Weyerhaeuser Company — FY2015 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2015. The filing is an annual Form 10-K; fourth-quarter data is presented within the annual filing but is not a standalone Form 10-K period. Weyerhaeuser is a REIT focused on timberlands, wood products and cellulose fibers, with approximately 6.9 million acres of timberlands and 12,600 employees.
Business Context
- Segments: Timberlands, Wood Products and Cellulose Fibers.
- 2015 sales outside the United States were $2.3 billion, or 32% of consolidated sales.
- The company owned or controlled nearly 7 million acres of timberlands and generated $7.1 billion of net sales.
- Weyerhaeuser entered into a merger agreement with Plum Creek Timber Company on November 6, 2015. The transaction was expected to close in the first quarter of 2016 and contemplated issuing approximately 278 million Weyerhaeuser shares, subject to closing adjustments and conditions.
Financial Performance and Key Metrics
| Metric | 2015 | 2014 | Change |
|---|
| Net sales | $7,082 million | $7,403 million | Down 4% |
| Gross margin | $1,388 million | $1,640 million | Down $252 million |
| Operating income | $919 million | $1,320 million | Down 30% |
| Earnings from continuing operations | $506 million | $828 million | Down 39% |
| Net earnings attributable to common shareholders | $462 million | $1,782 million | Down $1,320 million |
| Diluted EPS | $0.89 | $3.18 | Down $2.29 |
| Cash flow from operations | $1,064 million | $1,088 million | Down $24 million |
| Capital expenditures | $483 million | $395 million | Up $88 million |
| Long-term debt | $4,891 million | $4,891 million | Unchanged |
- Approximate margins were 19.6% gross, 13.0% operating and 6.5% attributable net margin in 2015, compared with approximately 22.2%, 17.8% and 24.1%, respectively, in 2014. The 2014 net margin benefited from the $972 million gain on the Weyerhaeuser Real Estate Company divestiture.
- Adjusted EBITDA was $1,422 million, down from $1,634 million in 2014. Segment Adjusted EBITDA was $758 million for Timberlands, $372 million for Wood Products and $378 million for Cellulose Fibers.
- Cash and cash equivalents declined to $1,012 million from $1,580 million. Net cash used in investing activities was $487 million and net cash used in financing activities was $1,145 million.
- Cash financing uses included $619 million of common dividends, $44 million of preference-share dividends and $518 million of common-share repurchases.
- The company had a $1 billion revolving credit facility, no borrowings under it at year-end, and no debt maturities in the following twelve months. Defined net worth was $6.3 billion and the defined debt-to-total-capital ratio was 44%, versus a covenant limit of 65%.
Segment Results
| Segment | 2015 Sales | 2014 Sales | 2015 Contribution to Earnings | Change in Contribution |
|---|
| Timberlands | $2,180 million, including intersegment sales | $2,364 million | $549 million | Down $64 million |
| Wood Products | $3,872 million | $3,970 million | $258 million | Down $69 million |
| Cellulose Fibers | $1,860 million | $1,936 million | $119 million | Down $172 million |
- Timberlands: Unaffiliated sales declined 10% to $1,350 million, mainly because of lower Western log realizations and export volumes and lower Southern log volumes. Net contribution declined 10%.
- Wood Products: Sales declined 2%, but structural lumber, OSB and engineered-product volumes increased. Lower lumber and OSB prices reduced contribution by 21%; closures of four distribution centers generated $8 million of pretax restructuring charges.
- Cellulose Fibers: Sales declined 4% as pulp and liquid packaging board prices fell. Contribution declined 59%, including a $105 million loss from equity affiliates, primarily an $84 million noncash impairment at NORPAC. The company recorded a related $28 million tax benefit.
Material Changes Versus 2014
- Net sales fell $321 million due to lower sales in all three operating segments.
- Gross margin declined $252 million because of weaker commodity prices, lower log realizations and volumes, and higher Cellulose Fibers maintenance and disruption costs.
- 2014 included $998 million of earnings from discontinued operations, including the $972 million gain on the real estate divestiture; 2015 had no discontinued-operation earnings.
- Other operating results were adversely affected by $14 million of Plum Creek merger costs and a $13 million noncash impairment of a nonstrategic asset. In contrast, 2014 included a $151 million postretirement-plan gain and a $22 million landfill-sale gain.
- Income taxes were a $3 million benefit in 2015 versus $185 million of expense in 2014. The 2015 result included tax benefits related to the equity-affiliate impairment and expiration of the REIT built-in-gains tax period.
- Common shares outstanding declined to 510.5 million from 524.5 million following 16.2 million share repurchases. The company announced an intended $2.5 billion post-merger repurchase, none of which had been completed by year-end.
Guidance, Outlook, Risks and Unusual Items
- Management expected 2016 housing starts to improve, with consensus total starts of 1.2 million to 1.3 million units. Expected wood-product prices were similar to slightly higher, while log prices were expected to improve modestly.
- Cellulose Fibers prices were expected to be similar to slightly lower because of weak global growth, available supply and a strong U.S. dollar.
- 2016 net capital expenditures were expected to be slightly below 2015, subject to the Plum Creek transaction and the Cellulose Fibers strategic review.
- The board authorized exploration of strategic alternatives for Cellulose Fibers. The filing stated that no transaction was assured.
- Key risks include housing-market cyclicality, commodity-price volatility, excess industry supply, foreign exchange exposure, energy and raw-material costs, manufacturing disruptions, transportation constraints, environmental regulation, timberland fire and weather risk, cybersecurity, litigation and changes in credit ratings.
- The Softwood Lumber Agreement between Canada and the United States expired in October 2015, creating uncertainty regarding Canadian imports, tariffs and potential pressure on lumber and timber prices.
- Environmental remediation reserves were $37 million. Management estimated that reasonably possible additional remediation costs could reach up to $116 million over several years. Environmental remediation spending was approximately $7 million in 2015, with approximately $7 million expected in 2016.
- Aggregate contractual obligations totaled $9.1 billion, including $4.9 billion of long-term debt, $3.4 billion of interest, $210 million of operating leases and $486 million of employee-related obligations.
- KPMG issued unqualified opinions on the consolidated financial statements and internal control over financial reporting.
Most Important Facts for Investors to Verify
- Completion terms, share issuance, financing, regulatory approvals and integration costs related to the Plum Creek merger.
- Whether housing recovery and improved demand offset lower commodity pricing and production oversupply.
- The outcome of the Cellulose Fibers strategic alternatives review and the effect of the NORPAC impairment.
- Liquidity after dividends, share repurchases, merger-related expenditures and the intended $2.5 billion post-merger repurchase.
- Exposure to environmental remediation, litigation, Canadian Softwood Lumber trade actions and potential future regulatory costs.
- The sustainability of the REIT structure, dividend levels and the mandatory conversion of the 6.375% preference shares scheduled for July 1, 2016.
