What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-04-30 compared with 2020-10-30 · 150 added, 331 removed, 236 unchanged (67% 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, 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.

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;

estimated taxes and tax provision;

our capital structure and the sufficiency of our liquidity position to meet future cash requirements;

future debt maturities, compliance with our debt agreements and the effect on our financial position of the expected discontinuation of LIBOR;

expected results of litigation and other legal proceedings and contingent liabilities, and the sufficiency of litigation and other contingent liability reserves and related accruals;

expected uses of cash, including future dividends and expected capital expenditures;

expected effects of certain divestitures on our operations and financial results;

expected economic conditions, including markets, pricing and demand for our products;

laws and regulations relevant to our businesses;

assumptions used in valuing incentive compensation and related expense;

and our expectations relating to returns on invested pension plan assets and expected benefit payments.

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," "intend," "maintain," "may," "plan," "potential," "project," "should," "targeted," "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.

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the level of competition from domestic and foreign producers;

our operational excellence initiatives;

the successful and timely execution and integration of our strategic acquisitions, including our ability to realize expected benefits and synergies, and the successful and timely execution of our 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;

the successful execution of our internal plans and strategic initiatives, including restructuring and cost reduction initiatives;

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

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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 and charges related to casualty losses;

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;

other risks and uncertainties identified in our 2019 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.

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 2020 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.

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Real Estate transactions are presented at the contract sales price before commissions and closing costs, net of any credits.

Net contribution to earnings does not include interest expense or income taxes.

Net contribution (charge) to earnings does not include interest expense or income taxes.

ECONOMIC AND MARKET CONDITIONS AFFECTING OUR OPERATIONS

In mid-March, COVID-19 was officially declared a global pandemic by the World Health Organization and a national emergency was declared by the United States.

In March 2020, COVID-19 was officially declared a global pandemic by the World Health Organization, and a national emergency was declared by the United States.

States and municipalities subsequently began to issue shelter-in-place orders and similar mandates requiring those not engaged in essential activities to remain home.

Department of Homeland Security designated the forest products industry as an "essential critical infrastructure workforce," which recognizes the importance of timber and wood products operations in supporting critical infrastructure and construction projects and the manufacture of important personal hygiene items.

In response to the pandemic, we began taking proactive steps in early March to safeguard the health of our employees.

These actions include detailed cleaning and disinfecting procedures, strict processes around social distancing and personal hygiene, clear communication with our employees, contractors, vendors and visitors about our safety protocols, comprehensive guidance for response to any COVID-19 diagnoses or exposures in our operations, suspension of all air travel and non-essential meetings, and a directive that employees work from home if feasible.

Based on the timing of the outbreak, the economic effects of the pandemic were less pronounced in the first quarter with a drop in U.S.

gross domestic product (GDP) of 5 percent.

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.

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.

In response to the pandemic, we took proactive steps to safeguard the health of our employees.

These actions included detailed cleaning and disinfecting procedures, strict processes around social distancing and personal hygiene, clear communication with our employees, contractors, vendors and visitors about our safety protocols, comprehensive guidance for response to any COVID-19 diagnoses or exposures in our operations, suspension of all air travel and non-essential meetings, and a directive that employees work from home if feasible.

The immediate economic effects of the pandemic were severe, as U.S.

gross domestic product (GDP) declined 31 percent in the second quarter of 2020 and the national unemployment rate soared to a record-high of nearly 15 percent in April driven by the restrictions imposed in response to the pandemic.

However, the unemployment rate has steadily fallen from that point forward, and U.S.

GDP rebounded significantly over the second half of 2020 as states reopened their economies and loosened restrictions.

Market conditions across our businesses deteriorated rapidly in late first quarter and early second quarter 2020 but quickly rebounded as demand for housing and wood products proved resilient.

Growth in repair and remodel demand and new residential construction activity resulted in demand for wood products that significantly outpaced available supply, and benchmark pricing for our commodity wood products reached record levels.

After declining briefly in the final months of 2020, benchmark prices for our commodity wood products have risen sharply during the first quarter of 2021 beyond the record levels established in the prior year.

Looking ahead to the remainder of 2021, our market conditions and the strength of the broader U.S.

economy will continue to be influenced by the trajectory of U.S.

housing activity, COVID-19 infections and pace of vaccinations and the nature and extent of future government stimulus including the proposed infrastructure bill.

Business Outlook

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housing market, especially 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.

In first quarter 2021, winter weather activity in the U.S.

South caused a temporary disruption in production and sales volumes for wood products and logs.

Our Timberlands segment, specifically the Western region, is also affected by export demand and trade policy.

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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.

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 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.

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 historic high of 83 points in September.

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.

The Timberlands segment is also influenced by the availability of harvestable timber.

In general, Western log markets are highly tensioned while Southern log markets have more available supply.

However, additional mill capacity is contributing to some tightening in the South.

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

Census Bureau, housing starts for first quarter 2021 averaged 1.61 million units, which was 2 percent above fourth quarter 2020.

Single family starts averaged 1.16 million units, a 6 percent decline from fourth quarter 2020 and a 19 percent improvement over first quarter 2020.

Multi-family starts averaged 458 thousand units in first quarter 2021, which was 28 percent higher than fourth quarter 2020 and 11 percent lower than first quarter 2020.

Sales of newly built, single family homes have been robust averaging a seasonally adjusted annual rate of 959 thousand units for the first quarter of 2021, a 4 percent increase from the prior quarter average of 924 thousand units and a 37 percent increase from the first quarter 2020 average of 701 thousand units.

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

This activity is now transitioning to larger projects, supported by increased home buying activity and overall household savings.

According to the Census Bureau Advance Retail Spending report, building material and garden supply store sales increased 8 percent in first quarter 2021 compared to fourth quarter 2020, evidencing the continued strength of the repair and remodeling market.

wood product markets, demand for commodity products increased sharply during the first quarter, and benchmark pricing for lumber and oriented strand board reached record highs as demand continued to outpace production capacity.

The Random Lengths Framing Lumber Composite price averaged $978/MBF for the first quarter 2021, a 41 percent increase from the fourth quarter 2020 average.

The Oriented Strand Board Composite indicator price also increased significantly, averaging $904/MSF for the first quarter 2021, a 30 percent increase from the fourth quarter 2020 average.

In Western log markets, Douglas fir sawlog prices increased 4 percent in first quarter 2021 compared with fourth quarter 2020 as reported by RISI Log Lines.

In the South, sawlog prices increased by 3 percent from fourth quarter 2020 as reported by TimberMart-South.

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

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 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.

According to the Realtors Land Institute (RLI) of the National Association of Realtors, the dollar volume of rural properties sold increased by 2.2 percent in 2019 over 2018, and per acre prices grew 2.1 percent on average.

Based on RLI’s 2019 Land Market Survey published in January 2020, these trends are expected to continue with prices and volumes of land transactions forecasted to rise 2.2 percent and timberland sales expected to rise 1.5 percent in 2020.

Demand for rural properties has remained solid in 2020, although COVID-19-related restrictions are delaying the financing and closing of some land transactions.

During first quarter 2021, disruptions in shipping, diversion of European log and lumber supply to other markets, and curtailments on Australian log imports to China provided a favorable environment for log export demand.

In Japan, total housing starts declined 3 percent year to date through February compared to the same period in 2020, while the key

P ost and B eam segment saw a 2 percent increase .

Decreased lumber imports from Europe to Japan were favorable to our Japanese log export business.

CONSOLIDATED RESULTS

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

How We Did First Quarter 2021

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DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURES

SEPTEMBER 2020

SEPTEMBER 2019

SEPTEMBER 2020

SEPTEMBER 2019

Costs of sales

Operating income

Net earnings (loss)

Earnings (loss) per share, basic and diluted

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 $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 $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 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 $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.

Earnings per share, basic and diluted

Comparing First Quarter 2021 with First Quarter 2020

Net sales increased $778 million – 45 percent – primarily due to a $786 million increase in Wood Products sales to unaffiliated customers attributable to increased sales realizations across most product lines.

This increase was partially offset by a $6 million decrease in Real Estate & ENR net sales to unaffiliated customers primarily due to decreased real estate acres sold.

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 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.

Costs of sales increased $48 million – 3 percent – primarily due to increased complementary building product sales and increased cost of commodity products within our Wood Products segment.

This increase was partially offset by decreased real estate acres sold within our Real Estate & ENR segment.

Operating income

Operating income increased $716 million – 298 percent – primarily due to a $730 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)

Net earnings increased $567 million – 915 percent – primarily due to:

a $467 million decrease in non-operating pension and other postretirement benefit costs (refer to Note 7:

Pension and Other Postretirement Benefit Plans ) and

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

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

This increase was partially offset by a $16 million increase in general and administrative expenses primarily due to an increase in liability classified share-based compensation (refer to Unallocated Items ).

Net earnings increased $531 million – 354 percent – primarily due to the $730 million increase in operating income discussed above.

This increase was partially offset by a $192 million increase in income tax expense (refer to Income Taxes ).

How We Did First Quarter 2021

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DOLLAR AMOUNTS IN MILLIONS

SEPTEMBER 2020

SEPTEMBER 2019

SEPTEMBER 2020

SEPTEMBER 2019

Net sales to unaffiliated customers:

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Costs of sales

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.

Operating income and Net contribution to earnings

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 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 $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 $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 $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

Comparing First Quarter 2021 with First Quarter 2020

Net sales to unaffiliated customers

Net sales to unaffiliated customers decreased $2 million – 1 percent – primarily due to:

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.

a $19 million decrease in Southern log sales, attributable to a 13 percent decrease in sales volumes and

an $8 million decrease in other product sales including chips and seedlings.

These decreases were partially offset by a $24 million increase in Western log sales, attributable to a 25 percent increase in sales realizations, partially offset by a 9 percent decrease in sales volumes.

Intersegment sales

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.

Intersegment sales increased $12 million – 10 percent – primarily due to a 15 percent increase in intersegment log sales realizations, partially offset by a 4 percent decrease in intersegment log sales volumes.

Costs of sales

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

Costs of sales increased $8 million – 2 percent – primarily due to increased transportation costs and third-party log purchases, partially offset by a decrease in sales volumes as discussed above.

Operating income and Net contribution to earnings

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.

Operating income and net contribution to earnings increased $3 million – 3 percent – primarily due to the change in the components of gross margin, as discussed above.

Third-Party Log Sales Volumes and Fee Harvest Volumes

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VOLUMES IN THOUSANDS

SEPTEMBER 2020

SEPTEMBER 2019

SEPTEMBER 2020

SEPTEMBER 2019

Third-party log sales – tons:

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Western logs are primarily transacted in thousand board feet (MBF) but are converted to ton equivalents for external reporting purposes.

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

In March 2020, we sold our Montana timberlands.

REAL ESTATE, ENERGY AND NATURAL RESOURCES

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

How We Did First Quarter 2021

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DOLLAR AMOUNTS IN MILLIONS

SEPTEMBER 2020

SEPTEMBER 2019

SEPTEMBER 2020

SEPTEMBER 2019

Energy and natural resources

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In any period, the average sales price per acre will vary based on the location and physical characteristics of parcels 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 $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 – 8 percent – primarily due to lower oil and gas prices, as well as decreased energy and natural resources sales volumes.

Comparing First Quarter 2021 with First Quarter 2020

Net sales decreased $6 million – 5 percent – primarily due to decreased real estate acres sold, partially offset by an increase in the average price per acre sold.

Costs of sales

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

Costs of sales decreased $36 million – 51 percent – primarily due to decreased real estate acres 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.

Operating income and net contribution to earnings increased $30 million – 83 percent – primarily due to the change in the components of gross margin, as discussed above.

REAL ESTATE SALES STATISTICS

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SEPTEMBER 2019

SEPTEMBER 2020

SEPTEMBER 2019

Average price per acre

WOOD PRODUCTS

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

How We Did First Quarter 2021

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DOLLAR AMOUNTS IN MILLIONS

SEPTEMBER 2020

SEPTEMBER 2019

SEPTEMBER 2020

SEPTEMBER 2019

Structural lumber

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

Comparing Third Quarter 2020 with Third Quarter 2019

Comparing First Quarter 2021 with First Quarter 2020

Net sales increased $786 million – 64 percent – primarily due to:

a $482 million increase in structural lumber sales attributable to a 108 percent increase in sales realizations, partially offset by a 6 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 $248 million increase in oriented strand board sales attributable to a 150 percent increase in sales realizations, partially offset by a 7 percent decrease in sales volumes;

an $18 million increase in complementary building products sales attributable to increased sales volumes and sales realizations;

a $17 million increase in softwood plywood sales attributable to a 71 percent increase in sales realizations, partially offset by a 17 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 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 $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 $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.

a $15 million increase in engineered solid section sales attributable to a 6 percent increase in sales realizations, as well as a 5 percent increase in sales volumes and

a $5 million increase in engineered I-joists sales attributable to a 6 percent increase in sales realizations.

Costs of sales

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

Costs of sales increased $84 million – 8 percent – primarily due to increased complementary building product sales and increased cost of commodity products.

Operating income and Net contribution to earnings

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.

Operating income and net contribution to earnings increased $706 million – 527 percent – primarily due to the change in the components of gross margin, as discussed above.

Third-Party Sales Volumes

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VOLUMES IN MILLIONS (1)

SEPTEMBER 2020

SEPTEMBER 2019

SEPTEMBER 2020

SEPTEMBER 2019

Structural lumber – board feet

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VOLUMES IN MILLIONS

SEPTEMBER 2020

SEPTEMBER 2019

SEPTEMBER 2020

SEPTEMBER 2019

Structural lumber – board feet:

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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 postretirement costs, elimination of intersegment profit in inventory and LIFO, foreign exchange transaction gains and losses, interest income and other as well as legacy obligations.

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

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DOLLAR AMOUNTS IN MILLIONS

SEPTEMBER 2020

SEPTEMBER 2019

SEPTEMBER 2020

SEPTEMBER 2019

Unallocated corporate function and variable compensation expense

Liability classified share-based compensation

Foreign exchange gain (loss)

Foreign exchange loss

Elimination of intersegment profit in inventory and LIFO

Operating loss

Non-operating pension and other postretirement benefit costs

Non-operating pension and other post-employment benefit costs

Interest income and other

Net charge to earnings

Comparing Third Quarter 2020 with Third Quarter 2019

Comparing First Quarter 2021 with First Quarter 2020

Net charge to earnings increased $22 million – 51 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

Net charge to earnings decreased $490 million – 79 percent – primarily due to:

a $449 million noncash pension settlement charge recorded during year-to-date 2019, with no similar activity in 2020 (refer to Note 7:

Pension and Other Postretirement Benefit Plans for further information);

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

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.

a $12 million legal benefit recognized in first quarter 2020 and

an $11 million increase in expense related to liability classified share-based compensation due to an increase in our stock price for the quarter ended March 31, 2021 compared to a decrease for the same period in 2020.

INTEREST EXPENSE

Our interest expense, net of capitalized interest, was:

$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.

$79 million for first quarter 2021 and

$85 million for first quarter 2020.

Interest expense decreased by $6 million primarily due to a decrease in the average outstanding debt in first quarter 2021 compared to first quarter 2020.

Refer to Note 9:

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Our provision for income taxes was:

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 .

Income tax expense increased by $ 304 million compared to year-to-date 2019 primarily due to the $109 million tax benefit recognized in 2019 related to our noncash pension settlement charge and stronger current year-to-date earnings.

Overall performance results for our business segments can be found in Consolidated Results .

a $189 million expense for first quarter 2021 and

a $3 million benefit for first quarter 2020.

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

Income tax expense increased by $192 million compared to first quarter 2020 primarily due to an increase in our TRS earnings in first quarter 2021.

Refer to Note 16:

Income Taxes and Note 7:

Pension and Other Postretirement Benefit Plans for further information.

Income Taxes for further information.

LIQUIDITY AND CAPITAL RESOURCES

We are committed to maintaining an appropriate capital structure that provides flexibility and enables us to protect the interests of our shareholders and meet our obligations to our lenders, while also maintaining access to all major financial markets.

As of 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.

As of March 31, 2021, we had over $1.0 billion 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

Consolidated net cash from operations was:

$1,085 million for year-to-date 2020 and

$674 million for year-to-date 2019.

$698 million for first quarter 2021 and

$86 million for first quarter 2020.

Net cash from operations increased $612 million, primarily due to:

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decreased cash used for interest payments.

These changes were partially offset by a $66 million increase in cash paid for income taxes.

CASH FROM INVESTING ACTIVITIES

Consolidated net cash from investing activities was:

$311 million for year-to-date 2020 and

$32 million for year-to-date 2019.

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;

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.

$(53) million for first quarter 2021 and

$441 million for first quarter 2020.

Net cash from investing activities decreased $494 million, primarily due to:

a $362 million decrease in proceeds received from variable interest entities and

a $145 million decrease in proceeds from the sale of timberlands.

These decreases were partially offset by a $15 million decrease in cash used for capital expenditures.

Summary of Capital Spending by Business Segment

YEAR-TO-DATE ENDED

QUARTER ENDED

DOLLAR AMOUNTS IN MILLIONS

SEPTEMBER 2020

SEPTEMBER 2019

Wood Products

Unallocated Items

We expect our net capital expenditures for 2020 will be approximately $280 million.

We expect our capital expenditures for 2021 will be approximately $420 million.

The amount we spend on capital expenditures could change.

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Consolidated net cash from financing activities was:

$(695) million for year-to-date 2020 and

$(887) million for year-to-date 2019.

Net cash from financing activities increased $192 million, primarily due to:

a $506 million decrease in cash paid for dividends ;

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.

$(124) million for first quarter 2021 and

$792 million for first quarter 2020.

Net cash from financing activities decreased $916 million, primarily due to:

a $732 million decrease in net proceeds from issuance of long-term debt and

a $320 million decrease in net cash received related to borrowings on our line of credit.

These decreases were partially offset by a $127 million decrease in cash paid for dividends.

Line of Credit

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.

We had no outstanding borrowings on our $1.5 billion five-year senior unsecured revolving credit facility as of March 31, 2021 or December 31, 2020.

This credit facility expires in January 2025.

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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.

The net proceeds after deducting the discount, underwriting fees and issuance costs were $732 million.

In May 2020, a portion of the net proceeds was used to redeem our $569 million 4.70 percent notes due in March 2021.

In February 2019, we issued $750 million of 4.00 percent notes due in November 2029.

The net proceeds after deducting the discount, underwriting fees, and issuance costs were $739 million.

In March 2019, a portion of the net proceeds was used to redeem our outstanding $500 million 7.38 percent notes due in October 2019.

Refer to Note 9:

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Our revolving credit agreement and our term loan agreement utilize the London Inter-bank Offered Rate (LIBOR) as a basis for one of the interest rate options available to the company to apply to outstanding borrowings.

LIBOR is expected to be discontinued at some point during 2021, and we are closely monitoring ongoing market developments in the identification or creation of a widely accepted replacement rate.

We have included provisions in our new revolving credit agreement that specifically contemplate the transition from LIBOR to a replacement benchmark rate.

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 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.

Publication of USD LIBOR is expected to cease between January 1, 2022 and July 1, 2023, and we are closely monitoring ongoing market developments in the identification or creation of a widely accepted replacement rate.

We have included provisions in our revolving credit agreement and term loan agreement that specifically contemplate the transition from LIBOR to a replacement benchmark rate.

As of March 31, 2021, of our $5.5 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 September 30, 2020, Weyerhaeuser Company was in compliance with its debt covenants.

As of March 31, 2021, Weyerhaeuser Company was in compliance with its debt covenants.

There have been no significant changes to the debt covenants presented in our 2020 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.

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We received cash proceeds from the exercise of stock options of:

$9 million for year-to-date 2020 and

$8 million for year-to-date 2019.

Our average stock price was $24.67 and $25.57 for year-to-date 2020 and 2019, respectively.

$17 million for first quarter 2021 and

$6 million for first quarter 2020.

Our average stock price was $34.05 and $26.30 for first quarter 2021 and 2020, respectively.

Dividend Payments

We paid cash dividends on common shares of:

$254 million for year-to-date 2020 and

$760 million for year-to-date 2019.

This decrease in dividends paid is due to the temporary suspension of the quarterly dividend that was announced in second quarter 2020.

$127 million for first quarter 2021 and

$254 million for first quarter 2020.

This decrease in dividends paid is due to a decrease in dividends paid per common share from $0.34 to $0.17 as part of the new dividend framework discussed in our 2020 Annual Report on Form 10-K .

Share Repurchases

During year-to-date 2020, we did not repurchase shares.

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 September 30, 2020 or December 31, 2019.

Refer to Note 4:

Net Earnings (Loss) Per Share and Share Repurchases for further information.

We did not repurchase shares during first quarter 2021 or first quarter 2020.

There were no unsettled repurchases as of March 31, 2021 or December 31, 2020.

PERFORMANCE MEASURES

Adjusted EBITDA by Segment

We use adjusted earnings before interest, taxes, depreciation, depletion and amortization (Adjusted EBITDA) as a key performance measure to evaluate the performance of the consolidated company and our business segments.

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.

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.

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QUARTER ENDED

YEAR-TO-DATE ENDED

DOLLAR AMOUNTS IN MILLIONS

SEPTEMBER 2020

SEPTEMBER 2019

SEPTEMBER 2020

SEPTEMBER 2019

Adjusted EBITDA by Segment:

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Adjusted EBITDA

We reconcile Adjusted EBITDA to net earnings (loss) for the consolidated company and to operating income (loss) for the business segments, as those are the most directly comparable U.S.

We reconcile Adjusted EBITDA to net earnings for the consolidated company and to operating income (loss) for the business segments, as those are the most directly comparable U.S.

GAAP measures for each.

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

DOLLAR AMOUNTS IN MILLIONS

Real Estate &

Adjusted EBITDA by Segment:

Interest expense, net of capitalized interest (1)

Net contribution (charge) to earnings

Non-operating pension and other postretirement benefit costs

Interest income and other

Operating income (loss)

Depreciation, depletion and amortization

Basis of real estate sold

Special items included in operating income (loss) (2)

Adjusted EBITDA

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:

The table below reconciles Adjusted EBITDA for the quarter ended March 31, 2021:

DOLLAR AMOUNTS IN MILLIONS

3 unchanged sentences

Net contribution (charge) to earnings

Non-operating pension and other postretirement benefit costs

Non-operating pension and other post-employment benefit costs

Interest income and other

2 unchanged sentences

Basis of real estate sold

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

Adjusted EBITDA

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:

The table below reconciles Adjusted EBITDA for the quarter ended March 31, 2020:

DOLLAR AMOUNTS IN MILLIONS

3 unchanged sentences

Net contribution (charge) to earnings

Non-operating pension and other postretirement benefit costs

Interest income and other

Operating income (loss)

Depreciation, depletion and amortization

Basis of real estate sold

Special items included in operating income (loss) (2)

Adjusted EBITDA

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

Adjusted EBITDA by Segment:

Interest expense, net of capitalized interest (1)

Net contribution (charge) to earnings

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

Non-operating pension and other post-employment benefit costs

Interest income and other

4 unchanged sentences

Adjusted EBITDA

Interest expense, net of capitalized interest includes a pretax special item of $12 million related to a charge for the early extinguishment of debt.

Non-operating pension and other postretirement benefit costs includes a pretax special item consisting of a $449 million noncash settlement charge related to the transfer of approximately $1.5 billion of U.S.

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

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.

Operating income (loss) includes a pretax special item consisting of a $12 million noncash legal benefit within Unallocated Items.

Net Earnings and Net Earnings per Diluted Share Before Special Items

1 unchanged sentence

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.

generally accepted accounting principles (U.S.

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.

1 unchanged sentence

QUARTER ENDED

YEAR-TO-DATE ENDED

DOLLAR AMOUNTS IN MILLIONS

SEPTEMBER 2020

SEPTEMBER 2019

SEPTEMBER 2020

SEPTEMBER 2019

Net earnings (loss)

Early extinguishment of debt charges

Legal charges (benefits)

Pension settlement charges

Product remediation recoveries

Timber casualty loss

Legal benefit

Net earnings before special items

1 unchanged sentence

QUARTER ENDED

YEAR-TO-DATE ENDED

SEPTEMBER 2020

SEPTEMBER 2019

SEPTEMBER 2020

SEPTEMBER 2019

Net earnings (loss) per diluted share

Early extinguishment of debt charges

Legal charges (benefits)

Pension settlement charges

Product remediation recoveries

Timber casualty loss

Net earnings per diluted share

Legal benefit

Net earnings per diluted share before special items

CRITICAL ACCOUNTING POLICIES

There have been no significant changes during year-to-date 2020 to the critical accounting policies presented in our 2019 Annual Report on Form 10-K.

There have been no significant changes during first quarter 2021 to the critical accounting policies presented in our 2020 Annual Report on Form 10-K.

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