What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-10-29 compared with 2021-07-30 · 190 added, 120 removed, 348 unchanged (47% of the section changed)

11 unchanged sentences

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

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

market and general economic conditions, including related influencing factors such as trends in U.S.

housing activity, inflation, interest rates, the nature and extent of future government stimulus, and the timing of when, and the extent to which, COVID-related restrictions are lifted;

laws and regulations relevant to our businesses;

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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 often involve use of words such as “anticipate,” “believe,” “committed,” "continue,” “estimate,” “expect,” “foreseeable,” “future,” “intend,” “maintain,” “may,” “plan,” “potential,” “project,” “will,” and “would,” or similar words or terminology.

They may use the positive, negative or another variation of those and similar words.

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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.

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;

the effect of general economic conditions, including employment rates, interest rate levels, inflation, housing starts, general availability of financing for home mortgages and the relative strength of the U.S.

the effect of COVID-19 and other viral or disease outbreaks, including but not limited to any related regulatory restrictions or requirements, and their potential effects on our business, results of operations, cash flows, financial condition and future prospects;

market demand for the company's products, including market demand for our timberland properties with higher and better uses, which is related to, among other factors, the strength of the various U.S.

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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 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.

Growth in repair and remodel demand and new residential construction activity resulted in increased demand for wood products.

As a result, benchmark prices rose to record levels through May 2021 for most lumber products and into early July for oriented strand board (OSB).

During the second quarter, lumber prices, followed by OSB, began a substantial correction as demand from the repair and remodel segment lessened during the summer months.

Later in the third quarter, prices bottomed and began to rebound.

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, 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.

housing activity, repair and remodel activity, the ongoing pace of reopening economic activities from 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.

These actions have 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, and a directive that employees work from home if feasible.

In light of adjustments to federal, state and local health and safety restrictions, we began a phased-in approach to return some of our 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.

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

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

In the West, wildfire activity resulted in some harvest restrictions in the third quarter.

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

Japanese housing starts are a key driver of export log demand in Japan.

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

The demand for pulpwood from our Timberlands segment is directly affected by the production of pulp, paper and 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.

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.

However, additional mill capacity being added in the U.S.

South has led to some tightening of markets in certain geographies.

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

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.

Census Bureau, housing starts for third quarter 2021 averaged 1.57 million units, a 1 percent decline from second quarter 2021.

Single family starts averaged 1.1 million units, a 1 percent decline from second quarter 2021 but a 5 percent improvement over third quarter 2020.

Multi-family starts averaged 475 thousand units in third quarter 2021, which was 1 percent lower than second quarter 2021 but 19 percent higher than third quarter 2020.

Sales of newly built, single family homes averaged a seasonally adjusted annual rate of 738 thousand units for third quarter 2021, in line with the previous quarter’s sales and a 24 percent decline from third quarter 2020.

After weakening during the summer months, sales in September strengthened to a seasonally adjusted annual rate of 800 thousand units.

Repair and remodeling expenditures declined by 3.5 percent from second quarter to third quarter 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 .

wood product markets, demand slowed during most of third quarter 2021 as dealers kept a watchful eye on inventory levels and continued to work through existing inventories.

In turn, third quarter 2021 prices for lumber continued a sharp decline from record high prices reported in the second quarter, and OSB prices fell during the quarter as well.

By the end of the quarter, prices for both lumber and OSB had bottomed and were increasing to levels more in line with historical demand and supply factors.

The Random Lengths Framing Lumber Composite price averaged $493/MBF and the OSB Composite averaged $780/MSF in third quarter 2021.

In Western log markets, Douglas fir sawlog prices slightly increased by 1 percent in third quarter 2021 compared with second quarter 2021 as reported by RISI Log Lines.

The strength in Western log prices was supported by multiple factors including continued demand in export markets.

In the South, sawlog prices increased by 3 percent from second quarter 2021 and 17 percent from third quarter 2020 as reported by TimberMart-South.

While weather events contributed to some of this increase, transportation constraints and additional mill demand also contributed to more tensioned log markets.

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

During third quarter 2021, continued disruptions in global shipping, diversion of European log and lumber supply to other markets, and bans 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 4.7 percent year to date through August compared to the same period in 2020, while the key Post and Beam segment saw an 8.5 percent increase.

Decreased lumber imports from Europe to Japan have continued to be favorable to our Japanese log export business.

Governments and businesses across the globe are taking action on climate change and are making significant commitments towards reducing greenhouse gas emissions to net zero.

Achieving these commitments will require governments and companies to take major steps to modify operations, invest in low-carbon activities and purchase offsets to reduce environmental impacts.

We believe we are uniquely positioned to help entities achieve these commitments through natural climate solutions, including forest carbon sequestration and carbon capture and storage activities.

CONSOLIDATED RESULTS

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

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

QUARTER ENDED

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DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURES

SEPTEMBER 2021

SEPTEMBER 2020

SEPTEMBER 2021

SEPTEMBER 2020

Costs of sales

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Earnings per share, basic and diluted

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.

Comparing Third Quarter 2021 with Third Quarter 2020

Net sales increased $235 million – 11 percent – primarily due to a $157 million increase in Wood Products sales to unaffiliated customers attributable to increased sales realizations across most product lines, as well as a $78 million increase in Timberlands sales to unaffiliated customers attributable to increased sales realizations in the Western and Southern regions.

Costs of sales

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.

Costs of sales increased $199 million – 14 percent – primarily due to increased freight costs and increased sales volumes for structural lumber within our Wood Products segment and increased sales volumes within our Timberlands segment, partially offset by decreased real estate acres sold in our Real Estate & ENR 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).

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 ).

Operating income increased $139 million – 27 percent – primarily due to an $80 million timber casualty loss recorded in third quarter 2020 related to the Oregon wildfires, as well as a $36 million increase in consolidated gross margin (see discussion of components above).

Net earnings increased $199 million – 70 percent – primarily due to the $139 million increase in operating income discussed above, as well as a $32 million decrease in interest expense and a $25 million decrease in income tax expense (refer to Income Taxes and Interest Expense ).

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.

Net sales increased $2,526 million – 46 percent – primarily due to a $2,365 million increase 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.

Costs of sales increased $547 million – 13 percent – primarily due increased freight costs and increased sales volumes within our Wood Products segment, as well as increased freight costs and third-party log purchases within our Timberlands segment, partially offset by decreased real estate acres sold in 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).

Operating income increased $2,041 million – 206 percent – primarily due to a $1,979 million increase in consolidated gross margin (see discussion of components above), as well as an $80 million timber casualty loss recorded in third quarter 2020 related to the Oregon wildfires.

Net earnings increased $1,686 million – 334 percent – primarily due to the $2,041 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

The increase was partially offset by a $431 million increase in income tax expense (refer to Incomes Taxes ).

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

QUARTER ENDED

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DOLLAR AMOUNTS IN MILLIONS

SEPTEMBER 2021

SEPTEMBER 2020

SEPTEMBER 2021

SEPTEMBER 2020

Net sales to unaffiliated customers:

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Costs of sales

Operating income and Net contribution to earnings

In March 2020, we sold our Montana timberlands.

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

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

Comparing Second Quarter 2021 with Second Quarter 2020

Comparing Third Quarter 2021 with Third Quarter 2020

Net sales to unaffiliated customers

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.

Net sales to unaffiliated customers increased $78 million – 23 percent – primarily due to a $63 million increase in Western log sales attributable to a 34 percent increase in sales realizations and a 4 percent increase in sales volumes, as well as a $12 million increase in Southern log sales attributable to a 6 percent increase in sales realizations and a 3 percent increase in sales volumes.

Intersegment sales

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.

Intersegment sales increased $22 million – 21 percent – primarily due to a 14 percent increase in sales realizations, as well as a 6 percent increase in sales volumes.

Costs of sales

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.

Costs of sales increased $70 million – 20 percent – primarily due to increased sales volumes, as discussed above, as well as increased freight costs and third-party log purchases.

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.

Operating income and net contribution to earnings increased $144 million primarily due to an $80 million timber casualty loss recorded in third quarter 2020 related to the Oregon wildfires, a $32 million gain on the sale of timberlands in the North Cascades region of Washington recorded in third quarter 2021 and the change in the components of gross margin 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.

Net sales to unaffiliated customers increased $122 million – 11 percent – primarily due to a $130 million increase in Western log sales attributable to a 30 percent increase in sales realizations.

The increase was partially offset by a $10 million decrease in other product sales.

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.

Intersegment sales increased $49 million – 14 percent – primarily due to a 14 percent increase in sales realizations.

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.

Costs of sales increased $102 million – 9 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 $41 million – 23 percent – primarily due to the change in the components of gross margin, as discussed above.

Operating income and net contribution to earnings increased $185 million – 109 percent – primarily due to an $80 million timber casualty loss recorded in third quarter 2020 related to the Oregon wildfires, the change in the components of gross margin discussed above and a $32 million gain on the sale of timberlands in the North Cascades region of Washington recorded in third quarter 2021.

Third-Party Log Sales Volumes and Fee Harvest Volumes

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VOLUMES IN THOUSANDS

SEPTEMBER 2021

SEPTEMBER 2020

SEPTEMBER 2021

SEPTEMBER 2020

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 March 2020, we sold our Montana timberlands.

REAL ESTATE, ENERGY AND NATURAL RESOURCES

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

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

QUARTER ENDED

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DOLLAR AMOUNTS IN MILLIONS

SEPTEMBER 2021

SEPTEMBER 2020

SEPTEMBER 2021

SEPTEMBER 2020

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 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.

Comparing Third Quarter 2021 with Third Quarter 2020

Net sales remained consistent due to a $4 million decrease in real estate sales attributable to a decrease in real estate acres sold, partially offset by an increase in the average price per real estate acre sold.

The decrease was offset by an equal increase in energy and natural resources sales of $4 million.

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.

Costs of sales decreased $28 million – 61 percent – primarily due to decreased real estate acres sold.

Operating income and Net contribution to earnings

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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.

Net sales increased $39 million – 16 percent – primarily due to an increase in the average price per real estate acre sold, as well as an increase in mitigation bank sales, higher natural gas prices and an increase in production volumes of natural gas and construction materials, partially offset by decreased real estate acres sold.

Costs of sales

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YEAR-TO-DATE ENDED

SEPTEMBER 2021

SEPTEMBER 2020

SEPTEMBER 2021

SEPTEMBER 2020

Average price per acre

WOOD PRODUCTS

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

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

QUARTER ENDED

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DOLLAR AMOUNTS IN MILLIONS

SEPTEMBER 2021

SEPTEMBER 2020

SEPTEMBER 2021

SEPTEMBER 2020

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 Second Quarter 2021 with Second Quarter 2020

Comparing Third Quarter 2021 with Third Quarter 2020

Net sales increased $157 million – 9 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.

a $180 million increase in oriented strand board sales attributable to a 75 percent increase in sales realizations, partially offset by a 7 percent decrease in sales volumes;

a $48 million increase in engineered solid section sales attributable to a 45 percent increase in sales realizations, partially offset by a 6 percent decrease in sales volumes;

a $45 million increase in engineered I-joists sales attributable to a 59 percent increase in sales realizations, partially offset by a 4 percent decrease in sales volumes;

a $28 million increase in complementary building products sales attributable to increased sales realizations and

a $5 million increase in medium density fiberboard sales attributable to a 9 percent increase in sales realizations.

These increases were partially offset by a $138 million decrease in structural lumber sales due to a 23 percent decrease in sales realizations, partially offset by a 9 percent increase in sales volumes, as well as a $10 million decrease in softwood plywood sales.

Costs of sales

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

Costs of sales increased $195 million – 18 percent – primarily due to increased freight costs and increased sales volumes for structural lumber, partially offset by decreased sales volumes across most other products.

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.

Operating income and net contribution to earnings decreased $49 million – 9 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 $2,365 million – 57 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 $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 $1,155 million increase in structural lumber sales attributable to a 60 percent increase in sales realizations, as well as a 1 percent increase in sales volumes;

an $854 million increase in oriented strand board sales attributable to a 151 percent increase in sales realizations, partially offset by a 9 percent decrease in sales volumes;

a $118 million increase in engineered solid section sales attributable to a 23 percent increase in sales realizations, as well as a 7 percent increase in sales volumes;

a $90 million increase in complementary building products sales attributable to increased sales realizations;

an $84 million increase in engineered I-joists sales attributable to a 28 percent increase in sales realizations, as well as a 6 percent increase in sales volumes;

a $42 million increase in softwood plywood sales attributable to a 75 percent increase in sales realizations, partially offset by a 24 percent decrease in sales volumes and

a $19 million increase in medium density fiberboard sales attributable to a 10 percent increase in sales volumes, as well as a 5 percent increase in sales realizations.

Costs of sales

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.

Costs of sales increased $511 million – 16 percent – primarily due to increased freight costs and increased sales volumes for most products, as discussed above.

Operating income and Net contribution to earnings

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VOLUMES IN MILLIONS ( 1)

SEPTEMBER 2021

SEPTEMBER 2020

SEPTEMBER 2021

SEPTEMBER 2020

Structural lumber – board feet

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VOLUMES IN MILLIONS

SEPTEMBER 2021

SEPTEMBER 2020

SEPTEMBER 2021

SEPTEMBER 2020

Structural lumber – board feet:

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DOLLAR AMOUNTS IN MILLIONS

SEPTEMBER 2021

SEPTEMBER 2020

SEPTEMBER 2021

SEPTEMBER 2020

Unallocated corporate function and variable compensation expense

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Net charge to earnings

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 Third Quarter 2021 with Third Quarter 2020

Net charge to earnings decreased $19 million – 28 percent – primarily due to a $21 million decrease in elimination of intersegment profit in inventory and LIFO.

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

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a $29 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

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.

a $16 million increase in unallocated corporate function and variable compensation expense and

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

INTEREST EXPENSE

Our interest expense, net of capitalized interest, was:

$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.

$79 million for third quarter 2021 and $236 million year-to-date 2021;

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

Interest expense decreased by $32 million compared to third quarter 2020 and by $63 million compared to year-to-date 2020.

The decreases were primarily due to $23 million and $34 million in charges related to the early extinguishment of debt recorded in third quarter and year-to-date 2020, respectively, with no similar activity in third quarter and year-to-date 2021, as well as a decrease in average outstanding debt in third quarter and year-to-date 2021.

Refer to Note 9:

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Our provision for income taxes was:

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.

an $84 million expense for third quarter 2021 and a $597 million expense year-to-date 2021;

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

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

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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 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.

As of September 30, 2021, we had over $2.3 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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Net cash from operations increased $1,580 million, primarily due to:

increased cash inflows from our business segments and

increased cash inflows from our business operations and

decreased cash used for interest payments.

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Net cash from investing activities decreased $419 million, primarily due to:

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.

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

a $149 million increase in cash paid for timberlands acquisitions.

These changes were partially offset by a $116 million increase in proceeds from the sale of timberlands.

Summary of Capital Spending by Business Segment

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DOLLAR AMOUNTS IN MILLIONS

SEPTEMBER 2021

SEPTEMBER 2020

Wood Products

We expect our capital expenditures for 2021 will be approximately $460 million.

The amount we spend on capital expenditures could change.

Unallocated Items

We anticipate our capital expenditures for 2021 will be slightly below $460 million as a result of supply chain and contract labor constraints.

CASH FROM FINANCING ACTIVITIES

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$(695) 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.

Net cash from financing activities increased $89 million, primarily due to a $230 million decrease in net cash paid related to borrowings on our line of credit and a $37 million increase in cash received from exercise of stock options.

These changes were partially offset by:

a $128 million increase in cash paid for dividends;

a $26 million increase in cash used for repurchases of common shares and

a $21 million increase in net cash used for payments on long-term debt.

Line of Credit

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.

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

This credit facility expires in January 2025.

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Long-Term Debt

In October 2021, we repaid our $150 million 9.00 percent notes at maturity.

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

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.

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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.

Publication of USD LIBOR is expected to cease between January 1, 2022 and July 1, 2023.

We plan to transition our revolving credit facility to an alternate reference rate in 2022.

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 June 30, 2021, Weyerhaeuser Company was in compliance with its debt covenants.

As of September 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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Dividend Payments

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

We paid cash dividends on common shares of:

$382 million for year-to-date 2021 and

$254 million for year-to-date 2020.

On September 22, 2021, our board of directors declared an interim supplemental dividend of $0.50 per share that was paid on October 19, 2021.

As a result, we recorded dividends payable of $375 million within “Accrued liabilities” on our Consolidated Balance Sheet as of September 30, 2021.

In accordance with our dividend framework, we expect to pay a significant supplemental dividend based on our 2021 annual results to shareholders in first quarter 2022.

Share Repurchases

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.

We repurchased over 780 thousand shares for approximately $26 million (including transaction fees) during third quarter 2021 under the 2019 Repurchase Program.

We did not repurchase shares in 2020.

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

Refer to Note 4:

Net Earnings Per Share and Share Repurchases for further information.

PERFORMANCE MEASURES

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DOLLAR AMOUNTS IN MILLIONS

SEPTEMBER 2021

SEPTEMBER 2020

SEPTEMBER 2021

SEPTEMBER 2020

Adjusted EBITDA by Segment:

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GAAP measures for each.

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

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

DOLLAR AMOUNTS IN MILLIONS

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Basis of real estate sold

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

Adjusted EBITDA

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

Operating income (loss) includes a pretax special item consisting of a $32 million gain on the sale of timberlands.

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

DOLLAR AMOUNTS IN MILLIONS

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Adjusted EBITDA

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

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

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

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 year-to-date period ended September 30, 2021:

DOLLAR AMOUNTS IN MILLIONS

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Basis of real estate sold

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

Adjusted EBITDA

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

Operating income (loss) includes a pretax special item consisting of a $32 million gain on the sale of timberlands.

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

DOLLAR AMOUNTS IN MILLIONS

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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.

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.

Net Earnings and Net Earnings per Diluted Share Before Special Items

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DOLLAR AMOUNTS IN MILLIONS

Early extinguishment of debt charge

SEPTEMBER 2021

SEPTEMBER 2020

SEPTEMBER 2021

SEPTEMBER 2020

Early extinguishment of debt charges

Gain on sale of timberlands

Legal benefit

Product remediation recovery

Timber casualty loss

Net earnings before special items

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YEAR-TO-DATE ENDED

SEPTEMBER 2021

SEPTEMBER 2020

SEPTEMBER 2021

SEPTEMBER 2020

Net earnings per diluted share

Early extinguishment of debt charge

Early extinguishment of debt charges

Gain on sale of timberlands

Legal benefit

Product remediation recovery

Timber casualty loss

Net earnings per diluted share before special items

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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