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 expectations relating to returns on invested pension plan assets and expected benefit payments; our capital structure and the sufficiency of our liquidity position to meet future cash requirements; compliance with covenants in our debt agreements; our expectations concerning our contingent liabilities and the sufficiency of related reserves and accruals including, but not limited to, cost estimates of future litigation and environmental remediation; expected capital expenditures; 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; our expectations about our future opportunities in emerging carbon offset and carbon capture and storage markets; and assumptions used in valuing incentive compensation and related expense. 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 Our market conditions and the strength of the broader U.S. economy are, and 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, particularly 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 oriented strand board (OSB) as well as the demand for biofuels, such as pellets made from pulpwood. The Timberlands segment is also influenced by the availability of harvestable timber. 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 second quarter 2022 averaged 1.65 million units, a 4 percent decrease from first quarter 2022. Single family starts averaged 1.1 million units, a 9.5 percent decrease from first quarter 2022. Multi-family starts averaged 577 thousand units in second quarter 2022, which was an 8.4 percent increase from first quarter 2022. Sales of newly built, single family homes averaged a seasonally adjusted annual rate of 612 thousand units for second quarter 2022, a decrease of 21.1 percent from the prior quarter. Repair and remodeling expenditures fell by 1 percent from first quarter 2022 to second quarter 2022 according to the Census Bureau Advance Retail Spending report. Do-it-yourself activity has been returning to more normalized levels while professionally contracted activities continue to increase. In U.S. wood product markets, demand was steady most of second quarter 2022 as dealer inventories adjusted to a more uncertain economic environment. The Random Lengths Framing Lumber Composite price averaged $850/MBF and the OSB Composite averaged $798/MSF in second quarter 2022. Over the course of the second quarter, prices declined from $1,134/MBF to $604/MBF for lumber and from $1,372/MSF to $425/MSF for OSB, reflecting a more volatile pricing environment. In Western log markets, Douglas fir sawlog prices fell by 3 percent in second quarter 2022 compared with first quarter 2022 as reported by RISI Log Lines. Continued strength in Western log prices was supported by tight log supplies. In the South, delivered sawlog prices increased by 0.7 percent from first quarter 2022 and 7 percent from second quarter 2021 as reported by TimberMart-South, as new mill capacity has increased demand in certain markets. Exchange rates, available supply from other countries and trade policy affect our export businesses. During second quarter 2022, continued strength in end use demand and disruptions of other global sources of supply supported 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 2.5 percent year to date through May compared to the same period in 2021, while the key Post and Beam segment saw a 2.1 percent decrease. Decreased lumber imports from Europe to Japan have been favorable to our Japanese log export business through the first half of 2022. Interest rates affect our business primarily through their impact on mortgage rates, their general impact on the economy, and their influence on our capital management activities. Actions by the U.S. Federal Reserve, the overall condition of the economy, and fluctuations in financial markets are all factors that influence longer-term interest rates. Mortgage rates, which are correlated to longer-term interest rates, impact home affordability and therefore significant increases can reduce demand for homebuying. Changes in inflation also reflect monetary policy set by the U.S. Federal Reserve, as well as changes in demand and supply for goods and services and fluctuations in labor markets. Increased inflation affects the cost of our operations across each of our business segments. The Consumer Price Index increased 9.1 percent year over year in June 2022. While we can offset some of the impacts of inflation through our sales activities, not all of the costs associated with inflation can be fully mitigated. 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. 15 CONSOLIDATED RESULTS How We Did Second Quarter 2022 and Year-to-Date 2022 QUARTER ENDED AMOUNT OF CHANGE YEAR-TO-DATE ENDED AMOUNT OF CHANGE DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURES JUNE 2022 JUNE 2021 2022 VS. 2021 JUNE 2022 JUNE 2021 2022 VS. 2021 Net sales $ 2,973 $ 3,144 $ (171 ) $ 6,085 $ 5,650 $ 435 Costs of sales $ 1,789 $ 1,583 $ 206 $ 3,436 $ 3,013 $ 423 Operating income $ 1,047 $ 1,429 $ (382 ) $ 2,391 $ 2,385 $ 6 Net earnings $ 788 $ 1,028 $ (240 ) $ 1,559 $ 1,709 $ (150 ) Earnings per share, basic and diluted $ 1.06 $ 1.37 $ (0.31 ) $ 2.09 $ 2.28 $ (0.19 ) Comparing Second Quarter 2022 with Second Quarter 2021 Net sales Net sales decreased $171 million – 5 percent – primarily due to a $288 million decrease in Wood Products sales to unaffiliated customers attributable to decreased sales realizations for structural lumber, oriented strand board and softwood plywood. This decrease was partially offset by a $110 million increase in Timberlands net sales to unaffiliated customers primarily due to increased sales realizations. Costs of sales Costs of sales increased $206 million – 13 percent – primarily due to increased freight and raw material costs within our Wood Products segment as well as increased freight costs, third-party log purchases and sales volumes within our Timberlands segment. Operating income Operating income decreased $382 million – 27 percent – primarily due to a $377 million decrease in consolidated gross margin (see discussion of components above). Net earnings Net earnings decreased $240 million – 23 percent – primarily due to the $382 million decrease in operating income discussed above. This decrease was partially offset by a $140 million decrease in income tax expense (refer to Income Taxes ). Comparing Year-to-Date 2022 with Year-to-Date 2021 Net sales Net sales increased $435 million – 8 percent – primarily due to a $210 million increase in Wood Products sales to unaffiliated customers attributable to increased sales realizations across most product lines, as well as a $196 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 $423 million –14 percent – primarily due to increased freight and raw material costs within our Wood Products segment as well as increased freight costs, third-party log purchases and sales volumes within our Timberlands segment. Operating income Operating income increased $6 million – less than 1 percent – primarily due to a $12 million increase in consolidated gross margin (see discussion of components above). Net earnings Net earnings decreased $150 million – 9 percent – primarily due to 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 ). This decrease was partially offset by a $120 million decrease in income tax expense (refer to Income Taxes ). 16 TIMBERLANDS How We Did Second Quarter 2022 and Year-to-Date 2022 QUARTER ENDED AMOUNT OF CHANGE YEAR-TO-DATE ENDED AMOUNT OF CHANGE DOLLAR AMOUNTS IN MILLIONS JUNE 2022 JUNE 2021 2022 VS. 2021 JUNE 2022 JUNE 2021 2022 VS. 2021 Net sales to unaffiliated customers: Delivered logs: West $ 308 $ 222 $ 86 $ 567 $ 423 $ 144 South 160 145 15 314 276 38 North 10 9 1 25 25 — Subtotal delivered logs sales 478 376 102 906 724 182 Stumpage and pay-as-cut timber 11 7 4 20 13 7 Recreational and other lease revenue 16 16 — 33 32 1 Other ( 1) 10 6 4 21 15 6 Subtotal net sales to unaffiliated customers 515 405 110 980 784 196 Intersegment sales 156 136 20 317 270 47 Total sales $ 671 $ 541 $ 130 $ 1,297 $ 1,054 $ 243 Costs of sales $ 495 $ 407 $ 88 $ 918 $ 790 $ 128 Operating income and Net contribution to earnings $ 153 $ 113 $ 40 $ 335 $ 221 $ 114 (1) Other Timberlands sales include sales of seeds and seedlings from our nursery operations as well as wood chips. Comparing Second Quarter 2022 with Second Quarter 2021 Net sales to unaffiliated customers Net sales to unaffiliated customers increased $110 million – 27 percent – primarily due to an $86 million increase in Western log sales attributable to a 26 percent increase in sales realizations and an 11 percent increase in sales volumes, as well as a $15 million increase in Southern log sales attributable to a 10 percent increase in sales realizations. Intersegment sales Intersegment sales increased $20 million – 15 percent – primarily due to a 19 percent increase in sales realizations. Costs of sales Costs of sales increased $88 million – 22 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 $40 million – 35 percent – primarily due to the change in the components of gross margin, as discussed above. Comparing Year-to-Date 2022 with Year-to-Date 2021 Net sales to unaffiliated customers Net sales to unaffiliated customers increased $196 million – 25 percent – primarily due to a $144 million increase in Western log sales attributable to a 25 percent increase in sales realizations and a 7 percent increase in sales volumes, as well as a $38 million increase in Southern log sales attributable to a 9 percent increase in sales realizations and a 5 percent increase in sales volumes. Intersegment sales Intersegment sales increased $47 million – 17 percent – primarily due to a 19 percent increase in sales realizations. Costs of sales Costs of sales increased $128 million – 16 percent – primarily due to increased freight costs and third-party log purchases, as well as increased sales volumes, as discussed above. 17 Operating income and Net contribution to earnings Operating income and net contribution to earnings increased $114 million – 52 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 YEAR-TO-DATE ENDED AMOUNT OF CHANGE VOLUMES IN THOUSANDS JUNE 2022 JUNE 2021 2022 VS. 2021 JUNE 2022 JUNE 2021 2022 VS. 2021 Third-party log sales – tons: West ( 1) 1,778 1,608 170 3,382 3,147 235 South 4,167 4,150 17 8,302 7,932 370 North 118 115 3 328 376 (48 ) Total 6,063 5,873 190 12,012 11,455 557 Fee harvest volumes – tons: West ( 1) 2,085 2,099 (14 ) 4,325 4,200 125 South 6,159 5,856 303 12,001 11,232 769 North 180 199 (19 ) 458 536 (78 ) Total 8,424 8,154 270 16,784 15,968 816 (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 Second Quarter 2022 and Year-to-Date 2022 QUARTER ENDED AMOUNT OF CHANGE YEAR-TO-DATE ENDED AMOUNT OF CHANGE DOLLAR AMOUNTS IN MILLIONS JUNE 2022 JUNE 2021 2022 VS. 2021 JUNE 2022 JUNE 2021 2022 VS. 2021 Net sales: Real estate $ 90 $ 83 $ 7 $ 187 $ 167 $ 20 Energy and natural resources 27 27 — 58 49 9 Total $ 117 $ 110 $ 7 $ 245 $ 216 $ 29 Costs of sales $ 45 $ 41 $ 4 $ 86 $ 75 $ 11 Operating income and Net contribution to earnings $ 65 $ 63 $ 2 $ 146 $ 129 $ 17 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 Second Quarter 2022 with Second Quarter 2021 Net sales Net sales increased $7 million – 6 percent – primarily due to an increase in the amount of acres sold, partially offset by decreased mitigation bank credit sales. Costs of sales Costs of sales increased $4 million – 10 percent – primarily due to increases in the amount of acres sold and basis per acre sold. Operating income and Net contribution to earnings Operating income and net contribution to earnings increased $2 million – 3 percent – primarily due to the change in the components of gross margin, as discussed above. 18 Comparing Year-to-Date 2022 with Year-to-Date 2021 Net sales Net sales increased $29 million – 13 percent – primarily due to an increase in the amount of acres sold, partially offset by decreased mitigation bank credit sales. Costs of sales Costs of sales increased $11 million – 15 percent – primarily due to increases in the amount of acres sold and basis per acre sold. Operating income and Net contribution to earnings Operating income and net contribution to earnings increased $17 million – 13 percent – primarily due to the change in the components of gross margin, as discussed above. REAL ESTATE SALES STATISTICS QUARTER ENDED AMOUNT OF CHANGE YEAR-TO-DATE ENDED AMOUNT OF CHANGE JUNE 2022 JUNE 2021 2022 VS. 2021 JUNE 2022 JUNE 2021 2022 VS. 2021 Acres sold 26,906 18,415 8,491 51,032 37,870 13,162 Average price per acre $ 3,215 $ 3,227 $ (12 ) $ 3,484 $ 3,523 $ (39 ) WOOD PRODUCTS How We Did Second Quarter 2022 and Year-to-Date 2022 QUARTER ENDED AMOUNT OF CHANGE YEAR-TO-DATE ENDED AMOUNT OF CHANGE DOLLAR AMOUNTS IN MILLIONS JUNE 2022 JUNE 2021 2022 VS. 2021 JUNE 2022 JUNE 2021 2022 VS. 2021 Net sales: Structural lumber $ 998 $ 1,349 $ (351 ) $ 2,204 $ 2,339 $ (135 ) Oriented strand board 497 605 (108 ) 1,061 1,043 18 Engineered solid section 247 166 81 443 308 135 Engineered I-joists 168 104 64 305 187 118 Softwood plywood 53 69 (16 ) 111 125 (14 ) Medium density fiberboard 53 43 10 101 91 10 Complementary building products 239 213 26 454 384 70 Other products produced ( 1) 86 80 6 181 173 8 Total $ 2,341 $ 2,629 $ (288 ) $ 4,860 $ 4,650 $ 210 Costs of sales $ 1,414 $ 1,229 $ 185 $ 2,690 $ 2,353 $ 337 Operating income and Net contribution to earnings $ 863 $ 1,338 $ (475 ) $ 2,045 $ 2,178 $ (133 ) (1) Other products produced sales include wood chips, other byproducts and third-party residual log sales from our Canadian Forestlands operations. Comparing Second Quarter 2022 with Second Quarter 2021 Net sales Net sales decreased $288 million – 11 percent – due to: ● a $351 million decrease in structural lumber sales attributable to a 28 percent decrease in sales realizations, partially offset by a 3 percent increase in sales volumes; ● a $108 million decrease in oriented strand board sales attributable to a 26 percent decrease in sales realizations, partially offset by an 11 percent increase in sales volumes and ● a $16 million decrease in softwood plywood sales attributable to a 17 percent decrease in sales realizations, as well as a 9 percent decrease in sales volumes. These decreases were partially offset by: ● an $81 million increase in engineered solid section sales due to a 53 percent increase in sales realizations, partially offset by a 3 percent decrease in sales volumes; 19 ● a $64 million increase in engineered I-joists sales due to a 73 percent increase in sales realizations, partially offset by an 8 percent decrease in sales volumes; ● a $26 million increase in complementary building products sales attributable to increased sales realizations; ● a $10 million increase in medium density fiberboard sales attributable to a 35 percent increase in sales realizations, partially offset by a 10 percent decrease in sales volumes and ● a $6 million increase in other products produced sales attributable to increased sales volumes. Costs of sales Costs of sales increased $185 million – 15 percent – primarily due to increased freight and raw material costs. Operating income and Net contribution to earnings Operating income and net contribution to earnings decreased $475 million – 36 percent – primarily due to the change in the components of gross margin, as discussed above. Comparing Year-to-Date 2022 with Year-to-Date 2021 Net sales Net sales increased $210 million – 5 percent – due to: ● a $135 million increase in engineered solid section sales attributable to a 52 percent increase in sales realizations, partially offset by a 5 percent decrease in sales volumes; ● a $118 million increase in engineered I-joists sales attributable to a 70 percent increase in sales realizations, partially offset by a 5 percent decrease in sales volumes; ● a $70 million increase in complementary building products sales attributable to increased sales realizations; ● an $18 million increase in oriented strand board sales attributable to 5 percent increase in sales volumes, partially offset by a 3 percent decrease in sales realizations; ● a $10 million increase in medium density fiberboard sales attributable to a 32 percent increase in sales realizations, partially offset by a 17 percent decrease in sales volumes and ● an $8 million increase in other products produced sales attributable to increased sales volumes. These increases were partially offset by a $135 million decrease in structural lumber sales attributable to an 8 percent decrease in sales realizations, partially offset by a 2 percent increase in sales volumes, as well as a $14 million decrease in softwood plywood sales attributable to a 15 percent decrease in sales volumes, partially offset by a 4 percent increase in sales realizations. Costs of sales Costs of sales increased $337 million – 14 percent – primarily due to increased freight and raw material costs. Operating income and Net contribution to earnings Operating income and net contribution to earnings decreased $133 million – 6 percent – primarily due to the change in the components of gross margin, as discussed above. Third-Party Sales Volumes QUARTER ENDED AMOUNT OF CHANGE YEAR-TO-DATE ENDED AMOUNT OF CHANGE VOLUMES IN MILLIONS ( 1) JUNE 2022 JUNE 2021 2022 VS. 2021 JUNE 2022 JUNE 2021 2022 VS. 2021 Structural lumber – board feet 1,289 1,252 37 2,446 2,397 49 Oriented strand board – square feet (3/8”) 735 663 72 1,452 1,377 75 Engineered solid section – cubic feet 6.4 6.6 (0.2 ) 12.1 12.8 (0.7 ) Engineered I-joists – lineal feet 49 53 (4 ) 95 100 (5 ) Softwood plywood – square feet (3/8”) 70 77 (7 ) 145 171 (26 ) Medium density fiberboard – square feet (3/4”) 45 50 (5 ) 89 107 (18 ) (1) Sales volumes include sales of internally produced products and products purchased for resale primarily through our distribution business. 20 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 YEAR-TO-DATE ENDED AMOUNT OF CHANGE VOLUMES IN MILLIONS JUNE 2022 JUNE 2021 2022 VS. 2021 JUNE 2022 JUNE 2021 2022 VS. 2021 Structural lumber – board feet: Production 1,232 1,234 (2 ) 2,435 2,445 (10 ) Outside purchase 43 49 (6 ) 85 104 (19 ) Total 1,275 1,283 (8 ) 2,520 2,549 (29 ) Oriented strand board – square feet (3/8”): Production 758 683 75 1,497 1,425 72 Outside purchase 66 71 (5 ) 136 139 (3 ) Total 824 754 70 1,633 1,564 69 Engineered solid section – cubic feet: Production 6.4 6.2 0.2 12.1 12.2 (0.1 ) Outside purchase 0.3 0.2 0.1 0.5 0.5 — Total 6.7 6.4 0.3 12.6 12.7 (0.1 ) Engineered I-joists – lineal feet: Production 50 51 (1 ) 94 95 (1 ) Outside purchase 3 2 1 5 5 — Total 53 53 — 99 100 (1 ) Softwood plywood – square feet (3/8”): Production 67 62 5 133 142 (9 ) Outside purchase 8 12 (4 ) 18 26 (8 ) Total 75 74 1 151 168 (17 ) Medium density fiberboard – square feet (3/4"): Production 48 52 (4 ) 92 108 (16 ) Total 48 52 (4 ) 92 108 (16 ) 21 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 YEAR-TO-DATE ENDED AMOUNT OF CHANGE DOLLAR AMOUNTS IN MILLIONS JUNE 2022 JUNE 2021 2022 VS. 2021 JUNE 2022 JUNE 2021 2022 VS. 2021 Unallocated corporate function and variable compensation expense $ (36 ) $ (36 ) $ — $ (67 ) $ (61 ) $ (6 ) Liability classified share-based compensation 2 — 2 3 (1 ) 4 Foreign exchange gain (loss) 3 (1 ) 4 3 (3 ) 6 Elimination of intersegment profit in inventory and LIFO 18 (28 ) 46 (41 ) (45 ) 4 Other (21 ) (20 ) (1 ) (33 ) (33 ) — Operating loss (34 ) (85 ) 51 (135 ) (143 ) 8 Non-operating pension and other post-employment benefit costs (11 ) (1 ) (10 ) (26 ) (9 ) (17 ) Interest income and other 1 2 (1 ) — 3 (3 ) Net charge to earnings $ (44 ) $ (84 ) $ 40 $ (161 ) $ (149 ) $ (12 ) Comparing Second Quarter 2022 with Second Quarter 2021 Net charge to earnings decreased $40 million – 48 percent – primarily due to a $46 million decrease in elimination of intersegment profit in inventory and LIFO. Comparing Year-to-Date 2022 with Year-to-Date 2021 Net charge to earnings increased $12 million – 8 percent – primarily due to a $17 million increase in non-operating pension and other post-employment benefit costs. INTEREST EXPENSE Our interest expense, net of capitalized interest, was: ● $65 million for second quarter 2022 and $137 million year-to-date 2022; ● $78 million for second quarter 2021 and $157 million year-to-date 2021. Interest expense decreased by $13 million compared to second quarter 2021 and decreased by $20 million compared to year-to-date 2021 primarily due to decreases in the average outstanding debt and weighted average interest rate. Refer to Note 8: Long-Term Debt and Line of Credit for further information. INCOME TAXES Our provision for income taxes was: ● a $184 million expense for second quarter 2022 and a $393 million expense year-to-date 2022; ● a $324 million expense for second quarter 2021 and a $513 million expense year-to-date 2021. Our provision for income taxes is primarily driven by earnings generated by our TRSs. Income tax expense decreased by $120 million compared to year-to-date 2021 primarily due to a tax benefit of approximately $69 million resulting from the $276 million pretax loss on debt extinguishment recorded in first quarter 2022, as well as a decrease in our estimated annual effective tax rate. 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 June 30, 2022, we had over $1.7 billion in cash and cash equivalents and $1.5 billion of availability on our line of credit, which expires in January 2025. We believe we have sufficient liquidity to meet our cash requirements for the foreseeable future. 22 CASH FROM OPERATIONS Consolidated net cash from operations was: ● $2,103 million for year-to-date 2022 and ● $2,006 million for year-to-date 2021. Net cash from operations increased $97 million, primarily due to increased cash inflows from our business operations. This change was partially offset by a $91 million increase in cash paid for income taxes. CASH FROM INVESTING ACTIVITIES Consolidated net cash from investing activities was: ● $(433) million for year-to-date 2022 and ● $(273) million for year-to-date 2021. Net cash from investing activities decreased $160 million, primarily due to: ● a $134 million increase in cash paid for acquisition of timberlands and ● a $26 million increase in cash paid for capital expenditures. Summary of Capital Spending by Business Segment YEAR-TO-DATE ENDED DOLLAR AMOUNTS IN MILLIONS JUNE 2022 JUNE 2021 Timberlands $ 53 $ 49 Wood Products 95 76 Unallocated Items 3 — Total $ 151 $ 125 We anticipate our capital expenditures for 2022 to be approximately $460 million. The amount we spend on capital expenditures could change. CASH FROM FINANCING ACTIVITIES Consolidated net cash from financing activities was: ● $(1,938) million for year-to-date 2022 and ● $(451) million for year-to-date 2021. Net cash from financing activities decreased $1,487 million, primarily due to: ● a $1,097 million increase in cash paid for dividends; ● a $259 million increase in cash used for repurchases of common stock and ● a $97 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, 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. We plan to transition our revolving credit facility to an alternate reference rate prior to the cessation of LIBOR. 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. 23 Debt Covenants As of June 30, 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: ● $14 million for year-to-date 2022 and ● $45 million for year-to-date 2021. Our average stock price was $38.89 and $35.60 for year-to-date 2022 and 2021, respectively. Dividend Payments We paid cash dividends on common shares of: ● $1,352 million for year-to-date 2022 and ● $255 million for year-to-date 2021. The increase in dividends paid is primarily due to a supplemental dividend of $1.45 per share ($1,084 million in total) paid in the first quarter of 2022 based on 2021 financial results. Share Repurchases We repurchased 3,197,675 shares for approximately $121 million (including transaction fees) during first quarter 2022 and 3,784,787 shares for approximately $138 million (including transaction fees) during second quarter 2022 under the 2021 Repurchase Program. We did not repurchase shares during year-to-date 2021. There were no unsettled repurchases as of June 30, 2022 or December 31, 2021. Refer to Note 4: Net Earnings Per Share and Share Repurchases for further information. PERFORMANCE MEASURES Adjusted EBITDA by Segment QUARTER ENDED AMOUNT OF CHANGE YEAR-TO-DATE ENDED AMOUNT OF CHANGE DOLLAR AMOUNTS IN MILLIONS JUNE 2022 JUNE 2021 2022 VS. 2021 JUNE 2022 JUNE 2021 2022 VS. 2021 Adjusted EBITDA by Segment: Timberlands $ 219 $ 180 $ 39 $ 466 $ 352 $ 114 Real Estate & ENR 107 91 16 223 187 36 Wood Products 912 1,386 (474 ) 2,145 2,275 (130 ) 1,238 1,657 (419 ) 2,834 2,814 20 Unallocated Items (33 ) (84 ) 51 (132 ) (140 ) 8 Adjusted EBITDA $ 1,205 $ 1,573 $ (368 ) $ 2,702 $ 2,674 $ 28 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. 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. 24 The table below reconciles Adjusted EBITDA for the quarter ended June 30, 2022: DOLLAR AMOUNTS IN MILLIONS Timberlands Real Estate & ENR Wood Products Unallocated Items Total Adjusted EBITDA by Segment: Net earnings $ 788 Interest expense, net of capitalized interest 65 Income taxes 184 Net contribution (charge) to earnings $ 153 $ 65 $ 863 $ (44 ) $ 1,037 Non-operating pension and other post-employment benefit costs — — — 11 11 Interest income and other — — — (1 ) (1 ) Operating income (loss) 153 65 863 (34 ) 1,047 Depreciation, depletion and amortization 66 3 49 1 119 Basis of real estate sold — 39 — — 39 Adjusted EBITDA $ 219 $ 107 $ 912 $ (33 ) $ 1,205 The table below reconciles Adjusted EBITDA for the quarter ended June 30, 2021: DOLLAR AMOUNTS IN MILLIONS Timberlands Real Estate & ENR Wood Products Unallocated Items Total Adjusted EBITDA by Segment: Net earnings $ 1,028 Interest expense, net of capitalized interest 78 Income taxes 324 Net contribution (charge) to earnings $ 113 $ 63 $ 1,338 $ (84 ) $ 1,430 Non-operating pension and other post-employment benefit costs — — — 1 1 Interest income and other — — — (2 ) (2 ) Operating income (loss) 113 63 1,338 (85 ) 1,429 Depreciation, depletion and amortization 67 4 48 1 120 Basis of real estate sold — 24 — — 24 Adjusted EBITDA $ 180 $ 91 $ 1,386 $ (84 ) $ 1,573 The table below reconciles Adjusted EBITDA for the year-to-date period ended June 30, 2022: DOLLAR AMOUNTS IN MILLIONS Timberlands Real Estate & ENR Wood Products Unallocated Items Total Adjusted EBITDA by Segment: Net earnings $ 1,559 Interest expense, net of capitalized interest 137 Loss on debt extinguishment ( 1) 276 Income taxes 393 Net contribution (charge) to earnings $ 335 $ 146 $ 2,045 $ (161 ) $ 2,365 Non-operating pension and other post-employment benefit costs — — — 26 26 Interest income and other — — — — — Operating income (loss) 335 146 2,045 (135 ) 2,391 Depreciation, depletion and amortization 131 7 100 3 241 Basis of real estate sold — 70 — — 70 Adjusted EBITDA $ 466 $ 223 $ 2,145 $ (132 ) $ 2,702 (1) Loss on debt extinguishment is a special item consisting of a pretax charge of $276 million related to early debt retirement. 25 The table below reconciles Adjusted EBITDA for the year-to-date period ended June 30, 2021: DOLLAR AMOUNTS IN MILLIONS Timberlands Real Estate & ENR Wood Products Unallocated Items Total Adjusted EBITDA by Segment: Net earnings $ 1,709 Interest expense, net of capitalized interest 157 Income taxes 513 Net contribution (charge) to earnings $ 221 $ 129 $ 2,178 $ (149 ) $ 2,379 Non-operating pension and other post-employment benefit costs — — — 9 9 Interest income and other — — — (3 ) (3 ) Operating income (loss) 221 129 2,178 (143 ) 2,385 Depreciation, depletion and amortization 131 7 97 3 238 Basis of real estate sold — 51 — — 51 Adjusted EBITDA $ 352 $ 187 $ 2,275 $ (140 ) $ 2,674 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 YEAR-TO-DATE ENDED DOLLAR AMOUNTS IN MILLIONS JUNE 2022 JUNE 2021 JUNE 2022 JUNE 2021 Net earnings $ 788 $ 1,028 $ 1,559 $ 1,709 Loss on debt extinguishment — — 207 — Net earnings before special items $ 788 $ 1,028 $ 1,766 $ 1,709 Net Earnings per Diluted Share Before Special Items QUARTER ENDED YEAR-TO-DATE ENDED JUNE 2022 JUNE 2021 JUNE 2022 JUNE 2021 Net earnings per diluted share $ 1.06 $ 1.37 $ 2.09 $ 2.28 Loss on debt extinguishment — — 0.28 — Net earnings per diluted share before special items $ 1.06 $ 1.37 $ 2.37 $ 2.28 CRITICAL ACCOUNTING POLICIES There have been no significant changes during year-to-date 2022 to the critical accounting policies presented in our 2021 Annual Report on Form 10-K.