What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-10-30 compared with 2020-07-31 · 205 added, 152 removed, 362 unchanged (50% of the section changed)

1 unchanged sentence

NOTE ABOUT FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934, including but not limited to, our expectations concerning our future performance and the effects of the COVID-19 pandemic on the company’s business, results of operations, cash flows and financial condition, as well as our plans and decisions relating to various capital expenditures, capital allocation priorities and other discretionary items, including but not limited to with respect to future dividend payments to our shareholders.

Forward-looking statements generally are identified by words such as “believe,” “project,” “expect,” “anticipate,” “estimate,” “foreseeable,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” and similar words and expressions.

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934, including but not limited to, our expectations concerning our future performance and the effects of the COVID-19 pandemic on the company’s business, results of operations, liquidity, cash flows and financial condition, the consummation of previously announced timberland transactions, as well as our plans and decisions relating to various capital expenditures, capital allocation priorities and other discretionary items, including but not limited to with respect to future dividend payments to our shareholders.

Forward-looking statements generally are identified by words such as "anticipate," "believe," "continue," "estimate," "expect," "foreseeable," "future," "intend," "maintain," "may," "plan," "potential," "project," "should," "targeted," "will," and "would," and similar words and expressions.

Forward-looking statements are based on our current expectations and assumptions.

15 unchanged sentences

our operational excellence initiatives;

the successful and timely execution and integration of our strategic acquisitions, including our ability to realize expected benefits and synergies, and the successful and timely execution of our strategic divestitures, each of which is subject to a number of risks and conditions beyond our control including, but not limited to, timing, 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;

9 unchanged sentences

the effect of timing of employee retirements and changes in the market price of our common stock on charges for share-based compensation;

the accuracy of our estimates of costs and expenses related to contingent liabilities;

the accuracy of our estimates of costs and expenses related to contingent liabilities and charges related to casualty losses;

changes in accounting principles;

17 unchanged sentences

gross domestic product (GDP) of 5 percent.

The effects in the second quarter have been more acute, with U.S.

GDP declining 33 percent based on the advance estimate released by the U.S.

Bureau of Economic Analysis.

The effects in the second quarter were more acute, with U.S.

GDP declining 31 percent.

In April, the national unemployment rate soared to a record-high of nearly 15 percent driven by the restrictions imposed in response to the pandemic.

Unemployment gradually decreased over the following two months to 13 percent in May and 11 percent in June as several states began to reopen their economies and loosen restrictions on certain sectors.

Recent spikes in the number of new COVID-19 cases in the U.S.

have resulted in many cities and states pausing their reopening plans, and a number of them have reimposed restrictions that had previously been lifted.

Our second quarter 2020 market conditions exceeded expectations, primarily driven by higher than expected pricing for our commodity wood products.

This pricing was boosted by strong repair and remodel demand and a stronger-than-expected U.S.

housing market.

Lumber pricing has been particularly favorable as demand has outpaced supply.

However, there is still a great deal of uncertainty as to our market conditions for the second half of the year, which will be influenced by the trajectory of COVID-19 infections and the related impact on economic activity, including changes in the unemployment rate and the nature and extent of future government stimulus.

Business Outlook and COVID-19

GDP increased 33 percent in the third quarter based on the advance estimate released by the U.S.

Bureau of Economic Analysis, a notable rebound from the prior quarter.

The national unemployment rate has shown similar signs of recovery during the quarter, dropping from 10 percent in July to below 8 percent in September.

However, a growing share of the job losses are permanent in nature, as opposed to temporary layoffs, raising further concerns about the prospects of sustained economic recovery.

Our second and third quarter 2020 market conditions exceeded expectations, with a record run-up in pricing for our commodity wood products.

This pricing was driven by strong repair and remodel demand and a stronger-than-expected U.S.

housing market, resulting in demand that significantly outpaced available supply.

However, there is still uncertainty as to our market conditions for the remainder of the year, which will be influenced by the trajectory of COVID-19 infections and the related impact on economic activity, including changes in the unemployment rate and the nature and extent of future government stimulus.

Business Outlook

The demand for sawlogs within our Timberlands segment is directly affected by domestic production of wood-based building products.

4 unchanged sentences

The demand for pulpwood from our Timberlands segment is directly affected by the production of pulp, paper and oriented strand board as well as the demand for biofuels, such as pellets made from pulpwood.

Second quarter new residential construction activity decreased significantly compared with the year-ago period.

Third quarter new residential construction activity increased significantly compared with the prior quarter.

On a seasonally adjusted annual basis, housing starts as reported by the U.S.

Census for the second quarter 2020 averaged 1.044 million, a 30 percent decline over first quarter 2020.

Single family starts averaged 740 thousand units, a 24 percent decline over first quarter 2020 and a 13 percent decline over second quarter 2019.

Multi-family starts averaged 304 thousand units in second quarter 2020, which was 41 percent lower than first quarter 2020 and 26 percent lower than second quarter 2019.

However, leading indicators are showing signs of improvement.

Sales of newly built, single family homes increased 17 percent in May and 14 percent in June to a seasonally adjusted annual rate of 776 thousand units.

Additionally, the National Association of Home Builders Housing Market Index, which measures builder confidence in the market for newly built single family homes in the U.S., reported a 14-point jump to 72 in July.

In repair and remodel markets, do-it-yourself activity related to stay at home orders has bolstered sales at building supply stores, contributing to repair and remodeling demand.

According to the Census Bureau Advance Retail Spending report, building material and garden supply store sales increased nearly 13 percent in second quarter 2020 compared with the same quarter a year ago, suggesting a healthy remodeling market during the second quarter.

wood product markets, demand and pricing for commodity products declined sharply in April due to the economic impact of COVID-19 but rebounded as the quarter progressed.

The Random Lengths Framing Lumber Composite price averaged $407/MBF in second quarter 2020, a 2 percent increase from first quarter 2020.

The Oriented Strand Board Composite indicator price decreased slightly, averaging $294/MSF in second quarter 2020, a 2 percent decline from first quarter 2020.

To date, third quarter benchmark pricing for lumber and oriented strand board is substantially higher than the second quarter average.

At the outset of the second quarter, in response to changes in end-market demand we announced we would reduce operating capacity by 20 percent for lumber, 15 percent for oriented strand board and 15 to 25 percent for engineered wood products through a combination of temporary mill curtailments and reduced shift postures.

As the quarter progressed, we increased operating rates across most product lines in response to improving market conditions.

We will continue to dynamically adjust as market conditions evolve.

In Western log markets, Douglas fir sawlog prices decreased 5 percent in second quarter 2020 compared with first quarter 2020 as reported by RISI Log Lines.

In the South, delivered sawlog prices remained flat compared with first quarter 2020 with less than a one percent change in price as reported by TimberMart-South.

In light of the economic effects of the COVID-19 pandemic, we continue to expect our full year Southern timber harvest volumes will be approximately 10 percent below 2019 harvest levels.

Census Bureau for the third quarter 2020 averaged 1.43 million, which was 33 percent above second quarter 2020.

Single family starts averaged 1.04 million units, a 36 percent improvement over second quarter 2020 and 16 percent higher than third quarter 2019.

Multi-family starts averaged 390 thousand units in third quarter 2020, which was 24 percent higher than second quarter 2020 and 1 percent higher than third quarter 2019.

Sales of newly built, single family homes averaged a seasonally adjusted annual rate of 973 thousand units for the third quarter of 2020, an increase of 38 percent from the prior quarter average of 703 thousand units.

In repair and remodel markets, stay at home behavior has bolstered do-it-yourself activity, contributing to increased sales at building supply stores and overall repair and remodeling demand.

According to the Census Bureau Advance Retail Spending report, building material and garden supply store sales increased 17 percent in third quarter 2020 compared with the same quarter a year ago, suggesting continued strength in the remodeling market through the third quarter.

wood product markets, demand and pricing for commodity products increased sharply throughout the quarter, and benchmark pricing for lumber and oriented strand board reached record highs in September 2020.

The Random Lengths Framing Lumber Composite price averaged $746/MBF in third quarter 2020, an 84 percent increase from second quarter 2020.

The Oriented Strand Board Composite indicator price also increased significantly, averaging $585/MSF in third quarter 2020, a 99 percent increase from second quarter 2020.

To date, fourth quarter benchmark pricing for lumber has declined from its record high levels in September.

Fourth quarter to date benchmark pricing for oriented strand board has held firm.

In Western log markets, Douglas fir sawlog prices increased 10 percent in third quarter 2020 compared with second quarter 2020 as reported by RISI Log Lines.

We experienced significant wildfire activity in the West during the third quarter which impacted our Oregon timberlands and restricted harvest activity.

The resulting impacts to the supply chain and log prices from these wildfires and subsequent salvage operations remains to be seen.

In the South, delivered sawlog prices decreased slightly compared with second quarter 2020 with a two percent change in price as reported by TimberMart-South.

We continue to expect our full year Southern timber harvest volumes will be approximately 10 percent below 2019 harvest levels, as we reduced 2020 harvest volumes in light of the economic effects of the COVID-19 pandemic.

Exchange rates, available supply from other countries and trade policy affect our export businesses.

In Japan, total housing starts year to date through May 2020 declined 11 percent compared to the previous period in 2019.

In Japan, total housing starts year to date through August 2020 declined 11 percent compared to the same period in 2019.

A comparable decline was observed for the key Post and Beam segment.

The decline in year over year housing starts is likely due to an increase in the consumption tax which came into effect in October 2019, as well as the impacts of the COVID-19 pandemic.

Export log prices to China increased by 5 percent on average in second quarter 2020 over first quarter 2020 , as reported by RISI Log Lines.

Chinese economic activity improved and log demand increased in the second quarter as COVID-19 restrictions eased.

Log supply at China ’s main ocean ports was lower in second quarter compared to first quarter as shipment volumes from New Zealand and Europe were affected by COVID-19 related events.

This resulted in higher Chinese demand for U.S.

Western logs in the second quarter compared with the first.

Export log prices to China decreased by 6 percent on average in third quarter 2020 over second quarter 2020, as reported by RISI Log Lines.

Chinese economic activity and log demand improved in the third quarter as the impacts of COVID-19 remained limited.

L og supply to China ’s main ocean ports was higher as shipment volumes from New Zealand and Europe increased following second quarter disruptions related to COVID-19.

Softwood log inventories at China’s main ocean ports remained flat through the third quarter.

Our Real Estate & ENR segment is affected by the health of the U.S.

3 unchanged sentences

CONSOLIDATED RESULTS

How We Did Second Quarter 2020 and Year-to-Date 2020

How We Did Third Quarter 2020 and Year-to-Date 2020

QUARTER ENDED

1 unchanged sentence

DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURES

SEPTEMBER 2020

SEPTEMBER 2019

SEPTEMBER 2020

SEPTEMBER 2019

Costs of sales

2 unchanged sentences

Earnings (loss) per share, basic and diluted

Comparing Second Quarter 2020 with Second Quarter 2019

Net sales decreased $61 million – 4 percent – primarily due to:

a $42 million decrease in Timberlands sales to unaffiliated customers primarily due to decreased sales volumes across all regions;

a $16 million decrease in Real Estate & ENR net sales to unaffiliated customers primarily due to decreased real estate acres sold and

a $3 million decrease in Wood Products sales to unaffiliated customers attributable to decreased sales volumes across most product lines.

Comparing Third Quarter 2020 with Third Quarter 2019

Net sales increased $439 million – 26 percent – primarily due to a $492 million increase i n Wood Products sales to unaffiliated customers attributable to increased sales realizations across most product lines.

This increase was partially offset by a $53 million decrease in Timberlands sales to unaffiliated customers, primarily due to decreased sales volumes across all regions.

Costs of sales

Costs of sales decreased $107 million – 8 percent – primarily due to decreased sales volumes within our Wood Products segment and decreased log sales volumes within our Timberlands segment.

Refer to additional analysis of fluctuations within our Timberlands and Wood Products discussions below.

Costs of sales decreased $9 million – 1 percent – primarily due to decreased log sales volumes within our Timberlands segment partially offset by increased real estate acres sold within our Real Estate & ENR segment.

Refer to additional analysis of fluctuations within our Timberlands , Real Estate, Energy and Natural Resources and Wood Products discussions below.

Operating income

Operating income increased $57 million – 31 percent – primarily due to:

a $46 million increase in consolidated gross margin (see discussion of components above) and

a $12 million decrease in other operating costs, net primarily attributable to an $8 million product remediation insurance recovery recorded in second quarter 2020, with no similar activity in 2019.

Operating income increased $308 million – 152 percent – primarily due to a $448 million increase in consolidated gross margin (see discussion of components above).

This increase was partially offset by an $80 million timber casualty loss recorded related to the Oregon wildfires (refer to Note 16:

Other Operating Costs, Net ) and a $68 million product remediation insurance recovery recorded in third quarter 2019, with no similar activity in third quarter 2020 (refer to Note 14:

Product Remediation Recoveries ).

Net earnings (loss)

Net earnings decreased $56 million – 44 percent – primarily due to:

a $97 million increase in income tax expense, from a $37 million benefit in second quarter 2019 to a $60 million expense in second quarter 2020 (refer to Income Taxes ) and

a $12 million increase in interest expense (refer to Interest Expense ).

These changes were partially offset by the $57 million increase in operating income, as discussed above.

Net earnings increased $184 million – 186 percent – primarily due to the $308 million increase in operating income, as discussed above.

This increase was partially offset by a $106 million increase in income tax expense and a $20 million increase in interest expense (refer to Income Taxes and Interest Expense ).

Comparing Year-to-Date 2020 with Year-to-Date 2019

Net sales increased $24 million – 1 percent – primarily due to a $138 million increase in Wood Products sales to unaffiliated customers attributable to increased sales volumes and sales realizations for our structural lumber and oriented strand board products.

This increase was partially offset by a $92 million decrease in Timberlands sales to unaffiliated customers, primarily attributable to decreased sales volumes in the West and North, as well as a $22 million decrease in Real Estate & ENR net sales to unaffiliated customers primarily due to decreased real estate acres sold.

Net sales increased $463 million – 9 percent – primarily due to a $630 million increase in Wood Products sales to unaffiliated customers attributable to increased sales realizations for our structural lumber and oriented strand board products.

This increase was partially offset by a $145 million decrease in Timberlands sales to unaffiliated customers, primarily attributable to decreased sales volumes across all regions, as well as a $22 million decrease in Real Estate & ENR net sales to unaffiliated customers, primarily due to decreased oil and gas prices.

Costs of sales

Costs of sales decreased $56 million – 1 percent – primarily due to decreased log sales volumes within our Timberlands segment.

This decrease was partially offset by an increase in our basis per real estate acre sold within our Real Estate & ENR segment.

This decrease was partially offset by i ncreased real estate acres sold, as well as increased basis per acre sold within our Real Estate & ENR segment.

Refer to additional analysis of fluctuations within our Timberlands , Real Estate, Energy and Natural Resources and Wood Products discussions below.

Operating income

Operating income increased $123 million – 34 percent – primarily due to:

a $71 million increase in consolidated gross margin (see discussion of components above);

a $39 million decrease in other operating costs, net attributable to a decrease in legal charges, the recognition of a $12 million legal benefit in first quarter 2020, as well as an $8 million product remediation insurance recovery in second quarter 2020 and

an $11 million decrease in selling, general and administrative expenses.

Operating income increased $431 million – 77 percent – primarily due to a $519 million increase in consolidated gross margin (see discussion of components above).

This increase was partially offset by a $60 million decrease in product remediation insurance recoveries (r efer to Note 14:

Product Remediation Recoveries ) and a $28 million increase in other operating costs, net attributable to an $80 million timber casualty loss recorded in third quarter 2020 related to the Oregon wildfires, partially offset by a reduction in legal charges (refer to Note 16:

Other Operating Costs, Net ).

Net earnings (loss)

3 unchanged sentences

a $431 million increase in operating income, as discussed above.

These changes were partially offset by a $198 million increase in income tax expense, from a $141 million benefit for year-to-date 2019 to a $57 million income tax charge for year-to-date 2020.

How We Did Second Quarter 2020 and Year-to-Date 2020

These changes were partially offset by a $304 million change in income taxes, from a $138 million benefit year-to-date 2019, to a $166 million income tax charge for year-to-date 2020 (refer to Income Taxes ), as well as a $17 million decrease in interest income and other.

How We Did Third Quarter 2020 and Year-to-Date 2020

QUARTER ENDED

1 unchanged sentence

DOLLAR AMOUNTS IN MILLIONS

SEPTEMBER 2020

SEPTEMBER 2019

SEPTEMBER 2020

SEPTEMBER 2019

Net sales to unaffiliated customers:

6 unchanged sentences

Costs of sales

Operating income and Net contribution to earnings

Operating income (loss) and Net contribution (charge) to earnings

In November 2019, we sold our Michigan timberlands and in March 2020, we sold our Montana timberlands.

Other Timberlands sales include sales of seeds and seedlings from our nursery operations as well as wood chips.

Comparing Second Quarter 2020 with Second Quarter 2019

Comparing Third Quarter 2020 with Third Quarter 2019

Net sales to unaffiliated customers

Net sales to unaffiliated customers decreased $53 million – 13 percent – primarily due to:

a $15 million decrease in Western log sales, attributable to an 8 percent decrease in sales volumes;

an $11 million decrease in Southern log sales, attributable to a 5 percent decrease in log sales realizations, as well as a 2 percent decrease in sales volumes and

a $10 million decrease in Northern log sales, attributable to a 57 percent decrease in sales volumes due to the sales of our Michigan and Montana timberlands.

a $27 million decrease in Southern log sales attributable to a 13 percent decrease in sales volumes, as well as a 4 percent decrease in sales realizations;

an $11 million decrease in Northern log sales attributable to a 46 percent decrease in sales volumes due to the divestitures of our Michigan and Montana timberlands and

a $9 million decrease in Western log sales attributable to a 14 percent decrease in sales volumes, partially offset by a 10 percent increase in sales realizations.

Intersegment sales

Intersegment sales decreased $10 million – 8 percent – primarily due to a 5 percent decrease in intersegment log sales volumes, as well as a 3 percent decrease in intersegment log sales realizations.

Intersegment sales decreased $18 million – 14 percent – primarily due to a 22 percent decrease in intersegment log sales volumes, partially offset by a 10 percent increase in intersegment log sales realizations.

Costs of sales

Costs of sales decreased $22 million – 5 percent – primarily due to a decrease in log sales volumes across all regions, as discussed above.

Operating income and Net contribution to earnings

Operating income and net contribution to earnings decreased $27 million – 26 percent – primarily due to the change in the components of gross margin, as discussed above.

Costs of sales decreased $71 million – 17 percent – primarily due to decreases in log sales volumes across all regions, as discussed above.

Operating income (loss) and Net contribution (charge) to earnings

Operating income (loss) and net contribution (charge) to earnings decreased $83 million – 115 percent – primarily due to an $80 million timber casualty loss related to the Oregon wildfires recorded in third quarter 2020 with no similar activity in the same period in 2019.

Comparing Year-to-Date 2020 with Year-to-Date 2019

1 unchanged sentence

Net sales to unaffiliated customers decreased $145 million – 12 percent – primarily due to:

a $43 million decrease in Western log sales, attributable to a 10 percent decrease in sales volumes;

a $22 million decrease in Northern log sales, attributable to a 48 percent decrease in sales volumes due to the sales of our Michigan and Montana timberlands and

a $20 million decrease in Southern log sales, attributable to a 4 percent decrease in sales realizations, as well as a 3 percent decrease in sales volumes.

a $52 million decrease in Western log sales attributable to an 11 percent decrease in sales volumes, partially offset by a 3 percent increase in sales realizations;

a $47 million decrease in Southern log sales attributable to a 6 percent decrease in sales volumes, as well as a 4 percent decrease in sales realizations and

a $33 million decrease in Northern log sales attributable to a 47 percent decrease in sales volumes due to the divestitures of our Michigan and Montana timberlands.

Intersegment sales

Intersegment sales decreased $13 million – 5 percent – primarily due to a 6 percent decrease in intersegment log sales volumes.

Intersegment sales decreased $31 million – 8 percent – primarily due to a 10 percent decrease in intersegment log sales volumes, partially offset by a 3 percent increase in intersegment log sales realizations.

Costs of sales

Costs of sales decreased $60 million – 7 percent – primarily due to a decrease in log sales volumes across all regions, as discussed above.

Costs of sales decreased $131 million – 11 percent – primarily due to decreases in log sales volumes across all regions, as discussed above.

Operating income and Net contribution to earnings

Operating income and net contribution to earnings decreased $42 million – 19 percent – primarily due to the change in the components of gross margin, as discussed above.

Operating income and net contribution to earnings decreased $125 million – 43 percent – primarily due to an $80 million timber casualty loss related to the Oregon wildfires recorded in year-to-date 2020 with no similar activity for the same period in 2019, as well as the change in the components of gross margin, as discussed above.

Third-Party Log Sales Volumes and Fee Harvest Volumes

2 unchanged sentences

VOLUMES IN THOUSANDS

SEPTEMBER 2020

SEPTEMBER 2019

SEPTEMBER 2020

SEPTEMBER 2019

Third-party log sales – tons:

3 unchanged sentences

REAL ESTATE, ENERGY AND NATURAL RESOURCES

How We Did Second Quarter 2020 and Year-to-Date 2020

How We Did Third Quarter 2020 and Year-to-Date 2020

QUARTER ENDED

1 unchanged sentence

DOLLAR AMOUNTS IN MILLIONS

SEPTEMBER 2020

SEPTEMBER 2019

SEPTEMBER 2020

SEPTEMBER 2019

Energy and natural resources

Costs of sales

Net contribution to earnings

Operating income and Net contribution to earnings

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 (particularly in the northern states), the plans of adjacent landowners, our expectation of future price appreciation, the timing of harvesting activities, and the availability of government and not-for-profit funding.

In any period, the average sales price per acre will vary based on the location and physical characteristics of parcels sold.

Comparing Second Quarter 2020 with Second Quarter 2019

Net sales decreased $16 million – 20 percent – primarily due to decreased real estate acres sold.

Comparing Third Quarter 2020 with Third Quarter 2019

Net sales remained consistent due to a minimal increase in real estate sales, offset by an equal decrease in energy and natural resources sales.

Costs of sales

Costs of sales increased $1 million – 3 percent – primarily due to increased basis per real estate acre sold, partially offset by decreased real estate acres sold.

Net contribution to earnings

Net contribution to earnings decreased $16 million – 46 percent – primarily due to the change in the components of gross margin, as discussed above.

Costs of sales increased $14 million – 44 percent – primarily due to increased real estate acres sold.

Operating income and Net contribution to earnings

Operating income and net contribution to earnings decreased $15 million – 47 percent – primarily due to the change in the components of gross margin, as discussed above.

Comparing Year-to-Date 2020 with Year-to-Date 2019

Net sales decreased $22 million – 11 percent – primarily due to decreased real estate acres sold.

Net sales decreased $22 million – 8 percent – primarily due to lower oil and gas prices, as well as decreased energy and natural resources sales volumes.

Costs of sales

Costs of sales increased $15 million – 16 percent – primarily due to increased basis per real estate acre sold, partially offset by decreased real estate acres sold.

Net contribution to earnings

Net contribution to earnings decreased $35 million – 39 percent – primarily due to the change in the components of gross margin, as discussed above.

Costs of sales increased $29 million – 23 percent – primarily due to increased real estate acres sold, as well as increased basis per acre sold.

Operating income and Net contribution to earnings

Operating income and net contribution to earnings decreased $50 million – 41 percent – primarily due to the change in the components of gross margin, as discussed above.

REAL ESTATE SALES STATISTICS

1 unchanged sentence

YEAR-TO-DATE ENDED

SEPTEMBER 2020

SEPTEMBER 2019

SEPTEMBER 2020

SEPTEMBER 2019

Average price per acre

WOOD PRODUCTS

How We Did Second Quarter 2020 and Year-to-Date 2020

How We Did Third Quarter 2020 and Year-to-Date 2020

QUARTER ENDED

1 unchanged sentence

DOLLAR AMOUNTS IN MILLIONS

SEPTEMBER 2020

SEPTEMBER 2019

SEPTEMBER 2020

SEPTEMBER 2019

Structural lumber

9 unchanged sentences

Other products produced sales include wood chips, other byproducts and third-party residual log sales from our Canadian Forestlands operations.

Comparing Second Quarter 2020 with Second Quarter 2019

Net sales decreased $3 million – less than 1 percent – primarily due to:

a $23 million decrease in engineered solid section sales attributable to a 15 percent decrease in sales volumes, as well as a 3 percent decrease in sales realizations;

a $16 million decrease in engineered I-joists sales attributable to a 19 percent decrease in sales volumes;

a $12 million decrease in medium density fiberboard sales attributable to a 27 percent decrease in sales volumes;

a $10 million decrease in softwood plywood sales attributable to a 17 percent decrease in sales volumes, as well as a 6 percent decrease in sales realizations and

a $10 million decrease in other products produced attributable to a decrease in residual log sales volumes, as well as a decrease in chips sales volumes.

These decreases were partially offset by a $43 million increase in sales for structural lumber and a $23 million increase in sales for oriented strand board.

Comparing Third Quarter 2020 with Third Quarter 2019

Net sales increased $492 million – 41 percent – primarily due to:

a $332 million increase in structural lumber sales attributable to a 73 percent increase in sales realizations, partially offset by a 3 percent decrease in sales volumes;

a $131 million increase in oriented strand board sales attributable to an 85 percent increase in sales realizations, partially offset by a 1 percent decrease in sales volumes;

a $21 million increase in complementary building products sales attributable to increased sales volumes and

a $13 million increase in softwood plywood sales attributable to a 47 percent increase in sales realizations, partially offset by a 12 percent decrease in sales volumes.

These increases were partially offset by a $7 million decrease in sales for engineered I-joists and a $3 million decrease in sales for engineered solid section.

Costs of sales

Costs of sales decreased $73 million – 7 percent – primarily due to lower sales volumes across most product lines, as discussed above.

Costs of sales increased $8 million – 1 percent – primarily due to increased Canadian timberlands and Distribution costs, partially offset by decreased sales volumes.

Operating income and Net contribution to earnings

Operating income and net contribution to earnings increased $78 million – 96 percent – primarily due to the change in the components of gross margin, as discussed above.

Operating income and net contribution to earnings increased $423 million – 296 percent – primarily due to the change in the components of gross margin, as discussed above, partially offset by a $68 million decrease in product remediation insurance recoveries.

Comparing Year-to-Date 2020 with Year-to-Date 2019

Net sales increased $630 million – 18 percent – primarily due to:

a $107 million increase in structural lumber sales attributable to a 10 percent increase in sales realizations, as well as a 2 percent increase in sales volumes and

a $53 million increase in oriented strand board sales attributable to a 12 percent increase in sales realizations, as well as a 5 percent increase in sales volumes.

These increases were partially offset by a $15 million decrease in sales for softwood plywood and a $12 million decrease in sales for engineered solid section.

a $439 million increase in structural lumber sales attributable to a 31 percent increase in sales realizations;

a $184 million increase in oriented strand board sales attributable to a 35 percent increase in sales realizations, as well as a 3 percent increase in sales volumes and

a $39 million increase in complementary building products sales attributable to increased sales volumes.

These increases were partially offset by a $15 million decrease in sales for engineered solid section and a $15 million decrease in sales for engineered I-joists.

Costs of sales

Costs of sales remained consistent primarily due to a minimal 2 percent increase in total sales volumes.

Cost of sales increased $8 million – less than 1 percent – primarily due to a minimal 1 percent increase in total sales volumes.

Operating income and Net contribution to earnings

Operating income and net contribution to earnings increased $143 million – 95 percent – primarily due to the change in the components of gross margin, as discussed above.

Operating income and net contribution to earnings increased $566 million – 193 percent – primarily due to the change in the components of gross margin, as discussed above, partially offset by a $60 million decrease in product remediation insurance recoveries.

Third-Party Sales Volumes

2 unchanged sentences

VOLUMES IN MILLIONS (1)

SEPTEMBER 2020

SEPTEMBER 2019

SEPTEMBER 2020

SEPTEMBER 2019

Structural lumber – board feet

12 unchanged sentences

VOLUMES IN MILLIONS

SEPTEMBER 2020

SEPTEMBER 2019

SEPTEMBER 2020

SEPTEMBER 2019

Structural lumber – board feet:

16 unchanged sentences

DOLLAR AMOUNTS IN MILLIONS

SEPTEMBER 2020

SEPTEMBER 2019

SEPTEMBER 2020

SEPTEMBER 2019

Unallocated corporate function and variable compensation expense

6 unchanged sentences

Net charge to earnings

Comparing Second Quarter 2020 with Second Quarter 2019

Net charge to earnings decreased $18 million – 50 percent – primarily due to a $23 million increase in elimination of intersegment profit in inventory and LIFO.

Comparing Third Quarter 2020 with Third Quarter 2019

Net charge to earnings increased $15 million – 28 percent – primarily due to:

a $17 million increase in unallocated corporate function and variable compensation expense and

a $15 million increase in elimination of intersegment profit in inventory and LIFO.

These increases were partially offset by a $16 million decrease in Other, primarily due to a reduction in legal charges.

Comparing Year-to-Date 2020 with Year-to-Date 2019

2 unchanged sentences

Pension and Other Postretirement Benefit Plans for further information);

a $15 million increase in elimination of intersegment profit in inventory and LIFO;

a $12 million legal benefit recognized during year-to-date 2020 and

a $10 million decrease in expense related to liability classified share-based compensation attributable to a decrease in our stock price for the year-to-date period ended June 30, 2020 compared to an increase for the same period in 2019.

a $6 million decrease in expense related to liability classified share-based compensation attributable to a decrease in our stock price for the year-to-date period ended September 30, 2020 compared to an increase for the same period in 2019.

INTEREST EXPENSE

Our interest expense, net of capitalized interest, was:

$103 million for second quarter 2020 and $188 million year-to-date 2020;

$91 million for second quarter 2019 and $198 million year-to-date 2019.

Interest expense increased by $12 million compared to second quarter 2019 primarily due to an $11 million net charge related to the early extinguishment of debt recorded in second quarter 2020.

Interest expense decreased by $10 million compared to year-to-date 2019 primarily due to $8 million of expense on SPE notes recorded during year-to-date 2019, with no similar activity in 2020.

$111 million for third quarter 2020 and $299 million year-to-date 2020;

$91 million for third quarter 2019 and $289 million year-to-date 2019.

Interest expense increased by $20 million compared to third quarter 2019 primarily due to a $23 million charge related to the early extinguishment of debt recorded in third quarter 2020.

Interest expense increased by $10 million compared to year-to-date 2019 primarily due to a $22 million increase in charges related to the early extinguishment of debt.

This increase was partially offset by $12 million of expense on SPE notes recorded during year-to-date 2019, with no similar activity in 2020.

Refer to Note 9:

1 unchanged sentence

Our provision for income taxes was:

a $60 million expense for second quarter 2020 and a $57 million expense year-to-date 2020;

a $37 million benefit for second quarter 2019 and a $141 million benefit year-to-date 2019.

a $109 million expense for third quarter 2020 and a $166 million expense year-to-date 2020;

a $3 million expense for third quarter 2019 and a $138 million benefit year-to-date 2019.

Our provision for income taxes is primarily driven by earnings (losses) generated by our TRSs .

6 unchanged sentences

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.

In light of the significant uncertainty regarding the duration and magnitude of the effects of the COVID-19 pandemic on our business and our customers, in May 2020 the board of directors temporarily suspended the quarterly cash dividend to enhance and preserve our liquidity position and financial flexibility.

The board will continue to evaluate opportunities to reinitiate the quarterly cash dividend based on factors including the company’s cash flow, liquidity, leverage, customer demand, market conditions and the broader macroeconomic environment.

Additional steps that we have taken to ensure flexibility and liquidity include the following:

reducing 2020 capital expenditures by approximately $90 million;

reducing 2020 operating expenses by approximately $55 million;

issuing $750 million of 4.00 percent senior notes through a public bond offering and

reducing, through the remainder of the year, salary for the CEO by 30 percent and the senior management team by 10 percent, and reducing fees paid to the board of directors by 20 percent.

In addition to the steps taken above, we also have $1.5 billion of availability on our line of credit, which expires in January 2025.

We believe we have sufficient liquidity to meet all cash requirements for the foreseeable future.

As of September 30, 2020, we have $787 million in cash and cash equivalents and $1.5 billion of availability on our line of credit, which expires in January 2025.

We believe we have sufficient liquidity to meet our cash requirements for the foreseeable future.

In light of the significant uncertainty regarding the duration and magnitude of the effects of the COVID-19 pandemic on our business and our customers, in May 2020, as part of several steps taken to enhance and preserve liquidity and financial flexibility, the board of directors temporarily suspended the quarterly cash dividend.

The board has continued to evaluate the company’s cash flow, liquidity, leverage, customer demand, market conditions, the broader macroeconomic environment, and other factors in assessing opportunities to reinitiate the quarterly cash dividend.

Based upon its most recent evaluation of these factors, the board has approved the reinitiation of the company’s quarterly cash dividend within a new implementation framework.

Under this new framework, the company intends to pay a quarterly base cash dividend beginning in the fourth quarter 2020 that will be supported by cash flows from the Timberlands and Real Estate, Energy and Natural Resources segments.

This base dividend may be supplemented by a variable cash dividend and potential opportunistic share repurchases, as needed, to achieve the company’s targeted annual total return of cash to shareholders.

For the fourth quarter 2020, the base cash dividend declared by the board was $0.17 per share.

The board will continue to evaluate the cash dividend on a quarterly basis based on this framework and the other factors outlined above.

CASH FROM OPERATIONS

4 unchanged sentences

increased cash inflows from our business segments and

a $50 million decrease in cash paid for income taxes, primarily related to a $21 million cash payment for the resolution of an IRS matter and $20 million of estimated tax and extension payments for foreign taxes for year-to-date 2019.

These increases in net cash were partially offset by increased cash used in working capital changes.

decreased cash used for interest payments.

CASH FROM INVESTING ACTIVITIES

3 unchanged sentences

Net cash from investing activities increased $279 million, primarily due to:

$145 million of proceeds from the sale of our Montana timberlands during first quarter 2020 and

a $109 million increase in proceeds received from variable interest entities.

$145 million of proceeds from the sale of our Montana timberlands during first quarter 2020;

a $109 million increase in proceeds received from variable interest entities and

a $41 million decrease in cash paid for capital expenditures for property and equipment.

Summary of Capital Spending by Business Segment

1 unchanged sentence

DOLLAR AMOUNTS IN MILLIONS

SEPTEMBER 2020

SEPTEMBER 2019

Wood Products

8 unchanged sentences

a $506 million decrease in cash paid for dividends ;

a $60 million decrease in cash used for share repurchases and

a $55 million decrease in net cash payments related to borrowings on our line of credit.

These changes were partially offset by a $76 million increase in cash used for payments o n long-term debt.

a $302 million decrease in cash paid related to our monetized SPEs and

a $60 million decrease in cash used for share repurchases.

These changes were partially offset by a $424 million increase in cash used for payments on long-term debt and a $245 million increase in net cash payments related to borrowings on our line of credit.

Line of Credit

We had no outstanding borrowings on our credit facility as of June 30, 2020.

We had no outstanding borrowings on our credit facility as of September 30, 2020.

As of December 31, 2019, we had $230 million of outstanding borrowings on our $1.5 billion five-year senior unsecured revolving credit facility.

3 unchanged sentences

Long-Term Debt

In September 2020, we redeemed our $ 325 million 3.25 percent notes due in March 2023.

In March 2020, we issued $750 million of 4.00 percent notes due in April 2030.

10 unchanged sentences

In July 2020, we amended our term loan agreement primarily to include provisions that address the future discontinuance of LIBOR and set forth the process for transition to an alternate benchmark rate.

As of June 30, 2020, of our $6.3 billion of long-term debt, only $225 million in term loan borrowings are governed by debt agreements that utilize LIBOR as one of the alternative applicable rates.

As of September 30, 2020, of our $6.0 billion of long-term debt, only $225 million in term loan borrowings are governed by a debt agreement that utilizes LIBOR as one of the alternative applicable rates.

We therefore do not believe that the discontinuation of LIBOR as a reference rate in our debt agreements will have a material adverse effect on our financial position or materially affect our interest expense.

Debt Covenants

As of June 30, 2020, Weyerhaeuser Company was in compliance with its debt covenants.

As of September 30, 2020, Weyerhaeuser Company was in compliance with its debt covenants.

There have been no significant changes to the debt covenants presented in our 2019 Annual Report on Form 10-K for our existing long-term debt instruments, and we expect to remain in compliance with our debt covenants for the foreseeable future.

12 unchanged sentences

During year-to-date 2019, we repurchased over 2.3 million common shares for approximately $60 million under the 2019 Repurchase Program.

There were no unsettled repurchases as of June 30, 2020 or December 31, 2019.

There were no unsettled repurchases as of September 30, 2020 or December 31, 2019.

Refer to Note 4:

5 unchanged sentences

generally accepted accounting principles (U.S.

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.

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.

3 unchanged sentences

DOLLAR AMOUNTS IN MILLIONS

SEPTEMBER 2020

SEPTEMBER 2019

SEPTEMBER 2020

SEPTEMBER 2019

Adjusted EBITDA by Segment:

5 unchanged sentences

GAAP measures for each.

The table below reconciles Adjusted EBITDA for the quarter ended June 30, 2020:

The table below reconciles Adjusted EBITDA for the quarter ended September 30, 2020:

DOLLAR AMOUNTS IN MILLIONS

10 unchanged sentences

Adjusted EBITDA

Interest expense, net of capitalized interest includes a pretax special item of $11 million related to a net charge for the early extinguishment of debt.

Operating income (loss) includes a pretax special item consisting of an $8 million product remediation insurance recovery.

The table below reconciles Adjusted EBITDA for the quarter ended June 30, 2019:

Interest expense, net of capitalized interest includes a pretax special item of $23 million related to a charge for the early extinguishment of debt.

Operating income (loss) includes a pretax special item consisting of an $80 million timber casualty loss .

The table below reconciles Adjusted EBITDA for the quarter ended September 30, 2019:

DOLLAR AMOUNTS IN MILLIONS

8 unchanged sentences

Basis of real estate sold

Special items included in operating income (loss) (1)

Adjusted EBITDA

Non-operating pension and other postretirement benefit costs includes a pretax special item consisting of a $6 million benefit from finalizing the noncash settlement charge incurred in first quarter 2019 related to the transfer of pension assets and liabilities through the purchase of a group annuity contract.

The table below reconciles Adjusted EBITDA for the year-to-date period ended June 30, 2020:

Operating income (loss) includes pretax special items consisting of a $68 million product remediation insurance recovery within Wood Products and a $15 million legal charge within Unallocated Items.

The table below reconciles Adjusted EBITDA for the year-to-date period ended September 30, 2020:

DOLLAR AMOUNTS IN MILLIONS

10 unchanged sentences

Adjusted EBITDA

Interest expense, net of capitalized interest includes a pretax special item of $11 million related to a net charge for the early extinguishment of debt.

Operating income (loss) includes pretax special items consisting of a $12 million noncash legal benefit within Unallocated Items and an $8 million product remediation insurance recovery within Wood Products.

The table below reconciles Adjusted EBITDA for the year-to-date period ended June 30, 2019 :

Interest expense, net of capitalized interest includes pretax special items of $34 million related to charges for the early extinguishment of debt.

Operating income (loss) includes pretax special items consisting of a $12 million noncash legal benefit within Unallocated Items, an $8 million product remediation insurance recovery within Wood Products and an $80 million timber casualty loss within Timberlands.

The table below reconciles Adjusted EBITDA for the year-to-date period ended September 30, 2019 :

DOLLAR AMOUNTS IN MILLIONS

1 unchanged sentence

Interest expense, net of capitalized interest (1)

Net contribution (charge) to earnings (loss)

Net contribution (charge) to earnings

Non-operating pension and other postretirement benefit costs (2)

8 unchanged sentences

qualified pension plan assets and liabilities to an insurance company through the purchase of a group annuity contract.

Operating income (loss) includes a pretax special item consisting of a $20 million legal charge within Unallocated Items.

Operating income (loss) includes pretax special items consisting of a $68 million product remediation insurance recovery within Wood Products and $35 million of legal charges within Unallocated Items.

Net Earnings and Net Earnings per Diluted Share Before Special Items

7 unchanged sentences

DOLLAR AMOUNTS IN MILLIONS

SEPTEMBER 2020

SEPTEMBER 2019

SEPTEMBER 2020

SEPTEMBER 2019

Net earnings (loss)

Early extinguishment of debt charges

Legal charge (benefit)

Legal charges (benefits)

Pension settlement charges

Product remediation recovery

Product remediation recoveries

Timber casualty loss

Net earnings before special items

2 unchanged sentences

YEAR-TO-DATE ENDED

SEPTEMBER 2020

SEPTEMBER 2019

SEPTEMBER 2020

SEPTEMBER 2019

Net earnings (loss) per diluted share

Early extinguishment of debt charges

Legal charge (benefit)

Legal charges (benefits)

Pension settlement charges

Product remediation recovery

Product remediation recoveries

Timber casualty loss

Net earnings per diluted share before special items

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis