SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________________________
FORM 10-Q
__________________________________________________
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| |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2015MARCH 31, 2016
or
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| |
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
__________________________________________________
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| | |
Washington | | 91-0470860 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification Number) |
| |
33663 Weyerhaeuser Way South Federal Way, Washington | | 98063-9777 |
(Address of principal executive offices) | | (Zip Code) |
(253) 924-2345
(Registrant’s telephone number, including area code)
__________________________________________________
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 Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x Accelerated filer o Non-accelerated filer o Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
As of October 23, 2015, 510,577,991April 29, 2016, 747,073,616 shares of the registrant’s common stock ($1.25 par value) were outstanding.
TABLE OF CONTENTS
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PART I | FINANCIAL INFORMATION | |
ITEM 1. | FINANCIAL STATEMENTS: | |
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| | |
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ITEM 2. | | |
ITEM 3. | | |
ITEM 4. | | |
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PART II | OTHER INFORMATION | |
ITEM 1. | | |
ITEM 1A. | | |
ITEM 2. | | |
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES | NA |
ITEM 4. | MINE SAFETY DISCLOSURES | NA |
ITEM 5. | OTHER INFORMATION | NA |
ITEM 6. | | |
| | |
FINANCIAL INFORMATION
WEYERHAEUSER COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
| | | QUARTER ENDED | | YEAR-TO-DATE ENDED | QUARTER ENDED |
DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURES | SEPTEMBER 2015 | | SEPTEMBER 2014 | | SEPTEMBER 2015 | | SEPTEMBER 2014 | MARCH 2016 | | MARCH 2015 |
Net sales | $ | 1,820 |
| | $ | 1,915 |
| | $ | 5,348 |
| | $ | 5,615 |
| $ | 1,835 |
| | $ | 1,727 |
|
Cost of products sold | 1,445 |
| | 1,504 |
| | 4,304 |
| | 4,364 |
| 1,475 |
| | 1,385 |
|
Gross margin | 375 |
| | 411 |
| | 1,044 |
| | 1,251 |
| 360 |
| | 342 |
|
Selling expenses | 27 |
| | 28 |
| | 83 |
| | 83 |
| 27 |
| | 28 |
|
General and administrative expenses | 60 |
| | 73 |
| | 205 |
| | 249 |
| 85 |
| | 74 |
|
Research and development expenses | 6 |
| | 5 |
| | 17 |
| | 19 |
| 6 |
| | 5 |
|
Charges for restructuring, closures and impairments (Note 12) | 2 |
| | 10 |
| | 16 |
| | 37 |
| |
Other operating costs (income), net (Note 13) | 21 |
| | (23 | ) | | 21 |
| | (163 | ) | |
Charges for integration and restructuring, closures and asset impairments (Note 15) | | 117 |
| | 14 |
|
Other operating costs (income), net (Note 16) | | (61 | ) | | 21 |
|
Operating income | 259 |
| | 318 |
| | 702 |
| | 1,026 |
| 186 |
| | 200 |
|
Equity earnings (loss) from joint ventures (Note 6) | | 3 |
| | (6 | ) |
Interest income and other | 4 |
| | 7 |
| | 9 |
| | 27 |
| 9 |
| | 9 |
|
Interest expense, net of capitalized interest | (88 | ) | | (88 | ) | | (259 | ) | | (254 | ) | (97 | ) | | (83 | ) |
Earnings before income taxes | 175 |
| | 237 |
| | 452 |
| | 799 |
| 101 |
| | 120 |
|
| 16 |
| | (39 | ) | | (16 | ) | | (148 | ) | |
Earnings from continuing operations | 191 |
| | 198 |
| | 436 |
| | 651 |
| |
Earnings from discontinued operations, net of income taxes (Note 3) | — |
| | 966 |
| | — |
| | 998 |
| |
| | (20 | ) | | (19 | ) |
Net earnings | 191 |
| | 1,164 |
| | 436 |
| | 1,649 |
| 81 |
| | 101 |
|
Dividends on preference shares | (11 | ) | | (11 | ) | | (33 | ) | | (33 | ) | (11 | ) | | (11 | ) |
Net earnings attributable to Weyerhaeuser common shareholders | $ | 180 |
| | $ | 1,153 |
| | $ | 403 |
| | $ | 1,616 |
| $ | 70 |
| | $ | 90 |
|
Earnings per share attributable to Weyerhaeuser common shareholders, basic (Note 4): | | | | | | | | |
Continuing operations | $ | 0.35 |
| | $ | 0.35 |
| | $ | 0.78 |
| | $ | 1.09 |
| |
Discontinued operations | — |
| | 1.82 |
| | — |
| | 1.76 |
| |
Net earnings per share | $ | 0.35 |
| | $ | 2.17 |
| | $ | 0.78 |
| | $ | 2.85 |
| |
Earnings per share attributable to Weyerhaeuser common shareholders, diluted (Note 4): | | | | | | | | |
Continuing operations | $ | 0.35 |
| | $ | 0.35 |
| | $ | 0.77 |
| | $ | 1.08 |
| |
Discontinued operations | — |
| | 1.80 |
| | — |
| | 1.75 |
| |
Net earnings per share | $ | 0.35 |
| | $ | 2.15 |
| | $ | 0.77 |
| | $ | 2.83 |
| |
Earnings per share attributable to Weyerhaeuser common shareholders, basic and diluted (Note 4) | | $ | 0.11 |
| | $ | 0.17 |
|
Dividends paid per share | $ | 0.31 |
| | $ | 0.29 |
| | $ | 0.89 |
| | $ | 0.73 |
| $ | 0.31 |
| | $ | 0.29 |
|
Weighted average shares outstanding (in thousands) (Note 4): | | | | | | | | | | |
Basic | 514,301 |
| | 531,913 |
| | 518,121 |
| | 567,436 |
| 632,004 |
| | 523,426 |
|
Diluted | 517,088 |
| | 536,012 |
| | 521,455 |
| | 571,503 |
| 634,872 |
| | 527,423 |
|
See accompanying Notes to Consolidated Financial Statements.
WEYERHAEUSER COMPANY
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
| | | QUARTER ENDED | | YEAR-TO-DATE ENDED | QUARTER ENDED |
DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2015 | | SEPTEMBER 2014 | | SEPTEMBER 2015 | | SEPTEMBER 2014 | MARCH 2016 | | MARCH 2015 |
Net earnings | $ | 191 |
| | $ | 1,164 |
| | $ | 436 |
| | $ | 1,649 |
| $ | 81 |
| | $ | 101 |
|
Other comprehensive income: | | | | | | | | |
Other comprehensive income (loss): | | | | |
Foreign currency translation adjustments | (43 | ) | | (26 | ) | | (78 | ) | | (27 | ) | 41 |
| | (47 | ) |
Actuarial gains (losses), net of tax expense (benefit) of $25, ($91), $75 and ($58) | 55 |
| | (143 | ) | | 161 |
| | (76 | ) | |
Prior service costs, net of tax expense (benefit) of ($1), ($13), $0 and ($43) | (1 | ) | | (25 | ) | | (3 | ) | | (68 | ) | |
Actuarial gains, net of tax expense of $8 and $26 | | 10 |
| | 62 |
|
Prior service costs, net of tax expense of $1 and $0 | | (2 | ) | | (2 | ) |
Unrealized gains on available-for-sale securities | (1 | ) | | — |
| | — |
| | — |
| — |
| | 1 |
|
Total other comprehensive income (loss) | 10 |
| | (194 | ) | | 80 |
| | (171 | ) | |
Total other comprehensive income | | 49 |
| | 14 |
|
Comprehensive income | $ | 201 |
| | $ | 970 |
| | $ | 516 |
| | $ | 1,478 |
| $ | 130 |
| | $ | 115 |
|
See accompanying Notes to Consolidated Financial Statements.
WEYERHAEUSER COMPANY
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
| | DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 30, 2015 | | DECEMBER 31, 2014 | MARCH 31, 2016 | | DECEMBER 31, 2015 |
ASSETS | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | $ | 1,048 |
| | $ | 1,580 |
| $ | 415 |
| | $ | 1,012 |
|
Receivables, less allowances of $3 and $3 | 545 |
| | 525 |
| |
Receivables, less allowances of $4 and $3 | | 578 |
| | 487 |
|
Receivables for taxes | 14 |
| | 25 |
| 25 |
| | 30 |
|
| 590 |
| | 595 |
| 677 |
| | 568 |
|
Prepaid expenses | 87 |
| | 80 |
| |
Deferred tax assets | 218 |
| | 228 |
| |
Prepaid expenses and other current assets | | 135 |
| | 77 |
|
Total current assets | 2,502 |
| | 3,033 |
| 1,830 |
| | 2,174 |
|
Property and equipment, less accumulated depreciation of $6,361 and $6,324 | 2,484 |
| | 2,623 |
| |
Property and equipment, less accumulated depreciation of $6,371 and $6,294 | | 2,763 |
| | 2,572 |
|
Construction in progress | 231 |
| | 131 |
| 223 |
| | 195 |
|
Timber and timberlands at cost, less depletion charged to disposals | 6,507 |
| | 6,530 |
| 14,548 |
| | 6,480 |
|
Investments in and advances to equity affiliates | 174 |
| | 188 |
| |
Minerals and mineral rights, net | | 325 |
| | 14 |
|
Investments in and advances to joint ventures (Note 6) | | 1,011 |
| | 74 |
|
Goodwill | 40 |
| | 40 |
| 40 |
| | 40 |
|
Deferred tax assets | — |
| | 8 |
| 15 |
| | 4 |
|
Other assets | 267 |
| | 289 |
| 409 |
| | 302 |
|
Restricted financial investments held by variable interest entities | 615 |
| | 615 |
| 615 |
| | 615 |
|
Total assets | $ | 12,820 |
| | $ | 13,457 |
| $ | 21,779 |
| | $ | 12,470 |
|
LIABILITIES AND EQUITY | | | | | | |
Current liabilities: | | | | | | |
Notes payable | | $ | 4 |
| | $ | 4 |
|
Accounts payable | $ | 344 |
| | $ | 331 |
| 385 |
| | 326 |
|
| 554 |
| | 587 |
| |
| | 595 |
| | 545 |
|
Total current liabilities | 898 |
| | 918 |
| 984 |
| | 875 |
|
| 4,891 |
| | 4,891 |
| |
| | 835 |
| | — |
|
| | 7,803 |
| | 4,875 |
|
Long-term debt (nonrecourse to the company) held by variable interest entities | 511 |
| | 511 |
| 511 |
| | 511 |
|
Deferred income taxes | 259 |
| | 206 |
| 71 |
| | 86 |
|
Deferred pension and other postretirement benefits | 1,106 |
| | 1,319 |
| 983 |
| | 987 |
|
Other liabilities | 277 |
| | 308 |
| 311 |
| | 267 |
|
Total liabilities | 7,942 |
| | 8,153 |
| 11,498 |
| | 7,601 |
|
|
|
| |
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| | | | | | |
Equity: | | | | | | |
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 | 14 |
| | 14 |
| |
Common shares: $1.25 par value; authorized 1,360,000,000 shares; issued and outstanding: 511,032,862 and 524,474,315 shares | 639 |
| | 656 |
| |
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 13,799,711 shares | | 14 |
| | 14 |
|
Common shares: $1.25 par value; authorized 1,360,000,000 shares; issued and outstanding: 759,044,221 and 510,483,285 shares | | 948 |
| | 638 |
|
Other capital | 4,089 |
| | 4,519 |
| 9,305 |
| | 4,080 |
|
Retained earnings | 1,449 |
| | 1,508 |
| 1,177 |
| | 1,349 |
|
Cumulative other comprehensive loss (Note 10) | (1,313 | ) | | (1,393 | ) | |
Cumulative other comprehensive loss (Note 13) | | (1,163 | ) | | (1,212 | ) |
Total equity | 4,878 |
| | 5,304 |
| 10,281 |
| | 4,869 |
|
Total liabilities and equity | $ | 12,820 |
| | $ | 13,457 |
| $ | 21,779 |
| | $ | 12,470 |
|
See accompanying Notes to Consolidated Financial Statements.
WEYERHAEUSER COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS(UNAUDITED) |
| | | | | | | |
| YEAR-TO-DATE ENDED |
DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2015 | | SEPTEMBER 2014 |
Cash flows from operations: | | | |
Net earnings | $ | 436 |
| | $ | 1,649 |
|
Noncash charges (credits) to earnings: | | | |
Depreciation, depletion and amortization | 359 |
| | 375 |
|
Deferred income taxes, net | 10 |
| | 170 |
|
Pension and other postretirement benefits (Note 6) | 32 |
| | (104 | ) |
Share-based compensation expense | 22 |
| | 29 |
|
Charges for impairment of assets | 14 |
| | 1 |
|
Net gain on dispositions of assets(1) | (30 | ) | | (1,048 | ) |
Foreign exchange transaction losses (Note 13) | 41 |
| | 15 |
|
Change in: | | | |
Receivables less allowances | (41 | ) | | (28 | ) |
Receivable for taxes | 11 |
| | 77 |
|
Inventories | (9 | ) | | (46 | ) |
Real estate and land | — |
| | (133 | ) |
Prepaid expenses | (2 | ) | | 6 |
|
Accounts payable and accrued liabilities | (47 | ) | | (76 | ) |
Deposits on land positions and other assets | — |
| | 15 |
|
Pension and postretirement contributions / benefit payments | (59 | ) | | (85 | ) |
Other | (12 | ) | | (33 | ) |
Net cash from operations | 725 |
| | 784 |
|
Cash flows from investing activities: | | | |
Property and equipment | (276 | ) | | (239 | ) |
Timberlands reforestation | (33 | ) | | (32 | ) |
Acquisition of timberlands | (34 | ) | | — |
|
Net proceeds from Real Estate Divestiture, net of cash divested (Note 3) | — |
| | 707 |
|
Proceeds from sale of assets | 7 |
| | 24 |
|
Other | 12 |
| | 25 |
|
Cash from investing activities | (324 | ) | | 485 |
|
Cash flows from financing activities: | | | |
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 | (460 | ) | | (411 | ) |
Cash dividends on preference shares | (22 | ) | | (22 | ) |
Change in book overdrafts | — |
| | (17 | ) |
Exercises of stock options | 29 |
| | 84 |
|
| (484 | ) | | (123 | ) |
Other | 4 |
| | 5 |
|
Cash from financing activities | (933 | ) | | (484 | ) |
Net change in cash and cash equivalents | (532 | ) | | 785 |
|
Cash and cash equivalents at beginning of period | 1,580 |
| | 835 |
|
Cash and cash equivalents at end of period | $ | 1,048 |
| | $ | 1,620 |
|
Cash paid (received) during the period for: | | | |
Interest, net of amount capitalized of $4 and $12 | $ | 290 |
| | $ | 253 |
|
Income taxes | $ | 4 |
| | $ | (40 | ) |
Noncash investing and financing activity: | | | |
Common shares tendered in WRECO divestiture (Note 3) | $ | — |
| | $ | 1,954 |
|
| |
(1) | Includes gains on timberland exchanges. |
|
| | | | | | | |
| QUARTER ENDED |
DOLLAR AMOUNTS IN MILLIONS | MARCH 2016 | | MARCH 2015 |
Cash flows from operations: | | | |
Net earnings | $ | 81 |
| | $ | 101 |
|
Noncash charges (credits) to earnings: | | | |
Depreciation, depletion and amortization | 142 |
| | 123 |
|
Basis of real estate sold | 17 |
| | 10 |
|
Deferred income taxes, net | 18 |
| | 13 |
|
Pension and other postretirement benefits (Note 7) | 4 |
| | 10 |
|
Share-based compensation expense | 24 |
| | 8 |
|
Charges for impairment of assets | — |
| | 13 |
|
Equity (earnings) loss from joint ventures (Note 6) | (3 | ) | | 6 |
|
Net gains on dispositions of assets and operations | (41 | ) | | (16 | ) |
Foreign exchange transaction losses (Note 16) | (13 | ) | | 29 |
|
Change in: | | | |
Receivables less allowances | (47 | ) | | (16 | ) |
Receivable for taxes | 10 |
| | 2 |
|
Inventories | (43 | ) | | (57 | ) |
Prepaid expenses | (1 | ) | | (11 | ) |
Accounts payable and accrued liabilities | (70 | ) | | (91 | ) |
Pension and postretirement contributions (Note 7) | (17 | ) | | (20 | ) |
Distributions from joint ventures | 5 |
| | — |
|
Other | (19 | ) | | (17 | ) |
Net cash from operations | 47 |
| | 87 |
|
Cash flows from investing activities: | | | |
Capital expenditures for property and equipment | (57 | ) | | (71 | ) |
Capital expenditures for timberlands reforestation | (16 | ) | | (18 | ) |
Acquisition of timberlands | (6 | ) | | (32 | ) |
Proceeds from sale of assets | 70 |
| | 2 |
|
Distributions from joint ventures | 24 |
| | — |
|
Cash and cash equivalents acquired in Plum Creek merger (Note 3) | 9 |
| | — |
|
Cash from (used in) investing activities | 24 |
| | (119 | ) |
Cash flows from financing activities: | | | |
Net proceeds from issuance of debt (Note 10) | 1,098 |
| | — |
|
| (720 | ) | | — |
|
Cash dividends on common shares | (241 | ) | | (152 | ) |
| (798 | ) | | (253 | ) |
Other | (7 | ) | | 15 |
|
Cash from financing activities | (668 | ) | | (390 | ) |
| | | |
Net change in cash and cash equivalents | (597 | ) | | (422 | ) |
Cash and cash equivalents at beginning of period | 1,012 |
| | 1,580 |
|
Cash and cash equivalents at end of period | $ | 415 |
| | $ | 1,158 |
|
| | | |
Cash paid (received) during the period for: | | | |
Interest, net of amount capitalized of $2 and $1 | $ | 125 |
| | $ | 114 |
|
Income taxes | $ | (13 | ) | | $ | 1 |
|
| | | |
Noncash investing and financing activities: | | | |
Equity issued as consideration for our merger with Plum Creek (Note 3) | $ | 6,383 |
| | $ | — |
|
See accompanying Notes to Consolidated Financial Statements.
INDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 1: | | |
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NOTE 2: | | |
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NOTE 3: | | |
| | |
NOTE 4: | | |
| | |
NOTE 5: | | |
| | |
NOTE 6: | | |
| | |
NOTE 7: | PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS | |
| | |
NOTE 8: | | |
| | |
NOTE 9: | | |
| | |
NOTE 10: | | |
| | |
NOTE 11: | | |
| | |
NOTE 12: | | |
| | |
NOTE 13:9: | ACCRUED LIABILITIES | OTHER OPERATINGCOSTS (INCOME), NET18 |
| | |
NOTE 10: | | |
| | |
NOTE 14:11: | FAIR VALUE OF FINANCIAL INSTRUMENTS | |
| | |
NOTE 12: | LEGAL PROCEEDINGS, COMMITMENTS AND CONTINGENCIES | |
| | |
NOTE 13: | CUMULATIVE OTHER COMPREHENSIVE INCOME TAXES(LOSS) | |
| | |
NOTE 14: | SHARE-BASED COMPENSATION | |
| | |
NOTE 15: | | |
| | |
NOTE 16: | | |
| | |
NOTE 17: | INCOME TAXES | |
| | |
NOTE 18: | | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE QUARTERS AND YEAR-TO-DATE ENDED SEPTEMBER 30, 2015MARCH 31, 2016 AND 20142015
NOTE 1:BASIS OF PRESENTATION
We are a corporation that has elected to be taxed as a real estate investment trust (REIT). We expect to derive most of our REIT income from investments in timberlands, including the sale of standing timber. As a REIT, we generally are not subject to federal corporate level income can betaxes on REIT taxable income that is distributed to shareholders without first paying corporate level tax, substantially eliminating the double taxation on income. A significant portion of our timberland segment earnings receives this favorable tax treatment.shareholders. We are however, subject to corporate taxes on built-in-gains (the excess of fair market value over tax basis at January 1, 2010) on sales of real property (other than standing timber) held by the REIT during the first 10 years following the REIT conversion. We continue to be required to pay federal corporate income taxes on earnings of our Taxable REIT Subsidiary (TRS), which principally includes our manufacturing businesses and the portion of our Timberlands segmentand Real Estate and Energy & Natural Resources (Real Estate & ENR) segments' income included in the TRS.
Our consolidated financial statements provide an overall view of our results and financial condition. They include our accounts and the accounts of entities we control, including:
majority-owned domestic and foreign subsidiaries, and
| |
• | the results of Plum Creek Timber Company, Inc. (Plum Creek) for the period from February 19, 2016 (the merger date) to March 31, 2016 (see Note 3: Merger with Plum Creek), 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 within equity.eliminated.
We account for investments in and advances to unconsolidated equity affiliates using the equity method, with taxes provided on undistributed earnings. This means that we record earnings and accrue taxes in the period earnings are recognized by our unconsolidated equity affiliates.
Throughout these Notes to Consolidated Financial Statements, unless specified otherwise, references to “Weyerhaeuser,” “we”“we,” "the company" and “our” refer to the consolidated company.
The accompanying unaudited Consolidated Financial Statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods presented. Except as otherwise disclosed in these Notes to Consolidated Financial Statements, such adjustments are of a normal, recurring nature. The Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission pertaining to interim financial statements; certain disclosures normally provided in accordance with accounting principles generally accepted in the United States have been omitted. These Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2014.2015. Results of operations for interim periods should not be regarded as necessarily indicative of the results that may be expected for the full year.
RECLASSIFICATIONS
We have reclassified certain balances and results from the prior year to be consistent with our 20152016 reporting. This makes year-to-year comparisons easier. Our reclassifications had no effect on consolidated net earnings or equity. Our reclassifications present
NEW ACCOUNTING PRONOUNCEMENTS
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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. We plan to adopt thethese accounting standard updates on January 1, 2018 and may use either the retrospective or cumulative effect transition method. We are evaluating the impact that ASU 2014-09 will have
on our consolidated financial statements and related disclosures. We have not yet selected a transition method nor determined the effect of the standard onto our ongoing financial reporting.
In April 2015, FASB issued ASU 2015-03, which amends the presentation of debt issuance costs on the consolidated balance sheet. Under the new guidance, debt issuance costs are presented as a direct deduction from the carrying amount of the debt liability rather than as an asset. The new guidance is effective retrospectively for fiscal periods startingbeginning after December 15, 2015 and early adoption is permitted.2015. We expect to adopt ASU 2015-03adopted on January 1, 2016 and have determined that its adoption will not have a material impact onreclassified balances of debt issuance costs accordingly in our consolidated financial statementsbalance sheet and in related disclosures at that time.for all periods presented.
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 have not yet determined an adoption date.2015. This new guidance eliminatesremoves the requirement to categorize certain pension investments inwithin the fair value hierarchy.hierarchy investments for which fair value is measured using the net asset value per share as a practical expedient and, instead, permits separate disclosure. Upon adoption these investments will beare presented separately from the fair value hierarchy and reconciled to total investments in our consolidated financial statements and related disclosures. We adopted on January 1, 2016.
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 andor 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 results in the ability to recognize, in current period earnings, any changes in provisional amounts during the measurement period after the closing of an acquisition, instead of restating prior periods for these changes. We adopted on January 1, 2016. We expect it to impact our consolidated financial statements and disclosures related to accounting for our merger with Plum Creek in future interim periods, in the event that measurement period adjustments are recorded.
In February 2016, FASB issued ASU 2016-02, which requires lessees to recognize assets and liabilities for the rights and obligations created by those leases and requires both capital and operating 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 expect to adopt on January 1, 2019 and are evaluating the impact on our consolidated financial statements and related disclosures.
In March 2016, FASB issued ASU 2016-09, which simplifies several aspects of accounting for share-based payment transactions, including income tax consequences, award classification, cash flows reporting, and forfeiture rate application. Specifically, the update requires all excess tax benefits and tax deficiencies to be recognized as income tax expense or benefit in the income statement with a cumulative-effect adjustment to equity as of the beginning of the period of adoption. The update allows excess tax benefits to be classified along with other income tax cash flows as operating activity on the statement of cash flows. When accruing compensation cost, an entity can make an entity-wide accounting policy election to either estimate the number of awards expected to vest or to account for forfeitures as they occur with a cumulative-effect adjustment to equity as of the beginning of the period of adoption. The update requires cash paid by an employer when directly withholding shares for tax-withholding purposes to be classified as a financing activity on the statement of cash flows, applied retrospectively. This
guidance is effective for fiscal years beginning after December 15, 2016. As permitted, we elected to adopt early, and applied the different aspects as prescribed by the standard effective January 1, 2016. The adoption of this guidance represents a change in accounting policy and did not have a material impact on our consolidated financial statements. Shares withheld by the employer for tax-withholding purposes for the first quarter of 2015 of $10 million were retrospectively reclassified from an operating activity to a financing activity in the statement of cash flows.
NOTE 2: BUSINESS SEGMENTS
Reportable business segments are determined based on the company’s management approach. The management approach, as defined by FASB ASC 280, “Segment Reporting,” 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.
During the first quarter of fiscal year 2016, the company’s chief operating decision maker changed the information regularly reviewed for making decisions to allocate resources and assess performance. As a result, beginning in fiscal year 2016, the company will report its financial performance based on four reportable business segments: Timberlands, Real Estate & ENR, Wood Products, and Cellulose Fibers. Prior to revising our segment structure, activities related to the Real Estate & ENR business segment were reported as part of the Timberlands business segment. All prior period amounts have been reclassified throughout the consolidated financial statements and disclosures to conform to the new segment structure.
We are principally engaged in growing and harvesting timber, and manufacturing, distributing, and selling products made from trees. Our principaltrees, as well as 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. The following is a brief description of each of our reportable business segments are:and activities:
Timberlands – which includes logs, timber, minerals, oil and gas, and international wood products;our Uruguay operations;
| |
• | Real Estate & ENR – which includes equity interests in our Real Estate Development Ventures (as defined and described in Note 6: Equity Method Investments), sales of HBU and non-core timberlands, minerals, oil, gas, coal and other natural resources; |
Wood Products – which includes softwood lumber, engineered wood products, structural panelsoriented strand board, plywood, medium density fiberboard and building materials distribution; and
Cellulose Fibers – which includes pulp, liquid packaging board and an equity interest in aour newsprint jointand publishing papers venture.
We divested
On November 8, 2015, Weyerhaeuser
Real Estate Company (WRECO)announced that the board authorized the exploration of strategic alternatives for its Cellulose Fibers business segment. The Board indicated that it intended to consider a broad range of alternatives including, but not limited to, continuing to hold and operate the business or a sale or spin-off of the business. On May 1, 2016, we entered into a transaction agreement to sell our Cellulose Fibers pulp mills to International Paper for $2.2 billion in
July 2014cash. The deal includes five pulp mills and
that entitytwo modified fiber mills. The transaction with International Paper does not include our liquid packaging board facility or newsprint and publishing papers venture. The Company’s review of those assets is
excluded from the segment results below. See Note 3: Discontinued Operations for information regarding our discontinued operations.ongoing.
As of March 31, 2016, the assets and liabilities of the Cellulose Fibers business, including those related to the pulp mills, had not met the criteria to be classified as held for sale under the requirements of ASC Topic 360, primarily because the board of directors was still considering a variety of strategic alternatives at that time. Accordingly, the results from these operations are classified as continuing operations in our Consolidated Statement of Operations for the period ended March 31, 2016.
We expect the transaction with International Paper to close in fourth quarter 2016.
| | | QUARTER ENDED | | YEAR-TO-DATE ENDED | QUARTER ENDED |
DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2015 | | SEPTEMBER 2014 | | SEPTEMBER 2015 | | SEPTEMBER 2014 | MARCH 2016 | | MARCH 2015 |
Sales to unaffiliated customers: | | | | | | | | | | |
Timberlands | $ | 326 |
| | $ | 364 |
| | $ | 1,013 |
| | $ | 1,138 |
| $ | 387 |
| | $ | 323 |
|
Real Estate & ENR | | 39 |
| | 34 |
|
Wood Products | 1,023 |
| | 1,048 |
| | 2,950 |
| | 3,023 |
| 979 |
| | 923 |
|
Cellulose Fibers | 471 |
| | 503 |
| | 1,385 |
| | 1,454 |
| 430 |
| | 447 |
|
| 1,820 |
| | 1,915 |
| | 5,348 |
| | 5,615 |
| 1,835 |
| | 1,727 |
|
Intersegment sales: | | | | | | | | | | |
Timberlands | 210 |
| | 218 |
| | 625 |
| | 642 |
| 222 |
| | 228 |
|
Wood Products | 20 |
| | 20 |
| | 61 |
| | 60 |
| 22 |
| | 19 |
|
| 230 |
| | 238 |
| | 686 |
| | 702 |
| 244 |
| | 247 |
|
Total sales | 2,050 |
|
| 2,153 |
| | 6,034 |
| | 6,317 |
| 2,079 |
|
| 1,974 |
|
Intersegment eliminations | (230 | ) | | (238 | ) | | (686 | ) | | (702 | ) | (244 | ) | | (247 | ) |
Total | $ | 1,820 |
| | $ | 1,915 |
| | $ | 5,348 |
| | $ | 5,615 |
| $ | 1,835 |
| | $ | 1,727 |
|
Net contribution to earnings: | | | | | | | | | | |
Timberlands | $ | 126 |
| | $ | 136 |
| | $ | 415 |
| | $ | 470 |
| $ | 129 |
| | $ | 139 |
|
Real Estate & ENR(1) | | 15 |
| | 23 |
|
Wood Products | 85 |
| | 105 |
| | 218 |
| | 271 |
| 87 |
| | 62 |
|
Cellulose Fibers | 79 |
| | 59 |
| | 139 |
| | 204 |
| |
Cellulose Fibers(2) | | 28 |
| | 33 |
|
| 290 |
| | 300 |
| | 772 |
| | 945 |
| 259 |
| | 257 |
|
Unallocated Items(1) | (27 | ) | | 25 |
| | (61 | ) | | 108 |
| |
Net contribution to earnings from discontinued operations | — |
| | 972 |
| | — |
| | 1,017 |
| |
Unallocated items(3) | | (61 | ) | | (54 | ) |
Net contribution to earnings | 263 |
|
| 1,297 |
| | 711 |
| | 2,070 |
| 198 |
|
| 203 |
|
Interest expense, net of capitalized interest (continuing and discontinued operations) | (88 | ) | | (89 | ) | | (259 | ) | | (257 | ) | |
Income before income taxes (continuing and discontinued operations) | 175 |
| | 1,208 |
| | 452 |
| | 1,813 |
| |
Income taxes (continuing and discontinued operations) | 16 |
| | (44 | ) | | (16 | ) | | (164 | ) | |
Interest expense, net of capitalized interest | | (97 | ) | | (83 | ) |
Earnings before income taxes | | 101 |
| | 120 |
|
Income taxes | | (20 | ) | | (19 | ) |
Net earnings | 191 |
| | 1,164 |
| | 436 |
| | 1,649 |
| 81 |
| | 101 |
|
Dividends on preference shares | (11 | ) | | (11 | ) | | (33 | ) | | (33 | ) | (11 | ) | | (11 | ) |
Net earnings attributable to Weyerhaeuser common shareholders | $ | 180 |
| | $ | 1,153 |
| | $ | 403 |
| | $ | 1,616 |
| $ | 70 |
| | $ | 90 |
|
| |
(1) | The Real Estate & ENR segment includes the equity earnings from and investments in and advances to our Real Estate Development Ventures, which are accounted for under the equity method. |
| |
(2) | The Cellulose Fibers segment includes the equity earnings from and investments in and advances to our newsprint and publishing papers venture, which is accounted for under the equity method. |
| |
(3) | Unallocated Itemsitems are chargesgains or gainscharges 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, equity earnings from our Timberland Venture (as defined and described in Note 6: Equity Method Investments), the elimination of intersegment profit in inventory and the LIFO reserve. |
NOTE 3: DISCONTINUED OPERATIONS
On July 7, 2014, we completed the divestitureA reconciliation of our
homebuilding and real estate development business
pursuantsegment total assets to
which WRECO became a wholly-owned subsidiary of TRI Pointe Homes, Inc. (TRI Pointe). At that time we distributed shares of WRECO to our shareholderstotal assets in
exchange for 59 million shares of our common stock and received net cash proceeds of $707 million. This transactionthe Consolidated Balance Sheet is referred to as the “Real Estate Divestiture”. Prior to the distribution of WRECO shares to our shareholders, WRECO was a wholly-owned subsidiary of Weyerhaeuser. Concurrent with the distribution to shareholders, WRECO ceased being a subsidiary. Discontinued operations relates to WRECO which was previously reported under the Real Estate segment and Unallocated Items.
The following table summarizes the components of net sales and net earnings from discontinued operations.follows:
|
| | | | | | | |
| QUARTER ENDED | | YEAR-TO-DATE ENDED |
DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2014(1) | | SEPTEMBER 2014 |
Net sales from discontinued operations | $ | 8 |
| | $ | 573 |
|
Income from operations | $ | (1 | ) | | $ | 42 |
|
Income taxes | (5 | ) | | (16 | ) |
Net earnings (loss) from operations | (6 | ) | | 26 |
|
Net gain on divestiture | 972 |
| | 972 |
|
Net earnings from discontinued operations | $ | 966 |
| | $ | 998 |
|
|
| | | | | | | |
DOLLAR AMOUNTS IN MILLIONS | MARCH 31, 2016 | | DECEMBER 31, 2015 |
Total Assets: | | | |
Timberlands and Real Estate & ENR(1) | $ | 15,447 |
| | $ | 7,260 |
|
Wood Products | 1,838 |
| | 1,541 |
|
Cellulose Fibers | 1,980 |
| | 1,984 |
|
Unallocated items | 2,514 |
| | 1,685 |
|
Total | $ | 21,779 |
| | $ | 12,470 |
|
| |
(1) | Discontinued operations in third quarter 2014 covered only seven days.Assets attributable to the Real Estate & ENR business segment are combined with total assets for the Timberlands segment because we do not produce separate balance sheets internally. |
During June 2014, WRECO
NOTE 3: 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 merger combined the two industry leaders. The breadth and diversity of our combined timberlands, real estate, energy and natural resources assets, and wood products operations position Weyerhaeuser to capitalize on the improving housing market and to continue to capture higher and better use land values across the combined portfolio.
Under the merger agreement, each issued $450and outstanding share of Plum Creek common stock was exchanged for 1.60 Weyerhaeuser common shares, with cash paid in lieu of any fractional shares. Upon consummation of the merger, all outstanding Plum Creek stock options (all fully vested as of the merger date) and restricted stock units were converted into Weyerhaeuser stock options and restricted stock units, after giving effect to the 1.60 exchange ratio. Because the Plum Creek stock options are fully vested and relate to services rendered to Plum Creek prior to the merger, the replacement stock options are also fully vested and their fair value is included in the consideration transferred. Replacement restricted stock units relate to services to be performed post-merger and therefore are not included in consideration transferred. See additional details about replacement share-based payment awards in Note 14: Share-based Compensation. The following table summarizes the total consideration transferred in the merger:
|
| | | | | | |
DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURES | | |
Number of Plum Creek common shares outstanding(1) | 174,307,267 |
| |
Exchange ratio per the merger agreement | 1.60 |
| |
Weyerhaeuser shares issued in exchange for Plum Creek equity(2) | 278,901,479 |
| |
Price per Weyerhaeuser common share(3) | $ | 22.87 |
| |
Aggregate value of Weyerhaeuser common stock issued | | $ | 6,378 |
|
Fair value of stock options(4) | | 5 |
|
Estimated consideration transferred | | $ | 6,383 |
|
| |
(1) | The number of shares of Plum Creek common stock issued and outstanding as of February 19, 2016. |
| |
(2) | Total shares issued net of partial shares settled in cash. |
| |
(3) | The closing price of Weyerhaeuser common stock on the NYSE on February 19, 2016. |
| |
(4) | The estimated fair value of Plum Creek stock options for pre-merger services rendered. |
The company recognized approximately $110 million and $14 million of unsecuredmerger-related costs that were expensed during the first quarter of 2016 and unsubordinated senior obligations bearing an interest ratethe full year of 4.375 percent due June 15, 20192015, respectively. See Note 15: Charges for Integration and $450Restructuring, Closures, and Asset Impairments for descriptions of the components of merger-related costs. These
The amount of revenue and loss before income taxes from acquired Plum Creek operations included in our Consolidated Statement of Operationsfrom the merger date to March 31, 2016 are as follows: |
| | | |
DOLLAR AMOUNTS IN MILLIONS | MARCH 2016 |
Net sales | $ | 126 |
|
Loss before income taxes | $ | 31 |
|
Summarized unaudited pro forma information that presents combined amounts as if this merger occurred at the beginning of 2015 is as follows:
|
| | | | | | | |
| QUARTER ENDED |
DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURES | MARCH 2016 | | MARCH 2015 |
Net sales | $ | 1,991 |
| | $ | 2,125 |
|
Net earnings attributable to Weyerhaeuser common shareholders | $ | 164 |
| | $ | 103 |
|
Basic earnings per share attributable to Weyerhaeuser common shareholders | $ | 0.21 |
| | $ | 0.13 |
|
Diluted earnings per share attributable to Weyerhaeuser common shareholders | $ | 0.21 |
| | $ | 0.13 |
|
Pro forma net earnings attributable to Weyerhaeuser common shareholders excludes $131 million non-recurring merger-related costs (net of unsecuredtax) incurred in the first quarter of 2016. No non-recurring merger-related costs were incurred during the first quarter of 2015. Pro forma data may not be indicative of the results that would have been obtained had these events occurred at the beginning of the periods presented, nor is it intended to be a projection of future results.
Weyerhaeuser has accounted for the merger transaction as the acquirer and unsubordinated senior obligations bearing an interest ratehas applied the acquisition method of 5.875 percent due June 15, 2024, whichaccounting. Under the acquisition method, the assets acquired and liabilities assumed by Weyerhaeuser from Plum Creek were transferred along with other WRECOrecorded as of the date of the acquisition at their respective estimated fair values.
Our March 31, 2016 consolidated balance sheet includes the assets and liabilities of Plum Creek, which have been measured at fair value as part of the merger date. The fair values of the assets acquired and liabilities assumed were preliminarily determined using the income, cost and market approaches. The fair value measurements were generally based on significant inputs that are not observable in the market and thus represent Level 3 measurements as defined in ASC 820, Fair Value Measurement, with the exception of certain long-term debt instruments assumed in the acquisition that can be valued using observable market inputs and are therefore Level 2 measurements. The income approach was primarily used to value acquired timberlands, minerals and mineral rights, equity investments in the Timberland Venture and Real Estate Divestiture.Development Ventures, and the note payable to the Timberland Venture. The net proceeds after deductingincome approach estimates fair value for an asset based on the discount were $887 million.present value of cash flow projected to be generated by the asset. Projected cash flows are discounted at rates of return that reflect the relative risk of achieving the cash flows and the time value of money. The cost approach, which estimates value by determining the current cost of replacing an asset with another of equivalent economic utility, was used, as appropriate, for property and equipment. The cost to replace a given asset reflects the estimated reproduction or replacement cost for the property, less an allowance for loss in value due to depreciation. The market approach was primarily used to value higher and better use real estate tracts included within acquired timberlands, certain land and building assets included within acquired property and equipment, and long-term debt instruments. The market approach estimates fair value for an asset based on values of recent comparable transactions.
Preliminary estimated fair values of identifiable assets acquired and liabilities assumed as of the acquisition date are as follows:
|
| | | |
DOLLAR AMOUNTS IN MILLIONS | FEBRUARY 19, 2016 |
Current assets | $ | 128 |
|
Timber and timberlands | 8,124 |
|
Minerals and mineral rights | 312 |
|
Property and equipment | 272 |
|
Equity investment in Timberland Venture | 876 |
|
Equity investment in Real Estate Development Ventures | 88 |
|
Other assets | 163 |
|
Total assets acquired | $ | 9,963 |
|
| |
Current liabilities | $ | 610 |
|
Long-term debt | 2,056 |
|
Note Payable to Timberland Venture | 837 |
|
Other liabilities | 77 |
|
Total liabilities assumed | $ | 3,580 |
|
| |
Net assets acquired | $ | 6,383 |
|
These estimated fair values are preliminary in nature and subject to adjustments, which could be material. We have not identified any material unrecorded pre-merger contingencies where the related asset, liability or impairment is probable and the amount can be reasonably estimated. We are currently in the process of finalizing our valuations related to the following:
timber and timberlands,
minerals and mineral rights,
property and equipment,
acquired equity method investments, and
other contractual rights and obligations.
Our valuations will be finalized when certain information arranged to be obtained has been received and our review of that information has been completed. Prior to the finalization of the purchase price allocation, if information becomes available that would indicate it is probable that such events had occurred and the amounts can be reasonably estimated, such items will be included in the final purchase price allocation.
NOTE 4:NET EARNINGS PER SHARE AND SHARE REPURCHASES
NET EARNINGS PER SHARE
Our basic earnings per share attributable to Weyerhaeuser shareholders were:
$0.35 during third quarter and $0.78 during year-to-date 2015; and
$2.17 during third quarter and $2.85 during year-to-date 2014.
Our diluted earnings per share attributable to Weyerhaeuser shareholders were:
$0.350.11 during thirdfirst quarter and $0.77 during year-to-date 2015;2016; and
$2.150.17 during thirdfirst quarter and $2.83 during year-to-date 2014.2015.
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.
Diluted earnings per share is net earnings available to common shareholders divided by the sum of the:
the weighted average number of our outstanding common shares and
the effect of our outstanding dilutive potential common shares.shares:
Dilutive potential common shares can include:outstanding stock options,
restricted stock units,
performance share units and
preference shares. |
| | | | | |
| QUARTER ENDED |
SHARES IN THOUSANDS | MARCH 2016 | | MARCH 2015 |
Weighted average number of outstanding common shares – basic | 632,004 |
| | 523,426 |
|
Dilutive potential common shares: | | | |
Stock options | 2,060 |
| | 2,962 |
|
Restricted stock units | 409 |
| | 415 |
|
Performance share units | 399 |
| | 620 |
|
Preference shares | — |
| | — |
|
Total effect of outstanding dilutive potential common shares | 2,868 |
| | 3,997 |
|
Weighted average number of outstanding common shares – dilutive | 634,872 |
| | 527,423 |
|
We use the treasury stock method to calculate the 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 quarter and year-to-date periods ended September 30, 2015.March 31, 2016. 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 EFFECTPotential Shares Not Included in the Computation of Diluted Earnings per Share
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.
Potential Shares Not Included in the Computation of Diluted Earnings per Share
| | | QUARTER ENDED | | YEAR-TO-DATE ENDED | QUARTER ENDED |
SHARES IN THOUSANDS | SEPTEMBER 2015 | | SEPTEMBER 2014 | | SEPTEMBER 2015 | | SEPTEMBER 2014 | MARCH 2016 | | MARCH 2015 |
Stock options | 6,579 |
| | — |
| | 6,579 |
| | — |
| 6,215 |
| | 1,128 |
|
Performance share units | 351 |
| | — |
| | 351 |
| | — |
| 534 |
| | 358 |
|
Preference shares | 24,987 |
| | 24,988 |
| | 24,987 |
| | 24,988 |
| 25,307 |
| | 24,988 |
|
STOCK REPURCHASE PROGRAMSPROGRAM
On August 13, 2014, our Board of Directors approved a stock repurchase program under which
During first quarter 2016, we are authorized to repurchase up to $700 million of outstanding shares (the 2014 Repurchase Program). We repurchased 3,258,14831,367,541 shares of common stock for $90$863 million during third quarter 2015 and 15,442,231 shares of common stock for $496 million during year-to-date 2015. In total, we have repurchased 21,505,224 shares of common stock for $700 million(including transaction fees) under the 20142016 Share Repurchase Program.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. This new authorization replaced the August 2015 share repurchase authorization. Transaction fees incurred for repurchases are not counted as use of funds authorized for repurchases under the 2016 Share Repurchase Authorization. All common stock purchases under the 2014 Repurchase Program have been made through open-market transactions.
On August 27, 2015, our Board of Directors approved a new sharestock repurchase program of up to $500 million of outstanding shares (the 2015 Repurchase Program), commencing upon completion of the 2014 Repurchase Program.were made in open-market transactions. As of September 30, 2015,March 31, 2016, we had remaining authorization of $1,638 million for future stock repurchases.
We record share repurchases upon trade date as opposed to the settlement date when cash is disbursed. We record a liability to account for repurchases that have not been cash settled. Unsettled repurchases consisted of 2,128,645 shares totaling $66 million as of March 31, 2016. There were no unsettled repurchases as of March 31, 2015, or December 31, 2015.
From April 1, 2016 to April 30, 2016 we repurchased no12,288,096 shares of common stock for $387 million under the 20152016 Share Repurchase Program andAuthorization. As of April 30, 2016, we had remaining authorization of $500 million for future stock repurchases. We had 511,032,862 shares of common stock outstanding as of September 30, 2015.$1,251 million.
NOTE 5:INVENTORIES
Inventories include raw materials, work-in-process and finished goods.
| | DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 30, 2015 |
| DECEMBER 31, 2014 | MARCH 31, 2016 |
| DECEMBER 31, 2015 |
LIFO Inventories: |
|
|
|
|
|
|
|
|
|
|
Logs and chips | $ | 18 |
|
| $ | 9 |
| $ | 28 |
|
| $ | 15 |
|
Lumber, plywood and panels | 57 |
|
| 55 |
| 57 |
|
| 48 |
|
Pulp and paperboard | 119 |
|
| 122 |
| 109 |
|
| 111 |
|
Other products | 13 |
|
| 11 |
| 13 |
|
| 11 |
|
FIFO or moving average cost inventories: |
|
|
|
|
|
|
|
|
|
|
Logs and chips | 32 |
|
| 38 |
| 71 |
|
| 38 |
|
Lumber, plywood, panels and engineered wood products | 77 |
|
| 80 |
| 94 |
|
| 75 |
|
Pulp and paperboard | 28 |
|
| 35 |
| 37 |
|
| 32 |
|
Other products | 96 |
|
| 96 |
| 100 |
|
| 90 |
|
Materials and supplies | 150 |
|
| 149 |
| 168 |
|
| 148 |
|
Total | $ | 590 |
|
| $ | 595 |
| $ | 677 |
|
| $ | 568 |
|
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-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. If we used FIFO for all inventories, our stated inventories would have been higher by $120$123 million as of September 30, 2015March 31, 2016 and $124 millionas of December 31, 2014.2015.
NOTE 6: EQUITY METHOD INVESTMENTS
We use the equity method to account for our investments in various joint ventures. The following tables summarize the current period equity earnings or loss from and our respective balances of our investments in and advances to each of our joint ventures:
|
| | | | | | | |
| QUARTER ENDED |
DOLLAR AMOUNTS IN MILLIONS | MARCH 2016 | | MARCH 2015 |
Equity earnings (loss) from joint ventures: | | | |
Newsprint and publishing papers venture | $ | (2 | ) | | $ | (6 | ) |
Timberland Venture | 5 |
| | — |
|
Real Estate Development Ventures | — |
| | — |
|
Total | $ | 3 |
| | $ | (6 | ) |
| | | |
| MARCH 31, 2016 | | DECEMBER 31, 2015 |
Investment in and advances to joint ventures: | | | |
Newsprint and publishing papers venture | $ | 72 |
| | $ | 74 |
|
Timberland Venture | 852 |
| | — |
|
Real Estate Development Ventures | 87 |
| | — |
|
Total | $ | 1,011 |
| | $ | 74 |
|
There have been no material changes with respect to our newsprint and publishing papers venture as disclosed in our 2015 Annual Report on Form 10-K.
EQUITY METHOD INVESTMENTS ACQUIRED THROUGH OUR MERGER WITH PLUM CREEK
Through our merger with Plum Creek on February 19, 2016, we acquired equity interests in the Real Estate Development Ventures and the Timberland Venture. Additionally, through the merger Weyerhaeuser assumed the benefits and obligations associated with the formation of Twin Creeks Timber, LLC a timberland joint venture (Twin Creeks Venture). The Twin Creeks Venture was funded with initial capital contributions on April 1, 2016.
Real Estate Development Ventures
WestRock-Charleston Land Partners, LLC (WR-CLP) is a limited liability company which holds 21,000 acres of residential and commercial real estate development properties, currently under development (Class A Properties) and 51,000 acres of high-value development lands (Class B Properties) (referred to collectively as the Real Estate Development Ventures). We have a 3% interest in Class A Properties and a 50% interest in Class B Properties. WestRock Company is the other member of WR-CLP and owns 97% of the Class A Properties and 50% of the Class B Properties. The Company uses the equity method of accounting for both its Class A and Class B interests. Our share of the equity earnings are included in the net contribution to earnings of our Real Estate & ENR segment.
Timberland Venture
We hold a preferred and common interest in Southern Diversified Timber, LLC, a timberland joint venture (Timberland Venture), which includes 100% of the preferred interests and 9% of the common interests. The Timberland Venture’s other member, an affiliate of Campbell Global LLC, holds 91% of the Timberland Venture’s common interests. The activities of the Timberland Venture consist primarily of owning timberlands and entering into cutting contracts with an affiliate of Campbell Global for the selling and harvesting of timber. An affiliate of Campbell Global is the manager of the Timberland Venture. Our investment in and share of the equity earnings of the Timberland Venture is not attributed to one of our business segments, and is reported as an Unallocated Item.
The preferred interest is entitled to a cumulative preferred return equal to 7.875% per annum. No distributions can be made on the common interests until all current period and prior period preferred returns have been paid. Both our preferred and common interests are accounted for based on the equity method of accounting. Equity earnings of the Timberland Venture are first allocated to our preferred interest to the extent of our preferred return, with any excess earnings allocated among the common interests based on ownership percentage. All of the equity earnings will be allocated to our preferred interest in years in which our preferred return equals or exceeds the earnings of
the Timberland Venture. To the extent of shortfall in equity earnings (cumulative preferred return in excess of allocated equity earnings), future years’ excess earnings will be allocated to our preferred interest until the cumulative shortfall is eliminated.
The Timberland Venture can be liquidated at any time with the consent of both members. From October 1, 2017 to March 31, 2018 Weyerhaeuser has the sole right to redeem our interest in the Timberland Venture. The other member has a similar redemption right until June 30, 2016. Upon liquidation or redemption, the members’ interests will be adjusted to reflect the fair value of the Timberland Venture’s net assets. The adjustment would first be allocated to our preferred interest to the extent that any accumulated shortfall in net income attributable to our preferred interest exists, but only to the extent that the fair value of the net assets of the Timberland Venture exceed book basis.
Twin Creeks Venture
Prior to our merger, Plum Creek entered into an agreement with third party institutional investors to form the Twin Creeks Venture. Weyerhaeuser assumed the benefits and obligations associated with the Twin Creeks Venture in connection with our merger with Plum Creek. Our initial contribution to the Twin Creeks Venture was made on April 1, 2016. Weyerhaeuser contributed approximately 260,000 acres of timberlands in exchange for a 21% ownership interest and cash of $440 million. The other partners contributed total cash of $440 million for a 79% ownership interest. Our transactions and related activities with Twin Creeks will be reported within our Timberlands business segment.
NOTE 6:7: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
The components of net periodic benefit costs (credits) are:
| | | PENSION | PENSION |
| QUARTER ENDED | | YEAR-TO-DATE ENDED | QUARTER ENDED |
DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2015 | | SEPTEMBER 2014 | | SEPTEMBER 2015 | | SEPTEMBER 2014 | MARCH 2016 | | MARCH 2015 |
Service cost(1) | $ | 14 |
| | $ | 13 |
| | $ | 42 |
| | $ | 40 |
| $ | 13 |
| | $ | 15 |
|
Interest cost | 65 |
| | 67 |
| | 198 |
| | 205 |
| 68 |
| | 65 |
|
Expected return on plan assets | (115 | ) | | (117 | ) | | (354 | ) | | (349 | ) | (123 | ) | | (118 | ) |
Amortization of actuarial loss | 44 |
| | 33 |
| | 135 |
| | 94 |
| 38 |
| | 44 |
|
Amortization of prior service cost | 1 |
| | 1 |
| | 3 |
| | 4 |
| 1 |
| | 1 |
|
Loss due to curtailment and special termination benefits(2) | — |
| | 9 |
| | — |
| | 9 |
| |
Accelerated pension costs included in Plum Creek merger-related costs (Note 15) | | 5 |
| | — |
|
Total net periodic benefit cost (credit) | $ | 9 |
| | $ | 6 |
| | $ | 24 |
| | $ | 3 |
| $ | 2 |
| | $ | 7 |
|
| |
(1) | Service cost includes $2 million year-to-date ended 2014 for employees that were part of the Real Estate Divestiture. These charges are included in our results of discontinued operations. |
|
| | | | | | | |
| OTHER POSTRETIREMENT BENEFITS |
| QUARTER ENDED |
DOLLAR AMOUNTS IN MILLIONS | MARCH 2016 | | MARCH 2015 |
Interest cost | $ | 2 |
| | $ | 3 |
|
Amortization of actuarial loss | 2 |
| | 2 |
|
Amortization of prior service credit | (2 | ) | | (2 | ) |
Total net periodic benefit cost | $ | 2 |
| | $ | 3 |
|
ASSUMED PLANS FROM MERGER WITH PLUM CREEK
Upon our merger with Plum Creek, we assumed one qualified pension plan and two non-qualified pension plans. All active participants in these plans became fully vested and the plans were frozen as of February 19, 2016. The 2014 loss due to curtailment and special termination benefits arecumulative funded status of the assumed plans as of February 19, 2016 was a net liability of $62 million.
The expected return on assets for the qualified plan assumed is 7 percent. Assets of $47 million related to involuntary terminations caused by restructuring activities, as well as the Real Estate Divestiture.
|
| | | | | | | | | | | | | | | |
| OTHER POSTRETIREMENT BENEFITS |
| QUARTER ENDED | | YEAR-TO-DATE ENDED |
DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2015 | | SEPTEMBER 2014 | | SEPTEMBER 2015 | | SEPTEMBER 2014 |
Interest cost | $ | 2 |
| | $ | 3 |
| | $ | 7 |
| | $ | 8 |
|
Amortization of actuarial loss | 2 |
| | 3 |
| | 7 |
| | 9 |
|
Amortization of prior service credit | (2 | ) | | (25 | ) | | (6 | ) | | (120 | ) |
Other | — |
| | — |
| | — |
| | (4 | ) |
Total net periodic benefit cost (credit) | $ | 2 |
| | $ | (19 | ) | | $ | 8 |
| | $ | (107 | ) |
non-qualified plans are held in a grantor trust and are subject to the claims of creditors in the event of bankruptcy. As aDuring fourth quarter 2013, we decided to eliminate post-Medicare health funding for certain salaried retirees after 2014. We recognized a pretax gain of $23 million in third quarter 2014result, these are not considered plan assets and $113 million in year-to-date 2014 from this plan amendment. This gain ishave not been netted against the non-qualified pension liability. These assets are included in "Other operating income, net"assets" in ourConsolidated Statement of OperationsBalance Sheet and reflected in the amortization of prior service credit in the table above..
FAIR VALUE OF PENSION AND OTHER POSTRETIREMENT BENEFIT PLANSPLAN ASSETS AND OBLIGATION
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. We revised the year-end estimated fair value of pension plan assets to incorporate year-end net asset values reflected
As disclosed in financial statements received after we have filed our Annual Report on Form 10-K. During10-K for the year ended December 31, 2015, the value reported for our pension plan assets at the end of 2015 was estimated. Additional information regarding the year-end values generally becomes available to us during the first half of the following year. We expect to complete the valuation of our pension plan assets during second quarter 2015, we recorded an increase2016. The final adjustments could affect net pension periodic benefit cost.
Consistent with accounting for the merger as the acquirer in a business combination (see Note 3: Merger with Plum Creek), pension assets and benefit obligations were remeasured to reflect their fair value as of the date of the acquisition. This included updating asset values, updating discount rates to reflect market conditions as of the date of the merger, and freezing benefit accruals. The fair value of thethese items as of February 19, 2016 were as follows:
$137 million qualified pension plan assets of $57
$149 million or 1 percent. We also revised our census data that is used to estimate ourqualified pension plan projected benefit obligation for
$50 million non-qualified pension and other postretirement benefit plans. As a result of that update, during second quarter 2015, we recorded an increase to theplan projected benefit obligation of $25 million, or less than 1 percent. The net effect was a $32 million increase in the funded status.
EXPECTED CONTRIBUTIONS AND BENEFIT PAYMENTS
We do not anticipate making a contribution to our U.S. qualified pension plan for 2015.
In 20152016 we expect to:
be required to contribute approximately $38$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 millionfor our U.S. nonqualified pension plans; and;
make benefit payments of $25$52 million for our U.S. nonqualified pension plans, including $33 million of benefit payments for plans assumed from Plum Creek to be paid out of assets held in grantor trusts; and
make benefit payments of $22 million for our U.S. and Canadian other postretirement plans.
We do not anticipate making a contribution to our U.S. qualified pension plans for 2016.
NOTE 8: VARIABLE INTEREST ENTITIES
See our Annual Report on Form 10-K for the year ended December 31, 2015 for information regarding Weyerhaeuser's special-purpose entities.
As a result of the acquisition of Plum Creek, we acquired interests in certain joint ventures as described in Note 6: Equity Method Investmentsthat are variable interest entities.
REAL ESTATE DEVELOPMENT VENTURES
WestRock-Charleston Land Partners, LLC (WR-CLP) is a variable interest entity. WR-CLP is financed by regular capital calls from the manager of WR-CLP in proportion to a member’s ownership interest. If a member does not make a capital contribution, the member’s ownership interest is diluted. The company has committed to make additional capital calls of up to $29 million during the years 2016 to 2020. The company does not intend to provide any additional sources of financing for WR-CLP.
Weyerhaeuser is not the primary beneficiary of WR-CLP. We consider the activities that most significantly impact the economic performance of WR-CLP to be the day-to-day operating decisions along with the oversight responsibilities for the real estate development projects and properties. WestRock Company (the other equity member) has the power
to direct the activities of WR-CLP that most significantly impact its economic performance through its ability to manage the day-to-day operations of WR-CLP. WestRock Company also has the ability to control all management decisions associated with all Class A and Class B Properties through its majority representation on the board of directors for the Class A Properties and due to its equal representation on the board of directors for the Class B Properties.
Our maximum exposure to loss is $87 million, the carrying amount of our investment in WR-CLP at March 31, 2016, plus required future capital contributions we make.
TIMBERLAND VENTURE
The Timberland Venture is a variable interest entity. Aside from quarterly interest payments on the Note Payable to Timberland Venture, the company has not provided financing or other support to the venture. The venture generates sufficient cash from operating activities to finance its operations.
We are not the primary beneficiary of the Timberland Venture. The company does not manage the day-to-day operations of the Timberland Venture, has only limited protective rights and its involvement is generally limited to receiving distributions on its preferred and common interests. We are not the primary beneficiary because we do not direct the activities that most significantly impact the Timberland Venture’s economic performance. We believe that the activities that most significantly impact the Timberland Venture’s economic performance include managing the timberlands along with the timing and extent of the harvesting activities, neither of which we control.
Our maximum exposure to loss is $852 million, the carrying amount of the investment at March 31, 2016. Generally, losses are first allocated among the common interests based on positive capital accounts in which we hold a 9% common interest. Losses would be allocated to our preferred interest only when losses have reduced capital accounts comprising the common interests to zero.
NOTE 7:9: ACCRUED LIABILITIES
Accrued liabilities were comprised of the following:
| | DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 30, 2015 | | DECEMBER 31, 2014 | MARCH 31, 2016 | | DECEMBER 31, 2015 |
Wages, salaries and severance pay | $ | 139 |
| | $ | 161 |
| $ | 150 |
| | $ | 150 |
|
Pension and other postretirement benefits | 46 |
| | 47 |
| 79 |
| | 44 |
|
Vacation pay | 46 |
| | 47 |
| 52 |
| | 46 |
|
Taxes – Social Security and real and personal property | 37 |
| | 24 |
| 36 |
| | 24 |
|
Interest | 73 |
| | 105 |
| 100 |
| | 104 |
|
Customer rebates and volume discounts | 43 |
| | 46 |
| 34 |
| | 46 |
|
Deferred income | 68 |
| | 75 |
| 37 |
| | 52 |
|
Other | 102 |
| | 82 |
| 107 |
| | 79 |
|
Total | $ | 554 |
| | $ | 587 |
| $ | 595 |
| | $ | 545 |
|
NOTE 10: LONG-TERM DEBT AND LINES OF CREDIT
This note provides details about our:
long-term debt assumed in the Plum Creek merger and
new term loans issued.
LONG-TERM DEBT ASSUMED IN THE PLUM CREEK MERGER
Through our merger with Plum Creek, Weyerhaeuser assumed long-term debt instruments consisting of:
two issuances of publicly traded Senior Notes,
an Installment Note (defined and described below) and
the Note Payable to Timberland Venture (defined and described below).
Concurrent with the merger, Weyerhaeuser repaid in full the outstanding balances of Plum Creek's Revolving Line of Credit and Term Loan using $720 million of cash on hand.
Senior Notes
The assumed Senior Notes are publicly traded and were issued by Plum Creek Timberlands, L.P. (PC Timberlands) and are fully and unconditionally guaranteed by Weyerhaeuser Company as of the acquisition date. See Note 18: Condensed Consolidating Financial Information for issuer and guarantor financial information. There were two separate issuances of Senior Notes: $569 million (principal) of 4.70% notes which matures in 2021 and $325 million (principal) of 3.25% notes which matures in 2023. The Senior Notes are redeemable prior to maturity; however, they are subject to a premium on redemption, which is based upon interest rates of U.S. Treasury securities having similar average maturities.
Through preliminary acquisition accounting the Senior Notes were recognized at estimated fair values of $614 million for the 4.70% notes and $324 million for the 3.25% notes as of the acquisition date. The differences between cash interest payments and the amounts recorded as interest expense at the effective market rates will reduce the carrying values of the notes to the principal amounts at maturity.
Installment Note
We have assumed an installment note (Installment Note) payable to WestRock Land and Development, LLC (WR LD) that was issued in connection with Plum Creek's acquisition of certain timberland assets. The principal balance of the Installment Note is $860 million. Following the issuance, WR LD pledged the installment note to certain banks in the farm credit system. The annual interest rate on the Installment Note is fixed at 5.207%. Interest is paid semi-annually with the principal due upon maturity in December 2023. The term may be extended at the request of the holder if the company at the time of the request intends to refinance all or a portion of the Installment Note for a term of five years or more. The Installment Note is generally not redeemable prior to maturity except in certain limited circumstances and could be subject to a premium on redemption.
The company receives patronage refunds under the Installment Note. Patronage refunds are distributions of profits from banks in the farm credit system, which are cooperatives that are required to distribute profits to their members. Patronage distributions, which are made in either cash or stock, are received in the year after they were earned and are recorded as offsets to interest expense.
Through preliminary acquisition accounting, the Installment Note was recognized at an estimated fair value of $892 million as of the acquisition date. The difference between the cash interest payments and the amount being recorded as interest expense at the effective market rate will reduce the carrying value of the Installment Note to the principal amount at the maturity date.
Note Payable to Timberland Venture
We have assumed a promissory note payable to Timberland Venture (Note Payable to Timberland Venture) that has a principal balance of $783 million. The annual interest rate on the Note Payable to Timberland Venture is fixed at 7.375%. Interest is paid quarterly with the principal due upon maturity. The note matures on October 1, 2018 but may be extended until October 1, 2020 at the election of Weyerhaeuser. The note is not redeemable prior to maturity.
Through preliminary acquisition accounting, the Note Payable to Timberland Venture was recognized at an estimated fair value of $837 million as of the acquisition date. The difference between the cash interest payments and the amount being recorded as interest expense at the effective market rate will reduce the carrying value of the note to the principal amount at the maturity date.
NEW TERM LOANS ISSUED
During February 2016 and subsequent to completion of the Plum Creek merger, we entered into a $600 million 18-month senior unsecured term loan maturing in August 2017. Borrowings are currently at LIBOR plus 1.05%. As of March 31, 2016 we had $600 million outstanding under this facility.
During March 2016, we entered into a $1.9 billion 18-month senior unsecured term loan maturing in September 2017. Borrowings are currently at LIBOR plus 1.05%. At March 31, 2016, we had $500 million outstanding under this facility.
NOTE 8:11: FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values and carrying values of our long-term debt consisted of the following:
| | | SEPTEMBER 30, 2015 | | DECEMBER 31, 2014 | MARCH 31, 2016 | DECEMBER 31, 2015 |
DOLLAR AMOUNTS IN MILLIONS | 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 |
| | $ | 5,761 |
| | $ | 4,891 |
| | $ | 5,922 |
| |
Long-term Debt – fixed rate | | $ | 6,156 |
| | $ | 6,993 |
| | $ | 4,326 |
| | $ | 5,070 |
|
Long-term Debt – variable rate | | 1,647 |
| | 1,650 |
| | 549 |
| | 550 |
|
Note Payable to Timberland Venture | | 835 |
| | 843 |
| | — |
| | — |
|
Total Debt | | $ | 8,638 |
| | $ | 9,486 |
| | $ | 4,875 |
| | $ | 5,620 |
|
To estimate the fair value of fixed rate long-term debt, we used the following valuation approaches:
market approach – based on quoted market prices we received for the same types and issues of our debt; or
income approach – based on the discounted value of the future cash flows using market yields for the same type and comparable issues of debt.
We believe that our variable rate long-term debt instruments have net carrying values that approximate their fair values with only insignificant differences.
The fair value of the Note Payable to Timberland Venture is estimated using a market approach based on quoted market prices we received for comparable issues of debt.
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:
the short-term nature of these instruments,
carrying short-term investments at expected net realizable value, and
the allowance for doubtful accounts.
NOTE 9:12: LEGAL PROCEEDINGS, COMMITMENTS AND CONTINGENCIES
This note provides details about our:
legal proceedings and
environmental matters.
LEGAL PROCEEDINGS
We are party to various legal proceedings arising in the ordinary course of business. We are not currently a party to any legal proceeding that management believes could have a material adverse effect on our long-term consolidated financial position, results of operations or cash flows. See Note 17: Income Taxes for a discussion of a tax proceeding involving the company and its consolidated subsidiaries.
ENVIRONMENTAL MATTERS
Our environmental matters include:
site remediation and
asset retirement obligations.
Site Remediation
Under the Comprehensive Environmental Response Compensation and Liability Act – 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 from the EPA to negotiate an administrative order on consent for a contaminant removal action for a portion of the site comprising a stretch of the river approximately 1.7 miles long that the EPA refers to as the Otsego Township Dam Area. Several other companies also operated upstream pulp mills, and two other parties received the same invitations. On April 14, 2016, the EPA issued an administrative order to the company and the other parties, the terms and scope of which are generally consistent with the company’s and the other parties’ discussions with the EPA. The company and the other parties expect to jointly implement the administrative order. At this time we do not expect to incur material losses related to the implementation of the administrative order.
As of September 30, 2015,March 31, 2016, our total accrual for future estimated remediation costs on the active Superfund sites and other sites for which we are responsible was approximately $39 million.$37 million. These reserves are recorded in "Accrued liabilities" and "Other liabilities" in our Consolidated Balance Sheet. The accrual has not changed materially since the end of 2015.
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. As of September 30, 2015,March 31, 2016, our total accrualaccrued balance for these obligations was $34$38 million. These obligations are recorded in "Accrued liabilities" and "Other liabilities" in our Consolidated Balance Sheet. The accruals have not changed materially since the end of 2015.
Some of our sites have materials containing asbestos. We have met our current legal obligation to identify and manage these materials. In situations where we cannot reasonably determine when materials containing asbestos might be removed from the sites, we have not recorded an accrual because the fair value of the obligation cannot be reasonably estimated.
NOTE 10:13: CUMULATIVE OTHER COMPREHENSIVE INCOME (LOSS)
Changes in amounts included in our cumulative other comprehensive income (loss) by component are:
| | | | PENSION | OTHER POSTRETIREMENT BENEFITS | | | PENSION | OTHER POSTRETIREMENT BENEFITS | |
DOLLAR AMOUNTS IN MILLIONS | Foreign currency translation adjustments | Actuarial losses | Prior service costs | Actuarial losses | Prior service credits | Unrealized gains on available-for-sale securities | Total | 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 December 31, 2014 | $ | 304 |
| $ | (1,623 | ) | $ | (15 | ) | $ | (108 | ) | $ | 43 |
| $ | 6 |
| $ | (1,393 | ) | |
Beginning balance as of December 31, 2015 | | $ | 207 |
| $ | (1,372 | ) | $ | (11 | ) | $ | (77 | ) | $ | 35 |
| $ | 6 |
| $ | (1,212 | ) |
Other comprehensive income (loss) before reclassifications | (78 | ) | 73 |
| 2 |
| 21 |
| (2 | ) | — |
| 16 |
| 41 |
| (22 | ) | — |
| — |
| — |
| — |
| 19 |
|
Income taxes | — |
| (20 | ) | (1 | ) | (7 | ) | — |
| — |
| (28 | ) | — |
| 6 |
| — |
| — |
| — |
| — |
| 6 |
|
Net other comprehensive income (loss) before reclassifications | (78 | ) | 53 |
| 1 |
| 14 |
| (2 | ) | — |
| (12 | ) | 41 |
| (16 | ) | — |
| — |
| — |
| — |
| 25 |
|
Amounts reclassified from cumulative other comprehensive income (loss)(1) | — |
| 135 |
| 3 |
| 7 |
| (6 | ) | — |
| 139 |
| — |
| 38 |
| 1 |
| 2 |
| (2 | ) | — |
| 39 |
|
Income taxes | — |
| (46 | ) | (1 | ) | (2 | ) | 2 |
| — |
| (47 | ) | — |
| (13 | ) | (1 | ) | (1 | ) | — |
| — |
| (15 | ) |
Net amounts reclassified from cumulative other comprehensive income (loss) | — |
| 89 |
| 2 |
| 5 |
| (4 | ) | — |
| 92 |
| — |
| 25 |
| — |
| 1 |
| (2 | ) | — |
| 24 |
|
Total other comprehensive income (loss) | (78 | ) | 142 |
| 3 |
| 19 |
| (6 | ) | — |
| 80 |
| 41 |
| 9 |
| — |
| 1 |
| (2 | ) | — |
| 49 |
|
Ending balance as of September 30, 2015 | $ | 226 |
| $ | (1,481 | ) | $ | (12 | ) | $ | (89 | ) | $ | 37 |
| $ | 6 |
| $ | (1,313 | ) | |
| |
Ending balance as of March 31, 2016 | | $ | 248 |
| $ | (1,363 | ) | $ | (11 | ) | $ | (76 | ) | $ | 33 |
| $ | 6 |
| $ | (1,163 | ) |
| | |
NOTE 11:14: SHARE-BASED COMPENSATION
In year-to-date 2015,first quarter 2016, we granted 2,122,6086,121,835 stock options, 433,4691,954,796 restricted stock units 238,662(RSUs), 428,794 performance share units (PSUs) and 58,373106,752 stock appreciation rights. In addition, 364,576947,628 outstanding restricted stock unitsRSUs and 241,734268,197 outstanding performance share unitsPSUs vested during year-to-date 2015.first quarter 2016. A total of 1,784,3401,033,647 shares of common stock were issued as a result of restricted stock unitRSU vesting, performance share unitPSU vesting and stock option exercises.
SHARE-BASED COMPENSATION RESULTING FROM OUR MERGER WITH PLUM CREEK
Included in the award activity above are replacement awards granted as a result of the merger with Plum Creek. Eligible outstanding Plum Creek stock options, restricted stock unit 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 1,953,128 stock options and 1,248,006 RSUs. We also assumed 289,910 value management awards (VMAs) through the merger with Plum Creek.
Replacement Stock Option Awards
The replacement stock option awards issued as a result of the merger with Plum Creek have similar exercise provisions as the terms of Weyerhaeuser current awards. All replacement stock option awards were fully vested prior to the date of the merger, so no expense will be recorded by Weyerhaeuser. The value of the replacement stock option awards was $5 million, which was included in the equity consideration issued in the merger as described in Note 3: Merger with Plum Creek.
Replacement Restricted Stock Unit Awards
The replacement RSUs issued as a result of the merger with Plum Creek have similar vesting provisions as the terms of existing Weyerhaeuser restricted stock unit awards. Expense for replacement RSUs will continue to be recognized over the remaining service period unless a qualifying termination occurs. A qualifying termination of an awardee will result in acceleration of vesting and expense recognition in the period that the qualifying termination occurs. Qualifying terminations during the first quarter resulted in accelerated vesting of 501,135 of the replacement RSUs and recognition of $14 million of expense. This accelerated expense is included in merger-related integration costs as described in Note 15: Charges for Integration and Restructuring, Closures and Asset Impairments.
Value Management Awards
Following the merger the VMAs assumed by Weyerhaeuser were valued at target. All outstanding VMAs, if earned, will vest December 31, 2017 and be paid in the first quarter of 2018. The VMAs are classified and accounted for as liabilities, as they will be cash settled upon vesting. The expense recognized over the remaining performance period will equal the cash value of an award as of the last day of the performance period multiplied by the number of awards that are earned. Expense for VMAs will continue to be recognized over the remaining service period unless a qualifying termination occurs. A qualifying termination of an awardee will result in acceleration of vesting and expense recognition in the period that the qualifying termination occurs. Qualifying terminations during the first quarter resulted in $5 million of expense recognized. This accelerated expense is included in merger-related integration costs as described in Note 15: Charges for Integration and Restructuring, Closures and Asset Impairments.
STOCK OPTIONS
The
Excluding replacement awards granted as a result of the merger, the weighted average exercise price of all of the stock options granted to date in 20152016 was $35.41.$23.09. The vesting and post-termination vesting terms for stock options granted to date in 20152016 were as follows:
vest ratably over four years;years, except for the replacement stock option awards granted as a result of the Plum Creek merger, which were fully vested as of the grant date;
vest or continue to vest in the event of death while employed, disability or retirement at an age of at least 62;
continue to vest upon retirement at an age of at least 62, but a portion of the grant is forfeitedforfeits 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.
Weighted Average Assumptions Used in Estimating the Value of Stock Options Granted in 20152016
|
| | | |
| OPTIONS |
Expected volatility | 25.92 | % |
Expected dividend yield | 3.28 | % |
Expected term (in years) | 4.77 |
|
Risk-free rate | 1.54 | % |
Weighted average grant date fair value | $ | 5.85 |
|
|
| | | |
| Stock Options(1) |
Expected volatility | 25.43 | % |
Expected dividends | 5.37 | % |
Expected term (in years) | 4.95 |
|
Risk-free rate | 1.28 | % |
Weighted average grant date fair value |
| $2.73 |
|
| |
(1) | Weighted average assumptions presented do not include the replacement stock options awards issued as consideration for our merger with Plum Creek. |
RESTRICTED STOCK UNITS
The
Excluding replacement awards granted as a result of the merger, the weighted average fair value of the restricted stock units granted in 20152016 was $35.41.$23.09. The vesting provisions for restricted stock units granted in 20152016 were as follows:
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 forfeitedforfeits 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
will be forfeitedforfeit upon termination of employment in all other situations including early retirement prior to age 62.
PERFORMANCE SHARE UNITS
The weighted average grant date fair value of performance share unitsPSUs granted in 20152016 was $34.75.$20.83.
The final number of shares granted in 20152016 will range from 0 percent to 150 percent of each grant's target, depending upon actual company performance.
The ultimate number of performance share units earned is based on twothree measures:
our relative total shareholder return (TSR) ranking measured against the S&P 500 over a three year period andperiod;
our relative TSR ranking measured against an industry peer group of companies over a three year period.period; and
achievement of Plum Creek merger cost synergy targets.
The vesting provisions for performance share units granted in 20152016 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 forfeitedforfeits 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 forfeitedforfeit upon termination of employment in all other situations including early retirement prior to age 62.
Weighted Average Assumptions Used in Estimating the Value of Performance Share Units Granted in 20152016
| | | Performance Share Units | Performance Share Units |
Performance period | 1/1/2015 – 12/31/2017 | | 1/1/2016 – 12/31/2018 | |
Valuation date closing stock price | $ | 35.41 | | $ | 23.09 | |
Expected dividends | 3.26 | % | 5.37 | % |
Risk-free rate | 0.05 | % | – | 1.07 | % | 0.48 | % | – | 0.93 | % |
Expected volatility | 16.04 | % | – | 20.89 | % | 23.57 | % | – | 28.09 | % |
STOCK APPRECIATION RIGHTS
Stock appreciation rights are remeasured to reflect the fair value at each reporting period. The following table shows the weighted average assumptions applied to all outstanding stock appreciation rights as of September 30, 2015.March 31, 2016.
Weighted Average Assumptions Used to Remeasure the Value of Stock Appreciation Rights as of September 30, 2015March 31, 2016
|
| | | |
| Stock Appreciation Rights |
Expected volatility | 21.63 | % |
Expected dividends | 4.39 | % |
Expected term (in years) | 2.11 |
|
Risk-free rate | 0.71 | % |
Weighted average fair value | $ | 6.16 |
|
|
| | | |
| Stock Appreciation Rights |
Expected volatility | 25.15 | % |
Expected dividends | 4.12 | % |
Expected term (in years) | 2.55 |
|
Risk-free rate | 0.98 | % |
Weighted average fair value |
| $7.52 |
|
The vesting and post-termination vesting terms for stock appreciation rights granted in 20152016 are the same as for stock options described above.
NOTE 12:15: CHARGES FOR INTEGRATION AND RESTRUCTURING, CLOSURES AND ASSET IMPAIRMENTS
Items Included in Our Restructuring, Closure and Asset Impairment Charges
|
| | | | | | | | | | | | | | | |
| QUARTER ENDED | | YEAR-TO-DATE ENDED |
DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2015 | | SEPTEMBER 2014 | | SEPTEMBER 2015 | | SEPTEMBER 2014 |
Restructuring and closure charges: |
|
| | | | | | |
Termination benefits | $ | 1 |
| | $ | 2 |
| | $ | 1 |
| | $ | 25 |
|
Pension and postretirement charges | — |
| | 3 |
| | — |
| | 3 |
|
Other restructuring and closure costs | — |
| | 5 |
| | 1 |
| | 8 |
|
Charges for restructuring and closures | 1 |
|
| 10 |
|
| 2 |
|
| 36 |
|
Impairments of long-lived assets | 1 |
| | — |
| | 14 |
| | 1 |
|
Total charges for restructuring, closures and impairments | $ | 2 |
|
| $ | 10 |
|
| $ | 16 |
|
| $ | 37 |
|
|
| | | | | | | |
| QUARTER ENDED |
DOLLAR AMOUNTS IN MILLIONS | MARCH 2016 | | MARCH 2015 |
Integration and restructuring charges related to our merger with Plum Creek: | | | |
Termination benefits | $ | 45 |
| | $ | — |
|
Acceleration of share-based compensation related to qualifying terminations (Note 14) | 19 |
| | — |
|
Acceleration of pension benefits related to qualifying terminations (Note 7) | 5 |
| | — |
|
Professional services | 39 |
| | — |
|
Other integration and restructuring costs | 2 |
| | — |
|
Total integration and restructuring charges related to our merger with Plum Creek | 110 |
| | — |
|
Charges related to closures and other restructuring activities | 7 |
| | 1 |
|
Impairments of long-lived assets | — |
| | 13 |
|
Total charges for integration and restructuring, closures and impairments | $ | 117 |
|
| $ | 14 |
|
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 decisions made subsequent to the merger. We also incurred non-recurring professional services costs for investment banking, legal and consulting, and certain other fees directly attributable to our merger with Plum Creek.
During the first quarter 2015, we recognized a noncash impairment charge of $13 million in first quarter related to a nonstrategic asset held in Unallocated Items that was sold in second quarter.Items. The fair value of the asset was determined using significant unobservable inputs (level 3) based on discounted cash flow model. During 2014, our restructuring and closure charges were primarily related to our selling, general and administrative cost reduction initiative to support achieving our competitive performance goals.
Changes in accrued severance related to restructuring during the year-to-date periodquarter ended September 30, 2015March 31, 2016 were as follows:
| | DOLLAR AMOUNTS IN MILLIONS | Accrued severance as of December 31, 2014 | $ | 10 |
| |
Accrued severance as of December 31, 2015 | | $ | 5 |
|
Charges | 1 |
| 45 |
|
Payments | (9 | ) | (17 | ) |
Accrued severance as of September 30, 2015 | $ | 2 |
| |
Accrued severance as of March 31, 2016 | | $ | 33 |
|
Accrued severance is recorded within the "Wages, salaries and severance pay" component of "Accrued liabilities" on our Consolidated Balance Sheet as detailed in Note 9: Accrued Liabilities. The majority of the accrued severance balance as of September 30, 2015,March 31, 2016, is expected to be paid within one year.
NOTE 13:16: 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.
Items Included in Other Operating Costs (Income)ITEMS INCLUDED IN OTHER OPERATING COSTS (INCOME), NetNET
|
| | | | | | | | | | | | | | | |
| QUARTER ENDED | | YEAR-TO-DATE ENDED |
DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2015 | | SEPTEMBER 2014 | | SEPTEMBER 2015 | | SEPTEMBER 2014 |
Gain on postretirement plan amendment (Note 6) | $ | — |
| | $ | (23 | ) | | $ | — |
| | $ | (113 | ) |
Gain on dispositions of nonstrategic assets | (1 | ) | | (1 | ) | | (7 | ) | | (25 | ) |
Foreign exchange losses, net | 20 |
| | 13 |
| | 41 |
| | 15 |
|
Land management income | (9 | ) | | (9 | ) | | (27 | ) | | (25 | ) |
Other, net | 11 |
| | (3 | ) | | 14 |
| | (15 | ) |
Total other operating costs (income), net | $ | 21 |
| | $ | (23 | ) | | $ | 21 |
| | $ | (163 | ) |
|
| | | | | | | |
| QUARTER ENDED |
DOLLAR AMOUNTS IN MILLIONS | MARCH 2016 | | MARCH 2015 |
Gain on disposition of nonstrategic assets | (36 | ) | | (2 | ) |
Foreign exchange losses (gains), net | (13 | ) | | 29 |
|
Litigation expense, net | 3 |
| | 5 |
|
Other, net | (15 | ) | | (11 | ) |
Total other operating costs (income), net | $ | (61 | ) | | $ | 21 |
|
Gain on dispositionsdisposition of nonstrategic assets in 2014 included a $22$36 million pretax gain recognized in the first quarter 2014of 2016 on the sale of a landfill in Washington State.our Federal Way headquarters campus.
Foreign exchange losses (gains) result from changes in exchange rates, on transactions, primarily related to our Canadian operations.
Land management income includes income from recreational activities, land permits, grazing rights, firewood sales and other miscellaneous income related to land management activities.
NOTE 14:17: INCOME TAXES
As a REIT, we generally are not subject to federal corporate level taxincome taxes on REIT taxable income of the REIT that is distributed to shareholders. We are however, subject to corporate taxes on built-in-gains (the excess of fair market value over tax basis at January 1, 2010) on sales of real property (other than standing timber) held by the REIT during the first 10 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 segmentand Real Estate & ENR segments' income included in the TRS.
The 2015quarterly provision for income taxes is based on the current estimate of the annual effective tax rate. Our 20152016 estimated annual effective tax rate for our TRS is approximately 2432 percent,, which is lower than the U.S. domestic statutory federal tax rate primarily due to favorable permanent tax deductions and lower foreign tax rates applicable to foreign earnings, partially offset by state income taxes.
Following the merger with Plum Creek in the first quarter 2016, our income tax receivables and deferred income tax balances for our TRS have been adjusted to include Plum Creek’s TRS, which include $4 million in federal income tax receivables and $59 million in deferred income tax assets arising from temporary differences between the tax bases and book bases of assets acquired and liabilities assumed in the merger. See Note 3: Merger with Plum Creekfor additional details.
ONGOING IRS MATTER
As of March 31, 2016, Plum Creek's 2008 federal REIT income tax return is being audited by the Internal Revenue Service (“IRS”). The IRS has proposed an adjustment to Plum Creek REIT's U.S. federal income tax treatment of the Timberland Venture formation transaction, which occurred on October 1, 2008, on the basis that the transfer of the timberlands to Southern Diversified Timber, LLC, was a taxable transaction to the company at the time of the transfer rather than a nontaxable capital contribution to the Timberland Venture. The company has filed a protest with IRS Appeals. Based on recent discussions with IRS Appeals, we do not expect to reach a resolution and plan to file a petition in the U.S. Tax Court.
If the IRS's position is upheld on judicial appeal, it could result in a maximum built-in gains tax liability of approximately $100 million. In addition, we could be required to accelerate the distribution to shareholders of up to $600 million of gain from the transaction. We expect that as much as 80% of any such distribution could be made with our common stock, and shareholders would be subject to tax on the distribution at the applicable capital gains tax rate. We would also be required to pay interest on the undistributed gain, which would be substantial, and, if applicable, penalties.
We believe the transfer of the timberlands was a nontaxable contribution to the Timberland Venture and not a taxable transaction. We have not accrued income taxes for financial reporting purposes with respect to this matter. We are confident in our position and believe that the proposed re-characterization of the Timberland Venture formation transaction by the IRS will ultimately be unsuccessful. We intend to vigorously contest this re-characterization.
NOTE 18: CONDENSED CONSOLIDATING FINANCIAL INFORMATION
Plum Creek Timberlands, L.P. (PC Timberlands), a 100% owned subsidiary of Weyerhaeuser Company (WY), is the primary obligor of $894 million in debt securities that are registered under the U.S. Securities Act of 1933. Weyerhaeuser has guaranteed this debt, fully, unconditionally and irrevocably assuming and agreeing to perform, jointly and severally with PC Timberlands, the payment and covenant obligations for the debt.
The following condensed consolidating financial information provides information about: PC Timberlands, as issuer and primary obligor of the registered debt securities; Weyerhaeuser, as guarantor of the registered debt securities; and all other subsidiaries, as required by SEC Rule 3-10 of Regulation S-X (Rule 3-10). This condensed consolidating information was prepared in accordance with US GAAP, with the exception of investments in subsidiaries, which are accounted for using the equity method as required by Rule 3-10.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
|
| | | | | | | | | | | | | | | |
| QUARTER ENDED MARCH 31, 2016 |
DOLLAR AMOUNTS IN MILLIONS | Parent Company – WY | Subsidiary Issuer – PC Timberlands* | Non-Issuer and Non-Guarantor Subsidiaries | Eliminations | Total Company |
Net sales | $ | 186 |
| $ | 27 |
| $ | 1,808 |
| $ | (186 | ) | $ | 1,835 |
|
Costs of products sold | 57 |
| 24 |
| 1,577 |
| (183 | ) | 1,475 |
|
Gross margin | 129 |
| 3 |
| 231 |
| (3 | ) | 360 |
|
Other operating expenses, net | 81 |
| 22 |
| 71 |
| — |
| 174 |
|
Operating income | 48 |
| (19 | ) | 160 |
| (3 | ) | 186 |
|
Non-operating expense, net | (12 | ) | (6 | ) | (67 | ) | — |
| (85 | ) |
Earnings before income taxes | 36 |
| (25 | ) | 93 |
| (3 | ) | 101 |
|
Income taxes | — |
| — |
| (20 | ) | — |
| (20 | ) |
Net earnings | 36 |
| (25 | ) | 73 |
| (3 | ) | 81 |
|
Dividends on preference shares | (11 | ) | — |
| — |
| — |
| (11 | ) |
Net earnings attributable to Weyerhaeuser common shareholders | $ | 25 |
| $ | (25 | ) | $ | 73 |
| $ | (3 | ) | $ | 70 |
|
|
| | | | | | | | | | | | | | | |
| QUARTER ENDED MARCH 31, 2015 |
DOLLAR AMOUNTS IN MILLIONS | Parent Company – WY | Subsidiary Issuer – PC Timberlands* | Non-Issuer and Non-Guarantor Subsidiaries | Eliminations | Total Company |
Net sales | $ | 198 |
| $ | — |
| $ | 1,699 |
| $ | (170 | ) | $ | 1,727 |
|
Costs of products sold | 61 |
| — |
| 1,495 |
| (171 | ) | 1,385 |
|
Gross margin | 137 |
| — |
| 204 |
| 1 |
| 342 |
|
Other operating expenses, net | 19 |
| — |
| 123 |
| — |
| 142 |
|
Operating income | 118 |
| — |
| 81 |
| 1 |
| 200 |
|
Non-operating expense, net | (6 | ) | — |
| (74 | ) | — |
| (80 | ) |
Earnings before income taxes | 112 |
| — |
| 7 |
| 1 |
| 120 |
|
Income taxes | — |
| — |
| (19 | ) | — |
| (19 | ) |
Net earnings | 112 |
| — |
| (12 | ) | 1 |
| 101 |
|
Dividends on preference shares | (11 | ) | — |
| — |
| — |
| (11 | ) |
Net earnings attributable to Weyerhaeuser common shareholders | $ | 101 |
| $ | — |
| $ | (12 | ) | $ | 1 |
| $ | 90 |
|
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
|
| | | | | | | | | | | | | | | |
| QUARTER ENDED MARCH 31, 2016 |
DOLLAR AMOUNTS IN MILLIONS | Parent Company – WY | Subsidiary Issuer – PC Timberlands* | Non-Issuer and Non-Guarantor Subsidiaries | Eliminations | Total Company |
Net earnings (loss) | $ | 36 |
| $ | (25 | ) | $ | 73 |
| $ | (3 | ) | $ | 81 |
|
Other comprehensive income: | | | | | |
Foreign currency translation adjustments | — |
| — |
| 41 |
| — |
| 41 |
|
Actuarial gains, net of tax expense | 2 |
| — |
| 8 |
| — |
| 10 |
|
Prior service costs, net of tax expense | — |
| — |
| (2 | ) | — |
| (2 | ) |
Unrealized gains on available-for-sale securities | — |
| — |
| — |
| — |
| — |
|
Total other comprehensive income | 2 |
| — |
| 47 |
| — |
| 49 |
|
Comprehensive income (loss) | $ | 38 |
| $ | (25 | ) | $ | 120 |
| $ | (3 | ) | $ | 130 |
|
|
| | | | | | | | | | | | | | | |
| QUARTER ENDED MARCH 31, 2015 |
DOLLAR AMOUNTS IN MILLIONS | Parent Company – WY | Subsidiary Issuer – PC Timberlands* | Non-Issuer and Non-Guarantor Subsidiaries | Eliminations | Total Company |
Net earnings (loss) | $ | 112 |
| $ | — |
| $ | (12 | ) | $ | 1 |
| $ | 101 |
|
Other comprehensive income: | | | | | |
Foreign currency translation adjustments | — |
| — |
| (47 | ) | — |
| (47 | ) |
Actuarial gains, net of tax expense | 5 |
| — |
| 57 |
| — |
| 62 |
|
Prior service costs, net of tax expense | — |
| — |
| (2 | ) | — |
| (2 | ) |
Unrealized gains on available-for-sale securities | — |
| — |
| 1 |
| — |
| 1 |
|
Total other comprehensive income | 5 |
| — |
| 9 |
| — |
| 14 |
|
Comprehensive income (loss) | $ | 117 |
| $ | — |
| $ | (3 | ) | $ | 1 |
| $ | 115 |
|
CONDENSED CONSOLIDATING BALANCE SHEET
|
| | | | | | | | | | | | | | | |
| MARCH 31, 2016 |
DOLLAR AMOUNTS IN MILLIONS | Parent Company – WY | Subsidiary Issuer – PC Timberlands* | Non-Issuer and Non-Guarantor Subsidiaries | Eliminations | Total Company |
Cash and cash equivalents | $ | 216 |
| $ | 29 |
| $ | 170 |
| $ | — |
| $ | 415 |
|
Other current assets | 54 |
| 7 |
| 1,359 |
| (5 | ) | 1,415 |
|
Total current assets | 270 |
| 36 |
| 1,529 |
| (5 | ) | 1,830 |
|
Property and equipment, net | 165 |
| 66 |
| 2,532 |
| — |
| 2,763 |
|
Timber and timberlands at cost, net | 3,485 |
| 5,713 |
| 5,373 |
| (23 | ) | 14,548 |
|
Investments in and advances to subsidiaries | 10,896 |
| 4,535 |
| 781 |
| (16,212 | ) | — |
|
Other assets | 88 |
| 143 |
| 3,042 |
| (635 | ) | 2,638 |
|
Total assets | $ | 14,904 |
| $ | 10,493 |
| $ | 13,257 |
| $ | (16,875 | ) | $ | 21,779 |
|
| |
| |
| | | |
Total current liabilities | $ | 141 |
| $ | 59 |
| $ | 785 |
| $ | (1 | ) | $ | 984 |
|
Note payable to Timberland Venture | — |
| — |
| 835 |
| — |
| 835 |
|
Long-term debt | 2,743 |
| 1,829 |
| 3,831 |
| (600 | ) | 7,803 |
|
Other long-term liabilities | 91 |
| 67 |
| 1,718 |
| — |
| 1,876 |
|
Total liabilities | 2,975 |
| 1,955 |
| 7,169 |
| (601 | ) | 11,498 |
|
Equity: | | | | | |
Mandatory convertible preference shares | 14 |
| — |
| — |
| — |
| 14 |
|
Common shares | 948 |
| — |
| — |
| — |
| 948 |
|
Other equity | 10,967 |
| 8,538 |
| 6,088 |
| (16,274 | ) | 9,319 |
|
Total equity | 11,929 |
| 8,538 |
| 6,088 |
| (16,274 | ) | 10,281 |
|
Total liabilities and equity | $ | 14,904 |
| $ | 10,493 |
| $ | 13,257 |
| $ | (16,875 | ) | $ | 21,779 |
|
|
| | | | | | | | | | | | | | | |
| DECEMBER 31, 2015 |
DOLLAR AMOUNTS IN MILLIONS | Parent Company – WY | Subsidiary Issuer – PC Timberlands* | Non-Issuer and Non-Guarantor Subsidiaries | Eliminations | Total Company |
Cash and cash equivalents | $ | 673 |
| $ | — |
| $ | 339 |
| $ | — |
| $ | 1,012 |
|
Other current assets | 7 |
| — |
| 1,161 |
| (6 | ) | 1,162 |
|
Total current assets | 680 |
| — |
| 1,500 |
| (6 | ) | 2,174 |
|
Property and equipment, net | 167 |
| — |
| 2,405 |
| — |
| 2,572 |
|
Timber and timberlands, net | 3,538 |
| — |
| 2,965 |
| (23 | ) | 6,480 |
|
Investments in and advances to subsidiaries | 2,948 |
| — |
| — |
| (2,948 | ) | — |
|
Other assets | 88 |
| — |
| 1,791 |
| (635 | ) | 1,244 |
|
Total assets | $ | 7,421 |
| $ | — |
| $ | 8,661 |
| $ | (3,612 | ) | $ | 12,470 |
|
| | | | | |
Total current liabilities | $ | 66 |
| $ | — |
| $ | 814 |
| $ | (5 | ) | $ | 875 |
|
Long-term debt | 1,645 |
| — |
| 3,830 |
| (600 | ) | 4,875 |
|
Other long-term liabilities | 91 |
| — |
| 1,760 |
| — |
| 1,851 |
|
Total liabilities | 1,802 |
| — |
| 6,404 |
| (605 | ) | 7,601 |
|
Equity: | | | | | |
Mandatory convertible preference shares | 14 |
| — |
| — |
| — |
| 14 |
|
Common shares | 638 |
| — |
| — |
| — |
| 638 |
|
Other equity | 4,967 |
| — |
| 2,257 |
| (3,007 | ) | 4,217 |
|
Total equity | 5,619 |
| — |
| 2,257 |
| (3,007 | ) | 4,869 |
|
Total liabilities and equity | $ | 7,421 |
| $ | — |
| $ | 8,661 |
| $ | (3,612 | ) | $ | 12,470 |
|
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
|
| | | | | | | | | | | | | | | |
| QUARTER ENDED MARCH 31, 2016 |
DOLLAR AMOUNTS IN MILLIONS | Parent Company – WY | Subsidiary Issuer – PC Timberlands* | Non-Issuer and Non-Guarantor Subsidiaries | Eliminations | Total Company |
Net cash from (used in) operations | $ | 29 |
| $ | 25 |
| $ | (7 | ) | $ | — |
| $ | 47 |
|
Net cash from (used in) investing activities: | | | | | |
Capital expenditures | (14 | ) | — |
| (59 | ) | — |
| (73 | ) |
Acquisition of timberlands | — |
| — |
| (6 | ) | — |
| (6 | ) |
Proceeds from sale of assets | — |
| — |
| 70 |
| — |
| 70 |
|
Distributions from joint ventures | — |
| — |
| 24 |
| — |
| 24 |
|
Cash acquired in merger with Plum Creek | — |
| 4 |
| 5 |
| — |
| 9 |
|
Distribution from subsidiaries | 196 |
| — |
| — |
| (196 | ) | — |
|
Net cash from investing activities | 182 |
| 4 |
| 34 |
| (196 | ) | 24 |
|
Net cash from (used in) financing activities: | | | | | |
Net proceeds from issuance of debt | 1,098 |
| — |
| — |
| — |
| 1,098 |
|
Payments on debt | (720 | ) | — |
| — |
| — |
| (720 | ) |
Cash dividends on common shares | (241 | ) | — |
| — |
| — |
| (241 | ) |
Repurchase of common stock | (798 | ) | — |
| — |
| — |
| (798 | ) |
Distribution to parent | — |
| — |
| (196 | ) | 196 |
| — |
|
Other | (7 | ) | — |
| — |
| — |
| (7 | ) |
Net cash used in financing activities | $ | (668 | ) | $ | — |
| $ | (196 | ) | $ | 196 |
| $ | (668 | ) |
|
| | | | | | | | | | | | | | | |
| QUARTER ENDED MARCH 31, 2015 |
DOLLAR AMOUNTS IN MILLIONS | Parent Company – WY | Subsidiary Issuer – PC Timberlands* | Non-Issuer and Non-Guarantor Subsidiaries | Eliminations | Total Company |
Net cash from (used in) operations | $ | (50 | ) | $ | — |
| $ | 137 |
| $ | — |
| $ | 87 |
|
Net cash from (used in) investing activities: | | | | | |
Capital expenditures | (19 | ) | — |
| (70 | ) | — |
| (89 | ) |
Acquisitions of timberlands | (26 | ) | — |
| (6 | ) | — |
| (32 | ) |
Proceeds from sale of assets | — |
| — |
| 2 |
| — |
| 2 |
|
Issuance of note to parent | — |
| — |
| (600 | ) | 600 |
| — |
|
Distribution from subsidiaries | 144 |
| — |
| — |
| (144 | ) | — |
|
Net cash from (used in) investing activities | 99 |
| — |
| (674 | ) | 456 |
| (119 | ) |
Net cash from (used in) financing activities: | | | | | |
Proceeds from note from subsidiary | 600 |
| — |
| — |
| (600 | ) | — |
|
Cash dividends on common shares | (152 | ) | — |
| — |
| — |
| (152 | ) |
Repurchase of common stock | (253 | ) | — |
| — |
| — |
| (253 | ) |
Distribution to parent | — |
| — |
| (144 | ) | 144 |
| — |
|
Other | 11 |
| — |
| 4 |
| — |
| 15 |
|
Net cash from (used in) financing activities | $ | 206 |
| $ | — |
| $ | (140 | ) | $ | (456 | ) | $ | (390 | ) |
* The Subsidiary Issuer – PC Timberlands – was acquired February 19, 2016, and there were no guarantees by Parent Company prior to that date. As such, information is included for this entity from the acquisition date.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (“MD&A”)(MD&A)
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:
are based on various assumptions we make and
may not be accurate because of risks and uncertainties surrounding the assumptions that we make.
Factors listed in this section – as well as other factors not included – may cause our actual results to differ significantly from our forward-looking statements. There is no guarantee that any of the events anticipated by our forward-looking statements will occur. IfOr if any of the events occur, there is no guarantee what effect they will have on our operations or financial condition.
We will not 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 and approximately. They may use the positive or negative or other variation of those and similar words.
STATEMENTS
We make forward-looking statements in this report concerning our plans, strategies, intentions and expectations, including with respect to estimated taxes and tax rates, expectations relating to shares, share repurchases, share compensation, dilution and dividends, expected results of legal proceedings and the sufficiency of litigation reserves, expected uses of cash, expectations relating to pension contributions and benefit payments, and our expectations relating to the U.S. housing market, economic conditions, strength of the U.S. dollar and demand for our products.
We base our forward-looking statements on a number of factors, including the expected effect of:
the economy,
laws and regulations,
adverse litigation outcomes and the adequacy of reserves,
changes in accounting principles,
contributions to pension plans,
projected benefit payments,
projected tax treatment, rates and credits, and
other related matters.
You should understand that it is not possible to predict or identify all such factors and, consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties. Should other risks or uncertainties materialize, or should our underlying assumptions prove inaccurate, actual results could differ materially from past results as well as from our estimated or projected results.
RISKS, UNCERTAINTIES AND ASSUMPTIONS
Major risks and uncertainties – and assumptions that we make – that affect our business and may cause actual results to differ from these forward-looking statements include, but are not limited to:
the effect of general economic conditions, including employment rates, interest rate levels, housing starts, availability of financing for home mortgages and strength of the U.S. dollar;
market demand for our products, including market demand for our timberland properties with higher and better uses, which is related to, among other factors, the strength of the various U.S. business segments and U.S. and international economic conditions;
performance of our manufacturing operations, including maintenance requirements;
potential disruptions in our manufacturing operations;
the level of competition from domestic and foreign producers;
raw material availability and prices;
the effect of weather;
the risk of loss from fires, floods, windstorms, hurricanes, pest infestation and other natural disasters;
energy prices;
the successful execution of our internal plans and strategic 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;
transportation and labor availability and costs;
federal tax policies;policies, interpretations or rulings;
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 retirements and changes in the market price of our common stock on charges for share-based compensation;
changes in accounting principles; and
other factors described under “Risk Factors” in our 20142015 Annual Report on Form 10-K.10-K and in our Registration Statement on Form S-4/A filed on December 23, 2015.
EXPORTING ISSUES
We are a large exporter, affected by:
economic activity in Europe and Asia, especially Japan and China;
currency exchange rates – particularly the relative value of the U.S. dollar, Canadian dollar, euro and yen; and
restrictions on international trade or tariffs imposed on imports.
RESULTS OF OPERATIONS
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.
Net contribution to earnings refers to earnings (loss) attributable to Weyerhaeuser shareholders before interest expense and income taxes.
In reviewing our results of operations, it is important to understand net sales and operating income included in Consolidated Results and individual segment discussions below exclude the results of discontinued operations. Refer to Note 3: Discontinued Operations.In the following discussion, unless otherwise noted, references to increases or decreases in income and expense items, sales realizations, shipment volumes, and net contributions to earnings are based on the quarter and year-to-date periods ended September 30, 2015,March 31, 2016, compared to the quarter and year-to-date periods ended September 30, 2014.March 31, 2015.
ECONOMIC AND MARKET CONDITIONS AFFECTING OUR OPERATIONS
The strength of the U.S. housing market strongly affects our Wood Products and Timberlands segments. As published by the U.S. Census Bureau, total housing starts for 20142015 were slightly above 1,000,0001.11 million units. We continue to expect improving U.S. housing starts and anticipate a level of approximately 1,100,0001.22 million units in 20152016 as a result of employment growth, improving consumer confidence and continued historically low mortgage rates. In Q1 of 2016 housing starts averaged 1.15million total units on a seasonally adjusted annual basis according to the U.S. Census Bureau and single family units averaged 0.79 million as a seasonally adjusted annual rate. This is consistent with expectations for 10% year-over-year growth in total starts. Repair and remodeling activity is also a driver of wood product demand. The Joint Center for Housing of Harvard University is projecting an increase in remodeling expenditures of 8.6% in 2016 over 2015.
Demand for logs from our Timberlands segment is affected by production levels of wood-based building products. US wood product markets advanced in Q1 2016 with rising housing starts and the start of the construction season, unlike Q1 2015 when severe winter weather limited activity. Demand for logs increased with wood products production and log prices were slightly higher in Q1 for western logs. Southern sawlogs were slightly lower in the quarter but pulpwood prices improved. Our Western holdings are also affected by export demand. The Lunar New Year holiday limited construction activity and log demand in the China market in Q1 while Japan saw a rise in housing starts in the first 2 months of 2016 versus year ago levels. Housing starts are a key driver of wood product and log demand in Japan. We expect demand from China and Japan in 20152016 to be lower than 2014.similar to 2015.
Cellulose Fibers is primarily affected by global supply and demand factors and the relative strength of the U.S. dollar. TheIn 2015 the euro declined in 2014 and early 2015 relative to the U.S. dollar to theits lowest level in recent years. In Q1 of 2016 the U.S. dollar/euro relationship stabilized, with the euro strengthening slightly (less than 1%) versus the U.S. dollar compared to Q4 2015. We do not expect the U.S. dollar to continue to strengthen significantly relative to developed currencies during the rest of 2015.2016.
CONSOLIDATED RESULTS
How We Did in ThirdFirst Quarter and Year-to-Date 20152016
NET SALES / OPERATING INCOME / NET EARNINGS |
| | | | | | | | | | | |
| QUARTER ENDED |
| AMOUNT OF CHANGE |
DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURES | MARCH 2016 |
| MARCH 2015 |
| 2016 VS. 2015 |
Net sales | $ | 1,835 |
| | $ | 1,727 |
| | $ | 108 |
|
Cost of products sold | $ | 1,475 |
| | $ | 1,385 |
| | $ | 90 |
|
Operating income | $ | 186 |
| | $ | 200 |
| | $ | (14 | ) |
Net earnings attributable to Weyerhaeuser common shareholders | $ | 70 |
| | $ | 90 |
| | $ | (20 | ) |
Earnings per share attributable to Weyerhaeuser shareholders, basic and diluted | $ | 0.11 |
| | $ | 0.17 |
| | $ | (0.06 | ) |
Comparing First Quarter 2016 with First Quarter 2015
Net sales
Net sales increased $108 million – WEYERHAEUSER COMPANY
Here is a comparison6 percent. Excluding $126 million of net sales operating income andattributable to acquired Plum Creek operations, net earnings for the quarters and year-to-date periods ended September 30, 2015 and 2014:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| QUARTER ENDED |
| AMOUNT OF CHANGE |
| YEAR-TO-DATE ENDED |
| AMOUNT OF CHANGE |
DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURES | SEPTEMBER 2015 |
| SEPTEMBER 2014 |
| 2015 VS. 2014 |
| SEPTEMBER 2015 |
| SEPTEMBER 2014 |
| 2015 VS. 2014 |
Net sales | $ | 1,820 |
| | $ | 1,915 |
| | $ | (95 | ) | | $ | 5,348 |
| | $ | 5,615 |
| | $ | (267 | ) |
Operating income | $ | 259 |
| | $ | 318 |
| | $ | (59 | ) | | $ | 702 |
| | $ | 1,026 |
| | $ | (324 | ) |
Earnings of discontinued operations, net of tax | $ | — |
| | $ | 966 |
| | $ | (966 | ) | | $ | — |
| | $ | 998 |
| | $ | (998 | ) |
Net earnings attributable to Weyerhaeuser common shareholders | $ | 180 |
| | $ | 1,153 |
| | $ | (973 | ) | | $ | 403 |
| | $ | 1,616 |
| | $ | (1,213 | ) |
Basic earnings per share attributable to Weyerhaeuser common shareholders | $ | 0.35 |
| | $ | 2.17 |
| | $ | (1.82 | ) | | $ | 0.78 |
| | $ | 2.85 |
| | $ | (2.07 | ) |
Diluted earnings per share attributable to Weyerhaeuser common shareholders | $ | 0.35 |
| | $ | 2.15 |
| | $ | (1.80 | ) | | $ | 0.77 |
| | $ | 2.83 |
| | $ | (2.06 | ) |
Comparing Third Quarter 2015 with Third Quarter 2014
Net sales
Net sales decreased $95$18 million – 51 percent – primarily dueattributable to the following:
Timberlands segment sales decreased $38$8 million, primarily due to lower average export logrealizations on delivered logs;
Real Estate & ENR segment sales realizationsdecreased $16 million, primarily due to decreases in volume of acres sold and sales volumes in the West.price realized per acre; and
Cellulose Fibers segmentnet sales decreased $32$17 million, primarily due to decreased pulp and liquid packaging board average sales realizations partially offset by increased pulp and liquid packaging board sales volumes.
These decreases were offset by increased sales in our Wood Products segment – $23 million, primarily due to increased sales volumes across most product lines and increased sales realizations for oriented strand board and engineered solid sections.
Cost of products sold
Cost of products sold increased $90 million – 6 percent. Excluding $103 million of cost of products sold attributable to acquired Plum Creek operations, cost of products sold decreased $13 million, primarily attributable to the following:
Real Estate & ENR cost of products sold decreased $8 million, primarily due to a decrease in acreage sold;
Cellulose Fibers cost of products sold decreased $8 million, primarily due to lower average sales realizations for pulp and liquid packaging board,maintenance spending on scheduled outages and lower sales volumes for pulp. per unit chemical and energy costs in our pulp manufacturing business; and
Costs of products sold from Unallocated Items decreased $13 million primarily due to a decrease in elimination of intersegment profit in inventory and LIFO and lower pension expense.
These decreases were partially offset by the following:
Timberlands cost of products sold increased $6 million in the West, primarily due to higher sales volumes for liquid packaging board.operating costs from increased log purchases; and
Wood Products segment sales decreased $25products cost of products sold increased $5 million primarily due to lower averageincreased sales realizations for structural lumbervolumes in all product lines.
Operating income
Operating income decreased $14 million – 7 percent. Excluding $24 million of operating loss attributable to acquired Plum Creek operations, operating income increased $10 million – 5 percent primarily due to the following:
a pretax gain related to the sale of our Federal Way headquarters campus – $36 million; and oriented strand board (OSB).
gain on noncash foreign exchange on debt held by our Canadian entity – $42 million.
These decreasesincreases were partially offset by higher structural lumber, OSB, engineered solid section, and engineered I-joists shipment volumes, and higher sales from complementary building products.$67 million of charges related to the Plum Creek merger.
Net earnings attributable to Weyerhaeuser common shareholders
Our net earnings attributable to Weyerhaeuser common shareholders decreased $973$20 million – 8422 percent. Excluding $31 million of net losses attributable to acquired Plum Creek operations, net earnings increased $11 million – 12 percent – primarily dueattributable to the following:
earnings from discontinued operations recognized in 2014 – $966 million. There were no earnings from discontinued operations in 2015.
lower gross margin – $36 million – primarily due to lower averagenet sales, realizations in lumbercosts of products sold and OSB in our Wood Products segment and lower average log sales realizations and timberlands exchanges in our Timberlands segment, partially offset by decreased scheduled maintenance outage days in our Cellulose Fibers segment; and
lower other operating income – $44 million – primarily due to a $23 million pretax gain recognized in 2014 related to a previously announced postretirement plan amendment.
These decreases were partially offset by:
lower tax expense – $55 million – primarily due to lower earnings in our Taxable REIT Subsidiary (TRS); and
lower selling, general and administrative expenses – $14 million.explained above.
Comparing Year-to-Date 2015 with Year-to-Date 2014
Net sales decreased $267 million – 5 percent – primarily due to the following:
Timberlands segment sales decreased $125 million, primarily due to lower average log sales realizations and export sales volumes in the West, and lower log sales volumes in the South.
Wood Products segment sales decreased $73 million, primarily due to lower average sales realizations for structural lumber and OSB, partially offset by higher structural lumber, OSB, and engineered solid section shipment volumes, and higher sales from complementary building products.
Cellulose Fibers segment sales decreased $69 million, primarily due to lower sales volumes for pulp and other products, and lower average sales realizations for liquid packaging board and pulp.
Net earnings attributable to Weyerhaeuser common shareholders
Our net earnings attributable to Weyerhaeuser common shareholders decreased $1,213 million – 75 percent – primarily due to the following:
earnings from discontinued operations recognized in 2014 – $998 million. There were no earnings from discontinued operations in 2015.
lower gross margin – $207 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 increased scheduled maintenance outage days in our Cellulose Fibers segment; and
lower other operating income – $184 million – primarily due to a $113 million pretax gain recognized in 2014 related to a previously announced postretirement plan amendment, a $22 million pretax gain recognized in 2014 on the sale of a landfill in Washington State and a $24 million increase in 2015 in noncash foreign exchange losses on debt held by our Canadian entity.
These decreases were partially offset by:
lower tax expense – $132 million – primarily due to lower earnings in our TRS; and
lower selling, general and administrative expenses – $44 million.TIMBERLANDS
TIMBERLANDS
How We Did ThirdFirst Quarter and Year-to-Date 2015
Here is a comparison of net sales to unaffiliated customers, intersegment sales, and net contribution to earnings for the quarters and year-to-date periods ended September 30, 2015 and 2014:
NET SALES / NET CONTRIBUTION TO EARNINGS – TIMBERLANDS2016
| | | QUARTER ENDED | | AMOUNT OF CHANGE | | YEAR-TO-DATE ENDED | | AMOUNT OF CHANGE | QUARTER ENDED | | AMOUNT OF CHANGE |
DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2015 | | SEPTEMBER 2014 | | 2015 VS. 2014 | | SEPTEMBER 2015 | | SEPTEMBER 2014 | | 2015 VS. 2014 | MARCH 2016 | | MARCH 2015 | | 2016 VS. 2015 |
Net sales to unaffiliated customers: | | | | | | | | | | | | | | | | |
Logs: | | | | | | | | | | | | |
Delivered logs(1): | | | | | | |
West | $ | 196 |
| | $ | 227 |
| | $ | (31 | ) | | $ | 627 |
| | $ | 745 |
| | $ | (118 | ) | $ | 215 |
| | $ | 210 |
| | $ | 5 |
|
South | 64 |
| | 69 |
| | (5 | ) | | 180 |
| | 191 |
| | (11 | ) | 101 |
| | 58 |
| | 43 |
|
North | | 13 |
| | — |
| | 13 |
|
Canada | 6 |
| | 5 |
| | 1 |
| | 17 |
| | 12 |
| | 5 |
| 7 |
| | 8 |
| | (1 | ) |
Subtotal logs sales | 266 |
| | 301 |
| | (35 | ) | | 824 |
| | 948 |
| | (124 | ) | |
Chip sales | 4 |
| | 4 |
| | — |
| | 12 |
| | 9 |
| | 3 |
| |
Timberlands exchanges(1) | 12 |
| | 17 |
| | (5 | ) | | 42 |
| | 49 |
| | (7 | ) | |
Higher and better-use land sales(1) | 4 |
| | 4 |
| | — |
| | 9 |
| | 14 |
| | (5 | ) | |
Minerals, oil and gas | 7 |
| | 10 |
| | (3 | ) | | 19 |
| | 25 |
| | (6 | ) | |
Subtotal delivered logs sales | | 336 |
| | 276 |
| | 60 |
|
Stumpage and pay-as-cut timber | | 15 |
| | 4 |
| | 11 |
|
Products from international operations(2) | 20 |
| | 22 |
| | (2 | ) | | 69 |
| | 72 |
| | (3 | ) | 16 |
| | 24 |
| | (8 | ) |
Other products | 13 |
| | 6 |
| | 7 |
| | 38 |
| | 21 |
| | 17 |
| |
Recreational and other lease revenue
| | 6 |
| | 6 |
| | — |
|
Other | | 14 |
| | 13 |
| | 1 |
|
Subtotal net sales to unaffiliated customers | 326 |
| | 364 |
| | (38 | ) | | 1,013 |
| | 1,138 |
| | (125 | ) | 387 |
| | 323 |
| | 64 |
|
Intersegment sales: | | | | | | | | | | | | | | | | |
United States | 138 |
| | 141 |
| | (3 | ) | | 426 |
| | 427 |
| | (1 | ) | 144 |
| | 149 |
| | (5 | ) |
Other | 72 |
| | 77 |
| | (5 | ) | | 199 |
| | 215 |
| | (16 | ) | 78 |
| | 79 |
| | (1 | ) |
Subtotal intersegment sales | 210 |
| | 218 |
| | (8 | ) | | 625 |
|
| 642 |
| | (17 | ) | 222 |
| | 228 |
| | (6 | ) |
Total sales | $ | 536 |
| | $ | 582 |
| | $ | (46 | ) | | $ | 1,638 |
| | $ | 1,780 |
| | $ | (142 | ) | $ | 609 |
| | $ | 551 |
| | $ | 58 |
|
Net contribution to earnings | $ | 126 |
| | $ | 136 |
| | $ | (10 | ) | | $ | 415 |
| | $ | 470 |
| | $ | (55 | ) | |
Cost of products sold | | $ | 459 |
| | $ | 395 |
| | $ | 64 |
|
Operating income and Net contribution to earnings | | $ | 129 |
| | $ | 139 |
| | $ | (10 | ) |
| |
(1) | Significant dispositions of higherThe Western region includes Washington and better-use timberlandOregon. The Southern region includes Virginia, North Carolina, South Carolina, Florida, Georgia, Alabama, Mississippi, Louisiana, Arkansas, Texas and some nonstrategic timberlands are made through subsidiaries.Oklahoma. The Northern region includes West Virginia, Maine, New Hampshire, Vermont, Michigan, Wisconsin and Montana. |
| |
(2) | Includes logs, plywood and hardwood lumber harvested or produced by our international operations. Includes sales of our operations in Uruguay and Brazil (sold in third quarter 2014).Uruguay. |
23Comparing First Quarter 2016 with First Quarter 2015
Comparing Third Quarter 2015 with Third Quarter 2014
Net sales – unaffiliated customers
Net sales to unaffiliated customers increased $64 million – 20 percent. Excluding $72 million of net sales attributable to acquired Plum Creek timberlands operations, net sales to unaffiliated customers decreased $38$8 million – 102 percent – primarily due to a $31 million decreaseto:
lower realizations on delivered logs in Western logthe West and the South;
lower sales as a result of volumes in the South; and
lower average export sales realizationsin our Uruguay operations.
These decreases were partially offset by:
higher sales volumes in the West; and sales volumes.
higher stumpage and pay-as-cut timber sales.
Intersegment sales
Intersegment sales decreased $8$6 million – 3 percent. Excluding intersegment sales from Plum Creek timberlands operations of $4 million, intersegment sales decreased $10 million – 4 percent – primarily due to an $5 million decreaseto:
lower realizations on delivered logs in Canada as a result of lower translated revenuesthe West and the South due to mix; and
lower sales volumes in the strengthening U.S. dollar.South.
These decreases were partially offset by higher sales volumes in the West.
Cost of products sold
Cost of products sold increased $64 million – 16 percent. Excluding $58 million of costs attributable to acquired Plum Creek operations, costs of products sold increased $6 million – 2 percent – primarily due to higher operating costs in the West from increased log purchases.
Operating income and Net contribution to earnings
Operating income and Net contribution to earnings decreased $10 million – 7 percent – primarily duepercent. Excluding $7 million of income attributable to the following:
lower average log sales realizations in the West – $16 million and
lower timberlands exchanges – $6 million.
These decreases were partially offset by lower logging and silviculture costs in the South – $11 million.
Comparing Year-to-Date 2015 with Year-to-Date 2014
Net sales – unaffiliated customers
Net sales to unaffiliated customersacquired Plum Creek operations, operating income decreased $125 million – 11 percent – primarily due to a $118 million decrease in Western log sales as a result of lower average sales realizations and export sales volumes, and an $11 million decrease in Southern log sales due to lower sales volumes.
Intersegment sales
Intersegment sales decreased $17 million – 3 percent – primarily due to a $16 million decrease in Canada as a result of lower log and chip sales volumes and lower translated revenues due to the strengthening U.S. dollar.
Net contribution to earnings
Net contribution to earnings decreased $55 million – 12 percent – primarily dueattributable to the following:
lower average lognet sales realizations in the West – $82 million,
lower sales volumes in the West and South – $30 million, and
lower timberlands exchanges – $12 million.
These decreases were partially offset by:
lower operating costs primarily due to lower logging and silviculture costs in the South and lower log purchases in the West – $49 million;
higher average sales realizations in the South – $13 million; and
lower selling, general and administrative expenses – $10 million.of products sold explained above.
THIRD-PARTY LOG SALES VOLUMES AND FEE HARVEST VOLUMES
|
| | | | | | | | | | | | | | | | | |
| QUARTER ENDED | | AMOUNT OF CHANGE | | YEAR-TO-DATE ENDED | | AMOUNT OF CHANGE |
VOLUMES IN THOUSANDS | SEPTEMBER 2015 | | SEPTEMBER 2014 | | 2015 VS. 2014 | | SEPTEMBER 2015 | | SEPTEMBER 2014 | | 2015 VS. 2014 |
Third party log sales – cubic meters: | | | | | | | | | | | |
West | 2,104 |
| | 2,223 |
| | (119 | ) | | 6,554 |
| | 6,859 |
| | (305 | ) |
South | 1,396 |
| | 1,500 |
| | (104 | ) | | 3,962 |
| | 4,224 |
| | (262 | ) |
Canada | 159 |
| | 152 |
| | 7 |
| | 479 |
| | 338 |
| | 141 |
|
International | 175 |
| | 170 |
| | 5 |
| | 504 |
| | 456 |
| | 48 |
|
Total | 3,834 |
| | 4,045 |
| | (211 | ) | | 11,499 |
| | 11,877 |
| | (378 | ) |
Fee harvest volumes – cubic meters: | | | | | | | | | | | |
West | 2,666 |
| | 2,656 |
| | 10 |
| | 8,388 |
| | 8,419 |
| | (31 | ) |
South | 3,008 |
| | 2,950 |
| | 58 |
| | 8,652 |
| | 8,531 |
| | 121 |
|
International | 200 |
| | 232 |
| | (32 | ) | | 658 |
| | 730 |
| | (72 | ) |
Total | 5,874 |
| | 5,838 |
| | 36 |
| | 17,698 |
| | 17,680 |
| | 18 |
|
|
| | | | | | | | |
| QUARTER ENDED | | AMOUNT OF CHANGE |
VOLUMES IN THOUSANDS | MARCH 2016 | | MARCH 2015 | | 2016 VS. 2015 |
Third party log sales – tons (1): | | | | | |
West (1.056 cubic meters = 1 ton) | 2,133 |
| | 2,008 |
| | 125 |
|
South (0.818 cubic meters = 1 ton) | 2,844 |
| | 1,555 |
| | 1,289 |
|
North | 210 |
| | — |
| | 210 |
|
Canada (1.244 cubic meters = 1 ton) | 169 |
| | 196 |
| | (27 | ) |
Uruguay (0.907 cubic meters = 1 ton) | 146 |
| | 165 |
| | (19 | ) |
Total | 5,502 |
| | 3,924 |
| | 1,578 |
|
Fee harvest volumes – tons (1): | | | | | |
West (1.056 cubic meters = 1 ton) | 2,801 |
| | 2,757 |
| | 44 |
|
South (0.818 cubic meters = 1 ton) | 5,030 |
| | 3,341 |
| | 1,689 |
|
North | 260 |
| | — |
| | 260 |
|
Uruguay (0.907 cubic meters = 1 ton) | 299 |
| | 263 |
| | 36 |
|
Total | 8,390 |
| | 6,361 |
| | 2,029 |
|
| |
(1) | Beginning in the first quarter of 2016, we will report log sales and fee harvest volumes in tons. Prior period volumes have been converted from cubic meters to tons using annualized 2015 conversion factors. |
WOOD PRODUCTS
REAL ESTATE, ENERGY & NATURAL RESOURCES
How We Did ThirdFirst Quarter and Year-to-Date 2016
|
| | | | | | | | | | | |
| QUARTER ENDED | | AMOUNT OF CHANGE |
DOLLAR AMOUNTS IN MILLIONS | MARCH 2016 | | MARCH 2015 | | 2016 VS. 2015 |
Net sales: | | | | | |
Real estate | $ | 30 |
| | $ | 27 |
| | $ | 3 |
|
Energy and natural resources | 9 |
| | 7 |
| | 2 |
|
Total | $ | 39 |
| | $ | 34 |
| | $ | 5 |
|
Cost of products sold | $ | 20 |
| | $ | 10 |
| | $ | 10 |
|
Operating income | $ | 15 |
| | $ | 23 |
| | $ | (8 | ) |
Equity earnings from joint venture | — |
| | — |
| | — |
|
Net contribution to earnings | $ | 15 |
| | $ | 23 |
| | $ | (8 | ) |
Comparing FirstQuarter 2016 with First Quarter 2015
Here is a comparison
Net sales
Net sales increased $5 million – 15 percent. Excluding $21 million of net sales attributable to unaffiliated customersacquired Plum Creek operations, net sales decreased $16 million – 47 percent.
Net real estate sales decreased $14 million – 52 percent – attributable to decreases in volume of acres sold and price realized per acre for timberlands sales.
Net energy and natural resources sales decreased $2 million – 29 percent – primarily due to lower oil and natural gas prices.
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 expectation 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.
Cost of products sold
Cost of products sold increased $10 million – 100 percent. Excluding the $18 million of costs of products sold attributable to acquired Plum Creek operations, cost of products sold decreased $8 million – 80 percent – primarily due to a decrease in real estate acreage sold.
Operating income and Net contribution to earnings
Operating income and Net contribution to earnings for the quarter decreased $8 million – 35 percent. Excluding $2 million of operating income attributable to acquired Plum Creek operations, operating income decreased $10 million – 43 percent – attributable to net sales and costs of products sold explained above.
WOOD PRODUCTS
How We Did First Quarter 2016
|
| | | | | | | | | | | |
| QUARTER ENDED | | AMOUNT OF CHANGE |
DOLLAR AMOUNTS IN MILLIONS | MARCH 2016 | | MARCH 2015 | | 2016 VS. 2015 |
Net sales: | | | | | |
Structural lumber | $ | 419 |
| | $ | 434 |
| | $ | (15 | ) |
Engineered solid section | 109 |
| | 94 |
| | 15 |
|
Engineered I-joists | 66 |
| | 61 |
| | 5 |
|
Oriented strand board | 163 |
| | 137 |
| | 26 |
|
Medium density fiberboard | 20 |
| | — |
| | 20 |
|
Softwood plywood | 35 |
| | 33 |
| | 2 |
|
Other products produced | 46 |
| | 48 |
| | (2 | ) |
Complementary building products | 121 |
| | 116 |
| | 5 |
|
Total | $ | 979 |
| | $ | 923 |
| | $ | 56 |
|
Cost of products sold | $ | 862 |
| | $ | 829 |
| | $ | 33 |
|
Operating income and Net contribution to earnings | $ | 87 |
| | $ | 62 |
| | $ | 25 |
|
Upon our merger with Plum Creek, we acquired five manufacturing facilities in western Montana. The sales and net contribution to earnings of these entities from the acquisition date to the end of the quarter are included in the results of our Wood Products segment. The results of the two plywood facilities are reported as softwood plywood and the two lumber facilities are reported as structural lumber.
The Medium Density Fiberboard ("MDF") facility supplies high-quality MDF to a wide range of customers throughout North America. Some of the more common uses for the quartersour MDF include furniture and year-to-date periods ended September 30, 2015cabinet components, architectural moldings, doors, stores fixtures, core material for hardwood plywood, face material for softwood plywood, commercial wall paneling and 2014:substrate for laminate flooring.
NET SALES / NET CONTRIBUTION TO EARNINGS – WOOD PRODUCTS
|
| | | | | | | | | | | | | | | | | | | | | | | |
| QUARTER ENDED | | AMOUNT OF CHANGE | | YEAR-TO-DATE ENDED | | AMOUNT OF CHANGE |
DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2015 | | SEPTEMBER 2014 | | 2015 VS. 2014 | | SEPTEMBER 2015 | | SEPTEMBER 2014 | | 2015 VS. 2014 |
Net sales: | | | | | | | | | | | |
Structural lumber | $ | 455 |
| | $ | 500 |
| | $ | (45 | ) | | $ | 1,339 |
| | $ | 1,442 |
| | $ | (103 | ) |
Engineered solid section | 116 |
| | 104 |
| | 12 |
| | 323 |
| | 308 |
| | 15 |
|
Engineered I-joists | 79 |
| | 74 |
| | 5 |
| | 216 |
| | 214 |
| | 2 |
|
Oriented strand board | 151 |
| | 157 |
| | (6 | ) | | 435 |
| | 464 |
| | (29 | ) |
Softwood plywood | 33 |
| | 42 |
| | (9 | ) | | 102 |
| | 107 |
| | (5 | ) |
Other products produced | 49 |
| | 45 |
| | 4 |
| | 145 |
| | 132 |
| | 13 |
|
Complementary building products | 140 |
| | 126 |
| | 14 |
| | 390 |
| | 356 |
| | 34 |
|
Total | $ | 1,023 |
| | $ | 1,048 |
| | $ | (25 | ) | | $ | 2,950 |
|
| $ | 3,023 |
| | $ | (73 | ) |
Net contribution to earnings | $ | 85 |
| | $ | 105 |
| | $ | (20 | ) | | $ | 218 |
| | $ | 271 |
| | $ | (53 | ) |
Comparing ThirdFirst Quarter 2016 with First Quarter 2015 with Third Quarter 2014
Net sales
Net sales decreased $25increased $56 million – 6 percent. Excluding $33 million of net sales attributable to acquired Plum Creek operations, net sales increased $23 million – 2 percent – primarily due to the following:
Structural lumber average sales realizations decreased 14 percent,
OSB average sales realizations decreased 10 percent, and
Softwood plywood average sales realizations decreased 13 percent and shipment volumes decreased 9 percent.
These items were partially offset by:to:
a 5 percent increase in structural lumber shipment volumes,
an 11 percent increase in sales of complementary building products,
a 6 percent increase in OSB shipment volumes,
a 1016 percent increase in engineered solid section shipment volumes,volumes;
a 9 percent increase in engineered I-joist shipment volumes;
an 8 percent increase in OSB shipment volumes;
a 5 percent increase in complementary building product sales;
a 9 percent increase in OSB average sales realizations; and
a 6 percent increase in engineered I-joistslumber shipment volumes.
Net contribution to earnings
Net contribution to earnings decreased $20 million – 19 percent – primarily due to lower average sales realizations in lumber and OSB – $83 million. This decrease was mostly offset by:
higher sales volumes across all major product lines – $9 million;
lower unit manufacturing costs due to lower resin costs, higher operating rates, and lower translated Canadian operating costs due to the strengthening U.S. dollar – $22 million;
lower log costs due to decreasing log prices – $13 million;
lower freight costs due to declining fuel prices – $8 million; and
lower selling, general and administrative expenses – $9 million.
Comparing Year-to-Date 2015 with Year-to-Date 2014
Net sales
Net sales decreased $73 million – 2 percent – primarily due to the following:
Structural lumber average sales realizations decreased 10 percent and
OSB average sales realizations decreased 13 percent.
These items were partially offset by:
a 3 percent increase in structural lumber shipment volumes,
an 8 percent increase in OSB shipment volumes,
a 10 percent increasedecrease in lumber average sales of complementary building products,realizations and
a 320 percent increasedecrease in engineered solid section shipment volumes.plywood average sales realizations.
Net contribution to earnings
Net contribution to earnings decreased $53Cost of products sold
Cost of products sold increased $33 million – 204 percent. Excluding $28 million of costs of products sold attributable to acquired Plum Creek operations, cost of products sold increased $5 million – 1 percent – primarily due to lower averageincreased sales realizationsvolume in lumber and OSB – $212 million. This decrease was mostly offset by:
higher sales volumes across mostall product lines, – $13 million;
partially offset by lower unitlog, resin and manufacturing costs dueper unit.
Operating income and Net contribution to lower resinearnings
Operating income and other input costs, higherNet contribution to earnings increased $25 million – 40 percent. Excluding $5 million of income attributable to acquired Plum Creek operations, operating rates,income and lower translated Canadian operating costs duenet contribution to earnings increased $20 million. The increase is attributable to the strengthening U.S. dollar – $71 million;
lower logchanges in net sales and costs due to decreasing log prices – $31 million;
lower freight costs due to declining fuel prices – $13 million; and
lower selling, general and administrative expenses – $25 million.of products sold as explained above.
THIRD-PARTY SALES VOLUMES
| | | QUARTER ENDED | | AMOUNT OF CHANGE | | YEAR-TO-DATE ENDED | | AMOUNT OF CHANGE | QUARTER ENDED | | AMOUNT OF CHANGE |
VOLUMES IN MILLIONS(1) | SEPTEMBER 2015 | | SEPTEMBER 2014 | | 2015 VS. 2014 | | SEPTEMBER 2015 | | SEPTEMBER 2014 | | 2015 VS. 2014 | MARCH 2016 | | MARCH 2015 | | 2016 VS. 2015 |
Structural lumber – board feet | 1,224 |
| | 1,162 |
| | 62 |
| | 3,474 |
| | 3,357 |
| | 117 |
| 1,152 |
| | 1,075 |
| | 77 |
|
Engineered solid section – cubic feet | 5.6 |
| | 5.1 |
| | 0.5 |
| | 16 |
| | 15.5 |
| | 0.5 |
| 5.5 |
| | 4.8 |
| | 0.7 |
|
Engineered I-joists – lineal feet | 52 |
| | 49 |
| | 3 |
| | 143 |
| | 144 |
| | (1 | ) | 44 |
| | 41 |
| | 3 |
|
Oriented strand board – square feet (3/8”) | 778 |
| | 732 |
| | 46 |
| | 2,249 |
| | 2,079 |
| | 170 |
| 759 |
| | 700 |
| | 59 |
|
Medium density fiberboard – square feet (3/4") | | 30 |
| | — |
| | 30 |
|
Softwood plywood – square feet (3/8”) | 100 |
| | 110 |
| | (10 | ) | | 290 |
| | 302 |
| | (12 | ) | 110 |
| | 89 |
| | 21 |
|
| |
(1) | Sales volumes include sales of internally produced products and products purchased for resale primarily through our distribution business. |
PRODUCTION AND OUTSIDE PURCHASE VOLUMES
Outside purchase volumes are primarily purchased for resale through our distribution business. Production volumes are produced for sale through our own sales organizations and through our distribution business. Production of OSB and engineered solid section are also used to manufacture engineered I-joists.
| | | QUARTER ENDED | | AMOUNT OF CHANGE | | YEAR-TO-DATE ENDED | | AMOUNT OF CHANGE | QUARTER ENDED | | AMOUNT OF CHANGE |
VOLUMES IN MILLIONS | SEPTEMBER 2015 | | SEPTEMBER 2014 | | 2015 VS. 2014 | | SEPTEMBER 2015 | | SEPTEMBER 2014 | | 2015 VS. 2014 | MARCH 2016 | | MARCH 2015 | | 2016 VS. 2015 |
Structural lumber – board feet: | | | | | | | | | | | | | | | | |
Production | 1,087 |
| | 1,049 |
| | 38 |
| | 3,217 |
| | 3,139 |
| | 78 |
| 1,129 |
| | 1,043 |
| | 86 |
|
Outside purchase | 92 |
| | 91 |
| | 1 |
| | 279 |
| | 251 |
| | 28 |
| 56 |
| | 89 |
| | (33 | ) |
Total | 1,179 |
| | 1,140 |
| | 39 |
| | 3,496 |
| | 3,390 |
| | 106 |
| 1,185 |
| | 1,132 |
| | 53 |
|
Engineered solid section – cubic feet: | | | | | | | | | | | | | | | | |
Production | 5.2 |
| | 5.2 |
| | — |
| | 15.8 |
| | 15.8 |
| | — |
| 5.6 |
| | 5.0 |
| | 0.6 |
|
Outside purchase | — |
| | — |
| | — |
| | — |
| | 2.3 |
| | (2.3 | ) | — |
| | — |
| | — |
|
Total | 5.2 |
| | 5.2 |
| | — |
| | 15.8 |
| | 18.1 |
| | (2.3 | ) | 5.6 |
| | 5.0 |
| | 0.6 |
|
Engineered I-joists – lineal feet: | | | | | | | | | | | | | | | | |
Production | 50 |
| | 50 |
| | — |
| | 141 |
| | 149 |
| | (8 | ) | 46 |
| | 43 |
| | 3 |
|
Outside purchase | 2 |
| | 1 |
| | 1 |
| | 4 |
| | 5 |
| | (1 | ) | 1 |
| | 1 |
| | — |
|
Total | 52 |
| | 51 |
| | 1 |
| | 145 |
| | 154 |
| | (9 | ) | 47 |
| | 44 |
| | 3 |
|
Medium density fiberboard – square feet (3/4"): | | | | | | |
Production | | 25 |
| | — |
| | 25 |
|
Outside purchase | | — |
| | — |
| | — |
|
Total | | 25 |
| | — |
| | 25 |
|
Oriented strand board – square feet (3/8”): | | | | | | | | | | | | | | | | |
Production | 746 |
| | 717 |
| | 29 |
| | 2,150 |
| | 2,055 |
| | 95 |
| 749 |
| | 704 |
| | 45 |
|
Outside purchase | 77 |
| | 52 |
| | 25 |
| | 223 |
| | 156 |
| | 67 |
| 57 |
| | 65 |
| | (8 | ) |
Total | 823 |
| | 769 |
| | 54 |
| | 2,373 |
| | 2,211 |
| | 162 |
| 806 |
| | 769 |
| | 37 |
|
Softwood plywood – square feet (3/8”): | | | | | | | | | | | | | | | | |
Production | 67 |
| | 72 |
| | (5 | ) | | 191 |
| | 191 |
| | — |
| 88 |
| | 61 |
| | 27 |
|
Outside purchase | 27 |
| | 31 |
| | (4 | ) | | 91 |
| | 100 |
| | (9 | ) | 20 |
| | 37 |
| | (17 | ) |
Total | 94 |
| | 103 |
| | (9 | ) | | 282 |
| | 291 |
| | (9 | ) | 108 |
| | 98 |
| | 10 |
|
CELLULOSE FIBERS
How We Did in ThirdFirst Quarter and Year-to-Date 2015
Here is a comparison of net sales and net contribution to earnings for the quarters and year-to-date periods ended September 30, 2015 and 2014:
NET SALES / NET CONTRIBUTION TO EARNINGS – CELLULOSE FIBERS2016
| | | QUARTER ENDED | | AMOUNT OF CHANGE | | YEAR-TO-DATE ENDED | | AMOUNT OF CHANGE | QUARTER ENDED | | AMOUNT OF CHANGE |
DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2015 | | SEPTEMBER 2014 | | 2015 VS. 2014 | | SEPTEMBER 2015 | | SEPTEMBER 2014 | | 2015 VS. 2014 | MARCH 2016 | | MARCH 2015 | | 2016 VS. 2015 |
Net sales: | | | | | | | | | | | | | | | | |
Pulp | $ | 383 |
| | $ | 408 |
| | $ | (25 | ) | | $ | 1,111 |
| | $ | 1,154 |
| | $ | (43 | ) | $ | 351 |
| | $ | 360 |
| | $ | (9 | ) |
Liquid packaging board | 74 |
| | 80 |
| | (6 | ) | | 232 |
| | 247 |
| | (15 | ) | 67 |
| | 74 |
| | (7 | ) |
Other products | 14 |
| | 15 |
| | (1 | ) | | 42 |
| | 53 |
| | (11 | ) | 12 |
| | 13 |
| | (1 | ) |
Total | $ | 471 |
| | $ | 503 |
| | $ | (32 | ) | | $ | 1,385 |
| | $ | 1,454 |
| | $ | (69 | ) | $ | 430 |
| | $ | 447 |
| | $ | (17 | ) |
Cost of products sold | | 386 |
| | $ | 394 |
| | $ | (8 | ) |
Operating income | | 30 |
| | $ | 39 |
| | $ | (9 | ) |
Equity loss from joint venture | | $ | (2 | ) | | (6 | ) | | 4 |
|
Net contribution to earnings | $ | 79 |
|
| $ | 59 |
| | $ | 20 |
| | $ | 139 |
| | $ | 204 |
| | $ | (65 | ) | $ | 28 |
|
| $ | 33 |
| | $ | (5 | ) |
Comparing ThirdFirst Quarter 20152016 with ThirdFirst Quarter 20142015
Net sales
Net sales decreased $32$17 million – 64 percent – primarily due to the following:
pulp average sales realizations decreased $40$99 per ton – 5 percent, and sales volumes decreased 112 percent; and
liquid packaging board average sales realizations decreased $139$126 per ton – 11 percent.
These decreases were partially offset by increasedby:
higher pulp sales volumes – 10 percent; and
higher liquid packaging board sales volumes of– 2 percent.
Net contribution to earnings
Net contribution to earnings increased $20 million – 34 percent – primarily due to the following:
lower operating costs primarily due to decreased scheduled maintenance outage days – $42 million and
lower translated Canadian operating costs due to the strengtheningCost of the U.S. dollar – $9 million.products sold
These increases to earnings were partially offset by:
lower pulp average sales realizations – $19 million; and
lower liquid packaging board average sales realizations – $10 million,
Comparing Year-to-Date 2015 with Year-to-Date 2014
Net sales
Net salesCost of products sold decreased $69$8 million – 52 percent – primarily due to the following:
pulp sales volumes decreased 2 percent and average sales realizations decreased $12 per ton – 1 percent;
liquid packaging board average sales realizations decreased $81 per ton – 6 percent;lower maintenance spending on scheduled outages; and
otherlower per unit chemical and energy costs in our pulp manufacturing business.
Operating income
Operating income decreased $9 million – 23 percent – primarily due to the decrease in net sales of $17 million, partially offset by lower costs of products sales volumes decreased 19 percent.sold of $8 million.
Net contribution to earnings
Net contribution to earnings decreased $65$5 million – 3215 percent – primarily due to the following:
higher$9 million decrease to operating costs primarily dueincome. The decrease to increased scheduled maintenance outage days and the West Coast port slowdown – $44operating income was offset by a $4 million
lower liquid packaging board average sales realizations – $17 million,
losses from an equity affiliate – $17 million,
lower pulp average sales realizations – $16 million, and
higher fiber costs – $13 million.
These decreases to earnings were partially offset by:
lower energy and chemical costs – $20 million;
lower translated Canadian operating costs due to the strengthening reduction in our share of the U.S. dollar – $19 million;net loss from our newsprint and publishing papers venture equity investment.
lower selling, general and administrative expenses – $9 million.
THIRD-PARTY SALES VOLUMES
| | | QUARTER ENDED | | AMOUNT OF CHANGE | | YEAR-TO-DATE ENDED | | AMOUNT OF CHANGE | QUARTER ENDED | | AMOUNT OF CHANGE |
VOLUMES IN THOUSANDS | SEPTEMBER 2015 | | SEPTEMBER 2014 | | 2015 VS. 2014 | | SEPTEMBER 2015 | | SEPTEMBER 2014 | | 2015 VS. 2014 | MARCH 2016 | | MARCH 2015 | | 2016 VS. 2015 |
Pulp – air-dry metric tons | 468 |
| | 474 |
| | (6 | ) | | 1,337 |
| | 1,368 |
| | (31 | ) | 464 |
| | 421 |
| | 43 |
|
Liquid packaging board – metric tons | 63 |
| | 62 |
| | 1 |
| | 194 |
| | 194 |
| | — |
| 63 |
| | 62 |
| | 1 |
|
TOTAL PRODUCTION VOLUMES
| | | QUARTER ENDED | | AMOUNT OF CHANGE | | YEAR-TO-DATE ENDED | | AMOUNT OF CHANGE | QUARTER ENDED | | AMOUNT OF CHANGE |
VOLUMES IN THOUSANDS | SEPTEMBER 2015 | | SEPTEMBER 2014 | | 2015 VS. 2014 | | SEPTEMBER 2015 | | SEPTEMBER 2014 | | 2015 VS. 2014 | MARCH 2016 | | MARCH 2015 | | 2016 VS. 2015 |
Pulp – air-dry metric tons | 477 |
| | 465 |
| | 12 |
| | 1,341 |
| | 1,391 |
| | (50 | ) | 457 |
| | 442 |
| | 15 |
|
Liquid packaging board – metric tons | 68 |
| | 53 |
| | 15 |
| | 192 |
| | 195 |
| | (3 | ) | 64 |
| | 60 |
| | 4 |
|
29On November 8, 2015, Weyerhaeuser announced that the board authorized the exploration of strategic alternatives for its Cellulose Fibers business segment. The Board indicated that it intended to consider a broad range of alternatives including, but not limited to, continuing to hold and operate the business or a sale or spin-off of the business. On May 1, 2016, we entered into a transaction agreement to sell our Cellulose Fibers pulp mills to International Paper for $2.2 billion in cash. The deal includes five pulp mills and two modified fiber mills. The transaction with International Paper does not include our liquid packaging board facility or newsprint and publishing papers venture. The Company’s review of those assets is ongoing.
As of March 31, 2016, the assets and liabilities of the Cellulose Fibers business, including those related to the pulp mills, had not met the criteria to be classified as held for sale under the requirements of ASC Topic 360, primarily because the board of directors was still considering a variety of strategic alternatives at that time. Accordingly, the results from these operations are classified as continuing operations in our Consolidated Statement of Operations for the period ended March 31, 2016.
We expect the transaction with International Paper to close in fourth quarter 2016.
UNALLOCATED ITEMS
Unallocated Itemsitems are chargesgains or gainscharges 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, andequity earnings from our Timberland Venture, the elimination of intersegment profit in inventory and the LIFO reserve.
NET CONTRIBUTION TO EARNINGS – UNALLOCATED ITEMS
| | | QUARTER ENDED | | AMOUNT OF CHANGE | | YEAR-TO-DATE ENDED | | AMOUNT OF CHANGE | QUARTER ENDED | | AMOUNT OF CHANGE |
DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2015 | | SEPTEMBER 2014 | | 2015 VS. 2014 | | SEPTEMBER 2015 | | SEPTEMBER 2014 | | 2015 VS. 2014 | MARCH 2016 | | MARCH 2015 | | 2016 VS. 2015 |
Unallocated corporate function expense | $ | (4 | ) | | $ | (3 | ) | | $ | (1 | ) | | $ | (20 | ) | | $ | (17 | ) | | $ | (3 | ) | $ | (9 | ) | | $ | (9 | ) | | $ | — |
|
Unallocated share-based compensation | 6 |
| | 1 |
| | 5 |
| | 10 |
| | (2 | ) | | 12 |
| (2 | ) | | 3 |
| | (5 | ) |
Unallocated pension and postretirement credits | 2 |
| | 35 |
| | (33 | ) | | 8 |
| | 146 |
| | (138 | ) | 12 |
| | 3 |
| | 9 |
|
Foreign exchange gains (losses) | (20 | ) | | (14 | ) | | (6 | ) | | (40 | ) | | (16 | ) | | (24 | ) | |
Foreign exchange gain (loss) | | 13 |
| | (29 | ) | | 42 |
|
Elimination of intersegment profit in inventory and LIFO | 3 |
| | 12 |
| | (9 | ) | | 9 |
| | (8 | ) | | 17 |
| (6 | ) | | (12 | ) | | 6 |
|
Plum Creek merger-related costs | | (110 | ) | | — |
| | (110 | ) |
Gain on sale of non-strategic asset | | 36 |
| | — |
| | 36 |
|
Restructuring, impairments and other charges | | (6 | ) | | (14 | ) | | 8 |
|
Other | (23 | ) | | (14 | ) | | (9 | ) | | (55 | ) | | (23 | ) | | (32 | ) | (3 | ) | | (5 | ) | | 2 |
|
Operating income (loss) | (36 | ) | | 17 |
| | (53 | ) | | (88 | ) | | 80 |
| | (168 | ) | |
Operating loss | | (75 | ) | | (63 | ) | | (12 | ) |
Equity earnings from joint venture | | 5 |
| | — |
| | 5 |
|
Interest income and other | 9 |
| | 8 |
| | 1 |
| | 27 |
| | 28 |
| | (1 | ) | 9 |
| | 9 |
| | — |
|
Net contribution to earnings | $ | (27 | ) | | $ | 25 |
| | $ | (52 | ) | | $ | (61 | ) | | $ | 108 |
| | $ | (169 | ) | $ | (61 | ) | | $ | (54 | ) | | $ | (7 | ) |
Changes in Unallocated Items were primarily related to:
a pretax gain related to a previously announced postretirement plan amendment – $23 million recognized in third quarter 2014 and $113 million recognized year-to-date 2014; | |
• | a pretax gain recognized in first quarter 2014 on2016 related to the sale of a landfill in Washington State,our Federal Way headquarters campus, which is recorded in "Other operating income,costs (income), net" in our Consolidated Statement of Operations – $22 million;$36 million. |
charges related to our selling, general and administrative cost reduction initiative – $8 million recognized in third quarter 2014 and $32 million recognized year-to-date 2014;
an increase in noncash foreign exchange losses on debt held by our Canadian entity –$24 million year-to-date 2015; and
changed from a noncash impairment charge recognizedloss in first quarter 2015 related to a nonstrategic asset thatgain in first quarter 2016 – $42 million; and
equity earnings from our investment in the Timberland Venture – $5 million – which was soldacquired in second quarter 2015 – $13 million.our merger with Plum Creek.
INTEREST EXPENSE
Our interest expense, net of capitalized interest incurred was:
$88 million during third quarter 2015 and $25997 million during year-to-date 2015first quarter 2016 and
$8883 million during thirdfirst quarter 2014 and $254 million during year-to-date 2014.
2015.
INCOME TAXES
Our provision for income taxes for our continuing operations was:
$(16)20 million during thirdfirst quarter 20152016 and $16
$19 million during year-to-date 2015 and
first quarter 2015.$39 million during third quarter 2014 and $148 million during year-to-date 2014.
Our provision for income taxes is lowerslightly higher in 20152016 primarily due to lowerhigher earnings in our taxable REIT subsidiary.TRS.
LIQUIDITY AND CAPITAL RESOURCES
We are committed to maintaining an appropriate capital structure that enables us to:
protect the interests of our shareholders and lenders and
have access at all times to all major financial markets.
CASH FROM OPERATIONS
Consolidated net cash provided by our operations was:
$72547 million in 20152016 and
$78487 million in 2014.
2015.
Comparing 20152016 with 20142015
Net cash provided by our operations decreased $59$40 million in 20152016 as compared with 2014,2015, primarily due to:
A $243 million decreaseto cash payments made in cash received from customers.
Net cash2016 related to income taxes changed $59 million. We paid income taxesthe Plum Creek merger of $4$56 million, in 2015 and received refunds of $55 million in 2014.
These outflows werepartially offset by:
A $61 million net cash outflow in 2014 related to discontinued operations. There were noby increased cash flows from discontinued operations in 2015.our business segments of $27 million. Cash payments related to the merger were comprised of:
A $211investment banking and other professional services fees – $39 million decrease in cash paid to employees– and suppliers.
termination benefits – $17 million.
Expected Pension Contributions and Benefit Payments
We do not anticipate making a contribution to our U.S. qualified pension plan for 2015. In 2015 we expect to:
be required to contribute approximatelySee Performance Measures$38 million for our Canadian registered plan;Adjusted EBITDA by segment.be required to contribute or make benefit payments for our Canadian nonregistered plans of $3 million;
make benefit payments of$19 millionfor our U.S. nonqualified pension plans; and
make benefit payments of $25 million for our U.S. and Canadian other postretirement plans.
CASH FROM INVESTING ACTIVITIES
Consolidated net cash provided by (used in) investing activities was:
$(324)24 million in 20152016 and
$485(119) million in 2014.
2015.
Comparing 20152016 with 20142015
Net cash from investing activities changed $809increased $143 million to an outflow in 20152016 as compared with an inflow in 20142015, primarily due to:
netto proceeds from the Real Estate Divestiture, net of cash divested in 2014 - $707 million;
an increase in capital spending - $34 million;
an increase in cash paid for acquisitions of timberlands - $34 million; and
a decrease in proceeds from sale of nonstrategic assets, - $17 million.
Real Estate Divestiture
At the close of the Real Estate Divestiture in July 2014, Weyerhaeuser Real Estate Company (WRECO) used $744 million of the debt proceeds to repay intercompany debtcash distributions from joint ventures, 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 when WRECO became a wholly-owned subsidiary of TRI Pointe at the closing of the transaction. Additionally, $32 million related to the adjustment amount payable pursuant to the terms of the transaction agreement was paid to TRI Pointe. Our net cash proceeds 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.lower capital expenditures.
Summary of Capital Spending by Business Segment
| | | YEAR-TO-DATE ENDED | YEAR-TO-DATE ENDED |
DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2015 | | SEPTEMBER 2014 | MARCH 2016 | | MARCH 2015 |
Timberlands | $ | 58 |
| | $ | 56 |
| $ | 19 |
| | $ | 24 |
|
Real Estate & ENR | | 1 |
| | — |
|
Wood Products | 165 |
| | 112 |
| 29 |
| | 37 |
|
Cellulose Fibers | 85 |
| | 97 |
| 22 |
| | 27 |
|
Unallocated Items | 1 |
| | 2 |
| 2 |
| | 1 |
|
Discontinued operations | — |
| | 4 |
| |
Total | $ | 309 |
| | $ | 271 |
| $ | 73 |
| | $ | 89 |
|
We anticipate that our net capital expenditures for 20152016 – excluding acquisitions – will be approximately $500$520 million.
CASH FROM FINANCING ACTIVITIES
Consolidated net cash used in financing activities was:
$933668 million in 20152016 and
$484390 million in 2014.
2015.
Comparing 20152016 with 20142015
Net cash used in financing activities increased $449$278 million in 20152016 as compared to 20142015 primarily due to anthe following:
repayment of Plum Creek's line of credit and term loan outstanding at the merger date – $720 million,
the increase in share repurchases of $361cash paid to repurchase common shares – $545 million,
the increase in cash dividends paid – $89 million, and
a decrease in proceeds from stock option exercises of $55 million.
Debt
During June 2014, WRECO issued $450 million of unsecured and unsubordinated senior obligations bearing an interest rate of 4.375 percent due June 15, 2019 and $450 million of unsecured and unsubordinated senior obligations bearing an interest rate of 5.875 percent due June 15, 2024, which were transferred along with other WRECO assets and liabilities as part of the Real Estate Divestiture. The net proceeds after deducting the discount were $887 million.
There were no payments of debt in 2015 or 2014. There are no expected debt maturities in the next 12 months.
Option Exercises
We received cash proceeds from the exercise of stock options of:
Our average stock price was $32.18 and $31.05 in year-to-date 2015 and 2014, respectively.
– $17 million.
Cash Dividends on Common and Preference Shares
We paid cash dividends on common shares of:
The increase in dividends paid is primarily due to:
an increase in our quarterly dividendThese outflows were offset by $1.1 billion of proceeds from 22 cents per shareissuance of new term loan credit facilities subsequent to 29 cents per share in August 2014; and
an increase in our quarterly dividend from 29 cents per share to 31 cents per share in August 2015.
On August 27, 2015, 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 October 1, 2015, to shareholders of record at the close of business September 15, 2015.
On October 14, 2015, our Board of Directors declared a dividend of 31 cents per share on our common stock payable on November 20, 2015 to shareholders of record at the close of business October 30, 2015. 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 January 1, 2016, to shareholders of record at the close of business December 15, 2015.
Repurchases of Common Stock
On August 13, 2014, our Board of Directors approved a stock repurchase program under which we are authorized to repurchase up to $700 million of outstanding shares (the 2014 Repurchase Program). We repurchased 3,258,148 shares of common stock for $90 million during third quarter 2015 and 15,442,231 shares of common stock for $496 million during year-to-date 2015. In total, we have repurchased 21,505,224 shares of common stock for $700 million under the 2014 Repurchase Program. All common stock purchases under the 2014 Repurchase Program have been made through open-market transactions.
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. As of September 30, 2015, we had repurchased no shares of common stock under the 2015 Repurchase Program and had remaining authorization of $500 million for future stock repurchases We had 511,032,862 shares of common stock outstanding as of September 30, 2015.merger date.
Revolving Credit Facility
Weyerhaeuser Company has a $1 billion 5-year senior unsecured revolving credit facility that expires in September 2018. There were no net proceeds from the issuance of debt or from borrowings (repayments) under our available credit facility in year-to-date 2016 or 2015, and as of March 31, 2016, the entire $1 billion remained available for borrowing.
Assumed Debt and Debt Repayments
In connection with the merger with Plum Creek, Weyerhaeuser either assumed or 2014.repaid Plum Creek's outstanding long-term debt instruments. The long-term debt instruments assumed consisted of:
two issuances of publicly traded Senior Notes,
an Installment Note and
the Note Payable to Timberland Venture.
Concurrent with the merger, Weyerhaeuser repaid in full the outstanding balances of Plum Creek's Revolving Line of Credit and Term Loan using $720 million of cash on hand. There were no payments of debt in 2015.
There are no debt maturities in the next 12 months.
Term Loan Credit Facilities
In February 2016, Weyerhaeuser Company entered into a $600 million 18-month senior unsecured term loan maturing in August 2017. As of March 31, 2016, we had $600 million outstanding under this facility.
In March 2016, Weyerhaeuser Company entered into a $1.9 billion 18-month senior unsecured term loan maturing in September 2017. As of March 31, 2016, we had $500 million outstanding under this facility.
Debt Covenants
As of September 30, 2015March 31, 2016, Weyerhaeuser Company was in compliance with all debt covenants. There have been no significant changes during year-to-datefirst quarter 2016 to the debt covenants presented in our 2015 toAnnual Report on Form 10-K for our existing long-term debt instruments. The debt covenants for the Senior Notes assumed through our merger with Plum Creek and the debt covenants for the new term loans issued in February 2016 and March 2016 do not differ materially from our debt covenants presented in our 20142015 Annual Report on Form 10-K.
33On April 28, 2016, the Installment Note Payable was amended to align the agreement's debt covenants with our term loans' covenants for determining compliance as of March 31, 2016. The assumed Note Payable to Timberland Venture does not include any material financial maintenance covenants.
When calculating compliance with financial debt covenants, we exclude the impact of our pension and other post-retirement plans recorded within cumulative other comprehensive income from adjusted shareholders' interest (equity). The excluded amounts are $1,417 million and $1,425 million and are equal to the cumulative actuarial losses and prior service costs for our pension and post-retirement plans at March 31, 2016 and December 31, 2015, respectively (see Notes to Consolidated Financial Statements - Note 13: Cumulative Other Comprehensive Income (Loss)).
Option Exercises
We received cash proceeds from the exercise of stock options of:
$4 million in 2016 and
$21 million in 2015.
Our average stock price was $26.70 and $35.01 in first quarter 2016 and 2015, respectively.
Paying Dividends and Repurchasing Stock
We paid cash dividends on common shares of:
$241 million in 2016 and
$152 million in 2015.
The increase in dividends paid is primarily due to an increase in our quarterly dividend from $0.29 to $0.31 per share and an increase in total shares outstanding.
During first quarter 2016, we repurchased 31,367,541 shares of common stock for $863 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. This new authorization replaced the August 2015 share repurchase authorization. Transaction fees incurred for repurchases are not counted as use of funds authorized for repurchases under the 2016 Share Repurchase Authorization. All common stock purchases under the stock repurchase program were made in open-market transactions. As of March 31, 2016, we had remaining authorization of $1,638 million for future stock repurchases.
We record share repurchases upon trade date as opposed to the settlement date when cash is disbursed. We record a liability to account for repurchases that have not been cash settled. Unsettled repurchases consisted of 2,128,645 shares totaling $66 million as of March 31, 2016. There were no unsettled repurchases as of March 31, 2015, or December 31, 2015.
From April 1, 2016 to April 30, 2016 we repurchased 12,288,096 shares of common stock for $387 million under the 2016 Share Repurchase Authorization. As of April 30, 2016, we had remaining authorization of $1,251 million.
PERFORMANCE MEASURES
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 about our operating performance, better facilitates period to period comparisons, and is widely used by analysts, lenders, rating agencies and other interested parties.
Our definition of Adjusted EBITDA may be different from similarly titled measures reported by other companies. Due to recent organizational changes and our February 19, 2016 merger with Plum Creek, effective for the quarter ended March 31, 2016, we have revised our definition of Adjusted EBITDA to add back the basis of real estate sold. We have revised our prior-period presentation to conform to our current reporting.
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 BY SEGMENT
| | | QUARTER ENDED | | AMOUNT OF CHANGE | | YEAR-TO-DATE ENDED | | AMOUNT OF CHANGE | QUARTER ENDED | | AMOUNT OF CHANGE |
DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2015 | | SEPTEMBER 2014 | | 2015 VS. 2014 | | SEPTEMBER 2015 | | SEPTEMBER 2014 | | 2015 VS. 2014 | MARCH 2016 | | MARCH 2015 | | 2016 VS. 2015 |
Adjusted EBITDA by Segment: | | | | | | | | | | | | | | | | |
Timberlands | $ | 177 |
| | $ | 187 |
| | $ | (10 | ) | | $ | 570 |
| | $ | 624 |
| | $ | (54 | ) | $ | 199 |
| | $ | 192 |
| | $ | 7 |
|
Real Estate & ENR | | 34 |
| | 33 |
| | 1 |
|
Wood Products | 111 |
| | 135 |
| | (24 | ) | | 297 |
| | 360 |
| | (63 | ) | 117 |
| | 88 |
| | 29 |
|
Cellulose Fibers | 123 |
| | 99 |
| | 24 |
| | 273 |
| | 321 |
| | (48 | ) | 68 |
| | 78 |
| | (10 | ) |
| 411 |
| | 421 |
| | (10 | ) | | 1,140 |
| | 1,305 |
| | (165 | ) | 418 |
| | 391 |
| | 27 |
|
Unallocated Items | (36 | ) | | (7 | ) | | (29 | ) | | (74 | ) | | (47 | ) | | (27 | ) | (5 | ) | | (48 | ) | | 43 |
|
Total | $ | 375 |
| | $ | 414 |
| | $ | (39 | ) | | $ | 1,066 |
| | $ | 1,258 |
| | $ | (192 | ) | $ | 413 |
| | $ | 343 |
| | $ | 70 |
|
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 for the quarter ended March 31, 2016:
|
| | | | | | | | | | | | | | | | | | | | | | | |
DOLLAR AMOUNTS IN MILLIONS | Timberlands | | Real Estate & ENR | | Wood Products | | Cellulose Fibers | | Unallocated Items | | Total |
Adjusted EBITDA by Segment: | | | | | | | | | | | |
Net earnings | | | | | | | | | | | $ | 81 |
|
Interest expense, net of capitalized interest | | | | | | | | | | | 97 |
|
Income taxes | | | | | | | | | | | 20 |
|
Net contribution to earnings | $ | 129 |
| | $ | 15 |
| | $ | 87 |
| | $ | 28 |
| | $ | (61 | ) | | $ | 198 |
|
Equity (earnings) loss from joint ventures | — |
| | — |
| | — |
| | 2 |
| | (5 | ) | | (3 | ) |
Interest income and other | — |
| | — |
| | — |
| | — |
| | (9 | ) | | (9 | ) |
Operating income | 129 |
| | 15 |
| | 87 |
| | 30 |
| | (75 | ) | | 186 |
|
Depreciation, depletion and amortization | 70 |
| | 2 |
| | 30 |
| | 38 |
| | 2 |
| | 142 |
|
Basis of real estate sold | — |
| | 17 |
| | — |
| | — |
| | — |
| | 17 |
|
Non-operating pension and postretirement credits | — |
| | — |
| | — |
| | — |
| | (12 | ) | | (12 | ) |
Special items(1) | — |
| | — |
| | — |
| | — |
| | 80 |
| | 80 |
|
Adjusted EBITDA | $ | 199 |
| | $ | 34 |
| | $ | 117 |
| | $ | 68 |
| | $ | (5 | ) | | $ | 413 |
|
| |
(1) | Special items include: a $36 milliongain on the sale of nonstrategic assets, $110 millionof Plum Creek merger-related costs, and $6 millionof charges for restructuring, closures and asset impairments. |
The table below reconciles Adjusted EBITDA to net income by segment duringfor the quarter ended SeptemberMarch 31, 2015:
| | DOLLAR AMOUNTS IN MILLIONS | Timberlands | | Wood Products | | Cellulose Fibers | | Unallocated Items | | Total | Timberlands | | Real Estate & ENR | | Wood Products | | Cellulose Fibers | | Unallocated Items | | Total |
Adjusted EBITDA by Segment: | | | | | | | | | | | | | | | | | | | | |
Net earnings | | | | | | | | | $ | 191 |
| | | | | | | | | | | $ | 101 |
|
Interest expense, net of capitalized interest | | | | | | | | | 88 |
| | | | | | | | | | | 83 |
|
Income taxes | | | | | | | | | (16 | ) | | | | | | | | | | | 19 |
|
Net contribution to earnings | $ | 126 |
| | $ | 85 |
| | $ | 79 |
| | $ | (27 | ) | | 263 |
| $ | 139 |
| | $ | 23 |
| | $ | 62 |
| | $ | 33 |
| | $ | (54 | ) | | $ | 203 |
|
Equity (earnings) loss from joint ventures | | — |
| | — |
| | — |
| | 6 |
| | — |
| | 6 |
|
Interest income and other | — |
| | — |
| | 5 |
| | (9 | ) | | (4 | ) | — |
| | — |
| | — |
| | — |
| | (9 | ) | | (9 | ) |
Operating income | 126 |
| | 85 |
| | 84 |
| | (36 | ) | | 259 |
| 139 |
| | 23 |
| | 62 |
| | 39 |
| | (63 | ) | | 200 |
|
Depreciation, depletion and amortization | 51 |
| | 26 |
| | 39 |
| | 2 |
| | 118 |
| 53 |
| | — |
| | 26 |
| | 39 |
| | 5 |
| | 123 |
|
Basis of real estate sold | | — |
| | 10 |
| | — |
| | — |
| | — |
| | 10 |
|
Non-operating pension and postretirement credits | — |
| | — |
| | — |
| | (2 | ) | | (2 | ) | — |
| | — |
| | — |
| | — |
| | (3 | ) | | (3 | ) |
Special items(1) | | — |
| | — |
| | — |
| | — |
| | 13 |
| | 13 |
|
Adjusted EBITDA | $ | 177 |
| | $ | 111 |
| | $ | 123 |
| | $ | (36 | ) | | $ | 375 |
| $ | 192 |
| | $ | 33 |
| | $ | 88 |
| | $ | 78 |
| | $ | (48 | ) | | $ | 343 |
|
The table below reconciles Adjusted EBITDA to net income by segment during the quarter ended September 2014:
|
| | | | | | | | | | | | | | | | | | | |
DOLLAR AMOUNTS IN MILLIONS | Timberlands | | Wood Products | | Cellulose Fibers | | Unallocated Items | | Total |
Adjusted EBITDA by Segment: | | | | | | | | | |
Net earnings | | | | | | | | | $ | 1,164 |
|
Earnings from discontinued operations, net of income taxes | | | | | | | | | (966 | ) |
Interest expense, net of capitalized interest | | | | | | | | | 88 |
|
Income taxes | | | | | | | | | 39 |
|
Net contribution to earnings | $ | 136 |
| | $ | 105 |
| | $ | 59 |
| | $ | 25 |
| | 325 |
|
Interest income and other | — |
| | — |
| | 1 |
| | (8 | ) | | (7 | ) |
Operating income | 136 |
| | 105 |
| | 60 |
| | 17 |
| | 318 |
|
Depreciation, depletion and amortization | 51 |
| | 30 |
| | 39 |
| | 3 |
| | 123 |
|
Non-operating pension and postretirement credits | — |
| | — |
| | — |
| | (12 | ) | | (12 | ) |
Special items(1) | — |
| | — |
| | — |
| | (15 | ) | | (15 | ) |
Adjusted EBITDA | $ | 187 |
| | $ | 135 |
| | $ | 99 |
| | $ | (7 | ) | | $ | 414 |
|
(1) Special items include: a $23 million pretax gain related to a previously announced postretirement plan amendment and $8 million in restructuring and closure charges related to our selling, general and administrative cost reduction initiative.
The table below reconciles Adjusted EBITDA to net income by segment during the year-to-date period ended September 2015:
|
| | | | | | | | | | | | | | | | | | | |
DOLLAR AMOUNTS IN MILLIONS | Timberlands | | Wood Products | | Cellulose Fibers | | Unallocated Items | | Total |
Adjusted EBITDA by Segment: | | | | | | | | | |
Net earnings | | | | | | | | | $ | 436 |
|
Interest expense, net of capitalized interest | | | | | | | | | 259 |
|
Income taxes | | | | | | | | | 16 |
|
Net contribution to earnings | $ | 415 |
| | $ | 218 |
| | $ | 139 |
| | $ | (61 | ) | | 711 |
|
Interest income and other | — |
| | — |
| | 18 |
| | (27 | ) | | (9 | ) |
Operating income (loss) | 415 |
| | 218 |
| | 157 |
| | (88 | ) | | 702 |
|
Depreciation, depletion and amortization | 155 |
| | 79 |
| | 116 |
| | 9 |
| | 359 |
|
Non-operating pension and postretirement credits | — |
| | — |
| | — |
| | (8 | ) | | (8 | ) |
Special items(1) | — |
| | — |
| | — |
| | 13 |
| | 13 |
|
Adjusted EBITDA | $ | 570 |
| | $ | 297 |
| | $ | 273 |
| | $ | (74 | ) | | $ | 1,066 |
|
(1) Special items include: a $13 million noncash impairment charge related to a nonstrategic asset.
The table below reconciles Adjusted EBITDA to net income by segment during the year-to-date period ended September 2014:
|
| | | | | | | | | | | | | | | | | | | |
DOLLAR AMOUNTS IN MILLIONS | Timberlands | | Wood Products | | Cellulose Fibers | | Unallocated Items | | Total |
Adjusted EBITDA by Segment: | | | | | | | | | |
Net earnings | | | | | | | | | $ | 1,649 |
|
Earnings from discontinued operations, net of income taxes | | | | | | | | | (998 | ) |
Interest expense, net of capitalized interest | | | | | | | | | 254 |
|
Income taxes | | | | | | | | | 148 |
|
Net contribution to earnings | $ | 470 |
| | $ | 271 |
| | $ | 204 |
| | $ | 108 |
| | 1,053 |
|
Interest income and other | — |
| | — |
| | 1 |
| | (28 | ) | | (27 | ) |
Operating income | 470 |
| | 271 |
| | 205 |
| | 80 |
| | 1,026 |
|
Depreciation, depletion and amortization | 154 |
| | 89 |
| | 116 |
| | 9 |
| | 368 |
|
Non-operating pension and postretirement credits | — |
| | — |
| | — |
| | (33 | ) | | (33 | ) |
Special items(1) | — |
| | — |
| | — |
| | (103 | ) | | (103 | ) |
Adjusted EBITDA | $ | 624 |
| | $ | 360 |
| | $ | 321 |
| | $ | (47 | ) | | $ | 1,258 |
|
(1) Special items include: a $113 million pretax gain related to a previously announced postretirement plan amendment, $24 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.
CRITICAL ACCOUNTING POLICIES
There have been no significant changes during year-to-date 2015 to our
Our critical accounting policies presentedare discussed in our 20142015 Annual Report on form 10-K. As a result of the impact to our financial statements from our merger with Plum Creek, we now consider the following accounting policies to be critical accounting policies. The following are information updates, and should be read in conjunction with, the critical accounting policies disclosed in our 2015 Annual Report on Form 10-K.
Timber Depletion
We record depletion – the costs attributed to timber harvested – as trees are harvested.
To calculate our depletion rate, which is updated annually, we:
take the total carrying cost of the timber and
divide by the total timber volume estimated to be harvested during the harvest cycle.
Estimating the volume of timber available for harvest over the harvest cycle requires the consideration of the following factors:
effects of fertilizer and pesticide applications;
changes in environmental regulations and other regulatory restrictions;
limits on harvesting certain timberlands;
changes in harvest plans;
scientific advancement in seedling and growing technology; and
changes in weather patterns.
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.
A 5% decrease in our estimate of future harvest volumes would have:
Increased depletion expense by $3 million for Q1 2016
Increased depletion expense by $2 million for Q1 2015.
Business Combinations
We recognize identifiable assets acquired and liabilities assumed at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions for the purchase price allocation process to value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to any goodwill previously recorded (or to earnings in the event that no goodwill was previously recorded) to the extent that we identify adjustments to the preliminary purchase price allocation. Beginning January 1, 2016 we have adopted ASU 2015-16, which eliminates the requirement to retrospectively apply measurement period adjustments to the preliminary purchase price allocation and revise comparative information on the income statement and balance sheet for any prior periods affected. We will recognize measurement period adjustments and any resulting effect on earnings during the period in which the adjustment is identified. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our condensed consolidated statements of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No changes occurred during year-to-date 2015 that had a material effect
LONG-TERM INDEBTEDNESS OBLIGATIONS
The following summary of our long-term indebtedness obligations includes:
all future cash obligations arising from our long-term indebtedness, which includes obligations for the Note Payable to Timberland Venture;
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 our debt instruments using quoted market prices we received for the same types and issues of our debt or on the information relating to quantitative and qualitative disclosures aboutdiscounted value of the future cash flows using market risk that was provided in the company’s Annual Report on Form 10-Kyields for the year ended Decembersame 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 INDEBTEDNESS PRINCIPAL OBLIGATIONS AS OF MARCH 31, 2014.2016
|
| | | | | | | | | | | | | | | | | | | | | | | | |
DOLLAR AMOUNTS IN MILLIONS | | | | | |
| 2016 | 2017 | 2018 | 2019 | 2020 | THEREAFTER | TOTAL | FAIR VALUE |
Fixed-rate debt | $ | — |
| $ | 281 |
| $ | 845 |
| $ | 500 |
| $ | — |
| $ | 5,257 |
| $ | 6,883 |
| $ | 7,836 |
|
Average interest rate | — | % | 6.95 | % | 7.35 | % | 7.38 | % | — | % | 6.17 | % | 6.43 | % | N/A |
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Variable-rate debt | $ | — |
| 1,100 |
| $ | — |
| $ | — |
| $ | 550 |
| $ | — |
| $ | 1,650 |
| 1,650 |
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Average interest rate | — | % | 1.46 | % | — | % | — | % | 2.25 | % | — | % | 1.72 | % | N/A |
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CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
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 Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s 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’s management, including its principal executive and principal financial officers, to allow timely decisions regarding required disclosure. The company’s principal executive officer and principal financial officer have concluded that the company’s disclosure controls and procedures were effective as of September 30, 2015March 31, 2016, based on an evaluation of the company’s disclosure controls and procedures as of that date.
CHANGES IN INTERNAL CONTROLS
As a result of our February 2016 merger with Plum Creek, the company is implementing internal controls over significant processes specific to the acquisition that management believes are appropriate in consideration of related integration of operations, systems, control activities, and accounting for the merger and merger-related transactions. As of the date of this Quarterly Report on Form 10-Q, we are in the process of further integrating the acquired Plum Creek operations into our overall internal controls over financial reporting.
NoExcept as described above, no changes occurred in the company’s internal control over financial reporting during thirdfirst quarter 20152016 that have materially affected, or are reasonably likely to materially affect, the company’s internal control over financial reporting.
LEGAL PROCEEDINGS
RISK FACTORS
OurThere have been no material changes with respect to the risk factors are discusseddisclosed in our 20142015 Annual Report on Form 10-K. The following information updates, and should be read in conjunction with, the risk factors disclosed in our 2014 Annual Report on Form 10-K.
Regulation of Water
On June 29, 2015, the United States Environmental Protection Agency and Corps of Engineers adopted new regulations concerning the scope of the federal Clean Water Act that we believe broadens the agencies’ assertion of jurisdiction in certain respects. The new regulations could increase the number and scope of permits required for certain forestry-related activities and could result in additional costs. We are currently evaluating the potential impact of the new regulations on our operations. We do not expect that the new regulations will affect Weyerhaeuser differentially to other forest landowners. Several parties, including states and trade associations, have filed lawsuits in various federal courts seeking to invalidate and enjoin implementation of the new regulations. The outcome of that litigation is uncertain.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
INFORMATION ABOUT COMMON SHARE REPURCHASES DURING THIRDFIRST QUARTER 20152016
ISSUER PURCHASES OF EQUITY SECURITIES
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COMMON SHARE REPURCHASES DURING THIRD QUARTER | 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 ANNOUCED PLANS OR PROGRAMS | | MAXIMUM NUMBER (OR APPROXIMATE DOLLAR VALUE) OF SHARES (OR UNITS) THAT MAY YET BE PURCHASED UNDER THE PLANS OR PROGRAMS |
July 1 - July 31 | — |
| | $ | — |
| | — |
| | $ | 90,047,982 |
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August 1 - August 311 | 145,720 |
| | $ | 28.00 |
| | 145,720 |
| | $ | 585,967,414 |
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September 1 - September 30 | 3,112,428 |
| | $ | 27.56 |
| | 3,112,428 |
| | $ | 500,190,226 |
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Total repurchases during third quarter | 3,258,148 |
| | $ | 27.58 |
| | 3,258,148 |
| | $ | 500,190,226 |
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(1) 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. |
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COMMON SHARE REPURCHASES DURING FIRST QUARTER | 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 ANNOUCED PLANS OR PROGRAMS | | MAXIMUM NUMBER (OR APPROXIMATE DOLLAR VALUE) OF SHARES (OR UNITS) THAT MAY YET BE PURCHASED UNDER THE PLANS OR PROGRAMS |
January 1 – January 31 | — |
| | $ | — |
| | — |
| | $ | 478,442,984 |
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February 1 – February 29 | 11,151,586 |
| | 24.90 |
| | 11,151,586 |
| | 2,222,380,446 |
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March 1 – March 31 | 20,215,955 |
| | 28.93 |
| | 20,215,955 |
| | 1,637,554,693 |
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Total repurchases during first quarter | 31,367,541 |
| | $ | 27.49 |
| | 31,367,541 |
| | $ | 1,637,554,693 |
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On August 13, 2014 our Board of Directors approved a stock repurchase program under which
During first quarter 2016, we are authorized to repurchase up to $700 million of outstanding shares (the 2014 Repurchase Program). We repurchased 3,258,14831,367,541 shares of common stock for $90$863 million during third quarter 2015 and 15,442,231 shares of common stock for $496 million during year-to-date 2015. Cash settlements of $12 million occurred at the beginning of the fourth quarter. In total, we have repurchased 21,505,224 shares of common stock for $700 million(including transaction fees) under the 20142016 Share Repurchase Program.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. This new authorization replaced the August 2015 share repurchase authorization. Transaction fees incurred for repurchases are not counted as use of funds authorized for repurchases under the 2016 Share Repurchase Authorization. All common stock purchases under the 2014 Repurchase Program have been made through open-market transactions.
On August 27, 2015 our Board of Directors approved a new sharestock repurchase program of up to $500 million of outstanding shares (the 2015 Repurchase Program), commencing upon completion of the 2014 Repurchase Program.were made in open-market transactions. As of September 30, 2015,March 31, 2016, we had remaining authorization of $1,638 million for future stock repurchases.
We record share repurchases upon trade date as opposed to the settlement date when cash is disbursed. We record a liability to account for repurchases that have not been cash settled. Unsettled repurchases consisted of 2,128,645 shares totaling $66 million as of March 31, 2016. There were no unsettled repurchases as of March 31, 2015, or December 31, 2015.
From April 1, 2016 to April 30, 2016, we repurchased no12,288,096 shares of common stock for $387 million under the 20152016 Share Repurchase Program andAuthorization. As of April 30, 2016, we had remaining authorization of $500 million for future stock repurchases. We had 511,032,862 shares of common stock outstanding as of September 30, 2015.$1,251 million.
EXHIBITS
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124.1 | 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, File No. 1-4825, filed on February 19, 2016) |
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4.2 | Supplemental Indenture No. 1 dated as of February 19, 2016 between 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, File No. 1-4825, filed on February 19, 2016) |
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4.3 | Officer’s Certificate, dated November 15, 2010, executed by Plum Creek Timberlands, L.P., as Issuer, establishing the terms and form of the Plum Creek 2021 Notes (Incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K, File No. 1-4825, filed on February 19, 2016)
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4.4 | Officer’s Certificate, dated November 26, 2012, executed by Plum Creek Timberlands, L.P., as Issuer, establishing the terms and form of the Plum Creek 2023 Notes (Incorporated by reference to Exhibit 4.4 to the Current Report on Form 8-K, File No. 1-4825, filed on February 19, 2016) |
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10.1 | 2011 Fee Deferral Plan for Directors of Weyerhaeuser Company, as amended and restated effective January 1, 2016
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10.2 | Assumption Agreement dated as of January 21, 2016 by Weyerhaeuser Company in favor of Southern Diversified Timber, LLC (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, File No. 1-4825, filed on February 19, 2016)
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10.3 | Credit Agreement and Guarantee, dated as of October 1, 2008, by and among Plum Creek Ventures I, LLC, as Borrower, Weyerhaeuser Company, as successor to Plum Creek Timber Company, Inc., as Guarantor and Southern Diversified Timber, LLC, as Lender (Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, File No. 1-4825, filed on February 19, 2016)
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10.4 | Term Loan Agreement dated as of February 22, 2016 between Weyerhaeuser Company, as Borrower, and The Bank of Nova Scotia, as Lender (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, File No. 1-4825, filed on February 24, 2016)
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10.5 | Term Loan Agreement, dated as of March 9, 2016, among Weyerhaeuser Company, as Borrower, the Lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, File No. 1-4825, filed on March 10, 2016)
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10.6 | Executive Employment Agreement between Weyerhaeuser Company and Doyle R. Simons dated February 17, 2016 (Incorporated by reference to Exhibit 10(v) to Form 10-K, File No. 1-4825, for the year ended December 31, 2015)
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10.7 | Retention Agreement between Weyerhaeuser Company and Catherine I. Slater effective November 4, 2015 (Incorporated by reference to Exhibit 10(w) to Form 10-K, File No. 1-4825, for the year ended December 31, 2015)
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12.1 | Statements regarding computation of ratios |
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3131.1 | Certification pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended |
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3232.1 | Certification pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) |
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100.INS | XBRL Instance Document |
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100.SCH | XBRL Taxonomy Extension Schema Document |
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100.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
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100.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
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100.LAB | XBRL Taxonomy Extension Label Linkbase Document |
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100.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
Signature
Pursuant to the requirements 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.
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| WEYERHAEUSER COMPANY |
| Date: | October 30, 2015May 6, 2016 |
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| By: | /s/ JEANNE M. HILLMAN |
| | Jeanne M. Hillman |
| | Vice President and Chief Accounting Officer |