Weyerhaeuser Company 2009 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2009. Fiscal 2009 had 365 days, compared with 367 days in 2008. Weyerhaeuser is a forest-products and real-estate company operating primarily through Timberlands, Wood Products, Cellulose Fibers, Real Estate, and Corporate and Other segments. The company managed approximately 22 million forest acres, operated in 10 countries, and generated 2009 continuing-operations sales of $5.5 billion.
Results were heavily affected by the severe U.S. housing and global economic downturn. Consolidated results exclude discontinued Containerboard, Packaging and Recycling, Australian, and Fine Paper operations.
Key financial metrics
| Metric | 2009 | 2008 | Change |
|---|---|---|---|
| Net sales and revenues | $5.528 billion | $8.100 billion | Down 32% |
| Operating income (loss) | $(447) million | $(2.601) billion | Improved $2.154 billion |
| Loss from continuing operations | $(568) million | $(1.909) billion | Improved $1.341 billion |
| Net loss attributable to common shareholders | $(545) million | $(1.176) billion | Improved $631 million |
| Basic and diluted loss per share | $(2.58) | $(5.57) | Improved $2.99 |
| Cash from operations | $(162) million | $(1.299) billion | Improved $1.137 billion |
| Capital expenditures, excluding Real Estate | $215 million | $425 million | Down $210 million |
| Long-term debt | $5.7 billion | $6.0 billion | Down approximately $300 million |
| Cash and cash equivalents | $1.869 billion | $2.294 billion | Down $425 million |
| Total assets | $15.250 billion | $16.695 billion | Down $1.445 billion |
| Weyerhaeuser shareholders’ interest | $4.044 billion | $4.814 billion | Down $770 million |
The filing does not provide a consolidated operating margin as a headline metric; based on reported sales and operating loss, the approximate operating margin was negative 8.1% in 2009 versus negative 32.1% in 2008.
Segment performance and material changes
- Timberlands: Sales were $1.251 billion including intersegment sales, down $682 million. Net contribution to earnings was $338 million, down $46 million. The company reduced harvest volumes, particularly in the West, to preserve long-term timber value. A third-quarter sale of 140,000 acres of non-strategic Oregon timberland generated a $163 million pretax gain.
- Wood Products: Sales were $2.234 billion, down 41%. Net contribution improved to a loss of $733 million from a loss of $1.547 billion, mainly because 2009 impairment charges were substantially lower. Shipment volumes and prices declined across lumber, engineered products, OSB, plywood, and hardwood lumber. Numerous mills and distribution facilities were closed, curtailed, or sold.
- Cellulose Fibers: Sales were $1.511 billion, down 14%. Net contribution increased to $444 million from $147 million, primarily because of $344 million in alternative fuel mixture credits, lower operating costs, and the absence of a 2008 goodwill impairment. The credits expired December 31, 2009.
- Real Estate: Sales were $904 million, down 36%, and net contribution was a loss of $299 million versus a loss of $1.357 billion. Home closings fell 32%, average home prices declined 6%, and 2009 real-estate impairment and related charges totaled $276 million.
- Corporate and Other: Sales were $165 million, down 58%. Net contribution declined to a loss of $107 million from $1.558 billion of contribution in 2008, which included major divestiture gains that did not recur.
Cash flow, debt, liquidity, and financing
- Operating cash flow remained negative at $162 million, despite a significant improvement from 2008. Cash taxes declined by approximately $1.1 billion because 2008 included taxes on the Containerboard, Packaging and Recycling sale.
- The company recognized $344 million of alternative fuel mixture credits in 2009; $213 million was collected in cash and $131 million remained recorded as a receivable at year-end.
- Long-term debt was approximately $5.7 billion at year-end. The company issued $491 million of debt and repaid $826 million of long-term debt, including $367 million retired before scheduled maturity.
- Revolving facilities totaled $1.4 billion, with $1.37 billion available at year-end. There were no borrowings outstanding and $33 million of letters of credit had been issued. The company was in compliance with its covenants.
- Key Weyerhaeuser Company covenants required minimum defined net worth of $3.0 billion and a defined debt-to-total-capital ratio of no more than 65%. Year-end figures were $4.3 billion and 55.5%, respectively.
- Interest expense incurred was $466 million, compared with $550 million in 2008. Dividends paid declined to $127 million, or $0.60 per share, following dividend reductions during 2008 and 2009.
- Management expected approximately $200 million of 2010 net capital expenditures, excluding acquisitions and Real Estate.
Guidance, outlook, risks, and unusual items
- Management expected a lower first-quarter 2010 Wood Products operating loss because of improved operating rates and lumber and OSB realizations.
- Timberlands first-quarter operating earnings, excluding non-strategic land sales, were expected to be comparable with the fourth quarter, with improved log realizations offset by higher costs.
- Cellulose Fibers earnings excluding alternative fuel credits were expected to be comparable with the fourth quarter; higher maintenance and fiber costs were expected to offset improved pulp realizations.
- Real Estate was expected to be profitable excluding impairments and restructuring charges, although single-family homebuilding was expected to produce a seasonal loss. Two commercial partnership sales completed in January 2010 were expected to contribute $33 million of earnings.
- The Board had determined that electing REIT status could support the company’s strategic direction, although timing remained uncertain. A potential 2010 special dividend was estimated at approximately $6 billion, with 10% to 20% potentially payable in cash and the remainder potentially payable in shares, subject to shareholder approval and other conditions.
- Environmental remediation reserves were $31 million. The company estimated reasonably possible additional remediation costs of up to approximately $30 million over several years. Potential future compliance with U.S. boiler and process-emission standards could require $30 million to $100 million of capital expenditures over several years.
- Pension plans were underfunded by approximately $600 million at year-end, and other postretirement benefits were underfunded by approximately $591 million. Management intended to contribute approximately $100 million to U.S. qualified pension plans in 2010.
- Major risks include prolonged weakness in housing and homebuilding, commodity price volatility, excess industry capacity, raw-material and energy costs, foreign exchange, credit-market access, environmental regulation, legal proceedings, transportation disruptions, pension performance, and natural disasters.
- The company reported no material effect from off-balance-sheet arrangements on current or future financial condition, results of operations, or cash flows. KPMG issued unqualified opinions on the consolidated financial statements and internal control over financial reporting.
Most important facts for investors to verify
- Whether negative operating and free cash flow can improve without reliance on nonrecurring tax credits, asset sales, or other unusual items.
- The sustainability of the Wood Products and Real Estate recovery assumptions, including housing starts, home prices, sales volumes, cancellations, and future impairments.
- The timing, structure, funding, and dilution implications of any REIT conversion and potential approximately $6 billion special dividend.
- Debt maturities, refinancing requirements, credit ratings, covenant headroom, and the March 2010 expiration of the $400 million revolving facility.
- The funded status and future cash requirements of pension and postretirement plans.
- Potential environmental, litigation, tax, warranty, guarantee, and other contingent liabilities, including the possible additional remediation costs of up to $30 million.
- Whether reported segment improvements, particularly in Cellulose Fibers, remain after the $344 million alternative fuel mixture credits ended.