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, 2018MARCH 31, 2019
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
__________________________________________________
|
| | |
Washington | | 91-0470860 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification Number) |
| |
220 Occidental Avenue South Seattle, Washington | | 98104-7800 |
(Address of principal executive offices) | | (Zip Code) |
(206) 539-3000
(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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer x Accelerated filer o Non-accelerated filer o
Smaller reporting company o Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
As of OctoberApril 22, 2018, 749,200,0272019, 744,786,160 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: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
ITEM 2. | | |
ITEM 3. | | |
ITEM 4. | | |
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PART II | OTHER INFORMATION | |
ITEM 1. | | |
ITEM 1A. | | |
ITEM 2. | | |
ITEM 3. | | |
ITEM 4. | | |
ITEM 5. | | |
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 2018 | | SEPTEMBER 2017 | | SEPTEMBER 2018 | | SEPTEMBER 2017 | MARCH 2019 | | MARCH 2018 |
| $ | 1,910 |
| | $ | 1,872 |
| | $ | 5,840 |
| | $ | 5,373 |
| $ | 1,643 |
| | $ | 1,865 |
|
Costs of products sold | 1,452 |
| | 1,374 |
| | 4,247 |
| | 3,982 |
| |
Costs of sales | | 1,322 |
| | 1,348 |
|
Gross margin | 458 |
| | 498 |
| | 1,593 |
| | 1,391 |
| 321 |
| | 517 |
|
Selling expenses | 20 |
| | 22 |
| | 66 |
| | 66 |
| 21 |
| | 23 |
|
General and administrative expenses | 78 |
| | 75 |
| | 236 |
| | 238 |
| 89 |
| | 78 |
|
Research and development expenses | 2 |
| | 4 |
| | 6 |
| | 12 |
| 1 |
| | 2 |
|
Charges for integration and restructuring, closures and asset impairments (Note 15) | — |
| | 14 |
| | 2 |
| | 178 |
| |
Charges (recoveries) for product remediation, net (Note 16) | — |
| | 190 |
| | — |
| | 240 |
| |
Other operating costs (income), net (Note 17) | 21 |
| | (12 | ) | | 66 |
| | 2 |
| |
| | 36 |
| | 10 |
|
Operating income | 337 |
| | 205 |
| | 1,217 |
| | 655 |
| 174 |
| | 404 |
|
Non-operating pension and other postretirement benefit costs | (17 | ) | | (16 | ) | | (54 | ) | | (46 | ) | (470 | ) | | (24 | ) |
Interest income and other | 13 |
| | 12 |
| | 36 |
| | 30 |
| 10 |
| | 12 |
|
Interest expense, net of capitalized interest | (93 | ) | | (98 | ) | | (278 | ) | | (297 | ) | (107 | ) | | (93 | ) |
Earnings before income taxes | 240 |
| | 103 |
| | 921 |
| | 342 |
| |
| 15 |
| | 27 |
| | (80 | ) | | (31 | ) | |
Net earnings | $ | 255 |
|
| $ | 130 |
|
| $ | 841 |
|
| $ | 311 |
| |
Earnings per share, basic and diluted (Note 5) | $ | 0.34 |
| | $ | 0.17 |
| | $ | 1.11 |
| | $ | 0.41 |
| |
Dividends paid per share | $ | 0.34 |
| | $ | 0.31 |
| | $ | 0.98 |
| | $ | 0.93 |
| |
Weighted average shares outstanding (in thousands) (Note 5): | | | | | | | | |
Earnings (loss) before income taxes | | (393 | ) | | 299 |
|
| | 104 |
| | (30 | ) |
Net earnings (loss) | | $ | (289 | ) |
| $ | 269 |
|
| | | | |
Earnings (loss) per share, basic and diluted (Note 4) | | $ | (0.39 | ) | | $ | 0.35 |
|
Weighted average shares outstanding (in thousands) (Note 4): | | | | |
Basic | 754,986 |
| | 753,535 |
| | 756,531 |
| | 752,301 |
| 746,603 |
| | 756,815 |
|
Diluted | 757,389 |
| | 756,903 |
| | 759,116 |
| | 756,058 |
| 746,603 |
| | 759,462 |
|
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 2018 | | SEPTEMBER 2017 | | SEPTEMBER 2018 | | SEPTEMBER 2017 | MARCH 2019 | | MARCH 2018 |
Net earnings | $ | 255 |
| | $ | 130 |
| | $ | 841 |
| | $ | 311 |
| |
Net earnings (loss) | | $ | (289 | ) | | $ | 269 |
|
Other comprehensive income (loss): | | | | | | | | | | |
Foreign currency translation adjustments | 15 |
| | 24 |
| | (16 | ) | | 35 |
| 14 |
| | (15 | ) |
Changes in unamortized actuarial loss, net of tax of $12, $12, $94, and $62 | 38 |
| | 18 |
| | 291 |
| | 90 |
| |
Changes in unamortized net prior service credit, net of tax of $0, $0, $1, and $1 | (2 | ) | | (1 | ) | | (3 | ) | | (5 | ) | |
Unrealized gains on available-for-sale securities | — |
| | 1 |
| | — |
| | 2 |
| |
Changes in unamortized actuarial loss, net of tax expense of $111 and $19 | | 344 |
| | 54 |
|
Changes in unamortized net prior service credit, net of tax benefit of $0 and $0 | | — |
| | (1 | ) |
Total other comprehensive income | 51 |
| | 42 |
| | 272 |
| | 122 |
| 358 |
| | 38 |
|
Total comprehensive income | $ | 306 |
| | $ | 172 |
| | $ | 1,113 |
| | $ | 433 |
| $ | 69 |
| | $ | 307 |
|
See accompanying Notes to Consolidated Financial Statements.
WEYERHAEUSER COMPANY
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
| | DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA | SEPTEMBER 30, 2018 | | DECEMBER 31, 2017 | MARCH 31, 2019 | | DECEMBER 31, 2018 |
ASSETS | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | $ | 348 |
| | $ | 824 |
| $ | 259 |
| | $ | 334 |
|
Receivables, less discounts and allowances of $1 and $1 | 444 |
| | 396 |
| 398 |
| | 337 |
|
Receivables for taxes | 140 |
| | 14 |
| 163 |
| | 137 |
|
| 389 |
| | 383 |
| |
| | 451 |
| | 389 |
|
Prepaid expenses and other current assets | 140 |
| | 98 |
| 141 |
| | 152 |
|
Current restricted financial investments held by variable interest entities (Note 7) | 253 |
| | — |
| |
Current restricted financial investments held by variable interest entities (Note 6) | | 362 |
| | 253 |
|
Total current assets | 1,714 |
| | 1,715 |
| 1,774 |
| | 1,602 |
|
Property and equipment, less accumulated depreciation of $3,411 and $3,338 | 1,672 |
| | 1,618 |
| |
Property and equipment, less accumulated depreciation of $3,424 and $3,376 | | 1,917 |
| | 1,857 |
|
Construction in progress | 255 |
| | 225 |
| 102 |
| | 136 |
|
Timber and timberlands at cost, less depletion | 12,727 |
| | 12,954 |
| 12,586 |
| | 12,671 |
|
Minerals and mineral rights, less depletion | 297 |
| | 308 |
| 291 |
| | 294 |
|
Goodwill | 40 |
| | 40 |
| |
Deferred tax assets | 71 |
| | 268 |
| 18 |
| | 15 |
|
Other assets | 289 |
| | 316 |
| 444 |
| | 312 |
|
Restricted financial investments held by variable interest entities (Note 7) | 362 |
| | 615 |
| |
Restricted financial investments held by variable interest entities (Note 6) | | — |
| | 362 |
|
Total assets | $ | 17,427 |
| | $ | 18,059 |
| $ | 17,132 |
| | $ | 17,249 |
|
| | | | |
LIABILITIES AND EQUITY | | |
| | |
|
Current liabilities: | | | | | | |
Current maturities of long-term debt (Note 10) | $ | — |
| | $ | 62 |
| |
Current debt (nonrecourse to the company) held by variable interest entities (Note 7) | 511 |
| | 209 |
| |
Current maturities of long-term debt (Note 9) | | $ | — |
| | $ | 500 |
|
Current debt (nonrecourse to the company) held by variable interest entities (Note 6) | | 302 |
| | 302 |
|
| | 245 |
| | 425 |
|
Accounts payable | 271 |
| | 249 |
| 243 |
| | 222 |
|
| 491 |
| | 645 |
| |
| | 411 |
| | 490 |
|
Total current liabilities | 1,273 |
| | 1,165 |
| 1,201 |
| | 1,939 |
|
| 5,921 |
| | 5,930 |
| |
Long-term debt (nonrecourse to the company) held by variable interest entities (Note 7) | — |
| | 302 |
| |
Deferred pension and other postretirement benefits (Note 8) | 885 |
| | 1,487 |
| |
| | 6,156 |
| | 5,419 |
|
Deferred tax liabilities | | 34 |
| | 43 |
|
Deferred pension and other postretirement benefits (Note 7) | | 542 |
| | 527 |
|
Other liabilities | 291 |
| | 276 |
| 398 |
| | 275 |
|
Total liabilities | 8,370 |
| | 9,160 |
| 8,331 |
| | 8,203 |
|
|
|
| | | |
| | | | |
| |
|
| | |
Equity: | | | | | | |
Common shares: $1.25 par value; authorized 1,360,000,000 shares; issued and outstanding: 749,198,651 shares at September 30, 2018 and 755,222,727 shares at December 31, 2017 | 936 |
| | 944 |
| |
Common shares: $1.25 par value; authorized 1,360 million shares; issued and outstanding: 744,767 thousand shares at March 31, 2019 and 746,391 thousand shares at December 31, 2018 | | 931 |
| | 933 |
|
Other capital | 8,234 |
| | 8,439 |
| 8,121 |
| | 8,172 |
|
Retained earnings | 1,439 |
| | 1,078 |
| 543 |
| | 1,093 |
|
Accumulated other comprehensive loss (Note 13) | (1,552 | ) | | (1,562 | ) | |
Accumulated other comprehensive loss (Note 12) | | (794 | ) | | (1,152 | ) |
Total equity | 9,057 |
| | 8,899 |
| 8,801 |
| | 9,046 |
|
Total liabilities and equity | $ | 17,427 |
| | $ | 18,059 |
| $ | 17,132 |
| | $ | 17,249 |
|
See accompanying Notes to Consolidated Financial Statements.
WEYERHAEUSER COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) | | | YEAR-TO-DATE ENDED | QUARTER ENDED |
DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2018 | | SEPTEMBER 2017 | MARCH 2019 | | MARCH 2018 |
Cash flows from operations: | | | | | | |
Net earnings | $ | 841 |
| | $ | 311 |
| |
Noncash charges to earnings: | | | | |
Net earnings (loss) | | $ | (289 | ) | | $ | 269 |
|
Noncash charges to earnings (loss): | | | | |
Depreciation, depletion and amortization | 361 |
| | 394 |
| 123 |
| | 120 |
|
Basis of real estate sold | 80 |
| | 48 |
| 48 |
| | 12 |
|
Deferred income taxes, net | 111 |
| | 9 |
| (123 | ) | | 10 |
|
Pension and other postretirement benefits (Note 8) | 82 |
| | 72 |
| |
Pension and other postretirement benefits (Note 7) | | 478 |
| | 34 |
|
Share-based compensation expense | 31 |
| | 29 |
| 9 |
| | 9 |
|
| 1 |
| | 153 |
| |
Change in: | | | | | | |
Receivables, less allowances | (55 | ) | | (113 | ) | (77 | ) | | (83 | ) |
Receivables and payables for taxes | (109 | ) | | (116 | ) | (31 | ) | | 5 |
|
Inventories | (9 | ) | | 4 |
| (60 | ) | | (66 | ) |
Prepaid expenses | (7 | ) | | (9 | ) | (5 | ) | | (5 | ) |
Accounts payable and accrued liabilities | (133 | ) | | 184 |
| (82 | ) | | (173 | ) |
Pension and postretirement benefit contributions and payments | (355 | ) | | (59 | ) | (14 | ) | | (16 | ) |
Other | (19 | ) | | (60 | ) | 9 |
| | 20 |
|
Net cash from operations | 820 |
| | 847 |
| |
Net cash from (used in) operations | | (14 | ) | | 136 |
|
Cash flows from investing activities: | | | | | | |
Capital expenditures for property and equipment | (238 | ) | | (213 | ) | (41 | ) | | (61 | ) |
Capital expenditures for timberlands reforestation | (45 | ) | | (46 | ) | (18 | ) | | (20 | ) |
Proceeds from sale of assets and operations | 2 |
| | 423 |
| |
Proceeds from note receivable held by variable interest entities (Note 6) | | 253 |
| | — |
|
Other | 17 |
| | 28 |
| 18 |
| | 5 |
|
Net cash from (used in) investing activities | (264 | ) | | 192 |
| 212 |
| | (76 | ) |
Cash flows from financing activities: | | | | | | |
Cash dividends on common shares | (741 | ) | | (699 | ) | (254 | ) | | (242 | ) |
Proceeds from issuance of long-term debt (Note 10) | — |
| | 225 |
| |
| (62 | ) | | (831 | ) | |
Proceeds from borrowings on line of credit (Note 10) | — |
| | 100 |
| |
| — |
| | (100 | ) | |
| (273 | ) | | — |
| |
Net proceeds from issuance of long-term debt (Note 9) | | 739 |
| | — |
|
| | (512 | ) | | (62 | ) |
Proceeds from borrowings on line of credit (Note 9) | | 245 |
| | — |
|
| | (425 | ) | | — |
|
Proceeds from exercise of stock options | 52 |
| | 89 |
| 2 |
| | 25 |
|
| | (60 | ) | | — |
|
Other | (8 | ) | | (2 | ) | (8 | ) | | (7 | ) |
Net cash used in financing activities | (1,032 | ) | | (1,218 | ) | (273 | ) | | (286 | ) |
Net change in cash and cash equivalents | (476 | ) | | (179 | ) | (75 | ) | | (226 | ) |
Cash and cash equivalents at beginning of period | 824 |
| | 676 |
| 334 |
| | 824 |
|
Cash and cash equivalents at end of period | $ | 348 |
| | $ | 497 |
| $ | 259 |
| | $ | 598 |
|
Cash paid during the period for: | | | | | | |
Interest, net of amount capitalized of $8 and $6 | $ | 285 |
| | $ | 315 |
| |
Interest, net of amount capitalized of $1 and $3 | | $ | 127 |
| | $ | 105 |
|
Income taxes | $ | 80 |
| | $ | 129 |
| $ | 50 |
| | $ | 17 |
|
See accompanying Notes to Consolidated Financial Statements.
WEYERHAEUSER COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(UNAUDITED)
|
| | | | | | | |
| QUARTER ENDED |
DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA | MARCH 2019 | | MARCH 2018 |
Common shares: | | | |
Balance at beginning of period | $ | 933 |
| | $ | 944 |
|
Issued for exercised stock options and vested restricted stock units | 1 |
| | 2 |
|
| (3 | ) | | — |
|
Balance at end of period | 931 |
| | 946 |
|
Other Capital: | | | |
Balance at beginning of period | 8,172 |
| | 8,439 |
|
Issued for exercise of stock options | 2 |
| | 24 |
|
| (57 | ) | | — |
|
Shared-based compensation | 9 |
| | 9 |
|
Other transactions, net | (5 | ) | | (6 | ) |
Balance at end of period | 8,121 |
| | 8,466 |
|
Retained Earnings: | | | |
Balance at beginning of period | 1,093 |
| | 1,078 |
|
Net earnings (loss) | (289 | ) | | 269 |
|
Dividends on common shares | (254 | ) | | (242 | ) |
Adjustments related to accounting pronouncements and other | (7 | ) | | 260 |
|
Balance at end of period | 543 |
| | 1,365 |
|
Accumulated other comprehensive loss: | | | |
Balance at beginning of period | (1,152 | ) | | (1,562 | ) |
Other comprehensive income (loss) | 358 |
| | (224 | ) |
| (794 | ) | | (1,786 | ) |
Total equity: | | | |
Balance at end of period | $ | 8,801 |
| | $ | 8,991 |
|
| | | |
Dividends paid per common share | $ | 0.34 |
| | $ | 0.32 |
|
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: | | |
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NOTE 4: | | |
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NOTE 5: | | |
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NOTE 6: | | |
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NOTE 7: | | |
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NOTE 8: | | |
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NOTE 9: | | |
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NOTE 10: | | |
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NOTE 11: | | |
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NOTE 12: | | |
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NOTE 13: | | |
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NOTE 14: | | |
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NOTE 14:15: | | |
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NOTE 15: | | |
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NOTE 16: | | |
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NOTE 17: | | |
| | |
NOTE 18: | | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE QUARTERS ENDED MARCH 31, 2019 AND YEARS-TO-DATE ENDED SEPTEMBER 30, 2018 AND 2017
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 taxes on REIT taxable income that is distributed to shareholders. We are required to pay corporate income taxes on earnings of our taxable REIT subsidiaries (TRSs), which includes our Wood Products segment and portions of our Timberlands and Real Estate, Energy and Natural Resources (Real Estate & ENR) segments.
Our consolidated financial statements provide an overall view of our results of operations and financial condition. They include our accounts and the accounts of entities we control, including:
majority-owned domestic and foreign subsidiaries and
variable interest entities in which we are the primary beneficiary.
They do not include our intercompany transactions and accounts, which are eliminated.
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,” “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 information and footnote disclosures normally included in our annual Consolidated Financial Statements have been condensed or omitted. These quarterly 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, 2017.2018. Results of operations for interim periods should not necessarily be regarded as indicative of the results that may be expected for the full year.
NEW ACCOUNTING PRONOUNCEMENTS
Leases
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, which requires lessees to recognize assets and liabilities for the rights and obligations created by those leases and requires leases to be recognized on the balance sheet. The new guidance is effective for fiscal years beginning after December 15, 2018, and early adoption is permitted. We plan to adopt on January 1, 2019. We have evaluated the relevant guidance and will continue to monitor subsequent revisions either made or being contemplated by the FASB, including application of the available practical expedients. We estimate the adoption will result in the recognition of additional rights of use assets and lease liabilities for operating leases of less than 2 percent of our total assets on our Consolidated Balance Sheet. These leases are primarily related to vehicles, equipment, office and wholesale space leases previously disclosed in Note 14, “Legal Proceedings, Commitments and Contingencies,” in our Annual Report on Form 10-K for the year ended December 31, 2017.
Reclassification of Certain Amounts from Accumulated Other Comprehensive Loss
In February 2018, the FASB issued ASU 2018-02, which allows for the reclassification of certain income tax effects related to the Tax Cuts and Jobs Act (the "Tax Act") between “Accumulated other comprehensive loss” and “Retained earnings.” This ASU provides that adjustments to deferred tax liabilities and assets related to a change in tax laws be included in “Income from continuing operations”, even in situations where the related items were originally recognized in “Other comprehensive income.” The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. Adoption of this ASU is to be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the tax laws was recognized. We adopted this ASU during first quarter 2018 using the period of adoption method, which resulted in a reclassification of $253 million from "Accumulated other comprehensive loss" to "Retained earnings" on our Consolidated Balance Sheetdue to changes in federal statutory and effective state rates. In general, tax effects unrelated to the Tax Act are released from accumulated other comprehensive loss using the portfolio approach.
In January 2016, the FASB issued ASU 2016-01, which updates certain aspects of recognition, measurement, presentation and disclosure of financial instruments. We adopted ASU 2016-01 in first quarter 2018, which resulted in a reclassification of accumulated unrealized gains on available-for-sale securities of $9 million from "Accumulated other comprehensive loss" to "Retained earnings" on our Consolidated Balance Sheet.
NOTE 2: BUSINESS SEGMENTS
Reportable business segments are determined based on the company’s "management approach," as defined by ASC Topic 280, “Segment Reporting.” The management approach is based on the way the chief operating decision maker organizes the segments within a company for making decisions about resources to be allocated and assessing their performance.
We are principally engaged in growing and harvesting timber; manufacturing, distributing, and selling products made from trees; maximizing the value of every acre we own through the sale of higher and better use (HBU) properties; and monetizing reserves of minerals, oil, gas, coal, and other natural resources on our timberlands. The following is a brief description of each of our reportableOur business segments are categorized based primarily on products and activities:services which includes:
Timberlands – which includes logs, timber and leased recreational access;
Real Estate & ENR – which includes sales of timberlands;HBU properties, rights to explore for and extract hard minerals, construction materials, oil and gas production, wind, solar and coal; and equity interests in our Real Estate Development Ventures; and
Wood Products – which includes softwood lumber, engineered wood products, structural panels, medium density fiberboard and building materials distribution.
| | | QUARTER ENDED | | YEAR-TO-DATE ENDED | QUARTER ENDED |
DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2018 | | SEPTEMBER 2017 | | SEPTEMBER 2018 | | SEPTEMBER 2017 | MARCH 2019 | | MARCH 2018 |
Sales to unaffiliated customers: | | | | | | | | | | |
Timberlands(1) | $ | 468 |
| | $ | 491 |
| | $ | 1,455 |
| | $ | 1,446 |
| $ | 431 |
| | $ | 490 |
|
Real Estate & ENR | 96 |
| | 82 |
| | 205 |
| | 181 |
| 118 |
| | 51 |
|
Wood Products(1) | 1,346 |
| | 1,299 |
| | 4,180 |
| | 3,746 |
| 1,094 |
| | 1,324 |
|
| 1,910 |
| | 1,872 |
| | 5,840 |
| | 5,373 |
| 1,643 |
| | 1,865 |
|
Intersegment sales: | | | | | | | | | | |
Timberlands(1) | 185 |
| | 179 |
| | 598 |
| | 544 |
| 125 |
| | 142 |
|
| | | | |
|
| |
|
| | | |
Total sales | 2,095 |
| | 2,051 |
| | 6,438 |
| | 5,917 |
| 1,768 |
| | 2,007 |
|
Intersegment eliminations(1) | (185 | ) | | (179 | ) | | (598 | ) | | (544 | ) | (125 | ) | | (142 | ) |
Total | $ | 1,910 |
| | $ | 1,872 |
| | $ | 5,840 |
| | $ | 5,373 |
| $ | 1,643 |
| | $ | 1,865 |
|
Net contribution to earnings: | | | | | | | | | | |
Timberlands(1) | $ | 126 |
| | $ | 131 |
| | $ | 476 |
| | $ | 267 |
| |
Timberlands | | $ | 120 |
| | $ | 189 |
|
Real Estate & ENR | 36 |
| | 47 |
| | 83 |
| | 96 |
| 55 |
| | 25 |
|
Wood Products(2) | 213 |
| | 40 |
| | 812 |
| | 389 |
| 69 |
| | 270 |
|
| 375 |
| | 218 |
| | 1,371 |
| | 752 |
| 244 |
| | 484 |
|
Unallocated items(3)(2) | (42 | ) | | (17 | ) | | (172 | ) | | (113 | ) | (530 | ) | | (92 | ) |
Net contribution to earnings | 333 |
| | 201 |
| | 1,199 |
| | 639 |
| |
Net contribution to earnings (loss) | | (286 | ) | | 392 |
|
Interest expense, net of capitalized interest | (93 | ) | | (98 | ) | | (278 | ) | | (297 | ) | (107 | ) | | (93 | ) |
Earnings before income taxes | 240 |
| | 103 |
| | 921 |
| | 342 |
| |
Earnings (loss) before income taxes | | (393 | ) | | 299 |
|
Income taxes | 15 |
| | 27 |
| | (80 | ) | | (31 | ) | 104 |
| | (30 | ) |
Net earnings | $ | 255 |
| | $ | 130 |
| | $ | 841 |
| | $ | 311 |
| |
Net earnings (loss) | | $ | (289 | ) | | $ | 269 |
|
| |
(1) | Net contributionIn January 2019, we changed the way we report our Canadian Forestlands operations, which are primarily operated to earnings forsupply Weyerhaeuser’s Canadian Wood Products manufacturing facilities. As a result, we no longer report related intersegment sales in the Timberlands segment includes a noncash pretax impairment charge of $147 million, recorded during second quarter 2017. This impairment was a result of our agreementand we will now record the minimal associated third-party log sales in the Wood Products segment. These collective transactions did not contribute any earnings to sell our Uruguayan operations, as announced during June 2017. Refer to Note 15: Charges for Integration and Restructuring, Closures and Asset Impairments. the Timberlands segment. We have conformed prior period presentation with the current period. |
| |
(2) | Net contribution to earnings for the Wood Products segment includes a $25 million recovery and a $25 million charge recorded in the year-to-date period ended September 30, 2018, and $190 million and $240 million charges recorded in the quarter and year-to-date period ended September 30, 2017, respectively. We did not receive any insurance recoveries or record additional charges in third quarter 2018. These changes were recorded to accrue for estimated costs to remediate an issue with certain I-joists coated with our former Flak Jacket® Protection product. Refer to Note 16: Charges (Recoveries) for Product Remediation, Net for additional details. |
| |
(3) | Unallocated items are gains or charges not related to, or allocated to, an individual operating segment. They include all or a portion of items such as:as share-based compensation, expenses, pension and postretirement costs, foreign exchange transaction gains and losses and the elimination of intersegment profit in inventory and LIFO.LIFO, foreign exchange transaction gains and losses, interest income and other as well as legacy obligations. |
NOTE 3: REVENUE RECOGNITION
PERFORMANCE OBLIGATIONS
A performance obligation, as defined in ASC Topic 606, is a promise in a contract to transfer a distinct good or service to a customer. A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue at the point in time, or over the period, in which the performance obligation is satisfied.
Performance obligations associated with delivered log sales are typically satisfied when the logs are delivered to our customers’ mills or delivered to an ocean vessel in the case of export sales. Performance obligations associated with the sale of wood products are typically satisfied when the products are shipped. The company has elected, as an accounting policy, to treat shipping and handling that is performed after a customer obtains control of the product as an activity required to fulfill the promise to transfer the good; therefore we will not evaluate this requirement as a separate performance obligation.
Customers are generally invoiced shortly after logs are delivered or after wood products are shipped, with payment generally due within a month or less of the invoice date. ASC Topic 606 requires entities to consider significant financing components of contracts with customers, though allows for the use of a practical expedient when the period between satisfaction of a performance obligation and payment receipt is one year or less. Given the nature of our revenue transactions, we have elected to utilize this practical expedient.
Performance obligations associated with real estate sales are generally met when placed into escrow and all conditions of closing have been satisfied.
CONTRACT ESTIMATES
Substantially all of the company’s performance obligations are satisfied as of a point in time. Therefore, there is little judgment in determining when control transfers for our business segments as described above.
The transaction price for log sales generally equals the amount billed to our customer for logs delivered during the accounting period. For the limited number of log sales subject to a long-term supply agreement, the transaction price is variable but is known at the time of billing. For wood products sales, the transaction price is generally the amount billed to the customer for the products shipped but may be reduced slightly for estimated cash discounts and rebates.
There are no significant contract estimates related to the real estate business.
CONTRACT BALANCES
In general, customers are billed and a receivable is recorded as we ship and/or deliver wood products and logs. We generally receive payment shortly after products have been received by our customers. Contract asset and liability balances are immaterial.
For real estate sales, the company receives the entire consideration in cash at closing.
MAJOR PRODUCTS
A reconciliation of revenue recognized by our major products:
| | | QUARTER ENDED | | YEAR-TO-DATE ENDED | QUARTER ENDED |
DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2018 | | SEPTEMBER 2017 | | SEPTEMBER 2018 | | SEPTEMBER 2017 | MARCH 2019 | | MARCH 2018 |
Net sales: | | | | | | | | |
Net sales to unaffiliated customers: | | | | |
Timberlands Segment | | | | | | | | | | |
Delivered logs(1): | | | | | | | | | | |
West | | | | | | | | | | |
Domestic sales | $ | 125 |
| | $ | 102 |
| | $ | 398 |
| | $ | 347 |
| $ | 101 |
| | $ | 137 |
|
Export sales | 113 |
| | 119 |
| | 368 |
| | 326 |
| |
Export grade sales | | 104 |
| | 129 |
|
Subtotal West | 238 |
| | 221 |
| | 766 |
| | 673 |
| 205 |
| | 266 |
|
South | 157 |
| | 155 |
| | 472 |
| | 451 |
| 159 |
| | 157 |
|
North | 25 |
| | 25 |
| | 70 |
| | 68 |
| 29 |
| | 25 |
|
Other | 9 |
| | 17 |
| | 30 |
| | 48 |
| |
Subtotal delivered logs sales | 429 |
| | 418 |
| | 1,338 |
| | 1,240 |
| 393 |
| | 448 |
|
Stumpage and pay-as-cut timber | 13 |
| | 23 |
| | 39 |
| | 52 |
| 9 |
| | 15 |
|
Recreational and other lease revenue | 15 |
| | 16 |
| | 44 |
| | 45 |
| 15 |
| | 14 |
|
Other(2) | 11 |
| | 34 |
| | 34 |
| | 109 |
| 14 |
| | 13 |
|
Net sales attributable to Timberlands segment | 468 |
| | 491 |
| | 1,455 |
| | 1,446 |
| 431 |
| | 490 |
|
Real Estate & ENR Segment | | | | | | | | | | |
Real estate | 76 |
| | 64 |
| | 148 |
| | 128 |
| 96 |
| | 34 |
|
Energy and natural resources | 20 |
| | 18 |
| | 57 |
| | 53 |
| 22 |
| | 17 |
|
Net sales attributable to Real Estate & ENR segment | 96 |
| | 82 |
| | 205 |
| | 181 |
| 118 |
| | 51 |
|
Wood Products Segment | | | | | | | | | | |
Structural lumber | 581 |
| | 525 |
| | 1,831 |
| | 1,541 |
| 444 |
| | 569 |
|
Oriented strand board | | 160 |
| | 232 |
|
Engineered solid section | 132 |
| | 131 |
| | 400 |
| | 378 |
| 116 |
| | 129 |
|
Engineered I-joists | 91 |
| | 93 |
| | 261 |
| | 251 |
| 70 |
| | 78 |
|
Oriented strand board | 215 |
| | 243 |
| | 724 |
| | 671 |
| |
Softwood plywood | 53 |
| | 45 |
| | 158 |
| | 136 |
| 44 |
| | 50 |
|
Medium density fiberboard | 48 |
| | 48 |
| | 138 |
| | 146 |
| 38 |
| | 43 |
|
Complementary building products | 152 |
| | 146 |
| | 449 |
| | 417 |
| 137 |
| | 137 |
|
Other | 74 |
| | 68 |
| | 219 |
| | 206 |
| |
Other(3) | | 85 |
| | 86 |
|
Net sales attributable to Wood Products segment | 1,346 |
| | 1,299 |
| | 4,180 |
| | 3,746 |
| 1,094 |
| | 1,324 |
|
Total net sales | $ | 1,910 |
| | $ | 1,872 |
| | $ | 5,840 |
| | $ | 5,373 |
| $ | 1,643 |
| | $ | 1,865 |
|
| |
(1) | The West region includes Washington and Oregon. The South region includes Virginia, North Carolina, South Carolina, Florida, Georgia, Alabama, Mississippi, Louisiana, Arkansas, Texas and Oklahoma. The North region includes West Virginia, Maine, New Hampshire, Vermont, Michigan, Wisconsin and Montana. Other includesIn January 2019, we changed the way we report our Canadian Forestlands operations. We no longer report intersegment sales related to these operations in the Timberlands segment and former Twin Creeks Venture (terminated in December 2017).now record the minimal associated third-party log sales within the Wood Products segment. Refer to Note 2: Business Segments for additional details. |
| |
(2) | Other Timberlands sales include sales of seeds and seedlings from our nursery operations and chips. |
| |
(3) | Other Wood Products sales include chips, as well asother byproducts and third-party residual log sales from our former Uruguayan operations (sold during third quarter 2017). Our former Uruguayan operations included logs, plywood and hardwood lumber harvested or produced. Refer to Note 4: Operations Divested for further information.Canadian Forestlands operations. |
NOTE 4: OPERATIONS DIVESTED
On October 12, 2016, we announced the exploration of strategic alternatives for our Uruguay timberlands and manufacturing operations, which was part of our Timberlands business segment. On June 2, 2017, the Weyerhaeuser Board of Directors approved an equity purchase agreement with a consortium led by BTG Pactual's Timberland Investment Group (TIG), including other long-term investors, pursuant to which the Company agreed to sell, in exchange for $403 million in cash, all of its equity interest in the subsidiaries that collectively owned and operated its Uruguayan timberlands and manufacturing operations.
The sale of our Uruguayan operations was not considered a strategic shift that had or will have a major effect on our operations or financial results, and therefore did not meet the requirements for presentation as discontinued operations.
NOTE 5:4: NET EARNINGS (LOSS) PER SHARE AND SHARE REPURCHASES
Our basic and diluted earnings (loss) per share were:
$0.34(0.39) during thirdfirst quarter 20182019 and $1.11 during year-to-date 2018;
$0.170.35 during thirdfirst quarter 2017 and $0.41 during year-to-date 2017.2018.
Basic earnings (loss) per share is net earnings (loss) 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 (loss) per share is net earnings (loss) divided by the sum of the weighted average number of our outstanding common shares and the effect of our outstanding dilutive potential common shares. | | | QUARTER ENDED | | YEAR-TO-DATE ENDED | QUARTER ENDED |
SHARES IN THOUSANDS | SEPTEMBER 2018 | | SEPTEMBER 2017 | | SEPTEMBER 2018 | | SEPTEMBER 2017 | MARCH 2019 | | MARCH 2018 |
Weighted average common shares outstanding – basic | 754,986 |
| | 753,535 |
| | 756,531 |
| | 752,301 |
| 746,603 |
| | 756,815 |
|
Dilutive potential common shares: | | | | | | | | | | |
Stock options | 1,370 |
| | 2,437 |
| | 1,560 |
| | 2,754 |
| — |
| | 1,682 |
|
Restricted stock units | 629 |
| | 551 |
| | 570 |
| | 529 |
| — |
| | 569 |
|
Performance share units | 404 |
| | 380 |
| | 455 |
| | 474 |
| — |
| | 396 |
|
Total effect of outstanding dilutive potential common shares | 2,403 |
| | 3,368 |
| | 2,585 |
| | 3,757 |
| — |
| | 2,647 |
|
Weighted average common shares outstanding – dilutive | 757,389 |
| | 756,903 |
| | 759,116 |
| | 756,058 |
| 746,603 |
| | 759,462 |
|
We use the treasury stock method to calculate the dilutive effect of our outstanding stock options, restricted stock units and performance share units. Share-based payment awards that are contingently issuable upon the achievement of specified performance or market conditions are included in our diluted earnings per share calculation in the period in which the conditions are satisfied.
Potential 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.
| | | QUARTER ENDED | | YEAR-TO-DATE ENDED | QUARTER ENDED |
SHARES IN THOUSANDS | SEPTEMBER 2018 | | SEPTEMBER 2017 | | SEPTEMBER 2018 | | SEPTEMBER 2017 | MARCH 2019 | | MARCH 2018 |
Stock options | 1,166 |
| | 1,381 |
| | 1,166 |
| | 1,381 |
| 2,862 |
| | 1,301 |
|
Restricted stock units | | 383 |
| | — |
|
Performance share units | 830 |
| | 556 |
| | 830 |
| | 556 |
| 1,356 |
| | 744 |
|
Share Repurchase Program
The 2016 Share Repurchase Authorization wasOn February 7, 2019, our board of directors approved and announced in November 2015 by our Board of Directors anda new share repurchase program (the 2019 Repurchase Program) under which we are authorized management to repurchase up to $2.5 billion$500 million of outstanding shares. WeOn the same day, the board terminated the remaining repurchase authorization under the share repurchase program approved by the board in November 2015.
During first quarter 2019, we repurchased 8,583,244over 2.3 million common shares for $290approximately $60 million (including transaction fees) during third quarter 2018 and 8,585,844 shares for $291 million (including transaction fees) during year-to-date 2018, under the 2016 Share2019 Repurchase Authorization. Transaction fees incurredProgram. As of March 31, 2019, we had remaining authorization of $440 million for repurchases arefuture share repurchases. We did not counted as use of funds authorized for repurchase under the 2016 Share Repurchase Authorization. shares during first quarter 2018.
All common share purchases under the share repurchase program are expected to be made in open-market transactions. As of September 30, 2018, we had remaining authorization of $210 million for future share repurchases.
We record share repurchases upon trade date as opposed to the settlement date when cash is disbursed. We record a liability for repurchases that have not yet been settled as of period end. There were $18 million of unsettled repurchases as of September 30, 2018 and no unsettled repurchases as of March 31, 2019 or December 31, 2017.2018.
NOTE 6:5: INVENTORIES
Inventories include raw materials, work-in-process, finished goods, andas well as materials and supplies.
| | DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 30, 2018 | | DECEMBER 31, 2017 | MARCH 31, 2019 | | DECEMBER 31, 2018 |
LIFO inventories: |
|
|
|
|
|
|
|
|
|
|
Logs | $ | 16 |
|
| $ | 17 |
| $ | 15 |
|
| $ | 11 |
|
Lumber, plywood, panels and fiberboard | 63 |
|
| 66 |
| 83 |
|
| 75 |
|
Other products | 13 |
| | 10 |
| 12 |
| | 10 |
|
FIFO or moving average cost inventories: |
|
|
|
|
|
|
|
|
|
|
Logs | 21 |
|
| 38 |
| 58 |
|
| 35 |
|
Lumber, plywood, panels, fiberboard and engineered wood products | 107 |
|
| 91 |
| 105 |
|
| 86 |
|
Other products | 80 |
|
| 77 |
| 86 |
|
| 83 |
|
Materials and supplies | 89 |
|
| 84 |
| 92 |
|
| 89 |
|
Total | $ | 389 |
|
| $ | 383 |
| $ | 451 |
|
| $ | 389 |
|
LIFO – the last-in, first-out method – applies to major inventory products held at our U.S. locations. The FIFO – the first-in, first-out method – or moving average cost methods apply to the balance of our U.S. raw material and product inventories, all material and supply inventories and all foreign inventories. If we used FIFO for all LIFO inventories, our stated inventories would have been higher by $69$79 million as of September 30, 2018,March 31, 2019, and $70 millionas of December 31, 2017.2018.
NOTE 7: SPECIAL-PURPOSE6: VARIABLE INTEREST ENTITIES
From 2002 through 2004, we sold certain nonstrategic timberlands in five separate transactions.timberlands. As a result of these sales, buyer-sponsored and monetization variable interest entities, or special purpose entities (SPEs), were formed. We are the primary beneficiary and consolidate the assets and liabilities of certain monetization and buyer-sponsored Special-purpose entities (SPEs)the SPEs involved in these transactions. We have an equity interest
The assets of the buyer-sponsored SPEs are financial investments which consist of bank guarantees. These bank guarantees are in turn backed by bank notes, which are the liabilities of the monetization SPEs, but no ownership interest inSPEs. Interest earned from the financial investments within the buyer-sponsored SPEs. The long-term notes ofSPEs is used to pay interest accrued on the corresponding monetization SPE’s note.
During first quarter 2019, we received $253 million in proceeds related to our monetizationbuyer-sponsored SPEs include $209 million and $302 million scheduled to mature inat maturity.
During fourth quarter 2018, and third quarter of 2019, respectively. we paid $209 million related to liabilities from our monetized SPEs at maturity.
The financial investments ofinvestment related to our buyer sponsored SPEs include $253remaining buyer-sponsored SPE is $362 million, scheduled to mature first quarter 2019. We have classified the long-term notes scheduled to mature in fourth quarter 2018 and third quarter 2019 as current liabilities and the financial investmentswhich is scheduled to mature in first quarter 2019 as2020. We have classified this in current receivablesassets on our Consolidated Balance Sheet. The note related to our remaining monetization SPE is $302 million and is scheduled to mature in third quarter of 2019. We have classified this in current liabilities on our Consolidated Balance Sheet.
NOTE 8:7: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
The components of net periodic benefit cost are:
| | | PENSION | PENSION |
| QUARTER ENDED | | YEAR-TO-DATE ENDED | QUARTER ENDED |
DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2018 | | SEPTEMBER 2017 | | SEPTEMBER 2018 | | SEPTEMBER 2017 | MARCH 2019 | | MARCH 2018 |
Service cost | $ | 10 |
| | $ | 9 |
| | $ | 28 |
| | $ | 26 |
| $ | 8 |
| | $ | 10 |
|
Interest cost | 58 |
| | 66 |
| | 177 |
| | 198 |
| 43 |
| | 60 |
|
Expected return on plan assets | (100 | ) | | (101 | ) | | (300 | ) | | (306 | ) | (62 | ) | | (100 | ) |
Amortization of actuarial loss | 56 |
| | 48 |
| | 169 |
| | 145 |
| 30 |
| | 61 |
|
Amortization of prior service cost | 1 |
| | 1 |
| | 3 |
| | 3 |
| 1 |
| | 1 |
|
Settlement charge | | 455 |
| | — |
|
Total net periodic benefit cost - pension | $ | 25 |
| | $ | 23 |
| | $ | 77 |
| | $ | 66 |
| $ | 475 |
| | $ | 32 |
|
| | | OTHER POSTRETIREMENT BENEFITS | OTHER POSTRETIREMENT BENEFITS |
| QUARTER ENDED | | YEAR-TO-DATE ENDED | QUARTER ENDED |
DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2018 | | SEPTEMBER 2017 | | SEPTEMBER 2018 | | SEPTEMBER 2017 | MARCH 2019 | | MARCH 2018 |
Interest cost | $ | 2 |
| | $ | 2 |
| | $ | 5 |
| | $ | 6 |
| $ | 2 |
| | $ | 2 |
|
Amortization of actuarial loss | 2 |
| | 2 |
| | 6 |
| | 6 |
| 2 |
| | 2 |
|
Amortization of prior service credit | (2 | ) | | (2 | ) | | (6 | ) | | (6 | ) | (1 | ) | | (2 | ) |
Total net periodic benefit cost - other postretirement benefits | $ | 2 |
| | $ | 2 |
| | $ | 5 |
| | $ | 6 |
| $ | 3 |
| | $ | 2 |
|
For the periods presented, service cost is included in "Cost"Costs of products sold,sales," "Selling expenses," and "General and administrative expenses". The remaining components are included in "Non-operating pension and other postretirement benefit costs." Refer to the Consolidated Statement of Operations.
FAIR VALUE OF PENSION PLAN ASSETS AND OBLIGATIONSFair Value of Pension Plan Assets and Obligations
WeIn our year-end reporting process, we estimate the fair value of pension plan assets based upon the information available during the year end reporting process. In some cases,at that time. For certain assets, 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 update the year endyear-end estimated fair value of pension plan assets in the second quarter of each year to incorporate year endfinal net asset values reflected in financial statements received after we have filed our Annual Report on Form 10-K. During second quarter 2018,At that time, we recorded an increase in the beginning of year fair value of the pension assets of $44 million, or less than 1 percent.
During second quarter 2018, wetypically also updated our mortality assumption andincorporate adjusted census data used to estimate our projected benefit obligation for our U.S. qualified pension plan. We recordedand record an adjustment to our projectedyear-to-date non-operating pension and other postretirement benefit obligation, incorporatingcosts to reflect the updated census data and applying new company-specific mortality data. As a result ofinformation. Historically, these updates, the beginning of year pension projected benefit obligation decreased by $155 million, or approximately 2 percent. The net effect of these updates, including the update to the pension assets, was a $199 million improvement in funded status.adjustments have not been material.
ACTIONS TO REDUCE PENSION PLAN OBLIGATIONS
On August 23,Actions to Reduce Pension Plan Obligations
As part of our continued efforts to reduce pension plan obligations, as announced in 2018, we announced actions intended to reduce the liabilitiestransferred approximately $1.5 billion of our U.S. qualified pension plan while maintaining the plan's current funded status. We offered certain U.S. terminated vested plan participants the opportunity to elect an immediate lump sum distribution of their pension benefits. Based on qualifying participant elections received by the company, we expect to make distributions from plan assets to those who elect to receive a lump sum in fourth quarter 2018. We also intend to transfer a portion of U.S. qualified pension planand liabilities to an insurance company through the purchase of a group annuity contract.contract in January 2019. In connection with this transaction, we recorded a noncash pretax preliminary settlement charge of $455 million during first quarter 2019, accelerating the recognition of previously unrecognized losses in “Accumulated other comprehensive loss”, that would have otherwise been recorded in subsequent periods. This transaction would alsosettlement charge will be funded withadjusted in the second quarter once we finalize the prior year-end fair values of pension plan assets and is expectedobligations. Refer to close in 2019. We expect“Fair Value of Pension Plan Assets and Obligations” above.
The settlement triggered a remeasurement of plan assets and liabilities, and accordingly, we have updated the discount rate used to record one-time noncash settlement chargesmeasure our projected benefit obligation for the lump sum offer and the annuity purchase upon the respective completion dates, with the amounts of each charge to be determined at that time.
To maintain the U.S. qualified pension plan's current funded status in connection with these transactions, we contributed $300 millionplan as of January 31, 2019 and to calculate the plan during third quarterrelated net periodic benefit cost for the remainder of 2019 to 4.30 percent from 4.40 percent as of December 31, 2018. Refer to Note 18: Income Taxes for details on the tax effects of this transaction.All other assumptions remain unchanged.
Additionally, Weyerhaeuser’sExpected Funding and Benefit Payments
We do not anticipate being required to make a contribution to our U.S. qualified pension plan assets are in the process of being transitioned to an allocation that will more closely match the plan’s liability profile going forward.
EXPECTED FUNDING AND BENEFIT PAYMENTS
In 2018,for 2019. For all other U.S. and Canadian pension and postretirement plans we expect to:
be required to contribute approximately $24 million for our Canadian registered plan;
be required to contribute or make benefit payments for our Canadian nonregistered plans of $2 million;
make benefit payments of $19approximately $40 million for our U.S. nonqualified pension plans; and
make benefit payments of $19 million for our U.S. and Canadian other postretirement plans.
We do not expect any contributions to our U.S. qualified pension plan in 2018 in addition to the $300 million contribution referenced above.2019.
NOTE 9:8: ACCRUED LIABILITIES
Accrued liabilities were comprised of the following:
| | DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 30, 2018 | | DECEMBER 31, 2017 | MARCH 31, 2019 | | DECEMBER 31, 2018 |
Accrued compensation and employee benefit costs | $ | 184 |
| | $ | 223 |
| |
Accrued taxes payable | 40 |
| | 43 |
| |
Compensation and employee benefit costs | | $ | 143 |
| | $ | 192 |
|
Current portion of lease liabilities (Note 14) | | 28 |
| | — |
|
Customer rebates, volume discounts and deferred income | 110 |
| | 96 |
| 65 |
| | 99 |
|
Interest | 84 |
| | 111 |
| 66 |
| | 109 |
|
Product remediation accrual | 4 |
| | 98 |
| |
Taxes payable | | 28 |
| | 30 |
|
Other | 69 |
| | 74 |
| 81 |
| | 60 |
|
Total | $ | 491 |
| | $ | 645 |
| $ | 411 |
| | $ | 490 |
|
NOTE 10:9: LONG-TERM DEBT AND LINES OF CREDIT
DuringIn February 2019, we issued $750 million of 4.00 percent notes due in November 2029. The net proceeds after deducting the discount, underwriting fees and issuance costs were $739 million. In March 2019, a portion of the net proceeds were used to redeem our outstanding $500 million 7.38 percent note due in October 2019. A pretax charge of $12 million was included in "Interest expense, net of capitalized interest" in the Consolidated Statement of Operations in first quarter 2018, we paid our $622019, for make-whole premiums, unamortized debt issuance costs and unamortized debt discounts in connection with the early extinguishment of the $500 million 7.00 percent debenture at maturity.note.
DuringAs of March 2017,31, 2019 and December 31, 2018, we entered into ahad $245 million and $425 million, respectively, of outstanding borrowings on our $1.5 billion five-year senior unsecured revolving credit facility. This credit facility that expires in March 2022. This replaced a $1.0 billion senior unsecured revolving credit facility. The entire amount is available to Weyerhaeuser Company. Interest on borrowings are at LIBOR plus a spread or at other interest rates mutually agreed upon between the borrower and the lending banks. As of September 30, 2018, there were no borrowings outstanding.
NOTE 11:10: FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values and carrying values of our long-term debt and line of credit consisted of the following:
| | | SEPTEMBER 30, 2018 | | DECEMBER 31, 2017 | MARCH 31, 2019 | | DECEMBER 31, 2018 |
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)(1): | | | | | | | | |
Long-term debt (including current maturities) and line of credit(1): | | | | | | | | |
Fixed rate | $ | 5,697 |
| | $ | 6,378 |
| | $ | 5,768 |
| | $ | 6,823 |
| $ | 5,931 |
| | $ | 6,775 |
| | $ | 5,694 |
| | $ | 6,345 |
|
Variable rate | 224 |
| | 225 |
| | 224 |
| | 225 |
| 470 |
| | 470 |
| | 650 |
| | 650 |
|
Total debt | $ | 5,921 |
| | $ | 6,603 |
| | $ | 5,992 |
| | $ | 7,048 |
| $ | 6,401 |
| | $ | 7,245 |
| | $ | 6,344 |
| | $ | 6,995 |
|
| |
(1) | Excludes nonrecourse debt held by our Variable Interest Entities (VIEs). |
To estimate the fair value of fixed rate long-term debt we used the following valuation approaches:
market approach, –which is based on quoted market prices we received for the same types and issues of our debt; 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 and line of credit instruments have net carrying values that approximate their fair values with only insignificant differences.
The inputs to these valuations are based on market data obtained from independent sources or information derived principally from observable market data. The difference between the fair value and the carrying value represents the theoretical net premium or discount we would pay or receive to retire all debt at the measurement date.
FAIR VALUE OF OTHER FINANCIAL INSTRUMENTS
We believe that our other financial instruments, including cash and cash equivalents, short-term investments, mutual fund investments held in grantor trusts, receivables, and payables, have net carrying values that approximate their fair values with only insignificant differences. This is primarily due to the short-term nature of these instruments and the allowance for doubtful accounts.
NOTE 12:11: LEGAL PROCEEDINGS, COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGSLegal Proceedings
ENVIRONMENTAL MATTERSEnvironmental Matters
Site Remediation
Under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) – commonly known as the Superfund – and similar state laws, we:
are a party to various proceedings related to the cleanup of hazardous waste sites and
have been notified that we may be a potentially responsible party related to the cleanup of other hazardous waste sites for which proceedings have not yet been initiated.
We have received notification from the Environmental Protection Agency (the EPA) and have acknowledged that we are a potentially responsible party in a portion of the Kalamazoo River Superfund site in southwest Michigan. Our involvement in the remediation site is based on our former ownership of the Plainwell, Michigan mill located within the remediation site. Several other companies also have been deemed potentially responsible parties as past or present owners or operators of facilities within the site, or as arrangers under CERCLA.
We cooperated with other parties to jointly implement an administrative order issued by the EPA on April 14, 2016, with respect to a
portion of the site comprising a stretch of the river approximately 1.7 miles long referred to as the Otsego Township Dam Area. During third quarter 2018, implementation of this administrative order was completed.
In 2010, the company, along with others, was named as a defendant by Georgia-Pacific Consumer Products LP, Fort James Corporation and Georgia-Pacific LLC in an action seeking contribution under CERCLA for remediation costs relating to a certain area within the site. On March 29, 2018, the U.S. District Court issued an opinion and order assigning the company responsibility for 5 percent of approximately $50 million in past costs incurred by the plaintiffs. The remaining 95 percent of this pool of past costs incurred was allocated to the plaintiffs and other defendants.
The opinion and order does not establish allocation for future remediation costs, and accordingly, we may incur additional costs in connection with future remediation tasks for other areas of the site. In connection with the opinion and order, we updated our best estimate of the liability associated with the site and recorded a pretax charge of $28 million in the first quarter as "Other operating costs (income), net" on the Consolidated Statement of Operations.
As of September 30, 2018,March 31, 2019, our total accrual for future estimated remediation costs on the active Superfund sites and other sites for which we are potentially responsible was approximately $67$62 million. These amounts are recorded in "Accrued liabilities" and "Other liabilities" on our Consolidated Balance Sheet.
Asset Retirement Obligations
We have obligations associated with the future 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, 2018,March 31, 2019, our accrued balance for these obligations was $30$32 million. These obligations are recorded in "Accrued liabilities" and "Other liabilities" on our Consolidated Balance Sheet. The accrued balance has not changed significantly since December 31, 2017.
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.
PRODUCT REMEDIATION
NOTE 13:12: ACCUMULATED OTHER COMPREHENSIVE LOSS
Changes in amounts included in our accumulated other comprehensive loss by component are:
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | PENSION | | OTHER POSTRETIREMENT BENEFITS | | | | |
DOLLAR AMOUNTS IN MILLIONS | Foreign currency translation adjustments | | Actuarial loss | Prior service cost | | Actuarial loss | Prior service credit | | Unrealized gains on available-for-sale securities | | Total |
Beginning balance as of December 31, 2017 | $ | 264 |
| | $ | (1,802 | ) | $ | (8 | ) | | $ | (48 | ) | $ | 23 |
| | $ | 9 |
| | $ | (1,562 | ) |
Other comprehensive income (loss) before reclassifications(1) | (16 | ) | | 159 |
| — |
| | — |
| — |
| | — |
| | 143 |
|
Amounts reclassified from accumulated other comprehensive loss to earnings(1)(2) | — |
| | 127 |
| 1 |
| | 5 |
| (4 | ) | | — |
| | 129 |
|
Total other comprehensive income (loss) | (16 | ) | | 286 |
| 1 |
| | 5 |
| (4 | ) | | — |
| | 272 |
|
Reclassification of certain tax effects due to tax law changes(3) | — |
| | (245 | ) | (1 | ) | | (12 | ) | 5 |
| | — |
| | (253 | ) |
Reclassification of accumulated unrealized gains on available-for-sale securities(4) | — |
| | — |
| — |
| | — |
| — |
| | (9 | ) | | (9 | ) |
Net amounts reclassified from accumulated other comprehensive loss to retained earnings | — |
| | (245 | ) | (1 | ) | | (12 | ) | 5 |
| | (9 | ) | | (262 | ) |
Ending balance as of September 30, 2018 | $ | 248 |
| | $ | (1,761 | ) | $ | (8 | ) | | $ | (55 | ) | $ | 24 |
| | $ | — |
| | $ | (1,552 | ) |
|
| | | | | | | |
| QUARTER ENDED |
DOLLAR AMOUNTS IN MILLIONS | MARCH 2019 | | MARCH 2018 |
PENSION(1) | | | |
Balance at beginning of period | $ | (1,343 | ) | | $ | (1,810 | ) |
Other comprehensive income (loss) before reclassifications | (24 | ) | | 8 |
|
Amounts reclassified from accumulated other comprehensive loss to earnings(2) | 367 |
| | 46 |
|
Total other comprehensive income | 343 |
| | 54 |
|
Reclassification of certain effects due to tax law changes(3) | $ | — |
| | $ | (246 | ) |
Balance at end of period | $ | (1,000 | ) | | $ | (2,002 | ) |
OTHER POSTRETIREMENT BENEFITS(1) | | | |
Balance at beginning of period | $ | (19 | ) | | $ | (25 | ) |
Amounts reclassified from other comprehensive income (loss) to earnings(2) | 1 |
| | (1 | ) |
Total other comprehensive income (loss) | 1 |
| | (1 | ) |
Reclassification of certain effects due to tax law changes(3) | $ | — |
| | $ | (7 | ) |
Balance at end of period | $ | (18 | ) | | $ | (33 | ) |
TRANSLATION ADJUSTMENTS AND OTHER | | | |
Balance at beginning of period | $ | 210 |
| | $ | 273 |
|
Translation adjustments | 14 |
| | (15 | ) |
Total other comprehensive income (loss) | 14 |
| | (15 | ) |
Reclassification of accumulated unrealized gains on available-for-sale securities(4) | — |
| | (9 | ) |
Balance at end of period | $ | 224 |
| | $ | 249 |
|
Accumulated other comprehensive loss, end of period | $ | (794 | ) | | $ | (1,786 | ) |
| |
(1) | Amounts presented are presented net of tax. |
| |
(4) | We reclassified accumulated unrealized gains from available-for-sale securities of $9 million from "Accumulated other comprehensive loss" to "Retained earnings" on our Consolidated Balance Sheet in accordance with ASU 2016-01. SeeNote 1: Basis of Presentation.2016-01 which we adopted in 2018. |
NOTE 14:13: SHARE-BASED COMPENSATION
Share-based compensation activity during year-to-date 2018quarter-to-date 2019 included the following:
| | SHARES IN THOUSANDS | Granted | | Vested | GRANTED | | VESTED |
Restricted Stock Units (RSUs) | 731 |
| | 595 |
| 894 |
| | 599 |
|
Performance Share Units (PSUs) | 344 |
| | 112 |
| 421 |
| | 153 |
|
A total of 2.6 million725 thousand shares of common stock were issued as a result of RSU vestings, PSU vestings and stock option exercises.
RESTRICTED STOCK UNITSRestricted Stock Units
The weighted average fair value of the RSUs granted in 20182019 was $34.10.$25.83. The vesting provisions for RSUs granted in 20182019 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 forfeited if retirement occurs before the one-year anniversary of the grant;
continue vesting for oneconsistent with prior year in the event of involuntary termination when the retirement criteria has not been met; and
will be entirely forfeited upon termination of employment in all other situations including early retirement prior to age 62.grants.
PERFORMANCE SHARE UNITSPerformance Share Units
The weighted average grant date fair value of PSUs granted in 20182019 was $35.49.
$29.66. The final number of shares granted in 20182019 will range from 0 percent to 150 percent of each grant's target, depending upon actual company performance.
The ultimate number of PSUs earned is based on two measures:
our relative total shareholder return (TSR) ranking measuredperformance compared against the S&P 500 over a three year period and
our relative TSR ranking measured againstas well as an industry peer group of companies over a threegroup. These measures are consistent with those utilized in prior year period.
grants. The vesting provisions for PSUs granted in 20182019 were as follows:consistent with prior year grants.
vest 100 percent on the third anniversary of the grant date if the individual remains employed by the company;
fully vest in the event the participant dies or becomes disabled while employed;
continue to vest upon retirement at an age of at least 62, but a portion of the grant is forfeited if retirement occurs before the one year anniversary of the grant;
continue vesting for one year in the event of involuntary termination when the retirement criteria has not been met and the employee has met the second anniversary of the grant date; and
will be entirely forfeited 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 20182019
| | | Performance Share Units | PERFORMANCE SHARE UNITS |
Performance period | 1/1/2018 |
| – | 12/31/2020 | 1/1/2019 |
| – | 12/31/2021 |
Valuation date average stock price(1) | | | $34.14 | $25.83 |
Expected dividends | | | 3.81% | 5.25% |
Risk-free rate | 1.75 | % | – | 2.34% | 2.43 | % | – | 2.55% |
Expected volatility | 17.30 | % | – | 21.52% | 22.50 | % | – | 27.40% |
| |
(1) | Calculated as an average of the high and low prices on grant date. |
VALUE MANAGEMENT AWARDS
Value Management Awards (VMAs) are relative performance equity incentive awards granted to certain former employees of Plum Creek and assumed by the company in connection with the Plum Creek merger. In accordance with the terms of the merger, all VMAs outstanding on December 31, 2017, vested at “target” level performance of $100 per unit and were paid out in full in first quarter of 2018.
NOTE 15:CHARGES FOR INTEGRATION AND RESTRUCTURING, CLOSURES AND ASSET IMPAIRMENTS
|
| | | | | | | | | | | | | | | |
| QUARTER ENDED | | YEAR-TO-DATE ENDED |
DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2018 | | SEPTEMBER 2017 | | SEPTEMBER 2018 | | SEPTEMBER 2017 |
Integration and restructuring charges related to Plum Creek | $ | — |
| | $ | 6 |
| | $ | — |
| | $ | 20 |
|
Charges related to closures and other restructuring activities | — |
| | 2 |
| | 1 |
| | 5 |
|
Impairments of long-lived assets | — |
| | 6 |
| | 1 |
| | 153 |
|
Total charges for integration and restructuring, closures and asset impairments | $ | — |
| | $ | 14 |
| | $ | 2 |
| | $ | 178 |
|
IMPAIRMENTS OF LONG-LIVED ASSETS
In second quarter 2017, we recognized an impairment charge to the timberlands and manufacturing assets of our Uruguayan operations. On June 2, 2017, our Board of Directors approved an agreement to sell all of the Company's equity in the Uruguayan business to a consortium led by BTG Pactual's Timberland Investment Group (TIG). As a result of this agreement, the related assets met the criteria to be classified as held for sale. This designation required us to record the related assets at fair value, less an amount of estimated selling costs, and thus recognize a $147 million noncash pretax impairment charge. This amount was recorded in the Timberlands segment. The fair value of the related assets was primarily based on the agreed upon cash purchase price of $403 million. On September 1, 2017, we announced the completion of the sale. Refer to Note 4: Operations Divested for further details of the Uruguayan operations sale.
Additionally, in September 2017, we recognized an impairment charge of $6 million related to a non-strategic asset in our Wood Products segment. The fair value of the asset was determined using a contract value associated with the asset sale.
NOTE 16:14: CHARGES (RECOVERIES) FOR PRODUCT REMEDIATION, NETLEASES
In July 2017,We account for leases in accordance with ASC Topic 842, Leases, which we announced we were implementingadopted on January 1, 2019, using the modified retrospective transition approach at the beginning of the adoption period through a solutioncumulative-effect adjustment to address concerns regardingretained earnings. This adoption resulted in the recognition of right-of-use assets ("ROU assets") of $165 million and lease liabilities of $172 million, with the difference of $7 million recorded to "Retained earnings", on our TJI® Joists coated with our former Flak Jacket® Protection product. This issue was isolated to Flak Jacket product manufactured after DecemberConsolidated Balance Sheet on January 1, 2016, and did not affect any2019.
The majority of our other products. Inoperating leases are related to our office and warehouse space, and the majority of our financing leases are related to vehicles and forklifts. Our leases have remaining lease terms of approximately 1 year to 25 years. Options to renew, extend or terminate a lease are reflected in our lease terms when we believe it is reasonably certain we will exercise that option. When our leases do not provide an implicit or an explicit interest rate, we use our incremental borrowing rate in determining the present value of lease payments.
Expense related to leases for first quarter 2018, we received and recorded insurance recoveries of $20 million. During second quarter 2018, we recorded an additional charge of $25 million as a result of additional product remediation expenses, partially offset by2019 was $5 million and $4 million for operating leases and financing leases, respectively. Cash flows related to operating and financing leases were immaterial in first quarter 2019.
Supplemental balance sheet information related to leases was as follows:
|
| | | | |
DOLLAR AMOUNTS IN MILLIONS | | MARCH 31, 2019 |
LEASES | BALANCE SHEET CLASSIFICATION | |
Assets | | |
Operating lease right-of-use assets | Other assets | $ | 125 |
|
Financing lease right-of-use assets | Property and equipment, less accumulated depreciation | 34 |
|
Total leased assets | | $ | 159 |
|
Liabilities
| | |
Current: | | |
Operating lease liabilities | Accrued liabilities | $ | 14 |
|
Financing lease liabilities | Accrued liabilities | 14 |
|
Noncurrent: | | |
Operating lease liabilities | Other liabilities | 113 |
|
Financing lease liabilities | Other liabilities | 24 |
|
Total lease liabilities | | $ | 165 |
|
Weighted average remaining lease term as of insurance recoveries. We did not receive any insurance recoveries or record additional charges in third quarter 2018. During the quarter and year-to-date period ended September 30, 2017, we recorded $190 million and $240 millionMarch 31, 2019:
|
| |
Operating leases | 10 years |
Financing leases | 3 years |
Weighted average discount rate as of
product remediation charges, respectively. The charges and recoveries are attributable to our Wood Products segment and were recorded in "Charges (recoveries) for product remediation, net" on the Consolidated StatementMarch 31, 2019: |
| | |
Operating leases | 4.3 | % |
Financing leases | 2.9 | % |
Maturities of Operations.lease liabilities as of March 31, 2019:
|
| | | | | | | |
DOLLAR AMOUNTS IN MILLIONS | OPERATING LEASES | | FINANCING LEASES |
2019 | $ | 15 |
| | $ | 12 |
|
2020 | 20 |
| | 12 |
|
2021 | 16 |
| | 8 |
|
2022 | 17 |
| | 5 |
|
2023 | 15 |
| | 3 |
|
Thereafter | 76 |
| | — |
|
Total lease payments | 159 |
| | 40 |
|
Less: interest | (32 | ) | | (2 | ) |
Total present value of lease liabilities | $ | 127 |
| | $ | 38 |
|
NOTE 17:15: 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), NETItems Included in Other Operating Costs, Net
| | | QUARTER ENDED | | YEAR-TO-DATE ENDED | QUARTER ENDED |
DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2018 | | SEPTEMBER 2017 | | SEPTEMBER 2018 | | SEPTEMBER 2017 | MARCH 2019 | | MARCH 2018 |
Gain on disposition of nonstrategic assets | $ | (1 | ) | | $ | (5 | ) | | $ | (4 | ) | | $ | (14 | ) | |
Foreign exchange losses (gains), net | 2 |
| | (3 | ) | | 2 |
| | — |
| |
Recoveries for product remediation | | $ | — |
| | $ | (20 | ) |
Foreign exchange loss, net | | 3 |
| | 2 |
|
Litigation expense, net | 10 |
| | 8 |
| | 23 |
| | 14 |
| 25 |
| | 5 |
|
Other, net(1) | 10 |
| | (12 | ) | | 45 |
| | 2 |
| 8 |
| | 23 |
|
Total other operating costs (income), net | $ | 21 |
| | $ | (12 | ) | | $ | 66 |
| | $ | 2 |
| |
Total other operating costs, net | | $ | 36 |
| | $ | 10 |
|
NOTE 18:16: INCOME TAXES
As a REIT, we generally are not subject to federal corporate level income taxes on REIT taxable income that is distributed to shareholders. We are required to pay corporate income taxes on earnings of our wholly-owned TRSs, which includes our Wood Products segment earnings and portions of our Timberlands and Real Estate & ENR segments' earnings.
The quarterly provision for income taxes is based on theour current estimate of the annual effective tax rate.rate and is adjusted for discrete taxable events that may occur during the quarter. Our 20182019 estimated annual effective tax rate for our TRSs, excluding discrete items, is approximately 2520.5 percent, which is higherslightly lower than the U.S. domesticfederal statutory federal tax rate primarily due to state income taxes andtax benefits related to unitary state filings, partially offset by a higher foreign tax ratesrate applicable to foreign earnings.
TAX LEGISLATION
On December 22, 2017, H.R. 1, commonly known asCanadian earnings and the Tax Cuts and Jobs Act (the "Tax Act"), was enacted. The Tax Act contains significant changes to corporate taxation, including the reduction of the corporate tax rate from 35 percent to 21 percent. As a result of the reduction in the corporate tax rate, we revalued our deferred tax assets and liabilities and recorded a tax expense of $74 million during 2017, which reduced our net deferred tax asset. We were not required to pay a repatriation tax due to the fact that we had no foreign undistributed earnings.
The impact of the Tax Act provisions effective in 2018 is a reduction to our overall estimated annual effective tax rate primarily due to the reduced corporate tax rate.most Canadian earnings no longer being permanently reinvested.
DuringIn first quarter 2018,2019, we adopted ASU 2018-02 which allowed for the reclassificationrecorded as a discrete item a benefit of certain income tax effects$110 million related to the Tax Act between accumulated other comprehensive income and retained earnings.tax effects of the noncash pretax settlement charge recorded in connection with our U.S. pension plan. Refer to Note 1: Basis of Presentation for further details on this ASU and the related impact on our financial statements.
PENSION CONTRIBUTION TAX ADJUSTMENT
At the end of 2017, we revalued our deferred tax assets (including pension) to the 2018 federal tax rate of 21 percent, as a result of the Tax Act, as discussed above. During third quarter 2018, we announced actions intended to reduce the liabilities of our U.S. qualified pension plan while maintaining the plan’s current funded status and made a decision to contribute $300 million to our U.S. qualified pension plan (refer to Note 8:7: Pension and Other Postretirement Benefit Plans). We were able to deduct this contribution on our 2017 federal tax return at the 2017 federal tax rate of 35 percent. This resulted in an incremental $41 million tax benefit, for the portion attributable to our TRSs, during third quarter 2018.additional details.
ONGOING IRS MATTER
In connection with the merger with Plum Creek, we acquired equity interests in Southern Diversified Timber, LLC, a timberland joint venture (Timberland Venture) with an affiliate of Campbell Global LLC (TCG Member). On August 31, 2016, the Timberland Venture redeemed TCG Member's interest and became a fully consolidated, wholly-owned subsidiary of Weyerhaeuser.
We received a Notice of Final Partnership Administrative Adjustment (FPAA), dated July 20, 2016, from the Internal Revenue Service (IRS) in regard to Plum Creek's 2008 U.S. federal income tax treatment of the transaction forming the Timberland Venture. The IRS is asserting that the transfer of the timberlands to the Timberland Venture was a taxable transaction to Plum Creek at the time of the transfer rather than a nontaxable capital contribution. We have filed a petition in the U.S. Tax Court and will vigorously contest this adjustment.
In the event that we are unsuccessful in this tax litigation, we could be required to recognize and distribute gain to shareholders of approximately $600 million and pay built-in gains tax of approximately $100 million. We would also be required to pay interest on both of those amounts, which would be substantial. As much as 80 percent of any such gain 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. Alternatively, we could elect to retain the gain and pay corporate-level tax to minimize interest costs to the company.
Although the outcome of this process cannot be predicted with certainty, we are confident in our position based on U.S. tax law and believe we will be successful in defending it. Accordingly, no reserve has been recorded related to this matter.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)
NOTE ABOUT FORWARD-LOOKING STATEMENTS
This report contains statements concerning our future results and performance that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may appear throughout this report. These forward-looking statements generally are identified by words such as “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” and expressions such as “will be,” “will continue,” “will likely result,” and similar words and expressions. Forward-looking statements are based on our current expectations and assumptions and are not guarantees of future performance. The realization of our expectations and the accuracy of our assumptions are subject to a number of risks and uncertainties that could cause actual results to differ materially from the content of these forward-looking statements. These risks and uncertainties include, but are not limited to:
the effect of general economic conditions, including employment rates, interest rate levels, housing starts, general availability of financing for home mortgages and the relative strength of the U.S. dollar;
market demand for the company's products, including market demand for our timberland properties with higher and better uses, which is related to, among other factors, the strength of the various U.S. business segments and U.S. and international economic conditions;
changes in currency exchange rates, particularly the relative value of the U.S. dollar to the Japanese yen, the Chinese yuan, and the Canadian dollar, and the relative value of the euro to the yen;
restrictions on international trade and tariffs imposed on imports of our products and or exports;
the availability and cost of shipping and transportation;
economic activity in Asia, especially Japan and China;
performance of our manufacturing operations, including maintenance and capital requirements;
potential disruptions in our manufacturing operations;
the level of competition from domestic and foreign producers;
our operational excellence 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 internal plansstrategic divestitures, each of which is subject to a number of risks and strategic initiatives,conditions beyond our control including, but not limited to, timing and cost reduction initiatives;required regulatory approvals;
raw material availability and prices;
the effect of weather;
changes in global or regional climate conditions and governmental response to such changes;
the risk of loss from fires, floods, windstorms, hurricanes, pest infestation and other natural disasters;
energy prices;
transportation and labor availability and costs;
federal tax policies;
the effect of forestry, land use, environmental and other governmental regulations;
legal proceedings;
performance of pension fund investments and related derivatives;
the effect of timing of employee retirements and changes in the market price of our common stock on charges for share-based compensation;
the accuracy of our estimates of costs and expenses related to contingent liabilities;
changes in accounting principles; and
other risks and uncertainties identified in our 20172018 Annual Report on Form 10-K, which are incorporated herein by reference, as well as those set forth from time to time in our other public statements and other reports and filings with the SEC.
Forward-looking statements speak only as of the date they are made, and we undertake no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events, or otherwise.
RESULTS OF OPERATIONS
In reviewing our results of operations, it is important to understand these terms:
Sales realizations for Timberlands and Wood Products refer to net selling prices. This includes selling price plus freight, minus normal sales deductions. Real Estate transactions are presented at the contract sales price before commissions and closing costs, net of any credits.
Net contribution to earnings does not include interest expense and income taxes.
ECONOMIC AND MARKET CONDITIONS AFFECTING OUR OPERATIONS
The demand for grade logs within our Timberlands segment is directly affected by production levels of domestic wood-based building products. The strength of the U.S. housing market strongly affects demand in our Wood Products segment, as does repair and remodeling activity. Our Timberlands segment, specifically the Western region, is also affected by export demand and trade policy. Japanese housing starts are a key driver of export log demand infor Japan. The demand for pulpwood from our Timberlands segment is directly affected by the production of pulp, paper and OSB as well as the demand for biofuels, such as pellets made from pulpwood.
In thirdfirst quarter 2018,2019, housing starts averaged 1.22approximately 1.2 million total units on a seasonally adjusted annual basis according to the U.S.U.S Census Bureau. This was 3 percent below second quarter 2018 which averaged 1.26 million starts on a seasonally adjusted annual basis. Single family units averaged 870 thousand units in the quarter and accounted for 71 percent of total housing starts up from 67 percent in the first quarter 2018 and unchanged from second quarter 2018.quarter. Single family starts year-to-date average from third quarter 2017 to thirdare 2 percent higher than fourth quarter 2018 increased by 3 percent. Multifamily starts were at 347 thousand, which werebut 5 percent lower than secondfirst quarter 2018, and are up 72018. Multifamily units declined 19 percent from the same period in 2018. Severe weather in the first quarter was a contributing factor to the decline in starts compared to thirdwith first quarter in 2017.2018. We continue to expect improving U.S. housing starts and anticipate a level of approximately 1.28slightly below 1.3 million units in 2019 which would be an approximately 4 percent gain over 2018. We attribute this continued improvement primarily to ongoing employment growth, improvingstrong consumer confidence and mortgage rates, which while rising,have declined since peaking in late 2018 and remain affordable on a historic basis.
According to the Joint Center for Housing of Harvard University, the Leading Indicator of Remodeling Activity (LIRA) increased by 7.5projects that the year-over-year increase in residential remodeling expenditures reached 7 percent on a four quarter moving average basis in third quarter 2018 and is expected to increase to 7.7average 6.5 percent on the same basis in fourth quarter 2018.2019.
In U.S. wood product markets, first quarter 2019 prices retreatedmade a soft rebound from fourth quarter 2018. The price of the framing lumber composite averaged $355/MBF in thirdfirst quarter, 2018 from peak levels posted in secondwhile the fourth quarter 2018, as supply issues related to transportation eased and producers maximized output. Demand growth slowed, consistent with performance in the homebuilding segment, as described above.average was $347/MBF. According to Forest Economic Advisors, LLC, North AmericanU.S. lumber consumption is expected to grow at a 43.5 percent rate in 2019, however, due to declines forecast in off-shore export volumes and increases in off-shore imports, the increase in overall demand on North American mills is expected to rise by 2.5 percent over 2018. Log markets in the west were consistent with wood products manufacturing, exhibiting slower demand, resulting inand weaker market prices for western logs in thirdcontinued into the first quarter 2019 from the second half of 2018. In the south, log supplies kept pace with demand, leavingwet weather adversely affected logging operations and sawlog prices flat from secondincreased by 2 percent over fourth quarter 2018.
Log inventories in Chinese ports increased 3.7decreased 2.6 percent in the latter part of third quarter 2018March 2019 compared to February 2019 as reported by International Wood Markets China Bulletin,Bulletin. While the decline in overall volume was slight, there was a greater decline in North American Hemlock and Douglas fir volumes. These species were 7.8 percent lower in March 2019 compared to February 2019 which has positive implications for demand as suppliers will need to re-build depleted inventories. Exchange rates also reported continued good demand for construction lumber from imported logs. Volumesaffect our export business to China. A weaker yuan relative to the U.S. dollar reduces the competitiveness of U.S. log imports forlogs relative to those imported from other countries whose currencies have not appreciated in a similar manner. First quarter of 2019 the 8 months yearyuan continued to date are up 15 percent from 2017. slightly decrease relative to the U.S. dollar, which reduces the competitiveness of our export logs to China.
In Japan, housing starts for August 2018 were down 3.5January and February 2019 are up 2.7 percent from August 2017 whilethe same period in 2018 and the key Post and Beam segment was 1.32.8 percent lower in August 2018higher compared to August 2017.2018.
We expect demand from China and Japan in 20182019 to be similar to demand experienced in 2017.2018 levels.
Our Real Estate & ENR segment is affected by the health of the U.S. economy and especially the U.S. housing sector of the economy. According to the Realtors Land Institute (RLI) of the National Association of Realtors, the dollar volume of rural properties sold, including timber, grew 42 percent in 2017, while2018, and per acre prices were also up 32 percent on average. Additionally, RLI expects these trends to continue with prices and volumes of land transactions forecast to rise 3 percent in 2018.2019.
CONSOLIDATED RESULTS
How We Did ThirdFirst Quarter 2018 and Year-to-Date 20182019
| | | QUARTER ENDED |
| AMOUNT OF CHANGE |
| YEAR-TO-DATE ENDED |
| AMOUNT OF CHANGE | QUARTER ENDED |
| AMOUNT OF CHANGE |
DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURES | SEPTEMBER 2018 | | SEPTEMBER 2017 |
| 2018 VS. 2017 |
| SEPTEMBER 2018 |
| SEPTEMBER 2017 |
| 2018 VS. 2017 | MARCH 2019 | | MARCH 2018 |
| 2019 VS. 2018 |
Net sales | $ | 1,910 |
| | $ | 1,872 |
| | $ | 38 |
| | $ | 5,840 |
| | $ | 5,373 |
| | $ | 467 |
| $ | 1,643 |
| | $ | 1,865 |
| | $ | (222 | ) |
Costs of products sold | 1,452 |
| | 1,374 |
| | 78 |
| | 4,247 |
| | 3,982 |
| | 265 |
| |
Costs of sales | | 1,322 |
| | 1,348 |
| | (26 | ) |
Operating income | 337 |
| | 205 |
| | 132 |
| | 1,217 |
| | 655 |
| | 562 |
| 174 |
| | 404 |
| | (230 | ) |
Net earnings | 255 |
| | 130 |
| | 125 |
| | 841 |
| | 311 |
| | 530 |
| |
Earnings per share, basic and diluted | $ | 0.34 |
| | $ | 0.17 |
| | $ | 0.17 |
| | $ | 1.11 |
| | $ | 0.41 |
| | $ | 0.70 |
| |
Net earnings (loss) | | (289 | ) | | 269 |
| | (558 | ) |
Earnings (loss) per share, basic and diluted | | $ | (0.39 | ) | | $ | 0.35 |
| | $ | (0.74 | ) |
Comparing ThirdFirst Quarter 20182019 with ThirdFirst Quarter 20172018
Net sales
Net sales increased $38decreased $222 million – 212 percent – primarily attributabledue to:
Wood Products sales to unaffiliated customers decreased $230 million, primarily attributable to decreased sales realizations as well as decreased sales volumes across the majority of our product lines and
Timberlands sales to unaffiliated customers decreased $59 million, primarily attributable to decreased Western log sales realizations as well as sales volumes.
These decreases were offset by a $67 million increase in our Real Estate & ENR segment, which was primarily attributable to increased $47acres sold as well as increased average price per acre.
Costs of sales
Costs of sales decreased $26 million – 42 percent – primarily due to increaseddecreased sales realizations across all product lines except oriented strand board;volumes within our Wood Products and
Timberlands segments, as well as decreased log sourcing costs within our Timberlands segment, partially offset by an increase in acres sold within our Real Estate & ENR salessegment. Refer to unaffiliated customers increased $14 million – 17 percent – primarily due to increased acres sold.
These increases were offset by a $23 million – 5 percent – decrease in Timberlands sales to unaffiliated customers, primarily attributable to the divestitureadditional analysis of fluctuations within our Uruguayan operations in third quarter 2017.
Costs of products sold
Costs of products sold increased $78 million – 6 percent – primarily attributable to the following:
Wood Products segment costs of products sold increased $66 million – 7 percent – primarily due to increased log and fiber costs across all product lines in the West and Canada; and
These increases were partially offset by a $12 million decrease in Timberlands segment costs of products sold, primarily attributable to the divestiture of our Uruguayan operations in third quarter 2017.Natural ResourcesandWood Productsdiscussions below.
Operating income
Operating income increased $132decreased $230 million – 6457 percent – primarily due to:
a $196 million decrease in consolidated gross margin, as described above, and
a $26 million increase in other operating costs, primarily attributable to a $20 million legal charge recorded in first quarter 2019.
Net earnings
Net earnings decreased $558 million – 207 percent. This was primarily due to:
These increases toa $230 million decrease in operating income, were partially offset by the following:
decreased consolidated gross margin of $40 million, as described above; and
increased expenses of $33 million in other operating income (costs) comprised of many smaller fluctuations such as a $5 million increase in foreign exchange losses.
Net earnings
Net earnings increased $125 million – 96 percent. This was partially attributable to:
increased operating income of $132 million, as described above;above, and
| |
• | decreaseda $14 million increase in interest expense, net of $5capitalized interest, primarily attributable to a $12 million charge related to the early extinguishment of debt (refer to Interest Expense). |
These increaseschanges were partially offset by a $12$134 million decreasechange in income tax, benefitsresulting from a $104 million income tax benefit in first quarter 2019 compared to a $30 million income tax charge in first quarter 2018 (refer to Income Taxes).
Comparing Year-to-Date 2018 with Year-to-Date 2017
Net sales
Net sales increased $467 million – 9 percent – primarily attributable to the following factors:
Wood Products sales to unaffiliated customers increased $434 million – 12 percent – primarily due to increased sales realizations across all product lines;
Real Estate & ENR sales to unaffiliated customers increased $24 million – 13 percent – primarily attributable to increased acres sold; and
Timberlands sales to unaffiliated customers increased $9 million – 1 percent – primarily due to increased Western log sales realizations, offset by decreased revenue resulting from the divestiture of our Uruguayan operations in third quarter 2017.
Costs of products sold
Costs of products sold increased $265 million – 7 percent – primarily attributable to the following:
Wood Products segment costs of products sold increased $262 million – 9 percent – primarily due to increased log and fiber costs across all product lines in the West and Canada;
Real Estate & ENR segment costs of products sold increased $36 million – 54 percent – primarily attributable to an increase in acres sold;
Unallocated costs of products sold increased $19 million – 95 percent – primarily due to an increase in LIFO and intercompany profit elimination; and
Timberlands segment costs of products sold increased $4 million – less than 1 percent – primarily due to increased external sourcing costs in Canada and the West, offset by a decrease in costs of products sold from the divestiture of our Uruguayan operations in third quarter 2017.
These increases were partially offset by the elimination of costs of products sold associated with internal sales.
Operating income
Operating income increased $562 million – 86 percent – primarily attributable to:
an increased consolidated gross margin of $202 million, as described above; and
These increases were partially offset by a $28 million increase in expenses related to environmental remediation.
Net earnings
Net earnings increased $530 million – 170 percent. This was primarily attributable to:
increased operating income of $562 million, as described above; and
decreased interest expense, net of capitalized interest of $19 million.
These increases were partially offset by a $49 million increase in income tax expense (refer to Income Taxes).
TIMBERLANDS
How We Did ThirdFirst Quarter 2018 and Year-to-Date 20182019
| | | QUARTER ENDED | | AMOUNT OF CHANGE | | YEAR-TO-DATE ENDED | | AMOUNT OF CHANGE | QUARTER ENDED | | AMOUNT OF CHANGE |
DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2018 | | SEPTEMBER 2017 | | 2018 VS. 2017 | | SEPTEMBER 2018 | | SEPTEMBER 2017 | | 2018 VS. 2017 | MARCH 2019 | | MARCH 2018 | | 2019 VS. 2018 |
Net sales to unaffiliated customers: | | | | | | | | | | | | | | | | |
Delivered logs(1): | | | | | | | | | | | | |
Delivered logs: | | | | | | |
West | $ | 238 |
| | $ | 221 |
| | $ | 17 |
| | $ | 766 |
| | $ | 673 |
| | $ | 93 |
| $ | 205 |
| | $ | 266 |
| | $ | (61 | ) |
South | 157 |
| | 155 |
| | 2 |
| | 472 |
| | 451 |
| | 21 |
| 159 |
| | 157 |
| | 2 |
|
North | 25 |
| | 25 |
| | — |
| | 70 |
| | 68 |
| | 2 |
| 29 |
| | 25 |
| | 4 |
|
Other | 9 |
| | 17 |
| | (8 | ) | | 30 |
| | 48 |
| | (18 | ) | |
Subtotal delivered logs sales | 429 |
| | 418 |
| | 11 |
| | 1,338 |
| | 1,240 |
| | 98 |
| 393 |
| | 448 |
| | (55 | ) |
Stumpage and pay-as-cut timber | 13 |
| | 23 |
| | (10 | ) | | 39 |
| | 52 |
| | (13 | ) | 9 |
| | 15 |
| | (6 | ) |
Uruguay operations(2) | — |
| | 23 |
| | (23 | ) | | — |
| | 63 |
| | (63 | ) | |
Recreational and other lease revenue | 15 |
| | 16 |
| | (1 | ) | | 44 |
| | 45 |
| | (1 | ) | 15 |
| | 14 |
| | 1 |
|
Other | 11 |
| | 11 |
| | — |
| | 34 |
| | 46 |
| | (12 | ) | |
Other(1) | | 14 |
| | 13 |
| | 1 |
|
Subtotal net sales to unaffiliated customers | 468 |
| | 491 |
| | (23 | ) | | 1,455 |
| | 1,446 |
| | 9 |
| 431 |
| | 490 |
| | (59 | ) |
Intersegment sales: | | | | | | | | | | | | |
United States | 128 |
| | 125 |
| | 3 |
| | 409 |
| | 381 |
| | 28 |
| |
Other | 57 |
| | 54 |
| | 3 |
| | 189 |
| | 163 |
| | 26 |
| |
Subtotal intersegment sales | 185 |
| | 179 |
| | 6 |
| | 598 |
| | 544 |
| | 54 |
| |
Intersegment sales | | 125 |
| | 142 |
| | (17 | ) |
Total sales | $ | 653 |
| | $ | 670 |
| | $ | (17 | ) | | $ | 2,053 |
| | $ | 1,990 |
| | $ | 63 |
| $ | 556 |
| | $ | 632 |
| | $ | (76 | ) |
Costs of products sold | $ | 505 |
| | $ | 517 |
| | $ | (12 | ) | | $ | 1,516 |
| | $ | 1,512 |
| | $ | 4 |
| |
Costs of sales | | $ | 413 |
| | $ | 422 |
| | $ | (9 | ) |
Operating income and Net contribution to earnings | $ | 126 |
| | $ | 131 |
| | $ | (5 | ) | | $ | 476 |
| | $ | 267 |
| | $ | 209 |
| $ | 120 |
| | $ | 189 |
| | $ | (69 | ) |
| |
(1) | The West regionOther Timberlands sales includes Washingtonseeds and Oregon. The South region includes Virginia, North Carolina, South Carolina, Florida, Georgia, Alabama, Mississippi, Louisiana, Arkansas, Texas and Oklahoma. The North region includes West Virginia, Maine, New Hampshire, Vermont, Michigan, Wisconsin and Montana. Other includesseedlings from our Canadiannursery operations and previously managed Twin Creeks Venture. Our former agreement for the Twin Creeks Venture was terminated in December 2017. |
| |
(2) | Includes logs, plywood and hardwood lumber harvested or produced by our former international operations in Uruguay. On June 2nd, 2017, we agreed to sell all of our equity interest in the subsidiaries that collectively own and operate our Uruguayan timberlands and manufacturing operations and recorded a $147 million impairment in operating income within the Timberlands business segment during second quarter 2017. Our Uruguayan operations were divested on September 1, 2017. Refer to Note 4: Operations Divested and Note 15: Charges for Integration and Restructuring, Closures and Asset Impairments for further information. chips. |
In January 2019, we changed the way we report our Canadian Forestlands operations, which are primarily operated to supply Weyerhaeuser’s Canadian Wood Products manufacturing facilities. As a result, we no longer report related intersegment sales in the Timberlands segment and we will now record the minimal associated third-party log sales in the Wood Products segment. These collective transactions did not contribute any earnings to the Timberlands segment. We have conformed prior period presentation with the current period.
Comparing ThirdFirst Quarter 20182019 with ThirdFirst Quarter 20172018
Net sales to unaffiliated customers
Net sales to unaffiliated customers decreased $23$59 million – 512 percent – primarily due to decreased revenue resulting from the sale of our Uruguayan operationsa $61 million decrease in third quarter 2017.Western log sales, attributable to a 19 percent decrease in log sales realizations, as well as a 5 percent decrease in sales volumes.
Intersegment sales
Intersegment sales increased $6decreased $17 million – 312 percent – primarily due to increasesa decrease in Western log prices.
sales realizations, as discussed above.
Costs of products soldsales
Costs of products soldsales decreased $12$9 million – 2 percent – primarily due to the following:
a $21 million decrease in costs of products sold resulting from the sale of our Uruguayan operations in third quarter 2017; and
a $17 million decrease in costs of products sold resulting from the termination of our management agreement for the Twin Creeks Venture in fourth quarter 2017.
These decreases in costs of products sold were partially offset by a $20 million increase primarily due to higher externaldecreased log sourcing costs, in the West.as well as lower Western sales volumes, as discussed above.
Operating income and Net contribution to earnings
Operating income and Netnet contribution to earnings decreased $5$69 million – 4 percent – primarily attributable to the changes in net sales and costs of products sold as explained above.
Comparing Year-to-Date 2018 with Year-to-Date 2017
Net sales to unaffiliated customers
Net sales to unaffiliated customers increased $9 million – 1 percent – primarily due to:
a $93 million increase in Western log sales attributable to a 20 percent increase in Western log prices, partially offset by a 5 percent decrease in Western delivered log sales volumes.
This increase was partially offset by the following:
a $63 million decrease in revenue from our Uruguayan operations, which were divested in third quarter 2017;
an $18 million decrease in Other delivered log sales primarily resulting from the termination of our management agreement for the Twin Creeks Venture in fourth quarter 2017; and
a $13 million decrease in Stumpage and pay-as-cut timber sales.
Intersegment sales
Intersegment sales increased $54 million – 1037 percent – primarily due to increasesthe change in Western and Canada log prices, consistent with third party sales discussed above.
Costs of products sold
Costs of products sold increased $4 million – less than 1 percent – primarily due to:
a $72 million increase in costs of products sold primarily attributable to external sourcing costs in the West as a result of increased log prices;
a $20 million increase in costs of products sold in Canada, primarily due to a 5 percent increase in sales volume and increased sourcing costs; and
a $19 million increase in costs of products sold in the South, primarily due to a 4 percent increase in log sales volumes.
These increases were partially offset by:
a $70 million decrease in costs of products sold from our Uruguayan operations, which were divested in third quarter 2017; and
a $40 million decrease in costs of products sold resulting from the termination of our management agreement for the Twin Creeks Venture in fourth quarter 2017.
Operating income and Net contribution to earnings
Operating income and Net contribution to earnings increased $209 million – 78 percent – primarily attributable to:
increased gross margin, of $59 million, as discussed above.
THIRD-PARTY LOG SALES VOLUMES AND FEE HARVEST VOLUMESThird-Party Log Sales Volumes and Fee Harvest Volumes | | | QUARTER ENDED | | AMOUNT OF CHANGE | | YEAR-TO-DATE ENDED | | AMOUNT OF CHANGE | QUARTER ENDED | | AMOUNT OF CHANGE |
VOLUMES IN THOUSANDS(2) | SEPTEMBER 2018 | | SEPTEMBER 2017 | | 2018 VS. 2017 | | SEPTEMBER 2018 | | SEPTEMBER 2017 | | 2018 VS. 2017 | MARCH 2019 | | MARCH 2018 | | 2019 VS. 2018 |
Third party log sales – tons: | | | | | | | | | | | | | | | | |
West | 1,897 |
| | 1,910 |
| | (13 | ) | | 5,900 |
| | 6,210 |
| | (310 | ) | |
West(1) | | 1,920 |
| | 2,019 |
| | (99 | ) |
South | 4,521 |
| | 4,527 |
| | (6 | ) | | 13,591 |
| | 13,105 |
| | 486 |
| 4,499 |
| | 4,510 |
| | (11 | ) |
North | 414 |
| | 428 |
| | (14 | ) | | 1,131 |
| | 1,135 |
| | (4 | ) | 494 |
| | 404 |
| | 90 |
|
Other | 154 |
| | 424 |
| | (270 | ) | | 552 |
| | 1,226 |
| | (674 | ) | |
Total (3) | 6,986 |
| | 7,289 |
| | (303 | ) | | 21,174 |
| | 21,676 |
| | (502 | ) | |
Total | | 6,913 |
| | 6,933 |
| | (20 | ) |
Fee harvest volumes – tons: | | | | | | | | | | | | | | | | |
West | 2,305 |
| | 2,230 |
| | 75 |
| | 7,108 |
| | 7,539 |
| | (431 | ) | |
West(1) | | 2,385 |
| | 2,443 |
| | (58 | ) |
South | 6,478 |
| | 6,953 |
| | (475 | ) | | 19,859 |
| | 19,799 |
| | 60 |
| 6,492 |
| | 6,751 |
| | (259 | ) |
North | 537 |
| | 565 |
| | (28 | ) | | 1,509 |
| | 1,570 |
| | (61 | ) | 627 |
| | 549 |
| | 78 |
|
Other | — |
| | 569 |
| | (569 | ) | | — |
| | 1,384 |
| | (1,384 | ) | |
Total (3) | 9,320 |
| | 10,317 |
| | (997 | ) | | 28,476 |
| | 30,292 |
| | (1,816 | ) | |
Total | | 9,504 |
| | 9,743 |
| | (239 | ) |
| |
(1) | The West region includes Washington and Oregon. The South region includes Virginia, North Carolina, South Carolina, Florida, Georgia, Alabama, Mississippi, Louisiana, Arkansas, Texas and Oklahoma. The North region includes West Virginia, Maine, New Hampshire, Vermont, Michigan, Wisconsin and Montana. Other includes our Canadian operations and managed Twin Creeks Venture. Our management agreement for the Twin Creeks Venture began in April 2016 and terminated in December 2017. |
| |
(2) | Western logs are primarily transacted in thousand board feet (MBF) but are converted to ton equivalents for external reporting purposes. |
| |
(3) | Total volumes exclude third party log sales and fee harvest volumes from our former Uruguayan operations, which we sold during third quarter 2017. Refer to Note 4: Operations Divestedfor further information regarding this sale. |
REAL ESTATE, ENERGY AND NATURAL RESOURCES
How We Did ThirdFirst Quarter 2018 and Year-to-Date 20182019
| | | QUARTER ENDED | | AMOUNT OF CHANGE | | YEAR-TO-DATE ENDED | | AMOUNT OF CHANGE | QUARTER ENDED | | AMOUNT OF CHANGE |
DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2018 | | SEPTEMBER 2017 | | 2018 VS. 2017 | | SEPTEMBER 2018 | | SEPTEMBER 2017 | | 2018 VS. 2017 | MARCH 2019 | | MARCH 2018 | | 2019 VS. 2018 |
Net sales: | | | | | | | | | | | | | | | | |
Real estate | $ | 76 |
| | $ | 64 |
| | $ | 12 |
| | $ | 148 |
| | $ | 128 |
| | $ | 20 |
| $ | 96 |
| | $ | 34 |
| | $ | 62 |
|
Energy and natural resources | 20 |
| | 18 |
| | 2 |
| | 57 |
| | 53 |
| | 4 |
| 22 |
| | 17 |
| | 5 |
|
Total | $ | 96 |
| | $ | 82 |
| | $ | 14 |
| | $ | 205 |
| | $ | 181 |
| | $ | 24 |
| $ | 118 |
| | $ | 51 |
| | $ | 67 |
|
Costs of products sold | $ | 54 |
| | $ | 31 |
| | $ | 23 |
| | $ | 103 |
| | $ | 67 |
| | $ | 36 |
| |
Operating income and Net contribution to earnings | $ | 36 |
| | $ | 47 |
| | $ | (11 | ) | | $ | 83 |
| | $ | 96 |
| | $ | (13 | ) | |
Costs of sales | | $ | 56 |
| | $ | 19 |
| | $ | 37 |
|
Net contribution to earnings | | $ | 55 |
| | $ | 25 |
| | $ | 30 |
|
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. In any period, the average sales price per acre will vary based on the location and physical characteristics of parcels sold.
Comparing ThirdFirst Quarter 20182019 with ThirdFirst Quarter 20172018
Net sales
Net sales increased $14$67 million – 17131 percent – primarily attributabledue to an increase inincreased acres sold partially offset by a decrease in theas well as increased average price per acre sold.acre.
Costs of products soldsales
Costs of products soldsales increased $23$37 million – 74195 percent – primarily attributabledue to an increase inincreased acres sold, as discussed above, as well as a higher per acre basis of real estate sold.
above.
Net contribution to earnings
Net contribution to earnings decreased $11increased $30 million – 23120 percent – primarily attributabledue to decreasedthe increase in gross margin, as discussed above.
Comparing Year-to-Date 2018 with Year-to-Date 2017
Net sales
Net sales increased $24 million – 13 percent – primarily attributable to an increase in acres sold, partially offset by a decrease in the average price per acre sold.
Costs of products sold
Costs of products sold increased $36 million – 54 percent – primarily attributable to an increase in acres sold.
Net contribution to earnings
Net contribution to earnings decreased $13 million – 14 percent – primarily attributable to decreased gross margin, as discussed above.
REAL ESTATE SALES STATISTICS
| | | QUARTER ENDED | | AMOUNT OF CHANGE | | YEAR-TO-DATE ENDED | | AMOUNT OF CHANGE | QUARTER ENDED | | AMOUNT OF CHANGE |
| SEPTEMBER 2018 | | SEPTEMBER 2017 | | 2018 VS. 2017 | | SEPTEMBER 2018 | | SEPTEMBER 2017 | | 2018 VS. 2017 | MARCH 2019 | | MARCH 2018 | | 2019 VS. 2018 |
Acres sold | 61,681 |
| | 35,749 |
| | 25,932 |
| | 99,742 |
| | 59,009 |
| | 40,733 |
| 38,834 |
| | 21,771 |
| | 17,063 |
|
Average price per acre | $ | 1,209 |
| | $ | 1,784 |
| | $ | (575 | ) | | $ | 1,452 |
| | $ | 2,081 |
| | $ | (629 | ) | $ | 2,424 |
| | $ | 1,539 |
| | $ | 885 |
|
WOOD PRODUCTS
How We Did ThirdFirst Quarter 2018 and Year-to-Date 20182019
| | | QUARTER ENDED | | AMOUNT OF CHANGE | | YEAR-TO-DATE ENDED | | AMOUNT OF CHANGE | QUARTER ENDED | | AMOUNT OF CHANGE |
DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2018 | | SEPTEMBER 2017 | | 2018 VS. 2017 | | SEPTEMBER 2018 | | SEPTEMBER 2017 | | 2018 VS. 2017 | MARCH 2019 | | MARCH 2018 | | 2019 VS. 2018 |
Net sales: | | | | | | | | | | | | | | | | |
Structural lumber | $ | 581 |
| | $ | 525 |
| | $ | 56 |
| | $ | 1,831 |
| | $ | 1,541 |
| | $ | 290 |
| $ | 444 |
| | $ | 569 |
| | $ | (125 | ) |
Oriented strand board | | 160 |
| | 232 |
| | (72 | ) |
Engineered solid section | 132 |
| | 131 |
| | 1 |
| | 400 |
| | 378 |
| | 22 |
| 116 |
| | 129 |
| | (13 | ) |
Engineered I-joists | 91 |
| | 93 |
| | (2 | ) | | 261 |
| | 251 |
| | 10 |
| 70 |
| | 78 |
| | (8 | ) |
Oriented strand board | 215 |
| | 243 |
| | (28 | ) | | 724 |
| | 671 |
| | 53 |
| |
Softwood plywood | 53 |
| | 45 |
| | 8 |
| | 158 |
| | 136 |
| | 22 |
| 44 |
| | 50 |
| | (6 | ) |
Medium density fiberboard | 48 |
| | 48 |
| | — |
| | 138 |
| | 146 |
| | (8 | ) | 38 |
| | 43 |
| | (5 | ) |
Other products produced(1) | | 85 |
| | 86 |
| | (1 | ) |
Complementary building products | 152 |
| | 146 |
| | 6 |
| | 449 |
| | 417 |
| | 32 |
| 137 |
| | 137 |
| | — |
|
Other products produced | 74 |
| | 68 |
| | 6 |
| | 219 |
| | 206 |
| | 13 |
| |
Total | $ | 1,346 |
| | $ | 1,299 |
| | $ | 47 |
| | $ | 4,180 |
|
| $ | 3,746 |
| | $ | 434 |
| $ | 1,094 |
| | $ | 1,324 |
| | $ | (230 | ) |
Costs of products sold | $ | 1,071 |
| | $ | 1,005 |
| | $ | 66 |
| | $ | 3,195 |
| | $ | 2,933 |
| | $ | 262 |
| |
Costs of sales | | $ | 967 |
| | $ | 1,020 |
| | $ | (53 | ) |
Operating income and Net contribution to earnings | $ | 213 |
| | $ | 40 |
| | $ | 173 |
| | $ | 812 |
| | $ | 389 |
| | $ | 423 |
| $ | 69 |
| | $ | 270 |
| | $ | (201 | ) |
(1) Other products produced includes sales of chips, other byproducts and third-party residual log sales from our Canadian Forestlands operations.
Comparing ThirdFirst Quarter 20182019 with ThirdFirst Quarter 20172018
Net sales
Net sales increased $47decreased $230 million – 417 percent – primarily due to:
a$56 $125 million increasedecrease in structural lumber sales attributable to a 1421 percent increasedecrease in average sales realizations andas well as a 1 percent increase in sales volumes;
an$8 million increase in softwood plywood sales, attributable to a 14 percent increase in average sales realizations offset by a 10 percent decrease in sales volumes;
a$6 million increase in complementary building products sales due to higher market demand; and
a $6 million increase in other products produced sales due to higher sawmill production.
These increases were partially offset by a $28$72 million decrease in oriented strand board sales attributable to a 1029 percent decrease in realizations as well as a 3 percent decrease in sales volumes;
a $13 million decrease in engineered solid selection sales attributable to a 16 percent decrease in sales volumes, partially offset by a 26 percent increase in averagerealizations;
an $8 million decrease in engineered I-joist sales due to a 16 percent decrease in sales volumes, partially offset by an 8 percent increase in realizations and
a $6 million decrease in softwood plywood sales primarily due to a 13 percent decrease in realizations.
Costs of products soldsales
Costs of products sold increased $66sales decreased $53 million – 75 percent – primarily due to increased log costs in the West and Canada.
Operating income and Net contribution to earnings
This was offset by a decrease in gross margin of $19 million,lines, as discussed above.
Comparing Year-to-Date 2018 with Year-to-Date 2017
Net sales
Net sales increased $434 million – 12 percent – primarily due to:
a $290 million increase in structural lumber sales attributable to an 18 percent increase in average sale realizations and a 1 percent increase in sales volumes;
a $53 million increase in oriented strand board sales attributable to a 14 percent increase in average sales realizations, partially offset by a 5 percent decrease in sales volumes;
a $32 million increase in complementary building products sales due to higher market demand;
a $22 million increase in engineered solid section sales attributable to a 9 percent increase in average sales realizations, partially offset by a 6 percent decrease in sales volumes;
a $22 million increase in softwood plywood sales attributable to a 17 percent increase in average sales realizations, partially offset by a 1 percent decrease in sales volumes;
a $10 million increase in engineered i-joists sales attributable to an 8 percent increase in average sales realizations, partially offset by a 4 percent decrease in sales volumes.
Costs of products sold
Costs of products sold increased $262 million – 9 percent – primarily due to increased log costs in the West and Canada.
Operating income and Net contribution to earnings
Operating income and Netnet contribution to earnings increased $423decreased $201 million – 10974 percent – primarily attributable to:
increaseddue to the change in gross margin, of $172 million, as discussed above.
THIRD-PARTY SALES VOLUMES
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 2018 | | SEPTEMBER 2017 | | 2018 VS. 2017 | | SEPTEMBER 2018 | | SEPTEMBER 2017 | | 2018 VS. 2017 | MARCH 2019 | | MARCH 2018 | | 2019 VS. 2018 |
Structural lumber – board feet | 1,184 |
| | 1,172 |
| | 12 |
| | 3,585 |
| | 3,548 |
| | 37 |
| 1,133 |
| | 1,140 |
| | (7 | ) |
Oriented strand board – square feet (3/8”) | | 717 |
| | 739 |
| | (22 | ) |
Engineered solid section – cubic feet | 6.0 |
| | 6.4 |
| | (0.4 | ) | | 18.6 |
| | 19.2 |
| | (0.6 | ) | 5.2 |
| | 6.2 |
| | (1.0 | ) |
Engineered I-joists – lineal feet | 54 |
| | 60 |
| | (6 | ) | | 160 |
| | 166 |
| | (6 | ) | 41 |
| | 49 |
| | (8 | ) |
Oriented strand board – square feet (3/8”) | 669 |
| | 741 |
| | (72 | ) | | 2,162 |
| | 2,274 |
| | (112 | ) | |
Softwood plywood – square feet (3/8”) | 122 |
| | 117 |
| | 5 |
| | 355 |
| | 358 |
| | (3 | ) | 115 |
| | 115 |
| | — |
|
Medium density fiberboard – square feet (3/4”) | 59 |
| | 58 |
| | 1 |
| | 165 |
| | 177 |
| | (12 | ) | 44 |
| | 51 |
| | (7 | ) |
| |
(1) | Sales volumes include sales of internally produced products and products purchased for resale primarily through our distribution business. |
PRODUCTION AND OUTSIDE PURCHASE VOLUMES
Outside purchase volumes are primarily purchased for resale through our distribution business. Production volumes are produced for sale through our own sales organizations and through our distribution business. Production of oriented strand board and engineered solid section are also used to manufacture engineered I-joists.
| | | QUARTER ENDED | | AMOUNT OF CHANGE | | YEAR-TO-DATE ENDED | | AMOUNT OF CHANGE | QUARTER ENDED | | AMOUNT OF CHANGE |
VOLUMES IN MILLIONS | SEPTEMBER 2018 | | SEPTEMBER 2017 | | 2018 VS. 2017 | | SEPTEMBER 2018 | | SEPTEMBER 2017 | | 2018 VS. 2017 | MARCH 2019 | | MARCH 2018 | | 2019 VS. 2018 |
Structural lumber – board feet: | | | | | | | | | | | | | | | | |
Production | | 1,145 |
| | 1,160 |
| | (15 | ) |
Outside purchase | | 55 |
| | 47 |
| | 8 |
|
Total | | 1,200 |
| | 1,207 |
| | (7 | ) |
Oriented strand board – square feet (3/8”): | | | | | | |
Production | 1,106 |
| | 1,093 |
| | 13 |
| | 3,446 |
| | 3,391 |
| | 55 |
| 729 |
| | 734 |
| | (5 | ) |
Outside purchase | 55 |
| | 52 |
| | 3 |
| | 151 |
| | 152 |
| | (1 | ) | 81 |
| | 100 |
| | (19 | ) |
Total | 1,161 |
| | 1,145 |
| | 16 |
| | 3,597 |
| | 3,543 |
| | 54 |
| 810 |
| | 834 |
| | (24 | ) |
Engineered solid section – cubic feet: | | | | | | | | | | | | | | | | |
Production | 6.3 |
| | 6.4 |
| | (0.1 | ) | | 19 |
| | 19.3 |
| | (0.3 | ) | 5.9 |
| | 6.3 |
| | (0.4 | ) |
Outside purchase | 0.2 |
| | 0.4 |
| | (0.2 | ) | | 1.3 |
| | 1.4 |
| | (0.1 | ) | 0.1 |
| | 1.0 |
| | (0.9 | ) |
Total | 6.5 |
| | 6.8 |
| | (0.3 | ) | | 20.3 |
| | 20.7 |
| | (0.4 | ) | 6.0 |
| | 7.3 |
| | (1.3 | ) |
Engineered I-joists – lineal feet: | | | | | | | | | | | | | | | | |
Production | 46 |
| | 58 |
| | (12 | ) | | 154 |
| | 161 |
| | (7 | ) | 44 |
| | 56 |
| | (12 | ) |
Outside purchase | 4 |
| | 6 |
| | (2 | ) | | 11 |
| | 12 |
| | (1 | ) | 2 |
| | 3 |
| | (1 | ) |
Total | 50 |
| | 64 |
| | (14 | ) | | 165 |
| | 173 |
| | (8 | ) | 46 |
| | 59 |
| | (13 | ) |
Oriented strand board – square feet (3/8”): | | | | | | | | | | | | |
Production | 665 |
| | 744 |
| | (79 | ) | | 2,146 |
| | 2,256 |
| | (110 | ) | |
Outside purchase | 82 |
| | 105 |
| | (23 | ) | | 292 |
| | 309 |
| | (17 | ) | |
Total | 747 |
| | 849 |
| | (102 | ) | | 2,438 |
| | 2,565 |
| | (127 | ) | |
Softwood plywood – square feet (3/8”): | | | | | | | | | | | | | | | | |
Production | 106 |
| | 88 |
| | 18 |
| | 308 |
| | 284 |
| | 24 |
| 98 |
| | 97 |
| | 1 |
|
Outside purchase | 19 |
| | 21 |
| | (2 | ) | | 59 |
| | 62 |
| | (3 | ) | 16 |
| | 20 |
| | (4 | ) |
Total | 125 |
| | 109 |
| | 16 |
| | 367 |
| | 346 |
| | 21 |
| 114 |
| | 117 |
| | (3 | ) |
Medium density fiberboard – square feet (3/4"): | Medium density fiberboard – square feet (3/4"): | | | | | | | | | Medium density fiberboard – square feet (3/4"): | | |
Production | 61 |
| | 63 |
| | (2 | ) | | 168 |
| | 182 |
| | (14 | ) | 45 |
| | 50 |
| | (5 | ) |
Outside purchase | | — |
| | — |
| | — |
|
Total | 61 |
| | 63 |
| | (2 | ) | | 168 |
| | 182 |
| | (14 | ) | 45 |
| | 50 |
| | (5 | ) |
UNALLOCATED ITEMS
Unallocated Itemsitems are gains or charges not related to, or allocated to, an individual operating segment. They include all or a portion of items such as share-based compensation, pension and postretirement costs, foreign exchange transaction gains and losses, and the elimination of intersegment profit in inventory and LIFO.
NET CONTRIBUTION TO EARNINGS – UNALLOCATED ITEMS
|
| | | | | | | | | | | | | | | | | | | | | | | |
| QUARTER ENDED | | AMOUNT OF CHANGE | | YEAR-TO-DATE ENDED | | AMOUNT OF CHANGE |
DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2018 | | SEPTEMBER 2017 | | 2018 VS. 2017 | | SEPTEMBER 2018 | | SEPTEMBER 2017 | | 2018 VS. 2017 |
Unallocated corporate function and variable compensation expense | $ | (19 | ) | | $ | (19 | ) | | $ | — |
| | $ | (56 | ) | | $ | (55 | ) | | $ | (1 | ) |
Liability classified share-based compensation | 4 |
| | (1 | ) | | 5 |
| | 2 |
| | (7 | ) | | 9 |
|
Foreign exchange gain (loss) | (2 | ) | | 3 |
| | (5 | ) | | (2 | ) | | — |
| | (2 | ) |
Elimination of intersegment profit in inventory and LIFO | — |
| | 3 |
| | (3 | ) | | (18 | ) | | (6 | ) | | (12 | ) |
Charges for integration and restructuring, closures and asset impairments | — |
| | (6 | ) | | 6 |
| | — |
| | (20 | ) | | 20 |
|
Other | (21 | ) | | 8 |
| | (29 | ) | | (80 | ) | | (8 | ) | | (72 | ) |
Operating income (loss) | (38 | ) | | (12 | ) | | (26 | ) | | (154 | ) | | (96 | ) | | (58 | ) |
Non-operating pension and other postretirement benefit costs | (17 | ) | | (16 | ) | | (1 | ) | | (54 | ) | | (46 | ) | | (8 | ) |
Interest income and other | 13 |
| | 11 |
| | 2 |
| | 36 |
| | 29 |
| | 7 |
|
Net contribution to earnings | $ | (42 | ) | | $ | (17 | ) | | $ | (25 | ) | | $ | (172 | ) | | $ | (113 | ) | | $ | (59 | ) |
Comparing Third Quarter 2018 with Third Quarter 2017
The $25 million decrease in Net contribution to earnings from Unallocated Items was due to:
a $12 million increase in legal and environmental charges;
a$5 million increase in net foreign exchange losses; and
a$3 million increase in charges for elimination of intersegment profit in inventory and LIFO, dueforeign exchange transaction gains and losses, interest income and other as well as legacy obligations.
Net Contribution to increased lumber and log inventory quantities.Earnings – Unallocated Items
|
| | | | | | | | | | | |
| QUARTER ENDED | | AMOUNT OF CHANGE |
DOLLAR AMOUNTS IN MILLIONS | MARCH 2019 | | MARCH 2018 | | 2019 VS. 2018 |
Unallocated corporate function and variable compensation expense | $ | (19 | ) | | $ | (18 | ) | | $ | (1 | ) |
Liability classified share-based compensation | (4 | ) | | — |
| | (4 | ) |
Foreign exchange loss | (3 | ) | | (2 | ) | | (1 | ) |
Elimination of intersegment profit in inventory and LIFO | (5 | ) | | (21 | ) | | 16 |
|
Other | (39 | ) | | (39 | ) | | — |
|
Operating income (loss) | (70 | ) | | (80 | ) | | 10 |
|
Non-operating pension and other postretirement benefit costs | (470 | ) | | (24 | ) | | (446 | ) |
Interest income and other | 10 |
| | 12 |
| | (2 | ) |
Net contribution to earnings (loss) | $ | (530 | ) | | $ | (92 | ) | | $ | (438 | ) |
Comparing First Quarter 2019 with First Quarter 2018
Comparing Year-to-Date 2018 with Year-to-Date 2017
The $59 million decrease in NetUnallocated Items net contribution to earnings from Unallocated Items wasdecreased $438 million – 476 percent – primarily related to:
a $30due to an increase in non-operating pension and other postretirement benefit costs, which is primarily attributable to the $455 million
change in legal charges, primarilynoncash pretax pension settlement charge recorded during first quarter 2019. The settlement charge is related to
insurance recoveries received during year-to-date 2017, which resultedthe transfer of pension assets and liabilities through the purchase of a group annuity contract (refer to Note 7: Pension and Other Postretirement Benefit Plans in a net credit of $20 million. No similar recoveries have been received during year-to-date 2018;
INTEREST EXPENSE
Our interest expense, net of capitalized interest incurred, was:
$107 million for first quarter 2019 and
$93 million for the thirdfirst quarter 2018 and $278 million year-to-date 2018; and
$98 million for the third quarter 2017 and $297 million year-to-date 2017.2018.
INCOME TAXES
Our provision for income taxes was:
$15a $104 million benefit for the thirdfirst quarter 20182019 and $80
a $30 million expense year-to-date 2018; and
$27 million benefit for the thirdfirst quarter 2017 and $31 million expense year-to-date 2017.2018.
Our provision for income taxes is primarily driven by earnings (losses) generated by our TRSs. At the endDuring first quarter 2019, a noncash pretax settlement charge of 2017, we revalued our deferred tax assets (including pension)$455 million was recorded related to the 2018 federal tax ratetransfer of 21 percent, aspension assets and liabilities through the purchase of a group annuity contract. As a result of the Tax Act. During third quarter 2018, we announced actions intended to reduce the liabilities of our U.S. qualified pension plan while maintaining the plan’s current funded status and made a decision to contribute $300 million to our U.S. qualified pension plan (refer to Note 8: Pension and Other Postretirement Benefit Plans). We were able to deduct this contribution on our 2017 federal tax return at the 2017 federal tax rate of 35 percent. This resulted in an incremental $41 million tax benefit, for the portion attributable to our TRSs, during third quarter 2018. In third quarter 2017,charge, we recognized a tax provision benefit related to charges for product remediation.of approximately $110 million in first quarter 2019. Overall performance results for our business segments can be found in Consolidated Results.
LIQUIDITY AND CAPITAL RESOURCES
We are committed to maintaining an appropriate capital structure that provides flexibility and enables us to protect the interests of our shareholders and lenders and maintain access to all major financial markets.
CASH FROM OPERATIONS
Consolidated net cash used in or provided by our operations was:
$82014 million for year-to-date 2018;net cash used in operations during first quarter 2019 and
$847136 million for year-to-date 2017.net cash provided by operations during first quarter 2018.
Net cash from operations decreased
$27$150 million, primarily due
our $300 million contribution to our U.S. qualified pension plan in third quarter 2018 (refer to Note 8: Pension and Other Postretirement Benefit Plansfor further details). This cash outflow was offset in part by:increased cash flows generated from our businesses, excluding working capital changes, of $212 million;to:
a decrease$33 million increase in cash paid for income taxes, primarily related to a $21 million cash payment for the resolution of $49 million;an IRS matter, as accrued for during fourth quarter 2018;
cash used in working capital changes and
a decrease indecreased cash paid for interest of $30 million.flows generated from our business segments.
CASH FROM (USED IN) INVESTING ACTIVITIES
Consolidated net cash used in andor provided by investing activities was:
$264212 million used in investing activities for year-to-date 2018; and
$192 millioncash provided by investing activities for year-to-date 2017.during first quarter 2019 and
Net$76 million cash used in investing activities during first quarter 2018.
Net cash from investing activities increased $456$288 million, primarily due to:
$253 million cash proceeds received related to our buyer-sponsored SPEs during first quarter 2019 and
a $421$20 million decrease in proceeds received from the sale of assetscash outflow for property and operations, which is primarily due to $403 million in proceeds received from the sale of our Uruguay operations in third quarter 2017; and
a net $24 million increase in cash used forequipment capital expenditures.
Summary of Capital Spending by Business Segment
| | | YEAR-TO-DATE ENDED | QUARTER ENDED |
DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2018 | | SEPTEMBER 2017 | MARCH 2019 | | MARCH 2018 |
Timberlands | $ | 82 |
| | $ | 79 |
| $ | 26 |
| | $ | 28 |
|
Real Estate & ENR | — |
| | 2 |
| — |
| | — |
|
Wood Products | 199 |
| | 176 |
| 30 |
| | 52 |
|
Unallocated Items | 2 |
| | 2 |
| 3 |
| | 1 |
|
Total | $ | 283 |
| | $ | 259 |
| $ | 59 |
| | $ | 81 |
|
We expect our net capital expenditures for 2018 to2019 will be $420 million, which is comparable to 2017 capital spending.approximately $400 million. The amount we spend on capital expenditures could change.
CASH USED IN FINANCING ACTIVITIES
Consolidated net cash used in financing activities was:
$1,032273 million for year-to-date 2018;in first quarter 2019 and
$1,218286 million for year-to-date 2017.
in first quarter 2018.
Net cash used in financing activities decreased $186$13 million primarily due to a $769$739 million decreasecash proceeds received from the issuance of long-term debt during first quarter 2019, with no similar activity in first quarter 2018.
This increased cash used for payments on long-term debt. This decreaseinflow was partially offset by:
a $273$450 million increase in cash used for repurchasespayments of long-term debt (including the $12 million first quarter 2019 early extinguishment charge);
a $180 million net cash outflow related to borrowings on our line of credit, with no similar activity in first quarter 2018;
a $60 million cash outflow for the repurchase of common shares;shares, with no similar activity in first quarter 2018;
a $225$23 million decrease in proceedscash received from the issuanceexercise of long-term debt;stock options and
a $42$12 million increase in cash used for payment of dividends paid on common shares; and
a $37 million decrease in proceeds from exercise of stock options.shares.
LinesLine of Credit
DuringAs of March 2017,31, 2019 and December 31, 2018, we entered into ahad $245 million and $425 million, respectively, of outstanding borrowings on our $1.5 billion five-year senior unsecured revolving credit facility. This credit facility that expires in March 2022. This replaces a $1 billion senior unsecured revolving credit facility. As of September 30, 2018, there were no borrowings outstanding.
Long-term
Long-Term Debt
In February 2019, we issued $750 million of 4.00 percent notes due in November 2029. The net proceeds after deducting the discount, underwriting fees, and issuance costs were $739 million. In March 2019, a portion of the net proceeds were used to redeem our outstanding $500 million 7.38 percent note due in October 2019. A pretax charge of $12 million was included in "Interest expense, net of capitalized interest" in the Consolidated Statement of Operations in first quarter 2019, for make-whole premiums, unamortized debt issuance costs and unamortized debt discounts in connection with the early extinguishment of debt.
During first quarter 2018, we paid our $62 million 7.00 percent debenture at maturity.
Debt Covenants
As of September 30, 2018,March 31, 2019, Weyerhaeuser Company was in compliance with its debt covenants. There have been no significant changes during thirdfirst quarter 20182019 to the debt covenants presented in our 20172018 Annual Report on Form 10-K for our existing long-term debt instruments.
Option Exercises
We received cash proceeds from the exercise of stock options of:
$522 million in year-to-date 2018;first quarter 2019 and
$8925 million in year-to-date 2017.first quarter 2018.
Our average stock price was $35.53$25.19 and $33.01$35.29 for year-to-datefirst quarter 2019 and first quarter 2018, and 2017, respectively.
Dividend Payments
We paid cash dividends on common shares of:
$741254 million in year-to-date 2018;first quarter 2019 and
$699242 million in year-to-date 2017.first quarter 2018.
The increase in dividends paid is primarily due to increasesan increase in our quarterly dividend per share from 3132 cents per share in first quarter 2017 to 32 cents per share in fourth quarter 2017 and2018 to 34 cents per share in thirdfirst quarter 2018.2019.
Share Repurchases
We repurchased 8,585,844over 2.3 million shares for $291approximately $60 million (including transaction fees) during the year-to-date period ended September 30, 2018,first quarter 2019, under the 2016 Share2019 Repurchase Authorization.Program. We did not repurchase shares during the year-to-date period ended September 30, 2017.first quarter 2018. There were $18 million of unsettled repurchases as of September 30, 2018 and no unsettled repurchases as of March 31, 2019 or December 31, 2017.2018. Refer to Note 5:4: Net Earnings (Loss) Per Share and Share Repurchases in the Notes to Consolidated Financial Statementsfor further information.
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 for investors about our operating performance, better facilitates period to period comparisons, and is widely used by analysts, lenders, rating agencies and other interested parties.
Our definition of Adjusted EBITDA may be different from similarly titled measures reported by other companies. Adjusted EBITDA, as we define it, is operating income adjusted for depreciation, depletion, amortization, basis of real estate sold, unallocated pension service costs and special items.
Adjusted EBITDA excludes results from joint ventures.by Segment
|
| | | | | | | | | | | |
| QUARTER ENDED | | AMOUNT OF CHANGE |
DOLLAR AMOUNTS IN MILLIONS | MARCH 2019 | | MARCH 2018 | | 2019 VS. 2018 |
Adjusted EBITDA by Segment: | | | | | |
Timberlands | $ | 193 |
| | $ | 268 |
| | $ | (75 | ) |
Real Estate & ENR | 106 |
| | 41 |
| | 65 |
|
Wood Products | 115 |
| | 286 |
| | (171 | ) |
| 414 |
| | 595 |
| | (181 | ) |
Unallocated Items | (49 | ) | | (51 | ) | | 2 |
|
Adjusted EBITDA | $ | 365 |
| | $ | 544 |
| | $ | (179 | ) |
ADJUSTED EBITDA BY SEGMENT
|
| | | | | | | | | | | | | | | | | | | | | | | |
| QUARTER ENDED | | AMOUNT OF CHANGE | | YEAR-TO-DATE ENDED | | AMOUNT OF CHANGE |
DOLLAR AMOUNTS IN MILLIONS | SEPTEMBER 2018 | | SEPTEMBER 2017 | | 2018 VS. 2017 | | SEPTEMBER 2018 | | SEPTEMBER 2017 | | 2018 VS. 2017 |
Adjusted EBITDA by Segment: | | | | | | | | | | | |
Timberlands | $ | 206 |
| | $ | 220 |
| | $ | (14 | ) | | $ | 714 |
| | $ | 684 |
| | $ | 30 |
|
Real Estate & ENR | 86 |
| | 74 |
| | 12 |
| | 174 |
| | 154 |
| | 20 |
|
Wood Products | 250 |
| | 278 |
| | (28 | ) | | 921 |
| | 759 |
| | 162 |
|
| 542 |
| | 572 |
| | (30 | ) | | 1,809 |
| | 1,597 |
| | 212 |
|
Unallocated Items | (37 | ) | | (3 | ) | | (34 | ) | | (123 | ) | | (68 | ) | | (55 | ) |
Adjusted EBITDA | $ | 505 |
| | $ | 569 |
| | $ | (64 | ) | | $ | 1,686 |
| | $ | 1,529 |
| | $ | 157 |
|
We reconcile Adjusted EBITDA by segment 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 September 30, 2018:March 31, 2019:
| | DOLLAR AMOUNTS IN MILLIONS | Timberlands | | Real Estate & ENR | | Wood Products | | Unallocated Items | | Total | Timberlands | | Real Estate & ENR | | Wood Products | | Unallocated Items | | Total |
Adjusted EBITDA by Segment: | | | | | | | | | | | | | | | | | | |
Net earnings | | | | | | | | | $ | 255 |
| |
Net earnings (loss) | | | | | | | | | | $ | (289 | ) |
Interest expense, net of capitalized interest(1) | | | | | | | | | 93 |
| | | | | | | | | 107 |
|
Income taxes(1) | | | | | | | | | (15 | ) | | | | | | | | | (104 | ) |
Net contribution to earnings | $ | 126 |
| | $ | 36 |
| | $ | 213 |
| | $ | (42 | ) | | $ | 333 |
| |
Non-operating pension and other postretirement benefit cost | — |
| | — |
| | — |
| | 17 |
| | 17 |
| |
Net contribution to earnings (loss) | | $ | 120 |
| | $ | 55 |
| | $ | 69 |
| | $ | (530 | ) | | $ | (286 | ) |
Non-operating pension and other postretirement benefit costs(2) | | — |
| | — |
| | — |
| | 470 |
| | 470 |
|
Interest income and other | — |
| | — |
| | — |
| | (13 | ) | | (13 | ) | — |
| | — |
| | — |
| | (10 | ) | | (10 | ) |
Operating income (loss) | 126 |
| | 36 |
| | 213 |
| | (38 | ) | | 337 |
| 120 |
| | 55 |
| | 69 |
| | (70 | ) | | 174 |
|
Depreciation, depletion and amortization | 80 |
| | 4 |
| | 37 |
| | 1 |
| | 122 |
| 73 |
| | 3 |
| | 46 |
| | 1 |
| | 123 |
|
Basis of real estate sold | — |
| | 46 |
| | — |
| | — |
| | 46 |
| — |
| | 48 |
| | — |
| | — |
| | 48 |
|
Unallocated pension service costs | — |
| | — |
| | — |
| | — |
| | — |
| |
Special items included in operating income (loss)(3) | | — |
| | — |
| | — |
| | 20 |
| | 20 |
|
Adjusted EBITDA | $ | 206 |
| | $ | 86 |
| | $ | 250 |
| | $ | (37 | ) | | $ | 505 |
| $ | 193 |
| | $ | 106 |
| | $ | 115 |
| | $ | (49 | ) | | $ | 365 |
|
(1) After taxInterest expense, net of capitalized interest includes a pretax special items included a $41item of $12 million tax benefit related to our $300 milliona charge for the early extinguishment of debt.
(2) Non-operating pension contribution. There were noand other postretirement benefit costs includes a pretax special items in third quarter 2018.item consisting of a $455 million noncash settlement charge related to the transfer of approximately $1.5 billion of U.S. qualified pension plan assets and liabilities to an insurance company through the purchase of a group annuity contract.
(3) Operating income (loss) includes a pretax special item consisting of a $20 million legal charge within Unallocated Items.
The table below reconciles Adjusted EBITDA for the quarter ended September 30, 2017:March 31, 2018:
| | DOLLAR AMOUNTS IN MILLIONS | Timberlands | | Real Estate & ENR | | Wood Products | | Unallocated Items | | Total | Timberlands | | Real Estate & ENR | | Wood Products | | Unallocated Items | | Total |
Adjusted EBITDA by Segment: | | | | | | | | | | | | | | | | | | |
Net earnings | | | | | | | | | $ | 130 |
| | | | | | | | | $ | 269 |
|
Interest expense, net of capitalized interest | | | | | | | | | 98 |
| | | | | | | | | 93 |
|
Income taxes | | | | | | | | | (27 | ) | | | | | | | | | 30 |
|
Net contribution to earnings | $ | 131 |
| | $ | 47 |
| | $ | 40 |
| | $ | (17 | ) | | $ | 201 |
| $ | 189 |
| | $ | 25 |
| | $ | 270 |
| | $ | (92 | ) | | $ | 392 |
|
Non-operating pension and other postretirement benefit cost | — |
| | — |
| | — |
| | 16 |
| | 16 |
| |
Non-operating pension and other postretirement benefit costs | | — |
| | — |
| | — |
| | 24 |
| | 24 |
|
Interest income and other | — |
| | (1 | ) | | — |
| | (11 | ) | | (12 | ) | — |
| | — |
| | — |
| | (12 | ) | | (12 | ) |
Operating income (loss) | 131 |
| | 46 |
| | 40 |
| | (12 | ) | | 205 |
| 189 |
| | 25 |
| | 270 |
| | (80 | ) | | 404 |
|
Depreciation, depletion and amortization | 89 |
| | 4 |
| | 37 |
| | 2 |
| | 132 |
| 79 |
| | 4 |
| | 36 |
| | 1 |
| | 120 |
|
Basis of real estate sold | — |
| | 24 |
| | — |
| | — |
| | 24 |
| — |
| | 12 |
| | — |
| | — |
| | 12 |
|
Unallocated pension service costs | — |
| | — |
| | — |
| | 1 |
| | 1 |
| |
Special items(1)(2) | — |
| | — |
| | 201 |
| | 6 |
| | 207 |
| |
Special items included in operating income (loss)(1) | | — |
| | — |
| | (20 | ) | | 28 |
| | 8 |
|
Adjusted EBITDA | $ | 220 |
| | $ | 74 |
| | $ | 278 |
| | $ | (3 | ) | | $ | 569 |
| $ | 268 |
| | $ | 41 |
| | $ | 286 |
| | $ | (51 | ) | | $ | 544 |
|
| |
(1) | Special items attributable to Wood Products includes: $190 million of product remediation charges, a $6 million restructuring, impairments and other charges and $5 million of retroactive and prospective countervailing and antidumping duties. |
| |
(2) | Special items attributable to Unallocated Items include $6 million of Plum Creek merger-related costs. |
The table below reconciles Adjusted EBITDA for the year-to-date period ended September 30, 2018:
|
| | | | | | | | | | | | | | | | | | | |
DOLLAR AMOUNTS IN MILLIONS | Timberlands | | Real Estate & ENR | | Wood Products | | Unallocated Items | | Total |
Adjusted EBITDA by Segment: | | | | | | | | | |
Net earnings | | | | | | | | | $ | 841 |
|
Interest expense, net of capitalized interest | | | | | | | | | 278 |
|
Income taxes(1) | | | | | | | | | 80 |
|
Net contribution to earnings | $ | 476 |
| | $ | 83 |
| | $ | 812 |
| | $ | (172 | ) | | $ | 1,199 |
|
Non-operating pension and other postretirement benefit cost | — |
| | — |
| | — |
| | 54 |
| | 54 |
|
Interest income and other | — |
| | — |
| | — |
| | (36 | ) | | (36 | ) |
Operating income (loss) | 476 |
| | 83 |
| | 812 |
| | (154 | ) | | 1,217 |
|
Depreciation, depletion and amortization | 238 |
| | 11 |
| | 109 |
| | 3 |
| | 361 |
|
Basis of real estate sold | — |
| | 80 |
| | — |
| | — |
| | 80 |
|
Unallocated pension service costs | — |
| | — |
| | — |
| | — |
| | — |
|
Special items(2) | — |
| | — |
| | — |
| | 28 |
| | 28 |
|
Adjusted EBITDA | $ | 714 |
| | $ | 174 |
| | $ | 921 |
| | $ | (123 | ) | | $ | 1,686 |
|
| |
(1) | After taxOperating income (loss) includes pretax special items includedconsisting of a $41$20 million tax benefit related to our $300 million pension contribution. |
| |
(2) | Pretax special items include: $25 millionfrom product remediation insurance recoveries; $25 million product remediation charges;proceeds and $28 million offor environmental remediation expense.charges. |
The table below reconciles Adjusted EBITDA for the year-to-date period ended September 30, 2017:
|
| | | | | | | | | | | | | | | | | | | |
DOLLAR AMOUNTS IN MILLIONS | Timberlands | | Real Estate & ENR | | Wood Products | | Unallocated Items | | Total |
Adjusted EBITDA by Segment: | | | | | | | | | |
Net earnings | | | | | | | | | $ | 311 |
|
Interest expense, net of capitalized interest | | | | | | | | | 297 |
|
Income taxes | | | | | | | | | 31 |
|
Net contribution to earnings | $ | 267 |
| | $ | 96 |
| | $ | 389 |
| | $ | (113 | ) | | $ | 639 |
|
Non-operating pension and other postretirement benefit cost | — |
| | — |
| | — |
| | 46 |
| | 46 |
|
Interest income and other | — |
| | (1 | ) | | — |
| | (29 | ) | | (30 | ) |
Operating income (loss) | 267 |
| | 95 |
| | 389 |
| | (96 | ) | | 655 |
|
Depreciation, depletion and amortization | 270 |
| | 11 |
| | 108 |
| | 5 |
| | 394 |
|
Basis of real estate sold | — |
| | 48 |
| | — |
| | — |
| | 48 |
|
Unallocated pension service costs | — |
| | — |
| | — |
| | 3 |
| | 3 |
|
Special items(1)(2)(3) | 147 |
| | — |
| | 262 |
| | 20 |
| | 429 |
|
Adjusted EBITDA | $ | 684 |
| | $ | 154 |
| | $ | 759 |
| | $ | (68 | ) | | $ | 1,529 |
|
| |
(1) | Special items attributable to Timberlands include $147 million of impairment charges related to our Uruguayan operations. |
| |
(2) | Special items attributable to Wood Products includes: $240 million product remediation charges, $16 million of retroactive and prospective countervailing and antidumping duties and a $6 million restructuring, impairments and other charges. |
| |
(3) | Special items attributable to Unallocated Items include $20 million of Plum Creek merger-related costs. |
CRITICAL ACCOUNTING POLICIES
There have been no significant changes during thirdfirst quarter 20182019 to ourthe critical accounting policies presented in our 20172018 Annual Report on Form 10-K.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
LONG-TERM INDEBTEDNESS OBLIGATIONS
The following summary of our long-term indebtedness obligations includes:
scheduled principal repayments for the next five years and after;
weighted average interest rates for debt maturing in each of the next five years and after and
estimated fair values of outstanding obligations.
We estimate the fair value of our debt instruments using quoted market prices we received for the same types and issues of our debt or on the discounted value of the future cash flows using market yields for the same type and comparable issues of debt. Changes in market rates of interest affect the fair value of our fixed-rate debt.
SUMMARY OF LONG-TERM INDEBTEDNESS PRINCIPAL OBLIGATIONS AS OF SEPTEMBER 30, 2018Summary of Long-Term Indebtedness Principal Obligations as of March 31, 2019
| | DOLLAR AMOUNTS IN MILLIONS | DOLLAR AMOUNTS IN MILLIONS | | DOLLAR AMOUNTS IN MILLIONS | |
| 2018 | 2019 | 2020 | 2021 | 2022 | THEREAFTER | TOTAL | FAIR VALUE | 2019 | 2020 | 2021 | 2022 | 2023 | THEREAFTER | TOTAL(1)(2) | FAIR VALUE |
Fixed-rate debt(2) | $ | — |
| $ | 500 |
| $ | — |
| $ | 719 |
| $ | — |
| $ | 4,450 |
| $ | 5,669 |
| $ | 6,378 |
| $ | — |
| $ | — |
| $ | 719 |
| $ | — |
| $ | 1,876 |
| $ | 3,324 |
| $ | 5,919 |
| $ | 6,775 |
|
Average interest rate | — | % | 7.38 | % | — | % | 5.57 | % | — | % | 6.39 | % | 6.37 | % | N/A |
| — | % | — | % | 5.58 | % | — | % | 4.91 | % | 6.69 | % | 5.99 | % | N/A |
|
Variable-rate debt(2)(3) | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 225 |
| $ | 225 |
| $ | 225 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 225 |
| $ | 225 |
| $ | 225 |
|
Average interest rate | — | % | — | % | — | % | — | % | — | % | 3.84 | % | 3.84 | % | N/A |
| — | % | — | % | — | % | — | % | — | % | 4.10 | % | 4.10 | % | N/A |
|
| |
(1) | Excludes $27$12 million of unamortized discounts, capitalized debt expense and business combination fair value step-up (related to Plum Creek merger).adjustments. |
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, 2018,March 31, 2019, based on an evaluation of the company’s disclosure controls and procedures as of that date.
CHANGES IN INTERNAL CONTROLS
No changes occurred in the company’s internal control over financial reporting during thirdfirst quarter and year-to-date 20182019 that have materially affected, or are reasonably likely to materially affect, the company’s internal control over financial reporting.
LEGAL PROCEEDINGS
RISK FACTORS
There have been no material changes with respect to the risk factors disclosed in our 20172018 Annual Report on Form 10-K.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
The following table provides information with respect to purchases of common stock made by the company during thirdfirst quarter 2018:2019:
|
| | | | | | | | | | | | | |
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 ANNOUNCED 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 | 2,742,118 |
| | $ | 34.63 |
| | 2,742,118 |
| | $ | 404,943,899 |
|
August 1 – August 31 | 1,330,428 |
| | 33.98 |
| | 1,330,428 |
| | 359,736,859 |
|
September 1 – September 30 | 4,510,698 |
| | 33.28 |
| | 4,510,698 |
| | 209,612,429 |
|
Total repurchases during third quarter | 8,583,244 |
| | $ | 33.82 |
| | 8,583,244 |
| | $ | 209,612,429 |
|
|
| | | | | | | | | | | | | |
COMMON SHARE REPURCHASES DURING FIRST QUARTER | TOTAL NUMBER OF SHARES PURCHASED | | AVERAGE PRICE PAID PER SHARE | | TOTAL NUMBER OF SHARES PURCHASED AS PART OF PUBLICLY ANNOUNCED PROGRAM | | APPROXIMATE DOLLAR VALUE OF SHARES THAT MAY YET BE PURCHASED UNDER THE PROGRAM |
January 1 - January 31 | — |
| | $ | — |
| | — |
| | $ | 134,633,963 |
|
February 1 - February 28 | 1,944,241 |
| | 25.71 |
| | 1,944,241 |
| | 450,016,213 |
|
March 1 - March 31 | 404,394 |
| | 24.73 |
| | 404,394 |
| | 440,016,723 |
|
Total repurchases during first quarter | 2,348,635 |
| | $ | 25.54 |
| | 2,348,635 |
| | $ | 440,016,723 |
|
On February 7, 2019, our board of directors approved and announced a new share repurchase program (the 2019 Repurchase Program) under which we are authorized to repurchase up to $500 million of outstanding shares. On the same day, the board terminated the remaining repurchase authorization under the share repurchase program approved by the board in November 2015.
During thirdfirst quarter 2018,2019, we repurchased 8,583,244over 2.3 million shares of common stock for $290approximately $60 million (including transaction fees) under the 2016 Share2019 Repurchase Authorization. The 2016 Share Repurchase Authorization was approved and announcedProgram in November 2015 by our Board of Directors and authorized management to repurchase up to $2.5 billion of outstanding shares.open-market transactions. Transaction fees incurred for repurchases are not counted as use of funds authorized for repurchaserepurchases under the 2016 Share2019 Repurchase Authorization. All common share purchases under the share repurchase program are to be made in open-market transactions. As of September 30, 2018 we had remaining authorization of $210 million for future stock repurchases.Program.
DEFAULTS UPON SENIOR SECURITIES
None.
MINE SAFETY DISCLOSURES
Not applicable.
OTHER INFORMATION
None.
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4.1 | |
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101.INS | XBRL Instance Document |
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101.SCH | XBRL Taxonomy Extension Schema Document |
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101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
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: | OctoberApril 26, 20182019 |
| | |
| By: | /s/ Jeanne M. Hillman |
| | Jeanne M. Hillman |
| | Vice President and Chief Accounting Officer |
| | (Principal Accounting Officer)
|