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WY > SEC Filings for WY > Form 10-Q on 30-Apr-2014All Recent SEC Filings

Show all filings for WEYERHAEUSER CO

Form 10-Q for WEYERHAEUSER CO


30-Apr-2014

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 estimated tax rates, future dividends, future restructuring charges, expected results of litigation and the sufficiency of litigation reserves, the anticipated timing of closing the TRI Pointe/WRECO transaction, our expected capital expenditures for 2014 and our expectations relating to pension contributions and benefit payments. Such forward-looking statements also include statements regarding the proposed transaction with TRI Pointe relating to our homebuilding and real estate development business, the anticipated timing and benefits of such transaction and tax implications relating to such transaction. In addition, 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;

raw material availability and prices;

the effect of weather;

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

energy prices;

the successful execution of our internal plans and strategic initiatives;

transportation availability and costs;

federal tax policies;

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

legal proceedings;

performance of pension fund investments and related derivatives;

the effect of timing of retirements and changes in the market price of our common stock on charges for share-based compensation;

changes in accounting principles;

our ability to successfully integrate operations of Longview Timber and realize expected benefits from the acquisition;

our and TRI Pointe's ability to complete the transaction relating to our homebuilding and real estate development business, on the anticipated terms and schedule, including the ability to obtain shareholder and regulatory approvals and the anticipated tax treatment of the transactions and related transactions; 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, especially 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:
Sales 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, sales realizations, shipment volumes, and net contributions to earnings are based on the quarter ended March 31, 2014, compared to the quarter ended March 31, 2013.

CONSOLIDATED RESULTS
How We Did in First Quarter 2014
NET SALES / OPERATING INCOME / NET EARNINGS - WEYERHAEUSER COMPANY
Here is a comparison of net sales, operating income and net earnings for the
quarters ended March 31, 2014 and 2013:
                                                                                              AMOUNT OF
                                                                 QUARTER ENDED                 CHANGE
DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURES      MARCH 2014       MARCH 2013       2014 VS. 2013
Net sales                                               $      1,984     $      1,951     $            33
Operating income                                        $        324     $        256     $            68
Net earnings attributable to Weyerhaeuser common
shareholders                                            $        183     $        144     $            39
Net earnings per share attributable to Weyerhaeuser
common shareholders, basic and diluted                  $       0.31     $       0.26     $          0.05

Comparing First Quarter 2014 with First Quarter 2013 Net sales
Net sales increased $33 million - 2 percent - primarily due to the following:
Timberlands segment sales increased $84 million, primarily due to higher export and domestic log prices and increased sales volume in the West and from the purchase of Longview Timber.

Real Estate segment sales increased $52 million, primarily due to increased home closings and improved average prices for homes closed.

These increases were partially offset by:
a $90 million decrease in our Wood Products segment sales, primarily due to lower sales realizations and lower shipment volumes for structural lumber and oriented strand board (OSB); and

a $13 million decrease in our Cellulose Fibers segment sales, primarily due to lower sales volumes for pulp and liquid packaging board.


Net earnings attributable to Weyerhaeuser common shareholders Our net earnings attributable to Weyerhaeuser common shareholders increased $39 million - 27 percent - primarily due to the following:
a $99 million increase in gross margin in our Timberlands, Cellulose Fibers and Real Estate segments. Our Timberlands and Cellulose Fibers segment increases were primarily due to higher sales realizations and the purchase of Longview Timber. Increased gross margin in our Real Estate segment was primarily due to increased single-family home closings and improved average prices for homes closed.

a $56 million increase in other operating income, primarily due to a $45 million pretax gain recognized in 2014 related to a previously announced postretirement plan amendment.

These increases were partially offset by a $110 million decrease in gross margin in our Wood Products segment, primarily due to lower sales realizations in OSB and lumber.

TIMBERLANDS
How We Did First Quarter 2014
Here is a comparison of net sales to unaffiliated customers, intersegment sales,
and net contribution to earnings for the quarters ended March 31, 2014 and 2013:

NET SALES / NET CONTRIBUTION TO EARNINGS - TIMBERLANDS
                                                                                             AMOUNT OF
                                                                 QUARTER ENDED                 CHANGE
DOLLAR AMOUNTS IN MILLIONS                                MARCH 2014       MARCH 2013      2014 VS. 2013
Net sales to unaffiliated customers:
Logs:
West                                                    $     257        $        177     $           80
South                                                          62                  61                  1
Canada                                                          6                   7                 (1 )
Subtotal logs sales                                           325                 245                 80
Chip sales                                                      3                   3                  -
Timberlands exchanges(1)                                        4                   2                  2
Higher and better-use land sales(1)                             3                   3                  -
Minerals, oil and gas                                           7                   8                 (1 )
Products from international operations(2)                      24                  22                  2
Other products                                                 11                  10                  1
Subtotal net sales to unaffiliated customers                  377                 293                 84
Intersegment sales:
United States                                                 143                 127                 16
Other                                                          95                  97                 (2 )
Subtotal intersegment sales                                   238                 224                 14
Total sales                                             $     615        $        517     $           98
Net contribution to earnings                            $     164        $        104     $           60

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

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


On July 23, 2013, we purchased 100 percent of the equity interests in Longview Timber LLC (Longview Timber) for cash and assumed debt. The sales and net contribution to earnings of our acquired entity from the acquisition date forward are included in the West results of our Timberlands segment. Longview Timber was and continues to be a supplier to our Wood Products segment and those sales are shown in intersegment sales.

Comparing First Quarter 2014 with First Quarter 2013 Net sales - unaffiliated customers
Net sales to unaffiliated customers increased $84 million - 29 percent - driven by an $80 million increase in Western log sales due to higher export and domestic log prices and a 34 percent increase in sales volume as a result of increased export demand and from the purchase of Longview Timber. Intersegment sales
Intersegment sales increased $14 million - 6 percent - primarily from a $16 million increase due to higher log prices in our legacy Western and Southern timberlands.
Net contribution to earnings
Net contribution to earnings increased $60 million - 58 percent - primarily from:
a $38 million increase due to the purchase of Longview Timber,

a $37 million increase due to higher log prices in our legacy Western timberlands and the South; and

a $7 million increase due to higher sales volumes and demand for export logs in our legacy Western timberlands.

The above items were partially offset by a $24 million increase in operating costs in our legacy Western timberlands primarily due to increased harvest levels and outside purchased logs.

THIRD-PARTY LOG SALES VOLUMES AND FEE HARVEST VOLUMES
                                                                    AMOUNT OF
                                            QUARTER ENDED             CHANGE
VOLUMES IN THOUSANDS                  MARCH 2014    MARCH 2013    2014 VS. 2013
Third party log sales - cubic meters:
West                                     2,246           1,674           572
South                                    1,385           1,399           (14 )
Canada                                     156             204           (48 )
International                              147              68            79
Total                                    3,934           3,345           589
Fee harvest volumes - cubic meters:
West                                     2,875           1,995           880
South                                    2,866           2,833            33
International                              249             197            52
Total                                    5,990           5,025           965


WOOD PRODUCTS
How We Did First Quarter 2014
Here is a comparison of net sales to unaffiliated customers and net contribution
to earnings for the quarters ended March 31, 2014 and 2013:

NET SALES / NET CONTRIBUTION TO EARNINGS - WOOD PRODUCTS
                                                                                             AMOUNT OF
                                                                 QUARTER ENDED                CHANGE
DOLLAR AMOUNTS IN MILLIONS                                MARCH 2014       MARCH 2013      2014 VS. 2013
Net sales:
Structural lumber                                       $     427        $        451     $         (24 )
Engineered solid section                                       90                  82                 8
Engineered I-joists                                            59                  56                 3
Oriented strand board                                         148                 236               (88 )
Softwood plywood                                               30                  36                (6 )
Other products produced                                        42                  43                (1 )
Complementary products purchased for resale                   102                  84                18
Total                                                   $     898        $        988     $         (90 )
Net contribution to earnings                            $      64        $        178     $        (114 )


Comparing First Quarter 2014 with First Quarter 2013
Net sales

Net sales decreased $90 million - 9 percent - primarily from the following:
Structural lumber shipment volumes decreased 4 percent and average sales realizations decreased 2 percent.

OSB shipment volumes decreased 2 percent and average sales realizations decreased 36 percent.

These items were partially offset by an increase of 21 percent of complementary products purchased for resale.
Net contribution to earnings
Net contribution to earnings decreased $114 million - 64 percent - primarily from:
an $86 million decrease, primarily due to lower sales realizations in OSB and lumber;

a $16 million increase in log cost due to increasing log prices; and

a $9 million increase in manufacturing costs due to adverse weather and startup of our Evergreen, Alabama engineered lumber facility.


THIRD-PARTY SALES VOLUMES
                                                                         AMOUNT OF
                                                 QUARTER ENDED             CHANGE
VOLUMES IN MILLIONS(1)                     MARCH 2014    MARCH 2013    2014 VS. 2013
Structural lumber - board feet                989             1,025           (36 )
Engineered solid section - cubic feet         4.6               4.4           0.2
Engineered I-joists - lineal feet              40                43            (3 )
Oriented strand board - square feet (3/8")    641               657           (16 )
Softwood plywood - square feet (3/8")          90                99            (9 )

(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
VOLUMES IN MILLIONS                         MARCH 2014    MARCH 2013    2014 VS. 2013
Structural lumber - board feet:
Production                                     1,009           1,021           (12 )
Outside purchase                                  78             102           (24 )
Total                                          1,087           1,123           (36 )
Engineered solid section - cubic feet:
Production                                       4.9             4.6           0.3
Outside purchase                                 1.8             0.9           0.9
Total                                            6.7             5.5           1.2
Engineered I-joists - lineal feet:
Production                                        44              44             -
Outside purchase                                   1               3            (2 )
Total                                             45              47            (2 )
Oriented strand board - square feet (3/8"):
Production                                       657             662            (5 )
Outside purchase                                  53              68           (15 )
Total                                            710             730           (20 )
Softwood plywood - square feet (3/8"):
Production                                        59              61            (2 )
Outside purchase                                  33              42            (9 )
Total                                             92             103           (11 )


CELLULOSE FIBERS
How We Did in First Quarter 2014
Here is a comparison of net sales and net contribution to earnings for the
quarters ended March 31, 2014 and 2013:

NET SALES / NET CONTRIBUTION TO EARNINGS - CELLULOSE FIBERS
                                                                AMOUNT OF
                                     QUARTER ENDED               CHANGE
DOLLAR AMOUNTS IN MILLIONS    MARCH 2014      MARCH 2013      2014 VS. 2013
Net sales:
Pulp                         $    363        $        371    $          (8 )
Liquid packaging board             80                  85               (5 )
Other products                     18                  18                -
Total                        $    461        $        474    $         (13 )
Net contribution to earnings $     54        $         31    $          23

Comparing First Quarter 2014 with First Quarter 2013 Net sales
Net sales decreased $13 million - 3 percent - primarily due to:
Decreased sales volumes of 6 percent for pulp related to timing of shipments, which was partially offset by increased sales realizations of $29 per ton - 4 percent.

Decreased sales volumes of 9 percent for liquid packaging board, which was partially offset by increased sales realizations of $43 per ton - 4 percent.

Net contribution to earnings
Net contribution to earnings increased $23 million - 74 percent - primarily due to:
a $13 million increase in pulp sales realizations; and

a $13 million decrease in maintenance and freight costs, Canadian operating costs due to the strengthening U.S. dollar and higher productivity.

These increases were partially offset by a $6 million increase in energy costs.

THIRD-PARTY SALES VOLUMES
                                                              AMOUNT OF
                                     QUARTER ENDED              CHANGE
VOLUMES IN THOUSANDS           MARCH 2014     MARCH 2013    2014 VS. 2013
Pulp - air-dry metric tons       440                 467           (27 )
Liquid packaging board - tons     71                  78            (7 )



TOTAL PRODUCTION VOLUMES
                                                               AMOUNT OF
                                     QUARTER ENDED              CHANGE
VOLUMES IN THOUSANDS           MARCH 2014     MARCH 2013     2014 VS. 2013
Pulp - air-dry metric tons       459                 445           14
Liquid packaging board - tons     72                  78           (6 )


REAL ESTATE
How We Did First Quarter 2014
Here is a comparison of net sales and net contribution to earnings for the
quarters ended March 31, 2014 and 2013:

NET SALES / NET CONTRIBUTION TO EARNINGS - REAL ESTATE
                                                                AMOUNT OF
                                     QUARTER ENDED                CHANGE
DOLLAR AMOUNTS IN MILLIONS    MARCH 2014      MARCH 2013      2014 VS. 2013
Net sales:
Single-family housing        $    242        $        183    $           59
Land                                3                  11                (8 )
Other                               3                   2                 1
Total                        $    248        $        196    $           52
Net contribution to earnings $     12        $          -    $           12

Here is a comparison of key statistics related to our single-family operations for the quarters ended March 31, 2014 and 2013:

SUMMARY OF SINGLE-FAMILY STATISTICS
                                                                                          AMOUNT OF
                                                               QUARTER ENDED                CHANGE
                                                         MARCH 2014     MARCH 2013      2014 VS. 2013
Homes sold                                                     667            820                (153 )
Homes closed                                                   508            463                  45
Homes sold but not closed (backlog)                          1,056          1,138                 (82 )
Cancellation rate                                             14.9 %         12.2 %               2.7 %
Traffic                                                     16,652         17,764              (1,112 )
Average price of homes closed (in thousands)            $      476     $      394      $           82
Single-family gross margin(1)                                 20.9 %         19.5 %               1.4 %

(1) Single-family gross margin equals revenue less cost of sales and period costs.

On November 4, 2013, we announced that we had entered into a transaction agreement dated as of November 3, 2013 with TRI Pointe Homes, Inc. (TRI Pointe). Pursuant to the transaction agreement, Weyerhaeuser Real Estate Company (WRECO) will be divested through a Reverse Morris Trust transaction and ultimately become a wholly owned subsidiary of TRI Pointe. More information on this transaction can be found in our 2013 Annual Report on Form 10-K.

Comparing First Quarter 2014 with First Quarter 2013 Net sales
Net sales increased $52 million - 27 percent - primarily due to:
Single-family housing revenues increased $59 million. Home closing increased 10 percent from 463 in 2013 to 508 in 2014. The average price of homes closed increased 21 percent from $394,000 in 2013 to $476,000 in 2014, with year-over-year increases in each of our markets.

Revenues from land and lot sales decreased $8 million. Land and lot sales are a routine part of our land development business but they do not occur evenly from period to period.


Net contribution to earnings
Net contribution to earnings increased $12 million, primarily due to a $16 million increase in earnings from single-family home sales. In addition to higher closing volumes and higher average prices, single-family gross margin increased from 19.5 percent in 2013 to 20.9 percent in 2014. This was partially offset by a $3 million increase in selling expenses, primarily due to volume related increases in selling costs and additional costs associated with an increased number of open communities.

UNALLOCATED ITEMS
Unallocated Items are gains or charges not related to or allocated to an
individual operating segment. They include a portion of items such as:
share-based compensation, pension and postretirement costs, foreign exchange
transaction gains and losses associated with outstanding borrowings and the
elimination of intersegment profit in inventory and the LIFO reserve.

NET CONTRIBUTION TO EARNINGS - UNALLOCATED ITEMS
                                                                                           AMOUNT OF
                                                                QUARTER ENDED                CHANGE
DOLLAR AMOUNTS IN MILLIONS                                MARCH 2014      MARCH 2013     2014 VS. 2013
Unallocated corporate function expense                   $       (2 )    $      (3 )    $            1
Unallocated share-based compensation                              3             (7 )                10
Unallocated pension and postretirement credits (costs)           55            (10 )                65
Foreign exchange losses                                         (15 )           (4 )               (11 )
Elimination of intersegment profit in inventory and LIFO        (19 )          (24 )                 5
Other                                                             8             (7 )                15
Operating income (loss)                                          30            (55 )                85
. . .
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