Weyerhaeuser Company 2019 Form 10-K Summary
Business context and reporting period
Weyerhaeuser is a timberland owner, forest-products manufacturer and real estate, energy and natural resources company. It operates as a real estate investment trust, with Timberlands, Real Estate & ENR, and Wood Products as its reportable segments. The filing covers the fiscal year ended December 31, 2019; fourth-quarter data is included in the annual filing but this is not a standalone quarterly filing.
- Owned or controlled approximately 11.5 million U.S. timberland acres and managed approximately 14.0 million Canadian acres under long-term licenses.
- Operated 35 wood-products manufacturing facilities and employed approximately 9,400 people.
- Generated $6.6 billion of net sales in 2019.
Financial performance and condition
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Net sales | $6,554 million | $7,476 million | Down $922 million, or 12% |
| Gross margin | $1,142 million | $1,884 million | Down $742 million |
| Gross margin percentage | 17.4% | 25.2% | Down 7.8 percentage points |
| Operating income | $651 million | $1,394 million | Down 53% |
| Operating margin | 9.9% | 18.6% | Down 8.7 percentage points |
| Net earnings attributable to common shareholders | $(76) million | $748 million | Down $824 million |
| Diluted earnings per share | $(0.10) | $0.99 | Down $1.09 |
| Adjusted EBITDA | $1,276 million | $2,032 million | Down 37% |
| Net cash from operations | $966 million | $1,112 million | Down $146 million |
| Capital expenditures | $384 million | $427 million | Down $43 million |
| Cash and cash equivalents | $139 million | $334 million | Down $195 million |
Segment net contribution to earnings was $347 million for Timberlands, $144 million for Real Estate & ENR, and $353 million for Wood Products, offset by $679 million of unallocated charges. Segment Adjusted EBITDA was $680 million, $274 million and $476 million, respectively.
- Debt and liquidity: Long-term debt, including current maturities, was approximately $6.1 billion, and total debt including $230 million of revolving-credit borrowings was $6.377 billion. The $1.5 billion revolving facility had $1.270 billion available at year-end. The company reported a 42.24% debt-to-total-capital ratio and compliance with its covenants.
- Debt activity: Weyerhaeuser issued $750 million of 4.00% notes due 2029 and redeemed a $500 million 7.375% note due 2019. The weighted-average interest rate on long-term debt, excluding the revolving line, was 5.90%, with a weighted-average maturity of 6.9 years.
- Shareholder returns: Cash dividends paid were $1.013 billion, or $1.36 per share. The company repurchased approximately 2.3 million shares for $60 million and had $440 million remaining under its repurchase authorization.
- Balance sheet: Total assets were $16.406 billion and shareholders’ equity was $8.177 billion, compared with $9.046 billion at year-end 2018.
Material changes versus the prior comparable period
- Wood Products sales declined $674 million, primarily because structural lumber and oriented strand board realizations fell 19% and 31%, respectively. Segment contribution fell $485 million to $353 million.
- Timberlands sales to unaffiliated customers declined $255 million, largely due to lower Western log prices and volumes. Segment contribution fell $236 million to $347 million.
- Real Estate & ENR sales increased $7 million and contribution increased $17 million to $144 million, helped by higher production-based royalties and lower real estate costs.
- Operating income was reduced by an $80 million noncash impairment charge related to Montana timberlands classified as held for sale, partly offset by a $48 million gain on the Michigan timberlands sale and a $68 million product-remediation insurance recovery.
- Net earnings also reflected $516 million of non-operating pension and postretirement costs, including $455 million of pension settlement charges, versus $272 million in 2018.
- Net cash from operations decreased, but cash from investing activities improved to $187 million from $(440) million, primarily because of $297 million of proceeds from the Michigan timberlands sale and $253 million received from a buyer-sponsored variable-interest entity.
- The company adopted the lease standard ASC 842 on January 1, 2019, recognizing $165 million of right-of-use assets and $172 million of lease liabilities.
Guidance, outlook, risks and unusual items
- Management expected just over 1.3 million U.S. housing starts in 2020, characterized by continued modest housing growth, and anticipated Japan and China log demand to be comparable with 2019.
- Management expected 2020 net capital expenditures of approximately $360 million and pension and postretirement contributions of approximately $30 million.
- The Montana timberlands sale, involving approximately 630,000 acres and expected to close in the second quarter of 2020, was classified as held for sale at year-end. Assets held for sale were $140 million after the impairment.
- Key operating risks include cyclical housing demand, commodity pricing, excess industry supply, Canadian lumber trade duties, export demand and currency movements, raw-material and energy costs, weather, wildfire, pests, transportation and labor availability, manufacturing disruptions, and environmental and forestry regulation.
- Environmental remediation reserves were $61 million. The company estimated that reasonably possible additional remediation costs could reach up to $124 million above current accruals.
- Defined-benefit plans remained underfunded: pension obligations exceeded plan assets by $541 million and other postretirement obligations exceeded assets by $132 million at year-end.
- The company reported no legal proceeding that management believed could materially adversely affect its consolidated financial statements, but disclosed continuing environmental, product-remediation and other contingent exposures.
- The company remained a REIT but pays corporate-level taxes on taxable REIT subsidiaries, including Wood Products and portions of Timberlands and Real Estate & ENR. Loss of REIT qualification would have significant tax consequences.
Most important facts for an investor to verify
- Whether housing starts, lumber and panel prices, log prices, and export demand support the company’s 2020 outlook.
- The closing and final economics of the Montana timberlands sale and the effect of the $80 million impairment.
- The sustainability of dividends and share repurchases relative to operating cash flow, capital spending and debt obligations.
- The magnitude and timing of pension funding needs, including sensitivity to discount rates and investment returns.
- Potential additional environmental remediation costs above the $61 million reserve and the status of the Kalamazoo River matter.
- Exposure to Canadian lumber duties, international trade restrictions, currency changes and Asian market demand.
- The company’s reconciliation of non-GAAP Adjusted EBITDA and earnings before special items to GAAP results; 2019 earnings before special items were $285 million, versus reported net loss of $76 million.