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WY > SEC Filings for WY > Form 10-Q on 4-Aug-2014All Recent SEC Filings

Show all filings for WEYERHAEUSER CO

Form 10-Q for WEYERHAEUSER CO


4-Aug-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, our expected capital expenditures for 2014 and our expectations relating to pension contributions and benefit payments.
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; 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, 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 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 2: Discontinued Operations .
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 and year-to-date periods ended June 30, 2014, compared to the quarter and year-to-date periods ended June 30, 2013.

CONSOLIDATED RESULTS
How We Did in Second Quarter and Year-to-Date 2014
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, 2014 and 2013:
                                                                  AMOUNT OF                                              AMOUNT OF
                                      QUARTER ENDED                CHANGE                YEAR-TO-DATE ENDED               CHANGE
DOLLAR AMOUNTS IN MILLIONS,
EXCEPT PER-SHARE FIGURES        JUNE 2014       JUNE 2013       2014 VS. 2013        JUNE 2014         JUNE 2013       2014 VS. 2013
Net sales                     $     1,964     $     1,874     $            90     $    3,700         $     3,629     $            71
Operating income              $       400     $       293     $           107     $      708         $       546     $           162
Earnings of discontinued
operations, net of tax        $        22     $        13     $             9     $       32         $        15     $            17
Net earnings attributable to
Weyerhaeuser common
shareholders                  $       280     $       196     $            84     $      463         $       340     $           123
Basic earnings per share
attributable to Weyerhaeuser
common shareholders           $      0.48     $      0.35     $          0.13     $     0.79         $      0.62     $          0.17
Diluted earnings per share
attributable to Weyerhaeuser
common shareholders           $      0.47     $      0.35     $          0.12     $     0.79         $      0.61     $          0.18

Comparing Second Quarter 2014 with Second Quarter 2013 Net sales
Net sales increased $90 million - 5 percent - primarily due to the following:
Timberlands segment sales increased $64 million, primarily due to higher export and domestic log prices and increased sales volume in the West and from the purchase of Longview Timber;

a $14 million increase in our Cellulose Fibers segment sales, primarily due to higher sales realizations for pulp; and

a $12 million increase in our Wood Products segment sales, primarily due to higher sales realizations and shipment volumes for engineered products, higher shipment volumes for structural lumber and more complementary products purchased for resale mostly offset by lower sales realizations for oriented strand board (OSB) and structural lumber.


Net earnings attributable to Weyerhaeuser common shareholders Our net earnings attributable to Weyerhaeuser common shareholders increased $84 million - 43 percent - primarily due to the following:
a $77 million increase in gross margin in our Timberlands and Cellulose Fibers segments, primarily due to higher sales realizations and sales volumes of pulp and liquid packaging board and the purchase of Longview Timber;

a $55 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; and

a $12 million decrease in our selling, general and administrative expenses.

These increases in our earnings were partially offset by:
a $40 million decrease in gross margin in our Wood Products segment, primarily due to lower sales realizations in OSB and lumber; and

a $23 million increase in tax expense primarily due to higher earnings in our Taxable REIT Subsidiary (TRS).

Comparing Year-to-Date 2014 with Year-to-Date 2013 Net sales
Net sales increased $71 million - 2 percent - primarily due to a $148 million increase in our Timberlands segment sales, primarily due to higher export and domestic log prices and increased sales volume in the West and from the purchase of Longview Timber.
This increase was partially offset by a $78 million decrease in our Wood Products segment sales, primarily due to lower sales realizations for OSB and structural lumber.
Net earnings attributable to Weyerhaeuser common shareholders Our net earnings attributable to Weyerhaeuser common shareholders increased $123 million - 36 percent - primarily due to the following:
a $160 million increase in gross margin in our Timberlands and Cellulose Fibers segments. Our Timberlands and Cellulose Fibers segment increases were primarily due to higher sales realizations and the purchase of Longview Timber.

a $112 million increase in other operating income, primarily due to a $90 million pretax gain recognized in 2014 related to a previously announced postretirement plan amendment.

a $34 million decrease in our selling, general and administrative expenses.

These increases in our earnings were partially offset by:
a $150 million decrease in gross margin in our Wood Products segment, primarily due to lower sales realizations in OSB and lumber; and

a $34 million increase in tax expense primarily due to higher earnings in our TRS.


TIMBERLANDS
How We Did Second Quarter 2014 and Year-to-Date 2014
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, 2014 and 2013:

NET SALES / NET CONTRIBUTION TO EARNINGS - TIMBERLANDS
                                                                  AMOUNT OF
                                      QUARTER ENDED                 CHANGE               YEAR-TO-DATE ENDED            AMOUNT OF CHANGE
DOLLAR AMOUNTS IN MILLIONS      JUNE 2014        JUNE 2013      2014 VS. 2013        JUNE 2014         JUNE 2013         2014 VS. 2013
Net sales to unaffiliated
customers:
Logs:
West                          $     261        $       208     $           53     $      518         $       385     $            133
South                                60                 65                 (5 )          122                 126                   (4 )
Canada                                1                  2                 (1 )            7                   9                   (2 )
Subtotal logs sales                 322                275                 47            647                 520                  127
Chip sales                            2                  2                  -              5                   5                    -
Timberlands exchanges(1)             28                 14                 14             32                  16                   16
Higher and better-use land
sales(1)                              7                  5                  2             10                   8                    2
Minerals, oil and gas                 8                  9                 (1 )           15                  17                   (2 )
Products from international
operations(2)                        26                 22                  4             50                  44                    6
Other products                        4                  6                 (2 )           15                  16                   (1 )
Subtotal net sales to
unaffiliated customers              397                333                 64            774                 626                  148
Intersegment sales:
United States                       143                123                 20            286                 250                   36
Other                                43                 43                  -            138                 140                   (2 )
Subtotal intersegment sales         186                166                 20            424                 390                   34
Total sales                   $     583        $       499     $           84     $    1,198         $     1,016     $            182
Net contribution to earnings  $     170        $       114     $           56     $      334         $       218     $            116

(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 Second Quarter 2014 with Second Quarter 2013 Net sales - unaffiliated customers
Net sales to unaffiliated customers increased $64 million - 19 percent - primarily due to the following:
a $53 million increase in Western log sales due to higher export and domestic log prices, a 32 percent increase in sales volumes and the purchase of Longview Timber; and

a $14 million increase in timberlands exchanges.

These increases were partially offset by a $5 million decrease in Southern log sales due to a 11 percent decrease in sales volumes partially offset by higher log prices.


Intersegment sales
Intersegment sales increased $20 million - 12 percent - primarily due to an increase in sales volume due to the purchase of Longview Timber and higher log prices in our legacy Western and Southern timberlands. Net contribution to earnings
Net contribution to earnings increased $56 million - 49 percent - primarily due to the following:
a $35 million increase due to the purchase of Longview Timber,

a $10 million increase due to more timberland exchanges and higher and better-use land sales,

a $6 million increase due to higher log prices in our legacy Western timberlands and the South partially offset by lower sales volumes in the South; and

a $4 million decrease in selling, general and administrative expenses, excluding Longview Timber.

Comparing Year-to-Date 2014 with Year-to-Date 2013 Net sales - unaffiliated customers
Net sales to unaffiliated customers increased $148 million - 24 percent - primarily due to the following:
a $133 million increase in Western log sales due to higher export and domestic log prices, a 33 percent increase in sales volumes and the purchase of Longview Timber;

a $16 million increase in timberlands exchanges; and

a $6 increase in sales from our international operations.

These increases were partially offset by a $4 million decrease in Southern log sales due to a 6 percent decrease in sales volumes partially offset by higher log prices.
Intersegment sales
Intersegment sales increased $34 million - 9 percent - primarily due to an increase in sales volume due to the purchase of Longview Timber and higher log prices in our legacy Western and Southern timberlands. Net contribution to earnings
Net contribution to earnings increased $116 million - 53 percent - primarily due to the following:
a $73 million increase due to the purchase of Longview Timber;

a $46 million increase due to higher log prices in our legacy Western timberlands and the South;

a $12 million increase due to higher timberland exchanges and higher and better-use land sales;

an $8 million increase due to higher sales volumes and demand for export logs in our legacy Western timberlands partially offset by lower sales volumes in the South; and

a $4 million decrease in selling, general and administrative expenses, excluding Longview Timber.

These increases were partially offset by a $32 million increase in operating costs in our legacy Western timberlands due to higher logging costs.


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 2014     JUNE 2013    2014 VS. 2013       JUNE 2014        JUNE 2013      2014 VS. 2013
Third party log sales - cubic
meters:
West                            2,390          1,812              578         4,636              3,486              1,150
South                           1,339          1,507             (168 )       2,724              2,906               (182 )
Canada                             30             38               (8 )         186                242                (56 )
International                     139             77               62           286                145                141
Total                           3,898          3,434              464         7,832              6,779              1,053
Fee harvest volumes - cubic
meters:
West                            2,888          1,921              967         5,763              3,916              1,847
South                           2,715          2,828             (113 )       5,581              5,661                (80 )
International                     249            167               82           498                364                134
Total                           5,852          4,916              936        11,842              9,941              1,901

WOOD PRODUCTS
How We Did Second Quarter 2014 and Year-to-Date 2014
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, 2014 and
2013:

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 2014       JUNE 2013      2014 VS. 2013       JUNE 2014         JUNE 2013        2014 VS. 2013
Net sales:
Structural lumber             $       515     $       502     $          13     $      942         $       953     $           (11 )
Engineered solid section              114              84                30            204                 166                  38
Engineered I-joists                    81              60                21            140                 116                  24
Oriented strand board                 159             224               (65 )          307                 460                (153 )
Softwood plywood                       35              41                (6 )           65                  77                 (12 )
Other products produced                45              44                 1             87                  87                   -
Complementary products
purchased for resale                  128             110                18            230                 194                  36
Total                         $     1,077     $     1,065     $          12     $    1,975         $     2,053     $           (78 )
Net contribution to earnings  $       102     $       136     $         (34 )   $      166         $       314     $          (148 )

Comparing Second Quarter 2014 with Second Quarter 2013 Net sales
Net sales increased $12 million - 1 percent - primarily due to the following:
Engineered solid section shipment volumes increased 32 percent and average sales realizations increased 3 percent.

Engineered I-joists shipment volumes increased 25 percent and average sales realizations increased 8 percent.

Complementary products purchased for resale increased 16 percent.

Structural lumber shipment volumes increased by 4 percent.


These items were mostly offset by a 32 percent decrease in OSB average sales realizations and a 2 percent decrease in structural lumber average sales realizations.
Net contribution to earnings
Net contribution to earnings decreased $34 million - 25 percent - primarily due to a $90 million decrease in sales realizations in OSB and lumber. This item was partially offset by:
a $16 million increase in sales volume primarily in OSB and engineered products;

a $20 million decrease in manufacturing costs primarily due to reduced spending, higher production and lower web costs;

a $14 million increase in margins in our distribution business due to more stable commodity product prices in 2014; and

a $7 million decrease in selling, general and administrative expenses.

Comparing Year-to-Date 2014 with Year-to-Date 2013 Net sales
Net sales decreased $78 million - 4 percent - primarily due to the following:
OSB average sales realizations decreased 34 percent.

Structural lumber average sales realizations decreased 2 percent.

These items were partially offset by:
an increase of 18 percent in shipment volumes and a 4 percent increase in average sales realizations in engineered solid section;

an increase of 9 percent in shipment volumes and a 10 percent increase in average sales realization in engineered I-joists; and

an increase of 19 percent of complementary products purchased for resale.

Net contribution to earnings
Net contribution to earnings decreased $148 million - 47 percent - primarily due to the following:
a $182 million decrease, primarily due to lower sales realizations in OSB and lumber; and

a $25 million increase in log cost due to increasing log prices.

These items were partially offset by:
a $20 million increase in sales volume and realizations in engineered products;

a $20 million decrease in manufacturing costs primarily due to reduced spending and lower web costs;

a $12 million increase in margins in our distribution business; and

a $7 million decrease in selling, general and administrative expenses.


THIRD-PARTY SALES VOLUMES
                                                           AMOUNT OF
                                   QUARTER ENDED             CHANGE          YEAR-TO-DATE ENDED       AMOUNT OF CHANGE
VOLUMES IN MILLIONS(1)        JUNE 2014     JUNE 2013    2014 VS. 2013     JUNE 2014     JUNE 2013      2014 VS. 2013
Structural lumber - board
feet                            1,206          1,156             50           2,195         2,181               14
Engineered solid section -
cubic feet                        5.8            4.4            1.4            10.4           8.8              1.6
Engineered I-joists - lineal
feet                               55             44             11              95            87                8
Oriented strand board -
square feet (3/8")                706            675             31           1,347         1,332               15
Softwood plywood - square
feet (3/8")                       102            108             (6 )           192           207              (15 )

(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 2014     JUNE 2013    2014 VS. 2013     JUNE 2014     JUNE 2013      2014 VS. 2013
Structural lumber - board
feet:
Production                      1,081          1,053             28           2,090         2,074               16
Outside purchase                   82             77              5             160           179              (19 )
Total                           1,163          1,130             33           2,250         2,253               (3 )
Engineered solid section -
cubic feet:
Production                        5.7            4.6            1.1            10.6           9.2              1.4
Outside purchase                  0.5            0.4            0.1             2.3           1.3              1.0
Total                             6.2            5.0            1.2            12.9          10.5              2.4
Engineered I-joists - lineal
feet:
Production                         55             42             13              99            86               13
Outside purchase                    3              1              2               4             4                -
Total                              58             43             15             103            90               13
Oriented strand board -
square feet (3/8"):
Production                        681            663             18           1,338         1,325               13
Outside purchase                   51             56             (5 )           104           124              (20 )
Total                             732            719             13           1,442         1,449               (7 )
Softwood plywood - square
feet (3/8"):
Production                         60             63             (3 )           119           124               (5 )
Outside purchase                   36             33              3              69            75               (6 )
Total                              96             96              -             188           199              (11 )


CELLULOSE FIBERS
How We Did in Second Quarter 2014 and Year-to-Date 2014
Here is a comparison of net sales and net contribution to earnings for the
quarters and year-to-date periods ended June 30, 2014 and 2013:
. . .
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