What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-07-30 compared with 2021-04-30 · 180 added, 98 removed, 288 unchanged (49% of the section changed)

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

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

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

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

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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 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 2020 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.

Since that time the unemployment rate has fallen steadily, and U.S.

GDP has rebounded significantly as states have continued to reopen their economies and loosen restrictions.

Although market conditions across our businesses deteriorated rapidly in late first quarter and early second quarter 2020, they 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.

After declining briefly in the final months of 2020, benchmark prices for our commodity wood products rose sharply through May 2021 beyond the record levels established in the prior year.

At the end of the second quarter, lumber prices had begun a substantial correction as demand and supply came into balance.

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.

housing activity, the ongoing pace of reopening economic activities due to COVID-related restrictions, inflation trends, interest rates, and the nature and extent of future government stimulus including the proposed infrastructure bill.

We have taken proactive steps to safeguard the health of our employees and preserve business continuity from the beginning of the pandemic.

These actions included detailed cleaning and disinfecting procedures, strict processes around masking, 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.

In light of the recent adjustments to federal, state and local health and safety restrictions, we have begun a phased-in approach to return those employees who have been working from home back to their work locations.

We remain vigilant about employee safety and will continue to monitor developments, including but not limited to the spread of disease variants and their impact on local health systems.

Business Outlook

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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.

In second quarter 2021, wet weather constrained harvest operations for producers in the U.S.

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

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

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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.

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 .

Census Bureau, housing starts for second quarter 2021 averaged 1.57 million units, which was 2 percent below first quarter 2021.

Single family starts averaged 1.1 million units, a 4 percent decline from first quarter 2021 but a 43 percent improvement over second quarter 2020.

Multi-family starts averaged 464 thousand units in second quarter 2021, which was 5 percent higher than first quarter 2021 and 49 percent higher than second quarter 2020.

Sales of newly built, single family homes averaged a seasonally adjusted annual rate of 728 thousand units for second quarter 2021, a 19 percent decrease from the prior quarter average of 896 thousand units and a 4 percent increase from the second quarter 2020 average of 703 thousand units .

Repair and remodeling expenditures declined by 10 percent from March to June 2021 according to the Census Bureau Advance Retail Spending report.

A decrease in do-it-yourself activity contributed to lower sales at home improvement centers offset in part by a transition to larger projects undertaken by professional contractors.

wood product markets, demand for commodity products was strong during the first half of the second quarter, and benchmark pricing for lumber and OSB reached record highs as demand continued to outpace production capacity.

As repair and remodeling demand fell, lumber prices declined.

OSB, which is much more focused on new residential construction activity than repair and remodeling, had not seen similar price declines as lumber at the end of the quarter.

The Random Lengths Framing Lumber Composite price averaged $1,260/MBF and the OSB Composite averaged $1,373/MSF in second quarter 2021.

At the end of the second quarter, prices were $770/MBF for the Lumber Composite and $1,501/MSF for the OSB composite.

Through the end of July, lumber prices continued to fall, and OSB prices began to decline in the second half of July.

In Western log markets, Douglas fir sawlog prices decreased 3 percent in second quarter 2021 compared with first quarter 2021 as reported by RISI Log Lines, in part a response to the recent decline in lumber prices.

In the South, sawlog prices increased by 3 percent from first quarter 2021 as reported by TimberMart-South.

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

During second quarter 2021, continued disruptions in shipping, diversion of European log and lumber supply to other markets, and curtailments on Australian log imports to China generally had a positive impact on China’s demand for logs imported from the U.S .

In Japan, total housing starts increased 2.5 percent year to date through May compared to the same period in 2020, while the key Post and Beam segment saw a 6 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

How We Did Second Quarter 2021 and Year-to-Date 2021

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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.

Comparing Second Quarter 2021 with Second Quarter 2020

Net sales increased $1,513 million – 93 percent – primarily due to a $1,422 million i ncrease in Wood Products sales to unaffiliated customers attributable to increased sales realizations across all product lines.

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.

Costs of sales increased $300 million – 23 percent – primarily due to increased sales volumes within our Wood Products segment and increased freight costs and third-party log purchases within our Timberlands segment.

Operating income

Operating income increased $1,186 million – 488 percent – primarily due to a $1,213 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 increased $956 million – 1,328 percent – primarily due to the $1,186 million increase in operating income discussed above.

This increase was partially offset by a $264 million increase in income tax expense (refer to Income Taxes ).

How We Did First Quarter 2021

Comparing Year-to-Date 2021 with Year-to-Date 2020

Net sales increased $2,291 million – 68 percent – primarily due to a $2,208 million i ncrease in Wood Products sales to unaffiliated customers attributable to increased sales realizations across all product lines.

Costs of sales

Costs of sales increased $348 million – 13 percent – primarily due to increased sales volumes within our Wood Products segment and increased freight costs and third-party log purchases within our Timberlands segment.

These increases were partially offset by decreased real estate acres sold within our Real Estate & ENR segment.

Operating income

Operating income increased $1,902 million – 394 percent – primarily due to a $1,943 million increase in consolidated gross margin (see discussion of components above).

Net earnings increased $1,487 million – 670 percent – primarily due to the $1,902 million increase in operating income discussed above.

This increase was partially offset by a $456 million increase in income tax expense (refer to Income Taxes ).

How We Did Second Quarter 2021 and Year-to-Date 2021

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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

Comparing Second Quarter 2021 with Second 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.

Net sales to unaffiliated customers increased $46 million – 13 percent – primarily due to a $43 million increase in Western log sales attributable to a 31 percent increase in sales realizations, partially offset by a 6 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.

Intersegment sales increased $15 million – 12 percent – primarily due to a 15 percent increase in sales realizations, partially offset by a 2 percent decrease in 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.

Costs of sales increased $24 million – 6 percent – primarily due to increased freight costs and third-party log purchases, partially offset by decreased fee harvest volumes.

Operating income and Net contribution to earnings

Operating income and net contribution to earnings increased $38 million – 51 percent – primarily due to the change in the components of gross margin, as discussed above.

Comparing Year-to-Date 2021 with Year-to-Date 2020

Net sales to unaffiliated customers

Net sales to unaffiliated customers increased $44 million – 6 percent – primarily due to a $67 million increase in Western log sales attributable to a 28 percent increase in sales realizations, partially offset by a 7 percent decrease in sales volumes.

The increase was partially offset by a $19 million decrease in Southern log sales attributable to a 9 percent decrease in sales volumes.

Intersegment sales

Intersegment sales increased $27 million – 11 percent – primarily due to a 15 percent increase in sales realizations, partially offset by a 3 percent decrease in sales volumes.

Costs of sales

Costs of sales increased $32 million – 4 percent – primarily due to increases in freight costs and third-party log purchases, partially offset by decreased fee harvest volumes.

Operating income and Net contribution to earnings

Operating income and net contribution to earnings increased $41 million – 23 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

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REAL ESTATE, ENERGY AND NATURAL RESOURCES

How We Did First Quarter 2021

How We Did Second Quarter 2021 and Year-to-Date 2021

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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 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.

Comparing Second Quarter 2021 with Second Quarter 2020

Net sales increased $45 million – 69 percent – primarily due to an increase in the average price per real estate acre sold.

Costs of sales

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

Operating income and Net contribution to earnings

Operating income and net contribution to earnings increased $44 million – 232 percent – primarily due to the change in the components of gross margin, as discussed above.

Comparing Year-to-Date 2021 with Year-to-Date 2020

Net sales increased $39 million – 22 percent – primarily due to an increase in the average price per real estate acre sold.

Costs of sales

Costs of sales decreased $35 million – 32 percent – primarily due to decreased real estate acres sold.

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Average price per acre

WOOD PRODUCTS

How We Did First Quarter 2021

How We Did Second Quarter 2021 and Year-to-Date 2021

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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 First Quarter 2021 with First Quarter 2020

Comparing Second Quarter 2021 with Second Quarter 2020

Net sales increased $1,422 million – 118 percent – due to:

an $811 million increase in structural lumber sales attributable to a 146 percent increase in sales realizations, as well as a 2 percent increase in sales volumes;

a $426 million increase in oriented strand board sales attributable to a 280 percent increase in sales realizations, partially offset by an 11 percent decrease in sales volumes primarily due to planned maintenance outages;

a $55 million increase in engineered solid section sales attributable to a 27 percent increase in sales volumes, as well as an 18 percent increase in sales realizations;

a $44 million increase in complementary building product sales attributable to increased sales volumes and sales realizations;

a $35 million increase in softwood plywood sales attributable to a 153 percent increase in sales realizations, partially offset by a 19 percent decrease in sales volumes primarily due to the ongoing effects of weather-related disruptions that occurred in first quarter 2021;

a $34 million increase in engineered I-joists sales attributable to a 26 percent increase in sales volumes, as well as a 20 percent increase in sales realizations;

a $10 million increase in medium density fiberboard sales attributable to a 2 5 percent increase in sales volumes, as well as a 5 percent increase in sales realizations and

a $7 million increase in other products produced sales attributable to increased sales volumes and sales realizations.

Costs of sales

Costs of sales increased $232 million – 23 percent – primarily due to an increase in sales volumes across most product lines.

Operating income and Net contribution to earnings

Operating income and net contribution to earnings increased $1,179 million – 742 percent – primarily due to the change in the components of gross margin, as discussed above.

Comparing Year-to-Date 2021 with Year-to-Date 2020

Net sales increased $2,208 million – 90 percent – primarily due to:

a $1,293 million increase in structural lumber sales attributable to a 128 percent increase in sales realizations, partially offset by a 2 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.

a $674 million increase in oriented strand board sales attributable to a 211 percent increase in sales realizations, partially offset by a 9 percent decrease in sales volumes primarily due to planned maintenance outages;

a $70 million increase in engineered solid section sales attributable to a 15 percent increase in sales volumes, as well as a 12 percent increase in sales realizations;

a $62 million increase in complementary building product sales attributable to increased sales volumes and sales realizations;

a $52 million increase in softwood plywood sales attributable to a 108 percent increase in sales realizations, partially offset by an 18 percent decrease in sales volumes primarily due to the effects of weather-related disruptions that occurred in first quarter 2021;

a $39 million increase in engineered I-joists sales attributable to a 14 percent increase in sales realizations, as well as a 12 percent increase in sales volumes and

a $14 million increase in medium density fiberboard sales attributable to a 16 percent increase in sales volumes, as well as a 2 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.

Costs of sales increased $316 million – 16 percent – primarily due to an increase in sales volumes for engineered wood products and complementary building products, as discussed above.

Operating income and Net contribution to earnings

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VOLUMES IN MILLIONS (1)

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Liability classified share-based compensation

Foreign exchange loss

Foreign exchange gain (loss)

Elimination of intersegment profit in inventory and LIFO

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Net charge to earnings

Comparing First Quarter 2021 with First Quarter 2020

Comparing Second Quarter 2021 with Second Quarter 2020

Net charge to earnings increased $66 million – 367 percent – primarily due to:

a $46 million increase in elimination of intersegment profit in inventory and LIFO and

a $13 million increase in unallocated corporate function and variable compensation expense.

Comparing Year-to-Date 2021 with Year-to-Date 2020

Net charge to earnings increased $88 million – 144 percent – primarily due to:

a $50 million increase in elimination of intersegment profit in inventory and LIFO;

a $19 million increase in unallocated corporate function and variable compensation expense;

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.

a $7 million increase in liability classified share-based compensation due to an increase in our stock price for the year-to-date period ended June 30, 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.

$78 million for second quarter 2021 and $157 million year-to-date 2021;

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

Interest expense decreased by $25 million compared to second quarter 2020 and by $31 million compared to year-to-date 2020.

The decreases were primarily due to an $11 million charge related to the early extinguishment of debt recorded in second quarter 2020, with no similar activity in second quarter and year-to-date 2021, as well as a decrease in the average outstanding debt in second quarter and year-to-date 2021.

Refer to Note 9:

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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.

a $324 million expense for second quarter 2021 and a $513 million expense year-to-date 2021;

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

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

Income tax expense increased by $456 million compared to year-to-date 2020 primarily due to an increase in our TRS earnings in 2021.

Refer to Note 16:

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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.

As of June 30, 2021, we had over $1.7 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.

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Consolidated net cash from operations was:

$698 million for first quarter 2021 and

$86 million for first quarter 2020.

$2,006 million for year-to-date 2021 and

$477 million for year-to-date 2020.

Net cash from operations increased $1,529 million, primarily due to:

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Consolidated net cash from investing activities was:

$(53) million for first quarter 2021 and

$441 million for first quarter 2020.

$(273) million for year-to-date 2021 and

$376 million for year-to-date 2020.

Net cash from investing activities decreased $649 million, primarily due to:

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

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

a $149 million increase in cash paid for timberlands acquisitions 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

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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.

$(451) million for year-to-date 2021 and

$(349) million for year-to-date 2020.

Net cash from financing activities decreased $102 million, primarily due to a $369 million increase in net cash used for payments on long-term debt.

This change was partially offset by:

a $230 million decrease in net cash paid related to borrowings on our line of credit and

a $39 million increase in cash received from exercise of stock options.

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.

We had no outstanding borrowings on our $1.5 billion five-year senior unsecured revolving credit facility as of June 30, 2021 or December 31, 2020.

This credit facility expires in January 2025.

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Long-Term Debt

In May 2021, we repaid our $225 million variable-rate term loan that was scheduled to mature in July 2026.

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.

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.

Our revolving credit agreement utilizes 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.

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.

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

Debt Covenants

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

As of June 30, 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:

$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.

$45 million for year-to-date 2021 and

$6 million for year-to-date 2020.

Our average stock price was $35.60 and $23.24 for year-to-date 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 .

We paid cash dividends on common shares of $255 million and $254 million for year-to-date 2021 and 2020, respectively.

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.

We did not repurchase shares during year-to-date 2021 or 2020.

There were no unsettled repurchases as of June 30, 2021 or December 31, 2020.

PERFORMANCE MEASURES

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GAAP measures for each.

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

The table below reconciles Adjusted EBITDA for the quarter ended June 30, 2021:

DOLLAR AMOUNTS IN MILLIONS

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Adjusted EBITDA

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

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

DOLLAR AMOUNTS IN MILLIONS

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Adjusted EBITDA

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

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

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

The table below reconciles Adjusted EBITDA for the year-to-date period ended June 30, 2021:

DOLLAR AMOUNTS IN MILLIONS

Real Estate &

Adjusted EBITDA by Segment:

Interest expense, net of capitalized interest

Net contribution (charge) to earnings

Non-operating pension and other post-employment benefit costs

Interest income and other

Operating income (loss)

Depreciation, depletion and amortization

Basis of real estate sold

Adjusted EBITDA

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

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 post-employment 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 $11 million related to a net charge for the early extinguishment of debt.

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

Net Earnings and Net Earnings per Diluted Share Before Special Items

4 unchanged sentences

QUARTER ENDED

YEAR-TO-DATE ENDED

DOLLAR AMOUNTS IN MILLIONS

Early extinguishment of debt charge

Legal benefit

Product remediation recovery

Net earnings before special items

1 unchanged sentence

QUARTER ENDED

YEAR-TO-DATE ENDED

Net earnings per diluted share

Early extinguishment of debt charge

Legal benefit

Product remediation recovery

Net earnings per diluted share before special items

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.

There have been no significant changes during year-to-date 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