Weyerhaeuser Company — 2011 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2011. The filing is an annual Form 10-K, not a quarterly filing; fourth-quarter figures are included in the selected quarterly information. Weyerhaeuser is a forest products company with Timberlands, Wood Products, Cellulose Fibers, Real Estate, and Corporate and Other operations. Beginning in 2010, the company elected to be taxed as a real estate investment trust.
Financial performance and key metrics
| Metric | 2011 | 2010 | Change |
|---|---|---|---|
| Net sales and revenues | $6.216 billion | $5.954 billion | Up 4% |
| Operating income | $594 million | $454 million | Up $140 million |
| Earnings from continuing operations | $319 million | $1.274 billion | Down $955 million |
| Net earnings attributable to common shareholders | $331 million | $1.281 billion | Down 74% |
| Diluted EPS | $0.61 | $3.99 | Down $3.38 |
| Cash from operations | $291 million | $689 million | Down $398 million |
| Capital expenditures | $241 million | $234 million | Up $7 million |
| Long-term debt | $4.478 billion | $5.060 billion | Down $583 million |
| Cash and cash equivalents | $953 million | $1.467 billion | Down $514 million |
Gross margin was approximately 17.6% of sales and operating margin was approximately 9.6%; these ratios are derived from reported figures. Net margin attributable to common shareholders was approximately 5.3%.
Fourth-quarter 2011 sales were $1.615 billion, operating income was $131 million, net earnings attributable to common shareholders were $65 million, and diluted EPS was $0.12.
Segment results
| Segment | 2011 sales | 2011 contribution to earnings | Key change versus 2010 |
|---|---|---|---|
| Timberlands | $1.044 billion | $485 million | Sales up 19%; contribution up $203 million, aided by stronger Western log prices and a $152 million pretax timberland-sale gain |
| Wood Products | $2.276 billion continuing operations | $(245) million | Sales up 2% from continuing operations; loss improved by $73 million, but commodity prices remained weak |
| Cellulose Fibers | $2.058 billion | $435 million | Sales up 8%; contribution up 6% on higher pulp prices and volumes |
| Real Estate | $838 million | $58 million | Sales down 9%; contribution down $33 million due primarily to fewer home closings |
| Corporate and Other | No continuing-operation sales | $(92) million | Higher pension and postretirement costs and environmental expense |
Material changes versus the prior comparable period
- Revenue increased primarily from higher Timberlands log prices and volumes, stronger Cellulose Fibers pricing and higher structural lumber and OSB volumes.
- Reported earnings declined sharply because 2010 included a $1.064 billion deferred-tax benefit from the REIT conversion, a $149 million cellulosic biofuel producer credit, and a $46 million gain on railroad sales. These benefits did not recur in 2011.
- 2011 included a $96 million net gain related to the sale of 82,000 acres of nonstrategic timberlands, including a $152 million pretax gain.
- Wood Products remained loss-making despite lower manufacturing, selling and administrative costs. The company recorded $64 million of restructuring, closure and impairment charges in the segment, including $29 million related to permanently closing four engineered-lumber facilities.
- Real Estate home closings fell to 1,912 from 2,125, while the average closed-home price increased to $402,000 from $396,000. Single-family gross margin excluding impairments was 23.3%.
- The company sold its hardwoods operations for consideration of $109 million and sold Westwood Shipping Lines for $58 million in cash. These businesses are reported as discontinued operations.
- Long-term debt declined through $583 million of repayments, including $550 million retired before scheduled maturity. Net interest expense fell to $384 million from $452 million.
- Cash generation weakened because the company paid $28 million of income taxes in 2011 compared with receiving $453 million in 2010, despite lower pension contributions.
Liquidity, debt and capital resources
- The company had $953 million of consolidated cash and $4.478 billion of long-term debt at year-end, including $4.193 billion in Forest Products debt and $285 million in Real Estate debt.
- A new $1.0 billion four-year revolving credit facility expires in June 2015. No borrowings were outstanding at December 31, 2011, and the company reported compliance with its covenants.
- Weyerhaeuser Company’s defined debt-to-total-capital ratio was 46.1%, below its 65% covenant limit. Weyerhaeuser Real Estate Company’s defined ratio was 50.5%, below its 80% limit.
- Management expected 2012 net capital expenditures, excluding acquisitions, of approximately $260 million to $290 million.
- The company paid $323 million of cash dividends in 2011, or $0.60 per share, and had $233 million remaining under its share-repurchase authorization at year-end.
Guidance, outlook, risks and unusual items
- Management expected modest improvement in U.S. housing and wood-products demand in 2012, but anticipated only modest sustainable growth and generally similar wood-product prices.
- For the first quarter of 2012, Timberlands earnings excluding nonstrategic timberland dispositions were expected to be slightly higher sequentially, while Wood Products was expected to report a smaller loss.
- Cellulose Fibers earnings were expected to be substantially lower sequentially because of lower pulp prices, scheduled maintenance outages, and higher energy, fiber and chemical costs.
- Real Estate was expected to report a loss from single-family homebuilding operations because of seasonally lower closings and margins.
- Major risks include continued weakness in housing, commodity-price volatility, excess industry supply, raw-material and energy costs, currency movements, transportation disruptions, manufacturing outages, natural disasters, environmental regulation, litigation, pension performance, and the company’s ability to maintain REIT qualification.
- Environmental remediation reserves were $34 million, with reasonably possible additional costs estimated at up to $90 million over several years. The company expected approximately $6 million of remediation spending in 2012.
- Potential future U.S. air-emissions requirements could require approximately $30 million to $45 million of capital spending over several years, although the final requirements were not yet clear.
- Pension and other postretirement benefit obligations increased materially. The company reported a pension funded-status deficit of $1.127 billion and a postretirement benefit deficit of $402 million at year-end.
- KPMG issued unqualified opinions on the consolidated financial statements and internal control over financial reporting.
Most important facts for investors to verify
- Separate recurring operating performance from nonrecurring 2010 REIT and biofuel tax benefits and the 2011 timberland-sale gain.
- Review fourth-quarter and 2012 trends in pulp prices, Western log exports, OSB and lumber pricing, and housing demand.
- Assess whether Wood Products can reach profitability under continued depressed housing-market conditions.
- Verify debt maturities, particularly the $176 million of Real Estate debt and $12 million of Forest Products debt due in 2012, and covenant compliance.
- Evaluate pension funding requirements, actuarial assumptions, and the high proportion of Level 3 pension assets.
- Review environmental reserves, potential remediation costs, unresolved litigation, tax contingencies, and risks to REIT status.
- Confirm the impact of discontinued operations and divestitures on year-over-year segment comparability.