WEYERHAEUSER CO 10-Q

Item 1. FINANCIAL STATEMENTS WEYERHAEUSER COMPANY CONSOLIDATED STATEM ENT OF OPERATIONS (UNAUDITED) QUARTER ENDED YEAR-TO-DATE ENDED DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURES JUNE 2023 JUNE 2022 JUNE 2023 JUNE 2022 Net sales (Note 3) $ 1,997 $ 2,973 $ 3,878 $ 6,085 Costs of sales 1,528 1,789 3,040 3,436 Gross margin 469 1,184 838 2,649 Selling expenses 22 23 44 46 General and administrative expenses 108 102 209 194 Other operating costs, net (Note 13) 20 12 30 18 Operating income 319 1,047 555 2,391 Non-operating pension and other post-employment benefit costs (Note 6) ( 12 ) ( 11 ) ( 21 ) ( 26 ) Interest income and other 18 1 30 — Interest expense, net of capitalized interest ( 70 ) ( 65 ) ( 136 ) ( 137 ) Loss on debt extinguishment (Note 8) — — — ( 276 ) Earnings before income taxes 255 972 428 1,952 Income taxes (Note 14) ( 25 ) ( 184 ) ( 47 ) ( 393 ) Net earnings $ 230 $ 788 $ 381 $ 1,559 Earnings per share, basic and diluted (Note 4) $ 0.31 $ 1.06 $ 0.52 $ 2.09 Weighted average shares outstanding (in thousands) (Note 4): Basic 732,021 744,542 732,599 746,017 Diluted 732,362 745,582 732,961 747,194 See accompanying Notes to Consolidated Financial Statements . 1 WEYERHAEUSER COMPANY CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) QUARTER ENDED YEAR-TO-DATE ENDED DOLLAR AMOUNTS IN MILLIONS JUNE 2023 JUNE 2022 JUNE 2023 JUNE 2022 Net earnings $ 230 $ 788 $ 381 $ 1,559 Other comprehensive income: Foreign currency translation adjustments 7 ( 25 ) 7 ( 9 ) Changes in unamortized actuarial loss, net of tax expense of $ 2 , $ 24 , $ 4 and $ 29 7 77 14 90 Changes in unamortized net prior service credit, net of tax (expense) benefit of $ 1 , $ 0 , $ 1 and ($ 1 ) 1 — 1 — Total other comprehensive income 15 52 22 81 Total comprehensive income $ 245 $ 840 $ 403 $ 1,640 See accompanying Notes to Consolidated Financial Statements . 2 WEYERHAEUSER COMPANY CONSOLIDATED BALANCE SHEET (UNAUD ITED) DOLLAR AMOUNTS IN MILLIONS, EXCEPT PAR VALUE JUNE 30, 2023 DECEMBER 31, 2022 ASSETS Current assets: Cash and cash equivalents $ 1,095 $ 1,581 Short-term investments (Note 9) 665 — Receivables, net 462 357 Receivables for taxes 18 42 Inventories (Note 5) 539 550 Prepaid expenses and other current assets 188 216 Total current assets 2,967 2,746 Property and equipment, less accumulated depreciation of $ 3,820 and $ 3,710 2,133 2,171 Construction in progress 260 222 Timber and timberlands at cost, less depletion 11,512 11,604 Minerals and mineral rights, less depletion 207 214 Deferred tax assets 8 8 Other assets 383 375 Total assets $ 17,470 $ 17,340 LIABILITIES AND EQUITY Current liabilities: Current maturities of long-term debt (Note 8) $ 980 $ 982 Accounts payable 254 247 Accrued liabilities (Note 7) 473 511 Total current liabilities 1,707 1,740 Long-term debt, net (Note 8) 4,817 4,071 Deferred tax liabilities 105 96 Deferred pension and other post-employment benefits (Note 6) 348 344 Other liabilities 352 340 Total liabilities 7,329 6,591 Commitments and contingencies (Note 10) Equity: Common shares: $ 1.25 par value; authorized 1,360 million shares; issued and outstanding: 730,850 thousand shares at June 30, 2023 and 732,794 thousand shares at December 31, 2022 914 916 Other capital 7,624 7,691 Retained earnings 1,828 2,389 Accumulated other comprehensive loss (Note 11) ( 225 ) ( 247 ) Total equity 10,141 10,749 Total liabilities and equity $ 17,470 $ 17,340 See accompanying Notes to Consolidated Financial Statements . 3 WEYERHAEUSER COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) YEAR-TO-DATE ENDED DOLLAR AMOUNTS IN MILLIONS JUNE 2023 JUNE 2022 Cash flows from operations: Net earnings $ 381 $ 1,559 Noncash charges (credits) to earnings: Depreciation, depletion and amortization 252 241 Basis of real estate sold 46 70 Pension and other post-employment benefits (Note 6) 32 44 Share-based compensation expense (Note 12) 17 17 Loss on debt extinguishment (Note 8) — 276 Other 2 14 Change in: Receivables, net ( 105 ) ( 40 ) Receivables and payables for taxes 27 27 Inventories 14 ( 58 ) Prepaid expenses and other current assets 8 ( 3 ) Accounts payable and accrued liabilities ( 30 ) ( 15 ) Pension and post-employment benefit contributions and payments ( 11 ) ( 14 ) Other ( 11 ) ( 15 ) Net cash from operations 622 2,103 Cash flows from investing activities: Capital expenditures for property and equipment ( 119 ) ( 121 ) Capital expenditures for timberlands reforestation ( 33 ) ( 30 ) Acquisition of timberlands (Note 15) ( 2 ) ( 283 ) Purchase of short-term investments ( 664 ) — Other — 1 Net cash from investing activities ( 818 ) ( 433 ) Cash flows from financing activities: Cash dividends on common shares ( 938 ) ( 1,352 ) Net proceeds from issuance of long-term debt (Note 8) 743 881 Payments on long-term debt (Note 8) — ( 1,203 ) Repurchases of common shares (Note 4) ( 85 ) ( 259 ) Other ( 10 ) ( 5 ) Net cash from financing activities ( 290 ) ( 1,938 ) Net change in cash, cash equivalents and restricted cash ( 486 ) ( 268 ) Cash, cash equivalents and restricted cash at beginning of period 1,581 1,999 Cash, cash equivalents and restricted cash at end of period $ 1,095 $ 1,731 Cash paid during the period for: Interest, net of amount capitalized of $ 3 and $ 3 $ 127 $ 149 Income taxes, net of refunds $ 18 $ 354 See accompanying Notes to Consolidated Financial Statements . 4 WEYERHAEUSER COMPANY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) QUARTER ENDED YEAR-TO-DATE ENDED DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURES JUNE 2023 JUNE 2022 JUNE 2023 JUNE 2022 Common shares: Balance at beginning of period $ 916 $ 932 $ 916 $ 934 Issued for exercise of stock options and vested units 1 — 2 2 Repurchases of common shares (Note 4) ( 3 ) ( 5 ) ( 4 ) ( 9 ) Balance at end of period 914 927 914 927 Other capital: Balance at beginning of period 7,662 8,076 7,691 8,181 Issued for exercise of stock options — 2 2 13 Repurchases of common shares (Note 4) ( 47 ) ( 133 ) ( 81 ) ( 250 ) Share-based compensation 9 9 17 17 Other transactions, net — — ( 5 ) ( 7 ) Balance at end of period 7,624 7,954 7,624 7,954 Retained earnings: Balance at beginning of period 1,738 1,679 2,389 2,131 Net earnings 230 788 381 1,559 Dividends on common shares ( 140 ) ( 134 ) ( 942 ) ( 1,357 ) Balance at end of period 1,828 2,333 1,828 2,333 Accumulated other comprehensive loss: Balance at beginning of period ( 240 ) ( 450 ) ( 247 ) ( 479 ) Other comprehensive income 15 52 22 81 Balance at end of period (Note 11) ( 225 ) ( 398 ) ( 225 ) ( 398 ) Total equity: Balance at end of period $ 10,141 $ 10,816 $ 10,141 $ 10,816 Dividends paid per common share $ 0.19 $ 0.18 $ 1.28 $ 1.81 See accompanying Notes to Consolidated Financial Statements . 5 INDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: BASIS OF PRESENTATION 7 NOTE 2: BUSINESS SEGMENTS 7 NOTE 3: REVENUE RECOGNITION 8 NOTE 4: NET EARNINGS PER SHARE AND SHARE REPURCHASES 8 NOTE 5: INVENTORIES 9 NOTE 6: PENSION AND OTHER POST-EMPLOYMENT BENEFIT PLANS 10 NOTE 7: ACCRUED LIABILITIES 10 NOTE 8: LONG-TERM DEBT AND LINE OF CREDIT 10 NOTE 9: FAIR VALUE OF FINANCIAL INSTRUMENTS 11 NOTE 10: LEGAL PROCEEDINGS, COMMITMENTS AND CONTINGENCIES 11 NOTE 11: ACCUMULATED OTHER COMPREHENSIVE LOSS 12 NOTE 12: SHARE-BASED COMPENSATION 12 NOTE 13: OTHER OPERATING COSTS, NET 13 NOTE 14: INCOME TAXES 13 NOTE 15: TIMBERLAND ACQUISITIONS 13 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) FOR THE QUARTERS AND YEAR-TO-DATE PERIODS ENDED JUNE 30, 2023 AND 2022 NOTE 1: BASIS O F PRESENTATION Our consolidated financial statements provide an overall view of our results of operations, financial condition and cash flows. They include our accounts and the accounts of entities we control, including majority-owned domestic and foreign subsidiaries. They do not include our intercompany transactions and accounts, which are eliminated. 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, 2022 . Results of operations for interim periods should not necessarily be regarded as indicative of the results that may be expected for the full year. NOTE 2: BUSIN ESS SEGMENTS We are principally engaged in growing and harvesting timber; manufacturing, distributing and selling products made from trees; maximizing the value of our acreage through the sale of higher and better use (HBU) properties; and monetizing the value of surface and subsurface assets through leases and royalties. Our business segments are organized based primarily on products and services which include: ● Timberlands – Logs, timber, recreational leases and other products; ● Real Estate, Energy and Natural Resources (Real Estate & ENR) – Real Estate (sales of timberlands) and ENR (rights to explore for and extract hard minerals, construction materials, natural gas production, and wind and solar); and ● Wood Products – Structural lumber, oriented strand board, engineered wood products and building materials distribution. A reconciliation of our business segment information to the respective information in the Consolidated Statement of Operations is as follows: QUARTER ENDED YEAR-TO-DATE ENDED DOLLAR AMOUNTS IN MILLIONS JUNE 2023 JUNE 2022 JUNE 2023 JUNE 2022 Sales to unaffiliated customers: Timberlands $ 417 $ 515 $ 879 $ 980 Real Estate & ENR 80 117 181 245 Wood Products 1,500 2,341 2,818 4,860 1,997 2,973 3,878 6,085 Intersegment sales: Timberlands 150 156 292 317 Total sales 2,147 3,129 4,170 6,402 Intersegment eliminations ( 150 ) ( 156 ) ( 292 ) ( 317 ) Total $ 1,997 $ 2,973 $ 3,878 $ 6,085 Net contribution (charge) to earnings: Timberlands $ 104 $ 153 $ 224 $ 335 Real Estate & ENR 52 65 105 146 Wood Products 218 863 313 2,045 374 1,081 642 2,526 Unallocated items (1) ( 49 ) ( 44 ) ( 78 ) ( 161 ) Net contribution to earnings 325 1,037 564 2,365 Interest expense, net of capitalized interest ( 70 ) ( 65 ) ( 136 ) ( 137 ) Loss on debt extinguishment — — — ( 276 ) Earnings before income taxes 255 972 428 1,952 Income taxes ( 25 ) ( 184 ) ( 47 ) ( 393 ) Net earnings $ 230 $ 788 $ 381 $ 1,559 (1) 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. 7 NOTE 3: REVENU E RECOGNITION A reconciliation of revenue recognized by our major products: QUARTER ENDED YEAR-TO-DATE ENDED DOLLAR AMOUNTS IN MILLIONS JUNE 2023 JUNE 2022 JUNE 2023 JUNE 2022 Net sales to unaffiliated customers: Timberlands segment Delivered logs: West Domestic sales $ 101 $ 103 $ 194 $ 216 Export grade sales 105 205 241 351 Subtotal West 206 308 435 567 South 162 160 330 314 North 7 10 24 25 Subtotal delivered logs sales 375 478 789 906 Stumpage and pay-as-cut timber 15 11 31 20 Recreational and other lease revenue 17 16 35 33 Other (1) 10 10 24 21 Net sales attributable to Timberlands segment 417 515 879 980 Real Estate & ENR segment Real estate 47 90 119 187 Energy and natural resources 33 27 62 58 Net sales attributable to Real Estate & ENR segment 80 117 181 245 Wood Products segment Structural lumber 573 998 1,088 2,204 Oriented strand board 215 497 423 1,061 Engineered solid section 215 247 384 443 Engineered I-joists 126 168 213 305 Softwood plywood 44 53 85 111 Medium density fiberboard 42 53 80 101 Complementary building products 204 239 367 454 Other (2) 81 86 178 181 Net sales attributable to Wood Products segment 1,500 2,341 2,818 4,860 Total net sales $ 1,997 $ 2,973 $ 3,878 $ 6,085 (1) Other Timberlands sales include sales of seeds and seedlings from our nursery operations as well as wood chips. (2) Other Wood Products sales include wood chips, other byproducts and third-party residual log sales from our Canadian Forestlands operations. NOTE 4: NET EARNINGS PER SHARE AND SHARE REPURCHASES Our basic and diluted earnings per share were: ● $ 0.31 during second quarter 2023 and $ 0.52 during year-to-date 2023; ● $ 1.06 during second quarter 2022 and $ 2.09 during year-to-date 2022. 8 Basic earnings per share is net earnings divided by the weighted average number of our outstanding common shares, including stock equivalent units where there is no circumstance under which those shares would not be issued. Diluted earnings per share is net earnings 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 SHARES IN THOUSANDS JUNE 2023 JUNE 2022 JUNE 2023 JUNE 2022 Weighted average common shares outstanding – basic 732,021 744,542 732,599 746,017 Dilutive potential common shares: Stock options 111 308 124 346 Restricted stock units 20 410 23 415 Performance share units 210 322 215 416 Total effect of outstanding dilutive potential common shares 341 1,040 362 1,177 Weighted average common shares outstanding – dilutive 732,362 745,582 732,961 747,194 We use the treasury stock method to calculate the dilutive effect of our outstanding stock options, restricted stock units and performance share units. 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 SHARES IN THOUSANDS JUNE 2023 JUNE 2022 JUNE 2023 JUNE 2022 Stock options 787 — 787 — Performance share units 682 573 682 573 Share Repurchase Program On September 22, 2021, we announced that our board of directors approved a new share repurchase program (the 2021 Repurchase Program) under which we are authorized to repurchase up to $ 1 billion of outstanding shares. Concurrently, the board terminated the remaining repurchase authorization under the share repurchase program approved by the board in February 2019 (the 2019 Repurchase Program). We repurchased 1,689,874 common shares for approximately $ 50 million (including transaction fees) under the 2021 Repurchase Program during second quarter 2023 and 2,805,434 common shares for approximately $ 85 million under the 2021 Repurchase Program during year-to-date 2023. As of June 30, 2023, we had remaining authorization of $ 292 million for future share repurchases. During year-to-date 2022 , we repurchased 6,982,462 common shares for approximately $ 259 million (including transaction fees) under the 2021 Repurchase Program. All common stock repurchases under the 2021 Repurchase Program were made in open-market transactions. 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 no unsettled shares as of June 30, 2023 , and 223,548 unsettled shares (approximately $ 7 million) as of December 31, 2022. NOTE 5: IN VENTORIES Inventories include raw materials, work-in-process and finished goods, as well as materials and supplies. DOLLAR AMOUNTS IN MILLIONS JUNE 30, 2023 DECEMBER 31, 2022 LIFO inventories: Logs $ 25 $ 32 Lumber, plywood, panels and fiberboard 69 61 Other products 19 9 Moving average cost or FIFO inventories: Logs 40 56 Lumber, plywood, panels, fiberboard and engineered wood products 110 122 Other products 132 140 Materials and supplies 144 130 Total $ 539 $ 550 LIFO – the last-in, first-out method – applies to major inventory products held at our U.S. locations. The moving average cost method or FIFO – the first-in, first-out method – applies to the balance of our U.S. raw material and product inventories, all material and supply inventories and all foreign inventories. 9 NOTE 6: PENSION AND OTHER PO ST-EMPLOYMENT BENEFIT PLANS The components of net periodic benefit cost are: PENSION QUARTER ENDED YEAR-TO-DATE ENDED DOLLAR AMOUNTS IN MILLIONS JUNE 2023 JUNE 2022 JUNE 2023 JUNE 2022 Service cost $ 5 $ 8 $ 11 $ 18 Interest cost 29 26 59 53 Expected return on plan assets ( 30 ) ( 41 ) ( 60 ) ( 80 ) Amortization of actuarial loss 11 23 19 47 Amortization of prior service cost 1 — 1 1 Total net periodic benefit cost – pension $ 16 $ 16 $ 30 $ 39 OTHER POST-EMPLOYMENT BENEFITS QUARTER ENDED YEAR-TO-DATE ENDED DOLLAR AMOUNTS IN MILLIONS JUNE 2023 JUNE 2022 JUNE 2023 JUNE 2022 Interest cost $ 1 $ 1 $ 2 $ 2 Amortization of actuarial loss 1 2 1 3 Amortization of prior service credit ( 1 ) — ( 1 ) — Total net periodic benefit cost – other post-employment benefits $ 1 $ 3 $ 2 $ 5 For the periods presented, service cost is included in “Costs of sales,” “Selling expenses,” and “General and administrative expenses” with the remaining components included in “Non-operating pension and other post-employment benefit costs” in the Consolidated Statement of Operations . Fair Value of Pension Plan Assets and Obligations In our year-end reporting process, we estimate the fair value of pension plan assets based upon the information available 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-end estimated fair value of pension plan assets in second quarter of each year to incorporate final net asset values reflected in financial statements received after we have filed our Annual Report on Form 10-K. No adjustments to the fair value of assets or projected benefit obligations were necessary during second quarter 2023. NOTE 7: ACCRU ED LIABILITIES Accrued liabilities were comprised of the following: DOLLAR AMOUNTS IN MILLIONS JUNE 30, 2023 DECEMBER 31, 2022 Compensation and employee benefit costs $ 157 $ 201 Current portion of lease liabilities 20 22 Customer rebates, volume discounts and deferred income 137 132 Interest 72 69 Taxes payable 33 23 Other 54 64 Total $ 473 $ 511 NOTE 8: LONG-TERM DEBT AND LINE OF CREDIT In July 2023, we repaid $ 118 million of our 7.125 % notes at maturity. In May 2023, we completed an offering of debt securities by issuing $ 750 million of 4.750 percent notes due in May 2026 . The net proceeds after deducting the discount, underwriting fees and issuance costs were $ 743 million. Of these total net proceeds, $ 664 million was invested in short-term investments classified as held-to-maturity securities. 10 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. A net pretax charge of $ 276 million ($ 207 million after-tax) was included in the Consolidated Statement of Operations in first quarter 2022 for premiums to retire $ 931 million of principal plus unamortized debt issuance costs and unamortized debt discounts in connection with the early debt retirement. 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 Secured Overnight Financing Rate (SOFR) plus a spread or a mutually agreed upon base rate plus a spread. We ha d no outstanding borrowings o n our credit facility as of June 30, 2023 and December 31, 2022 . NOTE 9: FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair value and carrying value of our long-term debt consisted of the following: DOLLAR AMOUNTS IN MILLIONS JUNE 30, 2023 DECEMBER 31, 2022 Long-term fixed rate debt (including current maturities): Carrying value $ 5,797 $ 5,053 Fair value (level 2) $ 5,687 $ 4,918 To estimate the fair value of fixed rate long-term debt, we used the market approach, which is based on quoted market prices we received for the same types and issues of our debt. We believe that our line of credit has a net carrying value that approximates its fair value within an insignificant difference. The inputs to the valuations of our long-term debt 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, 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. As of June 30, 2023, we had $ 665 million in short-term investments classified as held-to-maturity debt securities, which consist of a mixture of term deposits and Treasury bills. We did no t have any short-term investments classified as held-to-maturity debt securities as of December 31, 2022. These short-term investments mature within one year and are recorded in "Short-term investments" on our Consolidated Balance Sheet . We record held-to-maturity debt securities at amortized cost, which approximates fair value. NOTE 10: LEGAL PROCEEDINGS, C OMMITMENTS AND CONTINGENCIES Legal Proceedings We are party to various legal proceedings arising in the ordinary course of business. We are not currently a party to any legal proceeding that management believes could have a material adverse effect on our Consolidated Statement of Operations , Consolidated Balance Sheet or Consolidated Statement of Cash Flows . Environmental Matters Site Remediation Under the federal 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. As of June 30, 2023, our total accrual for future estimated remediation costs on active Superfund sites and other sites for which we are potentially responsible was approximately $ 75 million. These amounts are recorded in "Accrued liabilities" and "Other liabilities" on our Consolidated Balance Sheet . 11 NOTE 11: ACCUMULATED OT HER COMPREHENSIVE LOSS Changes in amounts included in our accumulated other comprehensive loss by component are: QUARTER ENDED YEAR-TO-DATE ENDED DOLLAR AMOUNTS IN MILLIONS JUNE 2023 JUNE 2022 JUNE 2023 JUNE 2022 Pension (1) Balance at beginning of period $ ( 451 ) $ ( 709 ) $ ( 458 ) $ ( 720 ) Other comprehensive (loss) income before reclassifications ( 2 ) 59 ( 1 ) 51 Amounts reclassified from accumulated other comprehensive loss to earnings (2) 9 18 15 37 Total other comprehensive income 7 77 14 88 Balance at end of period $ ( 444 ) $ ( 632 ) $ ( 444 ) $ ( 632 ) Other post-employment benefits (1) Balance at beginning of period $ 20 $ — $ 20 $ ( 2 ) Other comprehensive income (loss) before reclassifications 1 ( 1 ) 1 — Amounts reclassified from accumulated other comprehensive loss to earnings (2) — 1 — 2 Total other comprehensive income 1 — 1 2 Balance at end of period $ 21 $ — $ 21 $ — Translation adjustments and other Balance at beginning of period $ 191 $ 259 $ 191 $ 243 Translation adjustments 7 ( 25 ) 7 ( 9 ) Total other comprehensive income (loss) 7 ( 25 ) 7 ( 9 ) Balance at end of period 198 234 198 234 Accumulated other comprehensive loss, end of period $ ( 225 ) $ ( 398 ) $ ( 225 ) $ ( 398 ) (1) Amounts presented are net of tax. (2) Amounts of actuarial loss and prior service (cost) credit are components of net periodic benefit cost. See Note 6: Pension and Other Post-Employment Benefit Plans . NOTE 12: SHARE-B ASED COMPENSATION Share-based compensation activity during year-to-date 2023 included the following: SHARES IN THOUSANDS GRANTED VESTED Restricted stock units (RSUs) 840 768 Performance share units (PSUs) 392 228 A total of 861 thousand shares of common stock were issued as a result of RSU vestings, PSU vestings and stock option exercises. Restricted Stock Units The weighted average fair value of the RSUs granted in 2023 was $ 33.77 . The vesting provisions for RSUs granted in 2023 were consistent with prior year grants. Performance Share Units The weighted average grant date fair value of PSUs granted in 2023 was $ 37.58 . The final number of shares granted in 2023 will vest between a range of 0 percent to 150 percent of each grant's target, depending upon actual company performance compared against an industry peer group. PSUs granted in 2023 will vest at a maximum of 100 percent of target value in the event of negative absolute company total shareholder return. Weighted Average Assumptions Used in Estimating the Value of Performance Share Units Granted in 2023 PERFORMANCE SHARE UNITS Performance period 2/09/2023 – 12/31/2025 Valuation date average stock price (1) $ 33.96 Expected dividends 2.25 % Risk-free rate 4.21 % – 4.66 % Expected volatility 29.26 % – 40.19 % (1) Calculated as an average of the high and low prices on grant date. 12 NOTE 13: OTHER OPERAT ING COSTS, NET Other operating costs, net were comprised of the following: QUARTER ENDED YEAR-TO-DATE ENDED DOLLAR AMOUNTS IN MILLIONS JUNE 2023 JUNE 2022 JUNE 2023 JUNE 2022 Environmental remediation charges $ 12 $ 1 $ 13 $ 1 Foreign exchange gains, net ( 3 ) ( 3 ) ( 2 ) ( 4 ) Litigation expense, net 1 4 2 8 Research and development expenses 1 2 3 3 Other, net 9 8 14 10 Total other operating costs, net $ 20 $ 12 $ 30 $ 18 NOTE 14: INCOME TAXES As a real estate investment trust (REIT), we generally are not subject to federal corporate 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 Taxable REIT Subsidiaries (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 our current estimate of the annual effective tax rate and is adjusted for discrete taxable events that have occurred during the year. Our 2023 estimated annual effective tax rate, excluding discrete items, differs from the U.S. federal statutory tax rate of 21 pe rcent primarily due to state and foreign income taxes and tax benefits associated with our nontaxable REIT earnings. NOTE 15: TIMBERLAND ACQUISITIONS On July 19, 2023, we completed the purchase of 22 thousand acres of Mississippi timberlands for approximately $ 60 million. On May 18, 2022, we completed the purchase of 81 thousand acres of North and South Carolina timberlands for approximately $ 265 million. We recorded $ 263 million of timberland assets in “Timber and timberlands at cost, less depletion” and $ 2 million of related assets in “Property and equipment, net” on our Consolidated Balance Sheet . 13 Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A) NOTE ABOUT FORWARD-LOOKING STATEMENTS This report contains statements concerning our future results and performance that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include, without limitation, statements relating to: our expected future financial and operating performance; our plans, strategies, intentions and expectations; our capital structure and the sufficiency of our liquidity position to meet future cash requirements; 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; ● 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 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 ● other risks and uncertainties described in this report under Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) and in our 2022 Annual Report on Form 10-K, as well as those set forth from time to time in our other public statements, reports, registration statements, prospectuses, information statements and other filings with the SEC. It is not possible to predict or identify all risks and uncertainties that might affect the accuracy of our forward-looking statements and, consequently, our descriptions of such risks and uncertainties should not be considered exhaustive. There is no guarantee that any of the events anticipated by these forward-looking statements will occur, and if any of the events do occur, there is no guarantee what effect they will have on the company's business, results of operations, cash flows, financial condition and future prospects. 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. Over the past year, home sales and building activity slowed due in part to higher mortgage interest rates, reduced affordability and general macroeconomic conditions. During second quarter 2023, market conditions improved in response to a stabilization in mortgage rates and increased homebuilder sentiment. On a seasonally adjusted annual basis, as reported by the U.S. Census Bureau, housing starts for second quarter 2023 averaged 1.45 million units, a 4.5 percent increase from first quarter 2023. Single-family starts averaged 929 thousand units, an 11.4 percent increase from first quarter 2023. Multi-family starts averaged 518 thousand units in second quarter 2023, which was a 6.1 percent decrease from first quarter 2023. Sales of newly built, single-family homes averaged a seasonally adjusted annual rate of 694 thousand units for second quarter 2023, an increase of 8.8 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 1.9 percent from first quarter 2023 to second 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 in early second quarter 2023 continued to be affected by softening in the housing market and ongoing macroeconomic uncertainty. As the quarter progressed, improvements in the housing market, combined with supply concerns resulting from a series of temporary and permanent mill curtailments and wildfires in Canada, led to moderately tighter markets. The Random Lengths Framing Lumber Composite price averaged $409/MBF and the OSB Composite averaged $360/MSF in second quarter 2023. Over the course of the second quarter, prices increased from $417/MBF to $438/MBF for lumber and from $297/MSF to $432/MSF for OSB. In Western log markets, Douglas fir sawlog prices rose by 0.4 percent in second quarter 2023 compared with first quarter 2023, as reported by RISI Log Lines based on Weyerhaeuser’s sales mix. Overall, domestic prices in the West stayed consistent, with lower lumber prices offset by continued constraints in log supply. In the South, delivered sawlog prices remained flat in second quarter 2023 compared to first quarter 2023 and declined 1.5 percent from second quarter 2022 as reported by TimberMart-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 second 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 decreased 1.6 percent year to date through May compared to the same period in 2022, while the key Post and Beam segment saw a 5.9 percent decrease. An increase in lumber imports to Japan from Europe placed downward pressure on market conditions. China demand has improved from low levels late in 2022 but remains subdued due to general economic conditions and increased supply of logs from New Zealand. 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, increased from 6.3 percent at the end of first quarter 2023 to 6.7 percent at the end of second quarter 2023. While mortgage rates remain elevated, home buyers have responded favorably to even small reductions. Builders have also been able to offset higher mortgage rates through discounts, loan subsidies and modifying product offerings such as home sizes and finishes. Higher rates have also locked-in many existing homeowners from selling, reducing inventories of existing homes for sale which has led to increased demand for available new homes. Increased inflation affects the cost of our operations across each of our business segments, including costs for raw materials, transportation, energy and labor. The Consumer Price Index increased 3.0 percent year over year in June 2023, which is markedly down from its peak of over 9.0 percent in June 2022. While we can offset some of the impacts of inflation through our sales activities, 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 3.6 percent in June 2023 remained near historically low levels and increased 0.1 percent from the end of first quarter 2023. Labor force participation has increased to 62.6 percent in June 2023, from 62.2 percent in June 2022, approaching pre-Pandemic levels of 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 Second Quarter 2023 and Year-to-Date 2023 QUARTER ENDED AMOUNT OF CHANGE YEAR-TO-DATE ENDED AMOUNT OF CHANGE DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURES JUNE 2023 JUNE 2022 2023 VS. 2022 JUNE 2023 JUNE 2022 2023 VS. 2022 Net sales $ 1,997 $ 2,973 $ (976 ) $ 3,878 $ 6,085 $ (2,207 ) Costs of sales $ 1,528 $ 1,789 $ (261 ) $ 3,040 $ 3,436 $ (396 ) Operating income $ 319 $ 1,047 $ (728 ) $ 555 $ 2,391 $ (1,836 ) Net earnings $ 230 $ 788 $ (558 ) $ 381 $ 1,559 $ (1,178 ) Earnings per share, basic and diluted $ 0.31 $ 1.06 $ (0.75 ) $ 0.52 $ 2.09 $ (1.57 ) Comparing Second Quarter 2023 with Second Quarter 2022 Net sales Net sales decreased $976 million – 33 percent – primarily due to an $841 million decrease in Wood Products sales to unaffiliated customers attributable to decreased sales volumes and sales realizations across most product lines, as well as a $98 million decrease in Timberlands net sales to unaffiliated customers primarily attributable to decreased sales realizations and sales volumes in the Western region. Costs of sales Costs of sales decreased $261 million – 15 percent – primarily due to decreased sales volumes and raw material costs across most product lines and decreased freight costs within our Wood Products segment, as well as decreased export log freight costs and third-party log purchases within our Timberlands segment. Operating income Operating income decreased $728 million – 70 percent – primarily due to a $715 million decrease in consolidated gross margin, as discussed above. Net earnings Net earnings decreased $558 million – 71 percent – primarily due to the $728 million decrease in operating income, as discussed above. This decrease in operating income was partially offset by a $159 million decrease in income tax expense (refer to Income Taxes ). Comparing Year-to-Date 2023 with Year-to-Date 2022 Net sales Net sales decreased $2,207 million – 36 percent – primarily due to a $2,042 million decrease in Wood Products sales to unaffiliated customers attributable to decreased sales realizations and sales volumes across most product lines, as well as a $101 million decrease in Timberlands sales to unaffiliated customers attributable to decreased sales realizations in the Western region, partially offset by increased sales volumes in the Southern region and increased stumpage sales. Costs of sales Costs of sales decreased $396 million – 12 percent – primarily due to decreased sales volumes and raw material costs across most product lines within our Wood Products segment, as well as decreased freight costs. Operating income Operating income decreased $1,836 million – 77 percent – primarily due to a $1,811 million decrease in consolidated gross margin, as discussed above. Net earnings Net earnings decreased $1,178 million – 76 percent – primarily due to the $1,836 million decrease in operating income, as discussed above. This decrease was partially offset by a $346 million decrease in income tax expense (refer to Income Taxes ), as well as 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 ). 16 TIMBER LANDS How We Did Second Quarter 2023 and Year-to-Date 2023 QUARTER ENDED AMOUNT OF CHANGE YEAR-TO-DATE ENDED AMOUNT OF CHANGE DOLLAR AMOUNTS IN MILLIONS JUNE 2023 JUNE 2022 2023 VS. 2022 JUNE 2023 JUNE 2022 2023 VS. 2022 Net sales to unaffiliated customers: Delivered logs: West $ 206 $ 308 $ (102 ) $ 435 $ 567 $ (132 ) South 162 160 2 330 314 16 North 7 10 (3 ) 24 25 (1 ) Subtotal delivered logs sales 375 478 (103 ) 789 906 (117 ) Stumpage and pay-as-cut timber 15 11 4 31 20 11 Recreational and other lease revenue 17 16 1 35 33 2 Other (1) 10 10 — 24 21 3 Subtotal net sales to unaffiliated customers 417 515 (98 ) 879 980 (101 ) Intersegment sales 150 156 (6 ) 292 317 (25 ) Total sales $ 567 $ 671 $ (104 ) $ 1,171 $ 1,297 $ (126 ) Costs of sales $ 439 $ 495 $ (56 ) $ 900 $ 918 $ (18 ) Operating income and Net contribution to earnings $ 104 $ 153 $ (49 ) $ 224 $ 335 $ (111 ) (1) Other Timberlands sales include sales of seeds and seedlings from our nursery operations as well as wood chips. Comparing Second Quarter 2023 with Second Quarter 2022 Net sales to unaffiliated customers Net sales to unaffiliated customers decreased $98 million – 19 percent – primarily due to a $102 million decrease in Western log sales attributable to a 29 percent decrease in sales realizations and a 7 percent decrease in sales volumes, partially offset by a $4 million increase in stumpage and pay-as-cut timber sales. Intersegment sales Intersegment sales decreased $6 million – 4 percent – primarily due to a 9 percent decrease in sales realizations, partially offset by a 6 percent increase in sales volumes. Costs of sales Costs of sales decreased $56 million – 11 percent – primarily due to decreased Western third-party log purchases and export log freight costs. Operating income and Net contribution to earnings Operating income and net contribution to earnings decreased $49 million – 32 percent – primarily due to the change in the components of gross margin, as discussed above. Comparing Year-to-Date 2023 with Year-to-Date 2022 Net sales to unaffiliated customers Net sales to unaffiliated customers decreased $101 million – 10 percent – primarily due to a $132 million decrease in Western log sales attributable to a 22 percent decrease in sales realizations, partially offset by a $16 million increase in Southern log sales, attributable to a 5 percent increase in sales volumes, and an $11 million increase in stumpage and pay-as-cut timber sales. Intersegment sales Intersegment sales decreased $25 million – 8 percent – primarily due to a 9 percent decrease in sales realizations, partially offset by a 2 percent increase in sales volumes. Costs of sales Costs of sales decreased $18 million – 2 percent – primarily due to decreased Western third-party log purchases, partially offset by increased logging and hauling costs as well as increased Southern log sales volumes. Operating income and Net contribution to earnings Operating income and net contribution to earnings decreased $111 million – 33 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 YEAR-TO-DATE ENDED AMOUNT OF CHANGE VOLUMES IN THOUSANDS JUNE 2023 JUNE 2022 2023 VS. 2022 JUNE 2023 JUNE 2022 2023 VS. 2022 Third-party log sales – tons: West (1) 1,661 1,778 (117 ) 3,335 3,382 (47 ) South 4,341 4,167 174 8,727 8,302 425 North 98 118 (20 ) 302 328 (26 ) Total 6,100 6,063 37 12,364 12,012 352 Fee harvest volumes – tons: West (1) 2,292 2,085 207 4,537 4,325 212 South 6,430 6,159 271 12,862 12,001 861 North 175 180 (5 ) 460 458 2 Total 8,897 8,424 473 17,859 16,784 1,075 (1) Western logs are primarily transacted in thousand board feet (MBF) but are converted to ton equivalents for external reporting purposes. REAL ESTATE, ENERGY A ND NATURAL RESOURCES How We Did Second Quarter 2023 and Year-to-Date 2023 QUARTER ENDED AMOUNT OF CHANGE YEAR-TO-DATE ENDED AMOUNT OF CHANGE DOLLAR AMOUNTS IN MILLIONS JUNE 2023 JUNE 2022 2023 VS. 2022 JUNE 2023 JUNE 2022 2023 VS. 2022 Net sales: Real estate $ 47 $ 90 $ (43 ) $ 119 $ 187 $ (68 ) Energy and natural resources 33 27 6 62 58 4 Total $ 80 $ 117 $ (37 ) $ 181 $ 245 $ (64 ) Costs of sales $ 21 $ 45 $ (24 ) $ 62 $ 86 $ (24 ) Operating income and Net contribution to earnings $ 52 $ 65 $ (13 ) $ 105 $ 146 $ (41 ) 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 Second Quarter 2023 with Second Quarter 2022 Net sales Net sales decreased $37 million – 32 percent – primarily due to a decrease in acres sold, partially offset by an increase in the average price per acre sold. Costs of sales Costs of sales decreased $24 million – 53 percent – primarily due to a decrease in acres sold, as well as a decrease in basis per acre sold. Operating income and Net contribution to earnings Operating income and net contribution to earnings decreased $13 million – 20 percent – primarily due to the change in the components of gross margin, as discussed above. Comparing Year-to-Date 2023 with Year-to-Date 2022 Net sales Net sales decreased $64 million – 26 percent – primarily due to a decrease in acres sold, partially offset by an increase in the average price per acre sold. 18 Costs of sales Cost of sales decreased $24 million – 28 percent – primarily due to a decrease in acres sold, partially offset by an increase in basis per acre sold. Operating income and Net contribution to earnings Operating income and net contribution to earnings decreased $41 million – 28 percent – primarily due to the change in the components of gross margin, as discussed above. REAL ESTATE SALES STATISTICS QUARTER ENDED AMOUNT OF CHANGE YEAR-TO-DATE ENDED AMOUNT OF CHANGE JUNE 2023 JUNE 2022 2023 VS. 2022 JUNE 2023 JUNE 2022 2023 VS. 2022 Acres sold 9,281 26,906 (17,625 ) 30,034 51,032 (20,998 ) Average price per acre $ 4,790 $ 3,215 $ 1,575 $ 3,720 $ 3,484 $ 236 WOOD PRODUCTS How We Did Second Quarter 2023 and Year-to-Date 2023 QUARTER ENDED AMOUNT OF CHANGE YEAR-TO-DATE ENDED AMOUNT OF CHANGE DOLLAR AMOUNTS IN MILLIONS JUNE 2023 JUNE 2022 2023 VS. 2022 JUNE 2023 JUNE 2022 2023 VS. 2022 Net sales: Structural lumber $ 573 $ 998 $ (425 ) $ 1,088 $ 2,204 $ (1,116 ) Oriented strand board 215 497 (282 ) 423 1,061 (638 ) Engineered solid section 215 247 (32 ) 384 443 (59 ) Engineered I-joists 126 168 (42 ) 213 305 (92 ) Softwood plywood 44 53 (9 ) 85 111 (26 ) Medium density fiberboard 42 53 (11 ) 80 101 (21 ) Complementary building products 204 239 (35 ) 367 454 (87 ) Other products produced (1) 81 86 (5 ) 178 181 (3 ) Total $ 1,500 $ 2,341 $ (841 ) $ 2,818 $ 4,860 $ (2,042 ) Costs of sales $ 1,218 $ 1,414 $ (196 ) $ 2,377 $ 2,690 $ (313 ) Operating income and Net contribution to earnings $ 218 $ 863 $ (645 ) $ 313 $ 2,045 $ (1,732 ) (1) Other products produced sales include wood chips, other byproducts and third-party residual log sales from our Canadian Forestlands operations. Comparing Second Quarter 2023 with Second Quarter 2022 Net sales Net sales decreased $841 million – 36 percent – due to: ● a $425 million decrease in structural lumber sales attributable to a 38 percent decrease in sales realizations, as well as a 7 percent decrease in sales volumes; ● a $282 million decrease in oriented strand board sales attributable to a 56 percent decrease in sales realizations, as well as a 2 percent decrease in sales volumes; ● a $42 million decrease in engineered I-joists sales attributable to a 15 percent decrease in sales realizations, as well as a 10 percent decrease in sales volumes; ● a $35 million decrease in complementary building products sales attributable to decreased sales realizations and volumes for steel, concrete and cedar, as well as decreased sales volumes for siding and trim; ● a $32 million decrease in engineered solid section sales attributable to an 8 percent decrease in sales realizations, as well as a 6 percent decrease in sales volumes; ● an $11 million decrease in medium density fiberboard sales attributable to a 31 percent decrease in sales volumes, partially offset by a 14 percent increase in sales realizations; ● a $9 million decrease in softwood plywood sales attributable to a 36 percent decrease in sales realizations, partially offset by a 34 percent increase in sales volumes and ● a $5 million decrease in other products produced attributable to decreased sales volumes. 19 Costs of sales Costs of sales decreased $196 million – 14 percent – primarily due to decreased sales volumes and raw material costs across most product lines, as well as decreased freight costs. Operating income and Net contribution to earnings Operating income and net contribution to earnings decreased $645 million – 75 percent – primarily due to the change in the components of gross margin, as discussed above. Comparing Year-to-Date 2023 with Year-to-Date 2022 Net sales Net sales decreased $2,042 million – 42 percent – due to: ● a $1,116 million decrease in structural lumber sales attributable to a 48 percent decrease in sales realizations, as well as a 4 percent decrease in sales volumes; ● a $638 million decrease in oriented strand board sales attributable to a 61 percent decrease in sales realizations, partially offset by a 3 percent increase in sales volumes; ● a $92 million decrease in engineered I-joist sales attributable to a 25 percent decrease in sales volumes, as well as a 6 percent decrease in sales realizations; ● an $87 million decrease in complementary building products sales attributable to decreased sales realizations and volumes for steel, concrete and cedar, as well as decreased sales volumes for siding and trim; ● a $59 million decrease in engineered solid section sales attributable to a 12 percent decrease in sales volumes, as well as a 2 percent decrease in sales realizations; ● a $26 million decrease in softwood plywood sales attributable to a 37 percent decrease in sales realizations, partially offset by a 22 percent increase in sales volumes and ● a $21 million decrease in medium density fiberboard sales attributable to a 33 percent decrease in sales volumes, partially offset by an 18 percent increase in sales realizations. Costs of sales Costs of sales decreased $313 million – 12 percent – primarily due to decreased sales volumes and raw material costs across most product lines, as well as decreased freight costs. Operating income and Net contribution to earnings Operating income and net contribution to earnings decreased $1,732 million – 85 percent – primarily due to the change in the components of gross margin, as discussed above. Third-Party Sales Volumes QUARTER ENDED AMOUNT OF CHANGE YEAR-TO-DATE ENDED AMOUNT OF CHANGE VOLUMES IN MILLIONS (1) JUNE 2023 JUNE 2022 2023 VS. 2022 JUNE 2023 JUNE 2022 2023 VS. 2022 Structural lumber – board feet 1,196 1,289 (93 ) 2,340 2,446 (106 ) Oriented strand board – square feet (3/8”) 720 735 (15 ) 1,493 1,452 41 Engineered solid section – cubic feet 6.0 6.4 (0.4 ) 10.7 12.1 (1.4 ) Engineered I-joists – lineal feet 44 49 (5 ) 71 95 (24 ) Softwood plywood – square feet (3/8”) 94 70 24 177 145 32 Medium density fiberboard – square feet (3/4”) 31 45 (14 ) 60 89 (29 ) (1) Sales volumes include sales of internally produced products and products purchased for resale primarily through our distribution business. 20 PRODUCTION AND OUTSIDE PURCHASE VOLUMES Outside purchase volumes are primarily purchased for resale through our distribution business. Production volumes are produced for sale through our own sales organizations and through our distribution business. Production of oriented strand board and engineered solid section are also used to manufacture engineered I-joists. QUARTER ENDED AMOUNT OF CHANGE YEAR-TO-DATE ENDED AMOUNT OF CHANGE VOLUMES IN MILLIONS JUNE 2023 JUNE 2022 2023 VS. 2022 JUNE 2023 JUNE 2022 2023 VS. 2022 Structural lumber – board feet: Production 1,164 1,232 (68 ) 2,307 2,435 (128 ) Outside purchase 36 43 (7 ) 75 85 (10 ) Total 1,200 1,275 (75 ) 2,382 2,520 (138 ) Oriented strand board – square feet (3/8”): Production 727 758 (31 ) 1,488 1,497 (9 ) Outside purchase 19 66 (47 ) 36 136 (100 ) Total 746 824 (78 ) 1,524 1,633 (109 ) Engineered solid section – cubic feet: Production 5.9 6.4 (0.5 ) 10.5 12.1 (1.6 ) Outside purchase 4.0 0.3 3.7 6.0 0.5 5.5 Total 9.9 6.7 3.2 16.5 12.6 3.9 Engineered I-joists – lineal feet: Production 38 50 (12 ) 63 94 (31 ) Outside purchase — 3 (3 ) 1 5 (4 ) Total 38 53 (15 ) 64 99 (35 ) Softwood plywood – square feet (3/8”): Production 84 67 17 158 133 25 Outside purchase 11 8 3 23 18 5 Total 95 75 20 181 151 30 Medium density fiberboard – square feet (3/4"): Production 33 48 (15 ) 67 92 (25 ) Total 33 48 (15 ) 67 92 (25 ) 21 UNALLOCAT ED ITEMS Unallocated items are gains or charges not related to, or allocated to, an individual operating segment. They include all or a portion of items such as share-based compensation, pension and post-employment costs, elimination of intersegment profit in inventory and LIFO, foreign exchange transaction gains and losses, interest income and other as well as legacy obligations. Net Charge to Earnings – Unallocated Items QUARTER ENDED AMOUNT OF CHANGE YEAR-TO-DATE ENDED AMOUNT OF CHANGE DOLLAR AMOUNTS IN MILLIONS JUNE 2023 JUNE 2022 2023 VS. 2022 JUNE 2023 JUNE 2022 2023 VS. 2022 Unallocated corporate function and variable compensation expense $ (32 ) $ (36 ) $ 4 $ (59 ) $ (67 ) $ 8 Liability classified share-based compensation (2 ) 2 (4 ) (2 ) 3 (5 ) Foreign exchange gain (loss) 2 3 (1 ) 1 3 (2 ) Elimination of intersegment profit in inventory and LIFO 3 18 (15 ) 12 (41 ) 53 Other (26 ) (21 ) (5 ) (39 ) (33 ) (6 ) Operating loss (55 ) (34 ) (21 ) (87 ) (135 ) 48 Non-operating pension and other post-employment benefit costs (12 ) (11 ) (1 ) (21 ) (26 ) 5 Interest income and other 18 1 17 30 — 30 Net charge to earnings $ (49 ) $ (44 ) $ (5 ) $ (78 ) $ (161 ) $ 83 Comparing Second Quarter 2023 with Second Quarter 2022 Net charge to earnings increased $5 million – 11 percent – primarily due to: ● a $15 million increase in elimination of intersegment profit in inventory and LIFO and ● a $5 million increase in other, primarily due to increased charges for environmental remediation. These changes were partially offset by a $17 million increase in interest income and other due to an increase in the interest rate on our cash and short-term investment accounts. Comparing Year-to-Date 2023 with Year-to-Date 2022 Net charge to earnings decreased $83 million – 52 percent – primarily due to a $53 million decrease in elimination of intersegment profit in inventory and LIFO, as well as a $30 million increase in interest income and other due to an increase in the interest rate on our cash and short-term investment accounts. INTEREST EXPENSE Our interest expense, net of capitalized interest, was: ● $70 million for second quarter 2023 and $136 million year-to-date 2023; ● $65 million for second quarter 2022 and $137 million year-to-date 2022. Interest expense increased by $5 million compared to second quarter 2022 primarily due to an increase in weighted average outstanding debt in second quarter 2023. Year-to-date 2023 interest expense was comparable to year-to-date 2022 primarily due to the May 2023 issuance of debt securities that increased our weighted average outstanding debt, offset by a series of transactions performed 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 $25 million expense for second quarter 2023 and $47 million year-to-date 2023; ● a $184 million expense for second quarter 2022 and $393 million year-to-date 2022. Our provision for income taxes is primarily driven by earnings generated by our TRSs. Income tax expense decreased by $346 million compared to year-to-date 2022 primarily due to a decrease in our TRS earnings in 2023, as well as a decrease in our estimated annual effective tax rate. Refer to Note 14: Income Taxes for further information. 22 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 June 30, 2023, we had approximately $1.1 billion in cash and cash equivalents, $665 million in short-term investments 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: ● $622 million for year-to-date 2023 and ● $2,103 million for year-to-date 2022. Net cash from operations decreased $1,481 million primarily due to decreased cash inflows from our business operations. This change was partially offset by a $336 million decrease in cash paid for income taxes. CASH FROM INVESTING ACTIVITIES Consolidated net cash from investing activities was: ● $(818) million for year-to-date 2023 and ● $(433) million for year-to-date 2022. Net cash from investing activities decreased $385 million primarily due to a $664 million increase in cash paid for short-term investments. This change was partially offset by a $281 million decrease in cash paid for acquisition of timberlands. Summary of Capital Spending by Business Segment YEAR-TO-DATE ENDED DOLLAR AMOUNTS IN MILLIONS JUNE 2023 JUNE 2022 Timberlands $ 48 $ 53 Wood Products 99 95 Unallocated Items 5 3 Total $ 152 $ 151 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: ● $(290) million for year-to-date 2023 and ● $(1,938) million for year-to-date 2022. Net cash from financing activities increased $1,648 million, primarily due to: ● a $1,203 million decrease in cash used for payments on long-term debt; ● a $414 million decrease in cash used for payments of dividends and ● a $174 million decrease in cash used for repurchases of common stock. These changes were partially offset by a $138 million decrease in net proceeds from issuance of long-term debt. 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 June 30, 2023 or December 31, 2022. Refer to Note 8: Long-Term Debt and Line of Credit for further information. Long-Term Debt In July 2023, we repaid $118 million of our 7.125% notes at maturity. We have $860 million of long-term debt scheduled to mature during fourth quarter 2023. In May 2023, we completed an offering of debt securities by issuing $750 million of 4.750 percent notes due in May 2026. The net proceeds after deducting the discount, underwriting fees and issuance costs were $743 million. Of these total net proceeds, $664 million was invested in short-term debt securities which are classified as held-to-maturity. 23 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. Refer to Note 8: Long-Term Debt and Line of Credit for further information. Debt Covenants As of June 30, 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. Dividend Payments We paid cash dividends on common shares of: ● $938 million for year-to-date 2023 and ● $1,352 million for year-to-date 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 1,689,874 common shares for approximately $50 million (including transaction fees) during second quarter 2023 and 2,805,434 common shares for approximately $85 million (including transaction fees) during year-to-date 2023 under the 2021 Repurchase Program. During second quarter 2022, we repurchased 3,784,787 common shares for approximately $138 million (including transaction fees) and we repurchased 6,982,462 common shares for approximately $259 million (including transaction fees) during year-to-date 2022 under the 2021 Repurchase Program. There were no unsettled shares as of June 30, 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 YEAR-TO-DATE ENDED AMOUNT OF CHANGE DOLLAR AMOUNTS IN MILLIONS JUNE 2023 JUNE 2022 2023 VS. 2022 JUNE 2023 JUNE 2022 2023 VS. 2022 Adjusted EBITDA by Segment: Timberlands $ 172 $ 219 $ (47 ) $ 360 $ 466 $ (106 ) Real Estate & ENR 70 107 (37 ) 159 223 (64 ) Wood Products 270 912 (642 ) 418 2,145 (1,727 ) 512 1,238 (726 ) 937 2,834 (1,897 ) Unallocated Items (43 ) (33 ) (10 ) (73 ) (132 ) 59 Adjusted EBITDA $ 469 $ 1,205 $ (736 ) $ 864 $ 2,702 $ (1,838 ) 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. 24 The table below reconciles Adjusted EBITDA for the quarter ended June 30, 2023: DOLLAR AMOUNTS IN MILLIONS Timberlands Real Estate & ENR Wood Products Unallocated Items Total Adjusted EBITDA by Segment: Net earnings $ 230 Interest expense, net of capitalized interest 70 Income taxes 25 Net contribution (charge) to earnings $ 104 $ 52 $ 218 $ (49 ) $ 325 Non-operating pension and other post-employment benefit costs — — — 12 12 Interest income and other — — — (18 ) (18 ) Operating income (loss) 104 52 218 (55 ) 319 Depreciation, depletion and amortization 68 5 52 1 126 Basis of real estate sold — 13 — — 13 Special items included in operating income (loss) (1) — — — 11 11 Adjusted EBITDA $ 172 $ 70 $ 270 $ (43 ) $ 469 (1) Operating income (loss) for Unallocated Items includes a pretax special item consisting of an $11 million noncash environmental remediation charge. The table below reconciles Adjusted EBITDA for the quarter ended June 30, 2022: DOLLAR AMOUNTS IN MILLIONS Timberlands Real Estate & ENR Wood Products Unallocated Items Total Adjusted EBITDA by Segment: Net earnings $ 788 Interest expense, net of capitalized interest 65 Income taxes 184 Net contribution (charge) to earnings $ 153 $ 65 $ 863 $ (44 ) $ 1,037 Non-operating pension and other post-employment benefit costs — — — 11 11 Interest income and other — — — (1 ) (1 ) Operating income (loss) 153 65 863 (34 ) 1,047 Depreciation, depletion and amortization 66 3 49 1 119 Basis of real estate sold — 39 — — 39 Adjusted EBITDA $ 219 $ 107 $ 912 $ (33 ) $ 1,205 The table below reconciles Adjusted EBITDA for the year-to-date period ended June 30, 2023: DOLLAR AMOUNTS IN MILLIONS Timberlands Real Estate & ENR Wood Products Unallocated Items Total Adjusted EBITDA by Segment: Net earnings $ 381 Interest expense, net of capitalized interest 136 Income taxes 47 Net contribution (charge) to earnings $ 224 $ 105 $ 313 $ (78 ) $ 564 Non-operating pension and other post-employment benefit costs — — — 21 21 Interest income and other — — — (30 ) (30 ) Operating income (loss) 224 105 313 (87 ) 555 Depreciation, depletion and amortization 136 8 105 3 252 Basis of real estate sold — 46 — — 46 Special items included in operating income (loss) (1) — — — 11 11 Adjusted EBITDA $ 360 $ 159 $ 418 $ (73 ) $ 864 (1) Operating income (loss) for Unallocated Items includes a pretax special item consisting of an $11 million noncash environmental remediation charge. 25 The table below reconciles Adjusted EBITDA for the year-to-date period ended June 30, 2022: DOLLAR AMOUNTS IN MILLIONS Timberlands Real Estate & ENR Wood Products Unallocated Items Total Adjusted EBITDA by Segment: Net earnings $ 1,559 Interest expense, net of capitalized interest 137 Loss on debt extinguishment (1) 276 Income taxes 393 Net contribution (charge) to earnings $ 335 $ 146 $ 2,045 $ (161 ) $ 2,365 Non-operating pension and other post-employment benefit costs — — — 26 26 Interest income and other — — — — — Operating income (loss) 335 146 2,045 (135 ) 2,391 Depreciation, depletion and amortization 131 7 100 3 241 Basis of real estate sold — 70 — — 70 Adjusted EBITDA $ 466 $ 223 $ 2,145 $ (132 ) $ 2,702 (1) Loss on debt extinguishment is a special item consisting of a pretax charge of $276 million ($207 million after-tax) 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 YEAR-TO-DATE ENDED DOLLAR AMOUNTS IN MILLIONS JUNE 2023 JUNE 2022 JUNE 2023 JUNE 2022 Net earnings $ 230 $ 788 $ 381 $ 1,559 Environmental remediation charge 8 — 8 — Loss on debt extinguishment — — — 207 Net earnings before special items $ 238 $ 788 $ 389 $ 1,766 Net Earnings per Diluted Share Before Special Items QUARTER ENDED YEAR-TO-DATE ENDED JUNE 2023 JUNE 2022 JUNE 2023 JUNE 2022 Net earnings per diluted share $ 0.31 $ 1.06 $ 0.52 $ 2.09 Environmental remediation charge 0.01 — 0.01 — Loss on debt extinguishment — — — 0.28 Net earnings per diluted share before special items $ 0.32 $ 1.06 $ 0.53 $ 2.37 CRITICAL ACCOUNTING POLICIES There have been no significant changes during year-to-date 2023 to the critical accounting policies presented in our 2022 Annual Report on Form 10-K.