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WY > SEC Filings for WY > Form 10-Q on 2-Nov-2012All Recent SEC Filings

Show all filings for WEYERHAEUSER CO

Form 10-Q for WEYERHAEUSER CO


2-Nov-2012

Quarterly Report


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ("MD&A")

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 statements:
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 significantly 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 other variations of those terms.

STATEMENTS
We make forward-looking statements of our expectations regarding fourth quarter 2012, including:
slightly improved selling prices and comparable sales volumes for Western logs, slightly lower Southern log realizations due to mix and a small seasonal increase in fee harvest volume, increased silviculture costs, earnings from non-strategic land sales expected to be flat and comparable earnings in our Timberlands segment;

a seasonal decline in pricing and demand and lower earnings in our Wood Products segment;

lower selling prices for fluff pulp, increased sales volumes, lower maintenance expense, somewhat higher energy costs and comparable earnings in our Cellulose Fiber segment; and

a seasonal increase in home closings, lower average margins due to mix, higher selling expenses due to additional volume and slightly lower earnings from single-family homebuilding operations in our Real Estate segment.

We base our forward-looking statements on a number of factors, including the expected effect of:
the economy;

regulations;

adverse litigation outcomes and the adequacy of reserves;

changes in accounting principles;

contributions to pension plans;

projected benefit payments;

projected tax rates and credits; and

other related matters.


RISKS, UNCERTAINTIES AND ASSUMPTIONS
The major risks and uncertainties - and assumptions that we make - that affect our business and may cause actual results to differ from these forward-looking statements include, but are not limited to:
the effect of general economic conditions, including employment rates, housing starts, interest rate levels, availability of financing for home mortgages and strength of the U.S. dollar;

market demand for our products, which is related to the strength of the various U.S. business segments and U.S. and international economic conditions;

performance of our manufacturing operations, including maintenance requirements;

the successful execution of our internal performance plans, including restructurings and cost reduction initiatives;

the level of competition from domestic and foreign producers;

the effect of weather;

the risk of loss from fires, floods, windstorms, hurricanes, pest infestation and other natural disasters;

raw material prices;

energy prices;

transportation costs;

the effect of forestry, land use, environmental and other governmental regulations;

federal tax policies;

legal proceedings;

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;

changes in accounting principles; and

other factors described under "Risk Factors" in our annual report on Form 10-K.

EXPORTING ISSUES
We are a large exporter, affected by changes in:
economic activity in Europe and Asia - particularly Japan and China;

currency exchange rates - particularly the relative value of the U.S. dollar to the euro and Canadian dollar and the relative value of the euro and yen; and

restrictions on international trade or tariffs imposed on imports.


RESULTS OF OPERATIONS
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) attributable to Weyerhaeuser shareholders before interest expense and income taxes.

In reviewing our results of operations, it is important to understand net sales and revenues and operating income included in Consolidated Results and individual segment discussions below exclude the results of discontinued operations. Refer to Note 4: 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 periods ended September 30, 2012, compared to the quarter and year-to-date periods ended September 30, 2011.

CONSOLIDATED RESULTS
How We Did in Third Quarter and Year-to-Date 2012
NET SALES AND REVENUES / OPERATING INCOME / NET EARNINGS - WEYERHAEUSER COMPANY
Here is a comparison of net sales and revenues to unaffiliated customers,
operating income and net earnings for the quarters and year-to-date periods
ended September 30, 2012 and 2011:
                                                                             AMOUNT OF                                                   AMOUNT OF
                                             QUARTER ENDED                     CHANGE                  YEAR-TO-DATE ENDED                  CHANGE
DOLLAR AMOUNTS IN MILLIONS,
EXCEPT PER-SHARE FIGURES          SEPTEMBER 2012       SEPTEMBER 2011      2012 VS. 2011      SEPTEMBER 2012       SEPTEMBER 2011      2012 VS. 2011
Net sales and revenues          $          1,772     $          1,569     $          203     $     5,059         $          4,601     $          458
Operating income                $            202     $            100     $          102     $       479         $            463     $           16
Earnings of discontinued
operations, net of tax          $              -     $             24     $          (24 )   $         -         $             12     $          (12 )
Net earnings attributable to
Weyerhaeuser common
shareholders                    $            117     $            157     $          (40 )   $       242         $            266     $          (24 )
Net earnings per share
attributable to Weyerhaeuser
common shareholders, basic and
diluted                         $           0.22     $           0.29     $        (0.07 )   $      0.45         $           0.49     $        (0.04 )

Comparing Third Quarter 2012 with Third Quarter 2011 Net sales and revenues
Net sales and revenues increased $203 million - 13 percent - primarily due to the following:
Wood Products segment sales increased $213 million, primarily due to higher sales volumes across all major product lines and improved selling prices for lumber, oriented strand board (OSB) and plywood;

Real Estate segment sales increased $19 million as increased home closings more than offset lower average prices for homes closed; and

Timberlands segment sales increased $15 million, primarily due to increased timberlands exchanges.

These increases were partially offset by a decrease of $44 million in Cellulose Fibers segment sales, primarily due to lower pulp price realizations.


Net earnings attributable to Weyerhaeuser common shareholders Our net earnings attributable to Weyerhaeuser common shareholders decreased $40 million - 25 percent - primarily from:
a $117 million change in income taxes due to the change in discrete tax items and higher income in our TRS in third quarter 2012 compared to third quarter 2011;

a $24 million decrease in net earnings of discontinued operations; and

a $21 million increase in selling, general and administrative expenses, primarily due to increased share-based compensation expense in Unallocated Items as the result of a higher stock price in 2012 compared to 2011.

These decreases in our net earnings were partially offset by:
gross margin increased $62 million, primarily due to higher price realizations of lumber, OSB and plywood in our Wood Products segment partially offset by lower pulp price realizations in our Cellulose Fibers segment;

charges for restructuring, closures and asset impairments decreased $31 million; and

a $31 million increase in other operating income, primarily due to change in foreign exchange as a result of a stronger Canadian dollar relative to the U.S. dollar in 2012.

Comparing Year-to-Date 2012 with Year-to-Date 2011 Net sales and revenues
Net sales and revenues increased $458 million - 10 percent - primarily due to the following:
Wood Products segment sales increased $492 million, primarily due to higher sales volumes across all major product lines and improved selling prices for lumber, OSB and plywood; and

Real Estate segment sales increased $101 million, primarily due to the sale of a 3,200 acre master planned community in Houston, Texas.

These increases were partially offset by a $144 million decrease in Cellulose Fibers segment sales, primarily due to lower pulp price realizations. Net earnings attributable to Weyerhaeuser common shareholders Our net earnings attributable to Weyerhaeuser common shareholders decreased $24 million - 9 percent - primarily from:
a pretax gain of $152 million on the sale of 82,000 acres of non-strategic timberlands in 2011; and

a $67 million increase in income taxes primarily due to the change in discrete tax items.

These decreases in our net earnings were partially offset by:
a $103 million pretax gain recognized in 2012 related to a previously announced postretirement plan amendment;

a $36 million decrease in interest expense due to lower charges associated with the early extinguishment of debt and lower interest due to a lower level of debt;

gross margin increased $31 million, primarily due to higher price realizations of lumber, OSB and plywood in our Wood Products segment partially offset by lower pulp price realizations in our Cellulose Fibers segment and fewer timberland exchanges and lower mineral income in our Timberlands segment; and

charges for restructuring, closures and asset impairments decreased $26 million.


TIMBERLANDS
How We Did Third Quarter and Year-to-Date 2012
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 September 30, 2012 and 2011:

NET SALES AND REVENUES / NET CONTRIBUTION TO EARNINGS - TIMBERLANDS
                                                                           AMOUNT OF
                                            QUARTER ENDED                   CHANGE                  YEAR-TO-DATE ENDED              AMOUNT OF CHANGE
DOLLAR AMOUNTS IN MILLIONS       SEPTEMBER 2012      SEPTEMBER 2011      2012 VS. 2011     SEPTEMBER 2012       SEPTEMBER 2011        2012 VS. 2011
Net sales and revenues to
unaffiliated customers:
Logs:
West                            $       132        $            144     $         (12 )   $       408         $            406     $             2
South                                    60                      53                 7             166                      143                  23
Canada                                    5                       4                 1              14                       12                   2
Subtotal logs sales and
revenues                                197                     201                (4 )           588                      561                  27
Pay as cut timber sales                   8                       9                (1 )            28                       25                   3
Timberlands exchanges(1)                 24                       2                22              39                       62                 (23 )
Higher and better-use land
sales(1)                                  4                       5                (1 )            13                       11                   2
Minerals, oil and gas                     8                      14                (6 )            22                       43                 (21 )
Products from international
operations(2)                            26                      21                 5              80                       59                  21
Other products                            -                       -                 -               9                        9                   -
Subtotal net sales and revenues
to unaffiliated customers               267                     252                15             779                      770                   9
Intersegment sales:
United States                           103                     102                 1             330                      321                   9
Other                                    59                      52                 7             168                      158                  10
Subtotal intersegment sales             162                     154                 8             498                      479                  19
Total sales and revenues        $       429        $            406     $          23     $     1,277         $          1,249     $            28
Net contribution to earnings    $        80        $             61     $          19     $       227         $            420     $          (193 )

(1) Sales of higher and better use timberland and non-strategic timberlands are conducted through Forest Products subsidiaries.

(2) Includes logs, plywood and hardwood lumber harvested or produced by our international operations, primarily in South America.

Comparing Third Quarter 2012 with Third Quarter 2011 Net sales and revenues - unaffiliated customers Net sales and revenues to unaffiliated customers increased $15 million - 6 percent - primarily from the following:
a $22 million increase in timberlands exchanges;

Southern log sales increased $7 million due to higher log prices and a 7 percent increase in sales volumes as the result of increased harvest levels in response to increased third party demand; and

a $5 million increase in sales from our international operations due to a 13 percent increase in plywood prices and a 27 percent increase in plywood sales volumes.


The above items were partially offset by:
Western log sales decreased $12 million primarily due to lower export and domestic log prices, partially offset by increased sales volumes of 7 percent; and

a $6 million decrease in minerals, oil and gas revenue primarily due to lower natural gas prices.

Net contribution to earnings
Net contribution to earnings increase $19 million - 31 percent - primarily from:
a $21 million increase in land exchanges and higher and better-use land sales;

a $6 million increase due to higher sales volumes and demand for domestic logs, harvest levels increased 11 percent in both the West and South; and

a $5 million increase due to higher log prices in the South.

These increases were partially offset by a $13 million decrease due to lower export and domestic log prices in the West.

Comparing Year-to-Date 2012 with Year-to-Date 2011 Net sales and revenues - unaffiliated customers Net sales and revenues to unaffiliated customers increased $9 million - 1 percent - notable items include:
Southern log sales increased $23 million due to increased sales volumes of 13 percent as a result of increased harvest levels in response to increased third party demand; and

a $21 million increase in sales from our international operations, primarily due to increased plywood prices of 11 percent and a 39 percent increase in plywood sales volumes.

The above items were partially offset by:
a $23 million decrease in timberlands exchanges; and

a $21 million decrease in minerals, oil and gas revenue primarily due to lower natural gas prices.

Net contribution to earnings
Net contribution to earnings decreased $193 million - 46 percent - primarily from:
a $152 million decrease due to the sale of 82,000 acres of non-strategic timberlands in 2011;

a $34 million decrease as the mix of export log sales compared to domestic log sales decreased in the West and both domestic and export log prices were lower in the West;

a $21 million decrease in mineral income as a result of lower natural gas prices;

a $15 million decrease due to fewer timberlands exchanges and higher and better-use land sales; and

an $11 million increase in operating costs, primarily due to increased logging and maintenance costs.

The above items were partially offset by:
a $31 million increase, primarily due to higher sales volumes and demand for domestic and export logs, harvest levels increased 7 percent in the West and 18 percent in the South; and

a $7 million increase in earnings from our international operations, primarily due to higher plywood prices and sales volumes.


Our Outlook
We expect comparable earnings from the Timberlands segment in fourth quarter. We
expect seasonally higher fee harvest volumes and slightly improved selling
prices for Western logs in export and domestic markets, offset by increased
silviculture costs, primarily in the South.

THIRD-PARTY LOG SALES VOLUMES AND FEE HARVEST VOLUMES
                                                                      AMOUNT OF
                                         QUARTER ENDED                  CHANGE               YEAR-TO-DATE ENDED            AMOUNT OF CHANGE
VOLUMES IN THOUSANDS           SEPTEMBER 2012     SEPTEMBER 2011    2012 VS. 2011    SEPTEMBER 2012     SEPTEMBER 2011      2012 VS. 2011
Third party log sales - cubic
meters:
West                                1,480                 1,385             95           4,339                  3,871                468
South                               1,430                 1,336             94           4,012                  3,552                460
Canada                                133                   116             17             392                    333                 59
International                          99                    88             11             259                    239                 20
Total                               3,142                 2,925            217           9,002                  7,995              1,007
Fee harvest volumes - cubic
meters:
West                                1,784                 1,604            180           5,294                  4,962                332
South                               2,809                 2,535            274           8,311                  7,070              1,241
International                         198                   270            (72 )           531                    589                (58 )
Total                               4,791                 4,409            382          14,136                 12,621              1,515

WOOD PRODUCTS
How We Did Third Quarter and Year-to-Date 2012
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
September 30, 2012 and 2011:

NET SALES AND REVENUES / NET CONTRIBUTION TO EARNINGS - WOOD PRODUCTS
                                                                          AMOUNT OF
                                          QUARTER ENDED                    CHANGE                  YEAR-TO-DATE ENDED             AMOUNT OF CHANGE
DOLLAR AMOUNTS IN MILLIONS      SEPTEMBER 2012     SEPTEMBER 2011       2012 VS. 2011      SEPTEMBER 2012      SEPTEMBER 2011       2012 VS. 2011
Net sales and revenues:
Structural lumber              $        363       $         281       $            82     $      1,024        $         831      $             193
Engineered solid section                 76                  63                    13              211                  180                     31
Engineered I-joists                      53                  43                    10              143                  124                     19
Oriented strand board                   169                  96                    73              418                  264                    154
Softwood plywood                         34                  18                    16               83                   48                     35
Other products produced                  41                  37                     4              127                  108                     19
Other products purchased for
resale                                   80                  65                    15              220                  179                     41
Net sales and revenues from
continuing operations          $        816       $         603       $           213     $      2,226        $       1,734      $             492
Net contribution to earnings
from continuing operations               59                 (80 )                 139               82                 (166 )                  248
Net contribution to earnings
from discontinued operations              -                 (17 )                  17                -                  (25 )                   25
Net contribution to earnings   $         59       $         (97 )     $           156     $         82        $        (191 )    $             273


Overall performance in our Wood Products segment improved year over year. We continue to focus on reducing costs and increasing revenues by broadening our customer base; introducing new products; growing our specialty, as well as commodity building products business; and improving our operational capabilities. These improvement efforts and better market conditions, have resulted in higher production rates in all primary product lines. Comparing Third Quarter 2012 with Third Quarter 2011 Net sales and revenues
Net sales and revenues increased $213 million - 35 percent - primarily from the following:
Structural lumber shipment volumes increased 8 percent and average price realizations increased 19 percent.

OSB shipment volumes increased 15 percent and average price realizations increased 52 percent.

Engineered solid section shipment volumes increased 24 percent.

Engineered I-joists shipment volumes increased 26 percent.

Softwood plywood shipment volumes increased 38 percent and average price realizations increased 37 percent.

Other products purchased for resale increased 23 percent.

Net contribution to earnings
Net contribution to earnings increased $156 million primarily from:
a $122 million increase as higher lumber, OSB and plywood price realizations more than offset lower prices for engineered I-joists and engineered solid section;

a $36 million decrease in restructuring, closures and asset impairments;

a $7 million increase in sales volumes across all products; and

2011 included a $17 million loss from discontinued operations.

These increases were partially offset by:
an $11 million increase in freight expense due to higher shipment volumes; and

a $7 million increase in selling, general and administrative expenses, primarily due to increased sales.

Comparing Year-to-Date 2012 with Year-to-Date 2011 Net sales and revenues
Net sales and revenues increased $492 million - 28 percent - primarily from the following:
Structural lumber shipment volumes increased 10 percent and average price realizations increased 12 percent.

OSB shipment volumes increased 26 percent and average price realizations increased 25 percent.

Engineered solid section shipment volumes increased 27 percent.

Engineered I-joists shipment volumes increased 17 percent.

Softwood plywood shipment volumes increased 35 percent and average price realizations increased 28 percent.

Other products produced increased 18 percent.

Other products purchased for resale increased 23 percent.

The above items were partially offset by a decrease of 8 percent in engineered solid section average price realizations.


Net contribution to earnings
Net contribution to earnings increased $273 million primarily from:
a $204 million increase as higher lumber, OSB and plywood price realizations more than offset lower prices for engineered I-joists and engineered solid section;

a $39 million decrease in restructuring, closures and asset impairments;

a $17 million increase in sales volumes across all products;

by-product sales increased $16 million as the result of higher lumber production volumes;

manufacturing and other costs decreased $9 million, primarily due to increased operating rates;

log costs decreased $9 million, primarily due to lower domestic prices in the West and South; and

2011 included a $25 million loss from discontinued operations.

These increases were partially offset by:
a $36 million increase in freight expense due to higher shipment volumes; and

an $8 million increase in selling, general and administrative expenses, primarily due to increased sales.

Our Outlook
We anticipate lower earnings from the Wood Products segment in fourth quarter
due to seasonal declines in pricing and demand for most products.

THIRD-PARTY SALES VOLUMES
                                                                      AMOUNT OF
                                        QUARTER ENDED                  CHANGE              YEAR-TO-DATE ENDED          AMOUNT OF CHANGE
                                                                                      SEPTEMBER
VOLUMES IN MILLIONS           SEPTEMBER 2012     SEPTEMBER 2011     2012 VS. 2011       2012        SEPTEMBER 2011      2012 VS. 2011
Structural lumber - board
feet                               1,013                   934                79         3,006              2,723                  283
Engineered solid section -
cubic feet                           4.2                   3.4               0.8          11.7                9.2                  2.5
. . .
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