WEYERHAEUSER CO 10-Q

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A) NOTE ABOUT FORWARD-LOOKING STATEMENTS This report contains statements concerning our future results and performance that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include, without limitation, statements relating to: our expected future financial and operating performance; our plans, strategies, intentions and expectations; 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. These risks and uncertainties include, but are not limited to: ● the effect of general economic conditions, including employment rates, interest rate levels, housing starts, general availability of financing for home mortgages and the relative strength of the U.S. dollar; ● the effect of COVID-19 and other viral or disease outbreaks and their potential effects on our business, results of operations, cash flows, financial condition and future prospects; ● market demand for the company's products, including market demand for our timberland properties with higher and better uses, which is related to, among other factors, the strength of the various U.S. business segments and U.S. and international economic conditions; ● changes in currency exchange rates, particularly the relative value of the U.S. dollar to the Japanese yen, the Chinese yuan, and the Canadian dollar, and the relative value of the euro to the yen; ● restrictions on international trade and tariffs imposed on imports or exports; ● the availability and cost of shipping and transportation; ● economic activity in Asia, especially Japan and China; ● performance of our manufacturing operations, including maintenance and capital requirements; ● potential disruptions in our manufacturing operations; ● the level of competition from domestic and foreign producers; ● the successful execution of our internal plans and strategic initiatives, including restructuring and cost reduction initiatives; ● the successful and timely execution and integration of our strategic acquisitions, including our ability to realize expected benefits and synergies, and the successful and timely execution of our strategic divestitures, each of which is subject to a number of risks and conditions beyond our control including, but not limited to, timing and required regulatory approvals or the occurrence of any event, change or other circumstances that could give rise to a termination of any acquisition or divestiture transaction under the terms of the governing transaction agreements; ● raw material availability and prices; ● the effect of weather; ● changes in global or regional climate conditions and governmental response to such changes; ● the risk of loss from fires, floods, windstorms, hurricanes, pest infestation and other natural disasters; ● energy prices; ● transportation and labor availability and costs; ● federal tax policies; ● the effect of forestry, land use, environmental and other governmental regulations; ● legal proceedings; ● performance of pension fund investments and related derivatives; ● the effect of timing of employee retirements and changes in the market price of our common stock on charges for share-based compensation; ● the accuracy of our estimates of costs and expenses related to contingent liabilities and the accuracy of our estimates of charges related to casualty losses; ● changes in accounting principles; and ● other risks and uncertainties described in this report under Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) and in our 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. There is no guarantee that any of the events anticipated by these forward-looking statements will occur, and if any of the events do occur, there is no guarantee what effect they will have on the company's business, results of operations, cash flows, financial condition and future prospects. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events, or otherwise. 14 RESULTS OF OPERATIONS In reviewing our results of operations, it is important to understand these terms: ● Sales realizations for Timberlands and Wood Products refer to net selling prices. This includes selling price plus freight, minus normal sales deductions. Real Estate transactions are presented at the contract sales price before commissions and closing costs, net of any credits. ● Net contribution (charge) to earnings does not include interest expense or income taxes. ECONOMIC AND MARKET CONDITIONS AFFECTING OUR OPERATIONS Overview 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. The U.S. 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 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 The demand for sawlogs within our Timberlands segment is directly affected by domestic production of wood-based building products. The strength of the U.S. housing market, 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. Japanese housing starts are a key driver of export log demand in Japan. The demand for pulpwood from our Timberlands segment is directly affected by the production of pulp, paper and oriented strand board as well as the demand for biofuels, such as pellets made from pulpwood. 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. In U.S. 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. 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 15 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 First Quarter 2021 QUARTER ENDED AMOUNT OF CHANGE DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURES MARCH 2021 MARCH 2020 2021 VS. 2020 Net sales $ 2,506 $ 1,728 $ 778 Costs of sales 1,430 1,382 48 Operating income 956 240 716 Net earnings 681 150 531 Earnings per share, basic and diluted 0.91 0.20 0.71 Comparing First Quarter 2021 with First Quarter 2020 Net sales 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 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 $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 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 ). 16 TIMBERLANDS How We Did First Quarter 2021 QUARTER ENDED AMOUNT OF CHANGE DOLLAR AMOUNTS IN MILLIONS MARCH 2021 MARCH 2020 2021 VS. 2020 Net sales to unaffiliated customers: Delivered logs: West $ 201 $ 177 $ 24 South 131 150 (19 ) North (1) 16 17 (1 ) Subtotal delivered logs sales 348 344 4 Stumpage and pay-as-cut timber 6 5 1 Recreational and other lease revenue 16 15 1 Other (2) 9 17 (8 ) Subtotal net sales to unaffiliated customers 379 381 (2 ) Intersegment sales 134 122 12 Total sales $ 513 $ 503 $ 10 Costs of sales $ 383 $ 375 $ 8 Operating income and Net contribution to earnings $ 108 $ 105 $ 3 (1) In March 2020, we sold our Montana timberlands. (2) Other Timberlands sales include sales of seeds and seedlings from our nursery operations as well as wood chips. 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 $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 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 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 increased $3 million – 3 percent – primarily due to the change in the components of gross margin, as discussed above. 17 Third-Party Log Sales Volumes and Fee Harvest Volumes QUARTER ENDED AMOUNT OF CHANGE VOLUMES IN THOUSANDS MARCH 2021 MARCH 2020 2021 VS. 2020 Third-party log sales – tons: West (1) 1,539 1,684 (145 ) South 3,782 4,365 (583 ) North (2) 261 284 (23 ) Total 5,582 6,333 (751 ) Fee harvest volumes – tons: West (1) 2,101 2,310 (209 ) South 5,376 6,130 (754 ) North (2) 337 386 (49 ) Total 7,814 8,826 (1,012 ) (1) Western logs are primarily transacted in thousand board feet (MBF) but are converted to ton equivalents for external reporting purposes. (2) In March 2020, we sold our Montana timberlands. REAL ESTATE, ENERGY AND NATURAL RESOURCES How We Did First Quarter 2021 QUARTER ENDED AMOUNT OF CHANGE DOLLAR AMOUNTS IN MILLIONS MARCH 2021 MARCH 2020 2021 VS. 2020 Net sales: Real estate $ 84 $ 95 $ (11 ) Energy and natural resources 22 17 5 Total $ 106 $ 112 $ (6 ) Costs of sales $ 34 $ 70 $ (36 ) Operating income and Net contribution to earnings $ 66 $ 36 $ 30 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 First Quarter 2021 with First Quarter 2020 Net sales 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 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 increased $30 million – 83 percent – primarily due to the change in the components of gross margin, as discussed above. 18 REAL ESTATE SALES STATISTICS QUARTER ENDED AMOUNT OF CHANGE MARCH 2021 MARCH 2020 2021 VS. 2020 Acres sold 19,455 44,974 (25,519 ) Average price per acre $ 3,803 $ 1,992 $ 1,811 WOOD PRODUCTS How We Did First Quarter 2021 QUARTER ENDED AMOUNT OF CHANGE DOLLAR AMOUNTS IN MILLIONS MARCH 2021 MARCH 2020 2021 VS. 2020 Net sales: Structural lumber $ 990 $ 508 $ 482 Oriented strand board 438 190 248 Engineered solid section 142 127 15 Engineered I-joists 83 78 5 Softwood plywood 56 39 17 Medium density fiberboard 48 44 4 Complementary building products 171 153 18 Other products produced (1) 93 96 (3 ) Total $ 2,021 $ 1,235 $ 786 Costs of sales $ 1,124 $ 1,040 $ 84 Operating income and Net contribution to earnings $ 840 $ 134 $ 706 (1) Other products produced sales include wood chips, other byproducts and third-party residual log sales from our Canadian Forestlands operations. Comparing First Quarter 2021 with First Quarter 2020 Net sales 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 $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; ● 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 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 $706 million – 527 percent – primarily due to the change in the components of gross margin, as discussed above. 19 Third-Party Sales Volumes QUARTER ENDED AMOUNT OF CHANGE VOLUMES IN MILLIONS (1) MARCH 2021 MARCH 2020 2021 VS. 2020 Structural lumber – board feet 1,145 1,222 (77 ) Oriented strand board – square feet (3/8”) 714 770 (56 ) Engineered solid section – cubic feet 6.2 5.9 0.3 Engineered I-joists – lineal feet 47 47 — Softwood plywood – square feet (3/8”) 94 113 (19 ) Medium density fiberboard – square feet (3/4”) 57 52 5 (1) Sales volumes include sales of internally produced products and products purchased for resale primarily through our distribution business. PRODUCTION AND OUTSIDE PURCHASE VOLUMES Outside purchase volumes are primarily purchased for resale through our distribution business. Production volumes are produced for sale through our own sales organizations and through our distribution business. Production of oriented strand board and engineered solid section are also used to manufacture engineered I-joists. QUARTER ENDED AMOUNT OF CHANGE VOLUMES IN MILLIONS MARCH 2021 MARCH 2020 2021 VS. 2020 Structural lumber – board feet: Production 1,211 1,209 2 Outside purchase 55 59 (4 ) Total 1,266 1,268 (2 ) Oriented strand board – square feet (3/8”): Production 742 777 (35 ) Outside purchase 68 87 (19 ) Total 810 864 (54 ) Engineered solid section – cubic feet: Production 6.0 6.1 (0.1 ) Outside purchase 0.3 0.1 0.2 Total 6.3 6.2 0.1 Engineered I-joists – lineal feet: Production 44 47 (3 ) Outside purchase 3 2 1 Total 47 49 (2 ) Softwood plywood – square feet (3/8”): Production 80 97 (17 ) Outside purchase 14 16 (2 ) Total 94 113 (19 ) Medium density fiberboard – square feet (3/4"): Production 56 56 — Total 56 56 — 20 UNALLOCATED ITEMS Unallocated items are gains or charges not related to, or allocated to, an individual operating segment. They include all or a portion of items such as share-based compensation, pension and post-employment costs, elimination of intersegment profit in inventory and LIFO, foreign exchange transaction gains and losses, interest income and other as well as legacy obligations. Net Charge to Earnings – Unallocated Items QUARTER ENDED AMOUNT OF CHANGE DOLLAR AMOUNTS IN MILLIONS MARCH 2021 MARCH 2020 2021 VS. 2020 Unallocated corporate function and variable compensation expense $ (25 ) $ (19 ) $ (6 ) Liability classified share-based compensation (1 ) 10 (11 ) Foreign exchange loss (2 ) (8 ) 6 Elimination of intersegment profit in inventory and LIFO (17 ) (13 ) (4 ) Other (13 ) (5 ) (8 ) Operating loss (58 ) (35 ) (23 ) Non-operating pension and other post-employment benefit costs (8 ) (9 ) 1 Interest income and other 1 1 — Net charge to earnings $ (65 ) $ (43 ) $ (22 ) Comparing First Quarter 2021 with First Quarter 2020 Net charge to earnings increased $22 million – 51 percent – primarily due to: ● 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: ● $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: Long-Term Debt and Line of Credit for further information. INCOME TAXES Our provision for income taxes was: ● 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 for further information. LIQUIDITY AND CAPITAL RESOURCES We are committed to maintaining an appropriate capital structure that provides flexibility and enables us to protect the interests of our shareholders and meet our obligations to our lenders, while also maintaining access to all major financial markets. As of March 31, 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. 21 CASH FROM OPERATIONS Consolidated net cash from operations was: ● $698 million for first quarter 2021 and ● $86 million for first quarter 2020. Net cash from operations increased $612 million, primarily due to: ● increased cash inflows from our business segments and ● 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: ● $(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 QUARTER ENDED DOLLAR AMOUNTS IN MILLIONS MARCH 2021 MARCH 2020 Timberlands $ 28 $ 30 Wood Products 25 38 Total $ 53 $ 68 We expect our capital expenditures for 2021 will be approximately $420 million. The amount we spend on capital expenditures could change. CASH FROM FINANCING ACTIVITIES Consolidated net cash from financing activities was: ● $(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 $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. Refer to Note 9: Long-Term Debt and Line of Credit for further information. Long-Term Debt 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. Refer to Note 9: Long-Term Debt and Line of Credit for further information. 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. 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. 22 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 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. Option Exercises We received cash proceeds from the exercise of stock options of: ● $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: ● $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 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 EBITDA as a key performance measure to evaluate the performance of the consolidated company and our business segments. This measure should not be considered in isolation from, and is not intended to represent an alternative to, our results reported in accordance with U.S. generally accepted accounting principles (U.S. GAAP). However, we believe Adjusted EBITDA provides meaningful supplemental information for investors about our operating performance, better facilitates period to period comparisons and is widely used by analysts, lenders, rating agencies and other interested parties. Our definition of Adjusted EBITDA may be different from similarly titled measures reported by other companies. Adjusted EBITDA, as we define it, is operating income adjusted for depreciation, depletion, amortization, basis of real estate sold and special items. QUARTER ENDED AMOUNT OF CHANGE DOLLAR AMOUNTS IN MILLIONS MARCH 2021 MARCH 2020 2021 VS. 2020 Adjusted EBITDA by Segment: Timberlands $ 172 $ 173 $ (1 ) Real Estate & ENR 96 101 (5 ) Wood Products 889 184 705 1,157 458 699 Unallocated Items (56 ) (45 ) (11 ) Adjusted EBITDA $ 1,101 $ 413 $ 688 23 We reconcile Adjusted EBITDA to net earnings for the consolidated company and to operating income (loss) for the business segments, as those are the most directly comparable U.S. GAAP measures for each. The table below reconciles Adjusted EBITDA for the quarter ended March 31, 2021: DOLLAR AMOUNTS IN MILLIONS Timberlands Real Estate & ENR Wood Products Unallocated Items Total Adjusted EBITDA by Segment: Net earnings $ 681 Interest expense, net of capitalized interest 79 Income taxes 189 Net contribution (charge) to earnings $ 108 $ 66 $ 840 $ (65 ) $ 949 Non-operating pension and other post-employment benefit costs — — — 8 8 Interest income and other — — — (1 ) (1 ) Operating income (loss) 108 66 840 (58 ) 956 Depreciation, depletion and amortization 64 3 49 2 118 Basis of real estate sold — 27 — — 27 Adjusted EBITDA $ 172 $ 96 $ 889 $ (56 ) $ 1,101 The table below reconciles Adjusted EBITDA for the quarter ended March 31, 2020: DOLLAR AMOUNTS IN MILLIONS Timberlands Real Estate & ENR Wood Products Unallocated Items Total Adjusted EBITDA by Segment: Net earnings $ 150 Interest expense, net of capitalized interest 85 Income taxes (3 ) Net contribution (charge) to earnings $ 105 $ 36 $ 134 $ (43 ) $ 232 Non-operating pension and other post-employment benefit costs — — — 9 9 Interest income and other — — — (1 ) (1 ) Operating income (loss) 105 36 134 (35 ) 240 Depreciation, depletion and amortization 68 3 50 2 123 Basis of real estate sold — 62 — — 62 Special items included in operating income (loss) (1) — — — (12 ) (12 ) Adjusted EBITDA $ 173 $ 101 $ 184 $ (45 ) $ 413 ( 1 ) 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 We use net earnings before special items and net earnings per diluted share before special items as key performance measures to evaluate the performance of the consolidated company. These measures should not be considered in isolation from, and are not intended to represent an alternative to, our results reported in accordance with U.S. GAAP. However, we believe the measures provide meaningful supplemental information for investors about our operating performance, better facilitate period to period comparisons and are widely used by analysts, lenders, rating agencies and other interested parties. Net Earnings Before Special Items QUARTER ENDED DOLLAR AMOUNTS IN MILLIONS MARCH 2021 MARCH 2020 Net earnings $ 681 $ 150 Legal benefit — (12 ) Net earnings before special items $ 681 $ 138 24 Net Earnings per Diluted Share Before Special Items QUARTER ENDED MARCH 2021 MARCH 2020 Net earnings per diluted share $ 0.91 $ 0.20 Legal benefit — (0.02 ) Net earnings per diluted share before special items $ 0.91 $ 0.18 CRITICAL ACCOUNTING POLICIES 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.