WEYERHAEUSER CO 10-Q

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A) NOTE ABOUT FORWARD-LOOKING STATEMENTS This report contains statements concerning our future results and performance that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include, without limitation, statements relating to: our expected future financial and operating performance; our plans, strategies, intentions and expectations; estimated taxes and tax provision; our capital structure and the sufficiency of our liquidity position to meet future cash requirements; 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; and our expectations relating to returns on invested pension plan assets and expected benefit payments. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often involve use of words such as “anticipate,” “believe,” “committed,” "continue,” “estimate,” “expect,” “foreseeable,” “future,” “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. These forward-looking statements are based on our current expectations and assumptions and are not guarantees of future events or performance. The realization of our expectations and the accuracy of our assumptions are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. 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. dollar; ● 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. business segments and U.S. and international economic conditions; ● changes in currency exchange rates, particularly the relative value of the U.S. dollar to the Japanese yen, the Chinese yuan, and the Canadian dollar, and the relative value of the euro to the yen; ● restrictions on international trade and tariffs imposed on imports or exports; ● the availability and cost of shipping and transportation; ● economic activity in Asia, especially Japan and China; ● performance of our manufacturing operations, including maintenance and capital requirements; ● potential disruptions in our manufacturing operations; ● the level of competition from domestic and foreign producers; ● the successful execution of our internal plans and strategic initiatives, including restructuring and cost reduction initiatives; ● 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; ● raw material availability and prices; ● the effect of weather; ● changes in global or regional climate conditions and governmental response to such changes; ● the risk of loss from fires, floods, windstorms, hurricanes, pest infestation and other natural disasters; ● energy prices; ● transportation and labor availability and costs; ● federal tax policies; ● the effect of forestry, land use, environmental and other governmental regulations; ● legal proceedings; ● performance of pension fund investments and related derivatives; ● the effect of timing of employee retirements 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; ● changes in accounting principles; and ● other risks and uncertainties described in this report under Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) and in our 2021 Annual Report on Form 10-K, as well as those set forth from time to time in our other public statements, reports, registration statements, prospectuses, information statements and other filings with the SEC. It is not possible to predict or identify all risks and uncertainties that might affect the accuracy of our forward-looking statements and, consequently, our descriptions of such risks and uncertainties should not be considered exhaustive. There is no guarantee that any of the events anticipated by these forward-looking statements will occur, and if any of the events do occur, there is no guarantee what effect they will have on the company's business, results of operations, cash flows, financial condition and future prospects. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events, or otherwise. 14 RESULTS OF OPERATIONS In reviewing our results of operations, it is important to understand these terms: ● Sales realizations for Timberlands and Wood Products refer to net selling prices. This includes selling price plus freight, minus normal sales deductions. Real Estate transactions are presented at the contract sales price before commissions and closing costs, net of any credits. ● Net contribution (charge) to earnings does not include interest expense, loss on debt extinguishment or income taxes. ECONOMIC AND MARKET CONDITIONS AFFECTING OUR OPERATIONS 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, 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. The strength of the U.S. housing market, especially new residential construction, strongly affects demand in our Wood Products segment, as does repair and remodeling activity. Seasonal weather patterns impact the level of construction activity in the U.S., which in turn affects demand for our logs and wood products. 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 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 being added in the U.S. 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 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. In U.S. 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 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. 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 First Quarter 2022 QUARTER ENDED AMOUNT OF CHANGE DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURES MARCH 2022 MARCH 2021 2022 VS. 2021 Net sales $ 3,112 $ 2,506 $ 606 Costs of sales $ 1,647 $ 1,430 $ 217 Operating income $ 1,344 $ 956 $ 388 Net earnings $ 771 $ 681 $ 90 Earnings per share, basic and diluted $ 1.03 $ 0.91 $ 0.12 15 Comparing First Quarter 2022 with First Quarter 2021 Net sales 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 $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 $388 million – 41 percent – primarily due to a $389 million increase in consolidated gross margin (see discussion of components above). Net earnings 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 ). TIMBERLANDS How We Did First Quarter 2022 QUARTER ENDED AMOUNT OF CHANGE DOLLAR AMOUNTS IN MILLIONS MARCH 2022 MARCH 2021 2022 VS. 2021 Net sales to unaffiliated customers: Delivered logs: West $ 259 $ 201 $ 58 South 154 131 23 North 15 16 (1 ) Subtotal delivered logs sales 428 348 80 Stumpage and pay-as-cut timber 9 6 3 Recreational and other lease revenue 17 16 1 Other ( 1) 11 9 2 Subtotal net sales to unaffiliated customers 465 379 86 Intersegment sales 161 134 27 Total sales $ 626 $ 513 $ 113 Costs of sales $ 423 $ 383 $ 40 Operating income and Net contribution to earnings $ 182 $ 108 $ 74 (1) 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 $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 Intersegment sales increased $27 million – 20 percent – primarily due to a 20 percent increase in sales realizations. Costs of sales 16 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 $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 AMOUNT OF CHANGE VOLUMES IN THOUSANDS MARCH 2022 MARCH 2021 2022 VS. 2021 Third-party log sales – tons: West ( 1) 1,604 1,539 65 South 4,135 3,782 353 North 210 261 (51 ) Total 5,949 5,582 367 Fee harvest volumes – tons: West ( 1) 2,240 2,101 139 South 5,842 5,376 466 North 278 337 (59 ) Total 8,360 7,814 546 (1) Western logs are primarily transacted in thousand board feet (MBF) but are converted to ton equivalents for external reporting purposes. REAL ESTATE, ENERGY AND NATURAL RESOURCES How We Did First Quarter 2022 QUARTER ENDED AMOUNT OF CHANGE DOLLAR AMOUNTS IN MILLIONS MARCH 2022 MARCH 2021 2022 VS. 2021 Net sales: Real estate $ 97 $ 84 $ 13 Energy and natural resources 31 22 9 Total $ 128 $ 106 $ 22 Costs of sales $ 41 $ 34 $ 7 Operating income and Net contribution to earnings $ 81 $ 66 $ 15 The volume of real estate sales is a function of many factors, including the general state of the economy, demand in local real estate markets, the ability of buyers to obtain financing, the number of competing properties listed for sale, the seasonal nature of sales (particularly in the northern states), the plans of adjacent landowners, our expectation of future price appreciation, the timing of harvesting activities, and the availability of government and not-for-profit funding. In any period, the average sales price per acre will vary based on the location and physical characteristics of parcels sold. Comparing First Quarter 2022 with First Quarter 2021 Net sales 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 increased $7 million – 21 percent – primarily due to an increase in the amount of acres sold. Operating income and Net contribution to earnings Operating income and net contribution to earnings increased $15 million – 23 percent – primarily due to the change in the components of gross margin, as discussed above. 17 REAL ESTATE SALES STATISTICS QUARTER ENDED AMOUNT OF CHANGE MARCH 2022 MARCH 2021 2022 VS. 2021 Acres sold 24,126 19,455 4,671 Average price per acre $ 3,785 $ 3,803 $ (18 ) WOOD PRODUCTS How We Did First Quarter 2022 QUARTER ENDED AMOUNT OF CHANGE DOLLAR AMOUNTS IN MILLIONS MARCH 2022 MARCH 2021 2022 VS. 2021 Net sales: Structural lumber $ 1,206 $ 990 $ 216 Oriented strand board 564 438 126 Engineered solid section 196 142 54 Engineered I-joists 137 83 54 Softwood plywood 58 56 2 Medium density fiberboard 48 48 — Complementary building products 215 171 44 Other products produced ( 1) 95 93 2 Total $ 2,519 $ 2,021 $ 498 Costs of sales $ 1,276 $ 1,124 $ 152 Operating income and Net contribution to earnings $ 1,182 $ 840 $ 342 (1) Other products produced sales include wood chips, other byproducts and third-party residual log sales from our Canadian Forestlands operations. Comparing First Quarter 2022 with First Quarter 2021 Net sales Net sales increased $498 million – 25 percent – 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; ● 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. Costs of sales 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 Operating income and net contribution to earnings increased $342 million – 41 percent – primarily due to the change in the components of gross margin, as discussed above. 18 Third-Party Sales Volumes QUARTER ENDED AMOUNT OF CHANGE VOLUMES IN MILLIONS ( 1) MARCH 2022 MARCH 2021 2022 VS. 2021 Structural lumber – board feet 1,157 1,145 12 Oriented strand board – square feet (3/8”) 717 714 3 Engineered solid section – cubic feet 5.7 6.2 (0.5 ) Engineered I-joists – lineal feet 46 47 (1 ) Softwood plywood – square feet (3/8”) 75 94 (19 ) Medium density fiberboard – square feet (3/4”) 44 57 (13 ) (1) Sales volumes include sales of internally produced products and products purchased for resale primarily through our distribution business. PRODUCTION AND OUTSIDE PURCHASE VOLUMES Outside purchase volumes are primarily purchased for resale through our distribution business. Production volumes are produced for sale through our own sales organizations and through our distribution business. Production of oriented strand board and engineered solid section are also used to manufacture engineered I-joists. QUARTER ENDED AMOUNT OF CHANGE VOLUMES IN MILLIONS MARCH 2022 MARCH 2021 2022 VS. 2021 Structural lumber – board feet: Production 1,203 1,211 (8 ) Outside purchase 42 55 (13 ) Total 1,245 1,266 (21 ) Oriented strand board – square feet (3/8”): Production 739 742 (3 ) Outside purchase 70 68 2 Total 809 810 (1 ) Engineered solid section – cubic feet: Production 5.7 6.0 (0.3 ) Outside purchase 0.2 0.3 (0.1 ) Total 5.9 6.3 (0.4 ) Engineered I-joists – lineal feet: Production 44 44 — Outside purchase 2 3 (1 ) Total 46 47 (1 ) Softwood plywood – square feet (3/8”): Production 66 80 (14 ) Outside purchase 10 14 (4 ) Total 76 94 (18 ) Medium density fiberboard – square feet (3/4"): Production 44 56 (12 ) Total 44 56 (12 ) 19 UNALLOCATED ITEMS Unallocated items are gains or charges not related to, or allocated to, an individual operating segment. They include all or a portion of items such as share-based compensation, pension and post-employment costs, elimination of intersegment profit in inventory and LIFO, foreign exchange transaction gains and losses, interest income and other as well as legacy obligations. Net Charge to Earnings – Unallocated Items QUARTER ENDED AMOUNT OF CHANGE DOLLAR AMOUNTS IN MILLIONS MARCH 2022 MARCH 2021 2022 VS. 2021 Unallocated corporate function and variable compensation expense $ (31 ) $ (25 ) $ (6 ) Liability classified share-based compensation 1 (1 ) 2 Foreign exchange loss — (2 ) 2 Elimination of intersegment profit in inventory and LIFO (59 ) (17 ) (42 ) Other (12 ) (13 ) 1 Operating loss (101 ) (58 ) (43 ) Non-operating pension and other post-employment benefit costs (15 ) (8 ) (7 ) Interest income and other (1 ) 1 (2 ) Net charge to earnings $ (117 ) $ (65 ) $ (52 ) 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: ● $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: Long-Term Debt and Line of Credit for further information. INCOME TAXES Our provision for income taxes was: ● 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 $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 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 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. CASH FROM OPERATIONS Consolidated net cash from operations was: ● $957 million for first quarter 2022 and ● $698 million for first quarter 2021. 20 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: ● $(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 $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 QUARTER ENDED DOLLAR AMOUNTS IN MILLIONS MARCH 2022 MARCH 2021 Timberlands $ 30 $ 28 Wood Products 39 25 Unallocated Items 1 — Total $ 70 $ 53 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: ● $(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 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: Long-Term Debt and Line of Credit for further information. Long-Term Debt 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. Debt Covenants 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: ● $12 million for first quarter 2022 and 21 ● $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: ● $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 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: Net Earnings Per Share and Share Repurchases for further information. PERFORMANCE MEASURES Adjusted EBITDA by Segment We use Adjusted EBITDA as a key performance measure to evaluate the performance of the consolidated company and our business segments. This measure should not be considered in isolation from, and is not intended to represent an alternative to, our results reported in accordance with U.S. generally accepted accounting principles (U.S. GAAP). However, we believe Adjusted EBITDA provides meaningful supplemental information for investors about our operating performance, better facilitates period to period comparisons and is widely used by analysts, lenders, rating agencies and other interested parties. Our definition of Adjusted EBITDA may be different from similarly titled measures reported by other companies. Adjusted EBITDA, as we define it, is operating income adjusted for depreciation, depletion, amortization, basis of real estate sold and special items. QUARTER ENDED AMOUNT OF CHANGE DOLLAR AMOUNTS IN MILLIONS MARCH 2022 MARCH 2021 2022 VS. 2021 Adjusted EBITDA by Segment: Timberlands $ 247 $ 172 $ 75 Real Estate & ENR 116 96 20 Wood Products 1,233 889 344 1,596 1,157 439 Unallocated Items (99 ) (56 ) (43 ) Adjusted EBITDA $ 1,497 $ 1,101 $ 396 We reconcile Adjusted EBITDA to net earnings for the consolidated company and to operating income (loss) for the business segments, as those are the most directly comparable U.S. GAAP measures for each. The table below reconciles Adjusted EBITDA for the quarter ended March 31, 2022: DOLLAR AMOUNTS IN MILLIONS Timberlands Real Estate & ENR Wood Products Unallocated Items Total Adjusted EBITDA by Segment: Net earnings $ 771 Interest expense, net of capitalized interest 72 Loss on debt extinguishment ( 1) 276 Income taxes 209 Net contribution (charge) to earnings $ 182 $ 81 $ 1,182 $ (117 ) $ 1,328 Non-operating pension and other post-employment benefit costs — — — 15 15 Interest income and other — — — 1 1 Operating income (loss) 182 81 1,182 (101 ) 1,344 Depreciation, depletion and amortization 65 4 51 2 122 Basis of real estate sold — 31 — — 31 Adjusted EBITDA $ 247 $ 116 $ 1,233 $ (99 ) $ 1,497 (1) Loss on debt extinguishment is a special item consisting of a pretax charge of $276 million related to early debt retirement. 22 The table below reconciles Adjusted EBITDA for the quarter ended March 31, 2021: DOLLAR AMOUNTS IN MILLIONS Timberlands Real Estate & ENR Wood Products Unallocated Items Total Adjusted EBITDA by Segment: Net earnings $ 681 Interest expense, net of capitalized interest 79 Income taxes 189 Net contribution (charge) to earnings $ 108 $ 66 $ 840 $ (65 ) $ 949 Non-operating pension and other post-employment benefit costs — — — 8 8 Interest income and other — — — (1 ) (1 ) Operating income (loss) 108 66 840 (58 ) 956 Depreciation, depletion and amortization 64 3 49 2 118 Basis of real estate sold — 27 — — 27 Adjusted EBITDA $ 172 $ 96 $ 889 $ (56 ) $ 1,101 Net Earnings and Net Earnings per Diluted Share Before Special Items We use net earnings before special items and net earnings per diluted share before special items as key performance measures to evaluate the performance of the consolidated company. These measures should not be considered in isolation from, and are not intended to represent an alternative to, our results reported in accordance with U.S. GAAP. However, we believe the measures provide meaningful supplemental information for investors about our operating performance, better facilitate period to period comparisons and are widely used by analysts, lenders, rating agencies and other interested parties. Net Earnings Before Special Items QUARTER ENDED DOLLAR AMOUNTS IN MILLIONS MARCH 2022 MARCH 2021 Net earnings $ 771 $ 681 Loss on debt extinguishment 207 — Net earnings before special items $ 978 $ 681 Net Earnings per Diluted Share Before Special Items QUARTER ENDED MARCH 2022 MARCH 2021 Net earnings per diluted share $ 1.03 $ 0.91 Loss on debt extinguishment 0.28 — Net earnings per diluted share before special items $ 1.31 $ 0.91 CRITICAL ACCOUNTING POLICIES 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. 23