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| WY > SEC Filings for WY > Form 10-Q on 8-May-2009 | All Recent SEC Filings |
8-May-2009
Quarterly Report
FORWARD-LOOKING STATEMENTS
This report contains statements concerning our future results and performance that are forward-looking statements according to the Private Securities Litigation Reform Act of 1995. These statements:
• use forward-looking terminology,
• are based on various assumptions we make and
• may not be accurate because of risks and uncertainties surrounding the assumptions that we make.
Factors listed in this section - as well as other factors not included - may cause our actual results to differ from our forward-looking statements. There is no guarantee that any of the events anticipated by our forward-looking statements will occur. Or if any of the events occur, there is no guarantee what effect they will have on our operations or financial condition.
We will not update our forward-looking statements after the date of this report.
FORWARD-LOOKING TERMINOLOGY
Some forward-looking statements discuss our plans, strategies and intentions. They use words such as expects, may, will, believes, should, approximately, anticipates, estimates, and plans. In addition, these words may use the positive or negative or a variation of those terms.
STATEMENTS
We make forward-looking statements of our expectations regarding second quarter 2009, including:
• our markets,
• the effect of facility closures and cost control measures in the Wood Products segment,
• fee timber harvests and log prices,
• demand and pricing for our wood products,
• decreases in raw material costs for our Wood Products segment,
• increased expenses for annual planned maintenance in the Cellulose Fibers segment,
• demand and prices for pulp,
• home sale closings and prices,
• earnings and performance of our business segments,
• capital expenditures and
• timing of debt repayment.
We base our forward-looking statements on a number of factors, including the expected effect of:
• the economy;
• foreign exchange rates, primarily the Canadian dollar and euro;
• adverse litigation outcomes and the adequacy of reserves;
• regulations;
• changes in accounting principles;
• the effect of implementation or retrospective application of accounting methods;
• contributions to pension plans;
• projected benefit payments;
• projected tax rates;
• IRS audit outcomes and timing of settlements; and
• other related matters.
RISKS, UNCERTAINTIES AND ASSUMPTIONS
The major risks and uncertainties - and assumptions that we make - that affect our business include, but are not limited to:
• general economic conditions, including the level of interest rates, availability of financing for home mortgages, strength of the U.S. dollar, employment rates and housing starts;
• market demand for our products, which is related to the strength of the various U.S. business segments and economic conditions;
• successful execution of our internal performance plans including restructurings and cost reduction initiatives;
• restructuring of our business support functions;
• performance of our manufacturing operations, including maintenance requirements;
• the effect of potential alternative fuel mixture tax credits;
• raw material prices;
• energy prices;
• performance of pension fund investments and derivatives;
• the effect of timing of retirements and changes in the market price of our common stock on charges for share-based compensation;
• level of competition from domestic and foreign producers;
• forestry, land use, environmental and other governmental regulations;
• legal proceedings;
• changes in accounting principles;
• weather;
• loss from fires, floods, pest infestation and other natural disasters; and
• the other factors described under "Risk Factors" in this report and our annual report on Form 10-K.
EXPORTING ISSUES
We are a large exporter, affected by changes in:
• economic activity in Europe and Asia - especially Japan and China;
• currency exchange rates - particularly the relative value of the U.S. dollar to the euro and the Canadian dollar; and
• restrictions on international trade or tariffs imposed on imports.
RESULTS OF OPERATIONS
As disclosed in "Notes to Consolidated Financial Statements - Note 3:
Discontinued Operations", the following operations are classified as
discontinued operations in the accompanying consolidated financial statements in
first quarter 2008:
• Containerboard, Packaging, and Recycling operations; and
• Australian operations included in the Corporate and Other segment.
There are no operations classified as discontinued operations in 2009.
In reviewing our results of operations, it is important to understand these terms:
• Price realizations refer to net selling prices - this includes selling price plus freight, minus normal sales deductions.
• Net contribution to earnings can be positive or negative and refers to:
• earnings (loss) before interest and income taxes for the Forest Products business segments; and
• earnings (loss) before income taxes for the Real Estate business segment. Interest that previously was capitalized to Real Estate assets that are sold is included in cost of products sold and is included in contribution to earnings for the Real Estate segment.
In reviewing our results of operations, it is important to understand the following:
• Net sales and revenues and operating loss included in Consolidated Results below exclude the results of discontinued operations.
• Net sales and revenues and net contribution to earnings reported in the individual segment discussions that follow include the results of discontinued operations.
In the following discussion, unless otherwise noted, references to increases or decreases in income and expense items, price realizations, shipment volumes, and net contributions to earnings are based on the quarter ended March 31, 2009, compared to the quarter ended March 30, 2008. The periods are also referred to as 2009 and 2008.
CONSOLIDATED RESULTS
How We Did in First Quarter 2009
NET SALES AND REVENUES / OPERATING EARNINGS (LOSS) / NET LOSS - WEYERHAEUSER
COMPANY
AMOUNT OF
QUARTER ENDED CHANGE
MARCH 31, MARCH 30,
DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURES 2009 2008 2009 VS. 2008
Net sales and revenues $ 1,275 $ 2,042 $ (767 )
Operating loss $ (330 ) $ (258 ) $ (72 )
Earnings from discontinued operations, net of tax $ - $ 87 $ (87 )
Net loss attributable to Weyerhaeuser common
shareholders $ (264 ) $ (148 ) $ (116 )
Net loss attributable to Weyerhaeuser common
shareholders per share, basic and diluted $ (1.25 ) $ (0.70 ) $ (0.55 )
Comparing 2009 with 2008
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In 2009:
• Net sales and revenues decreased $767 million - 38 percent.
• Net loss increased $116 million - 78 percent.
Net sales and revenues
Net sales and revenues decreased $767 million - 38 percent - primarily due to the continued market challenges for the U.S. homebuilding industry and weak pulp markets, which was reflected in the following:
• lower demand for residential building products and significantly decreased volumes sold and prices - refer to the Wood Products segment discussion;
• declines in the number of single-family homes closed and in the average selling prices - refer to the Real Estate segment discussion; and
• decreased pulp sales realizations and shipment volumes - refer to the Cellulose Fibers segment discussion.
Net loss attributable to Weyerhaeuser common shareholders
Our net loss was $116 million higher primarily due to the following:
• the sale of our Containerboard, Packaging and Recycling business, classified as discontinued operations in 2008 - refer to the Containerboard, Packaging and Recycling segment discussion;
• increased restructuring, closure and asset impairment charges - refer to the Wood Products, Real Estate and Corporate and Other segment discussions;
• reduced harvest and log export prices in the West - refer to the Timberland segment discussion;
• reduced pulp prices and volumes sold - refer to the Cellulose Fibers segment; and
• decreased sales and lower gross margins on single-family homes closed - refer to the Real Estate segment discussion.
These increases to our loss were partially offset with the following:
• decreased costs as a result of our cost reduction initiatives - refer to the Wood Products, Real Estate, Cellulose Fibers and Corporate and Other segment discussions; and
• increased income tax benefit primarily due to our increased loss.
TIMBERLANDS
How We Did in First Quarter 2009
Here is a comparison of net sales and revenues to unaffiliated customers, intersegment sales, and net contribution to earnings for the quarters ended March 31, 2009 and March 30, 2008:
NET SALES AND REVENUES / NET CONTRIBUTION TO EARNINGS - TIMBERLANDS
AMOUNT OF
QUARTER ENDED CHANGE
MARCH 31, MARCH 30,
DOLLAR AMOUNTS IN MILLIONS 2009 2008 2009 VS. 2008
Net sales and revenues to unaffiliated
customers:
Logs:
West $ 82 $ 115 $ (33 )
South 33 15 18
Canada 2 13 (11 )
Subtotal logs sales and revenues 117 143 (26 )
Timberlands exchanges 4 18 (14 )
Higher and better-use land sales(1) 1 7 (6 )
Minerals, oil and gas 14 12 2
Pay as cut timber sales 7 5 2
Products from international operations(2) 7 3 4
Other products 7 9 (2 )
Subtotal net sales and revenues to
unaffiliated customers 157 197 (40 )
Intersegment sales
United States 117 226 (109 )
Other 54 89 (35 )
Subtotal intersegment sales 171 315 (144 )
Total sales and revenues $ 328 $ 512 $ (184 )
Net contribution to earnings $ 40 $ 112 $ (72 )
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(1) Higher and better use timberland is sold through Forest Products subsidiaries.
(2) Includes logs, plywood and hardwood lumber harvested or produced by our international operations, primarily in South America.
Comparing 2009 with 2008
Difficult domestic log markets due to global economic conditions continue to result in decreases in log prices and volumes.
In 2009:
• Net sales and revenues to unaffiliated customers decreased $40 million - 20 percent.
• Intersegment sales decreased $144 million - 46 percent.
• Net contribution to earnings decreased $72 million - 64 percent.
Net sales and revenues - unaffiliated customers
The $40 million decrease in net sales and revenues to unaffiliated customers resulted primarily from the following:
• Western log sales volumes decreased 26 percent and price realizations decreased 4 percent due to weaker domestic and export markets.
• Southern log sales volumes increased 96 percent, primarily due to sales of fiber logs to International Paper locations that previously were owned by Weyerhaeuser, but are now sales to unaffiliated customers. Additionally, there was an increase in sales of grade logs to unaffiliated customers.
• Canadian log sales volumes decreased 81 percent due to lower logging levels in all provinces as a result of fewer manufacturing operations.
• We had fewer land exchanges and higher and better use land sales in 2009.
Intersegment sales
The $144 million decrease in intersegment sales was primarily due to the following:
• fewer Weyerhaeuser mills in operation as a result of the recent closures and curtailments of several Wood Products operations in the United States;
• lower U.S. mill production due to depressed housing markets; and
• sales to Containerboard, Packaging and Recycling operations became third-party sales after we sold that business to International Paper in August 2008.
Net contribution to earnings
The $72 million decrease in net contribution to earnings consisted of:
• $32 million due to lower domestic and export prices in the West and a less favorable mix of log and timber sales in the South;
• $34 million due to reduced harvest in the West of 38 percent and a reduced harvest in the South of 27 percent; and
• $17 million in lower contributions from sales of higher and better use property.
This was partially offset by a $14 million gain on appreciated timberland property that was donated to the Weyerhaeuser Company Foundation. This gain is offset on a consolidated basis in the Corporate and Other segment.
Our Outlook
We will likely have severance charges in the second quarter as a result of curtailments primarily in our Western operations. Before the impact of any severance charges, we expect second quarter 2009 earnings from the segment to be comparable to first quarter as challenging market conditions persist.
THIRD-PARTY LOG SALES VOLUMES AND FEE HARVEST VOLUMES
QUARTER ENDED
MARCH 31, MARCH 30,
VOLUMES IN THOUSANDS 2009 2008
Third party log sales - cubic meters:
West 1,090 1,477
South 769 393
Canada 64 339
International 77 85
Total 2,000 2,294
Fee depletion - cubic meters:
West 1,653 2,678
South 2,380 3,245
Total 4,033 5,923
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WOOD PRODUCTS
How We Did in First Quarter 2009
Here is a comparison of net sales and revenues to unaffiliated customers and net contribution to earnings for the quarters ended March 31, 2009, and March 30, 2008:
NET SALES AND REVENUES / NET CONTRIBUTION TO EARNINGS - WOOD PRODUCTS
AMOUNT OF
QUARTER ENDED CHANGE
MARCH 31, MARCH 30,
DOLLAR AMOUNTS IN MILLIONS 2009 2008 2009 VS. 2008
Net sales and revenues:
Softwood lumber $ 222 $ 361 $ (139 )
Engineered solid section 55 105 (50 )
Engineered I-Joists 33 73 (40 )
Oriented strand board 55 105 (50 )
Plywood 24 57 (33 )
Hardwood lumber 51 80 (29 )
Other products produced 43 49 (6 )
Other products purchased for resale 59 136 (77 )
Total $ 542 $ 966 (424 )
Net contribution to earnings $ (266 ) $ (277 ) 11
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Comparing 2009 with 2008
Net sales and revenues and net contribution to earnings were both negatively affected by the market challenges for the U.S. homebuilding industry. Our primary market is residential homebuilding, which continues to experience a decline in total housing starts and currently has a 12-month supply of existing homes for sale. Single family housing starts ran at a seasonally adjust annual rate of 360,000 units in first quarter 2009, compared to 730,000 units in first quarter 2008. Existing home sales ran at a seasonally adjusted annual rate of 4.12 million units in first quarter 2009, compared to 4.37 million units in first quarter 2008.
In 2009:
• Net sales and revenues decreased $424 million - 44 percent.
• Net contribution to earnings improved $11 million - 4 percent.
Net sales and revenues
The $424 million decrease in net sales and revenues was primarily due to the following:
• Demand for wood products was significantly weaker in 2009 with U.S. single family housing starts 51 percent below the 2008 level using a seasonally adjusted annual rate for comparison. This lower demand resulted in significant decreases in shipment volumes for all product lines. It also put downward pressure on prices for all of our product lines.
• Average price realizations for lumber decreased 13 percent and shipment volumes decreased 29 percent.
• Average price realizations for oriented strand board (OSB) remained flat. Shipment volumes decreased 48 percent.
• Average price realizations for engineered I-joists decreased 2 percent and engineered solid section decreased 3 percent. Shipment volumes decreased 54 percent and 46 percent for engineered I-joists and engineered solid section, respectively.
• Plywood sales volumes decreased 56 percent.
• Sales of other products purchased for resale decreased 57 percent due to a combination of the sale or closure of several distribution centers in the United States and lower market demand for building products.
Net contribution to earnings
The $11 million increase in net contribution to earnings was primarily due to the net effect of the following:
• $22 million decrease in selling and administrative costs due to staff reductions, facility closures and cost control measures; and
• $15 million increase in restructuring, closure and asset impairment charges including $31 million increase in severance, pension charges and other closure costs, offset by $16 million reduction in asset impairments.
In addition, the following items were included in results:
• $101 million unfavorable change in contribution due to price and sales volume was more than offset by a $105 million favorable change due to decreases in raw material price, and manufacturing, distribution and other costs; and
• $20 million to establish a reserve in first quarter 2009 for an agreement in principle to settle alder litigation and $18 million in settlement costs related to OSB litigation in first quarter 2008.
Our Outlook
We expect a smaller operating loss for the segment in second quarter due to cost reductions resulting from first quarter facility closures and other cost control measures. The company anticipates lower raw material costs and slightly higher sales volumes.
THIRD-PARTY SALES VOLUMES
QUARTER ENDED
MARCH 31, MARCH 30,
VOLUMES IN MILLIONS 2009 2008
Softwood lumber - board feet 890 1,257
Engineered solid section - cubic feet 3 6
Engineered I-Joists - lineal feet 26 56
Oriented strand board - square feet (3/8") 347 671
Plywood - square feet (3/8") 67 154
Hardwood lumber - board feet 58 87
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TOTAL PRODUCTION VOLUMES
QUARTER ENDED
MARCH 31, MARCH 30,
VOLUMES IN MILLIONS 2009 2008
Softwood lumber - board feet 861 1,187
Engineered solid section - cubic feet 2 6
Engineered I-Joists - lineal feet 20 58
Oriented strand board - square feet (3/8") 335 697
Plywood - square feet (3/8") 28 74
Hardwood lumber - board feet 55 71
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CELLULOSE FIBERS
How We Did in First Quarter 2009
Here is a comparison of net sales and revenues to unaffiliated customers and net contribution to earnings for the quarters ended March 31, 2009, and March 30, 2008:
NET SALES AND REVENUES / NET CONTRIBUTION TO EARNINGS - CELLULOSE FIBERS
AMOUNT OF
QUARTER ENDED CHANGE
MARCH 31, MARCH 30,
DOLLAR AMOUNTS IN MILLIONS 2009 2008 2009 VS. 2008
Net sales and revenues:
Pulp $ 281 $ 345 $ (64 )
Liquid packaging board 66 67 (1 )
Other products 17 33 (16 )
Total $ 364 $ 445 $ (81 )
Net contribution to earnings $ 31 $ 56 $ (25 )
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Comparing 2009 with 2008
In 2009:
• Net sales and revenues decreased $81 million - 18 percent.
• Net contribution to earnings decreased $25 million - 45 percent.
Net sales and revenues
Net sales and revenues decreased $81 million primarily due to the following:
• Pulp price realizations decreased by $93 per ton - 12 percent - due to weaker market demand and a stronger U.S. dollar.
• Sales volumes for pulp decreased 33,000 tons - 7 percent.
• Sales volumes for liquid packaging board decreased approximately 7,000 tons - 10 percent.
• Liquid packaging price realizations increased by $91 per ton - 10 percent.
Net contribution to earnings
Net contribution to earnings decreased $25 million primarily due to the following:
• $38 million decrease due to lower pulp price realizations and $6 million due to lower pulp sales volumes as global pulp market demand weakened;
• $15 million decrease due to higher chemical, freight and restructuring costs; and
• $10 million decrease in production to match lower demand.
Partially offsetting these decreases in earnings were the following:
• $11 million decrease in other operating costs primarily driven by cost reduction initiatives,
• $11 million decrease in fiber and energy costs primarily related to lower prices for chips and fuel,
• $8 million decrease in costs for Canadian manufacturing operations due to the strengthening of the U.S. dollar,
• $7 million increase in earnings from our interest in our newsprint joint venture and
• $6 million improvement in liquid packaging board price realizations.
Our Outlook
Expenses associated with annual maintenance outages, including a major maintenance boiler project, and lower pulp prices are expected to result in a second quarter loss for the segment. This does not include any benefit from the potential for alternative fuel mixture tax credits. See "Liquidity and Capital Resources - Other Liquidity Related Disclosures" for more information.
THIRD-PARTY SALES VOLUMES
QUARTER ENDED
MARCH 31, MARCH 30,
VOLUMES IN THOUSANDS 2009 2008
Pulp - air-dry metric tons 409 442
Liquid packaging board - tons 64 71
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TOTAL PRODUCTION VOLUMES
QUARTER ENDED
MARCH 31, MARCH 30,
VOLUMES IN THOUSANDS 2009 2008
Pulp - air-dry metric tons 415 455
Liquid packaging board - tons 65 64
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REAL ESTATE
How We Did in First Quarter 2009
Here is a comparison of net sales and revenues and net contribution to earnings for the quarters ended March 31, 2009, and March 30, 2008:
NET SALES AND REVENUES / NET CONTRIBUTION TO EARNINGS - REAL ESTATE
AMOUNT OF
QUARTER ENDED CHANGE
MARCH 31, MARCH 30,
DOLLAR AMOUNTS IN MILLIONS 2009 2008 2009 VS. 2008
. . .
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