WY-9.30.14-10Q


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
  __________________________________________________
FORM 10-Q
  __________________________________________________
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2014
or
o
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
  __________________________________________________ 
Washington
 
91-0470860
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
 
 
33663 Weyerhaeuser Way South
Federal Way, Washington
 
98063-9777
(Address of principal executive offices)
 
(Zip Code)
(253) 924-2345
(Registrant’s telephone number, including area code)
 __________________________________________________

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.    x  Yes    o  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    x  Yes    o  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x    Accelerated filer  o    Non-accelerated filer  o    Smaller reporting company  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o  Yes    x  No
As of October 24, 2014, 524,363,555 shares of the registrant’s common stock ($1.25 par value) were outstanding.
 




TABLE OF CONTENTS
 
PART I
FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS:
 
 
 
 
 
 
 
ITEM 2.
ITEM 3.
ITEM 4.
 
 
 
PART II
OTHER INFORMATION
 
ITEM 1.
ITEM 1A.
ITEM 2.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
NA
ITEM 4.
MINE SAFETY DISCLOSURES
NA
ITEM 5.
OTHER INFORMATION
NA
ITEM 6.
 








FINANCIAL INFORMATION

CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
 
QUARTER ENDED
 
YEAR-TO-DATE
ENDED
DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURES
SEPTEMBER 2014
 
SEPTEMBER 2013
 
SEPTEMBER 2014
 
SEPTEMBER 2013
Net sales
$
1,915

 
$
1,857

 
$
5,615

 
$
5,486

Cost of products sold
1,504

 
1,479

 
4,364

 
4,304

Gross margin
411

 
378

 
1,251

 
1,182

Selling expenses
28

 
32

 
83

 
96

General and administrative expenses
73

 
98

 
249

 
299

Research and development expenses
5

 
8

 
19

 
23

Charges for restructuring, closures and impairments (Note 13)
10

 
1

 
37

 
7

Other operating income, net (Note 14)
(23
)
 
(4
)
 
(163
)
 
(32
)
Operating income
318

 
243

 
1,026

 
789

Interest income and other
7

 
21

 
27

 
39

Interest expense, net of capitalized interest
(88
)
 
(94
)
 
(254
)
 
(256
)
Earnings before income taxes
237

 
170

 
799

 
572

Income taxes (Note 15)
(39
)
 
(24
)
 
(148
)
 
(99
)
Earnings from continuing operations
198

 
146

 
651

 
473

Earnings from discontinued operations, net of income taxes (Note 2)
966

 
21

 
998

 
36

Net earnings
1,164

 
167

 
1,649

 
509

Dividends on preference shares
(11
)
 
(10
)
 
(33
)
 
(12
)
Net earnings attributable to Weyerhaeuser common shareholders
$
1,153

 
$
157

 
$
1,616

 
$
497

Earnings per share attributable to Weyerhaeuser common shareholders, basic (Note 5):
 
 
 
 
 
 
 
Continuing operations
$
0.35

 
$
0.23

 
$
1.09

 
$
0.83

Discontinued operations
1.82

 
0.04

 
1.76

 
0.06

Net earnings per share
$
2.17

 
$
0.27

 
$
2.85

 
$
0.89

Earnings per share attributable to Weyerhaeuser common shareholders, diluted (Note 5):
 
 
 
 
 
 
 
Continuing operations
$
0.35

 
$
0.23

 
$
1.08

 
$
0.82

Discontinued operations
1.80

 
0.04

 
1.75

 
0.06

Net earnings per share
$
2.15

 
$
0.27

 
$
2.83

 
$
0.88

Dividends paid per share
$
0.29

 
$
0.22

 
$
0.73

 
$
0.59

Weighted average shares outstanding (in thousands) (Note 5):
 
 
 
 
 
 
 
Basic
531,913

 
582,828

 
567,436

 
560,505

Diluted
536,012

 
587,179

 
571,503

 
565,383

See accompanying Notes to Consolidated Financial Statements.


1



CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
 
QUARTER ENDED
 
YEAR-TO-DATE
ENDED
DOLLAR AMOUNTS IN MILLIONS
SEPTEMBER 2014
 
SEPTEMBER 2013
 
SEPTEMBER 2014
 
SEPTEMBER 2013
Consolidated net earnings attributable to Weyerhaeuser common shareholders
$
1,153

 
$
157

 
$
1,616

 
$
497

Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustments
(26
)
 
18

 
(27
)
 
(29
)
Actuarial gains (losses), net of tax expense (benefit) of ($91), $15, ($58) and $64
(143
)
 
31

 
(76
)
 
135

Prior service costs, net of tax benefit of $13, $0, $43 and $3
(25
)
 
(4
)
 
(68
)
 
(12
)
Unrealized gains on available-for-sale securities

 

 

 
1

Total other comprehensive income (loss)
(194
)
 
45

 
(171
)
 
95

Comprehensive income attributable to Weyerhaeuser common shareholders
$
959

 
$
202

 
$
1,445

 
$
592

See accompanying Notes to Consolidated Financial Statements.

2


CONSOLIDATED BALANCE SHEET
(UNAUDITED)
DOLLAR AMOUNTS IN MILLIONS
SEPTEMBER 30,
2014
 
DECEMBER 31,
2013
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,620

 
$
830

Receivables, less allowances of $3 and $4
583

 
518

Receivables for taxes
23

 
101

Inventories (Note 6)
578

 
542

Prepaid expenses
97

 
117

Deferred tax assets
111

 
130

Current assets of discontinued operations (Note 2)

 
88

Total current assets
3,012

 
2,326

Property and equipment, less accumulated depreciation of $6,408 and $6,327
2,534

 
2,689

Construction in progress
215

 
112

Timber and timberlands at cost, less depletion charged to disposals
6,546

 
6,580

Investments in and advances to equity affiliates
186

 
190

Goodwill
40

 
42

Deferred tax assets

 
5

Other assets
292

 
324

Restricted financial investments held by variable interest entities
615

 
615

Noncurrent assets of discontinued operations (Note 2)

 
1,694

Total assets
$
13,440

 
$
14,577

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Notes payable
$

 
$
2

Accounts payable
351

 
343

Accrued liabilities (Note 8)
606

 
629

Current liabilities of discontinued operations (Note 2)

 
154

Total current liabilities
957

 
1,128

Long-term debt (Note 9)
4,891

 
4,891

Long-term debt (nonrecourse to the company) held by variable interest entities
511

 
511

Deferred income taxes
338

 
285

Deferred pension and other postretirement benefits
569

 
516

Other liabilities
318

 
382

Noncurrent liabilities of discontinued operations (Note 2)

 
32

Commitments and contingencies (Note 10)


 


Total liabilities
7,584

 
7,745

Equity:
 
 
 
Weyerhaeuser shareholders’ interest:
 
 
 
Mandatory convertible preference shares, series A: $1.00 par value; $50.00 liquidation; authorized 40,000,000 shares; issued and outstanding: 13,800,000 shares
14

 
14

Common shares: $1.25 par value; authorized 1,360,000,000 shares; issued and outstanding: 525,484,841 and 583,548,428 shares
657

 
729

Other capital
4,548

 
6,444

Retained earnings
1,494

 
294

Cumulative other comprehensive loss (Note 11)
(857
)
 
(686
)
Total Weyerhaeuser shareholders’ interest
5,856

 
6,795

Noncontrolling interests

 
3

Noncontrolling interests in discontinued operations (Note 2)

 
34

Total equity
5,856

 
6,832

Total liabilities and equity
$
13,440

 
$
14,577

See accompanying Notes to Consolidated Financial Statements.

3



CONSOLIDATED STATEMENT OF CASH FLOWS(UNAUDITED) 
 
YEAR-TO-DATE ENDED
DOLLAR AMOUNTS IN MILLIONS
SEPTEMBER 2014
 
SEPTEMBER 2013
Cash flows from operations:
 
 
 
Net earnings
$
1,649

 
$
509

Noncash charges (credits) to earnings:
 
 
 
Depreciation, depletion and amortization
375

 
343

Deferred income taxes, net
170

 
73

Pension and other postretirement benefits (Note 7)
(104
)
 
79

Share-based compensation expense
29

 
34

Charges for impairment of assets
1

 
5

Net gains on dispositions of assets and operations(1) (Note 2)
(1,048
)
 
(42
)
Foreign exchange transaction losses (Note 14)
15

 
6

Change in:
 
 
 
Receivables less allowances
(28
)
 
(112
)
Receivable for taxes
77

 
64

Inventories
(46
)
 

Real estate and land
(133
)
 
(179
)
Prepaid expenses
6

 
(16
)
Accounts payable and accrued liabilities
(76
)
 
45

Deposits on land positions and other assets
15

 
(11
)
Pension and postretirement contributions / benefit payments
(85
)
 
(104
)
Other
(33
)
 
(38
)
Net cash from operations
784

 
656

Cash flows from investing activities:
 
 
 
Property and equipment
(239
)
 
(151
)
Timberlands reforestation
(32
)
 
(28
)
Acquisition of Longview Timber LLC, net of cash acquired (Note 3)

 
(1,581
)
Net proceeds from Real Estate Divestiture, net of cash divested (Note 2)
707

 

Proceeds from sale of assets
24

 
15

Net proceeds of investments held by special purpose entities

 
22

Other
25

 
5

Cash from investing activities
485

 
(1,718
)
Cash flows from financing activities:
 
 
 
Net proceeds from issuance of common shares

 
897

Net proceeds from issuance of preference shares

 
669

Net proceeds from issuance of debt

 
494

Net proceeds from issuance of Weyerhaeuser Real Estate
Company (WRECO) debt
(Note 2)
887

 

Deposit of WRECO debt proceeds into escrow (Note 2)
(887
)
 

Cash dividends on common shares
(411
)
 
(330
)
Cash dividends on preference shares
(22
)
 

Change in book overdrafts
(17
)
 
8

Payments on debt

 
(340
)
Exercises of stock options
84

 
141

Repurchase of common stock (Note 5)
(123
)
 

Other
5

 
22

Cash from financing activities
(484
)
 
1,561

Net change in cash and cash equivalents
785

 
499

Cash and cash equivalents at beginning of period
835

 
898

Cash and cash equivalents at end of period
$
1,620

 
$
1,397

Cash paid (received) during the period for:
 
 
 
Interest, net of amount capitalized of $12 and $15
$
253

 
$
275

Income taxes
$
(40
)
 
$
(4
)
Noncash investing and financing activity:
 
 
 
Acquisition of Longview Timber LLC, debt assumed (Note 3)
$

 
$
1,070

Common shares tendered in WRECO divestiture (Note 2)
$
1,954

 
$

(1)
Includes gains on timberland exchanges.
See accompanying Notes to Consolidated Financial Statements.

4



INDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1:
 
 
 
NOTE 2:
 
 
 
NOTE 3:
 
 
 
NOTE 4:
 
 
 
NOTE 5:
 
 
 
NOTE 6:
 
 
 
NOTE 7:
 
 
 
NOTE 8:
 
 
 
NOTE 9:
 
 
 
NOTE 10:
 
 
 
NOTE 11:
 
 
 
NOTE 12:
 
 
 
NOTE 13:
 
 
 
NOTE 14:
 
 
 
NOTE 15:

5



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE QUARTERS AND YEAR-TO-DATE PERIODS ENDED SEPTEMBER 30, 2014 AND 2013

NOTE 1: BASIS OF PRESENTATION
We are a corporation that has elected to be taxed as a real estate investment trust (REIT). We expect to derive most of our REIT income from investments in timberlands, including the sale of standing timber through pay-as-cut sales contracts. REIT income can be distributed to shareholders without first paying corporate level tax, substantially eliminating the double taxation on income. A significant portion of our timberland segment earnings receives this favorable tax treatment. We are, however, subject to corporate taxes on built-in-gains (the excess of fair market value over tax basis at January 1, 2010) on sales of real property (other than standing timber) held by the REIT during the first 10 years following the REIT conversion. We continue to be required to pay federal corporate income taxes on earnings of our Taxable REIT Subsidiary (TRS), which principally includes our manufacturing businesses and the portion of our Timberlands segment income included in the TRS.
Our consolidated financial statements provide an overall view of our results and financial condition. They include our accounts and the accounts of entities we control, including:
majority-owned domestic and foreign subsidiaries and
variable interest entities in which we are the primary beneficiary.
They do not include our intercompany transactions and accounts, which are eliminated, and noncontrolling interests are presented as a separate component of equity.
We account for investments in and advances to unconsolidated equity affiliates using the equity method, with taxes provided on undistributed earnings. This means that we record earnings and accrue taxes in the period earnings are recognized by our unconsolidated equity affiliates.
Throughout these Notes to Consolidated Financial Statements, unless specified otherwise, references to “Weyerhaeuser,” “we” 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 disclosures normally provided in accordance with accounting principles generally accepted in the United States have been omitted. These 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, 2013. Results of operations for interim periods should not be regarded as necessarily indicative of the results that may be expected for the full year.

RECLASSIFICATIONS
We have reclassified certain balances and results from the prior year to be consistent with our 2014 reporting. This makes year-to-year comparisons easier. Our reclassifications had no effect on net earnings or Weyerhaeuser shareholders’ interest. Our reclassifications present the results of operations discontinued in 2014 separately on our Consolidated Statement of Operations, Consolidated Balance Sheet and in the related footnotes. Note 2: Discontinued Operations provides information about our discontinued operations.

NEW ACCOUNTING PRONOUNCEMENTS
In July 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2013-11, which provides guidance on the presentation of unrecognized tax benefits, reflecting the manner in which an entity would settle at the reporting date any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses or tax credit carryforwards exist. Our prospective adoption of this guidance in first quarter 2014 did not have a material effect on our results of operations, financial position or cash flows.

6



In April 2014, FASB issued ASU 2014-08, an amendment to the current model of the classification and presentation of discontinued operations and asset disposals that changes the definition of a discontinued operation to include only disposals of components of an entity that represent a strategic shift that has (or will have) a material effect on an entity's financial results. The new standard is effective for all disposals or classifications as assets held for sale for fiscal periods starting after December 15, 2014 and early adoption is permitted. We expect to adopt ASU 2014-08 on January 1, 2015 and have determined that its adoption will not have a material impact on our consolidated financial statements and related disclosures at that time.
In May 2014, FASB issued ASU 2014-09, a comprehensive new revenue recognition model that requires an entity to recognize revenue to depict the transfer of goods or services to customers at an amount that reflects the consideration it expects to receive in exchange for those goods or services. The new standard is effective for us on January 1, 2017 and early adoption is not permitted. We may use either the retrospective or cumulative effect transition method. We are evaluating the impact that ASU 2014-09 will have on our consolidated financial statements and related disclosures. We have not yet selected a transition method nor determined the effect of the standard on our ongoing financial reporting.

NOTE 2: DISCONTINUED OPERATIONS
On July 7, 2014, we completed the following set of transactions resulting in our homebuilding and real estate development business becoming wholly-owned by TRI Pointe Homes, Inc. (TRI Pointe):
the distribution of shares of WRECO to our shareholders in exchange for 59 million shares of our common stock; and
the merger of WRECO into a special purpose subsidiary of TRI Pointe, with WRECO surviving the merger and becoming a wholly-owned subsidiary of TRI Pointe.
Collectively, these transactions are referred to as the “Real Estate Divestiture”.
During June 2014, our wholly-owned subsidiary, WRECO, issued $900 million of unsecured and unsubordinated senior debt obligations. The net proceeds after deducting the discount, underwriting fees and issuance costs were $870 million. At the close of the Real Estate Divestiture in July 2014, WRECO used $744 million of the debt proceeds to repay intercompany debt and interest to Weyerhaeuser Company. The newly issued debt, remaining proceeds and other WRECO assets and liabilities, including $5 million cash on hand, were acquired by TRI Pointe when WRECO became a wholly-owned subsidiary of TRI Pointe at the closing of the transaction. Additionally, $32 million related to the adjustment amount payable pursuant to the terms of the transaction agreement was paid to TRI Pointe. Our net cash proceeds in connection with the Real Estate Divestiture totaled $707 million.
Prior to the distribution of WRECO shares to our shareholders, WRECO was a wholly-owned subsidiary. Concurrent with the distribution to shareholders, WRECO ceased being a subsidiary. Discontinued operations relates to WRECO which was previously reported under the Real Estate segment and Unallocated Items.
The following table presents the components of the net gain on divestiture:
DOLLAR AMOUNTS IN MILLIONS
 
Proceeds:
 
Common shares tendered (58,813,151 shares at $33.22 per share)
$
1,954

Cash
707

 
2,661

Less:
 
Net book value of contributed assets
(1,671
)
Transaction costs, net of reimbursement
(18
)
 
(1,689
)
Net gain on divestiture
$
972

The net gain on the Real Estate Divestiture of $972 million is not taxable and was recognized in third quarter 2014 in discontinued operations. The finalization of certain matters may result in additional adjustments in future periods.

7



The following table summarizes the components of net sales and net earnings from discontinued operations.
 
QUARTER ENDED
 
YEAR-TO-DATE ENDED
DOLLAR AMOUNTS IN MILLIONS
SEPTEMBER 2014(1)
 
SEPTEMBER 2013
 
SEPTEMBER 2014
 
SEPTEMBER 2013
Net sales from discontinued operations
$
8

 
$
324

 
$
573

 
$
787

Income (loss) from operations
$
(1
)
 
$
33

 
$
42

 
$
56

Income taxes
(5
)
 
(12
)
 
(16
)
 
(20
)
Net earnings (loss) from operations
(6
)
 
21

 
26

 
36

Net gain on divestiture
972

 

 
972

 

Net earnings from discontinued operations
$
966

 
$
21

 
$
998

 
$
36

(1)
Discontinued operations in third quarter 2014 covered only seven days.
The following table shows carrying values for assets and liabilities classified as discontinued operations as of December 31, 2013.
DOLLAR AMOUNTS IN MILLIONS
DECEMBER 31,
2013
Assets
 
Cash and cash equivalents
$
5

Receivables, less discounts and allowances
51

Prepaid expenses
11

Deferred tax assets
21

Total current assets
88

Property and equipment, net
15

Real estate in process of development and for sale
851

Land being processed for development
596

Investments in and advances to equity affiliates
21

Deferred tax assets
115

Other assets
96

Total noncurrent assets
1,694

Total assets
$
1,782

Liabilities
 
Accounts payable
$
41

Accrued liabilities
113

Total current liabilities
154

Long-term debt (nonrecourse to the company) held by variable interest entities
5

Other liabilities
27

Total noncurrent liabilities
32

Total liabilities
$
186

Noncontrolling interests
$
34


NOTE 3: LONGVIEW TIMBER PURCHASE
On July 23, 2013, we purchased 100 percent of the equity interests in Longview Timber LLC (Longview Timber) for $1.58 billion cash and assumed debt of $1.07 billion, for an aggregate purchase price of $2.65 billion. Longview Timber was a privately-held Delaware limited liability company engaged in the ownership and management of approximately 645,000 acres of timberlands in Oregon and Washington. We believe Longview Timber has productive lands with favorable age class distribution that have and continue to provide us with optionality for harvest. Earnings, assets and liabilities from this business are reported as part of the Timberlands segment beginning in third quarter 2013.

8



Summarized unaudited pro forma information that presents combined amounts as if this acquisition occurred at the beginning of 2013, is as follows:
 
QUARTER ENDED
 
YEAR-TO-DATE ENDED
DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURES
SEPTEMBER 2013
 
SEPTEMBER 2013
Net sales
$
1,867

 
$
5,603

Net earnings from continuing operations attributable to Weyerhaeuser common shareholders
$
132

 
$
478

Earnings from continuing operations per share attributable to Weyerhaeuser common shareholders, basic and diluted
$
0.22

 
$
0.82


NOTE 4: BUSINESS SEGMENTS
We are principally engaged in growing and harvesting timber and manufacturing, distributing and selling forest products. Our principal business segments are:
Timberlands – which includes logs, timber, minerals, oil and gas, and international wood products;
Wood Products – which includes softwood lumber, engineered lumber, structural panels and building materials distribution; and
Cellulose Fibers – which includes pulp, liquid packaging board and an equity interest in a newsprint joint venture.
We have disposed of various businesses and operations that are excluded from the segment results below. See Note 2: Discontinued Operations for information regarding our discontinued operations.

9



An analysis and reconciliation of our business segment information to the respective information in the Consolidated Financial Statements is as follows:
 
QUARTER ENDED
 
YEAR-TO-DATE ENDED
DOLLAR AMOUNTS IN MILLIONS
SEPTEMBER 2014
 
SEPTEMBER 2013
 
SEPTEMBER 2014
 
SEPTEMBER 2013
Sales to unaffiliated customers:
 
 
 
 
 
 
 
Timberlands
$
364

 
$
353

 
$
1,138

 
$
979

Wood Products
1,048

 
1,030

 
3,023

 
3,083

Cellulose Fibers
503

 
474

 
1,454

 
1,424

 
1,915

 
1,857

 
5,615

 
5,486

Intersegment sales:
 
 
 
 
 
 
 
Timberlands
218

 
194

 
642

 
584

Wood Products
20

 
19

 
60

 
55

 
238

 
213

 
702

 
639

Total sales
2,153


2,070

 
6,317

 
6,125

Intersegment eliminations
(238
)
 
(213
)
 
(702
)
 
(639
)
Total
$
1,915

 
$
1,857

 
$
5,615

 
$
5,486

Net contribution to earnings:
 
 
 
 
 
 
 
Timberlands
$
136

 
$
118

 
$
470

 
$
336

Wood Products
105

 
79

 
271

 
393

Cellulose Fibers
59

 
47

 
204

 
135

 
300

 
244

 
945

 
864

Unallocated Items(1)
25

 
20

 
108

 
(36
)
Net contribution to earnings from discontinued operations
972

 
34

 
1,017

 
58

Net contribution to earnings
1,297


298

 
2,070

 
886

Interest expense, net of capitalized interest (continuing and discontinued operations)
(89
)
 
(95
)
 
(257
)
 
(258
)
Income before income taxes (continuing and discontinued operations)
1,208

 
203

 
1,813

 
628

Income taxes (continuing and discontinued operations)
(44
)
 
(36
)
 
(164
)
 
(119
)
Net earnings
1,164

 
167

 
1,649

 
509

Dividends on preference shares
(11
)
 
(10
)
 
(33
)
 
(12
)
Net earnings attributable to Weyerhaeuser common shareholders
$
1,153

 
$
157

 
$
1,616

 
$
497

(1)
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.

NOTE 5: NET EARNINGS PER SHARE
Our basic earnings per share attributable to Weyerhaeuser shareholders were:
$2.17 during third quarter and $2.85 during year-to-date 2014; and
$0.27 during third quarter and $0.89 during year-to-date 2013.
Our diluted earnings per share attributable to Weyerhaeuser shareholders were:
$2.15 during third quarter and $2.83 during year-to-date 2014; and
$0.27 during third quarter and $0.88 during year-to-date 2013.

10



Basic earnings per share is net earnings available to common shareholders 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 available to common shareholders divided by the sum of the:
weighted average number of our outstanding common shares and
the effect of our outstanding dilutive potential common shares.
Dilutive potential common shares can include:
outstanding stock options,
restricted stock units,
performance share units and
preference shares.
We use the treasury stock method to calculate the effect of our outstanding stock options, restricted stock units and performance share units. Share-based payment awards that are contingently issuable upon the achievement of specified performance or market conditions are included in our diluted earnings per share calculation in the period in which the conditions are satisfied.
We use the if-converted method to calculate the effect of our outstanding preference shares. In applying the if-converted method, conversion is not assumed for purposes of computing diluted earnings per share if the effect would be antidilutive. Preference shares are antidilutive whenever the amount of the dividend declared in or accumulated for the current period per common share obtainable on conversion exceeds diluted earnings per share exclusive of the preference shares.
Preference shares are evaluated for participation on a quarterly basis to determine whether two-class presentation is required. Preference shares are considered to be participating as of the financial reporting period end to the extent they would participate in dividends paid to common shareholders. Preference shares are not considered participating for the quarter and year-to-date periods ended September 30, 2014. Under the provisions of the two-class method, basic and diluted earnings per share would be presented for both preference and common shareholders.

SHARES EXCLUDED FROM DILUTIVE EFFECT
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.
We issued 13.8 million 6.375 percent Mandatory Convertible Preference Shares, Series A on June 24, 2013. We do not include these shares in our calculation of diluted earnings per share because they are antidilutive.

Potential Shares Not Included in the Computation of Diluted Earnings per Share
 
QUARTER ENDED
 
YEAR-TO-DATE ENDED
SHARES IN THOUSANDS
SEPTEMBER 2014
 
SEPTEMBER 2013
 
SEPTEMBER 2014
 
SEPTEMBER 2013
Stock options

 
4,955

 

 
4,955

Preference shares
24,988

 
24,865

 
24,988

 
24,865

STOCK REPURCHASE PROGRAM
On August 13, 2014, our Board of Directors approved the 2014 stock repurchase program under which we are authorized to repurchase up to $700 million of outstanding shares. The 2014 stock repurchase program replaced the prior 2011 stock repurchase program. During third quarter 2014, we repurchased 3,851,430 shares of common stock for $130 million under the 2014 stock repurchase program. Cash settlements of $7 million occurred at the beginning of the fourth quarter. All common stock purchases under the stock repurchase program were made in

11



open-market transactions. As of September 30, 2014, we had remaining authorization of $570 million for future share repurchases.

NOTE 6: INVENTORIES
Inventories include raw materials, work-in-process and finished goods.
DOLLAR AMOUNTS IN MILLIONS
SEPTEMBER 30,
2014

DECEMBER 31,
2013
LIFO Inventories:





Logs and chips
$
12


$
15

Lumber, plywood and panels
54


46

Pulp and paperboard
109


97

Other products
10


11

FIFO or moving average cost inventories:





Logs and chips
32


33

Lumber, plywood, panels and engineered lumber
85


70

Pulp and paperboard
28


30

Other products
96


94

Materials and supplies
152


146

Total
$
578


$
542


LIFO – the last-in, first-out method – applies to major inventory products held at our U.S. domestic locations. We began to use the LIFO method for domestic products in the 1940s as required to conform with the tax method elected. Subsequent acquisitions of entities added new products under the FIFO - the first-in, first-out method – or moving average cost methods that have continued under those methods. The FIFO or moving average cost methods applies to the balance of our domestic raw material and product inventories as well as for all material and supply inventories and all foreign inventories. If we used FIFO for all inventories, our stated inventories would have been $116 million and $112 million higher as of September 30, 2014 and December 31, 2013, respectively.

NOTE 7: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
The components of net periodic benefit costs (credits) are:
 
PENSION
 
QUARTER ENDED
 
YEAR-TO-DATE ENDED
DOLLAR AMOUNTS IN MILLIONS
SEPTEMBER 2014
 
SEPTEMBER 2013
 
SEPTEMBER 2014
 
SEPTEMBER 2013
Service cost(1)
$
13

 
$
16

 
$
40

 
$
48

Interest cost
67

 
61

 
205

 
183

Expected return on plan assets
(117
)
 
(109
)
 
(349
)
 
(329
)
Amortization of actuarial loss
33

 
55

 
94

 
166

Amortization of prior service cost
1

 
2

 
4

 
5

Loss due to curtailment and special termination benefits(2)
9

 

 
9

 

Total net periodic benefit cost (credit)
$
6

 
$
25

 
$
3

 
$
73

(1)
Service cost includes $2 million for year-to-date ended 2014 and $1 million and $4 million for quarter and year-to-date ended 2013 for employees that were part of the Real Estate Divestiture. These charges are included in our results of discontinued operations.
(2)
The 2014 curtailment and special termination benefits are related to involuntary terminations, due to restructuring activities, as well as the Real Estate Divestiture.


12



 
OTHER POSTRETIREMENT BENEFITS
 
QUARTER ENDED
 
YEAR-TO-DATE ENDED
DOLLAR AMOUNTS IN MILLIONS
SEPTEMBER 2014
 
SEPTEMBER 2013
 
SEPTEMBER 2014
 
SEPTEMBER 2013
Service cost
$

 
$

 
$

 
$
1

Interest cost
3

 
3

 
8

 
9

Amortization of actuarial loss
3

 
4

 
9

 
11

Amortization of prior service credit
(25
)
 
(5
)
 
(120
)
 
(17
)
Other

 

 
(4
)
 
2

Total net periodic benefit cost (credit)
$
(19
)
 
$
2

 
$
(107
)
 
$
6

During fourth quarter 2013, we decided to eliminate post-Medicare health funding for certain salaried retirees after 2014. As a result, we were ratably amortizing a total pretax gain of approximately $180 million throughout 2014. In third quarter 2014 we recorded a refinement to the prior amount. We recognized a pretax gain of $23 million in third quarter 2014 and $113 million in the first three quarters of 2014 from this plan amendment. We expect to record a similar amount in fourth quarter 2014. This gain is included in "Other operating income, net" in our Consolidated Statement of Operations and reflected in the amortization of prior service credit in the table above.

VALUATION OF PENSION PLAN ASSETS AND OBLIGATION
We estimate the fair value of pension plan assets based upon the information available during the year-end reporting process. In some cases, 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 revised the year-end estimated fair value of pension plan assets to incorporate year-end net asset values reflected in audited financial statements received after we have filed our Annual Report on Form 10-K. During second quarter 2014, we recorded an increase in the fair value of the pension assets of $53 million. We also revised our census data that is used to estimate our projected benefit obligation. During second quarter 2014, we recorded an increase to the projected benefit obligation of $19 million. The net effect was a $34 million increase in the funded status.
Our pension plans are typically remeasured as of fiscal year-end unless a significant event occurs that requires remeasurement. As a result of the Real Estate Divestiture as well as our selling, general and administrative cost reduction initiative, we remeasured our U.S. qualified pension plans during third quarter 2014.
The net effect of the remeasurement was as follows:
We recognized a $9 million charge in third quarter 2014 for curtailments and special termination benefits. Of this amount, $6 million is included in the net gain on the Real Estate Divestiture and is presented in "Earnings from discontinued operations, net of income taxes" in our Consolidated Statement of Operations. The remaining $3 million is included in "Charges for restructuring, closures and impairments" in our Consolidated Statement of Operations.
The funded status of our U.S. qualified pension plans was reduced by $291 million primarily as a result of a decline in the discount rate used to calculate the projected benefit obligation. The discount rate used to remeasure the pension plans’ liabilities was changed from a rate of 4.9 percent at December 31, 2013 to rates reflective of current bond rates on the remeasurement date. A discount rate of 4.4 percent was used as of July 7, 2014. There was no change to the expected rate of return assumption. The decrease in funded status resulted in a $142 million decrease in "Other assets" and a $149 million increase in "Deferred pension and other postretirement benefits" in our Consolidated Balance Sheet.
Deferred tax liabilities decreased $108 million.
Total equity decreased $183 million for changes in "Cumulative other comprehensive loss", reflecting the net effect of the items discussed above. Amounts deferred in cumulative other comprehensive loss will be amortized into net periodic pension cost (credits) in future periods.


13



EXPECTED CONTRIBUTIONS AND BENEFIT PAYMENTS
In 2014 we expect to:
make approximately $44 million of required contributions to our Canadian registered pension plan;
make $3 million of required contributions or benefit payments to our Canadian nonregistered pension plans;
make benefit payments of $20 million for our U.S. nonqualified pension plans; and
make benefit payments of $35 million for our U.S. and Canadian other postretirement plans.
We do not anticipate making a contribution to our U.S. qualified pension plan for 2014.

NOTE 8: ACCRUED LIABILITIES
Accrued liabilities were comprised of the following:
DOLLAR AMOUNTS IN MILLIONS
SEPTEMBER 30,
2014
 
DECEMBER 31,
2013
Wages, salaries and severance pay
$
152

 
$
159

Pension and postretirement
56

 
57

Vacation pay
47

 
48

Income taxes
2

 
4

Taxes – Social Security and real and personal property
37

 
32

Interest
73

 
104

Customer rebates and volume discounts
42

 
50

Deferred income
83

 
82

Other
114

 
93

Total
$
606

 
$
629


NOTE 9: FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values and carrying values of our long-term debt consisted of the following:
 
SEPTEMBER 30,
2014
 
DECEMBER 31,
2013
DOLLAR AMOUNTS IN MILLIONS
CARRYING 
VALUE
 
FAIR VALUE
(LEVEL 2)
 
CARRYING 
VALUE
 
FAIR VALUE
(LEVEL 2)
Long-term debt (including current maturities)
$
4,891

 
$
5,921

 
$
4,891

 
$
5,683

To estimate the fair value of long-term debt, we used the following valuation approaches:
market approach – based on quoted market prices we received for the same types and issues of our debt; or
income approach – based on the discounted value of the future cash flows using market yields for the same type and comparable issues of debt.
The inputs to these valuations 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.


14



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,
carrying short-term investments at expected net realizable value and
the allowance for doubtful accounts.

NOTE 10: LEGAL PROCEEDINGS, COMMITMENTS AND CONTINGENCIES
This note provides details about our:
legal proceedings and
environmental matters.

LEGAL PROCEEDINGS
We are party to various legal proceedings arising in the ordinary course of business, however, we are not currently a party to any legal proceeding that management believes could have a material adverse effect on our long-term financial position, results of operations or cash flows.

ENVIRONMENTAL MATTERS
Our environmental matters include:
site remediation and
asset retirement obligations.

Site Remediation
Under the Comprehensive Environmental Response Compensation and Liability Act – commonly known as the Superfund – and similar state laws, we:
are a party to various proceedings related to the cleanup of hazardous waste sites and
have been notified that we may be a potentially responsible party related to the cleanup of other hazardous waste sites for which proceedings have not yet been initiated.
As of September 30, 2014, our total accrual for future estimated remediation costs on the active Superfund sites and other sites for which we are responsible was approximately $30 million. These reserves are recorded in "Accrued liabilities" and "Other liabilities" in our Consolidated Balance Sheet. The accrual has not changed materially since the end of 2013.

Asset Retirement Obligations
We have obligations associated with the retirement of tangible long-lived assets consisting primarily of reforestation obligations related to forest management licenses in Canada and obligations to close and cap landfills. As of September 30, 2014, our total accruals for these obligations was $41 million. These obligations are recorded in "Accrued liabilities" and "Other liabilities" in our Consolidated Balance Sheet. The accruals have not changed materially since the end of 2013.
Some of our sites have asbestos containing materials. We have met our current legal obligation to identify and manage these materials. In situations where we cannot reasonably determine when asbestos containing materials might be removed from the sites, we have not recorded an accrual because the fair value of the obligation cannot be reasonably estimated.


15



NOTE 11: CUMULATIVE OTHER COMPREHENSIVE INCOME (LOSS)
Changes in amounts included in our cumulative other comprehensive income (loss) by component are:
 
 
PENSION
OTHER POSTRETIREMENT BENEFITS
 
 
DOLLAR AMOUNTS IN MILLIONS
Foreign currency translation adjustments
Actuarial losses
Prior service costs
Actuarial losses
Prior service credits
Unrealized gains on available-for-sale securities
Total
Beginning balance as of December 31, 2013
$
354

$
(1,066
)
$
(19
)
$
(111
)
$
150

$
6

$
(686
)
Other comprehensive income (loss) before reclassifications
(27
)
(237
)
1


4


(259
)
Income taxes

91



1


92

Net other comprehensive income (loss) before reclassifications
(27
)
(146
)
1


5


(167
)
Amounts reclassified from cumulative other comprehensive income (loss)(1)

94

4

9

(120
)

(13
)
Income taxes

(31
)
(2
)
(2
)
44


9

Net amounts reclassified from cumulative other comprehensive income (loss)

63

2

7

(76
)

(4
)
Total other comprehensive income (loss)
(27
)
(83
)
3

7

(71
)

(171
)
Ending balance as of September 30, 2014
$
327

$
(1,149
)
$
(16
)
$
(104
)
$
79

$
6

$
(857
)
(1) Actuarial losses and prior service credits (cost) are included in the computation of net periodic benefit costs (credits). See Note 7: Pension and Other Postretirement Benefit Plans.

NOTE 12: SHARE-BASED COMPENSATION
In year-to-date 2014, we granted 2,463,254 stock options, 686,310 restricted stock units, 321,403 performance share units and 73,605 stock appreciation rights. In addition, 432,583 outstanding restricted stock units and 216,622 outstanding performance share units vested during year-to-date 2014. A total of 4,333,908 shares of common stock were issued as a result of restricted stock unit vesting, performance share unit vesting and stock option exercises.
As a result of the Real Estate Divestiture, the outstanding awards for active WRECO employees were converted into TRI Pointe awards. In third quarter 2014, 1,601,107 stock options, 279,507 restricted stock units and 44,030 performance share units were cancelled. These shares will be available for future issuance under our Long-Term Incentive Compensation Plan. See Note 2. Discontinued Operations.

STOCK OPTIONS
The weighted average exercise price of all of the stock options granted in 2014 was $30.14. The vesting and post-termination vesting terms for stock options granted in 2014 were as follows:
vest ratably over four years;
vest or continue to vest in the event of death while employed, disability or retirement at an age of at least 62;
continue to vest upon retirement at an age of at least 62, but a portion of the grant is forfeited if retirement occurs before the one year anniversary of the grant;

16



continue to vest for one year in the event of involuntary termination when the retirement criteria has not been met; and
stop vesting for all other situations including early retirement prior to age 62.

Weighted Average Assumptions Used in Estimating the Value of Stock Options Granted in 2014
 
OPTIONS
Expected volatility
31.71
%
Expected dividends
2.92
%
Expected term (in years)
4.97

Risk-free rate
1.57
%
Weighted average grant date fair value
$
6.62


RESTRICTED STOCK UNITS
The weighted average fair value of the restricted stock units granted in 2014 was $30.14. The vesting provisions for restricted stock units granted in 2014 were as follows:
vest ratably over four years;
immediately vest in the event of death while employed or disability;
continue to vest upon retirement at an age of at least 62, but a portion of the grant is forfeited if retirement occurs before the one year anniversary of the grant;
continue vesting for one year in the event of involuntary termination when the retirement criteria has not been met; and
will be forfeited upon termination of employment in all other situations including early retirement prior to age 62.

PERFORMANCE SHARE UNITS
The weighted average grant date fair value of performance share units granted in 2014 was $30.62. The vesting provisions for performance share units granted in 2014 and that are earned were as follows:
vest 50 percent, 25 percent and 25 percent on the second, third and fourth anniversaries of the grant date, respectively, as long as the individual remains employed by the company;
fully vest in the event the participant dies or becomes disabled while employed;
continue to vest upon retirement at an age of at least 62, but a portion of the grant is forfeited if retirement occurs before the one year anniversary of the grant;
continue vesting for one year in the event of involuntary termination when the retirement criteria has not been met; and
will be forfeited upon termination of employment in all other situations including early retirement prior to age 62.
Weighted Average Assumptions Used in Estimating the Value of Performance Share Units Granted in 2014
 
Performance Share Units
Performance period
1/1/2014 – 12/31/2015
 
Valuation date closing stock price
$
30.16
 
Expected dividends
2.91
%
Risk-free rate
0.03
%
0.79
%
Expected volatility
20.74
%
23.53
%


17



STOCK APPRECIATION RIGHTS
Stock appreciation rights are remeasured to reflect the fair value at each reporting period. The following table shows the weighted average assumptions applied to all outstanding stock appreciation rights as of September 30, 2014.

Weighted Average Assumptions Used to Remeasure the Value of Stock Appreciation Rights as of September 30, 2014
 
SEPTEMBER 30,
2014
Expected volatility
19.03
%
Expected dividends
3.59
%
Expected term (in years)
1.47

Risk-free rate
0.42
%
Weighted average fair value
$
9.24

The vesting and post-termination vesting terms for stock appreciation rights granted in 2014 are the same as for stock options described above.

NOTE 13: CHARGES FOR RESTRUCTURING, CLOSURES AND ASSET IMPAIRMENTS

Items Included in Our Restructuring, Closure and Asset Impairment Charges

QUARTER ENDED
 
YEAR-TO-DATE ENDED
DOLLAR AMOUNTS IN MILLIONS
SEPTEMBER 2014
 
SEPTEMBER 2013
 
SEPTEMBER 2014
 
SEPTEMBER 2013
Restructuring and closure charges:


 
 
 
 
 
 
Termination benefits
$
2

 
$

 
$
25

 
$

Pension and postretirement charges
3

 

 
3

 

Other restructuring and closure costs
5

 

 
8

 
3

Charges for restructuring and closures
10




36


3

Impairments of long-lived assets

 
1

 
1

 
4

Total charges for restructuring, closures and impairments
$
10


$
1


$
37


$
7

During 2014, our restructuring and closure charges were primarily related to our selling, general and administrative cost reduction initiative to support achieving our competitive performance goals. We expect to incur approximately $5 million to $10 million in additional charges related to these activities between now and early 2015, the majority of which will relate to additional other restructuring and closure costs.

Changes in accrued severance related to restructuring during the year-to-date period ended September 30, 2014 were as follows:
DOLLAR AMOUNTS IN MILLIONS
Accrued severance as of December 31, 2013
$
2

Charges
25

Payments
(16
)
Accrued severance as of September 30, 2014
$
11

The majority of the accrued severance balance as of September 30, 2014, is expected to be paid within one year.


18



NOTE 14: OTHER OPERATING INCOME, NET
Other operating income, net:
includes both recurring and occasional income and expense items and
can fluctuate from year to year.

Items Included in Other Operating Income, Net
 
QUARTER ENDED
 
YEAR-TO-DATE ENDED
DOLLAR AMOUNTS IN MILLIONS
SEPTEMBER 2014
 
SEPTEMBER 2013
 
SEPTEMBER 2014
 
SEPTEMBER 2013
Gain on postretirement plan amendment (Note 7)
$
(23
)
 
$

 
$
(113
)
 
$

Gain on disposition of non-strategic assets
(1
)
 
(1
)
 
(25
)
 
(14
)
Foreign exchange (gains) losses, net
13

 
(2
)
 
15

 
6

Land management income
(9
)
 
(7
)
 
(25
)
 
(20
)
Other, net
(3
)
 
6

 
(15
)
 
(4
)
Total other operating income, net
$
(23
)
 
$
(4
)
 
$
(163
)
 
$
(32
)
Gain on disposition of non-strategic assets in 2014 included a $22 million pretax gain recognized in first quarter 2014 on the sale of a landfill in Washington State.
Foreign exchange (gains) losses result from changes in exchange rates on transactions, primarily related to our Canadian operations.
Land management income includes income from recreational activities, land permits, grazing rights, firewood sales and other miscellaneous income related to land management activities.

NOTE 15: INCOME TAXES
As a REIT, we generally are not subject to corporate level tax on income of the REIT that is distributed to shareholders. We will, however, be subject to corporate taxes on built-in-gains (the excess of fair market value over tax basis at January 1, 2010) on sales of real property (other than standing timber) held by the REIT during the first 10 years following the REIT conversion. We also will continue to be required to pay federal corporate income taxes on earnings of our TRS, which principally includes our manufacturing businesses and the portion of our Timberlands segment income included in the TRS.
The 2014 provision for income taxes is based on the current estimate of the annual effective tax rate. Our 2014 estimated annual effective tax rate for our TRS is approximately 34 percent, which is lower than the statutory federal tax rate primarily due to permanent tax deductions and lower foreign tax rates applicable to foreign earnings, partially offset by state income taxes.
There were no significant discrete items excluded from the calculation of our effective income tax rate for 2014 or 2013.


19



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 taxes and tax rates, future dividends, future restructuring charges, expected results of litigation and the sufficiency of litigation reserves, expected uses of cash, 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.


20



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 LLC (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.


21



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 September 30, 2014, compared to the quarter and year-to-date periods ended September 30, 2013.

CONSOLIDATED RESULTS
How We Did in Third 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 September 30, 2014 and 2013:
 
QUARTER ENDED

AMOUNT OF
CHANGE

YEAR-TO-DATE ENDED

AMOUNT OF
CHANGE
DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURES
SEPTEMBER 2014

SEPTEMBER 2013

2014 VS. 2013

SEPTEMBER 2014

SEPTEMBER 2013

2014 VS. 2013
Net sales
$
1,915

 
$
1,857

 
$
58

 
$
5,615

 
$
5,486

 
$
129

Operating income
$
318

 
$
243

 
$
75

 
$
1,026

 
$
789

 
$
237

Earnings of discontinued operations, net of tax
$
966

 
$
21

 
$
945

 
$
998

 
$
36

 
$
962

Net earnings attributable to Weyerhaeuser common shareholders
$
1,153

 
$
157

 
$
996

 
$
1,616

 
$
497

 
$
1,119

Basic earnings per share attributable to Weyerhaeuser common shareholders
$
2.17

 
$
0.27

 
$
1.90

 
$
2.85

 
$
0.89

 
$
1.96

Diluted earnings per share attributable to Weyerhaeuser common shareholders
$
2.15

 
$
0.27

 
$
1.88

 
$
2.83

 
$
0.88

 
$
1.95


Comparing Third Quarter 2014 with Third Quarter 2013
Net sales
Net sales increased $58 million – 3 percent – primarily due to the following:
Cellulose Fibers segment sales increased $29 million, primarily due to higher sales realizations and volumes for pulp.
Wood Products segment sales increased $18 million, primarily due to higher sales realizations for structural lumber, more complementary products purchased for resale and higher sales realizations and shipment volumes for engineered products, partially offset by lower sales realizations and shipment volumes for oriented strand board (OSB) and lower shipment volumes for structural lumber.
Timberlands segment sales increased $11 million, primarily due to higher domestic log prices and increased sales volume in the West and in our acquired Longview Timber holdings.

22



Net earnings attributable to Weyerhaeuser common shareholders
Our net earnings attributable to Weyerhaeuser common shareholders increased $996 million primarily due to the following:
a $945 million increase in earnings from discontinued operations, primarily due to a $972 million net gain on the Real Estate Divestiture recognized in 2014;
a $33 million increase in gross margin, primarily due to higher sales realizations in lumber and engineered products, higher sales realizations and sales volumes of pulp and liquid packaging board and higher sales volumes in our legacy Western timberlands;
a $29 million decrease in our selling, general and administrative expenses; and
a $19 million increase in other operating income, primarily due to a $23 million pretax gain recognized in 2014 related to a previously announced postretirement plan amendment.
These increases in our earnings were partially offset by:
a $15 million increase in tax expense primarily due to higher earnings in our Taxable REIT Subsidiary (TRS) and
a $14 million decrease in interest income and other primarily due to a $10 million pretax gain recognized in 2013 on the sale of part of our investment in Liaison Technologies Inc.

Comparing Year-to-Date 2014 with Year-to-Date 2013
Net sales
Net sales increased $129 million – 2 percent – primarily due to the following:
Timberlands segment sales increased $159 million, primarily due to higher export and domestic log prices and increased sales volume in the West and in our acquired Longview Timber holdings.
Cellulose Fibers segment sales increased $30 million, primarily due to higher sales realizations for pulp.
These increases were partially offset by a $60 million decrease in our Wood Products segment sales, primarily due to lower sales realizations for OSB, partially offset by higher sales realizations and volumes for engineered products and more complementary products purchased for resale.
Net earnings attributable to Weyerhaeuser common shareholders
Our net earnings attributable to Weyerhaeuser common shareholders increased $1,119 million primarily due to the following:
a $962 million increase in earnings from discontinued operations, primarily due to a $972 million net gain on the Real Estate Divestiture recognized in 2014;
a $178 million increase in gross margin in our Timberlands and Cellulose Fibers segments, primarily due to higher sales realizations and the purchase of Longview Timber;
a $131 million increase in other operating income, primarily due to a $113 million pretax gain recognized in 2014 related to a previously announced postretirement plan amendment; and
a $63 million decrease in our selling, general and administrative expenses.

23



These increases in our earnings were partially offset by:
a $136 million decrease in gross margin in our Wood Products segment, primarily due to lower sales realizations in OSB;
a $49 million increase in tax expense primarily due to higher earnings in our TRS; and
a $30 million increase in charges for restructuring, closure and asset impairments primarily related to our selling, general and administrative cost reduction initiative.

TIMBERLANDS
How We Did Third 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 September 30, 2014 and 2013:

NET SALES / NET CONTRIBUTION TO EARNINGS – TIMBERLANDS
  
QUARTER ENDED
 
AMOUNT OF
CHANGE
 
YEAR-TO-DATE ENDED
 
AMOUNT OF CHANGE
DOLLAR AMOUNTS IN MILLIONS
SEPTEMBER 2014
 
SEPTEMBER 2013
 
2014 VS. 2013
 
SEPTEMBER 2014
 
SEPTEMBER 2013
 
2014 VS. 2013
Net sales to unaffiliated customers:
 
 
 
 
 
 
 
 
 
 
 
Logs:
 
 
 
 
 
 
 
 
 
 
 
West
$
227

 
$
213

 
$
14

 
$
745

 
$
598

 
$
147

South
69

 
66

 
3

 
191

 
192

 
(1
)
Canada
5

 
6

 
(1
)
 
12

 
15

 
(3
)
Subtotal logs sales
301

 
285

 
16

 
948

 
805

 
143

Chip sales
4

 
2

 
2

 
9

 
7

 
2

Timberlands exchanges(1)
17

 
28

 
(11
)
 
49

 
44

 
5

Higher and better-use land sales(1)
4

 
2

 
2

 
14

 
10

 
4

Minerals, oil and gas
10

 
9

 
1

 
25

 
26

 
(1
)
Products from international operations(2)
22

 
24

 
(2
)
 
72

 
68

 
4

Other products
6

 
3

 
3

 
21

 
19

 
2

Subtotal net sales to unaffiliated customers
364

 
353

 
11

 
1,138

 
979

 
159

Intersegment sales:
 
 
 
 
 
 
 
 
 
 
 
United States
141

 
130

 
11

 
427

 
380

 
47

Other
77

 
64

 
13

 
215

 
204

 
11

Subtotal intersegment sales
218

 
194

 
24

 
642


584

 
58

Total sales
$
582

 
$
547

 
$
35

 
$
1,780

 
$
1,563

 
$
217

Net contribution to earnings
$
136

 
$
118

 
$
18

 
$
470

 
$
336

 
$
134

(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.


24



Comparing Third Quarter 2014 with Third Quarter 2013
Net sales – unaffiliated customers
Net sales to unaffiliated customers increased $11 million – 3 percent – primarily due to a $14 million increase in Western log sales due to higher domestic log prices, a 9 percent increase in sales volumes including the increase related to acquired Longview Timber holdings.
Intersegment sales
Intersegment sales increased $24 million – 12 percent – primarily due to:
a $13 million increase due to increased log and chip sales volumes in Canada and
an $11 million increase in the United States due to higher sales volumes including the increase related to acquired Longview Timber holdings and higher log prices in our legacy Western and Southern timberlands.
Net contribution to earnings
Net contribution to earnings increased $18 million – 15 percent – primarily due to the following:
a $14 million increase due to higher sales volumes in our legacy Western timberlands,
a $6 million increase due to the purchase of Longview Timber and
a $5 million increase due to higher log prices in the South.

These increases were partially offset by an $8 million increase in operating costs primarily due to higher contract logging costs and increased road building activity, excluding Longview Timber.
Comparing Year-to-Date 2014 with Year-to-Date 2013
Net sales – unaffiliated customers
Net sales to unaffiliated customers increased $159 million – 16 percent – primarily due to the following:
a $147 million increase in Western log sales due to higher export and domestic log prices in our legacy Western timberlands and a 24 percent increase in sales volumes including the increase related to acquired Longview Timber holdings and
a $5 million increase due to higher timberlands exchanges and higher and better use land sales.
Intersegment sales
Intersegment sales increased $58 million – 10 percent – primarily due to:
a $47 million increase in the United States due to higher sales volumes including the increase related to acquired Longview Timber holdings and higher log prices in our legacy Western and Southern timberlands and
an $11 million increase due to increased log and chip sales volumes in Canada.
Net contribution to earnings
Net contribution to earnings increased $134 million – 40 percent – primarily due to the following:
a $79 million increase due to the purchase of Longview Timber;
a $51 million increase due to higher log prices in our legacy Western timberlands and the South;
a $24 million increase due to higher sales volumes and demand for export logs in our legacy Western timberlands;
a $9 million decrease in selling, general and administrative expenses, excluding Longview Timber; and
an $7 million increase due to higher timberland exchanges and higher and better-use land sales.

25



These increases were partially offset by a $37 million increase in operating costs in our legacy Western timberlands due to higher logging costs.
THIRD-PARTY LOG SALES VOLUMES AND FEE HARVEST VOLUMES
 
QUARTER ENDED
 
AMOUNT OF
CHANGE
 
YEAR-TO-DATE ENDED
 
AMOUNT OF CHANGE
VOLUMES IN THOUSANDS
SEPTEMBER 2014
 
SEPTEMBER 2013
 
2014 VS. 2013
 
SEPTEMBER 2014
 
SEPTEMBER 2013
 
2014 VS. 2013
Third party log sales – cubic meters:
 
 
 
 
 
 
 
 
 
 
 
West
2,223

 
2,037

 
186

 
6,859

 
5,523

 
1,336

South
1,500

 
1,514

 
(14
)
 
4,224

 
4,420

 
(196
)
Canada
152

 
141

 
11

 
338

 
383

 
(45
)
International
170

 
100

 
70

 
456

 
245

 
211

Total
4,045

 
3,792

 
253

 
11,877

 
10,571

 
1,306

Fee harvest volumes – cubic meters:
 
 
 
 
 
 
 
 
 
 
 
West
2,656

 
2,305

 
351

 
8,419

 
6,221

 
2,198

South
2,950

 
2,928

 
22

 
8,531

 
8,589

 
(58
)
International
232

 
211

 
21

 
730

 
575

 
155

Total
5,838

 
5,444

 
394

 
17,680

 
15,385

 
2,295


WOOD PRODUCTS
How We Did Third 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 September 30, 2014 and 2013:

NET SALES / NET CONTRIBUTION TO EARNINGS – WOOD PRODUCTS
 
QUARTER ENDED
 
AMOUNT OF
CHANGE
 
YEAR-TO-DATE ENDED
 
AMOUNT OF CHANGE
DOLLAR AMOUNTS IN MILLIONS
SEPTEMBER 2014
 
SEPTEMBER 2013
 
2014 VS. 2013
 
SEPTEMBER 2014
 
SEPTEMBER 2013
 
2014 VS. 2013
Net sales:
 
 
 
 
 
 
 
 
 
 
 
Structural lumber
$
500

 
$
480

 
$
20

 
$
1,442

 
$
1,433

 
$
9

Engineered solid section
104

 
97

 
7

 
308

 
263

 
45

Engineered I-joists
74

 
68

 
6

 
214

 
184

 
30

Oriented strand board
157

 
188

 
(31
)
 
464

 
648

 
(184
)
Softwood plywood
42

 
38

 
4

 
107

 
115

 
(8
)
Other products produced
45

 
42

 
3

 
132

 
129

 
3

Complementary products purchased for resale
126

 
117

 
9

 
356

 
311

 
45

Total
$
1,048

 
$
1,030

 
$
18

 
$
3,023


$
3,083

 
$
(60
)
Net contribution to earnings
$
105

 
$
79