What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-04-29 compared with 2021-10-29 · 112 added, 278 removed, 260 unchanged (60% of the section changed)

7 unchanged sentences

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 acquisitions and divestitures on our operations and financial results;

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;

compliance with our debt agreements;

contingent liabilities, and the sufficiency of litigation and other contingent liability reserves and related accruals including, but not limited to, estimates of future environmental remediation costs;

expected capital expenditures;

expected timing of closing of a timberlands acquisition;

market and general economic conditions, including related influencing factors such as the trajectory of U.S.

housing activity, repair and remodel activity, impacts from COVID-related restrictions, inflation trends, and interest rates;

assumptions used in valuing incentive compensation and related expense;

1 unchanged sentence

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,” “will,” and “would,” or similar words or terminology.

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

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

1 unchanged sentence

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:

There is no guarantee that any of the events anticipated by our forward-looking statements will occur.

If any of the events occur, there is no guarantee what effect it will have on our operations, cash flows, or financial condition.

We undertake no obligation to update our forward-looking statements after the date of this report.

The factors listed below, as well as other factors not described herein because they are not currently known to us or we currently judge them to be immaterial, may cause our actual results to differ significantly from our forward-looking statements:

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.

12 unchanged sentences

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

our ability to hire and retain capable employees;

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;

9 unchanged sentences

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 effect of timing of employee retirements as it relates to the cost of pension benefits 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;

9 unchanged sentences

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.

Net contribution (charge) to earnings does not include interest expense, loss on debt extinguishment or income taxes.

ECONOMIC AND MARKET CONDITIONS AFFECTING OUR OPERATIONS

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.

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.

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 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.

Looking ahead, 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, 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 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.

Business Outlook

housing activity, repair and remodel activity, impacts from COVID-related restrictions, inflation trends and interest rates.

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

2 unchanged sentences

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 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.

4 unchanged sentences

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

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

South has led to tightening of markets in certain geographies.

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

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 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.

Census Bureau, housing starts for first quarter 2022 averaged 1.75 million units, a 5 percent increase from fourth quarter 2021.

Single family starts averaged 1.2 million units, a 2.5 percent increase from fourth quarter 2021.

Multi-family starts averaged 557 thousand units in first quarter 2022, which was a 10.7 percent increase from fourth quarter 2021.

Sales of newly built, single family homes averaged a seasonally adjusted annual rate of 814 thousand units for first quarter 2022.

This is an increase of 6.6 percent from the previous quarter.

Repair and remodeling expenditures increased by 5.2 percent from fourth quarter 2021 to first quarter 2022 according to the Census Bureau Advance Retail Spending report.

Do-it-yourself activity remains at or above pre-pandemic historical levels while professionally contracted activities continue to expand.

wood product markets, demand was strong during most of first quarter 2022 as dealer inventories remained lean, which contributed to increased prices for lumber and panels.

The Random Lengths Framing Lumber Composite price averaged $1,248/MBF and the OSB Composite averaged $1,215/MSF in first quarter 2022.

In Western log markets, Douglas fir sawlog prices increased by 18 percent in first quarter 2022 compared with fourth quarter 2021 as reported by RISI Log Lines.

The strength in Western log prices was supported by multiple factors including strong demand as mills capitalized on high lumber pricing.

In the South, sawlog prices increased by 6 percent from fourth quarter 2021 and 13 percent from first quarter 2021 as reported by TimberMart-South mainly attributable to the increase in lumber prices.

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.

During first quarter 2022, continued strength in end use demand and disruptions of other global sources of supply supported sustained demand for export logs.

China export activity and pricing were supported by constrained log and lumber imports from other geographies.

In Japan, total housing starts increased 4.3 percent year to date through February compared to the same period in 2021, while the key Post and Beam segment saw a 1.5 percent increase.

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

3 unchanged sentences

CONSOLIDATED RESULTS

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

How We Did First Quarter 2022

QUARTER ENDED

YEAR-TO-DATE ENDED

DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURES

SEPTEMBER 2021

SEPTEMBER 2020

SEPTEMBER 2021

SEPTEMBER 2020

Costs of sales

1 unchanged sentence

Earnings per share, basic and diluted

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 $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 $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 $2,526 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.

Comparing First Quarter 2022 with First Quarter 2021

Net sales increased $606 million – 24 percent – primarily due to a $498 million increase in Wood Products sales to unaffiliated customers attributable to increased sales realizations across all product lines, as well as an $86 million increase in Timberlands sales to unaffiliated customers attributable to increased sales realizations and sales volumes in the Western and Southern regions.

Costs of sales

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.

Costs of sales increased $217 million – 15 percent – primarily due to increased complementary building product sales, increased cost of commodity products, and higher log and fiber costs within our Wood Products segment and increased freight costs and third-party log purchases within our Timberlands segment.

Operating income

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.

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

Operating income increased $388 million – 41 percent – primarily due to a $389 million increase in consolidated gross margin (see discussion of components above).

Net earnings increased $90 million – 13 percent – primarily due to the $388 million increase in operating income, as discussed above.

This increase was partially offset by a $276 million pretax charge ($207 million after-tax) related to the early extinguishment of debt (refer to Note 8:

Long-Term Debt and Line of Credit ), as well as a $20 million increase in income tax expense (refer to Income Taxes ).

How We Did First Quarter 2022

QUARTER ENDED

YEAR-TO-DATE ENDED

DOLLAR AMOUNTS IN MILLIONS

SEPTEMBER 2021

SEPTEMBER 2020

SEPTEMBER 2021

SEPTEMBER 2020

Net sales to unaffiliated customers:

6 unchanged sentences

Costs of sales

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 Third Quarter 2021 with Third Quarter 2020

Net sales to unaffiliated customers

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 $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 $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 $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

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

Comparing First Quarter 2022 with First Quarter 2021

Net sales to unaffiliated customers

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.

Net sales to unaffiliated customers increased $86 million – 23 percent – primarily due to a $58 million increase in Western log sales attributable to a 23 percent increase in sales realizations and a 4 percent increase in sales volumes, as well as a $23 million increase in Southern log sales attributable to a 9 percent increase in sales volumes and an 8 percent increase in sales realizations.

Intersegment sales

1 unchanged sentence

Costs of sales

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.

Costs of sales increased $40 million – 10 percent – primarily due to increased freight costs and third-party log purchases, as well as increased sales volumes, as discussed above.

Operating income and Net contribution to earnings

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.

Operating income and net contribution to earnings increased $74 million – 69 percent – primarily due to the change in the components of gross margin, as discussed above.

Third-Party Log Sales Volumes and Fee Harvest Volumes

QUARTER ENDED

YEAR-TO-DATE ENDED

VOLUMES IN THOUSANDS

SEPTEMBER 2021

SEPTEMBER 2020

SEPTEMBER 2021

SEPTEMBER 2020

Third-party log sales – tons:

2 unchanged sentences

REAL ESTATE, ENERGY AND NATURAL RESOURCES

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

How We Did First Quarter 2022

QUARTER ENDED

YEAR-TO-DATE ENDED

DOLLAR AMOUNTS IN MILLIONS

SEPTEMBER 2021

SEPTEMBER 2020

SEPTEMBER 2021

SEPTEMBER 2020

Energy and natural resources

3 unchanged sentences

In any period, the average sales price per acre will vary based on the location and physical characteristics of parcels 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 decreased $28 million – 61 percent – primarily due to decreased real estate acres sold.

Operating income and Net contribution to earnings

Operating income and net contribution to earnings increased $28 million – 165 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 – 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.

Comparing First Quarter 2022 with First Quarter 2021

Net sales increased $22 million – 21 percent – primarily due to increases in the amount of acres sold and energy and natural resources sales.

Costs of sales

Costs of sales decreased $63 million – 40 percent – primarily due to decreased real estate acres sold.

Costs of sales increased $7 million – 21 percent – primarily due to an increase in the amount of acres sold.

Operating income and Net contribution to earnings

2 unchanged sentences

QUARTER ENDED

YEAR-TO-DATE ENDED

SEPTEMBER 2021

SEPTEMBER 2020

SEPTEMBER 2021

SEPTEMBER 2020

Average price per acre

WOOD PRODUCTS

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

How We Did First Quarter 2022

QUARTER ENDED

YEAR-TO-DATE ENDED

DOLLAR AMOUNTS IN MILLIONS

SEPTEMBER 2021

SEPTEMBER 2020

SEPTEMBER 2021

SEPTEMBER 2020

Structural lumber

9 unchanged sentences

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

Comparing Third Quarter 2021 with Third Quarter 2020

Comparing First Quarter 2022 with First Quarter 2021

Net sales increased $498 million – 25 percent – due to:

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 $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 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 $216 million increase in structural lumber sales attributable to a 21 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 $126 million increase in oriented strand board sales attributable to a 28 percent increase in sales realizations;

a $54 million increase in engineered solid section sales attributable to a 50 percent increase in sales realizations, partially offset by an 8 percent decrease in sales volumes;

a $54 million increase in engineered I-joists sales attributable to a 67 percent increase in sales realizations, partially offset by a 2 percent decrease in sales volumes, and

a $44 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 $511 million – 16 percent – primarily due to increased freight costs and increased sales volumes for most products, as discussed above.

Costs of sales increased $152 million – 14 percent – primarily due to increased complementary building product sales, increased cost of commodity products, and higher log and fiber costs.

Operating income and Net contribution to earnings

2 unchanged sentences

QUARTER ENDED

YEAR-TO-DATE ENDED

VOLUMES IN MILLIONS ( 1)

SEPTEMBER 2021

SEPTEMBER 2020

SEPTEMBER 2021

SEPTEMBER 2020

Structural lumber – board feet

10 unchanged sentences

QUARTER ENDED

YEAR-TO-DATE ENDED

VOLUMES IN MILLIONS

SEPTEMBER 2021

SEPTEMBER 2020

SEPTEMBER 2021

SEPTEMBER 2020

Structural lumber – board feet:

14 unchanged sentences

QUARTER ENDED

YEAR-TO-DATE ENDED

DOLLAR AMOUNTS IN MILLIONS

SEPTEMBER 2021

SEPTEMBER 2020

SEPTEMBER 2021

SEPTEMBER 2020

Unallocated corporate function and variable compensation expense

Liability classified share-based compensation

Foreign exchange gain (loss)

Foreign exchange loss

Elimination of intersegment profit in inventory and LIFO

3 unchanged sentences

Net charge to earnings

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

Net charge to earnings increased $69 million – 53 percent – primarily due to:

a $29 million increase in elimination of intersegment profit in inventory and LIFO;

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

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

Comparing First Quarter 2022 with First Quarter 2021

Net charge to earnings increased $52 million – 80 percent – primarily due to a $42 million increase in elimination of intersegment profit in inventory and LIFO.

INTEREST EXPENSE

Our interest expense, net of capitalized interest, was:

$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.

$72 million for first quarter 2022 and

$79 million for first quarter 2021.

Interest expense decreased by $7 million compared to first quarter 2021 primarily due to a decrease in the average outstanding debt and weighted average interest rate in first quarter 2022.

Refer to Note 8:

1 unchanged sentence

Our provision for income taxes was:

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.

a $209 million expense for first quarter 2022 and

a $189 million expense for first quarter 2021.

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

Income tax expense increased by $431 million compared to year-to-date 2020 primarily due to an increase in our TRS earnings in 2021.

Income tax expense increased by $20 million compared to first quarter 2021 primarily due to an increase in our TRS earnings in first quarter 2022, partially offset by a tax benefit of approximately $69 million resulting from the $276 million pretax loss on debt extinguishment recorded in first quarter 2022.

Refer to Note 14:

Income Taxes for further information.

Income Taxes and Note 8:

Long-Term Debt and Line of Credit for further information.

LIQUIDITY AND CAPITAL RESOURCES

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

As of September 30, 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.

As of March 31, 2022, we had over $1.2 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.

1 unchanged sentence

Consolidated net cash from operations was:

$2,665 million for year-to-date 2021 and

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

Net cash from operations increased $1,580 million, primarily due to:

increased cash inflows from our business operations and

decreased cash used for interest payments.

These changes were partially offset by a $448 million increase in cash paid for income taxes.

$957 million for first quarter 2022 and

$698 million for first quarter 2021.

Net cash from operations increased $259 million, primarily due to increased cash inflows from our business operations.

This change was partially offset by a $19 million increase in cash paid for income taxes.

CASH FROM INVESTING ACTIVITIES

Consolidated net cash from investing activities was:

$(108) million for year-to-date 2021 and

$311 million for year-to-date 2020.

$(87) million for first quarter 2022 and

$(53) million for first quarter 2021.

Net cash from investing activities decreased $34 million, primarily due to:

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.

a $17 million increase in cash paid for capital expenditures and

an $18 million increase in cash paid for acquisition of timberlands.

Summary of Capital Spending by Business Segment

YEAR-TO-DATE ENDED

QUARTER ENDED

DOLLAR AMOUNTS IN MILLIONS

SEPTEMBER 2021

SEPTEMBER 2020

Wood Products

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.

We anticipate our capital expenditures for 2022 to be approximately $440 million.

The amount we spend on capital expenditures could change.

CASH FROM FINANCING ACTIVITIES

Consolidated net cash from financing activities was:

$(606) million for year-to-date 2021 and

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

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.

$(1,664) million for first quarter 2022 and

$(124) million for first quarter 2021.

Net cash from financing activities decreased $1,540 million, primarily due to:

a $1,091 million increase in cash used for payments of dividends;

a $322 million increase in net cash used for payments on long-term debt and

a $118 million increase in cash used for repurchases of common stock.

Line of Credit

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.

We had no outstanding borrowings on our $1.5 billion five-year senior unsecured revolving credit facility as of March 31, 2022 or December 31, 2021.

This credit facility expires in January 2025.

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.

Due to the cessation of USD LIBOR 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.

Refer to Note 8:

1 unchanged sentence

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.

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

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

In March 2022, we completed a series of transactions that lowered our weighted average interest rate and extended our weighted average maturity by issuing $900 million in notes and using the net proceeds plus cash on hand to close cash tender offers for $931 million of principal in higher interest rate notes.

We issued $450 million of 3.375 percent notes due in March 2033 and $450 million of 4.000 percent notes due in March 2052.

The net proceeds after deducting the discount, underwriting fees and issuance costs were $444 million and $437 million, respectively.

The net proceeds were used to retire $592 million of our 7.375 percent notes due in March 2032, $161 million of our 8.500 percent notes due in January 2025, $73 million of our 7.125 percent notes due in July 2023, $65 million of our 7.950 percent notes due in March 2025, and $40 million of our 7.850 percent notes due in July 2026.

We paid holders an aggregate $1.2 billion in cash reflecting principal, premium to par and tender premium.

Refer to Note 8:

Long-Term Debt and Line of Credit for further information.

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.

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 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.

As of March 31, 2022, Weyerhaeuser Company was in compliance with its debt covenants.

There have been no significant changes to the debt covenants presented in our 2021 Annual Report on Form 10-K for our 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:

$46 million for year-to-date 2021 and

$9 million for year-to-date 2020.

Our average stock price was $35.41 and $24.67 for year-to-date 2021 and 2020, respectively.

$12 million for first quarter 2022 and

$17 million for first quarter 2021.

Our average stock price was $39.65 and $34.05 for first quarter 2022 and 2021, respectively.

Dividend Payments

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.

$1,218 million for first quarter 2022 and

$127 million for first quarter 2021.

The increase in dividends paid is primarily due to a supplemental dividend of $1.45 per share based on 2021 financial results for a total of $1,084 million paid in the first quarter of 2022.

Share Repurchases

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.

We repurchased 3,197,675 shares for approximately $121 million (including transaction fees) during first quarter 2022 under the 2021 Repurchase Program.

We did not repurchase shares in first quarter 2021.

There were 78,380 unsettled shares (approximately $3 million) as of March 31, 2022 and no unsettled shares as of December 31, 2021.

Refer to Note 4:

9 unchanged sentences

QUARTER ENDED

YEAR-TO-DATE ENDED

DOLLAR AMOUNTS IN MILLIONS

SEPTEMBER 2021

SEPTEMBER 2020

SEPTEMBER 2021

SEPTEMBER 2020

Adjusted EBITDA by Segment:

5 unchanged sentences

GAAP measures for each.

The table below reconciles Adjusted EBITDA for the quarter ended September 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

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

Adjusted EBITDA

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:

The table below reconciles Adjusted EBITDA for the quarter ended March 31, 2022:

DOLLAR AMOUNTS IN MILLIONS

2 unchanged sentences

Interest expense, net of capitalized interest

Loss on debt extinguishment ( 1)

Net contribution (charge) to earnings

4 unchanged sentences

Basis of real estate sold

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

Adjusted EBITDA

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

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

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

Loss on debt extinguishment is a special item consisting of a pretax charge of $276 million related to early debt retirement.

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

DOLLAR AMOUNTS IN MILLIONS

8 unchanged sentences

Basis of real estate sold

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

Adjusted EBITDA

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

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 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

4 unchanged sentences

QUARTER ENDED

YEAR-TO-DATE ENDED

DOLLAR AMOUNTS IN MILLIONS

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

Loss on debt extinguishment

Net earnings before special items

1 unchanged sentence

QUARTER ENDED

YEAR-TO-DATE ENDED

SEPTEMBER 2021

SEPTEMBER 2020

SEPTEMBER 2021

SEPTEMBER 2020

Net earnings per diluted share

Early extinguishment of debt charges

Gain on sale of timberlands

Legal benefit

Product remediation recovery

Timber casualty loss

Loss on debt extinguishment

Net earnings per diluted share before special items

CRITICAL ACCOUNTING POLICIES

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.

There have been no significant changes during first quarter 2022 to the critical accounting policies presented in our 2021 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