, timber and timberlands, impairment of long-lived assets and goodwill.
Property and Equipment
We maintain property accounts on an individual asset basis. Here is how we handle major items:
Improvements to and replacements of major units of property are capitalized.
Maintenance, repairs and minor replacements are expensed.
Depreciation is calculated using a straight-line method at rates based on estimated service lives.
LoggingWe capitalize costs associated with logging roads that we intend to utilize for a period longer than one year. These roads are generallythen amortized — as timber is harvested — at rates based on the volume of timberover an estimated to be removed.service life.
Cost and accumulated depreciation of property sold or retired are removed from the accounts and the gain or loss is included in earnings.
Timber and Timberlands
We carry timber and timberlands at cost less depletion charged to disposals.depletion. Depletion refers to the carrying value of timber that is harvested, lost as a result of casualty or sold.
Key activities affecting how we account for timber and timberlands include:
reforestation,
depletion and
forest management in Canada.
Reforestation. Generally, we capitalize initial site preparation and planting costs as reforestation. We transfer reforestation to a merchantable timber classification when the timber is considered harvestable. That generally occurs after:
15 years in the South and
Generally, we expense costs after the first planting as they are incurred or over the period of expected benefit. These costs include:
fertilization,
vegetation and insect control,
pruning and precommercial thinning,
property taxes and
interest.
Accounting practices for these costs do not change when timber becomes merchantable and harvesting starts.
Depletion.Timber depletion. To determine depletion rates, we divide the net carrying value of timber by the related volume of timber estimated to be available over the growth cycle. To determine the growth cycle volume of timber, we consider:
regulatory and environmental constraints,
our management strategies,
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K65
inventory data improvements,
growth rate revisions and recalibrations and
known dispositions and inoperable acres.
In addition, the duration of the harvest cycle varies by geographic region and species of timber.
Depletion rate calculations do not include estimates for:
future silviculture or sustainable forest management costs associated with existing stands
future reforestation costs associated with a stand's final harvest; and
future volume in connection with the replanting of a stand subsequent to its final harvest
We include the cost of timber harvested in the carrying values of raw materials and product inventories. As these inventories are sold to third parties, we include them in the costCosts of products sold.sales.
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K65
Forest managementManagement in Canada.We managedmanage timberlands under long-term licenses in various Canadian provinces that are:
granted by the provincial governments;
granted for initial periods of 15 to 25 years; and
renewable provided we meet reforestation, operating and management guidelines.
Calculation of the fees we pay on the timber we harvest:
varies from province to province,
is tied to product market pricing and
depends upon the allocation of land management responsibilities in the license.
Impairment of Long-Lived Assets
We review the carrying value of long-lived assets — including certain identifiable intangibles — for impairment whenever eventsan event or changesa change in circumstances indicatecircumstance ("a triggering event") indicates that the carrying amountvalue of the assetsasset or asset group may not be recoverable.recoverable through future operations. The carrying value is the original cost, less accumulated depreciation and any past impairments recorded. Impaired assets held for use are written down to fair value. Impaired assets held for sale are written down to fair value less cost to sell. We determine fair value based on:
appraisals,
market pricing of comparable assets,
discounted value of estimated cash flows from the asset and
replacement values of comparable assets.
Goodwill
Goodwill is the purchase price minus the fair value of net assets acquired when we buy another entity. We assess goodwill for impairment:
using a fair-value-based approach and
at least annually — at the beginning of the fourth quarter.
In 2015 the fair value of the reporting unit with goodwill substantially exceeded its carrying value.
ITEMS RELATED TO FINANCING OUR BUSINESS
Key items related to financing our business include financial instruments, cash and cash equivalents, accounts payable and concentration of risk.
Financial Instruments
We estimate the fair value of financial instruments where appropriate. The assumptions we use — including the discount rate and estimates of cash flows — can significantly affect our fair-value amounts. Our fair values are estimates and may not match the amounts we would realize upon sale or settlement of our financial positions.
Cash and Cash Equivalents
Cash equivalents are investments with original maturities of 90 days or less. We state cash equivalents at cost, which approximates market.
Accounts Payable
Our banking system replenishes our major bank accounts daily as checks we have issued are presented for payment. As a result, we may have negative book cash balances due to outstanding checks that have not yet been paid by the bank. These negative balances arewould be included in accounts payable"Accounts payable" on our Consolidated Balance Sheet. Changes in these negative cash balances arewould be reported as financing activities in our Consolidated Statement of Cash Flows. We had no negative book cash balances as of December 31, 20152018, and December 31, 20142017. Concentration of Risk
We disclose customers that represent a concentration of credit risk. As of December 31, 2015,2018, and December 31, 2017, no customer accounted for 10 percent or more of our net sales or accounts receivable balances.sales.
ITEMS RELATED TO OPERATIONS
Key items related to operations include revenue recognition, inventories, shipping and handling costs, income taxes, share-based compensation, pension and other postretirement plans and environmental remediation.
Revenue Recognition
Operations generally recognize revenue upon shipmentRefer to customers. For certain export sales, revenue is recognized when title transfers at the foreign port.
For timberland sales,Note 3: Revenue Recognition for detail on how we recognize revenue when title and possession have been transferred to the buyer and all other criteriaaccount for sale and profit recognition have been satisfied.revenue.Inventories
We state inventories at the lower of cost or market.net realizable value. Cost includes labor, materials and production overhead. LIFO — the last-in, first-out method — applies to major inventory products held at our U.S. domestic locations. We began to use the LIFO method for domestic products in the 1940s as required to conform with the tax method elected. Subsequent acquisitions of entities added new products under the FIFO — the first-in, first-
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K66
outfirst-out method — or moving average cost methods that have continued under those methods. The FIFO or moving average cost methods applies to the balance of our domestic raw material and product inventories as well as for all material and supply inventories and all foreign inventories.
Shipping and Handling Costs
Income Taxes
We account for income taxes under the asset and liability method. Unrecognized tax benefits represent potential future funding obligations to taxing authorities if uncertain tax positions the company has taken on previously filed tax returns are not sustained. In accordance with the company’s accounting policy, accrued interest and penalties related to unrecognized tax benefits are recognized as a component of income tax expense.
We recognize deferred tax assets and liabilities to reflect:
future tax consequences due to differences between the carrying amounts for financial reporting purposes and the tax bases of certain items and
operating loss and tax credit carryforwards.
To measure deferred tax assets and liabilities, we:
determine when the differences between the carrying amounts and tax bases of affected items are expected to be recovered or resolved and
use enacted tax rates expected to apply to taxable income in those years.
Share-Based Compensation
We generally measure the fair valueWEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K66
Pension and Other Postretirement Benefit Plans
We recognize the overfunded or underfunded status of our defined benefit pension and other postretirement plans on our Consolidated Balance Sheet and recognize changes in the funded status through comprehensive income (loss) in the year in which the changes occur. Actuarial valuations determine the amount of the pension and other postretirement benefit obligations and the net periodic benefit cost we recognize. The net periodic benefit cost includes:
cost of benefits provided in exchange for employees’ services rendered during the year;
interest cost of the obligations;
expected long-term return on fundplan assets;
gains or losses on plan settlements and curtailments;
amortization of prior service costs and plan amendments over the average remaining service period of the active employee group covered by the plans or the average remaining life expectancy in situations where the plan participants affected by the plan amendment are inactive; and
amortization of cumulative unrecognized net actuarial gains and losses — generally in excess of 10 percent of the greater of the benefit obligation or market-related value of plan assets at the beginning of the year — over the average remaining service period of the active employee group covered by the plans or the average remaining life expectancy in situations where the plan participants are inactive.
Pension plans.We have defined benefit pension plans covering mostapproximately half of our employees. Determination of benefits differs for salaried, hourly and union employees:employees, as follows:
Salaried employee benefits are based on each employee’s highest monthly earnings for five consecutive years during the final 10 years before retirement.
Hourly and union employee benefits generally are stated amounts for each year of service.
Union employee benefits are set through collective-bargaining agreements.
We contribute to our U.S. and Canadian pension plans according to established funding standards. The funding standards for the plans are:
U.S. pension plans — according to the Employee Retirement Income Security Act of 1974; and
Canadian pension plans — according to the applicable provincial pension act and the Income Tax Act.
Postretirement benefits other than pensions.We provide certain postretirement health care and life insurance benefits for some retired employees. In some cases, we pay a portion of the cost of the benefit.Note 9:10: Pension and Other Postretirement Benefit Plansprovides additional information about changes made in our postretirement benefit plans during 20152018 and 20142017. Environmental Remediation
We accrue losses associated with environmental remediation obligations when such losses are probable and reasonably estimable. Future expenditures for environmental remediation obligations are not discounted to their present value. Recoveries of environmental remediation costs from other parties are recorded as assets when the recovery is deemed probable and does not exceed the amount of losses previously recorded.
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K67
NOTE 2: BUSINESS SEGMENTS
DISCONTINUED OPERATIONS
In 2014 we disposed of Weyerhaeuser Real Estate Company (WRECO) that is excluded from the segment results below. See Note 3: Discontinued Operations for information regarding our discontinued operations and the segments affected.KEY FINANCIAL DATA BY BUSINESS SEGMENT
Sales and Contribution (Charge) to Earnings
|
| | | | | | | | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| TIMBERLANDS |
| WOOD PRODUCTS |
| CELLULOSE FIBERS |
| UNALLOCATED ITEMS(1) AND INTERSEGMENT ELIMINATIONS |
| CONSOLIDATED |
|
| Sales to unaffiliated customers |
| 2015 | $ | 1,350 |
| $ | 3,872 |
| $ | 1,860 |
| $ | — |
| $ | 7,082 |
|
| 2014 | $ | 1,497 |
| $ | 3,970 |
| $ | 1,936 |
| $ | — |
| $ | 7,403 |
|
| 2013 | $ | 1,343 |
| $ | 4,009 |
| $ | 1,902 |
| $ | — |
| $ | 7,254 |
|
| Intersegment sales |
| 2015 | $ | 830 |
| $ | 82 |
| $ | — |
| $ | (912 | ) | $ | — |
|
| 2014 | $ | 867 |
| $ | 80 |
| $ | — |
| $ | (947 | ) | $ | — |
|
| 2013 | $ | 799 |
| $ | 71 |
| $ | — |
| $ | (870 | ) | $ | — |
|
| Contribution (charge) to earnings from continuing operations |
| 2015 | $ | 549 |
| $ | 258 |
| $ | 119 |
| $ | (76 | ) | $ | 850 |
|
| 2014 | $ | 613 |
| $ | 327 |
| $ | 291 |
| $ | 126 |
| $ | 1,357 |
|
| 2013 | $ | 470 |
| $ | 441 |
| $ | 200 |
| $ | (422 | ) | $ | 689 |
|
| (1) Unallocated Items are gains or charges not related to or allocated to an individual operating segment. They include a portion of items such as: share-based compensation, pension and postretirement costs, foreign exchange transaction gains and losses associated with financing, and the elimination of intersegment profit in inventory and the LIFO reserve. |
|
| | | | | | | | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| TIMBERLANDS |
| REAL ESTATE
& ENR |
| WOOD
PRODUCTS |
| UNALLOCATED ITEMS(1) AND INTERSEGMENT ELIMINATIONS |
| CONSOLIDATED |
|
| Sales to unaffiliated customers |
| 2018 | $ | 1,915 |
| $ | 306 |
| $ | 5,255 |
| $ | — |
| $ | 7,476 |
|
| 2017 | $ | 1,942 |
| $ | 280 |
| $ | 4,974 |
| $ | — |
| $ | 7,196 |
|
| 2016 | $ | 1,805 |
| $ | 226 |
| $ | 4,334 |
| $ | — |
| $ | 6,365 |
|
| Intersegment sales |
| 2018 | $ | 802 |
| $ | 1 |
| $ | — |
| $ | (803 | ) | $ | — |
|
| 2017 | $ | 762 |
| $ | 1 |
| $ | — |
| $ | (763 | ) | $ | — |
|
| 2016 | $ | 840 |
| $ | 1 |
| $ | 68 |
| $ | (909 | ) | $ | — |
|
| Contribution (charge) to earnings from continuing operations |
| 2018 | $ | 583 |
| $ | 127 |
| $ | 838 |
| $ | (366 | ) | $ | 1,182 |
|
| 2017 | $ | 532 |
| $ | 146 |
| $ | 569 |
| $ | (138 | ) | $ | 1,109 |
|
| 2016 | $ | 499 |
| $ | 55 |
| $ | 512 |
| $ | (131 | ) | $ | 935 |
|
| (1) Unallocated items are gains or charges not related to or allocated to an individual operating segment. They include a portion of items such as share-based compensation expense, pension and postretirement costs, foreign exchange transaction gains and losses, interest income and other, and the elimination of intersegment profit in inventory and LIFO. |
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K67
Management evaluates segment performance based on the contributions to earnings of the respective segments. An analysis and reconciliation of our business segment information to the consolidated financial statements follows:
Reconciliation of Contribution to Earnings to Net Earnings Attributable to Weyerhaeuser
| | DOLLAR AMOUNTS IN MILLIONS | | 2015 |
| 2014 |
| 2013 |
| 2018 |
| 2017 |
| 2016 |
|
| Net contribution to earnings from continuing operations | $ | 850 |
| $ | 1,357 |
| $ | 689 |
| $ | 1,182 |
| $ | 1,109 |
| $ | 935 |
|
| Net contribution to earnings from discontinued operations | — |
| 1,017 |
| 116 |
| — |
| — |
| 957 |
|
| Total contribution to earnings | 850 |
| 2,374 |
| 805 |
| 1,182 |
| 1,109 |
| 1,892 |
|
| Interest expense, net of capitalized interest (continuing and discontinued operations) | (347 | ) | (347 | ) | (371 | ) | |
| Income before income taxes (continuing and discontinued operations) | 503 |
| 2,027 |
| 434 |
| |
| Income taxes (continuing and discontinued operations) | 3 |
| (201 | ) | 129 |
| |
| Net earnings attributable to Weyerhaeuser | $ | 506 |
| $ | 1,826 |
| $ | 563 |
| |
Interest expense, net of capitalized interest(1) | | (375 | ) | (393 | ) | (436 | ) |
Income before income taxes(1) | | 807 |
| 716 |
| 1,456 |
|
Income taxes(1) | | (59 | ) | (134 | ) | (429 | ) |
| Net earnings | | $ | 748 |
| $ | 582 |
| $ | 1,027 |
|
| | |
Additional Financial Information
|
| | | | | | | | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| TIMBERLANDS |
| REAL ESTATE & ENR |
| WOOD PRODUCTS |
| UNALLOCATED ITEMS |
| CONSOLIDATED |
|
| Depreciation, depletion and amortization |
| 2018 | $ | 319 |
| $ | 14 |
| $ | 149 |
| $ | 4 |
| $ | 486 |
|
| 2017 | $ | 356 |
| $ | 15 |
| $ | 145 |
| $ | 5 |
| $ | 521 |
|
| 2016 | $ | 366 |
| $ | 13 |
| $ | 129 |
| $ | 4 |
| $ | 512 |
|
Charges for integration and restructuring, closures and asset impairments(1) |
| 2018 | $ | — |
| $ | — |
| $ | 2 |
| $ | — |
| $ | 2 |
|
| 2017 | $ | 147 |
| $ | — |
| $ | 13 |
| $ | 34 |
| $ | 194 |
|
| 2016 | $ | — |
| $ | 15 |
| $ | 7 |
| $ | 148 |
| $ | 170 |
|
| Capital expenditures |
| 2018 | $ | 117 |
| $ | — |
| $ | 306 |
| $ | 4 |
| $ | 427 |
|
| 2017 | $ | 115 |
| $ | 2 |
| $ | 299 |
| $ | 3 |
| $ | 419 |
|
| 2016 | $ | 116 |
| $ | 1 |
| $ | 297 |
| $ | 11 |
| $ | 425 |
|
|
Total Assets
|
| | | | | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| | TIMBERLANDS and REAL ESTATE & ENR(1) |
| WOOD PRODUCTS |
| UNALLOCATED ITEMS |
| CONSOLIDATED |
|
| Total assets |
| 2018 | $ | 13,838 |
| $ | 2,234 |
| $ | 1,177 |
| $ | 17,249 |
|
| 2017 | $ | 14,122 |
| $ | 2,145 |
| $ | 1,792 |
| $ | 18,059 |
|
| (1) Assets attributable to the Real Estate & ENR business segment are combined with total assets for the Timberlands segment as we do not produce separate balance sheets internally. |
DISCONTINUED OPERATIONS
During 2016, we disposed of our former Cellulose Fibers segment, which is excluded from the segment results above unless otherwise noted. See Note 4: Discontinued Operations and Other Divestituresfor information regarding our discontinued operations and the segments affected.
NOTE 3: REVENUE RECOGNITION
PERFORMANCE OBLIGATIONS
A performance obligation, as defined in ASC Topic 606, is a promise in a contract to transfer a distinct good or service to a customer. A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue at the point in time, or over the period, in which the performance obligation is satisfied.
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 68
Additional Financial Information
|
| | | | | | | | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| TIMBERLANDS |
| WOOD PRODUCTS |
| CELLULOSE FIBERS |
| UNALLOCATED ITEMS |
| CONSOLIDATED |
|
| Depreciation, depletion and amortization |
| 2015 | $ | 209 |
| $ | 106 |
| $ | 154 |
| $ | 10 |
| $ | 479 |
|
| 2014 | $ | 207 |
| $ | 119 |
| $ | 155 |
| $ | 12 |
| $ | 493 |
|
| 2013 | $ | 166 |
| $ | 123 |
| $ | 156 |
| $ | 13 |
| $ | 458 |
|
Net pension and postretirement cost (credit)(1) |
| 2015 | $ | 9 |
| $ | 27 |
| $ | 17 |
| $ | (11 | ) | $ | 42 |
|
| 2014 | $ | 10 |
| $ | 24 |
| $ | 11 |
| $ | (45 | ) | $ | — |
|
| 2013 | $ | 10 |
| $ | 28 |
| $ | 18 |
| $ | 40 |
| $ | 96 |
|
Charges for restructuring, closures and impairments(2) |
| 2015 | $ | — |
| $ | 10 |
| $ | — |
| $ | 15 |
| $ | 25 |
|
| 2014 | $ | 1 |
| $ | 2 |
| $ | — |
| $ | 41 |
| $ | 44 |
|
| 2013 | $ | 2 |
| $ | 13 |
| $ | — |
| $ | 362 |
| $ | 377 |
|
| Earnings (loss) from equity affiliates |
| 2015 | $ | — |
| $ | — |
| $ | (105 | ) | $ | — |
| $ | (105 | ) |
| 2014 | $ | — |
| $ | — |
| $ | (1 | ) | $ | — |
| $ | (1 | ) |
| 2013 | $ | — |
| $ | — |
| $ | 3 |
| $ | (2 | ) | $ | 1 |
|
| Capital expenditures |
| 2015 | $ | 75 |
| $ | 287 |
| $ | 118 |
| $ | 3 |
| $ | 483 |
|
| 2014 | $ | 74 |
| $ | 190 |
| $ | 123 |
| $ | 4 |
| $ | 391 |
|
| 2013 | $ | 73 |
| $ | 113 |
| $ | 92 |
| $ | 5 |
| $ | 283 |
|
| Investments in and advances to equity affiliates and unconsolidated entities |
| 2015 | $ | — |
| $ | — |
| $ | 74 |
| $ | — |
| $ | 74 |
|
| 2014 | $ | — |
| $ | — |
| $ | 188 |
| $ | — |
| $ | 188 |
|
| 2013 | $ | — |
| $ | — |
| $ | 190 |
| $ | — |
| $ | 190 |
|
Total assets(3) |
| 2015 | $ | 7,260 |
| $ | 1,541 |
| $ | 1,984 |
| $ | 1,701 |
| $ | 12,486 |
|
| 2014 | $ | 7,327 |
| $ | 1,430 |
| $ | 2,214 |
| $ | 2,294 |
| $ | 13,265 |
|
| 2013 | $ | 7,578 |
| $ | 1,326 |
| $ | 2,299 |
| $ | 3,169 |
| $ | 14,372 |
|
(3) Unallocated Items total assets includes assets of discontinued operations in 2013. |
STRATEGIC EVALUATION OF CELLULOSE FIBERS
On November 8, 2015 Weyerhaeuser announced that the board of directors authorized the exploration of strategic alternatives for its Cellulose Fibers business segment. At this time there can be no assurance that the board's evaluation process will result in any transaction or that any transaction, if pursued, will be consummated.
NOTE 3:DISCONTINUED OPERATIONSPerformance obligations associated with delivered log sales are typically satisfied when the logs are delivered to our customers’ mills or delivered to an ocean vessel in the case of export sales. Performance obligations associated with the sale of wood products are typically satisfied when the products are shipped. The company has elected, as an accounting policy, to treat shipping and handling that is performed after a customer obtains control of the product as an activity required to fulfill the promise to transfer the good; therefore we will not evaluate this requirement as a separate performance obligation.
WeCustomers are generally invoiced shortly after logs are delivered or after wood products are shipped, with payment generally due within a month or less of the invoice date. ASC Topic 606 requires entities to consider significant financing components of contracts with customers, though allows for the use of a practical expedient when the period between satisfaction of a performance obligation and payment receipt is one year or less. Given the nature of our revenue transactions, we have made certain reclassificationselected to utilize this practical expedient.
Performance obligations associated with real estate sales are generally met when placed into escrow and all conditions of closing have been satisfied.
CONTRACT ESTIMATES
Substantially all of the company’s performance obligations are satisfied as of a point in time. Therefore, there is little judgment in determining when control transfers for our consolidated financial statementsbusiness segments as described above.
The transaction price for log sales generally equals the amount billed to reflect discontinued operationsour customer for logs delivered during the accounting period. For the limited number of log sales subject to a long-term supply agreement, the transaction price is variable but is known at the time of billing. For wood products sales, the transaction price is generally the amount billed to the customer for the products shipped but may be reduced slightly for estimated cash discounts and rebates.
There are no significant contract estimates related to WRECO which was previously reported under the Real Estate segment and Unallocated Items.
OPERATIONS INCLUDED IN DISCONTINUED OPERATIONS
Divestiture of WRECO
On July 7, 2014, we completed the following set of transactions resulting in our homebuilding and real estate development business becoming wholly-ownedbusiness.
CONTRACT BALANCES
In general, customers are billed and a receivable is recorded as we ship and/or deliver wood products and logs. We generally receive payment shortly after products have been received by TRI Pointe Homes, Inc. (TRI Pointe):our customers. Contract asset and liability balances are immaterial.
For real estate sales, the distribution of shares of WRECO to our shareholderscompany receives the entire consideration in exchange for 59 million shares of our common stock; andcash at closing.
the merger of WRECO into a special purpose subsidiary of TRI Pointe, with WRECO surviving the merger and becoming a wholly-owned subsidiary of TRI Pointe.
Collectively, these transactions are referred to as the “Real Estate Divestiture”.
During June 2014, our wholly-owned subsidiary, WRECO, issued $900 million of unsecured and unsubordinated senior debt obligations. The net proceeds after deducting the discount, underwriting fees and issuance costs were $870 million. At the close of the Real Estate Divestiture in July 2014, WRECO used $744 million of the debt proceeds to repay intercompany debt and interest to Weyerhaeuser Company. The newly issued
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 69
debt, remainingMAJOR PRODUCTS
A Reconciliation of Revenue Recognized by our Major Products:
|
| | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| 2018 |
| 2017 |
| 2016 |
|
| Net Sales to Unaffiliated Customers: | | | |
| Timberlands Segment | | | |
Delivered logs(1): | | | |
| West | | | |
| Domestic sales | 503 |
| 473 |
| 410 |
|
| Export sales | 484 |
| 442 |
| 455 |
|
| Subtotal West | 987 |
| 915 |
| 865 |
|
| South | 625 |
| 616 |
| 566 |
|
| North | 99 |
| 95 |
| 91 |
|
| Other | 41 |
| 59 |
| 38 |
|
| Subtotal delivered logs sales | 1,752 |
| 1,685 |
| 1,560 |
|
| Stumpage and pay-as-cut timber | 59 |
| 73 |
| 85 |
|
| Recreational and other lease revenue | 59 |
| 59 |
| 44 |
|
Other (2) | 45 |
| 125 |
| 116 |
|
| Net Sales attributable to Timberlands Segment | 1,915 |
| 1,942 |
| 1,805 |
|
| Real Estate & ENR Segment |
| | |
| Real estate | 229 |
| 208 |
| 172 |
|
| Energy and natural resources | 77 |
| 72 |
| 54 |
|
| Net sales attributable to Real Estate & ENR Segment | 306 |
| 280 |
| 226 |
|
| Wood Products Segment | | | |
| Structural lumber | 2,258 |
| 2,058 |
| 1,839 |
|
| Oriented strand board | 891 |
| 904 |
| 707 |
|
| Engineered solid section | 521 |
| 500 |
| 450 |
|
| Engineered I-joists | 336 |
| 336 |
| 290 |
|
| Softwood plywood | 200 |
| 176 |
| 174 |
|
| Medium density fiberboard | 177 |
| 183 |
| 158 |
|
| Complementary building products | 584 |
| 541 |
| 515 |
|
Other(3) | 288 |
| 276 |
| 201 |
|
| Net sales attributable to Wood Products Segment | 5,255 |
| 4,974 |
| 4,334 |
|
| Total | $ | 7,476 |
| $ | 7,196 |
| $ | 6,365 |
|
(1) The West region includes Washington and Oregon. The South region includes Virginia, North Carolina, South Carolina, Florida, Georgia, Alabama, Mississippi, Louisiana, Arkansas, Texas and Oklahoma. The North region includes West Virginia, Maine, New Hampshire, Vermont, Michigan, Wisconsin and Montana. Other includes our Canadian operations and former Twin Creeks Venture (terminated in December 2017). (2) Other Timberlands sales include sales of seeds and seedlings, chips, as well as sales from our former Uruguayan operations (sold during third quarter 2017). Our former Uruguayan operations included logs, plywood and hardwood lumber harvested or produced. Refer to Note 4: Discontinued Operations and Other Divestitures for further information. (3) Includes chips and other byproducts. |
NOTE 4:DISCONTINUED OPERATIONS AND OTHER DIVESTITURES
OPERATIONS DIVESTED
On September 1, 2017, we completed the sale of our Uruguay timberlands and manufacturing operations, to a consortium led by BTG Pactual's Timberland Investment Group (TIG), including other long-term investors, for $403 million of cash proceeds. Due to the impairment of our Uruguayan operations recorded during second quarter 2017 (refer to Note 18: Charges for Integration and Restructuring, Closures and Asset Impairments), no material gain or loss was recorded as a result of this sale.
The sale of our Uruguayan operations was not considered a strategic shift that had or will have a major effect on our operations or financial results and therefore did not meet the requirements for presentation as discontinued operations.
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K70
DISCONTINUED OPERATIONS
During 2016, we entered into three separate transactions to sell our Cellulose Fibers business. As a result of these transactions, the company recognized a pretax gain on disposition of $789 million and total cash proceeds of $2.5 billion in the second half of 2016. These transactions consisted of:
sale of our Cellulose Fibers liquid packaging board business to Nippon Paper Industries Co., Ltd for $285 million in cash proceeds, which closed on August 31, 2016;
sale of our Cellulose Fibers printing papers joint venture to One Rock Capital Partners, LLC for $42 million in cash proceeds, which closed on November 1, 2016; and
sale of our Cellulose Fibers pulp business to International Paper for $2.2 billion in cash proceeds, which closed on December 1, 2016.
The results of operations for our pulp and other WRECO assets and liabilities, including $5 million cashliquid packaging board businesses, along with our interest in our printing papers joint venture, were reclassified to discontinued operations during our 2016 reporting year. These results have been summarized in "Earnings from discontinued operations, net of income taxes" on hand, were acquired by TRI Pointe when WRECO becameour Consolidated Statement of Operations for each period presented. We did not reclassify our Consolidated Statement of Cash Flows to reflect discontinued operations. Cellulose Fibers was previously disclosed as a wholly-owned subsidiaryseparate reportable business segment. Retained indirect corporate overhead costs previously allocated to Cellulose Fibers are now reported as part of TRI Pointe at the closingUnallocated Items.
We used $1.7 billion of the transaction. Additionally, $32 million related toafter-tax proceeds from the adjustment amount payable pursuant to the termssale of the transaction agreement was paid to TRI Pointe. Our net cash proceeds in connection with the Real Estate Divestiture totaled $707 million.our Cellulose Fibers business segment for repayment of debt during 2016.
Prior to the distribution of WRECO shares to our shareholders, WRECO was a wholly-owned subsidiary. Concurrent with the distribution to shareholders, WRECO ceased being a subsidiary.
The following table presents the components of the net gain on divestiture:the divestiture of Cellulose Fibers: |
| | | |
| DOLLAR AMOUNTS IN MILLIONS |
| 2014 |
|
| Proceeds: | |
| Common shares tendered (58,813,151 shares at $33.22 per share) | $ | 1,954 |
|
| Cash | 707 |
|
| | 2,661 |
|
| Less: | |
| Net book value of contributed assets | (1,671 | ) |
| Transaction costs, net of reimbursement | (18 | ) |
| | (1,689 | ) |
| Gain on WRECO divestiture | $ | 972 |
|
The net gain on the Real Estate Divestiture of $972 million is not taxable and was recognized in 2014 in discontinued operations. |
| | | |
| DOLLAR AMOUNTS IN MILLIONS |
| | 2016 |
|
| Proceeds, net of cash and cash equivalents disposed of | $ | 2,486 |
|
| Less: | |
| Net book value of assets and liabilities disposed of | (1,678 | ) |
| Transaction costs, net of reimbursement | (19 | ) |
| | (1,697 | ) |
| Pretax gain on Cellulose Fibers divestitures | 789 |
|
| Income taxes | (243 | ) |
| Net gain on Cellulose Fibers divestitures | $ | 546 |
|
NET EARNINGS FROM DISCONTINUED OPERATIONS
Sales and Net Earnings from Discontinued Operations
|
| | | | | | |
| |
| 2014(1) |
| 2013 |
|
| Net sales from discontinued operations | $ | 573 |
| $ | 1,275 |
|
| Income from discontinued operations | 42 |
| 114 |
|
| Income taxes | (16 | ) | (42 | ) |
| Net income from operations | 26 |
| 72 |
|
| Net gain on divestiture | 972 |
| — |
|
| Net earnings from discontinued operations | 998 |
| 72 |
|
| (1) Discontinued operations in 2014 covered only 188 days. |
|
| | | |
| DOLLAR AMOUNTS IN MILLIONS |
| 2016(1) |
|
| Total net sales | $ | 1,537 |
|
| Costs of sales | 1,283 |
|
| Gross margin | 254 |
|
| Selling expenses | 12 |
|
| General and administrative expenses | 29 |
|
| Research and development expenses | 5 |
|
Charges for integration and restructuring, closures and asset impairments(2) | 63 |
|
| Other operating income, net | (27 | ) |
| Operating income | 172 |
|
| Equity loss from joint venture | (4 | ) |
| Interest expense, net of capitalized interest | (5 | ) |
| Earnings from discontinued operations before income taxes | 163 |
|
| Income taxes | (97 | ) |
| Net earnings from operations | 66 |
|
| Net gain on divestiture of Cellulose Fibers | 546 |
|
| Net earnings from discontinued operations | $ | 612 |
|
(1) Discontinued operations in 2016 includes 335 days of the pulp business, 305 days of our printing papers joint venture operations, and 244 days of the liquid packaging board business. (2) Charges for integration and restructuring, closures and asset impairments consist of costs related to our strategic evaluation of the Cellulose Fibers businesses and transaction-related costs. |
Results of discontinued operations exclude certain general corporate overhead costs that have been allocated to and are included in contribution to earnings for the operating segments.
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K70
CARRYING VALUE OF ASSETS AND LIABILITES OF DISCONTINUED OPERATIONS
The following table shows carrying values for assets and liabilities classified as discontinued operations as of December 31, 2013.
Carrying Value of Assets and Liabilities of Discontinued Operations
|
| | | |
| DOLLAR AMOUNTS IN MILLIONS |
| December 31, 2013 |
|
| Assets | |
| Cash and cash equivalents | $ | 5 |
|
| Receivables, less discounts and allowances | 51 |
|
| Prepaid expenses | 11 |
|
| Total current assets | 67 |
|
| Property and equipment, net | 15 |
|
| Real estate in process of development and for sale | 851 |
|
| Land being processed for development | 596 |
|
| Investments in and advances to equity affiliates | 21 |
|
| Deferred tax assets | 136 |
|
| Other assets | 96 |
|
| Total noncurrent assets | 1,715 |
|
| Total assets | $ | 1,782 |
|
| Liabilities | |
| Accounts payable | $ | 41 |
|
| Accrued liabilities | 113 |
|
| Total current liabilities | 154 |
|
| Long-term debt (nonrecourse to the company) held by variable interest entities | 5 |
|
| Other liabilities | 27 |
|
| Total noncurrent liabilities | 32 |
|
| Total liabilities | $ | 186 |
|
| Noncontrolling interests | $ | 34 |
|
NOTE 4:ACQUISITIONS
PENDING MERGER WITH PLUM CREEK
On November 6, 2015 Weyerhaeuser Company and Plum Creek Timber, Inc., entered into an Agreement and Plan of Merger (“Merger Agreement”) pursuant to which Plum Creek will merge with and into Weyerhaeuser Company with Weyerhaeuser continuing as the surviving corporation. Under the terms of the Merger Agreement, Plum Creek shareholders will receive 1.60 shares of Weyerhaeuser common shares for each share of Plum Creek common stock at the closing date. Plum Creek is a REIT that owns and manages timberlands in the United States. In addition Plum Creek produces wood products, develops opportunities for mineral and other natural resource extraction, and develops and sells real estate properties.
Because the exchange ratio was fixed at the time of the merger agreement and the market value of our common stock will continue to fluctuate, the total value of the consideration exchanged will not be determinable until the closing date. The number of shares to be issued with respect to Plum Creek stock awards will not be determinable until the closing of the transaction. We have estimated the total consideration expected to be issued to Plum Creek shareholders in the merger to be 278 million shares of our common stock based on the 1.60 exchange ratio and the number of shares of Plum Creek common stock issued and outstanding as of November 30, 2015.
The merger agreement has been approved by both companies' board of directors. The closing of the merger is subject to approval by the shareholders of Plum Creek, the approval by our shareholders of the issuance of Weyerhaeuser Company common stock to Plum Creek's shareholders, receipt of certain regulatory approvals and other conditions specified in the merger agreement. The merger is expected to close in the first quarter of 2016.
LONGVIEW TIMBER PURCHASE
On July 23, 2013, we purchased 100 percent of the equity interests in Longview Timber LLC (Longview Timber) for $1.58 billion cash and assumed debt of $1.07 billion, for an aggregate purchase price of $2.65 billion. Longview Timber was a privately-held Delaware limited liability company engaged in the ownership and management of approximately 645,000 acres of timberlands in Oregon and Washington. We believe Longview Timber has productive lands with favorable age class distribution that will provide us with optionality for harvest. Earnings, assets and liabilities from this business are reported as part of the Timberlands segment beginning in third quarter 2013.
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 71
CASH FLOWS FROM DISCONTINUED OPERATIONS
Cash Flows from Discontinued Operations |
| | | |
| DOLLAR AMOUNTS IN MILLIONS |
| 2016(1) |
|
| Net cash provided by operating activities | $ | 196 |
|
| Net cash provided by investing activities | $ | 2,356 |
|
| (1) Discontinued operations in 2016 includes 335 days of the pulp business, 305 days of our printing papers joint venture operations, and 244 days of the liquid packaging board business, and the cash flows associated with the CF divestitures. |
RELATED PARTY TRANSACTIONS WITH PRINTING PAPERS JOINT VENTURE
Prior to November 1, 2016, we held a 50 percent ownership interest in North Pacific Paper Corporation (NORPAC), our printing papers joint venture, which we considered a related party. We provided goods and services to NORPAC, including raw materials and support services. The amount paid to Weyerhaeuser by this joint venture for goods and services was $126 million in 2016.
NOTE 5:MERGER WITH PLUM CREEK
On February 19, 2016, we merged with Plum Creek Timber Company, Inc. (Plum Creek). Plum Creek was a REIT that primarily owned and managed timberlands in the United States. Plum Creek also produced wood products, developed opportunities for mineral and other natural resource extraction, and sold real estate properties.
The acquisition of total assets of $10.0 billion was a noncash investing and financing activity comprised of $6.4 billion in equity consideration transferred and $3.6 billion of liabilities assumed.
Summarized Unaudited Pro Forma Information that Presents Combined Amounts as if this AcquisitionMerger Occurred at the Beginning of 20122015
| | DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURES | | 2013 |
| 2016 |
|
| Net sales | $ | 7,371 |
| $ | 6,525 |
|
| Net earnings from continuing operations attributable to Weyerhaeuser common shareholders | $ | 485 |
| $ | 519 |
|
| Net earnings from continuing operations per share attributable to Weyerhaeuser common shareholders, basic | $ | 0.84 |
| $ | 0.69 |
|
| Net earnings from continuing operations per share attributable to Weyerhaeuser common shareholders, diluted | $ | 0.83 |
| $ | 0.68 |
|
Estimated Fair ValuesPro forma net earnings attributable to Weyerhaeuser common shareholders exclude $155 million of Identifiable Assets Acquired and Liabilities Assumed asnon-recurring merger-related costs (net of tax) incurred in the year ended December 31, 2016. Pro forma data may not be indicative of the Acquisition Date
|
| | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| July 23,
2013 |
| Measurement Period Adjustments |
| December 31,
2013 |
|
| Current assets | $ | 46 |
| $ | — |
| $ | 46 |
|
| Property and equipment | 39 |
| 1 |
| 40 |
|
| Timber and timberlands | 2,654 |
| 2 |
| 2,656 |
|
| Other assets | 2 |
| — |
| 2 |
|
| Total assets acquired | 2,741 |
| 3 |
| 2,744 |
|
| Current liabilities | 10 |
| — |
| 10 |
|
| Long-term debt | 1,122 |
| — |
| 1,122 |
|
| Other liabilities | 5 |
| 3 |
| 8 |
|
| Total liabilities assumed | 1,137 |
| 3 |
| 1,140 |
|
| Net assets acquired | $ | 1,604 |
| $ | — |
| $ | 1,604 |
|
The initial allocations of purchase price were recordedresults that would have been obtained had these events occurred at the estimated fair value of assets acquired and liabilities assumed based upon the best information available to management. The purchase price allocation was finalized in the fourth quarter 2013. The measurement period adjustments reflect additional information obtained to record the fair value of certain assets acquired and liabilities assumed based on facts and circumstances existing asbeginning of the acquisition date.
In orderperiod presented, nor is it intended to finance our purchasebe a projection of Longview Timber, we issued the following:
29 million common shares on June 24, 2013, at the price of $27.75 per share for net proceeds of $781 million;
4.4 million common shares on July 8, 2013, at the price of $27.75 per share for net proceeds of $116 million, in connection with the exercise of an overallotment option; and
| |
• | 13.8 million of our 6.375 percent Mandatory Convertible Preference Shares, Series A, par value $1.00 and liquidation preference of $50.00 per share on June 24, 2013, for net proceeds of $669 million. See Note 16: Shareholders' Interest for more information. |
Proceeds were used to finance the acquisition and pay related fees and expenses. We paid $11 million in fees related to a bridge loan in 2013. As of the close of the Longview Timber purchase, we did not draw from the loan and these fees were expensed in 2013, which is recorded in "Interest expense" in our Consolidated Statement of Operations.We obtained additional debt financing in 2013 which was used to repay all of the assumed debt in 2013. See Note 13: Long-term Debt.future results.
NOTE 5:6: NET EARNINGS PER SHARE
Our basic earnings per share attributable to Weyerhaeuser common shareholders for the last three years were:
$0.99 in 2018,
Our diluted earnings per share attributable to Weyerhaeuser common shareholders for the last three years were:
$0.99 in 2018,
$0.77 in 2017 and
This note discloses:
how we calculate basic and diluted net earnings per share and
shares excluded from dilutive effect.
HOW WE CALCULATE BASIC AND DILUTED NET EARNINGS PER SHARE
"Basic earnings" per share is net earnings available to common shareholders divided by the weighted average number of our outstanding common shares, including stock equivalent units where there is no circumstance under which those shares would not be issued.
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K72
"Diluted earnings" per share is net earnings available to common shareholders divided by the sum of the:
weighted average number of our outstanding common shares and
the effect of our outstanding dilutive potential common shares.
Dilutive potential common shares may include:
outstanding stock options,
restricted stock units and
performance share units andunits.
preference shares.
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K72
Calculation of Weighted Average Number of Outstanding Common Shares - Dilutive
|
| | | | | | |
| SHARES IN THOUSANDS |
| | 2018 |
| 2017 |
| 2016 |
|
| Weighted average number of outstanding shares - basic | 754,556 |
| 753,085 |
| 718,560 |
|
| Dilutive potential common shares: | | | |
| Stock options | 1,310 |
| 2,571 |
| 2,672 |
|
| Restricted stock units | 566 |
| 582 |
| 756 |
|
| Performance share units | 395 |
| 428 |
| 413 |
|
| Total effect of outstanding dilutive potential common shares | 2,271 |
| 3,581 |
| 3,841 |
|
| Weighted average number of outstanding common shares - dilutive | 756,827 |
| 756,666 |
| 722,401 |
|
We use the treasury stock method to calculate the dilutive effect of our outstanding stock options, restricted stock units and performance share units. Share-based payment awards that are contingently issuable upon the achievement of specified performance or market conditions are included in our diluted earnings per share calculation in the period in which the conditions are satisfied.
We use the if-converted method to calculate the effect of our outstanding preference shares. In applying the if-converted method, conversion is not assumed for purposes of computing diluted earnings per share if the effect would be antidilutive. Preference shares are antidilutive whenever the amount of the dividend declared in or accumulated for the current period per common share obtainable on conversion exceeds diluted earnings per share exclusive of the preference shares.
Preference shares are evaluated for participation on a quarterly basis to determine whether two-class presentation is required. Preference shares are considered to be participating as of the financial reporting period end to the extent they would participate in dividends paid to common shareholders. Preference shares are not considered participating for the years ended December 31, 2015 and 2014. Under the provisions of the two-class method, basic and diluted earnings per share would be presented for both preference and common shareholders.
SHARES EXCLUDED FROM DILUTIVE EFFECT
The following shares were not included in the computation of diluted earnings per share because they were either antidilutive or the required performance or market conditions were not met. Some or all of these shares may be dilutive potential common shares in future periods.
We issued 13.8 million 6.375 percent Mandatory Convertible Preference Shares, Series A on June 24, 2013. We do not include these shares in our calculation of diluted earnings per share because they are antidilutive. See Note 4: Acquisitions.Potential Shares Not Included in the Computation of Diluted Earnings per Share
| | | Shares in thousands | 2015 |
| 2014 |
| 2013 |
| |
| SHARES IN THOUSANDS | | SHARES IN THOUSANDS |
| | 2018 |
| 2017 |
| 2016 |
|
| Stock options | 5,016 |
| — |
| 4,618 |
| 2,402 |
| 1,351 |
| 1,462 |
|
| Performance share units | 155 |
| — |
| — |
| 1,080 |
| 799 |
| 384 |
|
| Preference Shares | 25,307 |
| 24,988 |
| 24,865 |
| |
NOTE 6:7: INVENTORIES
Inventories include raw materials, work-in-process, finished goods as well as materials and finished goods.supplies.
Inventories as of the End of Our Last Two Years
| | DOLLAR AMOUNTS IN MILLIONS | | DECEMBER 31,
2015 |
| DECEMBER 31,
2014 |
| DECEMBER 31,
2018 |
| DECEMBER 31,
2017 |
|
| LIFO inventories: | | | | |
| Logs and chips | $ | 15 |
| $ | 9 |
| |
| Lumber, plywood and panels | 48 |
| 55 |
| |
| Pulp and paperboard | 111 |
| 122 |
| |
| Logs | | $ | 11 |
| $ | 17 |
|
| Lumber, plywood, panels, and fiberboard | | 75 |
| 66 |
|
| Other products | 11 |
| 11 |
| 10 |
| 10 |
|
| FIFO or moving average cost inventories: | | | | |
| Logs and chips | 38 |
| 38 |
| |
| Lumber, plywood, panels and engineered wood products | 75 |
| 80 |
| |
| Pulp and paperboard | 32 |
| 35 |
| |
| Logs | | 35 |
| 38 |
|
| Lumber, plywood, panels, fiberboard and engineered wood products | | 86 |
| 91 |
|
| Other products | 90 |
| 96 |
| 83 |
| 77 |
|
| Materials and supplies | 148 |
| 149 |
| 89 |
| 84 |
|
| Total | $ | 568 |
| $ | 595 |
| $ | 389 |
| $ | 383 |
|
LIFO — the last-in, first-out method — applies to major inventory products held at our U.S. domestic locations. The FIFO — the first-in, first-out method — or moving average cost methods apply to the balance of our domestic raw material and product inventories as well as for all material and supply inventories and all foreign inventories. If we used FIFO for all LIFO inventories, our stated inventories would have been $124higher by $79 million and $120 million higher as of December 31, 20152018, and $70 million as of December 31, 20142017, respectively..
HOW WE ACCOUNT FOR OUR INVENTORIES
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 73
NOTE 7:8: PROPERTY AND EQUIPMENT
Property and equipment includes land, buildings and improvements, machinery and equipment, roads and other items.
Carrying Value of Property and Equipment and Estimated Service Lives
| | DOLLAR AMOUNTS IN MILLIONS | | RANGE OF LIVES | DECEMBER 31,
2015 |
| DECEMBER 31,
2014 |
| RANGE OF LIVES | DECEMBER 31,
2018 |
| DECEMBER 31,
2017 |
|
| Property and equipment, at cost: | | | | | | |
| Land | N/A | $ | 121 |
| $ | 127 |
| N/A | $ | 87 |
| $ | 88 |
|
| Buildings and improvements | 10–40 | 1,208 |
| 1,220 |
| 15-40 | 942 |
| 867 |
|
| Machinery and equipment | 2–25 | 6,675 |
| 6,706 |
| 5-25 | 3,240 |
| 3,037 |
|
| Roads | 10–20 | 624 |
| 609 |
| 10-35 | 785 |
| 782 |
|
| Other | 3–10 | 252 |
| 285 |
| 3-10 | 179 |
| 182 |
|
| Total cost | | 8,880 |
| 8,947 |
| | 5,233 |
| 4,956 |
|
| Allowance for depreciation and amortization | | (6,294 | ) | (6,324 | ) | |
| Accumulated depreciation and amortization | | | (3,376 | ) | (3,338 | ) |
| Property and equipment, net | | $ | 2,586 |
| $ | 2,623 |
| | $ | 1,857 |
| $ | 1,618 |
|
SERVICE LIVES AND DEPRECIATION
In general, additions are classified into components, each with its own estimated useful life as determined at the time of purchase. Buildings and improvements for property and equipment have estimated lives that are generally at either the highlow end or lowhigh end of the range from 1015 years to 40 years,, depending on the type and performance of construction.
The maximum service lives for machinery and equipment varies among our operations:
Wood products manufacturing facilities — 20 years; and
Depreciation expense excludingwas:
$197 million in 2018,
$206 million in 2017 and
$198 million in 2016 (excluding discontinued operations, was:
$332 million in 2013operations).
NOTE 8: EQUITY AFFILIATES9: RELATED PARTIES
WeThis note provides details about and our transactions with related parties. For the years presented, our related parties have investments in unconsolidated equity affiliates overconsisted of:
Real Estate Development Ventures,
our Twin Creeks Venture, and
special-purpose entities (SPEs).
REAL ESTATE DEVELOPMENT VENTURE
WestRock-Charleston Land Partners, LLC (WR-CLP) is a limited liability company which we have significant influence that we account for usingholds residential and commercial real estate development properties, currently under development (Class A Properties) and higher-value timber and development lands (Class B Properties) (referred to collectively as the Real Estate Development Ventures). The company uses the equity method with taxes providedfor both its Class A and Class B interests of 3 percent and 50 percent, respectively. Our share of the equity earnings is included in the net contribution to earnings of our Real Estate & ENR segment.
We are not the primary beneficiary of WR-CLP and we are not committed to make any material capital contributions during the remaining term of the venture, which expires in 2020. We do not intend to provide any additional sources of financing for WR-CLP.
The carrying amount of our investment in WR-CLP was $31 million at December 31, 2017. During 2018, all remaining capital invested in WR-CLP was returned through distributions. At December 31, 2018, we no longer carry an investment related to WR-CLP. Additionally, we had a $1 million gain on undistributed earnings.investment from the joint venture during 2018. We record our share of net earnings on the investment within "Earnings (loss) from equity affiliates""Interest income and other" in our Consolidated Statement of Operations in the period in which earnings are recorded by the affiliates. Details About Our Equity AffiliatesTWIN CREEKS VENTURE
Ownership Redemption, Agreement Termination and Sale Recognition
As of December 31, 2015,During October 2017, we hold a 50redeemed our 21 percent ownership interest in North Pacific Paper Corporation (NORPAC). NORPAC owns and operates a newsprint manufacturing facility in Longview, Washington. Our share of the net earnings of NORPAC is reported in our Cellulose Fibers segment.
In the fourth quarter of 2015, it was determined that the joint venture’s book value of certain long-lived assets was not recoverable and an impairment charge was recorded to measure these assets at fair value. The fair value of the asset group was estimated based on a combination of income and market approaches using significant unobservable inputs. Key assumptions include (a) the timing and amounts of future cash flows related to the asset group’s operations, (b) discount rates applicable to the future cash flows ranging from 10.5 percent to 14 percent and (c) earnings multiples of other entities’ asset groups deemed to be similar to the asset group. Weyerhaeuser’s earnings include an $84 million chargeTwin Creeks Venture for our share of this asset impairment. Weyerhaeuser also recorded a related additional tax benefit of $28$108 million in its provision for income taxescash. We did not recognize a material gain or loss on the redemption of our ownership interest. The cash received was classified as a result of the reduction of deferred tax liabilities associated with the reductioncash flow from investing activities in the book basis of the investment in this equity affiliate. As such, the net charge to Weyerhaeuser related to this item was $56 million in the fourth quarter of 2015.
During 2014, Catchlight Energy was dissolved. We received no proceeds from the dissolution.
During 2013, we sold part of our investment in Liaison Technologies Inc. and recognized a $10 million pretax gain, which is recorded in "Interest income and other" on our Consolidated Statement of OperationsCash Flows and within Unallocated Items. Our remaining investment is accounted for under the cost method..Unconsolidated Financial InformationEffective December 31, 2017, we terminated the agreements under which we had managed the Twin Creeks timberlands. Following termination of Equity Affiliates
Aggregated assets, liabilitiesthese agreements, Weyerhaeuser has no further responsibilities or obligations related to the Twin Creeks Venture and operating resultsour continuing involvement in the contributed timberlands ceased. In fourth quarter 2017, we recognized the sale of the entitiesoriginal contribution of timberlands that we accounted for as equity affiliates are provided below.occurred April 2016.
Assets and Liabilities of Equity Affiliates
|
| | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| DECEMBER 31,
2015 |
| DECEMBER 31,
2014 |
|
| Current assets | $ | 89 |
| $ | 123 |
|
| Noncurrent assets | $ | 101 |
| $ | 413 |
|
| Current liabilities | $ | 25 |
| $ | 30 |
|
| Noncurrent liabilities | $ | 6 |
| $ | 109 |
|
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 74
Operating ResultsChanges in our deposit from contribution of Equity Affiliates
timberlands to related party balance during 2017 were as follows: |
| | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| | 2015 |
| 2014 |
| 2013 |
|
| Net sales | $ | 462 |
| $ | 501 |
| $ | 534 |
|
| Operating income (loss) | $ | (311 | ) | $ | (2 | ) | $ | 3 |
|
| Net income (loss) | $ | (197 | ) | $ | — |
| $ | 3 |
|
|
| | | |
| DOLLAR AMOUNTS IN MILLIONS |
| | |
| Balance at December 31, 2016 | $ | 426 |
|
| Lease payments to Twin Creeks Venture | (8 | ) |
| Distributions from Twin Creeks Venture | 2 |
|
| Recognition of contributed timberlands | (420 | ) |
| Balance at December 31, 2017 | $ | — |
|
Doing BusinessFormation and Operations
On April 1, 2016, we contributed approximately 260,000 acres of our Southern timberlands with Affiliatesan agreed-upon value of approximately $560 million to Twin Creeks Timber, LLC (Twin Creeks Venture), in exchange for cash of approximately $440 million and a 21 percent ownership interest. The other members contributed cash of approximately $440 million for a combined 79 percent ownership interest.
In conjunction with contributing to the venture, we entered into a separate agreement to manage the timberlands owned by the Twin Creeks Venture, including harvesting activities, marketing and log sales activities, and replanting and silviculture activities. This management agreement guaranteed the Twin Creeks Venture an annual return equal to 3 percent of the contributed value of the managed timberlands in the form of minimum quarterly payments from Weyerhaeuser. This agreement also required us to annually distribute 75 percent of any profits earned by us in excess of the minimum quarterly payments. The management agreement was cancellable at any time by Twin Creeks Timber, LLC, and otherwise would expire on April 1, 2019.
The guaranteed return that the management agreement required Weyerhaeuser to provide to the Twin Creeks Venture constituted continuing involvement in the timberlands that we contributed to the venture. This continuing involvement prohibited the recognition of the contribution as a sale and required application of the deposit method to account for the cash payment received. By applying the deposit method to the contribution of timberlands to the venture:
Our receipt of $440 million proceeds from the contribution of timberlands to the venture was recorded as a noncurrent liability.
The contributed timberlands continued to be reported within the "Timber and timberlands at cost, less depletion charged to disposals" on our balance sheet as of December 31, 2016.
Our balance sheet as of December 31, 2016 did not reflect our 21 percent ownership interest in the Twin Creeks Venture.
The receipt of $440 million in 2016 was classified as a cash flow from investing activities in our Consolidated Statement of Cash Flows. The cash proceeds from our contribution of timberlands were used for share repurchases. Sale of Additional Timberlands to Twin Creeks
In conjunction with the redemption and termination discussed above, we also entered an agreement to sell 100,000 acres of Southern timberlands to Twin Creeks for $203 million. The sale, which included 80,000 acres of timberlands in Mississippi and 20,000 acres in Georgia, closed December 29, 2017. The sale resulted in a $99 million gain recognized during fourth quarter 2017.
SPECIAL-PURPOSE ENTITIES
From 2002 through 2004, we sold certain nonstrategic timberlands. As a result of these sales, buyer-sponsored and monetization special purpose entities (SPEs) were formed. We are the primary beneficiary and consolidate the assets and liabilities of the SPEs involved in these transactions.
The assets of the buyer-sponsored SPEs are financial investments which consist of bank guarantees. These bank guarantees are in turn backed by bank notes, which are the liabilities of the monetization SPEs. Interest earned from the financial investments within the buyer-sponsored SPEs is used to pay interest accrued on the corresponding monetization SPE’s note.
We provide goods and services to NORPAC, including raw materials and support services. The amounts paid to Weyerhaeuser by NORPAC for goods and services were:
In addition, we manage cash for NORPAC under a services agreement. Weyerhaeuser holds the cash and records a payable balance to NORPAC, which is included in accounts payablehave an equity interest in the accompanyingmonetization SPEs, but no ownership interest in the buyer-sponsored SPEs. The following disclosures refer to assets of buyer-sponsored SPEs and liabilities of monetization SPEs. However, because these SPEs are distinct legal entities:
Assets of the SPEs are not available to satisfy our liabilities or obligations.
Liabilities of the SPEs are not our liabilities or obligations.
$46 million at as of December 31, 20152018 includes:
Assets from our buyer-sponsored SPEs, which consist of:
– ;$253 million, due first quarter 2019 and
– $362 million, due first quarter 2020.
Liabilities from our monetization SPEs, which consist of:
– $302 million, due third quarter 2019.
During fourth quarter 2018, we paid $209 million related to liabilities from our monetized SPEs at maturity.
Interest income on buyer-sponsored SPE investments of:
– $34 million in 2018,
– $34 million in 2017 and
– $34 million in 2016.
$75 millionWEYERHAEUSER COMPANY > at 2018 ANNUAL REPORT AND FORM 10-KDecember 31, 201475.
Interest expense on monetization SPE notes of:
– $29 million in 2018,
– $29 million in 2017 and
– $29 million in 2016.
The weighted average interest rate on our buyer-sponsored SPEs was 5.5 percent during 2018 and 2017. The weighted average interest rate on our monetization SPEs was 5.6 percent during 2018 and 2017.
NOTE 9:10: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
We sponsor several retirement programs for our employees.
This note provides details about:
types ofabout defined benefit and defined contribution plans we sponsor
significant transactions and events affecting plans we sponsor,
funded status of plans we sponsor,
pension assets,
activity of plans we sponsor and
actuarial assumptions.
TYPES OF PLANS WE SPONSOR
for our employees. The plans we sponsor in the U.S. and Canada differ according to each country’s requirements.
In the U.S., our pension plans are:
qualified — plans that qualify under the Internal Revenue Code; and
nonqualified — plans for select employees that provide additional benefits not qualified under the Internal Revenue Code.
In Canada, our pension plans are:
registered — plans that are registered under the Income Tax Act and applicable provincial pension acts; and
nonregistered — plans for select employees that provide additional benefits that may not be registered under the Income Tax Act or provincial pension acts.
We also offer retiree medical and life insurance plans in the U.S. and Canada. These plans are referred to as other postretirement benefit plans in the following disclosures.
Employee Eligibility and Accounting
The Pension"Pension and Other Postretirement Benefit PlansPlans" section of Note 1: Summary of Significant Accounting Policiesprovides information about employee eligibility for pension plans and postretirement health care and life insurance benefits, as well as how we account for the plans and benefits. See "Effects of Significant Transactions and Events" below for changes to eligibilityDEFINED BENEFIT PLANS WE SPONSOR
OVERVIEW OF PLANS
The defined benefit pension plans we sponsor in the U.S. and Canada differ according to each country’s requirements. In the U.S., we have plans that qualify under the Internal Revenue Code (qualified plans), as well as plans for select employees that provide additional benefits not qualified under the Internal Revenue Code (nonqualified plans). In Canada, we have plans that are registered under the Income Tax Act and applicable provincial pension andacts (registered plans), as well as nonregistered plans for select employees that provide additional benefits that may not be registered under the Income Tax Act or provincial pension acts (nonregistered plans). We also offer other postretirement benefit plans in the U.S. and Canada, including retiree medical and life insurance plans.
Measurement DateActions to Reduce Pension Plan Obligations
We measureDuring 2018, we offered select U.S. terminated vested plan participants the fair valueopportunity to elect an immediate lump sum distribution. Lump sum distributions were paid from plan assets totaling $664 million during fourth quarter 2018. In connection with this transaction, we have recorded a settlement charge of $200 million during fourth quarter 2018, accelerating the recognition of previously unrecognized losses in “Accumulated other comprehensive loss”, that would have been recognized in subsequent periods. The settlement triggered a plan remeasurement, however due to the short period between the settlement and our normal year-end remeasurement, the effects were insignificant to the net periodic benefit costs and therefore not recorded.
In January 2019, we transferred approximately $1.5 billion of U.S. qualified pension plan assets and pension and other postretirement benefit obligations asliabilities to an insurance company through the purchase of the enda group annuity contract. We expect to record an additional settlement charge of our fiscal year. The fair value of pension plan assets are estimated atapproximately $450 million in connection with this transaction during first quarter 2019.
To maintain the end of the year and are revised in the first half of the following year when the information needed to finalize fair values is received. Additionally, we receive updated census data that is used to estimate our projected benefit obligation. As a result of the Real Estate Divestiture as well as our selling, general and administrative cost reduction initiative, we remeasured our U.S. qualified pension plan's current funded status in connection with these transactions, we contributed $300 million to the plan during third quarter 2014. There were no significant events that triggered a special remeasurement in 2015 or 2013.
EFFECTS OF SIGNIFICANT TRANSACTIONS AND EVENTS
The information that is provided in this note is affected by the following transactions and events.
Amendments of Pension and Other Postretirement Benefit Plans2018. Refer to Note 21: Income Taxes for Salaried EmployeesPension Benefit Plan Amendments
During fourth quarter 2013, we ratified an amendment to the Weyerhaeuser Pension Plan that closes the plan to newly hired and rehired salaried or non union employees effective January 1, 2014. Certain union employee groups adopted similar amendments effective at other dates. Beginning at the effective date, new hires and rehires into groups affected by these amendments will receive a company contribution for retirement in their 401(k) plan. The change was announced in December 2013.
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K75
During fourth quarter 2013, we ratified amendments to the Weyerhaeuser Company Limited Retirement Plan for Non-Union Employees and the Retirement Plan for Non-Union Employees of Weyerhaeuser Company Limited at Grand Prairie, Alberta and Grande Cache, Alberta that (1) closes these plans to new hires and rehires effective January 1, 2014 and (2) changes the early retirement reduction for current employees enrolled in these plans, effective for future years of service beginning January 1, 2016. These changes were announced to participants in December 2013.
There were no material pension benefit plan amendments in 2014 or 2015.
Postretirement Medical and Life Insurance Benefit Plan Amendments
During fourth quarter 2014, the decision was ratified to reinstate or modify available options for U.S. and Canadian postretirement benefits for certain retirees. As a result, our postretirement obligation increased by $45 million.
During fourth quarter 2013, the decision was ratified to eliminate Company funding of the Post-Medicare Health Reimbursement Account (HRA) for certain salaried retirees after 2014. This change was communicated to affected retirees during January 2014. As a result, we recognized a pretax gain of $151 million in 2014 from this plan amendment.
There were no material postretirement medical or life insurance benefit plan amendments in 2015.
Midyear Remeasurement of Assets and Liabilities
Our pension plans are typically remeasured as of fiscal year-end unless a significant event occurs that requires remeasurement. As a result of the Real Estate Divestiture as well as our selling, general and administrative cost reduction initiative, we remeasured our U.S. qualified pension plan during third quarter 2014. There were no midyear remeasurements during 2015.
The net effect of the 2014 remeasurement was as follows:
| |
• | We recognized a $9 million charge in third quarter 2014 for curtailments and special termination benefits. Of this amount, $6 million is included in the net gain on the Real Estate Divestiture and is presented in "Earnings from discontinued operations, net of income taxes" in our Consolidated Statement of Operations. The remaining $3 million is included in "Charges for restructuring, closures and impairments" in our Consolidated Statement of Operations. |
The funded status of our U.S. qualified pension plan was reduced by $291 million primarily as a result of a decline in the discount rate used to calculate the projected benefit obligation and also due to asset performance and curtailment and special terminations. The discount rate used to remeasure the pension plans’ liabilities was changed from a rate of 4.9 percent at December 31, 2013 to rates reflective of current bond ratesdetails on the remeasurement date. A discount ratetax effects of 4.4 percent was used as of July 7, 2014. There was no change to the expected rate of return assumption.
Deferred tax liabilities decreased $108 million.
Total equity decreased $183 million for changes in "Cumulative other comprehensive loss", reflecting the net effect of the items discussed above. Amounts deferred in cumulative other comprehensive loss will be amortized into net periodic pension cost (credits) in future periods.this transaction.
FUNDED STATUS OF PLANS WE SPONSOR
The funded status of the plans we sponsor is determined by comparing the projected benefit obligation with the fair value of plan assets at the end of the year.
Changes in Projected Benefit Obligations of Our Pension and Other Postretirement Benefit Plans
|
| | | | | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| PENSION | OTHER POSTRETIREMENT BENEFITS |
| 2015 |
| 2014 |
| 2015 |
| 2014 |
|
| Reconciliation of projected benefit obligation: | | | | |
| Projected benefit obligation beginning of year | $ | 6,698 |
| $ | 5,834 |
| $ | 303 |
| $ | 321 |
|
| Service cost | 57 |
| 53 |
| — |
| 1 |
|
| Interest cost | 265 |
| 271 |
| 9 |
| 10 |
|
| Plan participants’ contributions | — |
| — |
| 9 |
| 13 |
|
| Actuarial (gains) losses | (309 | ) | 1,006 |
| (34 | ) | 4 |
|
| Foreign currency translation | (159 | ) | (87 | ) | (15 | ) | (7 | ) |
| Benefits paid (includes lump sum settlements) | (342 | ) | (391 | ) | (32 | ) | (44 | ) |
| Plan amendments and other | (1 | ) | 1 |
| — |
| 2 |
|
| Special/contractual termination benefits | — |
| 7 |
| — |
| — |
|
| Plan transfer/Acquisitions | 2 |
| 4 |
| — |
| 3 |
|
| Projected benefit obligation at end of year | $ | 6,211 |
| $ | 6,698 |
| $ | 240 |
| $ | 303 |
|
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K76
Changes in Fair Value of Plan Assets
|
| | | | | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| | PENSION | OTHER POSTRETIREMENT BENEFITS |
| | 2015 |
| 2014 |
| 2015 |
| 2014 |
|
| Fair value of plan assets at beginning of year (estimated) | $ | 5,643 |
| $ | 5,614 |
| $ | — |
| $ | — |
|
| Adjustment for final fair value of plan assets | 57 |
| 53 |
| — |
| — |
|
| Actual return on plan assets | 226 |
| 368 |
| — |
| — |
|
| Foreign currency translation | (155 | ) | (75 | ) | — |
| — |
|
| Employer contributions and benefit payments | 60 |
| 70 |
| 23 |
| 31 |
|
| Plan participants’ contributions | — |
| — |
| 9 |
| 13 |
|
| Plan transfer/Acquisitions | 2 |
| 4 |
| — |
| — |
|
| Benefits paid (includes lump sum settlements) | (342 | ) | (391 | ) | (32 | ) | (44 | ) |
| Fair value of plan assets at end of year (estimated) | $ | 5,491 |
| $ | 5,643 |
| $ | — |
| $ | — |
|
Funded Status of Our Pension and Other Postretirement Benefit Plans
|
| | | | | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| | PENSION | OTHER POSTRETIREMENT BENEFITS |
| | 2015 |
| 2014 |
| 2015 |
| 2014 |
|
| Noncurrent assets | $ | 70 |
| $ | 8 |
| $ | — |
| $ | — |
|
| Current liabilities | (21 | ) | (21 | ) | (22 | ) | (26 | ) |
| Noncurrent liabilities | (769 | ) | (1,042 | ) | (218 | ) | (277 | ) |
| Funded status | $ | (720 | ) | $ | (1,055 | ) | $ | (240 | ) | $ | (303 | ) |
Changes in actuarial assumptions decreased liabilities by $343 million as of the end of 2015 and had a positive effect The following table demonstrates how our plans' funded status is reflected on the funded status of the pension and postretirement plans. The primary drivers were the adoption of updated mortality tables for the U.S. pension and postretirement plans and changes in discount rates. The Company elected to implement the longevity assumption published by the Society of Actuaries in October 2015, effective December 31, 2015. Discount rates increased from 4.10 percent at the end of 2014 to 4.50 percent at the end of 2015 for the U.S. pension plans, and increased from 3.60 percent at the end of 2014 to 4.00 percent at the end of 2015 for U.S. postretirement. The discount rates increased from 3.90 percent at the end of 2014 to 4.00 percent at the end of 2015 for the Canadian pension plans, and increased from 3.80 percent at the end of 2014 to 3.90 percent at the end of 2015 for Canadian postretirement.
Our qualified and registered pension plans and a portion of our nonregistered pension plans are funded. We contribute to these plans according to established funding standards. The nonqualified pension plan, a portion of the nonregistered pension plans, and the other postretirement benefit plans are unfunded. For the unfunded plans, we pay benefits to retirees from our general assets as they come due.
The values reported for our pension plan assets at the end of 2015 and 2014 were estimated. Additional information regarding the year-end values generally becomes available to us during the first half of the following year. We increased the fair value of plan assets by $57 million to reflect final valuations as of December 31, 2014.
During 2015, we contributed $33 million for our Canadian registered plans, we made contributions and benefit payments of $3 million for our Canadian nonregistered pension plans and made benefit payments of $24 million for our nonqualified pension plans.
|
| | | | | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| | PENSION | OTHER POSTRETIREMENT BENEFITS |
| | 2018 |
| 2017 |
| 2018 |
| 2017 |
|
| Funded status: | | | | |
| Fair value of plan assets | $ | 4,930 |
| $ | 5,514 |
| $ | 18 |
| $ | — |
|
| Projected benefit obligations | (5,263 | ) | (6,795 | ) | (166 | ) | (200 | ) |
| Funded status | $ | (333 | ) | $ | (1,281 | ) | $ | (148 | ) | $ | (200 | ) |
| Presentation on our Consolidated Balance Sheet: | | | | |
| Noncurrent assets | $ | 74 |
| $ | 45 |
| $ | — |
| $ | — |
|
| Current liabilities | (18 | ) | (21 | ) | (10 | ) | (19 | ) |
| Noncurrent liabilities | (389 | ) | (1,305 | ) | (138 | ) | (181 | ) |
| Funded status | $ | (333 | ) | $ | (1,281 | ) | $ | (148 | ) | $ | (200 | ) |
Assets and liabilities on the funded status of the plans isConsolidated Balance Sheet are different from the cumulative income or expense that we have recorded related to theseassociated with the plans. TheseThe differences are actuarial gains and losses and prior service costs and credits that are deferred and will be amortized into our periodic benefit costs in future periods. These unamortizedUnamortized amounts are recorded in "Cumulative"Accumulated Other Comprehensive Loss", which is a component of total equity on our Consolidated Balance Sheet. The Cumulative"Accumulated Other Comprehensive Income (Loss)" section of Note 16: Shareholder's Interest details changes in thethese amounts included in cumulative other comprehensive income (loss) by component.
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K76
Changes in Fair Value of Plan Assets
|
| | | | | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| | PENSION | OTHER POSTRETIREMENT BENEFITS |
| | 2018 |
| 2017 |
| 2018 |
| 2017 |
|
| Fair value of plan assets at beginning of year (estimated) | $ | 5,514 |
| $ | 5,351 |
| $ | — |
| $ | — |
|
| Adjustment for final fair value of plan assets | 44 |
| 18 |
| — |
| — |
|
| Actual return on plan assets | 123 |
| 553 |
| — |
| — |
|
| Foreign currency translation | (73 | ) | 59 |
| — |
| — |
|
| Employer contributions and benefit payments | 345 |
| 57 |
| 36 |
| 20 |
|
| Plan participants’ contributions | — |
| — |
| 4 |
| 6 |
|
| Plan transfers | 1 |
| 3 |
| — |
| — |
|
| Benefits paid (includes lump sum settlements) | (1,024 | ) | (527 | ) | (22 | ) | (26 | ) |
| Fair value of plan assets at end of year (estimated) | $ | 4,930 |
| $ | 5,514 |
| $ | 18 |
| $ | — |
|
We estimate the fair value of pension plan assets based upon the information available during the year-end reporting process. In some cases, primarily with regard to private equity funds, the available information consists of net asset values as of an interim date, plus cash flows and market events between the interim date and the end of the year. We update the year-end estimated fair value of pension plan assets during the first half of the next year to incorporate year-end net asset values received after we have filed our Annual Report on Form 10-K. During second quarter 2018, we recorded an increase in the beginning of year fair value of the pension assets of $44 million, or less than 1 percent.
During second quarter 2018, we also updated our mortality assumption and census data used to estimate our projected benefit obligation for our U.S. qualified pension plan. We recorded an adjustment to our projected benefit obligation, incorporating updated census data and applying new company-specific mortality data. As a result of these updates, the beginning of year pension projected benefit obligation decreased by $155 million, or approximately 2 percent. The net effect of these updates, including the update to the pension assets, was a $199 million improvement in funded status
See additional details about the changes in the fair value of plan assets in the "Pension Assets" section below.
Changes in Projected Benefit Obligations of Our Pension and Other Postretirement Benefit Plans
|
| | | | | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| PENSION | OTHER POSTRETIREMENT BENEFITS |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
|
| Reconciliation of projected benefit obligation: | | | | |
| Projected benefit obligation beginning of year | $ | 6,795 |
| $ | 6,469 |
| $ | 200 |
| $ | 225 |
|
| Service cost | 37 |
| 35 |
| — |
| — |
|
| Interest cost | 236 |
| 264 |
| 7 |
| 8 |
|
| Plan participants’ contributions | — |
| — |
| 4 |
| 6 |
|
| Actuarial (gains) losses | (718 | ) | 489 |
| (18 | ) | (18 | ) |
| Foreign currency translation | (69 | ) | 59 |
| (5 | ) | 5 |
|
| Benefits paid (includes lump sum settlements) | (1,024 | ) | (527 | ) | (22 | ) | (26 | ) |
| Plan amendments and other | 5 |
| 3 |
| — |
| — |
|
| Plan transfers | 1 |
| 3 |
| — |
| — |
|
| Projected benefit obligation at end of year | $ | 5,263 |
| $ | 6,795 |
| $ | 166 |
| $ | 200 |
|
See additional details about the actuarial assumptions and changes in the projected benefit obligation in the "Actuarial Assumptions" section below.
Accumulated Benefit Obligations Greater Than Plan Assets
As of December 31, 2015,2018, pension plans with accumulated benefit obligations greater than plan assets had:
$5.5 billion in projected benefit obligations,
$5.4 billion in accumulated benefit obligations and
assets with a fair value of $4.7 billion.
As of December 31, 2014, pension plans with accumulated benefit obligations greater than plan assets had:
$6.64.5 billion in projected benefit obligations,
$6.54.4 billion in accumulated benefit obligations and
assets with a fair value of $5.6$4.1 billion.
As of December 31, 2017, pension plans with accumulated benefit obligations greater than plan assets had:
$5.9 billion in projected benefit obligations,
$5.9 billion in accumulated benefit obligations and
assets with a fair value of $4.6 billion.
The accumulated benefit obligation for all of our defined benefit pension plans was:
$5.2 billion at December 31, 2018, and
$6.7 billion at December 31, 2017.
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 77
The accumulated benefit obligation for all of our defined benefit pension plans was:
$6.1 billion at December 31, 2015; and
$6.5 billion at December 31, 2014.
PENSION ASSETS
Our Investment Policies and Strategies
Our investment policies and strategies guide and direct how we managethe funds are managed for the benefit plans we sponsor. These funds include our:
U.S. Pension Trust — funds our U.S. qualified pension plans;
Canadian Pension Trust — funds our Canadian registered pension plans; and
Retirement Compensation Arrangements — fund a portion of our Canadian nonregistered pension plans.
U.S. and Canadian Pension Trusts
Our U.S.As of the end of 2018, we have begun to shift pension trust holdsplan assets to an allocation that will more closely match the pension plan liability profile going forward. The former investment strategy included investments in hedge funds, private equity funds, derivative instruments and other investments. These asset classes are now generally in redemption and run-off mode however, given the long-term nature of these investments, they will continue to comprise a significant portion of the plan assets for our U.S. qualified pension plans, while our Canadian pension trust holds the fundsseveral years. We expect all investments in redemption to be redeemed at amounts materially consistent with their net asset values. As these investments are redeemed or liquidated, cash proceeds available for our Canadian registered pension plans.
Our strategy within the trusts is to invest:
directly in a diversified mix of nontraditional investments; and
indirectly through derivatives to promote effective use of capital, increase returns and manage associated risk.
Consistent with past practice andinvestment will be invested in accordance with our revised investment guidelines established bystrategy.
The revised investment strategy targets an initial 60 percent allocation to growth assets and a 40 percent allocation to liability hedging assets. We expect to increase the company’s investment committee,allocation to liability hedging assets over time as the investment managersfunded status of the company’s pension plan asset portfolios utilize a diversified set of investment strategies.
Our directimproves. Growth assets include new investments include:
cashin global equities, hedge funds, which are generally in redemption, and short-term investments,
hedge funds,
private equity
real estate fund investments assets, which are generally in run-off mode. Liability hedging assets include corporate credit and
common and preferred stocks.
Our indirect investments include:
equity index derivatives,
government issued fixed income derivativessecurities, treasury futures and interest rate swaps selected to align with the plan liabilities.
swaps and other derivative instruments.
The overall return for our pension trusts includes:
returns earned on our direct investments and
returns earned on the derivatives we use.
Cash and short-term investments generally consist of include highly liquid money market and government securities and are primarily held to fund benefit payments, capital calls, margin requirements or to meet regulatory requirements. Cash at December 31, 2018, includes amounts that will be invested in liability hedging assets such as fixed income investments.
Fixed income investments include publicly traded corporate and margin requirements.government issued debt. These bonds have varying maturities, credit quality and sector exposure, and are selected to align with the duration of our plan liabilities. The fixed income investments are invested largely in line with long corporate bond indices.
Hedge fund and related investments generally consist of are privately-offered managed pools primarily structured as limited liability entities, with the generalentities. General members or partners of suchthese limited liability entities servingserve as portfolio managermanagers and are thus being responsible for the fund’s underlying investment decisions. Generally, these funds have varying degrees of liquidity and redemption provisions. Underlying investments within these funds may include long and short public and private equities, corporate, mortgage and sovereign debt, options, swaps, forwards and other derivative positions. These funds may also usehave varying degrees of leverage.leverage, liquidity, and redemption provisions.
Private equity and related investments consist of are investments in private equity, mezzanine, distressed, co-investments and other structures. Private equity funds generally participate in buyouts and venture capital of limited liability entitiesthrough unlisted equity and debt instruments. These funds may also employ borrowingborrow at the underlying entity level. Mezzanine and distressed funds generally follow strategies of investinginvest in the debt of public or private companies with additional participation through warrants or other equity type options.
Real estate fund investments in real property may be initiated through private transactions between principals or public market vehicles such as real estate investment trusts and are generally held in limited liability entities.
Common and preferred stocks are equityDerivative instruments that generally have resulted from transactions related to private equity investment holdings.
Swaps and other derivative instruments generally are comprised of swaps, futures, forwards or options. In accordance with our investment riskEquity and return objectives, some of these instrumentsfixed income index derivatives are utilizedused to achieve target equity and bond asset exposure or to reduce exposure to certain market risks orrisks. Foreign currency derivatives reduce exposure to help manage the liquidity of our investments. The resulting asset mix achieved is intended to allow the assets to perform comparably with established benchmarks. Others, mainly totalcertain currency risks. Total return swaps with limited exchange of principal, are designed to gainenable exposure to the return characteristics of specific financial strategies.
All swap, forward and option contracts are executed in a diversified manner through a numberstrategies with limited exchange of financial institutions and in accordance with our investment guidelines.
Retirement Compensation Arrangements
Retirement Compensation Arrangements fund a portion of our Canadian nonregistered pension plans.
Under Retirement Compensation Arrangements, our contributions are split:
50 percent to our investments in a portfolio of equities; and
50 percent to a noninterest-bearing refundable tax account held by the Canada Revenue Agency — as required by Canadian tax rules.
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K78principal.
The Canadian tax rules requirement means that — on average, over time — approximately 50 percent of our Canadian nonregistered pension plans’ assets do not earn returns.
Managing Risk
Investments and contracts, in general, are subject to risk, including market price, liquidity, currency, interest rate and credit risks. We have established governance practices to manage certain risks. The following provides an overview of these risks and describes actions we take to mitigate the potential adverse effects of these risks on the performance of our pension plan assets. Generally, we manage these risks through:
selection and diversification of managers and strategies,
use of limited-liability vehicles,
diversification and
constraining risk profiles to predefined limits on the percentage of pension trust assets that can be invested in certain categories.
Market price risk is the risk that the future value of a financial instrument will fluctuate as a result of changes in its market price, whether caused by factors specific to the individual investment, its issuer, or any other market factor that may affect its price. We attempt to mitigate market price risk on the company’s pension plan asset portfolios by investing in a diversified set of assets whose returns exhibit low correlation to those of traditional asset classes and each other. In addition, we and our investment advisers monitor the investments on a regular basis to ensure the decision to invest in particular assets continues to be suitable, including performing ongoing qualitative and quantitative assessments and comprehensive investment and operational due diligence. Special attention is paid to organizational changes made by the underlying fund managers and to changes in policy relative to their investment objectives, valuation, hedging strategy, degree of diversification, leverage, alignment of fund principles and investors, risk governance and costs.
Liquidity risk is the risk that the pension trusts will encounter difficulty in meeting obligations associated with their financial liabilities. Our financial obligations as they relate to the pension plans generally consist of distributions and redemptions payable to pension plan participants, payments to counterparties and fees to service providers. As established, pension plan assets primarily consist of investments in limited liability pools for which there is no active secondary market. As a result, the investments may be illiquid. Further, hedge funds are subject to potential restrictions that may affect the timing of the realization of pending redemptions. Private equity funds, including those private equity funds that invest in real estate assets, are subject to distribution and funding schedules that are set by the private equity funds’ respective managers and market activity, and the period over which the funds are expected to liquidate is uncertain and dependent upon realization of the respective funds' underlying investments which will vary over time. To mitigate liquidity risk on the company’s pension plan asset portfolios, private equity portfolios has been diversified across different vintage years and strategies and hedge fund portfolios have been diversified across investment fund managers, strategies and funds that possess varying liquidity provisions. By doing so, the company seeks to maintain a liquidity profile wherin the potential liquidity offered by the pension plan assets is diversified over time. For instance, under normal operating conditions, the frequency by which investments in hedge funds may be redeemed ranges from daily to every three years with notice periods as few as five days to as much as a year. This liquidity profile, however, can be impacted by existing terms that permit redemption restrictions and decisions by underlying fund managers to create illiquid side pockets, adopt a fund liquidation strategy or suspend redemptions altogether. In addition, the investment committee regularly reviews cash flows of the pension trusts and sets appropriate guidelines to address liquidity needs.
Currency risk arises from holding pension plan assets denominated in a currency other than the currency in which its liabilities are settled. Such risk is managed generally through notional contracts designed to hedge the net exposure to non-functional currencies.
Interest rate risk is the risk that a change in interest rates will adversely affect the fair value of fixed income securities. The pension trust’s primary exposure to interest rate risk is indirect and through their investments in limited liability pools. Such indirect exposure is managed by the respective fund managers in conjunction with their investment level decisions and predefined investment mandates.
Credit risk relates to the extent to which failures by counterparties to discharge their obligations could reduce the amount of future cash flows on hand at the balance sheet date. The pension trusts’ exposure to counterparty credit risk is reflected in settlement receivables from derivative contracts within the pension plan assets. In evaluating credit risk, we will often be dependent upon information provided by the counterparty or a rating agency, which may be inaccurate. We decrease exposure to credit risk by only dealing with highly-rated financial counterparties, and as of year-end, our counterparties each had a credit rating of at least A from Standard and Poor’s.
We further manage this risk through:
diversification of counterparties,
predefined settlement and margining provisions and
documented agreements.
We expect that none of our counterparties will fail to meet its obligations. Also, no principal is at risk as a result of these types of investments. Only the amount of unsettled net receivables is at risk.
We are also exposed to credit risk indirectly through counterparty relationships struck by the underlying managers of investments in limited liability pools. This indirect exposure is mitigated through a due diligence process, which focuses on monitoring each investment fund to ensure the decision to invest in or maintain exposure to a fund continues to be suitable for the pension plans’ asset portfolios.
While we do not target specific direct investment or derivative allocations, we have established guidelines on the percentage of pension trust assets that can be invested in certain categories to provide diversification by investment type fund and investment managers, as well as to manage overall liquidity.
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K79
Assets within our qualified and registered pension plans in our U.S. and Canadian pension trusts were invested as follows:
|
| | | | |
| | December 31, 2015 |
| December 31, 2014 |
|
| Fixed income | 13.1 | % | 12.2 | % |
| Hedge funds | 62.7 |
| 60.6 |
|
| Private equity and related funds | 23.0 |
| 25.3 |
|
| Real estate and related funds | 1.2 |
| 1.4 |
|
| Common and preferred stock and equity index instruments | 0.1 |
| 0.7 |
|
| Accrued liabilities | (0.1 | ) | (0.2 | ) |
| Total | 100.0 | % | 100.0 | % |
|
| | | | |
| | DECEMBER 31, 2018 |
| DECEMBER 31, 2017 |
|
| Cash and short-term investments | 5.8 | % | 10.6 | % |
| Fixed income investments: | | |
| Corporate | 21.5 |
| — |
|
| Government | 8.6 |
| — |
|
| Hedge funds and related investments | 36.9 |
| 58.8 |
|
| Private equity and related investments | 21.9 |
| 22.2 |
|
| Derivative instruments, net | 5.6 |
| 8.7 |
|
| Accrued liabilities | (0.3 | ) | (0.3 | ) |
| Total | 100.0 | % | 100.0 | % |
Assets withinRetirement Compensation Arrangements
Retirement compensation arrangements fund a portion of our Canadian nonregistered planspension plans. As required by Canadian tax rules, approximately 50 percent of these assets are invested into a noninterest-bearing refundable tax account held by the Canada Revenue Agency. This portion of the portfolio does not earn returns. The remaining portion is invested in a portfolio of equities.
Managing Risk
Investments and contracts are subject to risks including market price, liquidity, currency, interest rate and credit risks. The following provides an overview of these risks and describes governance processes and actions we take to mitigate these risks on our pension plan asset portfolios.
Market price risk is the risk that market fluctuations will adversely affect the value of plan assets. The trusts mitigate market price risk by investing in a diversified portfolio. In addition, we and our investment advisers perform regular monitoring with ongoing qualitative assessments, quantitative assessments, and comprehensive investment and operational due diligence.
Liquidity risk is the risk that the trust will not be able to settle liabilities such as payments to participants, counterparties, and service providers. Plan investments in limited liability pools with no active secondary market may be illiquid. Private equity funds are allowedsubject to manage were invested as follows:distribution and funding schedules set by fund managers and market activity. Hedge funds may also be subject to restrictions that delay redemptions. To mitigate liquidity risk, private equity portfolios have been diversified across different vintage years and strategies, and hedge fund portfolios have been
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K78
|
| | | | |
| | December 31, 2015 |
| December 31, 2014 |
|
| Cash and cash equivalents | 55.9 | % | 52.8 | % |
| Equities | 44.1 |
| 47.2 |
|
| Total | 100.0 | % | 100.0 | % |
diversified across investment fund managers, strategies and liquidity provisions. In addition, the investment committee regularly reviews cash flows of the pension trusts and sets appropriate guidelines to address liquidity needs. With the change in investment strategy and a larger percentage of the plan assets invested in more liquid instruments such as publicly traded fixed income investments, liquidity risk is greatly reduced.
Currency risk arises from holding plan assets denominated in a currency other than the currency in which its liabilities are settled. Currency risk is generally managed through notional contracts designed to hedge net exposure to non-functional currencies. With the change in investment strategy, currency risk will be mitigated going forward by investing more of the Canadian plan assets in Canadian dollar investments.
Interest rate risk exists on both the asset and liability side, and is the risk that a change in interest rates will adversely affect the fair value of interest rate securities or liabilities, thereby affecting the overall funded status. With the change in investment strategy to more closely match the plan liabilities, interest rate risk will be greatly reduced.
Credit risk is the risk that counterparties’ failure to discharge their obligations could affect cash flows. The trusts have exposure through investments in fixed income securities. This risk is mitigated by investing in a diversified portfolio. The trusts also have exposure through settlement receivables from derivative contracts. Only the amount of unsettled net receivables is at risk for these types of investments, and no principal is at risk. We decrease credit risk exposure by only dealing with highly-rated financial counterparties; as of year-end, our counterparties each had a credit rating of at least A from S&P.We further manage this risk through diversification of counterparties, predefined settlement and margining provisions and documented agreements.
We are also exposed to credit risk indirectly through counterparty relationships initiated by underlying managers of investments in limited liability pools. This risk is mitigated through initial due diligence and ongoing monitoring processes.
Valuation of Our Plan Assets
The pensionPension assets are stated at fair value as of the reporting date. Fair value is based uponon the amount that would be received to sell an asset or paid to transfersettle a liability in an orderly transaction between market participants at the reporting date. We do not value pension investments based upon aconsider forced or distressed sale scenario.scenarios. Instead, we consider both observable and unobservable inputs that reflect assumptions applied by market participants when setting the exit price of an assetor liability in an orderly transaction within the principal market offor that asset or liability.
We value the pension plan assets based upon the observability of exit pricing inputs and classify pension plan assets based upon the lowest level input that is significant to the fair value measurement of the pension plan assets in their entirety. The fair value hierarchy we follow is outlined below;is:
Level 1: Inputs are unadjusted quoted prices for identical assets andor liabilities traded in an active market.
Level 2: Inputs are quoted prices in non-active markets for which pricing inputs are observable either directly or indirectly at the reporting date.
Level 3: Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.
The pension assetsInvestments for which fair value is measured using the net asset value per share as a practical expedient are comprised of cash and short-term investments, derivative contracts, common and preferred stock and fund units. The fund units are typically limited liability interests in hedge funds, private equity funds, real estate funds and cash funds. Each of these assets participates in its own unique principal market.not categorized within the fair value hierarchy.
Cash and short-term investments when held directly, are valued at cost.cost, which approximates market.
Common and preferred stocksFixed income investments are valued at exit prices quoted in the public markets.active or non-active markets or based on observable inputs.
Derivative contracts held by our pension trusts are not publicly tradedHedge funds, private equities, and each derivative contract is specifically negotiated with a unique financial counterparty and references either illiquidrelated fund units or a unique number of synthetic units of a publicly reported market index. The derivative contracts are valued based upon valuation statements received from the financial counterparties.
Fund units are valued based uponon the net asset values of the funds which we believefunds. These values represent the per-unit pricesprice at which new investors are permitted to invest and the prices at which existing investors are permitted to exit. To the degreeWhen net asset values as of the end of the year have not been received, we useestimate fair value by adjusting the most recently reported net asset values and adjust for market events and cash flows that have occurred between the interim date and the end of the yearyear.
Derivative instruments are valued based upon valuation statements received from each derivative’s counterparty. Some of these contracts are not publicly traded.
The net pension plan assets, when categorized in accordance with this fair value hierarchy, are as follows. Investments valued using net asset value (NAV) as a practical expedient are presented to estimate the fair values asreconcile with total plan assets.
|
| | | | | | | | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| 2018 | LEVEL 1 |
| LEVEL 2 |
| LEVEL 3 |
| NAV |
| TOTAL |
|
| Pension trust investments: | | | | | |
|
| Cash and short-term investments | $ | 275 |
| $ | 12 |
| $ | — |
| $ | — |
| $ | 287 |
|
| Common and preferred stock | — |
| — |
| — |
| — |
| — |
|
| Fixed income investments: | | | | | |
| Corporate | — |
| 1,054 |
| — |
| — |
| 1,054 |
|
| Government | — |
| 426 |
| — |
| — |
| 426 |
|
| Hedge fund and related investments | — |
| — |
| 3 |
| 1,811 |
| 1,814 |
|
| Private equity and related investments | — |
| — |
| 65 |
| 1,014 |
| 1,079 |
|
| Derivative instruments | — |
| 15 |
| 262 |
| — |
| 277 |
|
| Total pension trust investments | 275 |
| 1,507 |
| 330 |
| 2,825 |
| 4,937 |
|
| Accrued liabilities, net | | | | | (17 | ) |
| Pension trust net assets | | | | | 4,920 |
|
| Canadian nonregistered plan assets: | | | | | |
| Cash and short-term investments | 5 |
| — |
| — |
| — |
| 5 |
|
| Common and preferred stock | 5 |
| — |
| — |
| — |
| 5 |
|
| Total Canadian nonregistered plan assets | 10 |
| — |
| — |
| — |
| 10 |
|
| Total plan assets | | | | | $ | 4,930 |
|
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K79
|
| | | | | | | | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| 2017 | LEVEL 1 |
| LEVEL 2 |
| LEVEL 3 |
| NAV |
| TOTAL |
|
| Pension trust investments: | | | | | |
|
| Cash and short-term investments | $ | 580 |
| $ | 2 |
| $ | — |
| $ | — |
| $ | 582 |
|
| Common and preferred stock | 1 |
| — |
| — |
| — |
| 1 |
|
| Hedge fund and related investments | 59 |
| — |
| 10 |
| 3,168 |
| 3,237 |
|
| Private equity and related investments | — |
| — |
| 102 |
| 1,120 |
| 1,222 |
|
| Derivative instruments | — |
| 31 |
| 445 |
| — |
| 476 |
|
| Total pension trust investments | 640 |
| 33 |
| 557 |
| 4,288 |
| 5,518 |
|
| Accrued liabilities, net | | | | | (16 | ) |
| Pension trust net investments | | | | | 5,502 |
|
| Canadian nonregistered plan assets: | | | | | |
| Cash and short-term investments | 6 |
| — |
| — |
| — |
| 6 |
|
| Common and preferred stock | 6 |
| — |
| — |
| — |
| 6 |
|
| Total Canadian nonregistered plan assets | 12 |
| — |
| — |
| — |
| 12 |
|
| Total plan assets | | | | | $ | 5,514 |
|
Assets that do not have readily available quoted prices in an active market require a higher degree ofmore judgment to value and have a higher degree of risk that the value that could have been realized upon sale as of the valuation date could be different from the reported value than assets with observable pricing inputs. It is possible that the full extent of market price, liquidity, currency, interest rate,increased risk. Approximately $330 million, or credit risks may not be fully factored into the fair values of our pension plan assets that use significant unobservable inputs. Approximately $4.7 billion, or 86.06.7 percent, of our pension plan assets were classified as Level 3 assets as of December 31, 2015.2018.
We estimate the fair value of pension plan assets based upon the information available during the year-end reporting process. In some cases, primarily private equity funds, the information available consists of net asset values as of an interim date, cash flows between the interim date and the end of the year, and market events. When the difference is significant, we revise the year-end estimated fair value of pension plan assets to incorporate year-end net asset values received after we have filed our annual report on Form 10-K. We increased the fair value of pension assets in the second quarter of 2015 by $57 million, or 1.0 percent.
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K80
The net pension plan assets, when categorized in accordance with this fair value hierarchy, are as follows:
|
| | | | | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| 2015 | Level 1 |
| Level 2 |
| Level 3 |
| Total |
|
| Pension trust investments: | | | | |
|
| Fixed income instruments | $ | 668 |
| $ | 46 |
| $ | — |
| 714 |
|
| Hedge funds | 87 |
| (37 | ) | 3,388 |
| 3,438 |
|
| Private equity and related funds | — |
| — |
| 1,267 |
| 1,267 |
|
| Real estate and related funds | — |
| — |
| 67 |
| 67 |
|
| Common and preferred stock and equity index instruments | — |
| 3 |
| — |
| 3 |
|
| Total pension trust investments | $ | 755 |
| $ | 12 |
| $ | 4,722 |
| $ | 5,489 |
|
| Accrued liabilities, net | | | | (8 | ) |
| Pension trust net assets | | | | 5,481 |
|
| Canadian nonregistered plan assets: | | | | |
| Cash | $ | 6 |
| $ | — |
| $ | — |
| 6 |
|
| Investments | 4 |
| — |
| — |
| 4 |
|
| Total Canadian nonregistered plan assets | $ | 10 |
| $ | — |
| $ | — |
| $ | 10 |
|
| Total plan assets | | | | $ | 5,491 |
|
|
| | | | | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| 2014 | Level 1 |
| Level 2 |
| Level 3 |
| Total |
|
| Pension trust investments: | | | | |
|
| Fixed income instruments | $ | 646 |
| $ | 36 |
| $ | 3 |
| 685 |
|
| Hedge funds | 103 |
| (22 | ) | 3,333 |
| 3,414 |
|
| Private equity and related funds | — |
| 3 |
| 1,422 |
| 1,425 |
|
| Real estate and related funds | — |
| — |
| 82 |
| 82 |
|
| Common and preferred stock and equity index instruments | 25 |
| 12 |
| — |
| 37 |
|
| Total pension trust investments | $ | 774 |
| $ | 29 |
| $ | 4,840 |
| $ | 5,643 |
|
| Accrued liabilities, net | | | | (13 | ) |
| Pension trust net investments | | | | 5,630 |
|
| Canadian nonregistered plan assets: | | | | |
| Cash | $ | 7 |
| $ | — |
| $ | — |
| 7 |
|
| Investments | 6 |
| — |
| — |
| 6 |
|
| Total Canadian nonregistered plan assets | $ | 13 |
| $ | — |
| $ | — |
| $ | 13 |
|
| Total plan assets | | | | $ | 5,643 |
|
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K81
A reconciliation of the beginning and ending balances of the pension plan assets measured at fair value using significant unobservable inputs (Level 3) is presented below:
|
| | | | | | | | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS | |
| | INVESTMENTS |
| | Hedge funds |
| Private equity and related funds |
| Real estate and related funds |
| Fixed Income |
| Total |
|
| Balance as of December 31, 2013 | $ | 3,225 |
| $ | 1,606 |
| $ | 101 |
| $ | 3 |
| $ | 4,935 |
|
| Net realized gains (losses) | 186 |
| 128 |
| 8 |
| — |
| 322 |
|
| Net change in unrealized appreciation (depreciation) | 76 |
| (130 | ) | (4 | ) | — |
| (58 | ) |
| Purchases | 541 |
| 177 |
| 5 |
| — |
| 723 |
|
| Sales | (540 | ) | (359 | ) | (28 | ) | — |
| (927 | ) |
| Issuances | 52 |
| — |
| — |
| — |
| 52 |
|
| Settlements | (132 | ) | — |
| — |
| — |
| (132 | ) |
Transfers, Out(1) | (75 | ) | — |
| — |
| — |
| (75 | ) |
| Balance as of December 31, 2014 | $ | 3,333 |
| $ | 1,422 |
| $ | 82 |
| $ | 3 |
| $ | 4,840 |
|
| Net realized gains (losses) | 143 |
| 100 |
| 9 |
| 1 |
| 253 |
|
| Net change in unrealized appreciation (depreciation) | 47 |
| (117 | ) | (11 | ) | — |
| (81 | ) |
| Purchases | 441 |
| 141 |
| 6 |
| — |
| 588 |
|
| Sales | (539 | ) | (279 | ) | (19 | ) | (4 | ) | (841 | ) |
| Issuances | 47 |
| — |
| — |
| — |
| 47 |
|
| Settlements | (84 | ) | — |
| — |
| — |
| (84 | ) |
Transfers, Out(1) | — |
| — |
| — |
| — |
| — |
|
| Balance as of December 31, 2015 | $ | 3,388 |
| $ | 1,267 |
| $ | 67 |
| $ | — |
| $ | 4,722 |
|
| (1) One hedge fund completed an initial public offering during 2014; as such the security was transferred from Level 3 to Level 1 in 2014. |
|
| | | | | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| | INVESTMENTS | |
| | Hedge funds and related investments |
| Private equity and related investments |
| Derivative instruments, net |
| Total |
|
| Balance as of December 31, 2016 | $ | 4 |
| $ | 75 |
| $ | 376 |
| $ | 455 |
|
| Net realized gains (losses) | (1 | ) | (30 | ) | 15 |
| (16 | ) |
| Net change in unrealized gains (losses) | 2 |
| 41 |
| 67 |
| 110 |
|
| Purchases | — |
| 14 |
| — |
| 14 |
|
| Sales | (1 | ) | — |
| — |
| (1 | ) |
| Settlements | — |
| — |
| (13 | ) | (13 | ) |
| Transfers into Level 3 | 6 |
| 19 |
| — |
| 25 |
|
| Transfers out of Level 3 | — |
| (17 | ) | — |
| (17 | ) |
| Balance as of December 31, 2017 | 10 |
| 102 |
| 445 |
| 557 |
|
| Net realized gains (losses) | — |
| — |
| 238 |
| 238 |
|
| Net change in unrealized gains (losses) | 1 |
| (5 | ) | (184 | ) | (188 | ) |
| Purchases | — |
| 5 |
| — |
| 5 |
|
| Sales | — |
| (2 | ) | — |
| (2 | ) |
| Settlements | — |
| — |
| (237 | ) | (237 | ) |
| Transfers into Level 3 | — |
| 18 |
| — |
| 18 |
|
| Transfers out of Level 3 | (8 | ) | (53 | ) | — |
| (61 | ) |
| Balance as of December 31, 2018 | $ | 3 |
| $ | 65 |
| $ | 262 |
| $ | 330 |
|
ThisThe availability of observable market data is monitored to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period. We evaluate the significance of transfers between levels based upon the nature of the financial instrument and size of the transfer relative to total net assets available for benefits.
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K80
The table below shows the fair value and aggregate notional amount of the derivativesderivative instruments held by our pension trusts — which fund our qualified and registered plans — at the end of the last two years.
|
| | | | | | |
| DOLLAR AMOUNTS IN MILLIONS | | |
| | DECEMBER 31,
2015 |
| DECEMBER 31,
2014 |
|
| Equity index instruments | $ | 13 |
| $ | 13 |
|
| Forward contracts | (51 | ) | (32 | ) |
| Swaps | 492 |
| 436 |
|
| Total | $ | 454 |
| $ | 417 |
|
This table shows the aggregate notional amount of the derivatives held by our pension trusts — which fund our qualified and registered plans — at the end of the last two years.
|
| | | | | | |
| DOLLAR AMOUNTS IN MILLIONS | | |
| | DECEMBER 31,
2015 |
| DECEMBER 31,
2014 |
|
| Equity index instruments | $ | 500 |
| $ | 361 |
|
| Forward contracts | 523 |
| 535 |
|
| Swaps | 2,058 |
| 1,824 |
|
| Total | $ | 3,081 |
| $ | 2,720 |
|
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K82
ACTIVITY OF PLANS WE SPONSOR
Net Periodic Benefit Cost (Credit)
|
| | | | | | | | | | | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| | PENSION | OTHER POSTRETIREMENT BENEFITS |
| | 2015 |
| 2014 |
| 2013 |
| 2015 |
| 2014 |
| 2013 |
|
| Net periodic benefit cost (credit): | | | | | | |
Service cost(1) | $ | 57 |
| $ | 53 |
| $ | 64 |
| $ | — |
| $ | 1 |
| $ | 1 |
|
| Interest cost | 265 |
| 271 |
| 244 |
| 9 |
| 10 |
| 12 |
|
| Expected return on plan assets | (476 | ) | (467 | ) | (439 | ) | — |
| — |
| — |
|
| Amortization of actuarial loss | 182 |
| 125 |
| 221 |
| 10 |
| 12 |
| 14 |
|
Amortization of prior service cost (credit)(2) | 4 |
| 5 |
| 7 |
| (9 | ) | (161 | ) | (23 | ) |
Recognition of curtailments, settlements and special termination benefits due to closures, restructuring or divestitures(1) | — |
| 9 |
| — |
| — |
| — |
| — |
|
| Other | — |
| — |
| — |
| — |
| (4 | ) | — |
|
| Net periodic benefit cost (credit) | $ | 32 |
| $ | (4 | ) | $ | 97 |
| $ | 10 |
| $ | (142 | ) | $ | 4 |
|
(1) Service cost includes $2 million in 2014 and $4 million in 2013 for employees that were part of the Real Estate Divestiture. These charges are included in our results of discontinued operations. Curtailment and special termination benefits are related to involuntary terminations, due to restructuring activities, as well as the Real Estate Divestiture. (2) During fourth quarter 2013, the decision was ratified to eliminate Company funding of the Post-Medicare Health Reimbursement Account (HRA) for certain salaried retirees after 2014. This change was communicated to affected retirees during January 2014. As a result, we recognized a pretax gain of $151 million in 2014 from this plan amendment. |
Estimated Amortization from Cumulative Other Comprehensive Loss in 2016
Amortization of the net actuarial loss and prior service cost (credit) of our pension and postretirement benefit plans will affect our other comprehensive income in 2016. The net effect of the estimated amortization will be anincrease in net periodic benefit costs or a decrease in net periodic benefit credits in 2016.
|
| | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| | PENSION |
| OTHER POSTRETIREMENT BENEFITS |
| TOTAL |
|
| Net actuarial loss | $ | 152 |
| $ | 9 |
| $ | 161 |
|
| Prior service cost (credit) | 4 |
| (8 | ) | (4 | ) |
| Net effect cost | $ | 156 |
| $ | 1 |
| $ | 157 |
|
Expected Pension Funding
Established funding standards govern the funding requirements for our qualified and registered pension plans. We fund the benefit payments of our nonqualified and nonregistered plans as benefit payments come due.
During 2016, based on estimated year-end asset values and projections of plan liabilities, we expect to:
be required to contribute approximately $16 million for our Canadian registered plan;
be required to contribute or make benefit payments for our Canadian nonregistered plans of $3 million; and
make benefit payments of approximately $19 million for our U.S. nonqualified pension plans.
We do not anticipate a contribution being required for our U.S. qualified pension plan for 2016.
Expected Postretirement Benefit Funding
Our retiree medical and life insurance plans are unfunded. Benefits for these plans are paid from our general assets as they come due. We expect to make benefit payments of $22 million for our U.S. and Canadian other postretirement benefit plans in 2016, including $7 million expected to be required to cover benefit payments under collectively bargained contractual obligations.
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K83
Estimated Projected Benefit Payments for the Next 10 Years
|
| | | | | | |
| DOLLAR AMOUNTS IN MILLIONS | | |
| | PENSION |
| OTHER POSTRETIREMENT BENEFITS |
|
| 2016 | $ | 334 |
| $ | 22 |
|
| 2017 | $ | 340 |
| $ | 21 |
|
| 2018 | $ | 347 |
| $ | 20 |
|
| 2019 | $ | 354 |
| $ | 19 |
|
| 2020 | $ | 360 |
| $ | 19 |
|
| 2021-2025 | $ | 1,858 |
| $ | 81 |
|
|
| | | | | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| | FAIR VALUE | NOTIONAL |
| | DECEMBER 31,
2018 |
| DECEMBER 31,
2017 |
| DECEMBER 31,
2018 |
| DECEMBER 31,
2017 |
|
| Equity and fixed income index derivatives, net | $ | — |
| $ | 19 |
| $ | — |
| $ | 501 |
|
| Foreign currency derivatives, net | — |
| 12 |
| 13 |
| 1,413 |
|
| Futures contracts, net | 15 |
| — |
| 1,073 |
| — |
|
| Total return swaps, net | 262 |
| 445 |
| 558 |
| 1,443 |
|
| Total | $ | 277 |
| $ | 476 |
| $ | 1,644 |
| $ | 3,357 |
|
ACTUARIAL ASSUMPTIONS
We use actuarial assumptions to estimate our benefit obligations and our net periodic benefit costs. The following tables show the rates used to estimate our benefit obligations and periodic net benefit costs.
Rates We Use in Estimating Our Benefit Obligations We use assumptions to estimate our benefit obligations that include: |
| | | | |
| | PENSION |
| | DECEMBER 31,
2018 |
| DECEMBER 31,
2017 |
|
| Discount rates: | |
| |
|
| United States | 4.40 | % | 3.70 | % |
| Canada | 3.70 | % | 3.50 | % |
Lump sum distributions(1)(2) | PPA Table |
| PPA Table |
|
| Rate of compensation increase: | |
| |
|
| Salaried: | |
| |
|
| United States | 13.00% to 2.00% decreasing with participant age |
| 13.00% to 2.00% decreasing with participant age |
|
| Canada | 3.25 | % | 3.25 | % |
| Hourly: | |
| |
|
| United States | 13.00% to 2.30% decreasing with participant age |
| 13.00% to 2.30% decreasing with participant age |
|
| Canada | 3.00 | % | 3.00 | % |
Lump sum or installment distributions election(2) | 60.00 | % | 60.00 | % |
(1) PPA Phased Table: Interest and mortality assumptions as mandated by Pension Protection Act of 2006 including the phase out of the prior interest rate basis in 2013. (2) U.S. qualified salaried and nonqualified plans only. |
discount rates in the U.S. and Canada, includingThe discount rates used to value lump sum distributions;
rates of compensation increases for our salariedU.S. other postretirement benefit plans were 4.20 percent and hourly employees in3.50 percent for the U.S.years ended December 31, 2018, and Canada; and
estimated percentages of eligible retirees who will elect lump sum payments of benefits.
Discount Rates and Rates of Compensation Increase Used in Estimating Our Pension and Other Postretirement Benefit Obligation |
| | | | | | | | |
| | PENSION | OTHER POSTRETIREMENT BENEFITS |
| | DECEMBER 31,
2015 |
| DECEMBER 31,
2014 |
| DECEMBER 31,
2015 |
| DECEMBER 31,
2014 |
|
| Discount rates: | | | | |
| United States | 4.50 | % | 4.10 | % | 4.00 | % | 3.60 | % |
| Canada | 4.00 | % | 3.90 | % | 3.90 | % | 3.80 | % |
Lump sum distributions (US salaried and nonqualified plans only)(1) | PPA Table | PPA Table | N/A |
| N/A |
|
| Rate of compensation increase: | |
| |
| |
| |
|
| Salaried: | |
| |
| |
| |
|
| United States | Determined by participant age, ranging from 2.00% to 13.00% | 2.50% for 2014, 2015
and 3.50% thereafter | N/A |
| N/A |
|
| Canada | 2.50% for 2015
and 3.50% thereafter | 2.50% for 2014, 2015
and 3.50% thereafter | N/A |
| N/A |
|
| Hourly: | | | | |
| United States | Determined by participant age, ranging from 2.30% to 13.00% | 3.00 | % | N/A |
| N/A |
|
| Canada | 3.25 | % | 3.25 | % | N/A |
| N/A |
|
| Election of lump sum or installment distributions (US salaried and nonqualified plans only) | 60.00 | % | 60.00 | % | N/A |
| N/A |
|
| (1) The PPA Phased Table: Interest and mortality assumptions as mandated by Pension Protection Act of 2006 including the phase out of the prior interest rate basis in 2013. |
Estimating Our Net Periodic Benefit Costs
The assumptions we use to estimate our net periodic benefit costs include:
discount rates inDecember 31, 2017, respectively. Additionally, the U.S. and Canada, including discount rates used to value lump sum distributions;
expected returns on our plan assets;
rates of compensation increases for our salariedCanadian other postretirement benefit plans were 3.70 percent and hourly employees in3.40 percent for the U.S.years ended December 31, 2018, and Canada; andDecember 31, 2017, respectively.
estimated percentages of eligible retirees who will elect lump sum payments of benefits.
This table shows the discount rates, expected returns on our plan assets and rates of compensation increases we used the last three years to estimate our net periodic benefit costs.
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 8481
Rates Used to EstimateEstimating Our Net Periodic Benefit Costs
| | | | PENSION | OTHER POSTRETIREMENT BENEFITS | PENSION |
| | 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | 2018 |
| 2017 |
| 2016 |
|
| Discount rates: | | | | | | | |
| |
| |
|
| United States | 4.10% | 4.90% for the first half of 2014 and 4.40% for the second half of 2014 | 3.70% | 3.60% | 4.00% | 3.00% | 3.70 | % | 4.30 | % | 4.50 | % |
Salaried – lump sum distributions (U.S. salaried and nonqualified plan only)(1) | PPA Table | PPA Table | PPA phased
Table | N/A | N/A | N/A | |
| Canada | 3.90% | 4.70% | 4.10% | 3.80% | 4.60% | 4.00% | 3.50 | % | 3.70 | % | 4.00 | % |
Lump sum distributions(1)(2) | | PPA Table |
| PPA Table |
| PPA Table |
|
| Expected return on plan assets: | | | | | | | |
| |
| |
|
Qualified/registered plans | 9.00% | 9.00% | 9.00% | | | | 8.00 | % | 8.00 | % | 9.00% for all plans except 7.00% for plans assumed from Plum Creek |
|
| Nonregistered plans (Canada only) | 3.50% | 3.50% | 3.50% | | | | |
| Nonregistered plans | | 3.50 | % | 3.50 | % | 3.50 | % |
| Rate of compensation increase: | | | | | | | |
| |
| |
|
| Salaried: | | | | | | | |
| |
| |
|
| United States | 2.50% for 2015 and 3.50% thereafter | 2.50% for 2014
and 3.50% thereafter | 2.50% for 2013
and 3.50% thereafter | N/A | N/A | N/A | 13.00% to 2.00% decreasing with participant age
|
| 13.00% to 2.00% decreasing with participant age
|
| 13.00% to 2.00% decreasing with participant age |
|
| Canada | 2.50% for 2015
and 3.50% thereafter | 2.50% for 2014
and 3.50% thereafter | 2.50% for 2013
and 3.50% thereafter | N/A | N/A | N/A | 3.25 | % | 3.50 | % | 3.50 | % |
| Hourly: | | | | | | | |
| |
| |
|
| United States | 3.00% | 3.00% | 3.00% | N/A | N/A | N/A | 13.00% to 2.30% decreasing with participant age
|
| 13.00% to 2.30% decreasing with participant age
|
| 13.00% to 2.30% decreasing with participant age |
|
| Canada | 3.25% | 3.25% | 3.25% | N/A | N/A | N/A | 3.00 | % | 3.25 | % | 3.25 | % |
| Election of lump sum distributions (U.S. salaried and nonqualified plans only) | 60.00% | 60.00% | 56.00% | N/A | N/A | N/A | |
| (1) PPA Phased Table: Interest and mortality assumptions as mandated by Pension Protection Act of 2006 including the phase out of the prior interest rate basis in 2013. | |
Lump sum distributions election(2) | | 60.00 | % | 60.00 | % | 60.00 | % |
(1) PPA Phased Table: Interest and mortality assumptions as mandated by Pension Protection Act of 2006 including the phase out of the prior interest rate basis in 2013. (2) U.S. qualified salaried and nonqualified plans only. (3) Beginning in 2017 we used an assumed expected return on plan assets of 8.00 percent for qualified and registered pension plans. | | (1) PPA Phased Table: Interest and mortality assumptions as mandated by Pension Protection Act of 2006 including the phase out of the prior interest rate basis in 2013. (2) U.S. qualified salaried and nonqualified plans only. (3) Beginning in 2017 we used an assumed expected return on plan assets of 8.00 percent for qualified and registered pension plans. |
The discount rates used for our U.S. other postretirement benefit plans were 3.50 percent, 3.70 percent and 4.00 percent for the years ended December 31, 2018, December 31, 2017, and December 31, 2016, respectively. Additionally, the discount rates used for our Canadian other postretirement benefit plans were 3.40 percent, 3.60 percent and 3.90 percent for the years ended December 31, 2018, December 31, 2017, and December 31, 2016, respectively.
Expected Return on Plan Assets
We estimate the expected long-term return on assets for our:
our qualified, registered and registerednonregistered pension plans and
nonregistered plans.
Qualified and Registered Pension Plans.Plans Our expected
We assumed a long-term rate of return foron plan assets as of 8.0 percent for the year ended December 31, 2015, is comprised of: 2018.
As of the end of 2018, we have begun implementing a 7.2change in our asset strategy to an allocation that will more closely match the plan’s liability profile moving forward, resulting in a larger allocation of our assets into fixed income securities. With this change, we have determined that we will reduce our assumption of long-term rate of return on plan assets to 7.0 percent assumed return from direct investments and
a 1.7 percent assumed return from derivatives.for the year ended December 31, 2019.
Determining our expected return:
return requires a high degree of judgment,
uses our historicaljudgment. We consider actual pension fund performance over multiple years, and current and expected valuation levels in the global equity and credit markets. Historical fund returns are used as a base, and
places we place added weight on more recent pension plan asset performance.
Over the 31 years it has been in place, our U.S. pension trust investment strategy has achieved a 14.2 percent net compound annual return rate. The past 5 years, our net compounded annual return was 8.0 percent.Nonregistered Plans
Nonregistered plans. Canadian tax rules require that 50 percent of the assets for nonregistered plans go to a noninterest-bearing refundable tax account. As a result, the return we earn investing the other 50 percent is spread over 100 percent of the assets.
Our expected long-term annual rate of return on the equity portion of this portfolio — the portion we are allowed to invest and manage — is 77.0 percent. We base that expected rate of return on:
This assumption is based on historical experience and
future return expectations.
Our The expected overall annual return on assets that fund our nonregistered plans is 3.5 percent.
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K85
Actual Returns on Assets Held by Our Pension Trusts
Based on valuations received as of year-end, our total actual return on assets held by our pension trusts was a gain of approximately $226 million in 2015. These trusts fund our qualified, registered and a portion of our nonregistered pension plans.
|
| | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| | 2015 |
| 2014 |
| 2013 |
|
| Direct investments | $ | 175 |
| $ | 258 |
| $ | 568 |
|
| Derivatives | 51 |
| 110 |
| 240 |
|
| Total | $ | 226 |
| $ | 368 |
| $ | 808 |
|
HEALTH CARE COSTSHealth Care Costs
Rising costs of health care affect the costs of our other postretirement plans.
Health Care Cost Trend Rates
We use assumptions about health care cost trend rates to estimate the cost of benefits we provide. Our trend rate assumptions are based on historical market experience, current environment and future expectations. In 2015,2018, the assumed weighted health care cost trend rate was:
6.38.4 percent in the for U.S. and
Pre-Medicare4.5 percent for U.S. Health Reimbursement Account (HRA)
5.65.1 percent in Canada.
for CanadaThis table shows the assumptions we use in estimating the annual cost increase for health care benefits we provide.
Assumptions We Use in Estimating Health Care Benefit CostsCost Trends
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K82
|
| | | | | | | | |
| | 2015 | 2014 |
| | U.S. |
| CANADA |
| U.S. |
| CANADA |
|
| Weighted health care cost trend rate assumed for next year | 7.20% for Pre Medicare and 4.50% for HRA |
| 5.00 | % | 6.30 | % | 5.60 | % |
| Rate to which cost trend rate is assumed to decline (ultimate trend rate) | 4.50 | % | 4.30 | % | 4.50 | % | 4.30 | % |
| Year that the rate reaches the ultimate trend rate | 2036 |
| 2028 |
| 2029 |
| 2028 |
|
|
| | | | | | | | |
| | 2018 | 2017 |
| | U.S. |
| CANADA |
| U.S. |
| CANADA |
|
| Weighted health care cost trend rate assumed for next year | 7.80% for Pre-Medicare and 4.50% for HRA |
| 4.90 | % | 8.40% for Pre-Medicare and 4.50% for HRA |
| 5.10 | % |
| Rate that the cost trend rate gradually declines to | 4.50 | % | 4.00 | % | 4.50 | % | 4.30 | % |
| Year the cost trend rate is reached | 2037 |
| 2039 |
| 2037 |
| 2028 |
|
The assumed health care cost trend rate can significantly influence projected postretirement benefit plan payments. Some of the benefits are defined dollar amounts and are unaffected by changes in health care costs. To determine the health care cost trend rate, we look at historical market experience, current environment and future expectations. The following table demonstrates the effect a 1one percent change in assumed health care cost trend rates would have with all other assumptions remaining constant.
Effect of a 1One Percent Change in Health Care Costs
| | | AS OF DECEMBER 31, 2015 (DOLLAR AMOUNTS IN MILLIONS) | |
| AS OF DECEMBER 31, 2018 (DOLLAR AMOUNTS IN MILLIONS) | | AS OF DECEMBER 31, 2018 (DOLLAR AMOUNTS IN MILLIONS) |
| | 1% INCREASE |
| 1% DECREASE |
| 1% INCREASE |
| 1% DECREASE |
|
| Effect on total service and interest cost components | less than $1 |
| less than $(1) |
| Less than $1 |
| Less than $(1) |
|
| Effect on accumulated postretirement benefit obligation | $ | 10 |
| $ | (8 | ) | $ | 5 |
| $ | (4 | ) |
ACTIVITY OF PLANS
Net Periodic Benefit Cost (Credit)
|
| | | | | | | | | | | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| | PENSION | OTHER POSTRETIREMENT BENEFITS |
| | 2018 |
| 2017 |
| 2016 |
| 2018 |
| 2017 |
| 2016 |
|
| Net periodic benefit cost (credit): | | | | | | |
Service cost(1) | $ | 37 |
| $ | 35 |
| $ | 48 |
| $ | — |
| $ | — |
| $ | — |
|
| Interest cost | 236 |
| 264 |
| 277 |
| 7 |
| 8 |
| 8 |
|
| Expected return on plan assets | (399 | ) | (409 | ) | (495 | ) | — |
| — |
| — |
|
| Amortization of actuarial loss | 225 |
| 195 |
| 156 |
| 8 |
| 8 |
| 9 |
|
| Amortization of prior service cost (credit) | 3 |
| 4 |
| 4 |
| (8 | ) | (8 | ) | (7 | ) |
| Accelerated pension costs for Plum Creek merger-related change-in-control provisions | — |
| — |
| 5 |
| — |
| — |
| — |
|
| Settlement charge | 200 |
| — |
| — |
| — |
| — |
| — |
|
| Net periodic benefit cost (credit) | $ | 302 |
| $ | 89 |
| $ | (5 | ) | $ | 7 |
| $ | 8 |
| $ | 10 |
|
| (1) Service cost includes $13 million in 2016 for employees that were part of our Cellulose Fibers divestitures. These charges are included in our results of discontinued operations. Curtailment and special termination benefits are related to involuntary terminations due to restructuring activities. |
Estimated Amortization from Accumulated Other Comprehensive Loss in 2019 |
| | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| | PENSION |
| OTHER POSTRETIREMENT BENEFITS |
| TOTAL |
|
| Net actuarial loss | $ | 108 |
| $ | 7 |
| $ | 115 |
|
| Prior service cost (credit) | 4 |
| (1 | ) | 3 |
|
| Net effect cost | $ | 112 |
| $ | 6 |
| $ | 118 |
|
Expected Pension Plan and Benefit Funding
Established funding standards govern the funding requirements for our qualified and registered pension plans. We fund the benefit payments of our nonqualified and nonregistered plans as benefit payments come due. We voluntarily contributed $300 million to our U.S. qualified pension plans during 2018, although there was no minimum required contribution for the year.
During 2018, we contributed $22 million for our Canadian registered plans, we made contributions and benefit payments of $2 million for our Canadian nonregistered pension plans and made benefit payments of $19 million for our nonqualified pension plans.
During 2019, based on estimated year-end asset values and projections of plan liabilities, we expect to:
be required to contribute approximately $17 million for our Canadian registered plan;
be required to contribute or make benefit payments for our Canadian nonregistered plans of $3 million; and
make benefit payments of approximately $16 million for our U.S. nonqualified pension plans.
We do not anticipate a contribution being required for our U.S. qualified pension plan for 2019.
Expected Postretirement Benefit Funding
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K83
Benefits for these plans are paid from our general assets as they come due. We expect to make benefit payments of $23 million for our U.S. and Canadian other postretirement benefit plans in 2019, including $6 million expected to be required to cover benefit payments under collectively bargained contractual obligations.
Estimated Projected Benefit Payments for the Next 10 Years
|
| | | | | | |
| DOLLAR AMOUNTS IN MILLIONS | | |
| | PENSION (1) |
| OTHER POSTRETIREMENT BENEFITS |
|
| 2019 | $ | 272 |
| $ | 17 |
|
| 2020 | 233 |
| 16 |
|
| 2021 | 231 |
| 15 |
|
| 2022 | 232 |
| 14 |
|
| 2023 | 234 |
| 14 |
|
| 2024-2028 | 1,161 |
| 57 |
|
| (1) Estimated payments exclude future payments transferred in conjunction with our January 2019 group annuity contract purchase. |
UNION-ADMINISTERED MULTIEMPLOYER BENEFIT PLANS
We contribute to multiemployer defined benefit plans under the terms of collective-bargaining agreements thatagreements. These plans cover somea small number of our union-represented employees.employees and on an annual basis our contributions are immaterial.
The U.S.These plans are established to provide retirement income for eligible employees who meet certain age and service requirements at retirement. The benefits are generally based on:
a percentage of the employerhave different risks than single-employer plans. Our contributions paid into the plan on the eligible employee's behalf or
a formula considering an eligible employee's service, the total contributions paid on their behalf plus a benefit based on the value of an eligible employee's account.
The Canadian plan is a negotiated cost defined benefit plan. The plan is established to provide retirement income for members based on their number of years of service in the industry, and the benefit rate that applied to that service.
The risks of participating in these multiemployer plans are different from single-employer plans in the following aspects:
Assets contributed to the multiemployer plan by one employer may be used to providefund benefits tofor employees of other participating employers.
If we choose to stop participating, we may be required to pay a withdrawal liability based on the underfunded status of the plan. If another participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.
If we choose to stop participating in some of the multiemployer plans, we may be required to pay those plans an amount based on the underfunded status of thebecome responsible for remaining plan referred to as a withdrawal liability.
WEYERHAEUSER COMPANY > unfunded obligations.2015 ANNUAL REPORT AND FORM 10-K86
As of December 31, 2015, these plans covered approximately 1,200 of our employees.
Our contributions were:
$4 million in 2015,
$4 million in 2014 and
$4 million in 2013.
There have been no significant changes that affect the comparability of the 2015, 2014 and 2013 contributions. None of our contributions exceeded more than 5 percent of any plan's total contributions during 2015, 2014 or 2013.
DEFINED CONTRIBUTION PLANS
We sponsor various defined contribution plans for our U.S. and Canadian salaried and hourly employees. Our contributions to these plans were:
$22 million in 2018,
$21 million in 2015,2017 and
$2027 million in 2014 and
$20 million in 2013.
NOTE 10: VARIABLE INTEREST ENTITIES
This note provides details about special-purpose entities (SPEs).
SPECIAL-PURPOSE ENTITIES
From 2002 through 2004, we sold certain nonstrategic timberlands in five separate transactions. We are the primary beneficiary and consolidate the assets and liabilities of certain monetization and buyer-sponsored SPEs involved in these transactions. We have an equity interest in the monetization SPEs, but no ownership interest in the buyer-sponsored SPEs. The following disclosures refer to assets of buyer-sponsored SPEs and liabilities of monetization SPEs. However, because these SPEs are distinct legal entities:
Assets of the SPEs are not available to satisfy our liabilities or obligations.
Liabilities of the SPEs are not our liabilities or obligations.
In 2013, we repaid a $162 million note and received $184 million related to one of our timber monetization SPEs undertaken in 2003. Net proceeds were $22 million.
Interest expense on SPE notes of:
– $29 million in 2015,
– $29 million in 2014 and
– $29 million in 2013.
Interest income on SPE investments of:
– $34 million in 2015,
– $34 million in 2014 and
– $34 million in 2013.
Sales proceeds paid to buyer-sponsored SPEs were invested in restricted financial investments with a balance of $615 million as of both December 31, 2015, and December 31, 2014. The weighted average interest rate was 5.5 percent during 2015 and 2014. Maturities of the financial investments at the end of 2015 were:
The long-term notes of our monetization SPEs were $511 million as of both December 31, 2015, and December 31, 2014. The weighted average interest rate was 5.6 percent during 2015 and 2014. Maturities of the notes at the end of 2015 were:
Financial investments consist of bank guarantees backed by bank notes for three of the SPE transactions. Interest earned from each financial investment is used to pay interest accrued on the corresponding SPE’s note. Any shortfall between interest earned and interest accrued reduces our equity in the monetization SPEs.
Upon dissolution of the SPEs and payment of all obligations of the entities, we would receive any net equity remaining in the monetization SPEs and would be required to report deferred tax gains on our income tax return. In the event that proceeds from the financial investments are insufficient to settle all of the liabilities of the SPEs, we are not obligated to contribute any funds to any of the SPEs. As of December 31, 2015, our net equity in the three SPEs was approximately $105 million and the deferred tax liability was estimated to be approximately $180 million.2016.
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K87
NOTE 11: ACCRUED LIABILITIES
Accrued liabilities were comprised of the following:
|
| | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| DECEMBER 31,
2015 |
| DECEMBER 31,
2014 |
|
| Wages, salaries and severance pay | $ | 150 |
| $ | 161 |
|
| Pension and postretirement | 44 |
| 47 |
|
| Vacation pay | 46 |
| 47 |
|
| Taxes – Social Security and real and personal property | 24 |
| 24 |
|
| Interest | 104 |
| 105 |
|
| Customer rebates and volume discounts | 46 |
| 46 |
|
| Deferred income | 52 |
| 75 |
|
| Other | 83 |
| 82 |
|
| Total | $ | 549 |
| $ | 587 |
|
|
| | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| DECEMBER 31,
2018 |
| DECEMBER 31,
2017 |
|
| Accrued compensation and employee benefit costs | $ | 192 |
| $ | 223 |
|
| Accrued taxes payable | 30 |
| 43 |
|
| Customer rebates, volume discounts and deferred income | 99 |
| 96 |
|
| Interest | 109 |
| 111 |
|
| 2 |
| 98 |
|
| Other | 58 |
| 74 |
|
| Total | $ | 490 |
| $ | 645 |
|
NOTE 12: LINES OF CREDIT
This note provides details about our:
lines of credit and
other letters of credit and surety bonds.
OUR LINES OF CREDIT
During September 2013,March 2017, we entered into a new $1$1.5 billion 5-yearfive-year senior unsecured revolving credit facility that expires in September 2018.March 2022. This replacesreplaced a $1 billion senior unsecured revolving credit facility that was originally set to expire June 2015. As of June 16, 2014, WRECO terminated its participation as a borrower in the facility. There were no changes to our lines of credit during 2015.
September 2018. Borrowings are at LIBOR plus a spread or at other interest rates mutually agreed upon between the borrower and the lending banks. As of December 31, 2015, there were no2018, we had $425 million of outstanding borrowings outstanding underon the revolving credit facility and wehad an additional $1,075 million available. We were in compliance with the revolving credit facility covenants.covenants as of December 31, 2018.
OTHER LETTERS OF CREDIT AND SURETY BONDS
The amounts of other letters of credit and surety bonds we have entered into as of the end of our last two years are included in the following table:
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K84
| | DOLLAR AMOUNTS IN MILLIONS | | DECEMBER 31,
2015 |
| DECEMBER 31,
2014 |
| DECEMBER 31,
2018 |
| DECEMBER 31,
2017 |
|
| Letters of credit | $ | 47 |
| $ | 44 |
| $ | 38 |
| $ | 37 |
|
| Surety bonds | $ | 113 |
| $ | 231 |
| $ | 123 |
| $ | 134 |
|
Our compensating balance requirements for our letters of credit were $17$6 million as of December 31, 20152018.
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K88
NOTE 13: LONG-TERM DEBT
This note provides details about:
term loans issued and extinguished and
long-term debt and the portion due within one year and
long-term debt maturities.
Our long-term debt includes notes, debentures revenue bonds and other borrowings.
TERM LOANS ISSUED AND EXTINGUISHED
During February 2018, we paid our $62 million 7.00 percent debenture at maturity.
During July 2017, we prepaid a $550 million variable-rate term loan originally set to mature in 2020 (2020 term loan). The 2020 term loan was prepaid using available cash of $325 million as well as borrowing proceeds from a new $225 million variable-rate term loan set to mature in 2026 (2026 term loan). The 2020 term loan was eligible to receive patronage refunds while outstanding. Similarly, we receive patronage refunds on the 2026 term loan, which will continue while the loan remains outstanding.
LONG-TERM DEBT AND LONG-TERM DEBT MATURITIES
The following table lists our long-term debt, which includes Weyerhaeuser Company debt by types and interest rates at the end of our last two years and includes the current portion.
Long-Term Debt by Types and Interest Rates (Includes Current Portion)
| | DOLLAR AMOUNTS IN MILLIONS | | | DECEMBER 31,
2015 |
| DECEMBER 31,
2014 |
| DECEMBER 31,
2018 |
| DECEMBER 31,
2017 |
|
| 6.95% debentures due 2017 | $ | 281 |
| $ | 281 |
| |
| 7.00% debentures due 2018 | 62 |
| 62 |
| — |
| 62 |
|
| 7.375% notes due 2019 | 500 |
| 500 |
| 500 |
| 500 |
|
| Variable rate term loan credit facility matures 2020 | 550 |
| 550 |
| |
| 9.00% debentures due 2021 | 150 |
| 150 |
| 150 |
| 150 |
|
| 4.70% debentures due 2021 | | 588 |
| 597 |
|
| 7.125% debentures due 2023 | 191 |
| 191 |
| 191 |
| 191 |
|
| 5.207% debentures due 2023 | | 881 |
| 885 |
|
| 4.625% notes due 2023 | 500 |
| 500 |
| 500 |
| 500 |
|
| 3.25% debentures due 2023 | | 324 |
| 324 |
|
| 8.50% debentures due 2025 | 300 |
| 300 |
| 300 |
| 300 |
|
| 7.95% debentures due 2025 | 136 |
| 136 |
| 136 |
| 136 |
|
| 7.70% debentures due 2026 | 150 |
| 150 |
| 150 |
| 150 |
|
| 7.35% debentures due 2026 | 62 |
| 62 |
| 62 |
| 62 |
|
| 7.85% debentures due 2026 | 100 |
| 100 |
| 100 |
| 100 |
|
| Variable rate term loan credit facility matures 2026 | | 225 |
| 225 |
|
| 6.95% debentures due 2027 | 300 |
| 300 |
| 300 |
| 300 |
|
| 7.375% debentures due 2032 | 1,250 |
| 1,250 |
| 1,250 |
| 1,250 |
|
| 6.875% debentures due 2033 | 275 |
| 275 |
| 275 |
| 275 |
|
| Industrial revenue bonds, rates from 6.7% to 6.8%, due 2022 | 88 |
| 88 |
| |
| Other | 1 |
| 1 |
| 1 |
| 1 |
|
| | 4,896 |
| 4,896 |
| 5,933 |
| 6,008 |
|
| Less unamortized discounts | (5 | ) | (5 | ) | (5 | ) | (5 | ) |
| Less unamortized debt expense | | (9 | ) | (11 | ) |
| Total | $ | 4,891 |
| $ | 4,891 |
| $ | 5,919 |
| $ | 5,992 |
|
| Portion due within one year | $ | — |
| $ | — |
| $ | 500 |
| $ | 62 |
|
In order to repay the debt that we assumed in the acquisition of Longview Timber, in 2013 we issued $500 million of 4.625 percent notes dueWEYERHAEUSER COMPANY > September 15, 20232018 ANNUAL REPORT AND FORM 10-K. The net proceeds after deducting the discount, underwriting fees and issuance costs were $495 million. We also entered into a $550 million 7-year senior unsecured term loan credit facility maturing in September 2020 and borrowed $550 million. Borrowings are at LIBOR plus a spread or at other interest rates mutually agreed upon between the borrower and the lending banks.85
On October 15, 2013, we repaid the $1,118 million carrying value
Amounts of Long-Term Debt Due Annually for the Next Five Years and the Total Amount Due After 20202023
| | DOLLAR AMOUNTS IN MILLIONS | | | DECEMBER 31, 2015 |
| |
| Long-term debt maturities: | |
| |
| 2016 | $ | — |
| |
| 2017 | $ | 281 |
| |
| 2018 | $ | 62 |
| |
| 2019 | $ | 500 |
| $ | 500 |
|
| 2020 | $ | 550 |
| — |
|
| 2021 | | 719 |
|
| 2022 | | — |
|
| 2023 | | 1,876 |
|
| Thereafter | $ | 3,503 |
| 2,798 |
|
| (1) Excludes $26 million of unamortized discounts, capitalized debt expense and fair value adjustments (related to Plum Creek merger). | | (1) Excludes $26 million of unamortized discounts, capitalized debt expense and fair value adjustments (related to Plum Creek merger). |
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K89
NOTE 14: FAIR VALUE OF FINANCIAL INSTRUMENTS
This note provides information about the fair value of our:
debt and
other financial instruments.
FAIR VALUE OF DEBT
The estimated fair values and carrying values of our long-term debt and line of credit consisted of the following:
| | DOLLAR AMOUNTS IN MILLIONS | | DECEMBER 31, 2015 | | DECEMBER 31, 2014 | | DECEMBER 31, 2018 | | DECEMBER 31, 2017 | |
| CARRYING VALUE |
| FAIR VALUE (LEVEL 2) |
| CARRYING VALUE |
| FAIR VALUE (LEVEL 2) |
| CARRYING VALUE |
| FAIR VALUE (LEVEL 2) |
| CARRYING VALUE |
| FAIR VALUE (LEVEL 2) |
|
| Long-term debt (including current maturities) | $ | 4,891 |
| $ | 5,620 |
| $ | 4,891 |
| $ | 5,922 |
| |
| Long-term debt (including current maturities) and line of credit: | | | | |
| Fixed rate | | $ | 5,694 |
| $ | 6,345 |
| $ | 5,768 |
| $ | 6,823 |
|
| Variable rate | | 650 |
| 650 |
| 224 |
| 225 |
|
| Total Debt | | $ | 6,344 |
| $ | 6,995 |
| $ | 5,992 |
| $ | 7,048 |
|
To estimate the fair value of long-term debt, we used the following valuation approaches:
market approach, —which is based on quoted market prices we received for the same types and issues of our debt; ordebt.
income approach — based on the discounted valueWe believe that our variable rate long-term debt and line of the future cash flows using market yields for the same type and comparable issues of debt.credit instruments have net carrying values that approximate their fair values with only insignificant differences.
The inputs to these valuations are based on market data obtained from independent sources or information derived principally from observable market data.
The difference between the fair value and the carrying value represents the theoretical net premium or discount we would pay or receive to retire all debt at the measurement date.
FAIR VALUE OF OTHER FINANCIAL INSTRUMENTS
We believe that our other financial instruments, including cash and cash equivalents, short-term investments, mutual fund investments held in grantor trusts, receivables, and payables, have net carrying values that approximate their fair values with only insignificant differences. This is primarily due to:
to the short-term nature of these instruments
carrying short-term investments at expected net realizable value and
the allowance for doubtful accounts.
NOTE 15: LEGAL PROCEEDINGS, COMMITMENTS AND CONTINGENCIES
This note provides details about our:
legal proceedings,
environmental matters and
commitments and other contingencies.
LEGAL PROCEEDINGS
ENVIRONMENTAL MATTERS
Our environmental matters include:
site remediation and
asset retirement obligations.
Site Remediation
Under the Comprehensive Environmental Response, Compensation and Liability Act —(CERCLA) – commonly known as the Superfund —– and similar state laws, we:
are a party to various proceedings related to the cleanup of hazardous waste sites and
have been notified that we may be a potentially responsible party related to the cleanup of other hazardous waste sites for which proceedings have not yet been initiated.
We have received notification from the Environmental Protection Agency (the EPA) and have acknowledged that we are a potentially responsible party in a portion of the Kalamazoo River Superfund site in southwest Michigan. Our involvement in the remediation site is based on our former ownership of the Plainwell, Michigan mill located within the remediation site. In 2015 we received invitations fromSeveral other companies also have been deemed potentially responsible parties as past or present owners or operators of facilities within the Environmental Protection Agency (the “EPA”)site, or as arrangers under CERCLA.
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K86
We cooperated with other parties to negotiatejointly implement an administrative order issued by the EPA on consent for a contaminant removal action forApril 14, 2016, with respect to a portion of the site. Two other parties received the same invitations. All parties are in contact with the EPA as to the work required and the terms of any consent order. According to the EPA, this Superfund site encompasses 77 miles of the Kalamazoo River from a location east of the city of Kalamazoo to the river mouth at Lake Michigan. The EPA’s 2015 invitations concerncomprising a stretch of the river approximately 1.7 miles long that the EPA refersreferred to as the Otsego Township Dam Area. SeveralDuring third quarter 2018, implementation of this administrative order was completed.
In 2010, the company, along with others, was named as a defendant by Georgia-Pacific Consumer Products LP, Fort James Corporation and Georgia-Pacific LLC in an action seeking contribution under CERCLA for remediation costs relating to a certain area within the site. On March 29, 2018, the U.S. District Court issued an opinion and order assigning the company responsibility for 5 percent of approximately $50 million in past costs incurred by the plaintiffs. The remaining 95 percent of this pool of past costs incurred was allocated to the plaintiffs and other companies also operated upstream pulp mills. At this timedefendants.
The opinion and order, which is currently on appeal before the US Court of Appeals for the Sixth Circuit, does not establish allocation for future remediation costs, and accordingly, we are unable tomay incur additional costs in connection with future remediation tasks for other areas of the site. In connection with the opinion and order, we updated our best estimate of the timingliability associated with the site and extentrecorded a pretax charge of future cash flows related to our involvement$28 million in this site remediation.first quarter 2018 within "Other operating costs (income), net" on the Consolidated Statement of Operations.
Our established reserves.Established Reserves. We have established reserves for estimated remediation costs on the active Superfund sites and other sites for which we are responsible.a potentially responsible party. These reserves are recorded in "Accrued liabilities" and "Other liabilities" in our Consolidated Balance Sheet.
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K90
Changes in the Reserve for Environmental Remediation
| | DOLLAR AMOUNTS IN MILLIONS | | Reserve balance as of December 31, 2014 | $ | 29 |
| |
| Reserve balance as of December 31, 2017 | | $ | 48 |
|
| Reserve charges and adjustments, net | 15 |
| 27 |
|
| Payments | (7 | ) | (13 | ) |
| Reserve balance as of December 31, 2015 | $ | 37 |
| |
| Total active sites as of December 31, 2015 | 38 |
| |
| Reserve balance as of December 31, 2018 | | $ | 62 |
|
We change our accrual to reflect:
new information on any site concerning implementation of remediation alternatives,
updates on prior cost estimates and new sites and
costs incurred to remediate sites.
Estimates. We believe it is reasonably possible, based on currently available information and analysis, that remediation costs for all identified sites may exceed our existing reserves by up to $116 million.$126 million.
This estimate, in which those additional costs may be incurred over several years, is the upper end of the range of reasonably possible additional costs. The estimate:
is much less certain than the estimates on which our accruals currently are based and
uses assumptions that are less favorable to us among the range of reasonably possible outcomes.
In estimating our current accruals and the possible range of additional future costs, we:
assumed we will not bear the entire cost of remediation of every site,
took into account the ability of other potentially responsible parties to participate and
considered each party’s financial condition and probable contribution on a per-site basis.
We have not recorded any amounts for potential recoveries from insurance carriers.
Asset Retirement Obligations
We have obligations associated with the retirement of tangible long-lived assets consisting primarily of reforestation obligations related to forest management licenses in Canada and obligations to close and cap landfills. Some of our sites have asbestos containing materials. We have met our current legal obligation to identify and manage these materials. In situations where we cannot reasonably determine when asbestos containing materials might be removed from the sites, we have not recorded an accrual because the fair value of the obligation cannot be reasonably estimated. These obligations are recorded in "Accrued liabilities" and "Other liabilities" in our Consolidated Balance Sheet. Changes in the Reserve for Asset Retirement Obligations
| | DOLLAR AMOUNTS IN MILLIONS | | Reserve balance as of December 31, 2014 | $ | 40 |
| |
| Reserve balance as of December 31, 2017 | | $ | 32 |
|
| Reserve charges and adjustments, net | 10 |
| 11 |
|
| Payments | (11 | ) | (12 | ) |
Other adjustments(1) | (5 | ) | (2 | ) |
| Reserve balance as of December 31, 2015 | 34 |
| |
| Reserve balance as of December 31, 2018 | | $ | 29 |
|
| (1) Primarily related to a foreign currency remeasurement gain for our Canadian reforestation obligation. | | (1) Primarily related to a foreign currency remeasurement gain for our Canadian reforestation obligation. |
COMMITMENTS AND OTHER CONTINGENCIES
Our commitments and contingencies include:
guarantees of debt and performance,
purchase obligations for goods and servicesoperating leases and
operating leases.product remediation contingency.
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K87
Guarantees
We have guaranteed the performance of the buyer/lesseebuyer of a timberlands leasetimberland contract we sold in 2005. Future payments on the lease —contract, which expires in 2023, — are $15 million.
Purchase Obligations
Our purchase obligations as of December 31, 2015 were:
|
| | | |
| DOLLAR AMOUNTS IN MILLIONS |
| | DECEMBER 31, 2015 |
|
| 2016 | $ | 84 |
|
| 2017 | $ | 33 |
|
| 2018 | $ | 8 |
|
| 2019 | $ | 2 |
|
| 2020 | $ | 2 |
|
| Thereafter | $ | 17 |
|
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K91
Purchase obligations for goods or services are agreements that:
are enforceable and legally binding,
specify all significant terms and
cannot be canceled without penalty.
The terms include:
fixed or minimum quantities to be purchased,
fixed, minimum or variable price provisions, and
an approximate timing for the transaction.
Our purchase obligations include items such as:
stumpage and log purchases,
energy and
other service and supply contracts.$10 million.
Operating Leases
Our rent expense was:
|
| | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| 2015 |
| 2014 |
| 2013 |
|
| Rent expense | $ | 31 |
| $ | 32 |
| $ | 38 |
|
$37 million in 2016 (excluding discontinued operations).
We have operating leases for:
various equipment, including logging equipment, lift trucks, automobiles and office equipment;equipment and
office and wholesalewarehouse space.
Future Commitments on Operating Leases
Our operating lease commitments as of December 31, 20152018 were:
| | DOLLAR AMOUNTS IN MILLIONS | | | DECEMBER 31, 2015 |
| |
| 2016 | $ | 27 |
| |
| 2017 | $ | 26 |
| |
| 2018 | $ | 21 |
| |
| 2019 | $ | 17 |
| $ | 35 |
|
| 2020 | $ | 14 |
| 29 |
|
| 2021 | | 26 |
|
| 2022 | | 24 |
|
| 2023 | | 18 |
|
| Thereafter | $ | 105 |
| 78 |
|
Product Remediation Contingency
NOTE 16: SHAREHOLDERS’ INTEREST
This note provides details about:
preferred and preference shares,
common shares,
share-repurchase programs and
cumulativeaccumulated other comprehensive income (loss).loss
PREFERRED AND PREFERENCE SHARES
We had no preferred shares outstanding at the end of 20152018 or 20142017. However, weWe have authorization to issue 7 million preferred shares with a par value of $1$1.00 per share.
As part of our purchase of Longview Timber,On June 24, 2013, we issued 13.8 million of our 6.375 percent Mandatory Convertible Preference Shares, Series A, par value $1.00 and liquidation preference of $50.00 per share, on June 24, 2013, for net proceeds of $669 million, which remained outstanding at year-end 2015. Dividends will be payable on a cumulative basis when, as and if declared by our board of directors, at an annual rate of 6.375 percent on the liquidation preference. We may pay declared dividends in cash or, subject to certain limitations, in common shares or by delivery of any combination of cash and common shares on January 1, April 1, July 1 and October 1 of each year, commencing on October 1, 2013, through, and including, July 1, 2016. These shares will automatically convert onmillion.
On July 1, 2016, all outstanding 6.375 percent Mandatory Convertible Preference Shares, Series A (Preference Shares) converted into between 1.5283 and 1.8339 of our common shares, subject to anti-dilution adjustments. At any time prior to that date, holders may elect to convert each share intoWeyerhaeuser common shares at the minimum conversiona rate of 1.52831.6929 Weyerhaeuser common shares subject to anti-dilution adjustments. per Preference Share. The company issued a total of 23.2 million Weyerhaeuser common shares in conjunction with the conversion, based on 13.7 million Preference Shares outstanding as of the conversion date.
In
April 2015, 289 preferenceaccordance with the terms of the Preference Shares, the number of Weyerhaeuser common shares
were converted into 436issuable on conversion was determined based on the average volume weighted average price of $29.54 for Weyerhaeuser common
shares. See Note 4: Acquisitions for more information.We may issue preferred or preference shares at one time or through a series of offerings. The shares may have varying rightsover the 20-trading-day period beginning June 1, 2016, and preferences that can include:
dividend rates,
redemption rights,
conversion terms,
sinking-fund provisions,
values in liquidation and
voting rights.
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K92
When issued, outstanding preferred and preference shares rank senior to outstanding common shares. That means preferred and preference shares would receive dividends and assets availableending on liquidation before any payments are made to common shares.June 28, 2016.
COMMON SHARES
The number of common shares we have outstanding changes when:
new shares are issued,
stock options are exercised,
restricted stock units or performance share units vest,
stock-equivalent units are paid out,
shares are tendered,
shares are repurchased or
shares are canceled.
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K88
Reconciliation of Our Common Share Activity
| | | IN THOUSANDS | |
| SHARES IN THOUSANDS | | SHARES IN THOUSANDS |
| 2015 |
| 2014 |
| 2013 |
| 2018 |
| 2017 |
| 2016 |
|
| Outstanding at beginning of year | 524,474 |
| 583,548 |
| 542,393 |
| 755,223 |
| 748,528 |
| 510,483 |
|
| — |
| — |
| 33,350 |
| |
| — |
| (58,813 | ) | — |
| |
Issuance from merger with Plum Creek (Note 5) | | — |
| — |
| 278,887 |
|
| Stock options exercised | 1,592 |
| 5,134 |
| 7,209 |
| 2,026 |
| 5,970 |
| 2,571 |
|
| Issued for restricted stock units | 365 |
| 451 |
| 462 |
| 466 |
| 605 |
| 840 |
|
| Issued for performance shares | 242 |
| 217 |
| 134 |
| 86 |
| 120 |
| 219 |
|
| Preference shares converted to common | | — |
| — |
| 23,345 |
|
| Repurchased | (16,190 | ) | (6,063 | ) | — |
| (11,410 | ) | — |
| (67,817 | ) |
| Outstanding at end of year | 510,483 |
| 524,474 |
| 583,548 |
| 746,391 |
| 755,223 |
| 748,528 |
|
OUR SHARE REPURCHASE PROGRAMS
On August 13, 2014,In November 2015, our board of directors approved a stockshare repurchase program under which we were authorized to repurchase up to $700 million$2.5 billion of outstanding shares subsequent to the closing of our merger with Plum Creek (the 20142016 Repurchase Program). The 2014Transaction fees incurred for repurchases are not counted as use of funds authorized for repurchases under the 2016 Share Repurchase Program replaced the prior 2011 stock repurchase program.Authorization. During 2014,2016, we repurchased 6,062,99368 million shares of common stock for $203 million$2 billion under the 20142016 Repurchase Program.
We did not repurchase any shares of common stock during 2017. As of December 31, 2017, we had remaining authorization of $500 million for future stock repurchases.
During 20152018, we completed the 2014 Repurchase Program by repurchasing 15,471,962repurchased 11 million shares of common stock for $497 million. $366 million (including transaction fees), under the 2016 Repurchase Program. As of December 31, 2018, we had remaining authorization of $135 million for future stock repurchases.
On February 7, 2019, our board of directors terminated the 2016 Repurchase Program and approved a new share repurchase program (the 2019 Repurchase Program) under which we are authorized to repurchase up to $500 million of outstanding shares.
All common stock purchases under the stock repurchase program2016 Repurchase Programs were made in open-market transactions.
On August 27, 2015 our board of directors approvedWe record share repurchases upon trade date as opposed to the settlement date when cash is disbursed. We record a new share repurchase program of upliability to $500 million on outstanding shares (the 2015 Repurchase Program), commencing upon completion of the 2014 Repurchase Program. During 2015, we repurchased 717,464 shares of common stockaccount for $22 million under the 2015 Repurchase Program. As of December 31, 2015 we had remaining authorization of $478 million for future stock repurchases. All common stock purchases under the stock repurchase programrepurchases that have not been cash settled. There were made in open-market transactions. We had 510,483,285 shares of common stock outstandingno unsettled repurchases as of December 31, 2015.
On November 8, 2015 Weyerhaeuser announced it intends to execute a $2.5 billion share repurchase shortly after closing the merger with Plum Creek. As of2018, or December 31, 2015 no portion of this intended repurchase has been completed. The remaining $478 million authorized for the 2015 Repurchase Program is expected to be used in the intended post-merger repurchase.2017.
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 9389
CUMULATIVEACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)LOSS
Changes in amounts included in our cumulativeaccumulated other comprehensive income (loss)loss by component are:
|
| | | | | | | | | | | | | | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| | | PENSION | OTHER POSTRETIREMENT BENEFITS | | |
| | Foreign currency translation adjustments | Actuarial losses | Prior service costs | Actuarial losses | Prior service credits | Unrealized gains on available-for-sale securities | Total |
| Beginning balance as of January 1, 2014 | $ | 354 |
| $ | (1,066 | ) | $ | (19 | ) | $ | (111 | ) | $ | 150 |
| $ | 6 |
| $ | (686 | ) |
| Other comprehensive income (loss) before reclassifications | (50 | ) | (1,008 | ) | 1 |
| (6 | ) | (12 | ) | — |
| (1,075 | ) |
| Income taxes | — |
| 369 |
| — |
| 1 |
| 7 |
| — |
| 377 |
|
| Net other comprehensive income (loss) before reclassifications | (50 | ) | (639 | ) | 1 |
| (5 | ) | (5 | ) | — |
| (698 | ) |
Amounts reclassified from cumulative other comprehensive income (loss)(1) | — |
| 125 |
| 5 |
| 12 |
| (161 | ) | — |
| (19 | ) |
| Income taxes | — |
| (43 | ) | (2 | ) | (4 | ) | 59 |
| — |
| 10 |
|
| Net amounts reclassified from cumulative other comprehensive income (loss) | — |
| 82 |
| 3 |
| 8 |
| (102 | ) | — |
| (9 | ) |
| Total other comprehensive income (loss) | (50 | ) | (557 | ) | 4 |
| 3 |
| (107 | ) | — |
| (707 | ) |
| Beginning balance as of January 1, 2015 | 304 |
| (1,623 | ) | (15 | ) | (108 | ) | 43 |
| 6 |
| (1,393 | ) |
| Other comprehensive income (loss) before reclassifications | (97 | ) | 184 |
| 2 |
| 37 |
| (2 | ) | — |
| 124 |
|
| Income taxes | — |
| (52 | ) | — |
| (12 | ) | — |
| — |
| (64 | ) |
| Net other comprehensive income (loss) before reclassifications | (97 | ) | 132 |
| 2 |
| 25 |
| (2 | ) | — |
| 60 |
|
Amounts reclassified from cumulative other comprehensive income (loss)(1) | — |
| 182 |
| 4 |
| 10 |
| (9 | ) | — |
| 187 |
|
| Income taxes | — |
| (63 | ) | (2 | ) | (4 | ) | 3 |
| — |
| (66 | ) |
| Net amounts reclassified from cumulative other comprehensive income (loss) | — |
| 119 |
| 2 |
| 6 |
| (6 | ) | — |
| 121 |
|
| Total other comprehensive income (loss) | (97 | ) | 251 |
| 4 |
| 31 |
| (8 | ) | — |
| 181 |
|
| Ending balance as of December 31, 2015 | $ | 207 |
| $ | (1,372 | ) | $ | (11 | ) | $ | (77 | ) | $ | 35 |
| $ | 6 |
| $ | (1,212 | ) |
|
|
| | | | | | | | | | | | | | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| | | PENSION | OTHER POSTRETIREMENT BENEFITS | | |
| | Foreign currency translation adjustments | Actuarial loss | Prior service cost | Actuarial loss | Prior service credit | Unrealized gains on available-for-sale securities | Total |
| Ending balance as of December 31, 2016 | $ | 232 |
| $ | (1,651 | ) | $ | (9 | ) | $ | (67 | ) | $ | 29 |
| $ | 7 |
| $ | (1,459 | ) |
Other comprehensive income (loss) before reclassifications (1) | 32 |
| (280 | ) | (2 | ) | 14 |
| — |
| 2 |
| (234 | ) |
Amounts reclassified from accumulated other comprehensive income (loss) to earnings(1)(2) | — |
| 129 |
| 3 |
| 5 |
| (6 | ) | — |
| 131 |
|
| Total other comprehensive income (loss) | 32 |
| (151 | ) | 1 |
| 19 |
| (6 | ) | 2 |
| (103 | ) |
| Ending balance as of December 31, 2017 | 264 |
| (1,802 | ) | (8 | ) | (48 | ) | 23 |
| 9 |
| (1,562 | ) |
Other comprehensive income (loss) before reclassifications (1) | (54 | ) | 393 |
| (5 | ) | 12 |
| 1 |
| — |
| 347 |
|
Amounts reclassified from accumulated other comprehensive income (loss) to earnings(1)(2)(3) | — |
| 322 |
| 3 |
| 6 |
| (6 | ) | — |
| 325 |
|
| Total other comprehensive income (loss) | (54 | ) | 715 |
| (2 | ) | 18 |
| (5 | ) | — |
| 672 |
|
Reclassification of certain tax effects due to tax law changes(4) | — |
| (245 | ) | (1 | ) | (12 | ) | 5 |
| — |
| (253 | ) |
Reclassification of accumulated unrealized gains on available-for-sale securities(5) | — |
| — |
| — |
| — |
| — |
| (9 | ) | (9 | ) |
| Net amounts reclassified from accumulated other comprehensive loss to retained earnings | — |
| (245 | ) | (1 | ) | (12 | ) | 5 |
| (9 | ) | (262 | ) |
| Ending balance as of December 31, 2018 | 210 |
| (1,332 | ) | (11 | ) | (42 | ) | 23 |
| — |
| (1,152 | ) |
(1) Amounts are presented net of tax. |
NOTE 17: SHARE-BASED COMPENSATION
Share-based compensation expense was:
$31 million in 2015,
$40 million in 2014 and
$42 million in 2013.
The amounts above contain awards to employees that were part of the Real Estate Divestiture and are included in our results of discontinued operations. These amounts are:
$3 million in 2014 and
$5 million in 2013.
This note provides details about:
our Long-Term Incentive Compensation Plan (2013 Plan),
share-based compensation resulting from our merger with Plum Creek,
how we account for share-based awards,
tax benefits of share-based awards,
types of share-based compensation, and
unrecognized share-based compensation.compensation and
deferred compensation stock equivalent units.
Share-based compensation expense was:
$42 million in 2018,
$40 million in 2017 and
$60 million in 2016.
The 2016 amount above contains a $6 million award to employees of the divested Cellulose Fibers businesses which is included in our results of discontinued operations.
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K90
OUR LONG-TERM INCENTIVE COMPENSATION PLAN
Our long-term incentive plans provide for share-based awards that include:
stock options,
stock appreciation rights,
restricted stock,
restricted stock units (RSUs),
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K94
performance shares, and
performance share units.units (PSUs),
stock options and
stock appreciation rights (SARs).
We may issue future grants of up to 17,317,90321 million shares under the 2013 Plan. We also have the right to reissue forfeited and expired grants.
For restricted stock, RSUs, performance shares, PSUs or other equity grants:
An individual participant may receive a grant of up to 1 million shares annually.
No participant may be granted awards that exceed $10 million earned in a 12-month period.
For stock options and stock appreciation rights:SARs:
An individual participant may receive a grant of up to 2 million shares in any one calendar year.
The exercise price is required to be the market price on the date of the grant.
For restricted stock, restricted stock units, performance shares, performance share units or other equity grants:
An individual participant may receive a grant of upWe have not granted any additional SARs since 2016. Additionally, the remaining liability related to 1 million shares annually.
No participant may be granted awards that exceed $10 million earned in a 12 month period.SARs is immaterial at December 31, 2018.
The Compensation Committee of our board of directors (the Committee) annually establishes an overall pool of stock awards available for grants based on performance.
For stock-settled awards, we:
issue new stock into the marketplace and
generally do not repurchase shares in connection with issuing new awards.
Our common shares would increase by approximately 3230 million shares if all share-based awards were exercised or vested. These include:
all options, restricted stock units,RSUs and performance share unitsPSUs outstanding at December 31, 20152018, under the 2013 Plan and 2004 Plan; and
all remaining options, restricted stock units,RSUs and performance share unitsPSUs that could be granted under the 2013 Plan.
SHARE-BASED COMPENSATION RESULTING FROM OUR MERGER WITH PLUM CREEK
Replacement awards were granted as a result of the merger with Plum Creek. Eligible outstanding Plum Creek stock options, RSUs and deferred stock unit awards were converted into equivalent equity awards with respect to Weyerhaeuser Common Shares, after giving effect to the appropriate adjustments to reflect the consummation of the merger.
In total, we issued replacement awards consisting of 1,953 thousand stock options and 1,248 thousand RSUs. The replacement stock option awards were fully vested and had a total value of $5 million, which was included in the equity consideration issued with the merger. Qualifying terminations during 2016 resulted in accelerated vesting of 705 thousand of the replacement RSUs and recognition of $15 million of expense. The accelerated expense is included in the merger-related integration costs as described in Note 18: Charges for Integration and Restructuring, Closures and Asset Impairments.
HOW WE ACCOUNT FOR SHARE-BASED AWARDS
We:When accounting for share-based awards we:
use a fair-value-based measurement for share-based awards and
recognize the cost of share-based awards in our consolidated financial statements.
We recognize the cost of share-based awards in our Consolidated Statement of Operations over the required service period — generally the period from the date of the grant to the date when it is vested. Special situations include: Awards that vest upon retirement — the required service period ends on the date an employee is eligible for retirement, including early retirement.
Awards that continue to vest following job elimination or the sale of a business — the required service period ends on the date the employment from the company is terminated.
In these special situations, compensation expense from share-based awards is recognized over a period that is shorter than the stated vesting period.
TAX BENEFITS OF SHARE-BASED AWARDS
$85 million in 2015,2018,
$116 million in 2014,2017 and
$1012 million in 2013.2016.
The amounts2016 amount above containcontains a $2 million income tax benefit from share-based awards to employees that were part of the Real Estate Divestiture and areCellulose Fibers divestitures which is included in our results of discontinued operations. These amounts are:
$1 million in 2014 and
$2 million in 2013.WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K91
Tax benefits
forfrom share-based awards are accrued as stock compensation expense
is recognized in the Consolidated Statement of Operations. Tax benefits on share-based awards areand realized when:restricted shares and restricted share unitsRSUs vest,
performance shares and performance share unitsPSUs vest,
stock options are exercised and
stock appreciation rightsSARs are exercised.
When actual tax benefits realized exceed the tax benefits accrued for share-based awards, we realize an excess tax benefit. We report the excess tax benefit as financing cash inflows rather than operating cash inflows. We had excess tax benefits of:
$4 million in 2015,
$10 million in 2014 and
$13 million in 2013.
The amounts above contain excess tax benefits from share-based awards to employees that were part of the Real Estate Divestiture and are included in our results of discontinued operations. These amounts are:
$2 million in 2014 and
$2 million in 2013.
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K95
TYPES OF SHARE-BASED COMPENSATION
Our share-based compensation is in the form of:
stock options,
restricted stock units,
performance share units,
stock appreciation rightsoptions and
deferred compensation stock equivalent units.
STOCK OPTIONS
Stock options entitle award recipients to purchase shares of our common stock at a fixed exercise price. We grant stock options with an exercise price equal to the market price of our stock on the date of the grant.
The Details
Our stock options generally:
vest over four years of continuous service and
must be exercised within 10 years of the grant-date.
The vesting and post-termination vesting terms for stock options granted in 2015, 2014 and 2013 were as follows:
vest ratably over four years;
vest or continue to vest in the event of death while employed or disability;
continue to vest upon retirement at an age of at least 62, but a portion of the grant is forfeited if retirement occurs before the one year anniversary of the grant;
continue to vest for one year in the event of involuntary termination when the retirement criteria has not been met; and
stop vesting for all other situations including early retirement prior to age 62.
Our Accounting
We use a Black-Scholes option valuation model to estimate the fair value of every stock option award on its grant-date.
In our estimates, we use:
historical data — for option exercise time and employee terminations;
a Monte-Carlo simulation — for how long we expect granted options to be outstanding; and
the U.S. Treasury yield curve — for the risk-free rate. We use a yield curve over a period matching the expected term of the grant.
The expected volatility in our valuation model is based on:
implied volatilities from traded options on our stock,
historical volatility of our stock and
other factors.
Weighted Average Assumptions Used in Estimating Value of Stock Options Granted
|
| | | | | | | | | |
| 2015
GRANTS |
| 2014
GRANTS |
| 2013
GRANTS |
|
| Expected volatility | 25.92 | % | 31.71 | % | 38.00 | % |
| Expected dividends | 3.28 | % | 2.92 | % | 2.23 | % |
| Expected term (in years) | 4.77 |
| 4.97 |
| 4.97 |
|
| Risk-free rate | 1.54 | % | 1.57 | % | 0.92 | % |
| Weighted average grant-date fair value | $ | 5.85 |
| $ | 6.62 |
| $ | 8.40 |
|
Share-based compensation expense for stock options is generally recognized over the vesting period. There are exceptions for stock options awarded to employees who:
are eligible for retirement;
will become eligible for retirement during the vesting period; or
whose employment is terminated during the vesting period due to job elimination or the sale of a business.
In these cases, we record the share-based compensation expense over a required service period that is less than the stated vesting period.
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K96
Activity
The following table shows our option unit activity for 2015.
|
| | | | | | | | |
| | OPTIONS (IN THOUSANDS) | WEIGHTED AVERAGE EXERCISE PRICE |
| WEIGHTED AVERAGE REMAINING CONTRACTUAL TERM (IN YEARS) | AGGREGATE INTRINSIC VALUE (IN MILLIONS) |
|
| Outstanding at December 31, 2014 | 12,285 | $ | 24.19 |
| | |
| Granted | 2,123 | $ | 35.40 |
| | |
| Exercised | (1,376) | $ | 24.46 |
| | |
| Forfeited or expired | (269) | $ | 31.34 |
| | |
Outstanding at December 31, 2015(1) | 12,763 | $ | 25.88 |
| 5.20 | $ | 65 |
|
| Exercisable at December 31, 2015 | 8,442 | $ | 22.78 |
| 3.62 | $ | 62 |
|
| (1) As of December 31, 2015, there were approximately 1,034 thousand stock options that had met the requisite service period and will be released as identified in the grant terms. |
The total intrinsic value of stock options exercised was:
$13 million in 2015,
$55 million in 2014 and
$61 million in 2013.
The total grant-date fair value of stock options vested was:
$14 million in 2015,
$16 million in 2014 and
$14 million in 2013.appreciation rights.
RESTRICTED STOCK UNITS
Through the 2013 Plan, we award restricted stock unitsRSUs — grants that entitle the holder to shares of our stock as the award vests.
The Details
Our restricted stock unitsRSUs granted in 20152018, 20142017 and 20132016 generally:
vest ratably over four years;
immediately vest in the event of death while employed or disability;
continue to vest upon retirement at an age of at least 62, but a portion of the grant is forfeited if retirement occurs before the one year anniversary of the grant;
continue vesting for one year in the event of involuntary termination when the retirement has not been met; and
will be forfeited upon termination of employment in all other situations including early retirement prior to age 62.
Our Accounting
The fair value of our restricted stock unitsRSUs is the market price of our stock on the grant-date of the awards.
We generally record share-based compensation expense for restricted stock unitsRSUs over the four-year vesting period. Generally, for restricted stock unitsRSUs that continue to vest following the termination of employment, we record the share-based compensation expense over a required service period that is less than the stated vesting period.
Activity
The following table shows our restricted stock unitRSU activity for 20152018.
| | | | STOCK UNITS (IN THOUSANDS) | WEIGHTED AVERAGE GRANT-DATE FAIR VALUE |
| RESTRICTED STOCK UNITS (IN THOUSANDS) |
| WEIGHTED AVERAGE GRANT-DATE FAIR VALUE |
|
| Nonvested at December 31, 2014 | 1,227 | $ | 28.06 |
| |
| Nonvested at December 31, 2017 | | 1,515 |
| $ | 29.12 |
|
| Granted | 433 | $ | 35.41 |
| 710 |
| 34.19 |
|
| Vested | (489) | $ | 26.70 |
| (560 | ) | 28.81 |
|
| Forfeited | (67) | $ | 31.11 |
| (72 | ) | $ | 30.19 |
|
Nonvested at December 31, 2015(1) | 1,104 | $ | 31.37 |
| |
| (1) As of December 31, 2015, there were approximately 232 thousand restricted stock units that had met the requisite service period and will be released as identified in the grant terms. | |
Nonvested at December 31, 2018(1) | | 1,593 |
| $ | 31.41 |
|
| (1) As of December 31, 2018, there were approximately 336 thousand RSUs that had met the requisite service period and will be released as identified in the grant terms. | | (1) As of December 31, 2018, there were approximately 336 thousand RSUs that had met the requisite service period and will be released as identified in the grant terms. |
The weighted average grant-date fair value for restricted stock unitsRSUs was:
$30.1434.19 in 20142018,
$32.83 in 2017 and
$30.5430.25 in 2013.2016.
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K97
The total grant-date fair value of restricted stock unitsRSUs vested was:
$14 million in 2015,
$16 million in 20142018,
$18 million in 2017 and
$1436 million in 2013.2016.
Nonvested restricted stock unitsRSUs accrue dividends that are paid out when restricted stock unitsRSUs vest. Any restricted stock unitsRSUs forfeited will not receive dividends.
As restricted stock unitsRSUs vest, a portion of the shares awarded is withheld to cover employee taxes. As a result, the number of stock units vested and the number of common shares issued will differ.
PERFORMANCE SHARE UNITS
Through the 2013 Plan, we award performance share unitsPSUs — grants that entitle the holder to shares of our stock as the award vests.
The Details
The final number of shares awarded will range from 0 percent to 150 percent of each grant’s target, depending upon actual company performance.
For shares granted in 20152018 and 2017, the ultimate number of performance share unitsPSUs earned is based on two measures:
our relative total shareholder return (TSR) ranking measured against the S&P 500 over a three yearthree-year period and
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K92
our relative TSR ranking measured against an industry peer group of companies over a three-year period.
For shares granted in 2016, the ultimate number of PSUs earned is based on three year period.measures:
our relative total shareholder return (TSR) ranking measured against the S&P 500 over a three-year period,
our relative TSR ranking measured against an industry peer group of companies over a three-year period and
achievement of Plum Creek merger cost synergy targets.
The vesting provisions for performance share unitsPSUs granted in 20152018, 2017, and 2016 were as follows:
vest 100 percent on the third anniversary of the grant date as long as the individual remains employed by the company;
fully vest in the event the participant dies or becomes disabled while employed;
continue to vest upon retirement at an age of at least 62, but a portion of the grant is forfeited if retirement occurs before the one year anniversary of the grant;
continue vesting for one year in the event of involuntary termination when the retirement criteria has not been met and the employee has met the second anniversary of the grant date; and
will be forfeited upon termination of employment in all other situations including early retirement prior to age 62.
For shares granted in 2014 and 2013 the ultimate number of performance share units earned is based on two measures:
Weyerhaeuser’s cash flow during the first year determined the initial number of units earned and
Weyerhaeuser’s relative total shareholder return (TSR) ranking in the S&P 500 during the first two years is used to adjust the initial number of units earned up or down by 20 percent.
At the end of the two-year performance period and over a further two-year vesting period, performance share units would be paid in shares of our stock. Performance share units granted and that are earned vest as follows:
vest 50 percent, 25 percent and 25 percent on the second, third and fourth anniversaries of the grant-date, respectively, as long as the individual remains employed by the company;
fully vest in the event the participant dies or becomes disabled while employed;
continue to vest upon retirement at an age of at least 62, but a portion of the grant is forfeited if retirement occurs before the one year anniversary of the grant;
continue vesting for one year in the event of involuntary termination when the retirement has not been met; and
will be forfeited upon termination of employment in all other situations including early retirement prior to age 62.
Our Accounting
Since the award containsawards contain a market condition, the effect of the market condition is reflected in the grant-date fair value which is estimated using a Monte Carlo simulation model. This model estimates the TSR ranking of the company over the performance period. Compensation expense is based on the estimated probable number of earned awards and recognized over the vesting period on an accelerated basis. Generally, compensation expense would be reversed if the performance condition is not met unless the requisite service period has been achieved.
Weighted Average Assumptions Used in Estimating the Value of Performance Share Units
| | | 2015
GRANTS |
| 2014
GRANTS |
| 2013
GRANTS |
| 2018
GRANTS |
| 2017
GRANTS |
| 2016
GRANTS |
|
| Performance period | 1/1/2015 – 12/31/2017 |
| 1/1/2014 – 12/31/2015 |
| 1/1/2013 – 12/31/2014 |
| 1/1/2018-12/31/2020 |
| 1/1/2017 – 12/31/2019 |
| 1/1/2016 – 12/31/2018 |
|
| Valuation date closing stock price | $ | 35.41 |
| $ | 30.16 |
| $ | 30.48 |
| |
| Expected dividends | 3.26 | % | 2.91 | % | 2.23 | % | 3.81% |
| 3.74% |
| 3.92% - 5.37% |
|
| Risk-free rate | 0.05% - 1.07% |
| 0.03% - 0.79% |
| 0.09% - 0.46% |
| 1.75% - 2.34% |
| 0.68% - 1.55% |
| 0.45% - 0.97% |
|
| Volatility | 16.33% - 20.89% |
| 20.74% - 23.53% |
| 22.09% - 29.57% |
| 17.30% - 21.52% |
| 22.71% - 24.07% |
| 21.87% - 28.09% |
|
| Weighted average grant-date fair value | $ | 34.75 |
| $ | 30.62 |
| $ | 31.59 |
| $ | 35.49 |
| $ | 37.93 |
| $ | 22.58 |
|
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K98
Activity
The following table shows our performance share unitPSU activity for 20152018.
| | | | GRANTS (IN THOUSANDS) |
| WEIGHTED AVERAGE GRANT-DATE FAIR VALUE |
| GRANTS (IN THOUSANDS) |
| WEIGHTED AVERAGE GRANT-DATE FAIR VALUE |
|
| Nonvested at December 31, 2014 | 890 |
| $ | 29.46 |
| |
| Nonvested at December 31, 2017 | | 965 |
| $ | 30.87 |
|
| Granted at target | 239 |
| $ | 34.75 |
| 343 |
| 35.49 |
|
| Vested | (395 | ) | $ | 29.08 |
| (112 | ) | 32.79 |
|
| Forfeited | (23 | ) | $ | 31.34 |
| (26 | ) | 37.93 |
|
| Performance adjustment | (31 | ) | $ | 30.62 |
| (128 | ) | $ | 34.74 |
|
Nonvested at December 31, 2015(1) | 680 |
| $ | 31.42 |
| |
| (1) As of December 31, 2015, there were approximately 134 thousand performance share units that had met the requisite service period and will be released as identified in the grant terms. | |
Nonvested at December 31, 2018(1) | | 1,042 |
| $ | 31.52 |
|
| (1) As of December 31, 2018, there were approximately 232 thousand PSUs that had met the requisite service period and will be released as identified in the grant terms. | | (1) As of December 31, 2018, there were approximately 232 thousand PSUs that had met the requisite service period and will be released as identified in the grant terms. |
The total grant-date fair value of performance share unitsPSUs vested was:
$74 million in 20142017 and
For 2014 grants, the company exceeded the cash flow target, resulting in an initial number of shares earned equal to 114 percent of target. Because the company's two-year TSR ranking was between the 25th and 50th percentile, the initial number of performance shares granted decreased 11 percent.
For 2013 grants, the company exceeded the cash flow target, resulting in an initial number of shares earned equal to 150 percent of target. Because the company's two-year TSR ranking was between the 25th and 50th percentile, the initial number of performance shares granted decreased 15 percent.2016.
As performance share unitsPSUs vest, a portion of the shares awarded is withheld to cover participant taxes. As a result, the number of stock units vested and the number of common shares issued will differ.
STOCK APPRECIATION RIGHTS
Through the Plan, we grant cash-settled stock appreciation rights as part of certain compensation awards.
The DetailsOPTIONS
Stock appreciation rights are similaroptions entitle award recipients to purchase shares of our common stock options. Employees benefit whenat a fixed exercise price. During 2018 and 2017, we did not grant any stock option awards. When granted in prior years, however, we granted stock options with an exercise price equal to the market price of our stock is higher on the exercise date than it was on the date of the grant.
The Details
Our stock appreciation rights were granted. The differences are thatoptions generally:
vest over four years of continuous service,
must be exercised within 10 years of the employee:
receives the benefit as a cash awardgrant-date and
does not purchase the underlying stock.
The vesting conditions and exceptions are the same as for 10-year stock options. Details are in the Stock Options section earlier in this note.
Stock appreciation rights are generally issued to employees outside of the U.S.
Our Accounting
We use a Black-Scholes option-valuationoption valuation model to estimate the fair value of aevery stock appreciation rightoption award on its grant-date and every subsequent reporting date that the right is outstanding. Stock appreciation rights are liability-classified awards and the fair value is remeasured at every reporting date.grant-date.
The process used to develop our valuation assumptions is the same as for the 10-year stock options we grant. Details are in the Stock Options section earlier in this note.
Weighted Average Assumptions Used to Re-measure Value of Stock Appreciation Rights at Year-End
|
| | | | | | | | | |
| 2015
GRANTS |
| 2014
GRANTS |
| 2013
GRANTS |
|
| Expected volatility | 22.10 | % | 18.20 | % | 24.02 | % |
| Expected dividends | 4.20 | % | 3.21 | % | 2.81 | % |
| Expected term (in years) | 1.94 |
| 1.32 |
| 1.16 |
|
| Risk-free rate | 0.99 | % | 0.45 | % | 0.19 | % |
| Weighted average fair value | $ | 6.96 |
| $ | 12.70 |
| $ | 8.68 |
|
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 9993
Activity
The following table shows our stock appreciation rightsoption unit activity for 20152018.
|
| | | | | | | | | |
| | RIGHTS (IN THOUSANDS) |
| WEIGHTED AVERAGE EXERCISE PRICE |
| AVERAGE REMAINING CONTRACTUAL TERM (IN YEARS) | AGGREGATE INTRINSIC VALUE (IN MILLIONS) |
|
| Outstanding at December 31, 2014 | 417 |
| $ | 22.85 |
| | |
| Granted | 58 |
| $ | 35.40 |
| | |
| Exercised | (79 | ) | $ | 23.91 |
| | |
| Forfeited or expired | (14 | ) | $ | 31.01 |
| | |
| Outstanding at December 31, 2015 | 382 |
| $ | 24.25 |
| 4.34 | $ | 14 |
|
| Exercisable at December 31, 2015 | 289 |
| $ | 21.63 |
| 2.98 | $ | 11 |
|
|
| | | | | | | | | |
| | OPTIONS (IN THOUSANDS) |
| WEIGHTED AVERAGE EXERCISE PRICE |
| WEIGHTED AVERAGE REMAINING CONTRACTUAL TERM (IN YEARS) | AGGREGATE INTRINSIC VALUE (IN MILLIONS) |
|
| Outstanding at December 31, 2017 | 8,487 |
| $ | 26.47 |
| | |
| Exercised | (2,025 | ) | $ | 25.68 |
| | |
| Forfeited or expired | (96 | ) | $ | 25.02 |
| | |
Outstanding at December 31, 2018(1) | 6,366 |
| $ | 26.75 |
| 5.33 | $ | 4 |
|
| Exercisable at December 31, 2018 | 4,732 |
| $ | 27.14 |
| 4.78 | $ | 4 |
|
| (1) As of December 31, 2018, there were approximately 573 thousand stock options that had met the requisite service period and will be released as identified in the grant terms. |
The total liabilities paid forintrinsic value of stock appreciation rightsoptions exercised was:
$122 million in 2015,2018,
$268 million in 20142017 and
$418 million in 2013.2016.
UNRECOGNIZED SHARE-BASED COMPENSATION
As of December 31, 20152018, our unrecognized share-based compensation cost for all types of share-based awards included $40$33 million related to non-vested equity-classified share-based compensation arrangements — expected to be recognized over a weighted average period of approximately 1.1 years.2.3 years.
DEFERRED COMPENSATION STOCK EQUIVALENT UNITS
Certain employees and our board of directors may defer compensation into stock-equivalent units.
The Details
The plan2013 Plan works differently for employees and directors.
Eligible employees:
may choose to defer all or part of their bonus into stock-equivalent units;
may choose to defer part of their salary, except for executive officers; and
receive a 15 percent premium if the deferral is for at least five years.
Our directors:
receive a portion of their annual retainer fee in the form of restricted stock units,RSUs, which vest over one year and may be deferred into stock-equivalent units;
may choose to defer some or all of the remainder of their annual retainer fee into stock-equivalent units; and
do not receive a premium for their deferrals.
Employees and directors also choose when the deferrals will be paid out although no deferrals may be paid until after the separation from service of the employee or director.
Our Accounting
We settle all deferred compensation accounts in cash for our employees. Our directors receive shares of common stock as payment for stock-equivalent units. In addition, we credit all stock-equivalent accounts with dividend equivalents. The number of common shares to be issued in the future to directors is 651,729.639 thousand.
Stock-equivalent units are:
liability-classified awards and
re-measured to fair value at every reporting date.
The fair value of a stock-equivalent unit is equal to the market price of our stock.
Activity
The number of stock-equivalent units outstanding in our deferred compensation accounts was:were:
788 thousand as of December 31, 2018,
1,003,053804 thousand as of December 31, 20152017; and
944,9661,004 thousand as of December 31, 2014; and
915,160 as of December 31, 20132016.
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 10094
NOTE 18: CHARGES FOR INTEGRATION AND RESTRUCTURING, CLOSURES AND ASSET IMPAIRMENTS
Items Included in Our Charges for Integration and Restructuring, ClosureClosures and Asset Impairment ChargesImpairments
|
| | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| 2015 |
| 2014 |
| 2013 |
|
| Restructuring and closure charges: | | | |
| Termination benefits | $ | 4 |
| $ | 27 |
| $ | 1 |
|
| Pension and postretirement charges | — |
| 3 |
| — |
|
| Other restructuring and closure costs | 6 |
| 12 |
| 4 |
|
| Charges for restructuring and closures | 10 |
| 42 |
| 5 |
|
| Impairment of long-lived assets | 15 |
| 2 |
| 372 |
|
| Total charges for restructuring, closures and impairments | $ | 25 |
| $ | 44 |
| $ | 377 |
|
|
| | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| 2018 |
| 2017 |
| 2016 |
|
| Integration and restructuring charges related to our merger with Plum Creek: | |
| |
| |
|
| Termination benefits | $ | — |
| $ | 11 |
| $ | 54 |
|
Acceleration of share-based compensation related to qualifying terminations (Note 17) | — |
| — |
| 21 |
|
Acceleration of pension benefits related to qualifying terminations (Note 10) | — |
| — |
| 5 |
|
| Professional services | — |
| 16 |
| 52 |
|
| Other integration and restructuring costs | — |
| 7 |
| 14 |
|
| Total integration and restructuring charges related to our merger with Plum Creek | — |
| 34 |
| 146 |
|
| Charges related to closures and other restructuring activities | 1 |
| 6 |
| 8 |
|
| Impairment of long-lived assets | 1 |
| 154 |
| 16 |
|
| Total charges for integration and restructuring, closures and asset impairments | $ | 2 |
| $ | 194 |
| $ | 170 |
|
INTEGRATION, RESTRUCTURING AND CLOSURES
During 2015,2017, we incurred and accrued for termination benefits (primarily severance) and non-recurring professional services costs directly attributable to our merger with Plum Creek.
During 2016, we incurred and accrued for termination benefits (primarily severance), accelerated share-based payment costs, and accelerated pension benefits based upon actual and expected qualifying terminations of certain employees as a result of restructuring and closure charges were primarily relateddecisions made subsequent to the closure of four distribution centersmerger. We also incurred non-recurring professional services costs for our Wood Products business. During 2014, our restructuringinvestment banking, legal and closure charges were primarily relatedconsulting, and certain other fees directly attributable to our selling, general and administrative cost reduction initiative to support achieving our competitive performance goals. During 2013, our restructuring and closure charges were primarily related to various Wood Products operations we closed or curtailed and restructuring our corporate staff functions to support achieving our competitive performance goals.merger with Plum Creek.
Other restructuring and closure costs include lease termination charges, dismantling and demolition of plant and equipment, gain or loss on disposition of assets, environmental cleanup costs and incremental costs to wind down operating facilities.
ACCRUED TERMINATION BENEFITS
Changes in accrued severance related to restructuring during 2015 were as follows:
|
| | | |
| DOLLAR AMOUNTS IN MILLIONS |
| Accrued severance as of December 31, 2014 | $ | 10 |
|
| Charges | 4 |
|
| Payments | (9 | ) |
| Accrued severance as of December 31, 2015 | $ | 5 |
|
ASSET IMPAIRMENTS
Long-Lived Assets
Our long-lived asset impairments were primarily related to the following:
| |
| • | 2017 — In second quarter 2017, we recognized an impairment charge to the timberlands and manufacturing assets of our Uruguayan operations. On June 2, 2017, our Board of Directors approved an agreement to sell all of the Company's equity in the Uruguayan operations to a consortium led by BTG Pactual's Timberland Investment Group (TIG). As a result of this agreement, the related assets met the criteria to be classified as held for sale at June 30, 2017. This designation required us to record the related assets at fair value, less an amount of estimated selling costs, and thus recognize a $147 million noncash pretax impairment charge. This amount was recorded in the Timberlands segment. The fair value of the related assets was primarily based on the agreed upon cash purchase price of $403 million. On September 1, 2017, we announced the completion of the sale. Refer to Note 4: Discontinued Operations and Other Divestitures for further details on the Uruguayan operations sale. |
2015 — WeAdditionally, in September 2017, we recognized an impairment charge of $13$6 million related to a nonstrategic asset held in Unallocated Items.our Wood Products segment. The fair value of the asset was determined using significant unobservable inputs (Level 3) based onthe value indicated in a discounted cash flow model. The asset was subsequently sold for no gain during 2015.purchase and sale agreement.
20132016 — charges include:
– $356We recognized a $15 million impairment charge in Real Estate & ENR which represents the fair value less direct selling costs of certain development projects that we planned to sell that had a book value greater than fair value. The fair values of the Coyote Springs Property. Under the terms of the TRI Pointe transaction, certain assets and liabilities of WRECO and its subsidiariesprojects were excluded from the transaction and retained by Weyerhaeuser, including assets and liabilities relating to the Coyote Springs Property. During fourth quarter 2013, following the announcement of the TRI Pointe transaction, WRECO and Weyerhaeuser began exploring strategic alternatives for the Coyote Springs Property and determined that Weyerhaeuser’s strategy for development of the Coyote Springs Property will likely differ from WRECO’s current development plan. WRECO’s development plan was long-term in nature with development and net cash flows covering at least 15-20 years. The undiscounted cash flows for the Coyote Springs Property under the WRECO development plan remained above the carrying value of the property. Weyerhaeuser Company’s strategy was to cease holding the Coyote Springs Property for development, and we initiated activities to market the assets to potential third-party buyers. The undiscounted cash flows under the Weyerhaeuser Company asset sale strategy were below the carrying value of the property. Consequently, we recorded a noncash charge of $356 million in fourth quarter 2013 for the impairment of the Coyote Springs Property in Unallocated Items. The fair value of the property was primarily based on an independent appraisal that was determined using both other observable inputs (Level 2) related to other market transactions and significant unobservable inputs (Level 3) such as the timing and amounts of future cash flows related to the development of the property, timing and amounts of proceeds from acreage sales, access to water for use on the property and discount rates applicable to the future cash flows.
– $9 million related to the decision to permanently close our Colbert, Georgia engineered wood products facility in our Wood Products segment that was previously indefinitely closed. The fair value of the facility was determined using significant unobservable inputs (Level 3) based on liquidation values.broker opinion of value reports.
NOTE 19: CHARGES (RECOVERIES) FOR PRODUCT REMEDIATION, NET
In July 2017, we announced the implementation of a solution to address concerns regarding our TJI® Joists coated with our former Flak Jacket® Protection product. This issue was isolated to Flak Jacket product manufactured after December 1, 2016, and did not affect any of our other products.
WEYERHAEUSER COMPANY >We recorded insurance recoveries of $25 million and product remediation charges of $25 million for the year ended December 31, 2018. During the year ended December 31, 2017, we recorded $290 million to accrue for expected costs associated with the remediation. The charges recorded were attributable to our Wood Products segment and were recorded in "Charges (recoveries) for product remediation, net" on the Consolidated Statement of Operations2015 ANNUAL REPORT AND FORM 10-K101.
NOTE 19: 20: OTHER OPERATING COSTS (INCOME), NET
Other operating costs (income), net:
includes both recurring and occasional income and expense items and
can fluctuate from year to year.
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K95
Various Income and Expense Items Included in Other Operating Costs (Income), Net
|
| | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| | 2015 |
| 2014 |
| 2013 |
|
Gain on postretirement plan amendment (Note 9) | $ | — |
| $ | (151 | ) | $ | — |
|
| Gain on disposition of nonstrategic assets | (12 | ) | (27 | ) | (19 | ) |
| Foreign exchange losses, net | 47 |
| 27 |
| 7 |
|
| Land management income | (37 | ) | (34 | ) | (28 | ) |
| Litigation expense, net | 23 |
| 9 |
| 16 |
|
| Plum Creek merger-related costs | 14 |
| — |
| — |
|
| Other, net | (17 | ) | (25 | ) | (11 | ) |
| Total | $ | 18 |
| $ | (201 | ) | $ | (35 | ) |
Gain on disposition of nonstrategic assets in 2014 included a $22 million pretax gain on the sale of a landfill in Washington State.
Foreign exchange losses result from changes in exchange rates primarily related to our U.S. dollar denominated debt that is held by our Canadian subsidiary.
Land management income includes income from recreational activities, land permits, grazing rights, firewood sales and other miscellaneous income related to land management activities. |
| | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| | 2018 |
| 2017 |
| 2016 |
|
Gain on disposition of nonstrategic assets (1) | $ | (5 | ) | $ | (16 | ) | $ | (60 | ) |
Foreign exchange losses (gains), net (2) | (3 | ) | (1 | ) | (6 | ) |
| Litigation expense, net | 35 |
| 20 |
| 24 |
|
Gain on sale of timberlands (3) | — |
| (99 | ) | — |
|
Environmental remediation insurance recoveries | (5 | ) | (42 | ) | — |
|
Other, net(4) | 52 |
| 10 |
| (11 | ) |
| Total other operating costs (income), net | $ | 74 |
| $ | (128 | ) | $ | (53 | ) |
(1) Gain on disposition of nonstrategic assets in 2016 included a $36 million pretax gain recognized in first quarter 2016 on the sale of our Federal Way, Washington headquarters campus. (2) Foreign exchange gains and losses result from changes in exchange rates primarily related to our U.S. dollar denominated cash and debt balances that are held by our Canadian subsidiary. (3) Gain on sale of 100,000 acres sold to Twin Creeks during Q4 2017. Refer to Note 9: Related Parties for further information. |
NOTE 20:21: INCOME TAXES
This note provides details about our income taxes applicable to continuing operations:
earnings before income taxes,
provision for income taxes,
effective income tax rate,
deferred tax assets and liabilities, and
unrecognized tax benefits.benefits and
our ongoing IRS tax matter.
Tax Legislation
On December 22, 2017, H.R. 1, commonly known as the Tax Cuts and Jobs Act (the "Tax Act"), was enacted. The Tax Act contains significant changes to corporate taxation, including the reduction of the corporate tax rate from 35 percent to 21 percent. As a result of the reduction in the corporate tax rate, we revalued our deferred tax assets and liabilities and recorded a tax expense of $74 million during 2017, which reduced our net deferred tax asset. We were not required to pay a repatriation tax due to the fact that we had no foreign undistributed earnings at December 31, 2017.
The most significant effects of the Tax Act provisions for 2018 include a reduction to our overall estimated annual effective tax rate primarily due to the reduced corporate tax rate, and new limitations on certain business deductions.
During first quarter 2018, we adopted ASU 2018-02 which allowed for the reclassification of certain income tax effects related to the Tax Act between "Accumulated other comprehensive loss” and “Retained earnings”. Refer to Note 1: Summary of Significant Accounting Policies for further details on this ASU and the related effect on our financial statements. Pension Contribution Tax Adjustment
At the end of 2017, we revalued our deferred tax assets (including pension) to the 2018 federal tax rate of 21 percent, as a result of the Tax Act, as discussed above. During third quarter 2018, we announced actions intended to reduce the liabilities of our U.S. qualified pension plan while maintaining the plan’s current funded status and made a decision to contribute $300 million to our U.S. qualified pension plan (refer to Note 10: Pension and Other Postretirement Benefit Plans). We were able to deduct this contribution on our 2017 U.S. federal tax return at the 2017 federal tax rate of 35 percent. This resulted in an incremental $41 million tax benefit for the portion attributable to our TRSs during third quarter 2018. EARNINGS BEFORE INCOME TAXES
Domestic and Foreign Earnings Fromfrom Continuing Operations Before Income Taxes
| | DOLLAR AMOUNTS IN MILLIONS | | 2015 |
| 2014 |
| 2013 |
| 2018 |
| 2017 |
| 2016 |
|
| Domestic earnings | $ | 421 |
| $ | 970 |
| $ | 198 |
| $ | 556 |
| $ | 643 |
| $ | 353 |
|
| Foreign earnings | 82 |
| 43 |
| 122 |
| 251 |
| 73 |
| 151 |
|
| Total | $ | 503 |
| $ | 1,013 |
| $ | 320 |
| |
| Total earnings before income taxes | | $ | 807 |
| $ | 716 |
| $ | 504 |
|
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K96
PROVISION FOR INCOME TAXES
Provision (Benefit) for Income Taxes Fromfrom Continuing Operations
|
| | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| 2015 |
| 2014 |
| 2013 |
|
| Current: | |
| |
| |
|
| Federal | $ | 3 |
| $ | (26 | ) | $ | (80 | ) |
| State | (1 | ) | 12 |
| (18 | ) |
| Foreign | (5 | ) | 3 |
| (21 | ) |
| | (3 | ) | (11 | ) | (119 | ) |
| Deferred: | |
| |
| |
|
| Federal | (30 | ) | 178 |
| (79 | ) |
| State | 2 |
| 6 |
| 6 |
|
| Foreign | 28 |
| 12 |
| 21 |
|
| | — |
| 196 |
| (52 | ) |
| Total income tax provision (benefit) | $ | (3 | ) | $ | 185 |
| $ | (171 | ) |
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K102
|
| | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| 2018 |
| 2017 |
| 2016 |
|
| Current: | |
| |
| |
|
| Federal | $ | (69 | ) | $ | 10 |
| $ | 1 |
|
| State | (5 | ) | — |
| 1 |
|
| Foreign | 61 |
| 82 |
| 11 |
|
| Total current | (13 | ) | 92 |
| 13 |
|
| Deferred: | |
| |
| |
|
| Federal | 45 |
| 61 |
| 37 |
|
| State | 12 |
| (18 | ) | (3 | ) |
| Foreign | 15 |
| (1 | ) | 42 |
|
| Total deferred | 72 |
| 42 |
| 76 |
|
| Total income tax provision (benefit) | $ | 59 |
| $ | 134 |
| $ | 89 |
|
EFFECTIVE INCOME TAX RATE
Effective Income Tax Rate Applicable to Continuing Operations
| | DOLLAR AMOUNTS IN MILLIONS | | 2015 |
| 2014 |
| 2013 |
| 2018 |
| 2017 |
| 2016 |
|
| U.S. federal statutory income tax | $ | 176 |
| $ | 354 |
| $ | 112 |
| $ | 170 |
| $ | 250 |
| $ | 177 |
|
| State income taxes, net of federal tax benefit | 1 |
| 14 |
| 7 |
| 8 |
| (2 | ) | (3 | ) |
| REIT income not subject to federal income tax | (158 | ) | (161 | ) | (101 | ) | (116 | ) | (198 | ) | (99 | ) |
| REIT benefit from change to tax law | (13 | ) | — |
| — |
| |
| SDT settlement | | 21 |
| — |
| — |
|
| Tax effect of U.S. corporate rate change | | — |
| 74 |
| — |
|
| Voluntary pension contribution | | (41 | ) | — |
| — |
|
| Foreign taxes | — |
| (2 | ) | (8 | ) | 15 |
| 54 |
| (4 | ) |
| Provision for unrecognized tax benefits | (7 | ) | (4 | ) | (193 | ) | |
| Repatriation of Canadian earnings | — |
| — |
| 21 |
| — |
| (22 | ) | 24 |
|
| Domestic production activities deduction | — |
| — |
| (13 | ) | |
| Other, net | (2 | ) | (16 | ) | 4 |
| 2 |
| (22 | ) | (6 | ) |
| Total income tax provision (benefit) | $ | (3 | ) | $ | 185 |
| $ | (171 | ) | $ | 59 |
| $ | 134 |
| $ | 89 |
|
| Effective income tax rate | (0.5 | )% | 18.3 | % | (53.4 | )% | 7.3 | % | 18.8 | % | 17.6 | % |
DEFERRED TAX ASSETS AND LIABILITIES
Deferred tax assets and liabilities reflect temporarythe future tax effect created by differences between the timing of when income or deductions are recognized for pretax financial book reporting purposes versus income and taxable income.tax purposes. Deferred tax assets represent a future tax benefits that have already been recorded for book purposes but will be recorded for tax purposesbenefit (or reduction to income taxes in the future. Deferreda future period), while deferred tax liabilities represent a future tax obligation (or increase to income that hastaxes in a future period). Our deferred tax assets and liabilities have been recordedrevalued for book purposes but will be reported as taxable incomethe reduction in the future.U.S. corporate tax rate.
Balance Sheet Classification of Deferred Income Tax Assets (Liabilities) Related to Continuing Operations
| | DOLLAR AMOUNTS IN MILLIONS | | DECEMBER 31,
2015 |
| DECEMBER 31,
2014 |
| DECEMBER 31,
2018 |
| DECEMBER 31,
2017 |
|
| Net noncurrent deferred tax asset | 4 |
| 44 |
| $ | 15 |
| $ | 268 |
|
| Net noncurrent deferred tax liability | (86 | ) | (14 | ) | (43 | ) | — |
|
| Net deferred tax asset (liability) | $ | (82 | ) | $ | 30 |
| $ | (28 | ) | $ | 268 |
|
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K97
Items Included in Our Deferred Income Tax Assets (Liabilities)
|
| | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| | DECEMBER 31,
2015 |
| DECEMBER 31,
2014 |
|
| Postretirement benefits | $ | 80 |
| $ | 101 |
|
| Pension | 260 |
| 369 |
|
| State tax credits | 56 |
| 56 |
|
| Net operating loss carryforwards | 59 |
| 86 |
|
| Cellulosic biofuel producers credit | 78 |
| 100 |
|
| Other | 203 |
| 223 |
|
| Gross deferred tax assets | 736 |
| 935 |
|
| Valuation allowance | (72 | ) | (72 | ) |
| Net deferred tax assets | 664 |
| 863 |
|
| Property, plant and equipment | (496 | ) | (523 | ) |
| Timber installment notes | (180 | ) | (180 | ) |
| Other | (70 | ) | (130 | ) |
| Deferred tax liabilities | (746 | ) | (833 | ) |
| Net deferred tax asset (liability) | $ | (82 | ) | $ | 30 |
|
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K103 |
| | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| | DECEMBER 31,
2018 |
| DECEMBER 31,
2017 |
|
| Deferred tax assets: | | |
| Postretirement benefits | $ | 37 |
| $ | 50 |
|
| Pension | 75 |
| 306 |
|
| State tax credits | 51 |
| 56 |
|
| Other reserves | 13 |
| 38 |
|
| Depletion | 41 |
| 40 |
|
| Excess interest | 30 |
| — |
|
| Incentive compensation | 20 |
| 23 |
|
| Workers compensation | 18 |
| 19 |
|
| Net operating loss carryforwards | 19 |
| 18 |
|
| Other | 83 |
| 70 |
|
| Gross deferred tax assets | 387 |
| 620 |
|
| Valuation allowance | (61 | ) | (63 | ) |
| Net deferred tax assets | 326 |
| 557 |
|
| Deferred tax liabilities: | | |
| Property, plant and equipment | (197 | ) | (154 | ) |
| Timber installment notes | (116 | ) | (116 | ) |
| Other | (41 | ) | (19 | ) |
| Net deferred tax liabilities | (354 | ) | (289 | ) |
| Net deferred tax asset (liability) | (28 | ) | 268 |
|
OTHER INFORMATION ABOUT OUR DEFERRED INCOME TAX ASSETS (LIABILITIES)Other Information About Our Deferred Income Tax Assets (Liabilities)
Other information about our deferred income tax assets (liabilities) include:
net operating loss and credit carryforwards,
valuation allowances and
reinvestment of undistributed earnings.
Net Operating Loss and Credit Carryforwards
Our gross federal, state and foreign net operating loss carryforwards as of the end of 20152018 totaled $903$584 million as follows:
U.S. REIT -$433 million, which expire from 2030 through 2035,
U.S. TRS -$29 million, which expires in 2035,
State -$299 $223 million, which expire from 20242031 through 2035; and
2036;ForeignState - $142 million, which expire from 2016 through 2032.
Our gross federal, state and foreign credit carryforwards as of the end of 2015 totaled $188 million as follows:
U.S. TRS - $93$361 million, which expire from 2019 through 2035,
State - $43 million, which expire from 2016 through 2029, and $46 million, which do not expire;2037; and
Foreign - none currently recorded.
Our gross state credit carryforwards at the end of 2018 totaled $65 million, which includes $14 million that expire from 2019 through 2032 and $51 million that do not expire. Our U.S. TRS has $6 million whichin foreign tax credit carryforwards that expire from 2016 through 2032.in 2027.
Valuation Allowances
With the exception of the valuation allowance discussed below, we believe it is more likely than not that we will have sufficient future taxable income to realize our deferred tax assets.
Our valuation allowance on our deferred tax assets was $72$61 million as of at the end of 2015, primarily2018, related to foreign andstate credits, state net operating losses and state and provincialpassive foreign tax credits.
Reinvestment of Undistributed Earnings
The balanceWe have historically asserted it is our intent to reinvest the earnings of our foreign subsidiaries. In fourth quarter 2018, we changed our position regarding the earnings of our Canadian subsidiary. Our change in assertion was based on the company’s review of global cash management and planned capital deployment, taking into consideration the effects of the Tax Act. As of 2018, our assertion is to permanently reinvest approximately 10 percent of our Canadian earnings. We have no other foreign subsidiaries with undistributed earnings was approximately $34 million at the end of 2015, all of which is permanently reinvested; therefore, it is not subject to U.S. income tax. Generally, such earnings become subject to U.S. tax upon the remittance of dividends and under certain other circumstances. It is not practicable to estimate the amount ofearnings. Accordingly, deferred tax liabilitytaxes have been provided primarily related to investments in our foreign subsidiaries.
HOW WE ACCOUNT FOR INCOME TAXES
UNRECOGNIZED TAX BENEFITS
Unrecognized tax benefits represent potential future obligations to taxing authorities if uncertain tax positions we have taken on previously filed tax returns are not sustained. The total gross amount of unrecognized tax benefits as of December 31, 20152018, and 2014, are $62017, is $3 million and $11$4 million,, respectively, of which does not include related interest of $1 million and $3 million, respectively. These amounts represent the grossa net amount of exposure in individual jurisdictions$1 million and do not reflect any additional benefits expected to be realized$2 million, respectively, would affect our tax rate if such positions were not sustained, such as the federal deduction that could be realized if an unrecognized state deduction was not sustained.
Reconciliation of the Beginning and Ending Amount of Unrecognized Tax Benefits
|
| | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| | DECEMBER 31,
2015 |
| DECEMBER 31,
2014 |
|
| Balance at beginning of year | $ | 11 |
| $ | 26 |
|
| Settlements | (4 | ) | — |
|
| Lapse of statute | (1 | ) | (15 | ) |
| Balance at end of year | $ | 6 |
| $ | 11 |
|
The net liability recorded in our Consolidated Balance Sheet related to unrecognized tax benefits was $4is $1 million as of December 31, 2015, which includes interest2018, comprised of $1the $3 million and is gross unrecognized tax benefit amount net of $3$2 million in credits and loss carryoverscarryforwards available to offset the liability. The net liability as of December 31, 2014,2017, was $4$2 million,, which includes interest comprised of $3$4 million and is gross unrecognized tax benefit amount net of $6$2 million in payments made in advance of settlements and $4 million in credits and loss carryoverscarryforwards available to offset the liability.
The net liability recorded for tax positions across all jurisdictions that, if sustained, would affect our effective tax rate wasWEYERHAEUSER COMPANY > $5 million2018 ANNUAL REPORT AND FORM 10-K as98
Reconciliation of the Beginning and Ending Amount of Unrecognized Tax Benefits
|
| | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| | DECEMBER 31,
2018 |
| DECEMBER 31,
2017 |
|
| Balance at beginning of year | $ | 4 |
| $ | 6 |
|
| Lapse of statute | (1 | ) | (2 | ) |
| Balance at end of year | $ | 3 |
| $ | 4 |
|
As of December 31, 20152018, nonone of our U.S. federal income tax returns or foreign jurisdiction income tax returns are under examination. Our U.S. federal income tax returns are under examination, with years 2012 forward open to examination.examination for years 2015 forward and foreign jurisdictions income tax returns are open to examination for years 2010 forward. We are undergoing examinations in state jurisdictions for tax years 20112009 through 2013,2017, with tax years 2009 forward open to examination. We are also undergoing and are open to examinations in foreign jurisdictions for tax years 2010 forward. Wedo not expect that the outcome of any examination will not have a material effect on our consolidated financial statements; however, audit outcomes and the timing of audit settlements are subject to significant uncertainty.
In the next 12 months, we estimate a decrease of $1$1 million in unrecognized tax benefits due to the lapse of applicable statutes of limitation.
RESOLUTION OF IRS MATTER
In connection with the merger with Plum Creek, we acquired equity interests in Southern Diversified Timber, LLC, a timberland joint venture (Timberland Venture) with an affiliate of Campbell Global LLC (TCG Member). On August 31, 2016, the Timberland Venture redeemed TCG Member's interest and became a fully consolidated, wholly-owned subsidiary of Weyerhaeuser.
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K104We received a Notice of Final Partnership Administrative Adjustment (FPAA), dated July 20, 2016, from the Internal Revenue Service (IRS) in regard to Plum Creek's 2008 U.S. federal income tax treatment of the transaction forming the Timberland Venture. The IRS asserted that the transfer of the timberlands to the Timberland Venture was a taxable transaction to Plum Creek at the time of the transfer rather than a nontaxable capital contribution. We subsequently filed a petition in the U.S. Tax Court to contest this adjustment.
On February 8, 2019, we entered into a closing agreement with the IRS to settle this dispute. Under the terms of the agreement, the company paid approximately $21 million of corporate tax. This amount was recorded as tax expense in fourth quarter 2018. No interest or penalties will be assessed. The parties have filed a stipulated decision with the U.S. Tax Court, pursuant to which the Court will officially close the matter.
NOTE 21:22: GEOGRAPHIC AREAS
This note provides selected key financial data according to the geographical locations of our customers. The selected key financial data includes:
sales to unaffiliated customers,
export sales from the U.S., and
long-lived assets.
SALES
Our sales to unaffiliated customers outside the U.S. are primarily to customers in Canada, China, Japan and Europe.China. Our export sales include:
pulp, liquid packaging board,are comprised primarily of logs, lumber and wood chips to Japan;
pulp, logsJapan and lumber to other Pacific Rim countries; and
pulp and plywood to Europe.China.
Sales by Geographic Area
| | FOR THE THREE-YEAR PERIOD ENDED DECEMBER 31, 2014 (DOLLAR AMOUNTS IN MILLIONS) | |
| DOLLAR AMOUNTS IN MILLIONS | | DOLLAR AMOUNTS IN MILLIONS |
| 2015 |
| 2014 |
| 2013 |
| 2018 |
| 2017 |
| 2016 |
|
| Sales to unaffiliated customers: | | | | | �� | |
| U.S. | $ | 4,819 |
| $ | 4,889 |
| $ | 4,761 |
| $ | 6,365 |
| $ | 6,168 |
| $ | 5,451 |
|
| Canada | | 519 |
| 472 |
| 341 |
|
| Japan | 612 |
| 682 |
| 758 |
| 410 |
| 352 |
| 369 |
|
| China | 397 |
| 477 |
| 453 |
| 120 |
| 107 |
| 108 |
|
| Canada | 353 |
| 424 |
| 418 |
| |
| Europe | 308 |
| 328 |
| 298 |
| |
| South America | 82 |
| 87 |
| 80 |
| |
| Other foreign countries | 511 |
| 516 |
| 486 |
| 62 |
| 97 |
| 96 |
|
| Total | $ | 7,082 |
| $ | 7,403 |
| $ | 7,254 |
| $ | 7,476 |
| $ | 7,196 |
| $ | 6,365 |
|
| Export sales from the U.S.: | | | | | | |
| Japan | $ | 558 |
| $ | 620 |
| $ | 676 |
| $ | 338 |
| $ | 295 |
| $ | 314 |
|
| China | 333 |
| 416 |
| 411 |
| 113 |
| 102 |
| 103 |
|
| Other | 828 |
| 856 |
| 804 |
| |
| Other foreign countries | | 153 |
| 148 |
| 98 |
|
| Total | $ | 1,719 |
| $ | 1,892 |
| $ | 1,891 |
| $ | 604 |
| $ | 545 |
| $ | 515 |
|
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K99
LONG-LIVED ASSETS
Our long-lived assets — used in the generation of revenues in the different geographical areas — are nearly all in the U.S. and Canada. Our long-lived assets include:
goodwill,
timber and timberlands and
property and equipment, including construction in progress.progress,
timber and timberlands,
minerals and mineral rights and
goodwill.
Long-Lived Assets by Geographic Area
|
| | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| December 31,
2015 |
| December 31,
2014 |
| December 31,
2013 |
|
| Long-lived assets: | | | |
U.S.(1) | $ | 8,187 |
| $ | 8,069 |
| $ | 8,116 |
|
| Canada | 460 |
| 579 |
| 652 |
|
| Other foreign countries | 654 |
| 676 |
| 670 |
|
| Total | $ | 9,301 |
| $ | 9,324 |
| $ | 9,438 |
|
| (1) Includes assets of discontinued operations in 2013. |
|
| | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS |
| DECEMBER 31,
2018 |
| DECEMBER 31,
2017 |
| DECEMBER 31,
2016 |
|
| U.S. | $ | 14,778 |
| $ | 14,922 |
| $ | 15,700 |
|
| Canada | 220 |
| 223 |
| 206 |
|
| Other foreign countries | — |
| — |
| 527 |
|
Total(1) | $ | 14,998 |
| $ | 15,145 |
| $ | 16,433 |
|
| (1) Amounts for December 31, 2016, include assets from discontinued operations. |
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K105
NOTE 22:23: SELECTED QUARTERLY FINANCIAL INFORMATION (unaudited)
Quarterly financial data provides a review of our results and performance throughout the year. Our earnings per share for the full year do not always equal the sum of the four quarterly earnings-per share amounts because of common share activity during the year. As the company’s common shares are traded on the New York Stock Exchange (NYSE), market price information such as the high and low trading prices of our common shares can be found under the symbol WY.
Key Quarterly Financial Data for the Last Two Years
|
| | | | | | | | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS EXCEPT PER-SHARE FIGURES |
| | First Quarter | Second Quarter | Third Quarter(1) | Fourth Quarter | Full Year |
| 2015: | | | | | |
| Net sales | $ | 1,721 |
| $ | 1,807 |
| $ | 1,820 |
| $ | 1,734 |
| $ | 7,082 |
|
| Operating income | $ | 200 |
| $ | 243 |
| $ | 259 |
| $ | 217 |
| $ | 919 |
|
| Earnings from continuing operations before income taxes | $ | 120 |
| $ | 157 |
| $ | 175 |
| $ | 51 |
| $ | 503 |
|
| Net earnings | $ | 101 |
| $ | 144 |
| $ | 191 |
| $ | 70 |
| $ | 506 |
|
| Net earnings attributable to Weyerhaeuser common shareholders | $ | 90 |
| $ | 133 |
| $ | 180 |
| $ | 59 |
| $ | 462 |
|
| Basic net earnings per share attributable to Weyerhaeuser common shareholders | $ | 0.17 |
| $ | 0.26 |
| $ | 0.35 |
| $ | 0.11 |
| $ | 0.89 |
|
| Diluted net earnings per share attributable to Weyerhaeuser common shareholders | $ | 0.17 |
| $ | 0.26 |
| $ | 0.35 |
| $ | 0.11 |
| $ | 0.89 |
|
| Dividends paid per share | $ | 0.29 |
| $ | 0.29 |
| $ | 0.31 |
| $ | 0.31 |
| $ | 1.20 |
|
| Market prices - high/low | $37.04 - $32.74 |
| $33.19 - $31.06 |
| $32.34 - $26.76 |
| $32.72 - $26.73 |
| $37.04 - $26.73 |
|
| 2014: | | | | | |
| Net sales | $ | 1,736 |
| $ | 1,964 |
| $ | 1,915 |
| $ | 1,788 |
| $ | 7,403 |
|
| Operating income | $ | 308 |
| $ | 400 |
| $ | 318 |
| $ | 294 |
| $ | 1,320 |
|
| Earnings from continuing operations before income taxes | $ | 234 |
| $ | 328 |
| $ | 237 |
| $ | 214 |
| $ | 1,013 |
|
| Net earnings | $ | 194 |
| $ | 291 |
| $ | 1,164 |
| $ | 177 |
| $ | 1,826 |
|
| Net earnings attributable to Weyerhaeuser common shareholders | $ | 183 |
| $ | 280 |
| $ | 1,153 |
| $ | 166 |
| $ | 1,782 |
|
| Basic net earnings per share attributable to Weyerhaeuser common shareholders | $ | 0.31 |
| $ | 0.48 |
| $ | 2.17 |
| $ | 0.32 |
| $ | 3.20 |
|
| Diluted net earnings per share attributable to Weyerhaeuser common shareholders | $ | 0.31 |
| $ | 0.47 |
| $ | 2.15 |
| $ | 0.31 |
| $ | 3.18 |
|
| Dividends paid per share | $ | 0.22 |
| $ | 0.22 |
| $ | 0.29 |
| $ | 0.29 |
| $ | 1.02 |
|
| Market prices - high/low | $31.59 - $28.63 |
| $33.26 - $27.48 |
| $34.60 - $31.09 |
| $36.88 - $31.61 |
| $36.88 - $27.48 |
|
(1) Third Quarter 2014 includes a $972 million net gain on the Real Estate Divestiture recognized in 2014. See Note 3: Discontinued Operations for more information.
|
|
| | | | | | | | | | | | | | | |
| DOLLAR AMOUNTS IN MILLIONS EXCEPT PER-SHARE FIGURES |
| | FIRST QUARTER |
| SECOND QUARTER |
| THIRD QUARTER |
| FOURTH QUARTER |
| FULL YEAR |
|
| 2018: | | | | | |
| Net sales | $ | 1,865 |
| $ | 2,065 |
| $ | 1,910 |
| $ | 1,636 |
| $ | 7,476 |
|
| Operating income from continuing operations | 404 |
| 476 |
| 337 |
| 177 |
| 1,394 |
|
| Earnings (loss) from continuing operations before income taxes | 299 |
| 382 |
| 240 |
| (114 | ) | 807 |
|
| Net earnings (loss) | 269 |
| 317 |
| 255 |
| (93 | ) | 748 |
|
| Basic and diluted net earnings (loss) per share | 0.35 |
| 0.42 |
| 0.34 |
| (0.12 | ) | 0.99 |
|
| Dividends paid per share | 0.32 |
| 0.32 |
| 0.34 |
| 0.34 |
| 1.32 |
|
| 2017: | | | | | |
| Net sales | $ | 1,693 |
| $ | 1,808 |
| $ | 1,872 |
| $ | 1,823 |
| $ | 7,196 |
|
| Operating income from continuing operations | 293 |
| 157 |
| 205 |
| 476 |
| 1,131 |
|
| Earnings (loss) from continuing operations before income taxes | 181 |
| 58 |
| 103 |
| 374 |
| 716 |
|
| Net earnings (loss) | 157 |
| 24 |
| 130 |
| 271 |
| 582 |
|
| Basic and diluted net earnings (loss) per share | 0.21 |
| 0.03 |
| 0.17 |
| 0.36 |
| 0.77 |
|
| Dividends paid per share | 0.31 |
| 0.31 |
| 0.31 |
| 0.32 |
| 1.25 |
|
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 106100
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
CONTROLS AND PROCEDURES
|
|
| EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES |
The company’s principal executive officer and principal financial officer have evaluated the effectiveness of the company’s disclosure controls and procedures as of the end of the period covered by this annual report on Form 10-K. Disclosure controls are controls and other procedures that are designed to ensure that information required to be disclosed in the reports filed or submitted under the Securities Exchange Act of 1934, as amended (Act), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s (SEC) rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’scompany's management, including its principal executive and principal financial officers, to allow timely decisions regarding required disclosure.
Based on their evaluation, the company’s principal executive officer and principal financial officer have concluded that the company’s disclosure controls and procedures are effective to ensure that information required to be disclosed complies with the SEC’s rules and forms.
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| CHANGES IN INTERNAL CONTROL |
No changes occurred in the company’scompany's internal control over financial reporting during the period that have materially affected, or are reasonably likely to materially affect, the company’scompany's internal control over financial reporting.
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| MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING |
Management is responsible for establishing and maintaining adequate internal control over financial reporting as is defined in the Securities and Exchange Act of 1934 rules. Management, under our supervision, conducted an evaluation of the effectiveness of the company’s internal control over financial reporting based on the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our evaluation under the framework in Internal Control — Integrated Framework (2013), management concluded that the company’s internal control over financial reporting was effective as of December 31, 2015.2018. The effectiveness of the company’s internal control over financial reporting as of December 31, 2015,2018, has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report, which is included herein.
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 107101
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| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
The
To the Shareholders and Board of Directors and Shareholders
Weyerhaeuser Company:
Opinion on Internal Control Over Financial Reporting
We have audited Weyerhaeuser Company’sCompany and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2015,2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) . WeyerhaeuserCommission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2018, and the related notes (collectively, the consolidated financial statements), and our report dated February 15, 2019 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Overover Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Weyerhaeuser Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Weyerhaeuser Company and subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive income, cash flows, and changes in equity for each of the years in the three-year period ended December 31, 2015, and our report dated February 17, 2016 expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Seattle, Washington
February 17, 201615, 2019
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 108102
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
A list of our executive officers and biographical information are found in the Our Business — Executive Officers of the Registrant section of this report. Information with respect to directors of the company and certain other corporate governance matters, as required by this item to Form 10-K, is includedset forth in the Notice of the 20162019 Annual Meeting and Proxy Statement for the company’s Annual Meeting of Shareholders to be held May 20, 201617, 2019 under the headings “Nominees forfollowing headings: "Item 1. Election” “Board of Directors,” “Corporate Governance at Weyerhaeuser ,” and Committee“Stock Information” “Section 16(a) Beneficial Ownership Reporting Compliance” ,” and “Potential Payment upon Termination or Change in Control — Change in Control,” and “ — Severance,” andeach case such required information is incorporated herein by reference. The Weyerhaeuser Code of Ethics applies to our chief executive officer, our chief financial officer and our chief accounting officer, as well as other officers, directors and employees of the company. The Weyerhaeuser Code of Ethics is posted on our website at www.weyerhaeuser.com, and currently is located under the tabs “Sustainability”, then “Governance” and finally “Operating Ethically”.
EXECUTIVE AND DIRECTOR COMPENSATION
Information with respect to executive and director compensation, containedas required by this item to Form 10-K, is set forth in the Notice of the 20162019 Annual Meeting and Proxy Statement for the company’s Annual Meeting of Shareholders to be held May 20, 2016,17, 2019 under the headings “Board“Item 1. Election of DirectorsDirectors" and Committee Information — Directors’ Compensation,” “Compensation Discussion and Analysis,” “Compensation Committee Report,” “Compensation Committee Interlocks and Insider Participation,” “Summary Compensation Table,” “Grants of Plan-Based Awards,” “Outstanding Equity Awards at Fiscal Year-End,” “Option Exercises and Stock Vested in Fiscal 2015,” “Pension Benefits,” “Nonqualified Deferred“Executive Compensation,” and “Potential Payments Upon Termination or Change of Control”in each case, such required information is incorporated herein by reference.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information with respect to security ownership of certain beneficial owners and management containedand with respect to securities authorized for issuance under our equity compensation plans, as required by this item to Form 10-K, is set forth in the Notice of the 20162019 Annual Meeting and Proxy Statement for the company’s Annual Meeting of Shareholders to be held May 17, 2019 under the heading “Stock Information,” and such required information is incorporated herein by reference.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Information about certain relationships and related transactions and director independence, as required by this item to Form 10-K, is set forth in the Notice of the 2019 Annual Meeting and Proxy Statement for the company’s Annual Meeting of Shareholders to be held May 17, 2019 under the heading “Corporate Governance at Weyerhaeuser,” and such required information is incorporated herein by reference.
PRINCIPAL ACCOUNTING FEES AND SERVICES
Information with respect to principal accounting fees and services, as required by this item to Form 10-K, is set forth in the Notice of the 2019 Annual Meeting and Proxy Statement for the company’s Annual Meeting of Shareholders to be held May 20, 201617, 2019 under the heading “Beneficial Ownership of Common Shares” is incorporated herein by reference.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with regard to certain relationships and related transactions contained in the Notice of the 2016 Annual Meeting and Proxy Statement for the company’s Annual Meeting of Shareholders to be held May 20, 2016 under the headings “Review, Approval or Ratification of Transactions with Related Persons” and “Board of Directors and Committee Information” is incorporated herein by reference.
PRINCIPAL ACCOUNTING FEES AND SERVICES
Information with respect to principal accounting fees and services in the Notice of the 2016 Annual Meeting and Proxy Statement for the company’s Annual Meeting of Shareholders to be held May 20, 2016 under the heading “Ratification of“Item 3. Ratify Selection of Independent Registered Public Accounting Firm” and such required information is incorporated herein by reference.
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 109103
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
All financial statement schedules have been omitted because they are not applicable or the required information is included in the consolidated financial statements, or the notes thereto, in Financial Statements and Supplementary Data above. The agreements included as exhibits to this annual report are included to provide information about their terms and not to provide any other factual or disclosure information about the company or the other parties to the agreements. The agreements may contain representations and warranties by each of the parties to the applicable agreement that were made solely for the benefit of the other parties to the agreement and should not be treated as categorical statements of fact, but rather as a way of allocating the risk among the parties if those statements prove to be inaccurate. These representations and warranties may have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement, may apply standards of materiality in a way that is different from what may be viewed as material to investors, were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement, and are subject to more recent developments. Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time.
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| 2 | — | Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession |
| | | (a) | Stock Purchase Agreement, dated as of June 14, 2013, by and among Longview Timber Holdings, Corp., the securityholders listed on the signature pages thereto, Weyerhaeuser Columbia Holding Co., LLC and Weyerhaeuser Company (incorporated by reference to Current Report on Form 8-K filed with the Securities and Exchange Commission June 17, 2013 — Commission File Number 1-4825) |
| | (b) | Transaction Agreement, dated as of November 3, 2013, among Weyerhaeuser Company, Weyerhaeuser Real Estate Company, TRI Pointe Homes, Inc. and Topaz Acquisition, Inc. (incorporated by reference to Current Report on Form 8-K filed with the Securities and Exchange Commission November 4, 2013 — Commission File Number 1-4825) |
| | (c) | Agreement and Plan of Merger, dated as of November 6, 2015, between Weyerhaeuser Company and Plum Creek Timber Company, Inc. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commissionon November 9, 2015 - Commission File Number 1-4825) |
| | (b) | Asset Purchase Agreement, dated as of May 1, 2016, by and between Weyerhaeuser NR Company and International Paper Company (incorporated by reference to Exhibit 2.2 to the Quarterly Report on Form 10-Q filed on August 5, 2016 - Commission File Number 1-4825) |
| 3 | — | Articles of Incorporation |
| | | (a) | Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commissionon May 6, 2011 —- Commission File Number 1-4825, and to Exhibit 3.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commissionon June 20, 2013 —- Commission File Number 1-4825) |
| | | (b) | Bylaws (incorporated by reference toExhibit 3.1 to the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission May 6, 2011 —on October 26, 2018 - Commission File Number 1-4825) |
| 4 | — | Instruments Defining the Rights of Security Holders, Including Indentures |
| | | (a) | |
| | | (b) | First Supplemental Indenture dated as of February 15, 1991 between Weyerhaeuser Company and The Bank of New York Mellon Trust Company, N.A. (as successor to JPMorgan Chase Bank, formerly known as The Chase Manhattan Bank and Chemical Bank), a national banking association, as Trustee (incorporated by reference from the Registration Statement on Form S‑3,S-3, Registration No. 33-52982).333-52982)** |
| | | (c) | Second Supplemental Indenture dated as of February 1, 1993 between Weyerhaeuser Company and The Bank of New York Mellon Trust Company, N.A. (as successor to JPMorgan Chase Bank, formerly known as The Chase Manhattan Bank and Chemical Bank), a national banking association, as Trustee (incorporated by reference from the Registration Statement on Form S‑3,S-3, Registration No. 33-59974).333-59974)** |
| | | (d) | Third Supplemental Indenture dated as of October 22, 2001 between Weyerhaeuser Company and The Bank of New York Mellon Trust Company, N.A. (as successor to JPMorgan Chase Bank, formerly known as The Chase Manhattan Bank and Chemical Bank), a national banking association, as Trustee (incorporated by reference fromto Exhibit 4(d) to the Registration Statement on Form S-3, Registration No. 333-72356). |
| | | (e) | Fourth Supplemental Indenture dated as of March 12, 2002 between Weyerhaeuser Company and The Bank of New York Mellon Trust Company, N.A. (as successor to JPMorgan Chase Bank, formerly known as The Chase Manhattan Bank and Chemical Bank), a national banking association, as Trustee (incorporated by reference to Exhibit 4.8from the Registration Statement on Form S-4,S-4/A, Registration No. 333-82376). |
| | (f) | Indenture dated as of March 15, 1983 between Weyerhaeuser Company (as successor to Willamette Industries, Inc.) and The Bank of New York Mellon Trust Company, N.A. (as successor to JPMorgan Chase Bank, formerly known as The Chase Manhattan Bank), as Trustee (incorporated by reference to Exhibit 4(f) to the Annual Report on Form 10-K for the annual period ended December 31, 2017 – Commission File Number 1-4825) |
| | (g) | Indenture dated as of January 30, 1993 between Weyerhaeuser Company (as successor to Willamette Industries, Inc.) and The Bank of New York Mellon Trust Company, N.A. (as successor to JPMorgan Chase Bank, formerly known as The Chase Manhattan Bank), as Trustee (incorporated by reference to Exhibit 4(g) to the Annual Report on Form 10-K for the annual period ended December 31, 2017 – Commission File Number 1-4825) |
| | (h) | First Supplemental Trust Indenture dated as of March 12, 2002 between Weyerhaeuser Company (as successor to Willamette Industries, Inc.) and The Bank of New York Mellon Trust Company, N.A. (as successor to JPMorgan Chase Bank, formerly known as The Chase Manhattan Bank), as Trustee (incorporated by reference to Exhibit 4(h) to the Annual Report on Form 10-K for the annual period ended December 31, 2017 – Commission File Number 1-4825) |
| | (i) | Indenture dated as of January 15, 1996 between Weyerhaeuser Company Limited (as successor to MacMillan Bloedel Limited) and The Bank of New York Mellon Trust Company, N.A. (as successor to Harris Trust Company of New York, formerly known as Bank of Montreal Trust Company), as Trustee (incorporated by reference to Exhibit 4(i) to the Annual Report on Form 10-K for the annual period ended December 31, 2017 – Commission File Number 1-4825) |
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K104
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| | (j) | First Supplemental Indenture dated as of November 1, 1999 between Weyerhaeuser Company Limited and The Bank of New York Mellon Trust Company, N.A. (as successor to Harris Trust Company of New York, formerly Bank of Montreal Trust Company), as Trustee (incorporated by reference to Exhibit 4(j) to the Annual Report on Form 10-K for the annual period ended December 31, 2017 – Commission File Number 1-4825) |
| | (k) | Note Indenture dated November 14, 2005 by and among Plum Creek Timberlands, L.P., as Issuer, Weyerhaeuser Company, as successor to Plum Creek Timber Company, Inc., as Guarantor, and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed on February 19, 2016 - Commission File Number 1-4825) |
| | (l) | Supplemental Indenture No. 1 dated as of February 19, 2016 by and among Plum Creek Timberlands, L.P., as Issuer, Weyerhaeuser Company, as Guarantor, and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed on February 19, 2016 - Commission File Number 1-4825) |
| | (m) | Supplemental Indenture No. 2 dated September 28, 2016 by and between Weyerhaeuser Company, as successor Issuer, and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed on September 30, 2016 - Commission File Number 1-4825) |
| | (n) | Officer’s Certificate dated November 15, 2010 executed by Plum Creek Timberlands, L.P., as Issuer (incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K filed on February 19, 2016 - Commission File Number 1-4825) |
| | (o) | Officer’s Certificate dated November 26, 2012 executed by Plum Creek Timberlands, L.P., as Issuer (incorporated by reference to Exhibit 4.4 to the Current Report on Form 8-K filed on February 19, 2016 - Commission File Number 1-4825) |
| | (p) | Assumption and Amendment Agreement and Installment Note dated as of April 28, 2016 by and among Plum Creek Timberlands, L.P., Weyerhaeuser Company and MeadWestvaco Timber Note Holding Company II, L.L.C. (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed on May 4, 2016 - Commission File Number 1-4825) |
| 10 | — | Material Contracts |
| | | (a) | Form of Weyerhaeuser Executive Change of Control Agreement (incorporated by reference to Exhibit 10(a) to the Annual Report on Form 8-K filed with10-K for the Securities and Exchange Commission February 13, 2015 —annual period ended December 31, 2016 - Commission File Number 1-4825)* |
| | | (b) | Form of Executive Severance Agreement (incorporated by reference to Exhibit 10(b) to the Annual Report on Form 8-K filed with10-K for the Securities and Exchange Commission March 9, 2015 —annual period ended December 31, 2016 - Commission File Number 1-4825)* |
| | | (c) | Severance Agreement with Devin W. Stockfish effective January 1, 2019 (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed on October 26, 2018 - Commission File Number 1-4825)* |
| | (d) | Executive Employment Agreement with Doyle Simons dated February 17, 2016 (incorporated by reference to Exhibit 10(v) to the Annual Report on Form 10-K for the annual period ended December 31, 2015 - Commission File Number 1-4825)* |
| | (e) | Retention Agreement with Russell S. Hagen dated August 24, 2018 (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed on October 26, 2018 - Commission File Number 1-4825)* |
| | (f) | Restricted Stock Unit Agreement with Adrian M. Blocker dated August 24, 2018 (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q filed on October 26, 2018 - Commission File Number 1-4825)*
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| | (g) | Weyerhaeuser Company 2013 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 19, 2013 —- Commission File Number 1-4825)* |
| | | (d)(h) | Form of Weyerhaeuser Company 2013 Long-Term Incentive Plan Stock Option Award Terms and Conditions (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commissionon April 16, 2013 —- Commission File Number 1-4825)* |
| | (e) | Form of Weyerhaeuser Company 2013 Long-Term Incentive Plan Performance Share Unit Award Terms and Conditions (incorporated by reference to Current Report on Form 8-K filed with the Securities and Exchange Commission April 16, 2013 — Commission File Number 1-4825) * |
| | (f) | Form of Weyerhaeuser Company 2013 Long-Term Incentive Plan Performance Share Unit Award Terms and Conditions (incorporated by reference to Current Report on Form 8-K filed with the Securities and Exchange Commission
December 22, 2014 — Commission File Number 1-4825) *
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| | | (g)(i) | Form of Weyerhaeuser Company 2013 Long Term Incentive Plan Performance Share Unit Award Terms and Conditions for Plan Year 2016 (incorporated by reference toExhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commissionon January 22, 2016 —- Commission File Number 1-4825)* |
WEYERHAEUSER COMPANY > 2015 ANNUAL REPORT AND FORM 10-K110
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| | | (h)(j) | Form of Weyerhaeuser Company 2013 Long-TermLong Term Incentive Plan Restricted StockPerformance Share Unit Award 2013 Terms and Conditions for Plan Years 2017, 2018 and 2019 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission April 16, 2013 —on January 26, 2017 - Commission File Number 1-4825)* |
| | | (i)(k) | Form of Weyerhaeuser Company 2013 Long-Term Incentive Plan Restricted Stock Unit Award Terms and Conditions for Plan Years 2016, 2017, 2018 and 2019 (incorporated by reference to CurrentExhibit 10(i) to the Annual Report on Form 8-K filed with10-K for the Securities and Exchange Commission January 22, 2016 -annual period ended December 31, 2017 – Commission File Number 1-4825)*
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| | | (j)(l) | Form of Weyerhaeuser Company 2004 Long-Term Incentive Plan Stock Option Award 2013 Terms and Conditions (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commissionon February 11, 2013 —- Commission File Number 1-4825)* |
| | (k) | Form of Weyerhaeuser Company 2004 Long-Term Incentive Plan Performance Share Award 2013 Terms and Conditions (incorporated by reference to Form 8-K filed with the Securities and Exchange Commission February 11, 2013 — Commission File Number 1-4825) * |
| | (l) | Form of Weyerhaeuser Company 2004 Long-Term Incentive Plan Restricted Stock Award 2013 Terms and Conditions (incorporated by reference to Form 8-K filed with the Securities and Exchange Commission February 11, 2013 — Commission File Number 1-4825) * |
| | | (m) | Weyerhaeuser Company 2004 Long-Term Incentive Compensation Plan, as Amended and Restated (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed on December 29, 2010 - Commission File Number 1-4825)* |
| | (n) | Form of Plum Creek Executive Stock Option, Restricted Stock Unit and Value Management Award Agreement For Plan Year 2009 (incorporated by reference to Exhibit 10(u) to the Annual Report on Form 10-K for the annual period ended December 31, 2016 - Commission File Number 1-4825)* |
| | (o) | Form of Plum Creek Executive Stock Option, Restricted Stock Unit and Value Management Award Agreement For Plan Year 2010 (incorporated by reference to Exhibit 10(v) to the Annual Report on Form 10-K for the annual period ended December 31, 2016 - Commission File Number 1-4825)* |
| | (p) | Form of Plum Creek Executive Stock Option, Restricted Stock Unit and Value Management Award Agreement For Plan Year 2011 (incorporated by reference to Exhibit 10(w) to the Annual Report on Form 10-K for the annual period ended December 31, 2016 - Commission File Number 1-4825)* |
| | (q) | Form of Plum Creek Executive Restricted Stock Unit and Value Management Award Agreement for Plan Year 2015 (incorporated by reference to Exhibit 10(z) to the Annual Report on Form 10-K for the annual period ended December 31, 2016 - Commission File Number 1-4825)* |
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K105
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| | (r) | Form of Plum Creek Executive Restricted Stock Unit Agreement for Plan Year 2016 (incorporated by reference to Exhibit 10(aa) to the Annual Report on Form 10-K for the annual period ended December 31, 2016 - Commission File Number 1-4825)* |
| | (s) | 2012 Plum Creek Timber Company, Inc. Stock Incentive Plan (incorporated by reference to Exhibit 99.1 from the Registration Statement on Form S-8, Registration No. 333-209617)* |
| | (t) | Amended and Restated Plum Creek Timber Company, Inc. Stock Incentive Plan (incorporated by reference to Exhibit 99.2 from the Registration Statement on Form S-8, Registration No. 333-209617)* |
| | (u) | Plum Creek Supplemental Pension Plan (incorporated by reference to Exhibit 10(dd) to the Annual Report on Form 10-K for the annual period ended December 31, 2016 - Commission File Number 1-4825)* |
| | (v) | Plum Creek Pension Plan (incorporated by reference to Exhibit 10(ee) to the Annual Report on Form 10-K for the period ended December 31, 2016 - Commission File Number 1-4825)* |
| | (w) | Plum Creek Supplemental Benefits Plan (incorporated by reference to Exhibit 10(ff) to the Annual Report on Form 10-K for the annual period ended December 31, 2016 - Commission File Number 1-4825)* |
| | (x) | Weyerhaeuser Company Amended and Restated Annual Incentive Plan for Salaried Employees (Amended and Restated(as Amended Effective January 1, 2015)May 19, 2016) (incorporated by reference toExhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission December 22, 2014 —on May 25, 2016 - Commission File Number 1-4825)* |
| | | (n)(y) | Weyerhaeuser Company 2015 Deferred Compensation Plan (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed with the Securities and Exchange Commissionon December 22, 2014 —- Commission File Number 1-4825)* |
| | | (o)(z) | Weyerhaeuser Company Salaried Employees Supplemental Retirement Plan (incorporated by reference to 2004Exhibit 10(p) to the Annual Report on Form 10-K filed withfor the Securities and Exchange Commission January 27, 2009 —annual period ended December 31, 2004 - Commission File Number 1-4825)* |
| | | (p)(aa) | 20162011 Fee Deferral Plan for Directors of Weyerhaeuser Company (Amended and Restated Effective January 1, 2016) (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed on May 6, 2016 - Commission File Number 1-4825)* |
| | | (q)(bb) | Form of Weyerhaeuser Company 2013 Long-Term Incentive Plan Director Restricted Stock Unit Award for Directors Grant Notice and Terms and Conditions (incorporated by reference to Exhibit 10(z) to the Annual Report on Form 10-K for the annual period ended December 31, 2017 – Commission File Number 1-4825)* |
| | | (r)(cc) | Revolving Credit Facility Agreement dated as of March 6, 2017, among Weyerhaeuser Company, Weyerhaeuser Real Estate Company, JP Morganas Borrower, the lenders party thereto, JPMorgan Chase Bank, N.A. as administrative agent, Citibank, N.A., as syndication agent, CoBank, ACB, PNC Bank, National Association, The Bank of Tokyo-Mitsubishi UFJ, Ltd,Co-Administrative Agent, and Wells Fargo Bank, N.A.,National Association, as documentation agents,Co-Administrative Agent and the lenders, swing-line banks and initial fronting banks named thereinPaying Agent. (incorporated by reference toExhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission September 12, 2013 —on March 10, 2017 - Commission File Number 1-4825) |
| | | (s)(dd) | CreditTerm Loan Agreement dated July 24, 2017, by and among Weyerhaeuser Company, CoBank, ACBNorthwest Farm Credit Services, PCA, as administrative agent, and the lenderslender party thereto (incorporated by reference to CurrentExhibit 10 to the Quarterly Report on Form 8-K10-Q filed with the Securities and Exchange Commission September 16, 2013 —on July 28, 2017- Commission File Number 1-4825) |
| | | (t)(ee) | Form of Tax Sharing Agreement to be entered into by and among Weyerhaeuser Company, Weyerhaeuser Real Estate Company and TRI Pointe Homes, Inc. (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed with the Securities and Exchange Commissionon November 4, 2013 —- Commission File Number 1-4825) |
| | | (u)(ff) | First Amendment to Tax Sharing Agreement dated as of July 7, 2015 by and among Weyerhaeuser Company, TRI Pointe Holdings, Inc. (f/k/a Weyerhaeuser Real Estate Company) and TRI Pointe Homes, Inc. (incorporated by reference to Exhibit 10 to the Quarterly Report on Form 10-Q filed on July 31, 2015 - Commission File Number 1-4825) |
| | (gg) | Redemption Agreement dated as of August 30, 2016 by and among Southern Diversified Timber, LLC, Weyerhaeuser NR Company, TCG Member, LLC, Plum Creek Timber Operations I, L.L.C., TCG/Southern Diversified Manager, LLC, Southern Diversified, LLC, Campbell Opportunity Fund VI, L.P., and Campbell Opportunity Fund VI-A, L.P. (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed on October 28, 2016 - Commission File Number 1-4825) |
| | (hh) |
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| | (v) | Executive Employment Agreement with Doyle R. Simons dated February 17, 2016 * |
| | (w) | Retention Agreement with Catherine I. Slater dated effective November 4, 2015 * |
12 | — | Statements regarding computation of ratios |
| 14 | — | Code of Business Conduct and Ethics (incorporated by reference to Exhibit 14.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission April 20, 2010 —on August 22, 2016 - Commission File Number 1-4825)
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| 101.INS | — | XBRL Instance Document
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| 101.SCH | — | XBRL Taxonomy Extension Schema Document |
| 101.CAL | — | XBRL Taxonomy Extension Calculation Linkbase Document
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| 101.DEF | — | XBRL Taxonomy Extension Definition Linkbase Document
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| 101.LAB | — | XBRL Taxonomy Extension Label Linkbase Document
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| 101.PRE | — | XBRL Taxonomy Extension Presentation Linkbase Document
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* Denotes a management contract or compensatory plan or arrangement.
** Filed in paper - hyperlink not required pursuant to Rule 105 of Regulation S-T
WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 111106
FORM 10-K SUMMARY
None.
WEYERHAEUSER COMPANY > 2018 ANNUAL REPORT AND FORM 10-K107
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized February 17, 201615, 2019.
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| WEYERHAEUSER COMPANY |
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/s/ DOYLE R. SIMONSDEVIN W. STOCKFISH |
Doyle R. SimonsDevin W. Stockfish |
| President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities indicated February 17, 201615, 2019.
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/s/ DOYLE R. SIMONSDEVIN W. STOCKFISH | | /s/ JOHN I. KIECKHEFERRUSSELL S. HAGEN |
Doyle R. SimonsDevin W. Stockfish Principal Executive Officer and Director | | John I. KieckheferRussell S. Hagen
Director
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/s/ PATRICIA M. BEDIENT | | /s/ WAYNE W. MURDY |
Patricia M. Bedient
Principal Financial Officer | | Wayne W. Murdy
Director
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| /s/ JEANNE M. HILLMAN | | /s/ NICOLE W. PIASECKIRICK R. HOLLEY |
Jeanne M. Hillman Principal Accounting Officer | | Nicole W. Piasecki
Rick R. Holley
Chairman of the Board and Director |
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/s/ DAVID P. BOZEMAN | | /s/ D. MICHAEL STEUERT |
David P. Bozeman
Director
| | D. Michael Steuert
Director
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/s/ DEBRA A. CAFARO | | /s/ KIM WILLIAMS |
Debra A. Cafaro
Director
| | Kim Williams
Director
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| /s/ MARK A. EMMERT | | /s/ CHARLES R. WILLIAMSONSARA GROOTWASSINK LEWIS |
Mark A. Emmert
Director | | Sara Grootwassink Lewis Director |
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| /s/ JOHN F. MORGAN SR. | | /s/ NICOLE W. PIASECKI |
John F. Morgan Sr.
Director | | Nicole W. Piasecki
Director |
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| /s/ MARC F. RACICOT | | /s/ LAWRENCE A. SELZER |
Marc F. Racicot
Director | | Lawrence A. Selzer Director |
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| /s/ D. MICHAEL STEUERT | | /s/ KIM WILLIAMS |
D. Michael Steuert
Director | | Kim Williams
Director |
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| /s/ CHARLES R. WILLIAMSON | | |
Charles R. Williamson
Director Chairman of the Board and Director
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WEYERHAEUSER COMPANY > 20152018 ANNUAL REPORT AND FORM 10-K 112108
