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| WY > SEC Filings for WY > Form 10-Q on 10-Aug-2009 | All Recent SEC Filings |
10-Aug-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 third quarter 2009, including:
• our markets,
• fee timber harvest levels in the Timberlands segment,
• sales of non-strategic timberlands,
• the effect of increased operating efficiencies and cost control measures in the Wood Products segment,
• demand and pricing for our wood products,
• decreased expenses for annual planned maintenance and operations in the Cellulose Fibers segment,
• average pulp price realizations,
• home sale closings and prices, and
• earnings and performance of our business segments.
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, appraised values, 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;
• changes in our business support functions and support costs;
• performance of our manufacturing operations, including maintenance requirements and operating efficiencies;
• changes in legislation or tax rules;
• raw material prices;
• energy prices;
• transportation costs;
• level of competition from domestic and foreign producers;
• forestry, land use, environmental and other governmental regulations;
• legal proceedings;
• weather;
• loss from fires, floods, windstorms, hurricanes, pest infestation and other natural disasters;
• changes in accounting principles;
• performance of pension fund investments and related derivatives;
• the effect of timing of retirements and changes in the market price of our common stock on charges for share-based compensation; 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
the 2008 periods presented:
• 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 and year-to-date period ended June 30, 2009, compared to the quarter and year-to-date period ended June 29, 2008. The year-to-date periods are also referred to as 2009 and 2008 or first half.
CONSOLIDATED RESULTS
How We Did Second Quarter and Year-to-Date 2009
NET SALES AND REVENUES / OPERATING LOSS / NET LOSS - WEYERHAEUSER COMPANY
AMOUNT OF AMOUNT OF
QUARTER ENDED CHANGE YEAR-TO-DATE ENDED CHANGE
DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE JUNE 30, JUNE 29, JUNE 30, JUNE 29,
FIGURES 2009 2008 2009 VS. 2008 2009 2008 2009 VS. 2008
Net sales and revenues $ 1,391 $ 2,174 $ (783 ) $ 2,666 $ 4,216 $ (1,550 )
Operating loss $ (62 ) $ (406 ) $ 344 $ (392 ) $ (664 ) $ 272
Earnings from discontinued operations, net of tax $ - $ 111 $ (111 ) $ - $ 198 $ (198 )
Net loss attributable to Weyerhaeuser common
shareholders $ (106 ) $ (96 ) $ (10 ) $ (370 ) $ (244 ) $ (126 )
Net loss attributable to Weyerhaeuser common
shareholders per share, basic and diluted $ (0.50 ) $ (0.45 ) $ (0.05 ) $ (1.75 ) $ (1.16 ) $ (0.59 )
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Our consolidated results reflect the continued market challenges we are facing in the U.S. homebuilding industry. Single-family starts fell to an annual rate of 420,000 units in second quarter 2009, down 37 percent from second quarter 2008. There continues to be an excess supply of unsold homes, including foreclosures. Home prices in most markets reflect year-over-year price declines, although at a lesser rate compared to prior periods. Global demand for pulp has also weakened and both export and domestic log markets continue to be challenged due to global economic conditions.
Comparing 2009 with 2008
In 2009:
• Net sales and revenues decreased $783 million - 36 percent - during second quarter and $1.6 billion - 37 percent - during first half.
• Net loss attributable to Weyerhaeuser common shareholders increased $10 million - 10 percent - during second quarter and $126 million - 52 percent - during first half.
Net sales and revenues
Net sales and revenues decreased 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 prices and volumes sold - refer to the Wood Products segment discussion;
• declines in the number of single-family homes closed and average selling prices - refer to the Real Estate segment discussion;
• decreased pulp sales realizations and shipment volumes - refer to the Cellulose Fibers segment discussion; and
• decreased western log sales - refer to the Timberlands segment discussion.
Net loss attributable to Weyerhaeuser common shareholders
Our net loss attributable to Weyerhaeuser common shareholders was higher during second quarter primarily due to the following:
• gains from the restructuring of our investments in Uruguay and from changes in
our postretirement benefit plans recognized in 2008 that did not recur in 2009
- refer to the Corporate and Other segment discussion;
• the sale of our Containerboard, Packaging and Recycling business in third quarter 2008, classified as discontinued operations in 2008 - refer to the Containerboard, Packaging and Recycling segment discussion;
• decreased sales prices for residential building products - refer to the Wood Products segment discussion;
• decreased pulp sales realizations and shipment volumes - refer to the Cellulose Fibers segment discussion;
• reduced harvest volumes and lower log prices - refer to the Timberlands segment discussion;
• decreased income tax benefit primarily due to a lower pretax loss; and
• decreased contributions from single family operations as a result of fewer closings - refer to the Real Estate segment discussion.
These losses during second quarter were partially offset with the following:
• decreased asset impairment charges - refer to the Wood Products, Real Estate and Corporate and Other segment discussions;
• decreased costs in all segments as a result of our cost reduction initiatives
- refer to the individual segment discussions; and
• recognition of alternative fuel mixture credits - refer to the Cellulose Fibers segment.
Net loss attributable to Weyerhaeuser common shareholders for first half increased due to second quarter items noted above and higher restructuring and closure charges - refer to the Wood Products and Corporate and Other segment discussions.
TIMBERLANDS
How We Did Second Quarter and Year-to-Date 2009
Here is a comparison of net sales and revenues to unaffiliated customers, intersegment sales, and net contribution to earnings for the quarters and year-to-date periods ended June 30, 2009, and June 29, 2008:
NET SALES AND REVENUES / NET CONTRIBUTION TO EARNINGS - TIMBERLANDS
AMOUNT OF AMOUNT OF
QUARTER ENDED CHANGE YEAR-TO-DATE ENDED CHANGE
JUNE 30, JUNE 29, 2009 VS. JUNE 30, JUNE 29, 2009 VS.
DOLLAR AMOUNTS IN MILLIONS 2009 2008 2008 2009 2008 2008
Net sales and revenues to unaffiliated
customers:
Logs:
West $ 87 $ 154 $ (67 ) $ 169 $ 269 $ (100 )
South 43 16 27 76 31 45
Canada - 2 (2 ) 2 15 (13 )
Subtotal log sales and revenues 130 172 (42 ) 247 315 (68 )
Pay as cut timber sales 7 7 - 14 12 2
Timberlands sales and exchanges(1) 40 19 21 44 37 7
Higher and better-use land sales(1) 4 1 3 5 8 (3 )
Minerals, oil and gas 14 12 2 28 24 4
Products from international operations(2) 10 10 - 17 13 4
Other products 3 3 - 10 12 (2 )
Subtotal net sales and revenues to
unaffiliated customers 208 224 (16 ) 365 421 (56 )
Intersegment sales
United States 104 225 (121 ) 221 452 (231 )
Other 11 27 (16 ) 65 116 (51 )
Subtotal intersegment sales 115 252 (137 ) 286 568 (282 )
Total sales and revenues $ 323 $ 476 $ (153 ) $ 651 $ 989 $ (338 )
Net contribution to earnings $ 66 $ 103 $ (37 ) $ 106 $ 215 $ (109 )
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(1) Higher and better use timberland and other non-strategic timberland are sold through Forest Products subsidiaries.
(2) Includes logs, plywood and hardwood lumber harvested or produced by our international operations, primarily in South America.
Comparing Second Quarter 2009 with Second Quarter 2008
In second quarter 2009:
• Net sales and revenues to unaffiliated customers decreased $16 million - 7 percent.
• Intersegment sales decreased $137 million - 54 percent.
• Net contribution to earnings decreased $37 million - 36 percent.
Net sales and revenues - unaffiliated customers
The $16 million decrease in net sales and revenues to unaffiliated customers resulted primarily from a 34 percent decrease in Western log sales volumes and 14 percent decrease in price realizations due to weaker domestic and export markets.
These were partially offset by:
• $24 million increase in land sales and exchanges, including higher and better use lands; and
• Southern log sales volumes increased 152 percent, primarily due to sales of fiber logs to International Paper for use at locations that previously were owned by Weyerhaeuser, as well as grade log sales to domestic customers.
Intersegment sales
The $137 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; 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 $37 million decrease in net contribution to earnings consisted of:
• $45 million due to lower domestic and export prices and
• $32 million due to 35 percent reduced harvest in the West and 23 percent reduced harvest in the South.
These decreases were partially offset by:
• $21 million increase in recorded gains on the sale of non-strategic land; and
• $21 million reduction of operating costs, which includes less salvage logging, lower diesel costs and reduced spending on roads and silviculture.
Comparing Year-to-Date 2009 with Year-to-Date 2008
During year-to-date 2009:
• Net sales and revenues to unaffiliated customers decreased $56 million - 13 percent.
• Intersegment sales decreased $282 million - 50 percent.
• Net contribution to earnings decreased $109 million - 51 percent.
Net sales and revenues - unaffiliated customers
The $56 million decrease in net sales and revenues to unaffiliated customers resulted primarily from the following:
• Western log sales volumes decreased 31 percent and price realizations decreased 9 percent due to weaker domestic and export markets.
• Canadian log sales volumes decreased 84 percent due to lower logging levels in all provinces as a result of fewer manufacturing operations and production curtailments.
These decreases were partially offset by:
• Southern log sales volumes increased 125 percent, primarily due to sales of fiber logs to International Paper for use at locations that previously were owned by Weyerhaeuser, as well as grade log sales to domestic customers; and
• Average price realizations in the South increased 8 percent due to mix.
Intersegment sales
The $282 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; 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 $109 million decrease in net contribution to earnings consisted of:
• $74 million due to lower domestic and export prices in the West and South, and
• $69 million due to 36 percent reduced harvest in the West and 25 percent reduced harvest in the South.
These were partially offset by:
• $18 million reduction of operating costs which includes less salvage logging, lower diesel costs and reduced spending on roads and silviculture;
• $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; and
• $12 million reduction in selling, general and administrative costs.
Our Outlook
Excluding the effect of non-strategic land sales, we expect third quarter earnings from the segment to be lower than second quarter due to additional harvest deferrals and lower log sales realizations.
THIRD-PARTY LOG SALES VOLUMES AND FEE HARVEST VOLUMES
AMOUNT OF AMOUNT OF
QUARTER ENDED CHANGE YEAR-TO-DATE ENDED CHANGE
JUNE 30, JUNE 29, JUNE 30, JUNE 29,
VOLUMES IN THOUSANDS 2009 2008 2009 VS. 2008 2009 2008 2009 VS. 2008
Third party log sales - cubic meters:
West 1,283 1,954 (671 ) 2,373 3,431 (1,058 )
South 1,062 421 641 1,831 814 1,017
Canada 3 76 (73 ) 67 415 (348 )
International 73 98 (25 ) 150 128 22
Total 2,421 2,549 (128 ) 4,421 4,788 (367 )
Fee depletion - cubic meters:
West 1,910 2,921 (1,011 ) 3,588 5,599 (2,011 )
South 2,495 3,239 (744 ) 4,875 6,484 (1,609 )
Total 4,405 6,160 (1,755 ) 8,463 12,083 (3,620 )
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WOOD PRODUCTS
How We Did Second Quarter and Year-to-Date 2009
Here is a comparison of net sales and revenues to unaffiliated customers and net contribution to earnings for the quarters and year-to-date periods ended June 30, 2009, and June 29, 2008:
NET SALES AND REVENUES / NET CONTRIBUTION TO EARNINGS - WOOD PRODUCTS
AMOUNT OF AMOUNT OF
QUARTER ENDED CHANGE YEAR-TO-DATE ENDED CHANGE
JUNE 30, JUNE 29, JUNE 30, JUNE 29,
DOLLAR AMOUNTS IN MILLIONS 2009 2008 2009 VS. 2008 2009 2008 2009 VS. 2008
Net sales and revenues:
Softwood lumber $ 229 $ 403 $ (174 ) $ 451 $ 764 $ (313 )
Engineered solid section 62 121 (59 ) 117 226 (109 )
Engineered I-joists 43 86 (43 ) 76 159 (83 )
Oriented strand board 58 110 (52 ) 113 215 (102 )
Plywood 22 59 (37 ) 46 116 (70 )
Hardwood lumber 56 80 (24 ) 107 160 (53 )
Other products produced 39 51 (12 ) 82 100 (18 )
Other products purchased for resale 85 161 (76 ) 144 297 (153 )
Total $ 594 $ 1,071 $ (477 ) $ 1,136 $ 2,037 $ (901 )
Net contribution to earnings $ (162 ) $ (164 ) $ 2 $ (428 ) $ (441 ) $ 13
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Comparing Second Quarter 2009 with Second Quarter 2008
In second quarter 2009:
• Net sales and revenues decreased $477 million - 45 percent.
• Net contribution to earnings improved $2 million - 1 percent.
Net sales and revenues
Demand for wood products was significantly weaker in 2009 resulting in significant decreases in shipment volumes for all product lines. It also put downward pressure on prices for all of our product lines. The $477 million decrease in net sales and revenues was primarily due to the following:
• Softwood lumber average price realizations decreased 21 percent and shipment volumes decreased 28 percent.
• Engineered solid section average price realizations decreased 2 percent and shipment volumes decreased 48 percent.
• Engineered I-joists average price realizations decreased 5 percent and shipment volumes decreased 48 percent.
• Oriented strand board (OSB) average price realizations decreased 10 percent and shipment volumes decreased 41 percent.
• Plywood average price realizations decreased 16 percent and shipment volumes decreased 56 percent.
• Sales of other products purchased for resale decreased 47 percent primarily due to reduced product offerings.
Net contribution to earnings
Second quarter 2009 results were relatively flat compared to second quarter 2008 results. The $2 million increase in net contribution to earnings was primarily due to the following:
• $47 million decrease in raw materials, as log costs continue to decline;
• $38 million decrease in selling and administrative costs as a result of our continued focus on reducing costs;
• $16 million decrease in manufacturing and other cost of sales due to portfolio changes and increased operating efficiencies; and
• $9 million decrease in asset impairment charges.
These cost improvements were offset by:
• $84 million decrease in sales price realizations, especially for lumber, plywood and OSB;
• $16 million decrease in contributions from other products purchased for resale as a result of lower sales volumes and reduced product offerings; and
• $8 million decrease due to lower shipment volumes for all products.
Comparing Year-to-Date 2009 with Year-to-Date 2008
During year-to-date 2009:
• Net sales and revenues decreased $901 million - 44 percent.
• Net contribution to earnings improved $13 million - 3 percent.
Net sales and revenues
The $901 million decrease in net sales and revenues was primarily due to the following:
• Softwood lumber average price realizations decreased 17 percent and shipment volumes decreased 29 percent.
• Engineered solid section average price realizations decreased 3 percent and shipment volumes decreased 47 percent.
• Engineered I-joists average price realizations decreased 4 percent and shipment volumes decreased 51 percent.
• OSB average price realizations decreased 5 percent and shipment volumes decreased 45 percent.
• Plywood average price realizations decreased 10 percent and shipment volumes decreased 56 percent.
• Sales of other products purchased for resale decreased 52 percent primarily due to lower sales volumes.
Net contribution to earnings
The $13 million improvement in net contribution to earnings was primarily due to the following:
• $86 million decrease in raw materials, mainly due to lower log costs; . . .
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