UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO ______
COMMISSION FILE NUMBER: 1-4825
WEYERHAEUSER COMPANY
(Exact name of registrant as specified in its charter)
Washington
91-0470860
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
220 Occidental Avenue South
Seattle, Washington
98104-7800
(Address of principal executive offices)
(Zip Code)
(206) 539-3000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
Common Stock, par value $1.25 per share
WY
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
As of October 23, 2023, 730,001 thousand shares of the registrant’s common stock ($1.25 par value) were outstanding.
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS:
CONSOLIDATED STATEMENT OF OPERATIONS
1
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
2
CONSOLIDATED BALANCE SHEET
3
CONSOLIDATED STATEMENT OF CASH FLOWS
4
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
5
INDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)
14
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
26
ITEM 4.
CONTROLS AND PROCEDURES
27
PART II
OTHER INFORMATION
LEGAL PROCEEDINGS
ITEM 1A.
RISK FACTORS
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
DEFAULTS UPON SENIOR SECURITIES – NOT APPLICABLE
MINE SAFETY DISCLOSURES – NOT APPLICABLE
ITEM 5.
28
ITEM 6.
EXHIBITS
29
SIGNATURES
30
PART I – FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
(UNAUDITED)
QUARTER ENDED
YEAR-TO-DATE ENDED
DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURES
SEPTEMBER 2023
SEPTEMBER 2022
Net sales (Note 3)
$
2,022
2,276
5,900
8,361
Costs of sales
1,520
1,694
4,560
5,130
Gross margin
502
582
1,340
3,231
Selling expenses
22
24
66
70
General and administrative expenses
107
100
316
294
Other operating costs, net (Note 13)
20
50
19
Operating income
353
457
908
2,848
Non-operating pension and other post-employment benefit costs (Note 6)
(12
)
(33
(38
Interest income and other
9
54
Interest expense, net of capitalized interest
(72
(67
(208
(204
Loss on debt extinguishment (Note 8)
—
(276
Earnings before income taxes
293
387
721
2,339
Income taxes (Note 14)
(54
(77
(101
(470
Net earnings
239
310
620
1,869
Earnings per share, basic and diluted (Note 4)
0.33
0.42
0.85
2.51
Weighted average shares outstanding (in thousands) (Note 4):
Basic
731,046
740,058
732,069
743,990
Diluted
731,742
740,975
732,542
745,081
See accompanying Notes to Consolidated Financial Statements.
DOLLAR AMOUNTS IN MILLIONS
Other comprehensive income (loss):
Foreign currency translation adjustments
(7
(53
(62
Changes in unamortized actuarial loss, net of tax expense of $3, $11, $7 and $40
32
23
122
Changes in unamortized net prior service credit, net of tax benefit (expense) of $0, $0, $1 and ($1)
Total other comprehensive income (loss)
(20
61
Total comprehensive income
241
290
644
1,930
DOLLAR AMOUNTS IN MILLIONS, EXCEPT PAR VALUE
SEPTEMBER 30,2023
DECEMBER 31,2022
ASSETS
Current assets:
Cash and cash equivalents
1,173
1,581
Short-term investments (Note 9)
668
Receivables, net
443
357
Receivables for taxes
18
42
Inventories (Note 5)
528
550
Prepaid expenses and other current assets
186
216
Total current assets
3,016
2,746
Property and equipment, less accumulated depreciation of $3,854 and $3,710
2,106
2,171
Construction in progress
311
222
Timber and timberlands at cost, less depletion
11,521
11,604
Minerals and mineral rights, less depletion
203
214
Deferred tax assets
8
Other assets
385
375
Total assets
17,550
17,340
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt (Note 8)
861
982
Accounts payable
288
247
Accrued liabilities (Note 7)
537
511
Total current liabilities
1,686
1,740
Long-term debt, net (Note 8)
4,818
4,071
Deferred tax liabilities
113
96
Deferred pension and other post-employment benefits (Note 6)
349
344
Other liabilities
356
340
Total liabilities
7,322
6,591
Commitments and contingencies (Note 10)
Equity:
Common shares: $1.25 par value; authorized 1,360 million shares; issued and outstanding: 730,128 thousand shares at September 30, 2023 and 732,794 thousand shares at December 31, 2022
913
916
Other capital
7,609
7,691
Retained earnings
1,929
2,389
Accumulated other comprehensive loss (Note 11)
(223
(247
Total equity
10,228
10,749
Total liabilities and equity
Cash flows from operations:
Noncash charges (credits) to earnings:
Depreciation, depletion and amortization
374
360
Basis of real estate sold
80
77
Pension and other post-employment benefits (Note 6)
65
Share-based compensation expense (Note 12)
25
276
Other
(4
17
Change in:
81
Receivables and payables for taxes
51
15
Inventories
(30
(5
Accounts payable and accrued liabilities
43
(23
Pension and post-employment benefit contributions and payments
(16
(19
(41
Net cash from operations
1,145
2,665
Cash flows from investing activities:
Capital expenditures for property and equipment
(209
(207
Capital expenditures for timberlands reforestation
(42
Acquisition of timberlands (Note 15)
(70
(286
Purchase of short-term investments
(664
Net cash from investing activities
(982
(530
Cash flows from financing activities:
Cash dividends on common shares
(1,076
(1,485
Net proceeds from issuance of long-term debt (Note 8)
743
881
Payments on long-term debt (Note 8)
(118
(1,203
Repurchases of common shares (Note 4)
(109
(402
(11
Net cash from financing activities
(571
(2,214
Net change in cash, cash equivalents and restricted cash
(408
(79
Cash, cash equivalents and restricted cash at beginning of period
1,999
Cash, cash equivalents and restricted cash at end of period
1,920
Cash paid during the period for:
Interest, net of amount capitalized of $5 and $5
190
211
Income taxes, net of refunds
40
446
Common shares:
Balance at beginning of period
914
927
934
Issued for exercise of stock options and vested units
(1
(14
Balance at end of period
922
Other capital:
7,624
7,954
8,181
Issued for exercise of stock options
(24
(140
(105
(390
Share-based compensation
Other transactions, net
(6
7,824
Retained earnings:
1,828
2,333
2,131
Dividends on common shares
(138
(133
(1,080
(1,490
2,510
Accumulated other comprehensive loss:
(225
(398
(479
Other comprehensive income (loss)
Balance at end of period (Note 11)
(418
Total equity:
10,838
Dividends paid per common share
0.19
0.18
1.47
1.99
NOTE 1:
BASIS OF PRESENTATION
NOTE 2:
BUSINESS SEGMENTS
NOTE 3:
REVENUE RECOGNITION
NOTE 4:
NET EARNINGS PER SHARE AND SHARE REPURCHASES
NOTE 5:
INVENTORIES
NOTE 6:
PENSION AND OTHER POST-EMPLOYMENT BENEFIT PLANS
10
NOTE 7:
ACCRUED LIABILITIES
NOTE 8:
LONG-TERM DEBT AND LINE OF CREDIT
NOTE 9:
FAIR VALUE OF FINANCIAL INSTRUMENTS
11
NOTE 10:
LEGAL PROCEEDINGS, COMMITMENTS AND CONTINGENCIES
NOTE 11:
ACCUMULATED OTHER COMPREHENSIVE LOSS
12
NOTE 12:
SHARE-BASED COMPENSATION
NOTE 13:
OTHER OPERATING COSTS, NET
13
NOTE 14:
INCOME TAXES
NOTE 15:
TIMBERLAND ACQUISITIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE QUARTERS AND YEAR-TO-DATE PERIODS ENDED SEPTEMBER 30, 2023 AND 2022
NOTE 1: BASIS OF PRESENTATION
Our consolidated financial statements provide an overall view of our results of operations, financial condition and cash flows. They include our accounts and the accounts of entities we control, including majority-owned domestic and foreign subsidiaries. They do not include our intercompany transactions and accounts, which are eliminated. Throughout these Notes to Consolidated Financial Statements, unless specified otherwise, references to “Weyerhaeuser,” “we,” “the company” and “our” refer to the consolidated company.
The accompanying unaudited Consolidated Financial Statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods presented. Except as otherwise disclosed in these Notes to Consolidated Financial Statements, such adjustments are of a normal, recurring nature. The Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission pertaining to interim financial statements. Certain information and footnote disclosures normally included in our annual Consolidated Financial Statements have been condensed or omitted. These quarterly Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2022. Results of operations for interim periods should not necessarily be regarded as indicative of the results that may be expected for the full year.
NOTE 2: BUSINESS SEGMENTS
We are principally engaged in growing and harvesting timber; manufacturing, distributing and selling products made from trees; maximizing the value of our acreage through the sale of higher and better use (HBU) properties; and monetizing the value of surface and subsurface assets through leases and royalties. Our business segments are organized based primarily on products and services which include:
A reconciliation of our business segment information to the respective information in the Consolidated Statement of Operations is as follows:
Sales to unaffiliated customers:
Timberlands
380
441
1,259
1,421
Real Estate & ENR
105
68
286
313
Wood Products
1,537
1,767
4,355
6,627
Intersegment sales:
141
133
433
450
Total sales
2,163
2,409
6,333
8,811
Intersegment eliminations
(141
(433
(450
Total
Net contribution (charge) to earnings:
78
302
442
56
48
161
194
277
590
411
499
1,053
3,025
Unallocated items(1)
(46
(45
(124
(206
Net contribution to earnings
365
454
929
2,819
Loss on debt extinguishment
Income taxes
NOTE 3: REVENUE RECOGNITION
A reconciliation of revenue recognized by our major products:
Net sales to unaffiliated customers:
Timberlands segment
Delivered logs:
West
Domestic sales
97
Export grade sales
127
321
478
Subtotal West
176
224
611
791
South
155
166
485
480
North
35
Subtotal delivered logs sales
342
405
1,131
1,311
Stumpage and pay-as-cut timber
Recreational and other lease revenue
Other(1)
31
Net sales attributable to Timberlands segment
Real Estate & ENR segment
Real estate
79
198
217
Energy and natural resources
38
88
Net sales attributable to Real Estate & ENR segment
Wood Products segment
Structural lumber
570
676
1,658
2,880
Oriented strand board
284
287
707
1,348
Engineered solid section
233
600
Engineered I-joists
335
471
Softwood plywood
47
158
Medium density fiberboard
120
151
Complementary building products
184
551
Other(2)
86
257
267
Net sales attributable to Wood Products segment
Total net sales
NOTE 4: NET EARNINGS PER SHARE AND SHARE REPURCHASES
Our basic and diluted earnings per share were:
Basic earnings per share is net earnings divided by the weighted average number of our outstanding common shares, including stock equivalent units where there is no circumstance under which those shares would not be issued. Diluted earnings per share is net earnings divided by the sum of the weighted average number of our outstanding common shares and the effect of our outstanding dilutive potential common shares.
SHARES IN THOUSANDS
Weighted average common shares outstanding – basic
Dilutive potential common shares:
Stock options
154
192
134
Restricted stock units
304
420
117
417
Performance share units
238
305
Total effect of outstanding dilutive potential common shares
696
917
473
1,091
Weighted average common shares outstanding – dilutive
We use the treasury stock method to calculate the dilutive effect of our outstanding stock options, restricted stock units and performance share units.
Potential Shares Not Included in the Computation of Diluted Earnings per Share
The following shares were not included in the computation of diluted earnings per share because they were either antidilutive or the required performance or market conditions were not met. Some or all of these shares may be dilutive potential common shares in future periods.
609
612
623
Share Repurchase Program
On September 22, 2021, we announced that our board of directors approved a new share repurchase program (the 2021 Repurchase Program) under which we are authorized to repurchase up to $1 billion of outstanding shares. Concurrently, the board terminated the remaining repurchase authorization under the share repurchase program approved by the board in February 2019 (the 2019 Repurchase Program).
We repurchased 757,510 common shares for approximately $25 million (including transaction fees) under the 2021 Repurchase Program during third quarter 2023 and 3,562,944 common shares for approximately $110 million under the 2021 Repurchase Program during year-to-date 2023. As of September 30, 2023, we had remaining authorization of $267 million for future share repurchases. During year-to-date 2022, we repurchased 11,217,300 common shares for approximately $404 million (including transaction fees) under the 2021 Repurchase Program.
All common stock repurchases under the 2021 Repurchase Program were made in open-market transactions. We record share repurchases upon trade date as opposed to the settlement date when cash is disbursed. We record a liability for repurchases that have not yet been settled as of period end. There were 32,757 unsettled shares (approximately $1 million) as of September 30, 2023, and 223,548 unsettled shares (approximately $7 million) as of December 31, 2022.
NOTE 5: INVENTORIES
Inventories include raw materials, work-in-process and finished goods, as well as materials and supplies.
LIFO inventories:
Logs
Lumber, plywood, panels and fiberboard
Other products
16
Moving average cost or FIFO inventories:
Lumber, plywood, panels, fiberboard and engineered wood products
98
129
140
Materials and supplies
146
130
LIFO – the last-in, first-out method – applies to major inventory products held at our U.S. locations. The moving average cost method or FIFO – the first-in, first-out method – applies to the balance of our U.S. raw material and product inventories, all material and supply inventories and all foreign inventories.
NOTE 6: PENSION AND OTHER POST-EMPLOYMENT BENEFIT PLANS
The components of net periodic benefit cost are:
PENSION
Service cost
Interest cost
89
Expected return on plan assets
(40
(90
(120
Amortization of actuarial loss
Amortization of prior service cost
Total net periodic benefit cost – pension
46
59
OTHER POST-EMPLOYMENT BENEFITS
Amortization of prior service credit
Total net periodic benefit cost – other post-employment benefits
For the periods presented, service cost is included in “Costs of sales,” “Selling expenses,” and “General and administrative expenses” with the remaining components included in “Non-operating pension and other post-employment benefit costs” in the Consolidated Statement of Operations.
Fair Value of Pension Plan Assets and Obligations
In our year-end reporting process, we estimate the fair value of pension plan assets based upon the information available at that time. For certain assets, primarily private equity funds, the information available consists of net asset values as of an interim date, cash flows between the interim date and the end of the year and market events. We update the year-end estimated fair value of pension plan assets in second quarter of each year to incorporate final net asset values reflected in financial statements received after we have filed our Annual Report on Form 10-K. No adjustments to the fair value of assets or projected benefit obligations were necessary during second quarter 2023.
NOTE 7: ACCRUED LIABILITIES
Accrued liabilities were comprised of the following:
Compensation and employee benefit costs
173
201
Current portion of lease liabilities
21
Customer rebates, volume discounts and deferred income
135
132
Interest
84
69
Taxes payable
58
64
NOTE 8: LONG-TERM DEBT AND LINE OF CREDIT
In July 2023, we repaid $118 million of our 7.125 percent notes at maturity.
In May 2023, we completed an offering of debt securities by issuing $750 million of 4.750 percent notes due in May 2026. The net proceeds after deducting the discount, underwriting fees and issuance costs were $743 million. Of these total net proceeds, $664 million was invested in short-term investments classified as held-to-maturity securities.
In March 2022, we completed a series of transactions that lowered our weighted average interest rate and extended our weighted average maturity by issuing $900 million in notes and using the net proceeds plus cash on hand to close cash tender offers for $931 million of principal in higher interest rate notes. We issued $450 million of 3.375 percent notes due in March 2033 and $450 million of 4.000 percent notes due in March 2052. The net proceeds after deducting the discount, underwriting fees and issuance costs were $444 million and $437 million, respectively. The net proceeds were used to retire $592 million of our 7.375 percent notes due in March 2032, $161 million of our 8.500 percent notes due in January 2025, $73 million of our 7.125 percent notes due in July 2023, $65 million of our 7.950 percent notes due in March 2025, and $40 million of our 7.850 percent notes due in July 2026. We paid holders an aggregate $1.2 billion in cash reflecting principal, premium to par and tender premium. A net pretax charge of $276 million ($207 million after-tax) was included in the Consolidated Statement of Operations in first quarter 2022 for premiums to retire $931 million of principal plus unamortized debt issuance costs and unamortized debt discounts in connection with the early debt retirement.
In March 2023, we entered into a new $1.5 billion five-year senior unsecured revolving credit facility, which expires in March 2028 and replaced the existing facility which was set to expire in January 2025. Borrowings will bear interest at a floating rate based on either the adjusted term Secured Overnight Financing Rate (SOFR) plus a spread or a mutually agreed upon base rate plus a spread. We had no outstanding borrowings on our credit facility as of September 30, 2023 and December 31, 2022.
NOTE 9: FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value and carrying value of our long-term debt consisted of the following:
Long-term fixed rate debt (including current maturities):
Carrying value
5,679
5,053
Fair value (level 2)
5,434
4,918
To estimate the fair value of fixed rate long-term debt, we used the market approach, which is based on quoted market prices we received for the same types and issues of our debt. We believe that our line of credit has a net carrying value that approximates its fair value within an insignificant difference. The inputs to the valuations of our long-term debt are based on market data obtained from independent sources or information derived principally from observable market data. The difference between the fair value and the carrying value represents the theoretical net premium or discount we would pay or receive to retire all debt at the measurement date.
Fair Value of Other Financial Instruments
We believe that our other financial instruments, including cash and cash equivalents, short-term investments, receivables and payables, have net carrying values that approximate their fair values with only insignificant differences. This is primarily due to the short-term nature of these instruments and the allowance for doubtful accounts.
As of September 30, 2023, we had $668 million in short-term investments classified as held-to-maturity debt securities, which consist of a mixture of term deposits and Treasury bills. We did not have any short-term investments classified as held-to-maturity debt securities as of December 31, 2022. These short-term investments mature within one year and are recorded in "Short-term investments" on our Consolidated Balance Sheet. We record held-to-maturity debt securities at amortized cost, which approximates fair value.
NOTE 10: LEGAL PROCEEDINGS, COMMITMENTS AND CONTINGENCIES
Legal Proceedings
We are party to various legal proceedings arising in the ordinary course of business. We are not currently a party to any legal proceeding that management believes could have a material adverse effect on our Consolidated Statement of Operations, Consolidated Balance Sheet or Consolidated Statement of Cash Flows.
Environmental Matters
Site Remediation
Under the federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) – commonly known as the “Superfund” – and similar state laws, we:
As of September 30, 2023, our total accrual for future estimated remediation costs on active Superfund sites and other sites for which we are potentially responsible was approximately $75 million. These amounts are recorded in "Accrued liabilities" and "Other liabilities" on our Consolidated Balance Sheet.
NOTE 11: ACCUMULATED OTHER COMPREHENSIVE LOSS
Changes in amounts included in our accumulated other comprehensive loss by component are:
Pension(1)
(444
(632
(458
(720
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive loss to earnings(2)
Total other comprehensive income
33
121
(435
(599
Other post-employment benefits(1)
(2
Other comprehensive loss before reclassifications
Translation adjustments and other
234
191
243
Translation adjustments
Total other comprehensive loss
181
Accumulated other comprehensive loss, end of period
NOTE 12: SHARE-BASED COMPENSATION
Share-based compensation activity during year-to-date 2023 included the following:
GRANTED
VESTED
Restricted stock units (RSUs)
844
771
Performance share units (PSUs)
392
228
A total of 897 thousand shares of common stock were issued as a result of RSU vestings, PSU vestings and stock option exercises.
Restricted Stock Units
The weighted average fair value of the RSUs granted in 2023 was $33.76. The vesting provisions for RSUs granted in 2023 were consistent with prior year grants.
Performance Share Units
The weighted average grant date fair value of PSUs granted in 2023 was $37.58. The final number of shares granted in 2023 will vest between a range of 0 percent to 150 percent of each grant's target, depending upon actual company performance compared against an industry peer group. PSUs granted in 2023 will vest at a maximum of 100 percent of target value in the event of negative absolute company total shareholder return.
Weighted Average Assumptions Used in Estimating the Value of Performance Share Units Granted in 2023
PERFORMANCE SHARE UNITS
Performance period
2/09/2023 – 12/31/2025
Valuation date average stock price(1)
$33.96
Expected dividends
2.25%
Risk-free rate
4.21% – 4.66%
Expected volatility
29.26% – 40.19%
NOTE 13: OTHER OPERATING COSTS, NET
Other operating costs, net were comprised of the following:
Environmental remediation charges
Foreign exchange losses (gains), net
(8
Litigation expense, net
Research and development expenses
Other, net
Total other operating costs, net
NOTE 14: INCOME TAXES
As a real estate investment trust (REIT), we generally are not subject to federal corporate income taxes on REIT taxable income that is distributed to shareholders. We are required to pay corporate income taxes on earnings of our wholly-owned Taxable REIT Subsidiaries (TRSs), which includes our Wood Products segment earnings and portions of our Timberlands and Real Estate & ENR segments' earnings.
The quarterly provision for income taxes is based on our current estimate of the annual effective tax rate and is adjusted for discrete taxable events that have occurred during the year. Our 2023 estimated annual effective tax rate, excluding discrete items, differs from the U.S. federal statutory tax rate of 21 percent primarily due to state and foreign income taxes and tax benefits associated with our nontaxable REIT earnings.
NOTE 15: TIMBERLAND ACQUISITIONS
On July 19, 2023, we completed the purchase of 22 thousand acres of Mississippi timberlands for approximately $60 million. We recorded $59 million of timberland assets in "Timber and timberlands at cost, less depletion" and $1 million of related assets in "Property and equipment, net" on our Consolidated Balance Sheet.
On May 18, 2022, we completed the purchase of 81 thousand acres of North and South Carolina timberlands for approximately $265 million. We recorded $263 million of timberland assets in “Timber and timberlands at cost, less depletion” and $2 million of related assets in “Property and equipment, net” on our Consolidated Balance Sheet.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)
NOTE ABOUT 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 include, without limitation, statements relating to: our expected future financial and operating performance; our plans, strategies, intentions and expectations; our capital structure and the sufficiency of our liquidity position to meet future cash requirements; compliance with covenants in our debt agreements; our expectations concerning our contingent liabilities and the sufficiency of related reserves and accruals including, but not limited to, cost estimates of future litigation and environmental remediation; our provision for income taxes; expected capital expenditures; expected returns on pension plan assets; market and general economic conditions, including related influencing factors such as the trajectory of U.S. housing activity, repair and remodel activity, inflation trends and interest rates; our expectations about our future opportunities in emerging carbon offset and carbon capture and storage markets; and assumptions used in valuing incentive compensation and related expense.
Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often involve use of words such as “anticipate,” “believe,” “committed,” "continue,” “estimate,” “expect,” “foreseeable,” “maintain,” “may,” “potential,” and “will,” or similar words or terminology. They may use the positive, negative or another variation of those and similar words. These forward-looking statements are based on our current expectations and assumptions and are not guarantees of future events or performance. The realization of our expectations and the accuracy of our assumptions are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. There is no guarantee that any of the events anticipated by our forward-looking statements will occur. If any of the events occur, there is no guarantee what effect it will have on our operations, cash flows, or financial condition. We undertake no obligation to update our forward-looking statements after the date of this report. The factors listed below, as well as other factors not described herein because they are not currently known to us or we currently judge them to be immaterial, may cause our actual results to differ significantly from our forward-looking statements:
It is not possible to predict or identify all risks and uncertainties that might affect the accuracy of our forward-looking statements and, consequently, our descriptions of such risks and uncertainties should not be considered exhaustive. There is no guarantee that any of the events anticipated by these forward-looking statements will occur, and if any of the events do occur, there is no guarantee what effect they will have on the company's business, results of operations, cash flows, financial condition and future prospects.
Forward-looking statements speak only as of the date they are made, and we undertake no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events, or otherwise.
RESULTS OF OPERATIONS
In reviewing our results of operations, it is important to understand these terms:
ECONOMIC AND MARKET CONDITIONS AFFECTING OUR OPERATIONS
Our market conditions and the strength of the broader U.S. economy are, and will continue to be, influenced by the trajectory of activity in the U.S. housing and repair and remodel segments, inflation trends and interest rates. The demand for sawlogs within our Timberlands segment is directly affected by domestic production of wood-based building products. The strength of the U.S. housing market, particularly new residential construction, strongly affects demand in our Wood Products segment, as does repair and remodeling activity. Seasonal weather patterns impact the level of construction activity in the U.S., which in turn affects demand for our logs and wood products. Our Timberlands segment, specifically the Western region, is also affected by export demand and trade policy. Japanese housing starts are a key driver of export log demand in Japan. The demand for pulpwood from our Timberlands segment is directly affected by the production of pulp, paper and oriented strand board (OSB) as well as the demand for biofuels, such as wood-burning pellets made from pulpwood. Our Timberlands segment is also influenced by the availability of harvestable timber. In general, Western log markets are highly tensioned by available supply, while Southern log markets have more available supply. However, additional mill capacity being added in the U.S. South has led to tightening of markets in certain geographies. Our Real Estate, Energy and Natural Resources segment is affected by a variety of factors, including the general state of the economy, local real estate market conditions, the level of construction activity in the U.S. and evolution of emerging renewable energy and carbon-related markets.
Over the past year, home sales and building activity slowed due in part to higher mortgage interest rates, reduced affordability and general macroeconomic conditions. During third quarter 2023, market conditions continued to shift towards sales of new homes as existing inventory remained near record-low levels. On a seasonally adjusted annual basis, as reported by the U.S. Census Bureau, housing starts for third quarter 2023 averaged 1.36 million units, a 6.2 percent decrease from second quarter 2023. Single-family starts averaged 961 thousand units in third quarter 2023, a 3.4 percent increase from second quarter 2023. Multi-family starts averaged 398 thousand units in third quarter 2023, which was a 23.5 percent decrease from second quarter 2023. Single-family construction is the primary driver for our business as compared to multi-family due to the amount of wood products used. Sales of newly built, single-family homes averaged a seasonally adjusted annual rate of 724 thousand units for third quarter 2023, an increase of 4.8 percent from the prior quarter. Over the medium to long-term, we expect a favorable U.S. housing construction market supported by strong demographics in the key homebuying age cohorts, a decade of underbuilding and a historically low housing inventory.
Repair and remodeling expenditures were steady from second quarter 2023 to third quarter 2023 according to the Census Bureau Advance Retail Spending report. Do-it-yourself activity has been returning to more normalized levels while professionally contracted activities have benefited from larger projects and increases in home equity levels. Over the longer term, we expect this sector to return to pre-pandemic growth trends with healthy household balance sheets, elevated home equity and an aging U.S. housing stock, with a median age of 43 years.
In U.S. wood product markets, demand in third quarter 2023 helped lift prices in mid-summer. By the end of the third quarter, this had been offset by macroeconomic and housing market uncertainty, including an increase in interest and mortgage rates. Temporary and permanent curtailments provided some balance to the market. OSB demand was strong for most of the quarter, as customer inventories were not sufficient to meet current building activity. The Random Lengths Framing Lumber Composite price averaged $438/MBF and the OSB Composite averaged $540/MSF in third quarter 2023. Over the course of the third quarter, prices for lumber decreased from $438/MBF to $422/MBF and prices for OSB increased from $432/MSF to $454/MSF.
In Western log markets, Douglas fir sawlog prices decreased by 0.2 percent in third quarter 2023 compared with second quarter 2023, as reported by RISI Log Lines based on Weyerhaeuser’s sales mix. Overall, domestic prices in the West declined due to compressed mill margins, but this was partially offset by continued constraints in log supply. In the South, delivered sawlog prices decreased 0.3 percent in third quarter 2023 compared to second quarter 2023 and declined 2.0 percent from third quarter 2022 as reported by TimberMart-South. Favorable harvest conditions later in the quarter provided sufficient supply to meet mills' needs.
Currency exchange rates, available supply from other countries and trade policy affect our export businesses. During third quarter 2023, end use demand softened in export markets, partially offset by continued disruptions in global log and lumber supply. In Japan, total housing starts decreased 3.7 percent year to date through August compared to the same period in 2022, while the key Post and Beam segment saw a 5.7 percent decrease. Lumber imports to Japan from Europe placed downward pressure on market conditions. China demand has improved from low levels late in 2022 but remains subdued due to general economic conditions and steady supply of logs from New Zealand and rough lumber from Russia.
Interest rates affect our business primarily through their impact on mortgage rates and housing affordability, their general impact on the economy and their influence on our capital management activities. Actions by the U.S. Federal Reserve, the overall condition of the economy and fluctuations in financial markets are all factors that influence long-term interest rates. 30-year mortgage rates, which are correlated with long-term interest rates, increased from 6.7 percent at the end of second quarter 2023 to 7.3 percent at the end of third quarter 2023, according to economic data from the St. Louis Federal Reserve. Many builders have been able to offset higher mortgage rates through discounts, mortgage rate buydowns and modifying product offerings such as home sizes and finishes. Higher rates have also locked-in many existing homeowners from selling, reducing inventories of existing homes for sale which has led to increased demand for available new homes.
Increased inflation affects the cost of our operations across each of our business segments, including costs for raw materials, transportation, energy and labor. The Consumer Price Index increased 3.7 percent year over year in September 2023, which is markedly down from its peak of over 9.0 percent in June 2022. While we can offset some of the impacts of inflation through our sales activities, our operational excellence initiatives and our procurement practices, not all of the costs associated with inflation can be fully mitigated or passed on to the consumer.
The condition of the labor market affects all of our businesses as it relates to our ability to attract and retain employees and contractors. The unemployment rate of 3.8 percent in September 2023 remained near historically low levels and increased 0.2 percent from the end of second quarter
2023. Labor force participation has increased to 62.8 percent in September 2023, from 62.3 percent in September 2022, approaching pre-pandemic levels.
Governments and businesses across the globe are taking action on climate change and are making significant commitments towards decarbonizing operations and reducing greenhouse gas emissions to net zero. Achieving these commitments will require governments and companies to take major steps to modify operations, invest in low-carbon activities and purchase offsets to reduce environmental impacts. We believe we are uniquely positioned to help entities achieve these commitments through natural climate solutions, including forest carbon sequestration, carbon capture and storage and renewable energy activities.
CONSOLIDATED RESULTS
How We Did Third Quarter 2023 and Year-to-Date 2023
AMOUNT OFCHANGE
2023 VS.2022
Net sales
(254
(2,461
(174
(570
(104
(1,940
(71
(1,249
Earnings per share, basic and diluted
(0.09
(1.66
Comparing Third Quarter 2023 with Third Quarter 2022
Net sales decreased $254 million – 11 percent – primarily due to a $230 million decrease in Wood Products sales to unaffiliated customers attributable to decreased sales volumes and sales realizations across most product lines.
Costs of sales decreased $174 million – 10 percent – primarily due to decreased sales volumes across most product lines within our Wood Products segment, as well as decreased freight costs.
Operating income decreased $104 million – 23 percent – primarily due to an $80 million decrease in consolidated gross margin, as discussed above.
Net earnings decreased $71 million – 23 percent – primarily due to the $104 million decrease in operating income, as discussed above.
This decrease was partially offset by a $23 million decrease in income tax expense (refer to Income Taxes).
Comparing Year-to-Date 2023 with Year-to-Date 2022
Net sales decreased $2,461 million – 29 percent – primarily due to a $2,272 million decrease in Wood Products sales to unaffiliated customers attributable to decreased sales realizations and sales volumes across most product lines, as well as a $162 million decrease in Timberlands sales to unaffiliated customers attributable to decreased sales realizations in the Western region.
Costs of sales decreased $570 million – 11 percent – primarily due to decreased sales volumes across most product lines within our Wood Products segment, as well as decreased freight costs and Western third-party log purchases.
Operating income decreased $1,940 million – 68 percent – primarily due to a $1,891 million decrease in consolidated gross margin, as discussed above.
Net earnings decreased $1,249 million – 67 percent – primarily due to the $1,940 million decrease in operating income, as discussed above.
This decrease was partially offset by a $369 million decrease in income tax expense (refer to Income Taxes), as well as a $276 million pretax charge ($207 million after-tax) related to the early extinguishment of debt in first quarter 2022 (refer to Note 8: Long-Term Debt and Line of Credit).
TIMBERLANDS
(48
(180
(63
Subtotal net sales to unaffiliated customers
(61
(162
Intersegment sales
(17
521
574
1,692
1,871
(179
(25
1,317
1,360
(43
Operating income and Net contribution to earnings
(29
Net sales to unaffiliated customers
Net sales to unaffiliated customers decreased $61 million – 14 percent – primarily due to a $48 million decrease in Western log sales, attributable to a 25 percent decrease in sales realizations, as well as an $11 million decrease in Southern log sales, attributable to a 4 percent decrease in sales realizations and a 3 percent decrease in sales volumes.
Intersegment sales increased $8 million – 6 percent – primarily due to a 14 percent increase in sales volumes, partially offset by a 7 percent decrease in sales realizations.
Costs of sales decreased $25 million – 6 percent – primarily due to decreased Western third-party log purchases and decreased Southern log sales volumes, partially offset by increased logging and hauling costs and increased Western log sales volumes.
Operating income and net contribution to earnings decreased $29 million – 27 percent – primarily due to the change in the components of gross margin, as discussed above.
Net sales to unaffiliated customers decreased $162 million – 11 percent – primarily due to a $180 million decrease in Western log sales, primarily attributable to a 23 percent decrease in sales realizations, partially offset by a $13 million increase in stumpage and pay-as-cut timber sales.
Intersegment sales decreased $17 million – 4 percent – primarily due to a 9 percent decrease in sales realizations, partially offset by a 5 percent increase in sales volumes.
Costs of sales decreased $43 million – 3 percent – primarily due to decreased Western third-party log purchases, partially offset by increased logging and hauling costs and increased log sales volumes.
Operating income and net contribution to earnings decreased $140 million – 32 percent – primarily due to the change in the components of gross margin, as discussed above.
Third-Party Log Sales Volumes and Fee Harvest Volumes
VOLUMES IN THOUSANDS
Third-party log sales – tons:
West(1)
1,479
1,411
4,814
4,793
4,180
4,310
(130
12,907
12,612
295
148
177
505
(55
5,807
5,898
(91
18,171
17,910
261
Fee harvest volumes – tons:
2,137
1,760
377
6,674
6,085
589
6,146
6,112
34
19,008
18,113
895
223
245
(22
683
703
8,506
8,117
389
26,365
24,901
1,464
REAL ESTATE, ENERGY AND NATURAL RESOURCES
Net sales:
49
37
(27
The volume of real estate sales is a function of many factors, including the general state of the economy, demand in local real estate markets, the ability of buyers to obtain financing, the number of competing properties listed for sale, the seasonal nature of sales, the plans of adjacent landowners, our expectation of future price appreciation, the timing of harvesting activities, and the availability of government and not-for-profit funding. In any period, the average price per acre will vary based on the location and physical characteristics of parcels sold.
Net sales increased $37 million – 54 percent – primarily due to an increase in acres sold, partially offset by a decrease in the average price per acre sold.
Costs of sales increased $29 million – 207 percent – primarily due to an increase in acres sold.
Operating income and net contribution to earnings increased $8 million – 17 percent – primarily due to the change in the components of gross margin, as discussed above.
Net sales decreased $27 million – 9 percent – primarily due to decreases in average price per acre sold and royalty income from our Energy and Natural Resources business.
Costs of sales increased $5 million – 5 percent – primarily due to an increase in basis per acre sold.
Operating income and net contribution to earnings decreased $33 million – 17 percent – primarily due to the change in the components of gross margin, as discussed above.
REAL ESTATE SALES STATISTICS
Acres sold
25,721
5,014
20,707
55,755
56,046
(291
Average price per acre
3,033
5,046
(2,013
3,403
3,624
(221
WOOD PRODUCTS
(106
(1,222
(3
(641
(76
(44
(136
(31
(10
(125
Other products produced(1)
(230
(2,272
1,195
(165
3,572
4,050
(478
(1,799
Net sales decreased $230 million – 13 percent – due to:
Costs of sales decreased $165 million – 12 percent – primarily due to decreased sales volumes across most product lines, as well as decreased freight costs.
Operating income and net contribution to earnings decreased $67 million – 19 percent – primarily due to the change in the components of gross margin, as discussed above.
Net sales decreased $2,272 million – 34 percent – due to:
Costs of sales decreased $478 million – 12 percent – primarily due to decreased sales volumes across most product lines, as well as decreased freight costs.
Operating income and net contribution to earnings decreased $1,799 million – 75 percent – primarily due to the change in the components of gross margin, as discussed above.
Third-Party Sales Volumes
VOLUMES IN MILLIONS(1)
Structural lumber – board feet
1,184
1,216
(32
3,524
3,662
Oriented strand board – square feet (3/8”)
715
2,176
2,167
Engineered solid section – cubic feet
6.2
5.9
0.3
16.9
18.0
(1.1
Engineered I-joists – lineal feet
142
Softwood plywood – square feet (3/8”)
74
263
219
44
Medium density fiberboard – square feet (3/4”)
93
(36
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 oriented strand board and engineered solid section are also used to manufacture engineered I-joists.
VOLUMES IN MILLIONS
Structural lumber – board feet:
Production
1,174
1,140
3,481
3,575
(94
Outside purchase
1,212
1,175
3,594
3,695
Oriented strand board – square feet (3/8”):
724
735
2,212
2,232
55
(99
753
2,267
2,386
(119
Engineered solid section – cubic feet:
5.6
6.0
(0.4
16.1
18.1
(2.0
3.7
3.6
0.1
9.7
4.1
9.3
9.6
(0.3
25.8
22.2
Engineered I-joists – lineal feet:
147
Softwood plywood – square feet (3/8”):
235
197
87
73
268
Medium density fiberboard – square feet (3/4"):
101
UNALLOCATED ITEMS
Unallocated items are gains or charges not related to, or allocated to, an individual operating segment. They include all or a portion of items such as share-based compensation, pension and post-employment costs, elimination of intersegment profit in inventory and LIFO, foreign exchange transaction gains and losses, interest income and other.
Net Charge to Earnings – Unallocated Items
Unallocated corporate function and variable compensation expense
(92
(103
Liability classified share-based compensation
Foreign exchange gain
(9
Elimination of intersegment profit in inventory and LIFO
(39
(52
Operating loss
(58
(145
(177
Non-operating pension and other post-employment benefit costs
45
Net charge to earnings
82
Net charge to earnings remained consistent primarily due to a $15 million increase in interest income and other due to an increase in the interest rate on our cash and short-term investment accounts, offset by a $9 million decrease in foreign exchange gain and a $6 million increase in elimination of intersegment profit in inventory and LIFO.
Net charge to earnings decreased $82 million – 40 percent – primarily due to:
These changes were partially offset by an $11 million decrease in foreign exchange gain, as well as a $10 million increase in other primarily due to an increase in environmental remediation charges.
INTEREST EXPENSE
Our interest expense, net of capitalized interest, was:
Interest expense increased by $5 million compared to third quarter 2022 and increased by $4 million compared to year-to-date 2022 primarily due to the May 2023 issuance of debt securities that increased our weighted average outstanding debt.
Refer to Note 8: Long-Term Debt and Line of Credit for further information.
Our provision for income taxes was:
Our provision for income taxes is primarily driven by earnings generated by our TRSs. Income tax expense decreased by $369 million compared to year-to-date 2022 primarily due to a decrease in our TRS earnings in 2023, as well as a decrease in our estimated annual effective tax rate.
Refer to Note 14: Income Taxes for further information.
LIQUIDITY AND CAPITAL RESOURCES
We are committed to maintaining an appropriate capital structure that provides flexibility and enables us to protect the interests of our shareholders and meet our obligations to our lenders, while also maintaining access to all major financial markets. As of September 30, 2023, we had approximately $1.2 billion in cash and cash equivalents, $668 million in short-term investments and $1.5 billion of availability on our line of credit, which expires in March 2028. We believe we have sufficient liquidity to meet our cash requirements for the foreseeable future.
CASH FROM OPERATIONS
Consolidated net cash from operations was:
Net cash from operations decreased $1,520 million primarily due to decreased cash inflows from our business operations. This change was partially offset by a $406 million decrease in cash paid for income taxes, as well as a $21 million decrease in cash paid for interest.
CASH FROM INVESTING ACTIVITIES
Consolidated net cash from investing activities was:
Net cash from investing activities decreased $452 million primarily due to a $664 million increase in cash paid for short-term investments. This change was partially offset by a $216 million decrease in cash paid for acquisition of timberlands.
Summary of Capital Spending by Business Segment
75
168
163
Unallocated Items
251
We anticipate our capital expenditures for 2023 to be approximately $440 million. The amount we spend on capital expenditures could change.
CASH FROM FINANCING ACTIVITIES
Consolidated net cash from financing activities was:
Net cash from financing activities increased $1,643 million, primarily due to:
Line of Credit
In March 2023, we entered into a new $1.5 billion five-year senior unsecured revolving credit facility, which expires in March 2028 and replaced the existing facility which was set to expire in January 2025. Borrowings will bear interest at a floating rate based on either the adjusted term SOFR plus a spread or a mutually agreed upon base rate plus a spread. We had no outstanding borrowings on our $1.5 billion five-year senior unsecured revolving credit facility as of September 30, 2023 or December 31, 2022.
Long-Term Debt
In May 2023, we completed an offering of debt securities by issuing $750 million of 4.750 percent notes due in May 2026. The net proceeds after deducting the discount, underwriting fees and issuance costs were $743 million. Of these total net proceeds, $664 million was invested in short-term investments classified as held-to-maturity securities, which consist of a mixture of term deposits and Treasury bills.
In July 2023, we repaid $118 million of our 7.125 percent notes at maturity. We have $860 million of long-term debt scheduled to mature during fourth quarter 2023, and we anticipate the majority will be funded through cash on hand, including the proceeds from our short-term investments which also mature in the fourth quarter.
In March 2022, we completed a series of transactions that lowered our weighted average interest rate and extended our weighted average maturity by issuing $900 million in notes and using the net proceeds plus cash on hand to close cash tender offers for $931 million of principal in higher interest rate notes. We issued $450 million of 3.375 percent notes due in March 2033 and $450 million of 4.000 percent notes due in March 2052. The net proceeds after deducting the discount, underwriting fees and issuance costs were $444 million and $437 million, respectively. The net proceeds were used to retire $592 million of our 7.375 percent notes due in March 2032, $161 million of our 8.500 percent notes due in January 2025, $73 million of our 7.125 percent notes due in July 2023, $65 million of our 7.950 percent notes due in March 2025, and $40 million of our 7.850 percent notes due in July 2026. We paid holders an aggregate $1.2 billion in cash reflecting principal, premium to par and tender premium.
Debt Covenants
As of September 30, 2023, Weyerhaeuser Company was in compliance with its debt covenants. There have been no significant changes to the debt covenants presented in our 2022 Annual Report on Form 10-K for our long-term debt instruments, and we expect to remain in compliance with our debt covenants for the foreseeable future.
Dividend Payments
We paid cash dividends on common shares of:
The decrease in dividends paid is primarily due to a supplemental dividend of $0.90 per share based on 2022 financial results for a total of $660 million paid in first quarter 2023 in comparison to a supplemental dividend of $1.45 per share based on 2021 financial results for a total of $1,084 million paid in first quarter 2022.
Share Repurchases
We repurchased 757,510 common shares for approximately $25 million (including transaction fees) during third quarter 2023 and 3,562,944 common shares for approximately $110 million (including transaction fees) during year-to-date 2023 under the 2021 Repurchase Program. During third quarter 2022, we repurchased 4,234,838 common shares for approximately $145 million (including transaction fees) and we repurchased 11,217,300 common shares for approximately $404 million (including transaction fees) during year-to-date 2022 under the 2021 Repurchase Program. There were 32,757 unsettled shares (approximately $1 million) as of September 30, 2023 and 223,548 unsettled shares (approximately $7 million) as of December 31, 2022. Refer to Note 4: Net Earnings Per Share and Share Repurchases for further information.
PERFORMANCE MEASURES
Adjusted EBITDA by Segment
We use Adjusted EBITDA as a key performance measure to evaluate the performance of the consolidated company and our business segments. This measure should not be considered in isolation from, and is not intended to represent an alternative to, our results reported in accordance with U.S. generally accepted accounting principles (U.S. GAAP). However, we believe Adjusted EBITDA provides meaningful supplemental information for investors about our operating performance, better facilitates period to period comparisons and is widely used by analysts, lenders, rating agencies and other interested parties. Our definition of Adjusted EBITDA may be different from similarly titled measures reported by other companies. Adjusted EBITDA, as we define it, is operating income adjusted for depreciation, depletion, amortization, basis of real estate sold and special items.
Adjusted EBITDA by Segment:
143
503
634
(131
94
60
253
283
328
395
746
2,540
(1,794
565
1,502
3,457
(1,955
(56
(129
(172
Adjusted EBITDA
509
583
(74
1,373
3,285
(1,912
We reconcile Adjusted EBITDA to net earnings for the consolidated company and to operating income (loss) for the business segments, as those are the most directly comparable U.S. GAAP measures for each.
The table below reconciles Adjusted EBITDA for the quarter ended September 30, 2023:
Real Estate &ENR
WoodProducts
UnallocatedItems
72
Net contribution (charge) to earnings
Operating income (loss)
The table below reconciles Adjusted EBITDA for the quarter ended September 30, 2022:
67
119
The table below reconciles Adjusted EBITDA for the year-to-date period ended September 30, 2023:
208
156
Special items included in operating income (loss)(1)
The table below reconciles Adjusted EBITDA for the year-to-date period ended September 30, 2022:
Real Estate& ENR
204
Loss on debt extinguishment(1)
470
Net Earnings and Net Earnings per Diluted Share Before Special Items
We use net earnings before special items and net earnings per diluted share before special items as key performance measures to evaluate the performance of the consolidated company. These measures should not be considered in isolation from, and are not intended to represent an alternative to, our results reported in accordance with U.S. GAAP. However, we believe the measures provide meaningful supplemental information for investors about our operating performance, better facilitate period to period comparisons and are widely used by analysts, lenders, rating agencies and other interested parties.
Net Earnings Before Special Items
Environmental remediation charge
207
Net earnings before special items
628
2,076
Net Earnings per Diluted Share Before Special Items
Net earnings per diluted share
0.01
0.28
Net earnings per diluted share before special items
0.86
2.79
CRITICAL ACCOUNTING POLICIES
There have been no significant changes during year-to-date 2023 to the critical accounting policies presented in our 2022 Annual Report on Form 10-K.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
LONG-TERM INDEBTEDNESS OBLIGATIONS
The following summary of our long-term indebtedness obligations includes:
We estimate the fair value of fixed-rate long-term debt using the market approach, which is based on quoted market prices we received for the same types and issues of our debt. Changes in market rates of interest affect the fair value of our fixed-rate debt.
Summary of Long-Term Indebtedness Principal Obligations as of September 30, 2023
2023
2024
2025
2026
2027
THEREAFTER
TOTAL(1)
FAIR VALUE
Fixed-rate debt
860
210
1,022
300
3,333
5,725
Average interest rate
5.21
%
8.31
5.52
6.95
4.82
5.24
N/A
Item 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Disclosure controls are controls and other procedures that are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, to allow timely decisions regarding required disclosure. The company’s principal executive officer and principal financial officer have concluded that the company’s disclosure controls and procedures were effective as of September 30, 2023, based on an evaluation of the company’s disclosure controls and procedures as of that date.
CHANGES IN INTERNAL CONTROLS
No changes occurred in the company’s internal control over financial reporting during year-to-date 2023 that have materially affected, or are reasonably likely to materially affect, the company’s internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Refer to Note 10: Legal Proceedings, Commitments and Contingencies. SEC regulations require us to disclose certain information about proceedings arising under federal, state or local environmental provisions if we reasonably believe that such proceedings may result in monetary sanctions above a stated threshold. In accordance with these regulations, the company uses a threshold of $1 million for purposes of determining whether disclosure of any such proceedings is required pursuant to this item.
Item 1A. RISK FACTORS
There have been no material changes with respect to the risk factors disclosed in our 2022 Annual Report on Form 10-K.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
The following table provides information with respect to purchases of common stock made by the company during third quarter 2023:
COMMON SHARE REPURCHASES DURING THIRD QUARTER 2023
TOTAL NUMBEROF SHARESPURCHASED
AVERAGE PRICEPAID PER SHARE
TOTAL NUMBEROF SHARESPURCHASED ASPART OF PUBLICLYANNOUNCEDPROGRAMS
APPROXIMATEDOLLAR VALUEOF SHARES THATMAY YET BEPURCHASEDUNDER THEPROGRAMS
July 1 – July 31
171,731
33.63
286,026,373
August 1 – August 31
353,664
32.88
274,398,582
September 1 – September 30
232,115
31.63
267,055,708
757,510
32.67
On September 22, 2021, we announced that our board had approved a new share repurchase program (the 2021 Repurchase Program) under which we are authorized to repurchase up to $1 billion of outstanding shares. Concurrently, the board terminated the remaining repurchase authorization under the 2019 Repurchase Program.
During third quarter 2023, we repurchased 757,510 shares for approximately $25 million (including transaction fees) under the 2021 Repurchase Program in open-market transactions. Transaction fees incurred for repurchases are not counted as use of funds authorized for repurchases under the 2021 Repurchase Program. As of September 30, 2023, we had remaining authorization of $267 million for future stock repurchases.
Item 5. OTHER INFORMATION
Rule 10b5-1 Trading Arrangements
During third quarter 2023, two of the company’s “officers” (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) adopted trading plans intended to satisfy the affirmative defense conditions of Rule 10b5–1(c) of the Exchange Act.
Item 6. EXHIBITS
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.
Certification pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).
101.INS
XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, has been formatted in Inline XBRL.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
(Registrant)
Date: October 27, 2023
By:
/s/ David M. Wold
David M. Wold
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer and Duly Authorized Officer)