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Form 10-Q for WEYERHAEUSER CO


1-Aug-2013

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 in this report, including with respect to an intended increase in our quarterly dividend, estimated tax rates, expected results of litigation and the sufficiency of litigation reserves, our expected capital expenditures for 2013, anticipated new borrowing to repay existing outstanding indebtedness of Longview Timber, our expectations relating to pension contributions and benefit payments, and recognition of certain tax benefits in the future.
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 level of competition from domestic and foreign producers;

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

raw material prices;

energy prices;

the effect of weather;

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

transportation 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 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 this document and 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 to the 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 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 June 30, 2013, compared to the quarter and year-to-date periods ended June 30, 2012.

CONSOLIDATED RESULTS
How We Did in Second Quarter and Year-to Date 2013
NET SALES / OPERATING INCOME / NET EARNINGS - WEYERHAEUSER COMPANY
Here is a comparison of net sales, operating income and net earnings for the
quarters and year-to-date periods ended June 30, 2013 and 2012:
                                                                  AMOUNT OF                                              AMOUNT OF
                                      QUARTER ENDED                CHANGE                YEAR-TO-DATE ENDED               CHANGE
DOLLAR AMOUNTS IN MILLIONS,
EXCEPT PER-SHARE FIGURES        JUNE 2013       JUNE 2012       2013 VS. 2012        JUNE 2013         JUNE 2012       2013 VS. 2012
Net sales                     $     2,141     $     1,793     $           348     $    4,092         $     3,287     $           805
Operating income              $       311     $       176     $           135     $      567         $       277     $           290
Net earnings attributable to
Weyerhaeuser common
shareholders                  $       196     $        84     $           112     $      340         $       125     $           215
Basic earnings per share
attributable to Weyerhaeuser
common shareholders           $      0.35     $      0.16     $          0.19     $     0.62         $      0.23     $          0.39
Diluted earnings per share
attributable to Weyerhaeuser
common shareholders           $      0.35     $      0.16     $          0.19     $     0.61         $      0.23     $          0.38

Comparing Second Quarter 2013 with Second Quarter 2012 Net sales
Net sales increased $348 million - 19 percent - primarily due to the following:
Wood Products segment sales increased $289 million, primarily due to higher price realizations and higher sales volumes across all major product lines.

Timberlands segment sales increased $71 million, primarily due to higher export and domestic log prices and increased sales volume.

Cellulose Fibers segment sales increased $17 million, primarily due to increased sales volumes which was partially offset by decreased price realizations.

These increases were partially offset by a decrease of $29 million in Real Estate segment sales as decreased land sales more than offset increased single-family homes sales.


Net earnings attributable to Weyerhaeuser common shareholders Our net earnings attributable to Weyerhaeuser common shareholders increased $112 million primarily from a $177 million increase in gross margin in our Wood Products, Timberlands and Cellulose Fibers segments. Our Wood Products and Timberlands segment increases were primarily due to higher price realizations and sales volumes. Increased gross margin in our Cellulose Fibers segment was primarily due to increased production, lower maintenance and contractor services cost and decreased fiber, chemical and energy cost. This was partially offset by:
a $51 million pretax gain recognized in 2012 related to a previously announced postretirement plan amendment; and

a $25 million increase in income taxes primarily due to higher income in our TRS in 2013 compared to 2012.

Comparing Year-to-Date 2013 with Year-to-Date 2012 Net sales
Net sales increased $805 million - 24 percent - primarily due to the following:
Wood Products segment sales increased $643 million, primarily due to higher price realizations and higher sales volumes across all major product lines.

Timberlands segment sales increased $114 million, primarily due to higher export and domestic log prices and increased sales volume.

Real Estate segment sales increased $30 million primarily due to increased home closings and improved average prices for homes closed.

Net earnings attributable to Weyerhaeuser common shareholders Our net earnings attributable to Weyerhaeuser common shareholders increased $215 million - primarily from a $378 million increase in gross margin in our Wood Products and Timberlands segments due to higher price realizations and higher sales volumes.
This was partially offset by:
a $103 million pretax gain recognized in 2012 related to a previously announced postretirement plan amendment; and

an $81 million increase in income taxes, primarily due to higher income in our TRS in 2013 compared to 2012.


TIMBERLANDS
How We Did Second Quarter and Year-to Date 2013
Here is a comparison of net sales to unaffiliated customers, intersegment sales,
and net contribution to earnings for the quarters and year-to-date periods ended
June 30, 2013 and 2012:

NET SALES / NET CONTRIBUTION TO EARNINGS - TIMBERLANDS
                                                                  AMOUNT OF
                                      QUARTER ENDED                 CHANGE              YEAR-TO-DATE ENDED           AMOUNT OF CHANGE
DOLLAR AMOUNTS IN MILLIONS      JUNE 2013        JUNE 2012      2013 VS. 2012       JUNE 2013        JUNE 2012         2013 VS. 2012
Net sales to unaffiliated
customers:
Logs:
West                          $     208        $       146     $           62     $        385     $       276     $            109
South                                65                 56                  9              126             106                   20
Canada                                2                  2                  -                9               9                    -
Subtotal logs sales                 275                204                 71              520             391                  129
Pay as cut timber sales               4                  3                  1                5               6                   (1 )
Chip sales                            2                  4                 (2 )              5              10                   (5 )
Timberlands exchanges(1)             14                  7                  7               16              15                    1
Higher and better-use land
sales(1)                              5                  5                  -                8               9                   (1 )
Minerals, oil and gas                 9                  7                  2               17              14                    3
Products from international
operations(2)                        22                 29                 (7 )             44              54                  (10 )
Other products                        2                  3                 (1 )             11              13                   (2 )
Subtotal net sales to
unaffiliated customers              333                262                 71              626             512                  114
Intersegment sales:
United States                       123                115                  8              250             227                   23
Other                                43                 31                 12              140             109                   31
Subtotal intersegment sales         166                146                 20              390             336                   54
Total sales                   $     499        $       408     $           91     $      1,016     $       848     $            168
Net contribution to earnings  $     114        $        77     $           37     $        218     $       147     $             71

(1) Significant dispositions of higher and better use timberland and some non-strategic timberlands are made through Forest Products subsidiaries.

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

Comparing Second Quarter 2013 with Second Quarter 2012 Net sales - unaffiliated customers
Net sales to unaffiliated customers increased $71 million - 27 percent - primarily from the following:
Western log sales increased $62 million due to higher export and domestic log prices and a 17 percent increase in sales volume as a result of increased export and domestic demand; and

Southern log sales increased $9 million due to higher log prices and an 11 percent increase in sales volumes as the result of increased harvest levels in response to increased third party demand.

Intersegment sales
Intersegment sales increased $20 million - 14 percent - primarily from:
a $12 million increase due to higher log prices and increased sales volumes in Canada; and

an $8 million increase, primarily due to higher log prices in the West and South.


Net contribution to earnings
Net contribution to earnings increased $37 million - 48 percent - primarily from:
a $25 million increase due to higher log prices in the West and South and

an $11 million increase due to higher sales volumes and demand for export and domestic logs in the West. Harvest levels increased 5 percent in the West.

Comparing Year-to-Date 2013 with Year-to-Date 2012 Net sales - unaffiliated customers
Net sales to unaffiliated customers increased $114 million - 22 percent - primarily from the following:
Western log sales increased $109 million due to higher export and domestic log prices and a 22 percent increase in sales volume as a result of increased export and domestic demand; and

Southern log sales increased $20 million due to higher log prices and a 13 percent increase in sales volume as the result of increased harvest levels in response to increased third party demand.

Intersegment sales
Intersegment sales increased $54 million - 16 percent - primarily from:
a $31 million increase, primarily due to higher log prices and total increased sales volume in Canada; and

a $23 million increase, primarily due to higher log prices in the West and South and increased sales volume in the West.

Net contribution to earnings
Net contribution to earnings increased $71 million - 48 percent - primarily from:
a $51 million increase due to higher log prices in the West and South; and

a $23 million increase due to higher sales volumes and demand for export and domestic logs in the West. Harvest levels increased 12 percent in the West.

THIRD-PARTY LOG SALES VOLUMES AND FEE HARVEST VOLUMES
                                                           AMOUNT OF
                                   QUARTER ENDED             CHANGE          YEAR-TO-DATE ENDED       AMOUNT OF CHANGE
VOLUMES IN THOUSANDS          JUNE 2013     JUNE 2012    2013 VS. 2012     JUNE 2013     JUNE 2012      2013 VS. 2012
Third party log sales - cubic
meters:
West                            1,812          1,551            261           3,486         2,859              627
South                           1,507          1,354            153           2,906         2,582              324
Canada                             38             54            (16 )           242           259              (17 )
International                      77             82             (5 )           145           160              (15 )
Total                           3,434          3,041            393           6,779         5,860              919
Fee harvest volumes - cubic
meters:
West                            1,921          1,831             90           3,916         3,510              406
South                           2,828          2,788             40           5,661         5,502              159
International                     167            161              6             364           333               31
Total                           4,916          4,780            136           9,941         9,345              596


WOOD PRODUCTS
How We Did Second Quarter and Year-to Date 2013
Here is a comparison of net sales to unaffiliated customers and net contribution
to earnings for the quarters and year-to-date periods ended June 30, 2013 and
2012:

NET SALES / NET CONTRIBUTION TO EARNINGS - WOOD PRODUCTS
                                                                 AMOUNT OF
                                     QUARTER ENDED                CHANGE                YEAR-TO-DATE ENDED           AMOUNT OF CHANGE
DOLLAR AMOUNTS IN MILLIONS     JUNE 2013       JUNE 2012       2013 VS. 2012        JUNE 2013         JUNE 2012        2013 VS. 2012
Net sales:
Structural lumber             $      502     $       370     $           132     $      953         $       661     $             292
Engineered solid section              84              70                  14            166                 135                    31
Engineered I-joists                   60              49                  11            116                  90                    26
Oriented strand board                224             138                  86            460                 249                   211
Softwood plywood                      41              26                  15             77                  49                    28
Other products produced               44              44                   -             87                  86                     1
Complementary products
purchased for resale                 110              79                  31            194                 140                    54
Total                         $    1,065     $       776     $           289     $    2,053         $     1,410     $             643
Net contribution to earnings  $      136     $        36     $           100     $      314         $        23     $             291

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 Second Quarter 2013 with Second Quarter 2012 Net sales
Net sales increased $289 million - 37 percent - primarily from the following:
Structural lumber shipment volumes increased 9 percent and average price realizations increased 24 percent.

OSB shipment volumes increased 5 percent and average price realizations increased 55 percent.

Engineered solid section shipment volumes increased 13 percent and average price realizations increased 7 percent.

Engineered I-joists shipment volumes increased 10 percent and average price realizations increased 12 percent.

Softwood plywood shipment volumes increased 33 percent and average price realizations increased 14 percent .

Complementary products purchased for resale increased 39 percent.

Net contribution to earnings
Net contribution to earnings increased $100 million primarily from:
a $168 million increase, primarily due to higher price realizations across all major products; and

a $10 million increase in sales volumes across all major products.


These increases were partially offset by:
a $31 million increase in log cost due to continued strong lumber demand and increasing log prices;

a $23 million increase in manufacturing costs due to higher raw material, maintenance and labor costs; and

a $9 million increase in freight expense due to higher shipment volumes.

Comparing Year-to-Date 2013 with Year-to-Date 2012 Net sales
Net sales increased $643 million - 46 percent - primarily from the following:
Structural lumber shipment volumes increased 9 percent and average price realizations increased 32 percent.

OSB shipment volumes increased 10 percent and average price realizations increased 67 percent.

Engineered solid section shipment volumes increased 17 percent and average price realizations increased 4 percent.

Engineered I-joists shipment volumes increased 21 percent and average price realizations increased 7 percent.

Softwood plywood shipment volumes increased 34 percent and average price realizations increased 17 percent.

Complementary products purchased for resale increased 39 percent.

Net contribution to earnings
Net contribution to earnings increased $291 million primarily from:
a $383 million increase, primarily due to higher price realizations across all major products; and

a $21 million increase in sales volumes across all major products.

These increases were partially offset by:
a $54 million increase in log cost due to continued strong lumber demand and increasing log prices;

a $36 million increase in manufacturing costs due to higher raw material, maintenance and labor costs; and

a $26 million increase in freight expense due to higher shipment volumes.

THIRD-PARTY SALES VOLUMES
                                                            AMOUNT OF
                                   QUARTER ENDED             CHANGE           YEAR-TO-DATE ENDED        AMOUNT OF CHANGE
VOLUMES IN MILLIONS(1)        JUNE 2013     JUNE 2012     2013 VS. 2012     JUNE 2013     JUNE 2012      2013 VS. 2012
Structural lumber - board
feet                            1,156          1,056               100         2,181         1,993                  188
Engineered solid section -
cubic feet                        4.4            3.9               0.5           8.8           7.5                  1.3
Engineered I-joists - lineal
feet                               44             40                 4            87            72                   15
Oriented strand board -
square feet (3/8")                675            643                32         1,332         1,208                  124
Softwood plywood - square
feet (3/8")                       108             81                27           207           154                   53

(1) Sales volumes include sales of internally produced products and products purchased for resale primarily through our distribution business.


PRODUCTION AND OUTSIDE PURCHASE VOLUMES
Outside purchase volumes are primarily purchased for resale through our
distribution business. Production volumes are produced for sale through our own
sales organizations and through our distribution business. Production of OSB and
engineered solid section are also used to manufacture engineered I-joists.
                                                           AMOUNT OF
                                   QUARTER ENDED             CHANGE          YEAR-TO-DATE ENDED        AMOUNT OF CHANGE
VOLUMES IN MILLIONS           JUNE 2013     JUNE 2012    2013 VS. 2012     JUNE 2013     JUNE 2012      2013 VS. 2012
Structural lumber - board
feet:
Production                      1,053          1,004             49           2,074         1,962                  112
Outside purchase                   77             47             30             179            79                  100
Total                           1,130          1,051             79           2,253         2,041                  212
Engineered solid section -
cubic feet:
Production                        4.6            3.8            0.8             9.2           7.5                  1.7
Outside purchase                  0.4            0.2            0.2             1.3           1.2                  0.1
Total                             5.0            4.0            1.0            10.5           8.7                  1.8
Engineered I-joists - lineal
feet:
Production                         42             37              5              86            71                   15
Outside purchase                    1              2             (1 )             4             4                    -
Total                              43             39              4              90            75                   15
Oriented strand board -
square feet (3/8"):
Production                        663            626             37           1,325         1,227                   98
Outside purchase                   56             48              8             124            80                   44
Total                             719            674             45           1,449         1,307                  142
Softwood plywood - square
feet (3/8"):
Production                         63             50             13             124           101                   23
Outside purchase                   33             29              4              75            54                   21
Total                              96             79             17             199           155                   44

CELLULOSE FIBERS
How We Did in Second Quarter and Year-to Date 2013
Here is a comparison of net sales and net contribution to earnings for the
quarters and year-to-date periods ended June 30, 2013 and 2012:

NET SALES / NET CONTRIBUTION TO EARNINGS - CELLULOSE FIBERS
                                                                  AMOUNT OF                                          AMOUNT OF
                                      QUARTER ENDED                 CHANGE             YEAR-TO-DATE ENDED              CHANGE
DOLLAR AMOUNTS IN MILLIONS      JUNE 2013        JUNE 2012      2013 VS. 2012       JUNE 2013       JUNE 2012      2013 VS. 2012
Net sales:
Pulp                          $     369        $       348     $           21     $     740       $       715     $           25
Liquid packaging board               86                 90                 (4 )         171               173                 (2 )
Other products                       21                 21                  -            39                44                 (5 )
Total                         $     476        $       459     $           17     $     950       $       932     $           18
Net contribution to earnings  $      57        $        36     $           21     $      88       $        84     $            4


Comparing Second Quarter 2013 with Second Quarter 2012 Net sales . . .

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