Weyerhaeuser Company — Form 10-Q Summary
Business context and reporting period
Unaudited quarterly report for the quarter and six months ended June 30, 2009. Weyerhaeuser operates in Timberlands, Wood Products, Cellulose Fibers and Real Estate, with Corporate and Other activities. The 2008 comparison includes discontinued Containerboard, Packaging and Recycling and Australian operations that were sold in 2008. The 2009 second quarter contained 91 days; year-to-date 2009 contained 181 days.
Key financial metrics
| Dollar amounts in millions, except per-share data | Q2 2009 | Q2 2008 | YTD 2009 | YTD 2008 |
|---|---|---|---|---|
| Net sales and revenues | $1,391 | $2,174 | $2,666 | $4,216 |
| Operating loss | $(62) | $(406) | $(392) | $(664) |
| Loss from continuing operations | $(116) | $(260) | $(382) | $(501) |
| Net loss attributable to common shareholders | $(106) | $(96) | $(370) | $(244) |
| Loss per share | $(0.50) | $(0.45) | $(1.75) | $(1.16) |
| Dividends per share | $0.25 | $0.60 | $0.50 | $1.20 |
- Revenue declined 36% in the quarter and 37% year to date. The operating loss narrowed substantially because 2008 included much larger Real Estate impairment charges, although continuing operations remained loss-making.
- Interest expense incurred was $114 million in the quarter and $229 million year to date, compared with $141 million and $285 million, respectively, in the prior-year periods.
- The effective income tax rate for continuing operations was 36.7% in 2009 versus 37.5% in 2008.
- Year-to-date cash used in operations was $310 million, compared with $92 million used in 2008. Investing activities used $74 million, and financing activities used $164 million.
- Cash and cash equivalents were $1.746 billion at June 30, 2009, including $1.745 billion in Forest Products and $1 million in Real Estate, compared with $2.294 billion at December 31, 2008.
- Total assets were $15.842 billion and total liabilities were $11.565 billion at June 30, 2009. Total equity was $4.277 billion.
- Long-term debt, including current maturities, had a carrying value of approximately $5.997 billion and an estimated fair value of $5.365 billion. No borrowings were outstanding under the revolving credit facilities.
- Capital expenditures excluding acquisitions and Real Estate were $107 million year to date. Management anticipated approximately $200 million for full-year 2009, excluding acquisitions and Real Estate.
Material changes versus the prior comparable period
- Timberlands: Unaffiliated revenue decreased 7% in the quarter and 13% year to date. Contribution to earnings fell to $66 million from $103 million in the quarter and to $106 million from $215 million year to date, reflecting lower Western log prices and harvest volumes.
- Wood Products: Revenue decreased 45% in the quarter and 44% year to date, but the segment loss improved slightly to $(162) million from $(164) million in the quarter and to $(428) million from $(441) million year to date. Lower raw-material, selling and administrative costs partly offset sharply lower prices and volumes.
- Cellulose Fibers: Revenue decreased 24% in the quarter and 21% year to date, while contribution to earnings increased to $100 million from $42 million in the quarter and to $131 million from $98 million year to date. Results benefited from $107 million of alternative fuel mixture credits and lower operating costs, despite weaker pulp pricing and volumes.
- Real Estate: Revenue decreased 44% in the quarter and 49% year to date. Contribution to earnings improved to a loss of $50 million from $337 million in the quarter and to a loss of $146 million from $411 million year to date, primarily because impairment charges declined. Year-to-date home closings fell 48% to 893, and the average closing price declined 4% to $383,000.
- Real Estate recorded $95 million of impairment and related charges year to date, compared with $317 million in 2008. Forest Products recorded $128 million of restructuring and closure charges and $38 million of impairment charges year to date.
- There were no discontinued operations in 2009. The 2008 periods included $111 million of quarterly and $198 million of year-to-date earnings from discontinued operations.
- Retained earnings declined to $2.855 billion from $3.278 billion at year-end 2008. Cumulative other comprehensive loss increased to $646 million from $495 million, including a $183 million reduction in shareholders’ equity related to finalized pension asset valuations.
Guidance, outlook, risks and unusual items
- Management expected third-quarter Timberlands earnings to be lower than the second quarter, excluding non-strategic land sales, due to additional harvest deferrals and lower log realizations.
- Management expected a smaller third-quarter Wood Products operating loss from improved efficiency, cost controls and modestly better softwood lumber and oriented strand board prices, while continuing downtime as needed.
- Management expected higher third-quarter Cellulose Fibers earnings because of less maintenance downtime and continued cost control.
- Management expected a higher third-quarter Real Estate homebuilding loss, with closings comparable to the second quarter but a less favorable mix and lower average selling prices.
- The company recognized $107 million of alternative fuel mixture credits in the second quarter, receiving $76 million in cash and recording a $31 million receivable. The credit was scheduled to expire December 31, 2009, creating a significant risk to second-half cash flow and earnings.
- The company had $285 million of receivables from its U.S. pension trust under renewed six-month short-term loans. It expected 2009 contributions of approximately $19 million to U.S. nonqualified plans, $7 million to Canadian pension plans, an additional $10 million voluntary Canadian contribution, and $64 million to other postretirement benefit plans.
- The company settled, subject to court approval, Alder antitrust litigation with a $20 million reserve. Opt-out litigation remained possible and was not reserved. The hardboard siding reserve was $5 million, although additional future claims could not be estimated.
- Environmental remediation reserves were $32 million for 55 active sites. Management estimated reasonably possible additional costs of up to $36 million. No liability had been recognized for certain encapsulated asbestos removal obligations because settlement dates could not be reasonably determined.
- Credit ratings were downgraded or placed on a negative trend during the period. The company was in compliance with credit-facility covenants, including a defined debt-to-total-capital ratio of 56.4% for Weyerhaeuser Company versus a 65% maximum.
Most important facts for investors to verify
- Whether the alternative fuel mixture credit continued as scheduled and the extent to which its expiration affected second-half 2009 results and liquidity.
- The maturity schedule, refinancing plans and covenant headroom for approximately $6.0 billion of debt, including the $1.2 billion facility expiring in March 2010.
- Real Estate inventory valuations, impairment assumptions, discount rates of 12% to 21%, project cancellations and exposure to continued housing weakness.
- The sustainability of cash balances while operations generated negative $310 million of year-to-date cash flow.
- Potential changes in pension funding, pension-trust receivables and the $646 million cumulative other comprehensive loss.
- Final court approval and any opt-out claims related to the Alder antitrust settlement, as well as environmental and hardboard siding contingencies.
- The filing is unaudited, and management cautions that interim results are not necessarily indicative of full-year results.