Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)
NOTE ABOUT FORWARD-LOOKING STATEMENTS
This report contains statements concerning our future results and performance that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include, without limitation, statements relating to: our expected future financial and operating performance; our plans, strategies, intentions and expectations; estimates of invested pension plan assets; our capital structure and the sufficiency of our liquidity position to meet future cash requirements; compliance with covenants in our debt agreements; our expectations concerning our contingent liabilities and the sufficiency of related reserves and accruals including, but not limited to, cost estimates of future litigation and environmental remediation; expected capital expenditures; market and general economic conditions, including related influencing factors such as the trajectory of U.S. housing activity, repair and remodel activity, inflation trends and interest rates; our expectations about our future opportunities in emerging carbon offset and carbon capture and storage markets; and assumptions used in valuing incentive compensation and related expense.
Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often involve use of words such as “anticipate,” “believe,” “committed,” "continue,” “estimate,” “expect,” “foreseeable,” “future,” “maintain,” “may,” “plan,” “potential,” “will,” and “would,” or similar words or terminology. They may use the positive, negative or another variation of those and similar words. These forward-looking statements are based on our current expectations and assumptions and are not guarantees of future events or performance. The realization of our expectations and the accuracy of our assumptions are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. There is no guarantee that any of the events anticipated by our forward-looking statements will occur. If any of the events occur, there is no guarantee what effect it will have on our operations, cash flows, or financial condition. We undertake no obligation to update our forward-looking statements after the date of this report. The factors listed below, as well as other factors not described herein because they are not currently known to us or we currently judge them to be immaterial, may cause our actual results to differ significantly from our forward-looking statements:
●the effect of general economic conditions, including employment rates, interest rate levels, inflation, housing starts, general availability and cost of financing for home mortgages and the relative strength of the U.S. dollar;
●the effect of COVID-19 and other viral or disease outbreaks, including but not limited to any related regulatory restrictions or requirements, and their potential effects on our business, results of operations, cash flows, financial condition and future prospects;
●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 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;
●the successful execution of our internal plans and strategic initiatives, including restructuring and cost reduction initiatives;
●our ability to hire and retain capable employees;
●the successful and timely execution and integration of our strategic acquisitions, including our ability to realize expected benefits and synergies, and the successful and timely execution of our strategic divestitures, each of which is subject to a number of risks and conditions beyond our control including, but not limited to, timing and required regulatory approvals or the occurrence of any event, change or other circumstances that could give rise to a termination of any acquisition or divestiture transaction under the terms of the governing transaction agreements;
●raw material availability and prices;
●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;
●transportation and labor availability and costs;
●the effect of forestry, land use, environmental and other governmental regulations;
●performance of pension fund investments and related derivatives;
●the effect of timing of employee retirements as it relates to the cost of pension benefits and changes in the market price of our common stock on charges for share-based compensation;
●the accuracy of our estimates of costs and expenses related to contingent liabilities and the accuracy of our estimates of charges related to casualty losses;
●changes in accounting principles; and
It is not possible to predict or identify all risks and uncertainties that might affect the accuracy of our forward-looking statements and, consequently, our descriptions of such risks and uncertainties should not be considered exhaustive. There is no guarantee that any of the events anticipated by these forward-looking statements will occur, and if any of the events do occur, there is no guarantee what effect they will have on the company's business, results of operations, cash flows, financial condition and future prospects.
14
Forward-looking statements speak only as of the date they are made, and we undertake no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events, or otherwise.
RESULTS OF OPERATIONS
In reviewing our results of operations, it is important to understand these terms:
●Sales realizations for Timberlands and Wood Products refer to net selling prices. This includes selling price plus freight, minus normal sales deductions. Real Estate transactions are presented at the contract sales price before commissions and closing costs, net of any credits.
●Net contribution (charge) to earnings does not include interest expense, loss on debt extinguishment or income taxes.
ECONOMIC AND MARKET CONDITIONS AFFECTING OUR OPERATIONS
Our market conditions and the strength of the broader U.S. economy are, and will continue to be, influenced by the trajectory of activity in the U.S. housing and repair and remodel segments, inflation trends and interest rates. The demand for sawlogs within our Timberlands segment is directly affected by domestic production of wood-based building products. The strength of the U.S. housing market, particularly new residential construction, strongly affects demand in our Wood Products segment, as does repair and remodeling activity. Seasonal weather patterns impact the level of construction activity in the U.S., which in turn affects demand for our logs and wood products. Our Timberlands segment, specifically the Western region, is also affected by export demand and trade policy. Japanese housing starts are a key driver of export log demand in Japan. The demand for pulpwood from our Timberlands segment is directly affected by the production of pulp, paper and oriented strand board (OSB) as well as the demand for biofuels, such as wood-burning pellets made from pulpwood. Our Timberlands segment is also influenced by the availability of harvestable timber. In general, Western log markets are highly tensioned by available supply, while Southern log markets have more available supply. However, additional mill capacity being added in the U.S. South has led to tightening of markets in certain geographies. Our Real Estate, Energy and Natural Resources segment is affected by a variety of factors, including the general state of the economy, local real estate market conditions, the level of construction activity in the U.S. and evolution of emerging renewable energy and carbon-related markets.
While underlying longer-term fundamentals remain favorable for construction of new housing in the U.S., home sales and building activity have slowed due in part to higher mortgage interest rates, reduced affordability and general macroeconomic conditions. On a seasonally adjusted annual basis, as reported by the U.S. Census Bureau, housing starts for first quarter 2023 averaged 1.4 million units, a 0.2 percent decrease from fourth quarter 2022. Single-family starts averaged 841 thousand units, a 1.0 percent decrease from fourth quarter 2022. Multi-family starts averaged 555 thousand units in first quarter 2023, which was a 1.1 percent increase from fourth quarter 2022. Sales of newly built, single-family homes averaged a seasonally adjusted annual rate of 651 thousand units for first quarter 2023, an increase of 9.0 percent from the prior quarter. Over the medium to long-term, we expect a favorable U.S. housing construction market supported by strong demographics in the key homebuying age cohorts, a decade of underbuilding and a historically low housing inventory.
Repair and remodeling expenditures decreased by 1.3 percent from fourth quarter 2022 to first quarter 2023 according to the Census Bureau Advance Retail Spending report. Do-it-yourself activity has been returning to more normalized levels while professionally contracted activities have benefited from larger projects and increases in home equity levels. Over the longer term, we expect this sector to return to pre-pandemic growth trends with healthy household balance sheets, elevated home equity and an aging U.S. housing stock with a median age of 43 years.
In U.S. wood product markets, demand continued to be affected by softening in the housing market and a more uncertain economic environment during first quarter 2023. The Random Lengths Framing Lumber Composite price averaged $412/MBF and the OSB Composite averaged $297/MSF in first quarter 2023. Over the course of the first quarter, prices increased from $380/MBF to $417/MBF for lumber and from $288/MSF to $297/MSF for OSB.
In Western log markets, Douglas fir sawlog prices fell by 6.3 percent in first quarter 2023 compared with fourth quarter 2022 as reported by RISI Log Lines based on Weyerhaeuser’s sales mix. Overall, domestic prices in the West fell moderately as a result of lower lumber prices, partially offset by continued constraints in log supply. In the South, delivered sawlog prices decreased by 2.9 percent in first quarter 2023 compared to fourth quarter 2022 and declined 0.8 percent from first quarter 2022 as reported by Timber Mart-South, as log and haul capacity constraints eased somewhat.
Currency exchange rates, available supply from other countries and trade policy affect our export businesses. During first quarter 2023, end use demand softened in export markets, partially offset by continued disruptions in global log and lumber supply. In Japan, total housing starts increased 3.0 percent year to date through February compared to the same period in 2022, while the key Post and Beam segment saw a 5.8 percent decrease. An increase in lumber imports to Japan from Europe placed downward pressure on market conditions. China demand has improved from low levels but remains subdued due to general economic conditions. However, constrained supply from other countries, particularly Russia, supported demand from U.S. producers.
Interest rates affect our business primarily through their impact on mortgage rates and housing affordability, their general impact on the economy, and their influence on our capital management activities. Actions by the U.S. Federal Reserve, the overall condition of the economy, and fluctuations in financial markets are all factors that influence long-term interest rates. 30-year mortgage rates, which are correlated with long-term interest rates, decreased from 6.4 percent at the end of fourth quarter 2022 to 6.3 percent at the end of first quarter 2023. While mortgage rates fell over the quarter and from a high of over 7 percent in November 2022, the rapid increase in mortgage rates since the end of 2021 has had a negative impact on home affordability and reduced demand for homebuying. A modest reduction in rates in January and February resulted in a moderate increase in buyer interest and sales for both new and existing homes.
Increased inflation affects the cost of our operations across each of our business segments, including costs for raw materials, transportation, energy and labor. The Consumer Price Index increased 5.0 percent year over year in March 2023, primarily due to demand and supply for goods and services, fluctuations in labor markets, and monetary policy set by the U.S. Federal Reserve. While we can offset some of the impacts of inflation through our sales activities, our operational excellence initiatives and our procurement practices, not all of the costs associated with inflation can be fully mitigated or passed on to the consumer.
The condition of the labor market affects all of our businesses as it relates to our ability to attract and retain employees and contractors. The unemployment rate of 3.5 percent in March 2023 remained near historically low levels and was unchanged from the end of fourth quarter 2022. Labor force participation has increased to 62.6 percent in March 2023, from 62.4 percent in March 2022, but this remains below pre-pandemic levels of over 63 percent.
15
Governments and businesses across the globe are taking action on climate change and are making significant commitments towards decarbonizing operations and reducing greenhouse gas emissions to net zero. Achieving these commitments will require governments and companies to take major steps to modify operations, invest in low-carbon activities and purchase offsets to reduce environmental impacts. We believe we are uniquely positioned to help entities achieve these commitments through natural climate solutions, including forest carbon sequestration, carbon capture and storage and renewable energy activities.
CONSOLIDATED RESULTS
How We Did First Quarter 2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
QUARTER ENDED |
|
|
AMOUNT OF CHANGE |
|
DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURES |
|
MARCH 2023 |
|
|
MARCH 2022 |
|
|
2023 VS. 2022 |
|
Net sales |
|
$ |
1,881 |
|
|
$ |
3,112 |
|
|
$ |
(1,231 |
) |
Costs of sales |
|
$ |
1,512 |
|
|
$ |
1,647 |
|
|
$ |
(135 |
) |
Operating income |
|
$ |
236 |
|
|
$ |
1,344 |
|
|
$ |
(1,108 |
) |
Net earnings |
|
$ |
151 |
|
|
$ |
771 |
|
|
$ |
(620 |
) |
Earnings per share, basic and diluted |
|
$ |
0.21 |
|
|
$ |
1.03 |
|
|
$ |
(0.82 |
) |
Comparing First Quarter 2023 with First Quarter 2022
Net sales
Net sales decreased $1,231 million – 40 percent – primarily due to a $1,201 million decrease in Wood Products sales to unaffiliated customers attributable to decreased sales realizations for structural lumber, oriented strand board and softwood plywood, as well as decreased sales volumes for complementary building products, engineered I-joists, engineered solid section and medium density fiberboard.
Costs of sales
Costs of sales decreased $135 million – 8 percent – primarily due to a $117 million decrease in Wood Products attributable to decreased sales volumes for complementary building products, engineered I-joists, engineered solid section and medium density fiberboard.
Operating income
Operating income decreased $1,108 million – 82 percent – primarily due to a $1,096 million decrease in consolidated gross margin (see discussion of components above).
Net earnings
Net earnings decreased $620 million – 80 percent – primarily due to the $1,108 million decrease in operating income, as discussed above.
This decrease in operating income was partially offset by a $276 million pretax charge ($207 million after-tax) related to the early extinguishment of debt in first quarter 2022 (refer to Note 8: Long-Term Debt and Line of Credit), as well as a $187 million decrease in income tax expense (refer to Income Taxes).
16
TIMBERLANDS
How We Did First Quarter 2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
QUARTER ENDED |
|
|
AMOUNT OF CHANGE |
|
DOLLAR AMOUNTS IN MILLIONS |
|
MARCH 2023 |
|
|
MARCH 2022 |
|
|
2023 VS. 2022 |
|
Net sales to unaffiliated customers: |
|
|
|
|
|
|
|
|
|
Delivered logs: |
|
|
|
|
|
|
|
|
|
West |
|
$ |
229 |
|
|
$ |
259 |
|
|
$ |
(30 |
) |
South |
|
|
168 |
|
|
|
154 |
|
|
|
14 |
|
North |
|
|
17 |
|
|
|
15 |
|
|
|
2 |
|
Subtotal delivered logs sales |
|
|
414 |
|
|
|
428 |
|
|
|
(14 |
) |
Stumpage and pay-as-cut timber |
|
|
16 |
|
|
|
9 |
|
|
|
7 |
|
Recreational and other lease revenue |
|
|
18 |
|
|
|
17 |
|
|
|
1 |
|
Other(1) |
|
|
14 |
|
|
|
11 |
|
|
|
3 |
|
Subtotal net sales to unaffiliated customers |
|
|
462 |
|
|
|
465 |
|
|
|
(3 |
) |
Intersegment sales |
|
|
142 |
|
|
|
161 |
|
|
|
(19 |
) |
Total sales |
|
$ |
604 |
|
|
$ |
626 |
|
|
$ |
(22 |
) |
Costs of sales |
|
$ |
461 |
|
|
$ |
423 |
|
|
$ |
38 |
|
Operating income and Net contribution to earnings |
|
$ |
120 |
|
|
$ |
182 |
|
|
$ |
(62 |
) |
(1)Other Timberlands sales include sales of seeds and seedlings from our nursery operations as well as wood chips.
Comparing First Quarter 2023 with First Quarter 2022
Net sales to unaffiliated customers
Net sales to unaffiliated customers decreased $3 million – 1 percent – primarily due to a $30 million decrease in Western log sales attributable to a 15 percent decrease in sales realizations, partially offset by a 4 percent increase in sales volumes. This decrease was partially offset by a $14 million increase in Southern log sales attributable to a 6 percent increase in sales volumes and a 3 percent increase in sales realizations, as well as a $7 million increase in stumpage and pay-as-cut timber sales attributable to increased log volumes.
Intersegment sales
Intersegment sales decreased $19 million – 12 percent – primarily due to a 9 percent decrease in sales realizations, as well as a 3 percent decrease in sales volumes.
Costs of sales
Costs of sales increased $38 million – 9 percent – primarily due to increased logging and hauling costs, as well as increased sales volumes, as discussed above.
Operating income and Net contribution to earnings
Operating income and net contribution to earnings decreased $62 million – 34 percent – primarily due to the change in the components of gross margin, as discussed above.
17
Third-Party Log Sales Volumes and Fee Harvest Volumes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
QUARTER ENDED |
|
|
AMOUNT OF CHANGE |
|
VOLUMES IN THOUSANDS |
|
MARCH 2023 |
|
|
MARCH 2022 |
|
|
2023 VS. 2022 |
|
Third-party log sales – tons: |
|
|
|
|
|
|
|
|
|
West(1) |
|
|
1,674 |
|
|
|
1,604 |
|
|
|
70 |
|
South |
|
|
4,386 |
|
|
|
4,135 |
|
|
|
251 |
|
North |
|
|
204 |
|
|
|
210 |
|
|
|
(6 |
) |
Total |
|
|
6,264 |
|
|
|
5,949 |
|
|
|
315 |
|
Fee harvest volumes – tons: |
|
|
|
|
|
|
|
|
|
West(1) |
|
|
2,245 |
|
|
|
2,240 |
|
|
|
5 |
|
South |
|
|
6,432 |
|
|
|
5,842 |
|
|
|
590 |
|
North |
|
|
285 |
|
|
|
278 |
|
|
|
7 |
|
Total |
|
|
8,962 |
|
|
|
8,360 |
|
|
|
602 |
|
(1)Western logs are primarily transacted in thousand board feet (MBF) but are converted to ton equivalents for external reporting purposes.
REAL ESTATE, ENERGY AND NATURAL RESOURCES
How We Did First Quarter 2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
QUARTER ENDED |
|
|
AMOUNT OF CHANGE |
|
DOLLAR AMOUNTS IN MILLIONS |
|
MARCH 2023 |
|
|
MARCH 2022 |
|
|
2023 VS. 2022 |
|
Net sales: |
|
|
|
|
|
|
|
|
|
Real estate |
|
$ |
72 |
|
|
$ |
97 |
|
|
$ |
(25 |
) |
Energy and natural resources |
|
|
29 |
|
|
|
31 |
|
|
|
(2 |
) |
Total |
|
$ |
101 |
|
|
$ |
128 |
|
|
$ |
(27 |
) |
Costs of sales |
|
$ |
41 |
|
|
$ |
41 |
|
|
$ |
— |
|
Operating income and Net contribution to earnings |
|
$ |
53 |
|
|
$ |
81 |
|
|
$ |
(28 |
) |
The volume of real estate sales is a function of many factors, including the general state of the economy, demand in local real estate markets, the ability of buyers to obtain financing, the number of competing properties listed for sale, the seasonal nature of sales, the plans of adjacent landowners, our expectation of future price appreciation, the timing of harvesting activities, and the availability of government and not-for-profit funding. In any period, the average sales price per acre will vary based on the location and physical characteristics of parcels sold.
Comparing First Quarter 2023 with First Quarter 2022
Net sales
Net sales decreased $27 million – 21 percent – primarily due to a decrease in acres sold, as well as a decrease in the average price per acre sold.
Costs of sales
Costs of sales remained consistent due to the mix of acres sold.
Operating income and Net contribution to earnings
Operating income and net contribution to earnings decreased $28 million – 35 percent – primarily due to the change in the components of gross margin, as discussed above.
REAL ESTATE SALES STATISTICS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
QUARTER ENDED |
|
|
AMOUNT OF CHANGE |
|
|
|
MARCH 2023 |
|
|
MARCH 2022 |
|
|
2023 VS. 2022 |
|
Acres sold |
|
|
20,753 |
|
|
|
24,126 |
|
|
|
(3,373 |
) |
Average price per acre |
|
$ |
3,241 |
|
|
$ |
3,785 |
|
|
$ |
(544 |
) |
18
WOOD PRODUCTS
How We Did First Quarter 2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
QUARTER ENDED |
|
|
AMOUNT OF CHANGE |
|
DOLLAR AMOUNTS IN MILLIONS |
|
MARCH 2023 |
|
|
MARCH 2022 |
|
|
2023 VS. 2022 |
|
Net sales: |
|
|
|
|
|
|
|
|
|
Structural lumber |
|
$ |
515 |
|
|
$ |
1,206 |
|
|
$ |
(691 |
) |
Oriented strand board |
|
|
208 |
|
|
|
564 |
|
|
|
(356 |
) |
Engineered solid section |
|
|
169 |
|
|
|
196 |
|
|
|
(27 |
) |
Engineered I-joists |
|
|
87 |
|
|
|
137 |
|
|
|
(50 |
) |
Softwood plywood |
|
|
41 |
|
|
|
58 |
|
|
|
(17 |
) |
Medium density fiberboard |
|
|
38 |
|
|
|
48 |
|
|
|
(10 |
) |
Complementary building products |
|
|
163 |
|
|
|
215 |
|
|
|
(52 |
) |
Other products produced(1) |
|
|
97 |
|
|
|
95 |
|
|
|
2 |
|
Total |
|
$ |
1,318 |
|
|
$ |
2,519 |
|
|
$ |
(1,201 |
) |
Costs of sales |
|
$ |
1,159 |
|
|
$ |
1,276 |
|
|
$ |
(117 |
) |
Operating income and Net contribution to earnings |
|
$ |
95 |
|
|
$ |
1,182 |
|
|
$ |
(1,087 |
) |
(1)Other products produced sales include wood chips, other byproducts and third-party residual log sales from our Canadian Forestlands operations.
Comparing First Quarter 2023 with First Quarter 2022
Net sales
Net sales decreased $1,201 million – 48 percent – due to:
●a $691 million decrease in structural lumber sales attributable to a 57 percent decrease in sales realizations, as well as a 1 percent decrease in sales volumes;
●a $356 million decrease in oriented strand board sales attributable to a 66 percent decrease in sales realizations, partially offset by an 8 percent increase in sales volumes;
●a $52 million decrease in complementary building products sales attributable to decreased sales volumes;
●a $50 million decrease in engineered I-joists sales attributable to a 41 percent decrease in sales volumes, partially offset by a 7 percent increase in sales realizations;
●a $27 million decrease in engineered solid section sales attributable to an 18 percent decrease in sales volumes, partially offset by a 6 percent increase in sales realizations;
●a $17 million decrease in softwood plywood sales attributable to a 37 percent decrease in sales realizations, partially offset by an 11 percent increase in sales volumes and
●a $10 million decrease in medium density fiberboard sales attributable to a 34 percent decrease in sales volumes, partially offset by a 21 percent increase in sales realizations.
Costs of sales
Costs of sales decreased $117 million – 9 percent – primarily due to decreased sales volumes for complementary building products, engineered I-joists, engineered solid section and medium density fiberboard, as discussed above.
Operating income and Net contribution to earnings
Operating income and net contribution to earnings decreased $1,087 million – 92 percent – primarily due to the change in the components of gross margin, as discussed above.
19
Third-Party Sales Volumes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
QUARTER ENDED |
|
|
AMOUNT OF CHANGE |
|
VOLUMES IN MILLIONS(1) |
|
MARCH 2023 |
|
|
MARCH 2022 |
|
|
2023 VS. 2022 |
|
Structural lumber – board feet |
|
|
1,144 |
|
|
|
1,157 |
|
|
|
(13 |
) |
Oriented strand board – square feet (3/8”) |
|
|
773 |
|
|
|
717 |
|
|
|
56 |
|
Engineered solid section – cubic feet |
|
|
4.7 |
|
|
|
5.7 |
|
|
|
(1.0 |
) |
Engineered I-joists – lineal feet |
|
|
27 |
|
|
|
46 |
|
|
|
(19 |
) |
Softwood plywood – square feet (3/8”) |
|
|
83 |
|
|
|
75 |
|
|
|
8 |
|
Medium density fiberboard – square feet (3/4”) |
|
|
29 |
|
|
|
44 |
|
|
|
(15 |
) |
(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 |
|
VOLUMES IN MILLIONS |
|
MARCH 2023 |
|
|
MARCH 2022 |
|
|
2023 VS. 2022 |
|
Structural lumber – board feet: |
|
|
|
|
|
|
|
|
|
Production |
|
|
1,143 |
|
|
|
1,203 |
|
|
|
(60 |
) |
Outside purchase |
|
|
39 |
|
|
|
42 |
|
|
|
(3 |
) |
Total |
|
|
1,182 |
|
|
|
1,245 |
|
|
|
(63 |
) |
Oriented strand board – square feet (3/8”): |
|
|
|
|
|
|
|
|
|
Production |
|
|
761 |
|
|
|
739 |
|
|
|
22 |
|
Outside purchase |
|
|
17 |
|
|
|
70 |
|
|
|
(53 |
) |
Total |
|
|
778 |
|
|
|
809 |
|
|
|
(31 |
) |
Engineered solid section – cubic feet: |
|
|
|
|
|
|
|
|
|
Production |
|
|
4.6 |
|
|
|
5.7 |
|
|
|
(1.1 |
) |
Outside purchase |
|
|
2.0 |
|
|
|
0.2 |
|
|
|
1.8 |
|
Total |
|
|
6.6 |
|
|
|
5.9 |
|
|
|
0.7 |
|
Engineered I-joists – lineal feet: |
|
|
|
|
|
|
|
|
|
Production |
|
|
25 |
|
|
|
44 |
|
|
|
(19 |
) |
Outside purchase |
|
|
— |
|
|
|
2 |
|
|
|
(2 |
) |
Total |
|
|
25 |
|
|
|
46 |
|
|
|
(21 |
) |
Softwood plywood – square feet (3/8”): |
|
|
|
|
|
|
|
|
|
Production |
|
|
74 |
|
|
|
66 |
|
|
|
8 |
|
Outside purchase |
|
|
12 |
|
|
|
10 |
|
|
|
2 |
|
Total |
|
|
86 |
|
|
|
76 |
|
|
|
10 |
|
Medium density fiberboard – square feet (3/4"): |
|
|
|
|
|
|
|
|
|
Production |
|
|
34 |
|
|
|
44 |
|
|
|
(10 |
) |
Total |
|
|
34 |
|
|
|
44 |
|
|
|
(10 |
) |
20
UNALLOCATED ITEMS
Unallocated items are gains or charges not related to, or allocated to, an individual operating segment. They include all or a portion of items such as share-based compensation, pension and post-employment costs, elimination of intersegment profit in inventory and LIFO, foreign exchange transaction gains and losses, interest income and other as well as legacy obligations.
Net Charge to Earnings – Unallocated Items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
QUARTER ENDED |
|
|
AMOUNT OF CHANGE |
|
DOLLAR AMOUNTS IN MILLIONS |
|
MARCH 2023 |
|
|
MARCH 2022 |
|
|
2023 VS. 2022 |
|
Unallocated corporate function and variable compensation expense |
|
$ |
(27 |
) |
|
$ |
(31 |
) |
|
$ |
4 |
|
Liability classified share-based compensation |
|
|
— |
|
|
|
1 |
|
|
|
(1 |
) |
Foreign exchange loss |
|
|
(1 |
) |
|
|
— |
|
|
|
(1 |
) |
Elimination of intersegment profit in inventory and LIFO |
|
|
9 |
|
|
|
(59 |
) |
|
|
68 |
|
Other |
|
|
(13 |
) |
|
|
(12 |
) |
|
|
(1 |
) |
Operating loss |
|
|
(32 |
) |
|
|
(101 |
) |
|
|
69 |
|
Non-operating pension and other post-employment benefit costs |
|
|
(9 |
) |
|
|
(15 |
) |
|
|
6 |
|
Interest income and other |
|
|
12 |
|
|
|
(1 |
) |
|
|
13 |
|
Net charge to earnings |
|
$ |
(29 |
) |
|
$ |
(117 |
) |
|
$ |
88 |
|
Comparing First Quarter 2023 with First Quarter 2022
Net charge to earnings decreased $88 million – 75 percent – primarily due to a $68 million decrease in elimination of intersegment profit in inventory and LIFO and a $13 million increase in interest income and other due to an increase in the interest rate on our cash and investment accounts.
INTEREST EXPENSE
Our interest expense, net of capitalized interest, was:
●$66 million for first quarter 2023 and
●$72 million for first quarter 2022.
Interest expense decreased by $6 million compared to first quarter 2022 primarily due to a series of transactions in March 2022 that lowered our weighted average interest rate and extended our weighted average maturity.
Refer to Note 8: Long-Term Debt and Line of Credit for further information.
INCOME TAXES
Our provision for income taxes was:
●a $22 million expense for first quarter 2023 and
●a $209 million expense for first quarter 2022.
Income tax expense decreased by $187 million compared to first quarter 2022 primarily due to a decrease in our TRS earnings in first quarter 2023, as well as a decrease in our estimated annual effective tax rate.
Refer to Note 14: Income Taxes for further information.
LIQUIDITY AND CAPITAL RESOURCES
We are committed to maintaining an appropriate capital structure that provides flexibility and enables us to protect the interests of our shareholders and meet our obligations to our lenders, while also maintaining access to all major financial markets. As of March 31, 2023, we had approximately $800 million in cash and cash equivalents and $1.5 billion of availability on our line of credit, which expires in March 2028. We believe we have sufficient liquidity to meet our cash requirements for the foreseeable future.
CASH FROM OPERATIONS
Consolidated net cash from operations was:
●$126 million for first quarter 2023 and
●$957 million for first quarter 2022.
21
Net cash from operations decreased $831 million primarily due to decreased cash inflows from our business operations. This change was partially offset by a $79 million decrease in cash paid for income taxes, as well as a $21 million decrease in cash used for interest payments.
CASH FROM INVESTING ACTIVITIES
Consolidated net cash from investing activities was:
●$(69) million for first quarter 2023 and
●$(87) million for first quarter 2022.
Net cash from investing activities increased $18 million primarily due to an $18 million decrease in cash paid for acquisition of timberlands.
Summary of Capital Spending by Business Segment
|
|
|
|
|
|
|
|
|
|
|
QUARTER ENDED |
|
DOLLAR AMOUNTS IN MILLIONS |
|
MARCH 2023 |
|
|
MARCH 2022 |
|
Timberlands |
|
$ |
26 |
|
|
$ |
30 |
|
Wood Products |
|
|
43 |
|
|
|
39 |
|
Unallocated Items |
|
|
2 |
|
|
|
1 |
|
Total |
|
$ |
71 |
|
|
$ |
70 |
|
We anticipate our capital expenditures for 2023 to be approximately $440 million. The amount we spend on capital expenditures could change.
CASH FROM FINANCING ACTIVITIES
Consolidated net cash from financing activities was:
●$(841) million for first quarter 2023 and
●$(1,664) million for first quarter 2022.
Net cash from financing activities increased $823 million, primarily due to:
●a $419 million decrease in cash used for payments of dividends;
●a $322 million decrease in net cash used for payments on long-term debt and
●an $84 million decrease in cash used for repurchases of common stock.
Line of Credit
In March 2023, we entered into a new $1.5 billion five-year senior unsecured revolving credit facility, which expires in March 2028 and replaced the existing facility which was set to expire in January 2025. Borrowings will bear interest at a floating rate based on either the adjusted term SOFR plus a spread or a mutually agreed upon base rate plus a spread. We had no outstanding borrowings on our $1.5 billion five-year senior unsecured revolving credit facility as of March 31, 2023 or December 31, 2022.
Refer to Note 8: Long-Term Debt and Line of Credit for further information.
Long-Term Debt
In March 2022, we completed a series of transactions that lowered our weighted average interest rate and extended our weighted average maturity by issuing $900 million in notes and using the net proceeds plus cash on hand to close cash tender offers for $931 million of principal in higher interest rate notes. We issued $450 million of 3.375 percent notes due in March 2033 and $450 million of 4.000 percent notes due in March 2052. The net proceeds after deducting the discount, underwriting fees and issuance costs were $444 million and $437 million, respectively. The net proceeds were used to retire $592 million of our 7.375 percent notes due in March 2032, $161 million of our 8.500 percent notes due in January 2025, $73 million of our 7.125 percent notes due in July 2023, $65 million of our 7.950 percent notes due in March 2025, and $40 million of our 7.850 percent notes due in July 2026. We paid holders an aggregate $1.2 billion in cash reflecting principal, premium to par and tender premium.
We have $118 million and $860 million of long-term debt scheduled to mature during third and fourth quarter 2023, respectively.
Refer to Note 8: Long-Term Debt and Line of Credit for further information.
Debt Covenants
As of March 31, 2023, Weyerhaeuser Company was in compliance with its debt covenants. There have been no significant changes to the debt covenants presented in our 2022 Annual Report on Form 10-K for our long-term debt instruments, and we expect to remain in compliance with our debt covenants for the foreseeable future.
Option Exercises
We received cash proceeds from the exercise of stock options of:
●$2 million for first quarter 2023 and
●$12 million for first quarter 2022.
22
Our average stock price was $31.52 and $39.65 for first quarter 2023 and 2022, respectively.
Dividend Payments
We paid cash dividends on common shares of:
●$799 million for first quarter 2023 and
●$1,218 million for first quarter 2022.
The decrease in dividends paid is primarily due to a supplemental dividend of $0.90 per share based on 2022 financial results for a total of $660 million paid in first quarter 2023 in comparison to a supplemental dividend of $1.45 per share based on 2021 financial results for a total of $1,084 million paid in first quarter 2022.
Share Repurchases
We repurchased 1,115,560 common shares for approximately $35 million (including transaction fees) during first quarter 2023 and we repurchased 3,197,675 common shares for approximately $121 million (including transaction fees) during first quarter 2022 under the 2021 Repurchase Program. There were 27,139 unsettled shares (approximately $1 million) as of March 31, 2023 and 223,548 unsettled shares (approximately $7 million) as of December 31, 2022. Refer to Note 4: Net Earnings Per Share and Share Repurchases for further information.
PERFORMANCE MEASURES
Adjusted EBITDA by Segment
We use Adjusted EBITDA as a key performance measure to evaluate the performance of the consolidated company and our business segments. This measure should not be considered in isolation from, and is not intended to represent an alternative to, our results reported in accordance with U.S. generally accepted accounting principles (U.S. GAAP). However, we believe Adjusted EBITDA provides meaningful supplemental information for investors about our operating performance, better facilitates period to period comparisons and is widely used by analysts, lenders, rating agencies and other interested parties. Our definition of Adjusted EBITDA may be different from similarly titled measures reported by other companies. Adjusted EBITDA, as we define it, is operating income adjusted for depreciation, depletion, amortization, basis of real estate sold and special items.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
QUARTER ENDED |
|
|
AMOUNT OF CHANGE |
|
DOLLAR AMOUNTS IN MILLIONS |
|
MARCH 2023 |
|
|
MARCH 2022 |
|
|
2023 VS. 2022 |
|
Adjusted EBITDA by Segment: |
|
|
|
|
|
|
|
|
|
Timberlands |
|
$ |
188 |
|
|
$ |
247 |
|
|
$ |
(59 |
) |
Real Estate & ENR |
|
|
89 |
|
|
|
116 |
|
|
|
(27 |
) |
Wood Products |
|
|
148 |
|
|
|
1,233 |
|
|
|
(1,085 |
) |
|
|
|
425 |
|
|
|
1,596 |
|
|
|
(1,171 |
) |
Unallocated Items |
|
|
(30 |
) |
|
|
(99 |
) |
|
|
69 |
|
Adjusted EBITDA |
|
$ |
395 |
|
|
$ |
1,497 |
|
|
$ |
(1,102 |
) |
We reconcile Adjusted EBITDA to net earnings for the consolidated company and to operating income (loss) for the business segments, as those are the most directly comparable U.S. GAAP measures for each.
The table below reconciles Adjusted EBITDA for the quarter ended March 31, 2023:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DOLLAR AMOUNTS IN MILLIONS |
|
Timberlands |
|
|
Real Estate & ENR |
|
|
Wood Products |
|
|
Unallocated Items |
|
|
Total |
|
Adjusted EBITDA by Segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
151 |
|
Interest expense, net of capitalized interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66 |
|
Income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22 |
|
Net contribution (charge) to earnings |
|
$ |
120 |
|
|
$ |
53 |
|
|
$ |
95 |
|
|
$ |
(29 |
) |
|
$ |
239 |
|
Non-operating pension and other post-employment benefit costs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9 |
|
|
|
9 |
|
Interest income and other |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12 |
) |
|
|
(12 |
) |
Operating income (loss) |
|
|
120 |
|
|
|
53 |
|
|
|
95 |
|
|
|
(32 |
) |
|
|
236 |
|
Depreciation, depletion and amortization |
|
|
68 |
|
|
|
3 |
|
|
|
53 |
|
|
|
2 |
|
|
|
126 |
|
Basis of real estate sold |
|
|
— |
|
|
|
33 |
|
|
|
— |
|
|
|
— |
|
|
|
33 |
|
Adjusted EBITDA |
|
$ |
188 |
|
|
$ |
89 |
|
|
$ |
148 |
|
|
$ |
(30 |
) |
|
$ |
395 |
|
23
The table below reconciles Adjusted EBITDA for the quarter ended March 31, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DOLLAR AMOUNTS IN MILLIONS |
|
Timberlands |
|
|
Real Estate & ENR |
|
|
Wood Products |
|
|
Unallocated Items |
|
|
Total |
|
Adjusted EBITDA by Segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
771 |
|
Interest expense, net of capitalized interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72 |
|
Loss on debt extinguishment(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
276 |
|
Income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
209 |
|
Net contribution (charge) to earnings |
|
$ |
182 |
|
|
$ |
81 |
|
|
$ |
1,182 |
|
|
$ |
(117 |
) |
|
$ |
1,328 |
|
Non-operating pension and other post-employment benefit costs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
15 |
|
|
|
15 |
|
Interest income and other |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
1 |
|
Operating income (loss) |
|
|
182 |
|
|
|
81 |
|
|
|
1,182 |
|
|
|
(101 |
) |
|
|
1,344 |
|
Depreciation, depletion and amortization |
|
|
65 |
|
|
|
4 |
|
|
|
51 |
|
|
|
2 |
|
|
|
122 |
|
Basis of real estate sold |
|
|
— |
|
|
|
31 |
|
|
|
— |
|
|
|
— |
|
|
|
31 |
|
Adjusted EBITDA |
|
$ |
247 |
|
|
$ |
116 |
|
|
$ |
1,233 |
|
|
$ |
(99 |
) |
|
$ |
1,497 |
|
(1)Loss on debt extinguishment is a special item consisting of a pretax charge of $276 million related to early debt retirement.
Net Earnings and Net Earnings per Diluted Share Before Special Items
We use net earnings before special items and net earnings per diluted share before special items as key performance measures to evaluate the performance of the consolidated company. These measures should not be considered in isolation from, and are not intended to represent an alternative to, our results reported in accordance with U.S. GAAP. However, we believe the measures provide meaningful supplemental information for investors about our operating performance, better facilitate period to period comparisons and are widely used by analysts, lenders, rating agencies and other interested parties.
Net Earnings Before Special Items
|
|
|
|
|
|
|
|
|
|
|
QUARTER ENDED |
|
DOLLAR AMOUNTS IN MILLIONS |
|
MARCH 2023 |
|
|
MARCH 2022 |
|
Net earnings |
|
$ |
151 |
|
|
$ |
771 |
|
Loss on debt extinguishment |
|
|
— |
|
|
|
207 |
|
Net earnings before special items |
|
$ |
151 |
|
|
$ |
978 |
|
Net Earnings per Diluted Share Before Special Items
|
|
|
|
|
|
|
|
|
|
|
QUARTER ENDED |
|
|
|
MARCH 2023 |
|
|
MARCH 2022 |
|
Net earnings per diluted share |
|
$ |
0.21 |
|
|
$ |
1.03 |
|
Loss on debt extinguishment |
|
|
— |
|
|
|
0.28 |
|
Net earnings per diluted share before special items |
|
$ |
0.21 |
|
|
$ |
1.31 |
|
CRITICAL ACCOUNTING POLICIES
There have been no significant changes during first quarter 2023 to the critical accounting policies presented in our 2022 Annual Report on Form 10-K.