WY-9.30.11-10Q


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
  __________________________________________________
FORM 10-Q
  __________________________________________________
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2011
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM              TO             
COMMISSION FILE NUMBER: 1-4825
  __________________________________________________ 
WEYERHAEUSER COMPANY
  __________________________________________________ 
Washington
 
91-0470860
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
 
 
33663 Weyerhaeuser Way South
Federal Way, Washington
 
98063-9777
(Address of principal executive offices)
 
(Zip Code)
(253) 924-2345
(Registrant’s telephone number, including area code)
 __________________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    o  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    o  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x    Accelerated filer  o    Non-accelerated filer  o    Smaller reporting company  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o  Yes    x  No
As of October 28, 2011, 536,414,982 shares of the registrant’s common stock ($1.25 par value) were outstanding.
 



TABLE OF CONTENTS
 
PART I
FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS:
 
 
 
 
 
 
ITEM 2.
ITEM 3.
ITEM 4.
 
 
 
PART II
OTHER INFORMATION
 
ITEM 1.
ITEM 1A.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
NA
ITEM 5.
OTHER INFORMATION
NA
ITEM 6.

The financial information included in this report has been prepared in conformity with accounting practices and methods reflected in the financial statements included in the annual report (Form 10-K) filed with the Securities and Exchange Commission for the year ended December 31, 2010. Though not audited by an independent registered public accounting firm, the financial information reflects, in the opinion of management, all adjustments necessary to present a fair statement of results for the interim periods indicated. The results of operations for the quarter and year-to-date periods ended September 30, 2011, should not be regarded as necessarily indicative of the results that may be expected for the full year.


Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
WEYERHAEUSER COMPANY
 
Date:
November 4, 2011
 
 
 
 
By:
/s/ JERALD W. RICHARDS
 
 
Jerald W. Richards
 
 
Chief Accounting Officer



FINANCIAL INFORMATION

CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLAR AMOUNTS IN MILLIONS EXCEPT PER-SHARE FIGURES)
(UNAUDITED)
 
 
QUARTER ENDED
 
YEAR-TO-DATE ENDED
                   
SEPTEMBER 30,
2011
 
SEPTEMBER 30,
2010
 
SEPTEMBER 30,
2011
 
SEPTEMBER 30,
2010
Net sales and revenues
$
1,569

 
$
1,514

 
$
4,601

 
$
4,438

Cost of products sold
1,283

 
1,193

 
3,803

 
3,609

Gross margin
286

 
321

 
798

 
829

Selling, general and administrative expenses
135

 
161

 
452

 
479

Research and development expenses
7

 
8

 
21

 
24

Charges for restructuring, closures and impairments (Note 7)
41

 
16

 
52

 
22

Other operating costs (income), net (Note 8)
3

 
(24
)
 
(190
)
 
(96
)
Operating income
100

 
160

 
463

 
400

Interest income and other
15

 
19

 
35

 
73

Interest expense, net of capitalized interest (Note 11)
(86
)
 
(95
)
 
(296
)
 
(356
)
Earnings from continuing operations before income taxes
29

 
84

 
202

 
117

Income taxes (Note 15)
104

 
1,028

 
52

 
986

Earnings from continuing operations
133

 
1,112

 
254

 
1,103

Earnings from discontinued operations, net of income taxes (Note 3)
24

 
4

 
12

 
9

Net earnings
157

 
1,116

 
266

 
1,112

Less: net earnings attributable to noncontrolling interests

 

 

 
(2
)
Net earnings attributable to Weyerhaeuser common shareholders
$
157

 
$
1,116

 
$
266

 
$
1,110

Earnings per share attributable to Weyerhaeuser common shareholders, basic (Note 5):
 
 
 
 
 
 
 
Continuing operations
$
0.25

 
$
3.51

 
$
0.47

 
$
4.45

Discontinued operations
0.04

 
0.01

 
0.02

 
0.04

Net earnings per share
$
0.29

 
$
3.52

 
$
0.49

 
$
4.49

Earnings per share attributable to Weyerhaeuser common shareholders, diluted (Note 5):
 
 
 
 
 
 
 
Continuing operations
$
0.25

 
$
3.49

 
$
0.47

 
$
4.44

Discontinued operations
0.04

 
0.01

 
0.02

 
0.04

Net earnings per share
$
0.29

 
$
3.50

 
$
0.49

 
$
4.48

Dividends paid per share (Note 5)
$
0.15

 
$
26.46

 
$
0.45

 
$
26.56

Weighted average shares outstanding (in thousands) (Note 5):
 
 
 
 
 
 
 
Basic
537,969

 
317,369

 
537,906

 
247,192

Diluted
539,827

 
318,360

 
540,469

 
247,879

See accompanying Notes to Consolidated Financial Statements.

1

CONSOLIDATED BALANCE SHEET
(DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURES)
(UNAUDITED)
 
 
SEPTEMBER 30,
2011
 
DECEMBER 31,
2010
ASSETS
 
 
 
Forest Products:
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
969

 
$
1,466

Receivables, less allowances of $6 and $8
467

 
451

Inventories (Note 9)
468

 
478

Prepaid expenses
81

 
81

Deferred tax assets
106

 
113

Total current assets
2,091

 
2,589

Property and equipment, less accumulated depreciation of $6,672 and $6,784
2,943

 
3,217

Construction in progress
122

 
123

Timber and timberlands at cost, less depletion charged to disposals
3,997

 
4,035

Investments in and advances to equity affiliates
194

 
194

Goodwill
40

 
40

Other assets
558

 
363

Restricted assets held by special purpose entities
914

 
915

 
10,859

 
11,476

Real Estate:
 
 
 
Cash and cash equivalents
2

 
1

Receivables, less discounts and allowances of $2 and $3
31

 
51

Real estate in process of development and for sale
549

 
517

Land being processed for development
989

 
974

Investments in and advances to equity affiliates
15

 
16

Deferred tax assets
260

 
266

Other assets
122

 
120

Consolidated assets not owned
8

 
8

 
1,976

 
1,953

Total assets
$
12,835

 
$
13,429

 
See accompanying Notes to Consolidated Financial Statements

2

CONSOLIDATED BALANCE SHEET
(CONTINUED)
 
 
SEPTEMBER 30,
2011
 
DECEMBER 31,
2010
LIABILITIES AND EQUITY
 
 
 
Forest Products:
 
 
 
Current liabilities:
 
 
 
Current maturities of long-term debt (Note 11)
$
11

 
$

Accounts payable
305

 
340

Accrued liabilities (Note 10)
672

 
734

Total current liabilities
988

 
1,074

Long-term debt (Note 11)
4,181

 
4,710

Deferred income taxes
440

 
366

Deferred pension and other postretirement benefits
797

 
930

Other liabilities
335

 
393

Liabilities (nonrecourse to Weyerhaeuser) held by special purpose entities
773

 
772

 
7,514

 
8,245

Real Estate:
 
 
 
Long-term debt (Note 11)
318

 
350

Other liabilities
196

 
212

Consolidated liabilities not owned
8

 
8

 
522

 
570

Commitments and contingencies (Note 14)


 


Total liabilities
8,036

 
8,815

Equity:
 
 
 
Weyerhaeuser shareholders’ interest:
 
 
 
Common shares: $1.25 par value; authorized 1,360,000,000 shares; issued and outstanding: 537,210,159 and 535,975,518 shares
671

 
670

Other capital
4,587

 
4,552

Retained earnings
192

 
181

Cumulative other comprehensive loss (Note 13)
(655
)
 
(791
)
Total Weyerhaeuser shareholders’ interest
4,795

 
4,612

Noncontrolling interests
4

 
2

Total equity
4,799

 
4,614

Total liabilities and equity
$
12,835

 
$
13,429

See accompanying Notes to Consolidated Financial Statements.

3



CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLAR AMOUNTS IN MILLIONS)
(UNAUDITED)
 
 
YEAR-TO-DATE ENDED
 
SEPTEMBER 30,
2011
 
SEPTEMBER 30,
2010
Cash flows from operations:
 
 
 
Net earnings
$
266

 
$
1,112

Noncash charges (credits) to earnings:
 
 
 
Depreciation, depletion and amortization
363

 
376

Income taxes, net
(77
)
 
(940
)
Pension and other postretirement benefits (Note 12)
60

 
(19
)
Share-based compensation expense
19

 
16

Charges for impairment of assets (Note 7)
37

 
5

Net gains on dispositions of assets and operations
(227
)
 
(103
)
Foreign exchange transaction (gains) losses (Note 8)
11

 
(4
)
Change in:
 
 
 
Receivables less allowances
(34
)
 
(103
)
Receivable for taxes
7

 
521

Inventories
(40
)
 
(32
)
Real estate and land
(49
)
 
(43
)
Prepaid expenses
(14
)
 
(8
)
Accounts payable and accrued liabilities
(106
)
 
(72
)
Deposits on land positions and other assets
(9
)
 
(13
)
Pension contributions
(32
)
 
(206
)
Other
(31
)
 
(23
)
Net cash from operations
144

 
464

Cash flows from investing activities:
 
 
 
Property and equipment
(136
)
 
(115
)
Timberlands reforestation
(23
)
 
(26
)
Redemption of short-term investments

 
47

Proceeds from sale of assets and operations
353

 
160

Repayments from pension trust

 
146

Other
(6
)
 
3

Cash from investing activities
188

 
215

Cash flows from financing activities:
 
 
 
Notes, commercial paper borrowings and revolving credit facilities, net

 
(3
)
Cash dividends
(242
)
 
(581
)
Change in book overdrafts
(26
)
 
(27
)
Payments on debt (Note 11)
(550
)
 
(567
)
Exercises of stock options
37

 

Repurchase of common stock (Note 5)
(24
)
 

Other
(23
)
 
(2
)
Cash from financing activities
(828
)
 
(1,180
)
Net change in cash and cash equivalents
(496
)
 
(501
)
Cash and cash equivalents at beginning of period
1,467

 
1,869

Cash and cash equivalents at end of period
$
971

 
$
1,368

Cash paid (received) during the year for:
 
 
 
Interest, net of amount capitalized of $24 and $21
$
362

 
$
406

Income taxes
$
21

 
$
(444
)
See accompanying Notes to Consolidated Financial Statements.

4



INDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1:
 
 
 
NOTE 2:
 
 
 
NOTE 3:
 
 
 
NOTE 4:
 
 
 
NOTE 5:
 
 
 
NOTE 6:
 
 
 
NOTE 7:
CHARGES FOR RESTRUCTURING, CLOSURES AND ASSET IMPAIRMENTS
 
 
 
NOTE 8:
 
 
 
NOTE 9:
 
 
 
NOTE 10:
 
 
 
NOTE 11:
 
 
 
NOTE 12:
 
 
 
NOTE 13:
 
 
 
NOTE 14:
 
 
 
NOTE 15:

5



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE QUARTERS AND YEAR-TO-DATE PERIODS ENDED SEPTEMBER 30, 2011 AND
2010

NOTE 1: BASIS OF PRESENTATION
We are a corporation that has elected to be taxed as a real estate investment trust (REIT). As a REIT, we expect to derive most of our REIT income from investments in timberlands, including the sale of standing timber through pay-as-cut sales contracts. REIT income can be distributed to shareholders without first paying corporate level tax, substantially eliminating the double taxation on income. A significant portion of our timberland segment earnings receives this favorable tax treatment. We are, however, subject to corporate taxes on built-in-gains (the excess of fair market value over tax basis at January 1, 2010) on sales of real property (other than standing timber) held by the REIT during the first 10 years following the REIT conversion. We also will continue to be required to pay federal corporate income taxes on earnings of our Taxable REIT Subsidiary (TRS), which principally includes our manufacturing businesses, our real estate development business and our non-qualified timberland segment income.
Our consolidated financial statements provide an overall view of our results and financial condition. They include our accounts and the accounts of entities we control, including:
majority-owned domestic and foreign subsidiaries and
variable interest entities in which we are the primary beneficiary.
They do not include our intercompany transactions and accounts, which are eliminated, and noncontrolling interests are presented as a separate component of equity.
We account for investments in and advances to unconsolidated equity affiliates using the equity method, with taxes provided on undistributed earnings. This means that we record earnings and accrue taxes in the period earnings are recognized by our unconsolidated equity affiliates.
We report our financial condition in two groups:
Forest Products – our forest products-based operations, principally the growing and harvesting of timber, the manufacture, distribution and sale of forest products and corporate governance activities; and
Real Estate – our real estate development and construction operations.
Throughout these Notes to Consolidated Financial Statements, unless specified otherwise, references to “Weyerhaeuser,” “we” and “our” refer to the consolidated company, including both Forest Products and Real Estate.
The accompanying unaudited Consolidated Financial Statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods presented. Except as otherwise disclosed in these Notes to Consolidated Financial Statements, such adjustments are of a normal, recurring nature. The Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission pertaining to interim financial statements; certain disclosures normally provided in accordance with accounting principles generally accepted in the United States have been omitted. These Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2010.
RECLASSIFICATIONS
We have reclassified certain balances and results from the prior year to be consistent with our 2011 reporting. This makes year-to-year comparisons easier. Our reclassifications had no effect on net earnings or Weyerhaeuser shareholders’ interest. The reclassifications include changes to the way we classify certain transactions as operating, investing or financing on our Consolidated Statement of Cash Flows and to present the results of operations discontinued in 2011 separately on our Consolidated Statement of Operations. Note 3: Discontinued Operations provides information about our discontinued operations.

6




NOTE 2: ACCOUNTING PRONOUNCEMENTS

Disclosures about Employer's Participation in a Multiemployer Pension Plan
Accounting Standards Update (“ASU”) No. 2011-09 dealing with multiemployer pension plans was issued by the FASB in September 2011. The ASU takes effect in fourth quarter 2011 and requires quantitative and qualitative disclosure about:
significant multiemployer plans in which an employer participates, including plan names and identifying number;
level of an employer's participation in the plans, including the employer's contributions made to the plans and an indication of whether the employer's contributions represent more than five percent of the total contributions made to the plan by all contributing employers;
financial health of the significant multiemployer plans, including an indication of the funded status, whether funding improvement plans are pending or implemented and whether the plan has imposed surcharges on the contributions to the plan; and
nature of the employer commitments to the plan, including when the collective-bargaining agreements that require contributions to the plans are set to expire and whether those agreements require minimum contributions to be made to the plans.
We are currently evaluating the effect that the adoption of ASU No. 2011-09 will have on our disclosures.

NOTE 3: DISCONTINUED OPERATIONS

Our discontinued operations for the quarter and year-to-date periods ended September 30, 2011 and 2010 include our hardwoods and Westwood Shipping Lines operations. The following table summarizes the components of net sales and net earnings from discontinued operations.
 
QUARTER ENDED
 
YEAR-TO-DATE
ENDED
DOLLAR AMOUNTS IN MILLIONS    
SEPTEMBER 2011
 
SEPTEMBER 2010
 
SEPTEMBER 2011
 
SEPTEMBER 2010
Net sales:
 
 
 
 
 
 
 
Hardwoods
$
27

 
$
89

 
$
222

 
$
282

Westwood Shipping Lines
56

 
61

 
180

 
168

Total net sales from discontinued operations
$
83


$
150


$
402


$
450

Income (loss) from operations:
 
 
 
 
 
 
 
Hardwoods
$
(4
)
 
$
2

 
$
(3
)
 
$
13

Westwood Shipping Lines
(4
)
 
5

 

 
2

Other discontinued operations

 

 
(13
)
 

Total income (loss) from discontinued operations
(8
)
 
7

 
(16
)
 
15

Income taxes
3

 
(3
)
 
5

 
(6
)
Net earnings (loss) from operations
(5
)

4


(11
)

9

Net gain (loss) on sale (after-tax):
 
 
 
 
 
 
 
Hardwoods
(8
)
 

 
(14
)
 

Westwood Shipping Lines
31

 

 
31

 

Sale of property
6

 

 
6

 

Net earnings from discontinued operations
$
24

 
$
4

 
$
12

 
$
9


Results of discontinued operations exclude certain general corporate overhead costs that have been allocated to and are included in contribution to earnings for the operating segments.


7



Other discontinued operations relate to current period gains or losses for businesses we have divested in prior years and are included in the Corporate and Other segment. During second quarter 2011 we increased our reserve for estimated future environmental remediation costs and recognized an $11 million charge associated with discontinued operations. See Note 14: Legal Proceedings, Commitments and Contingencies.

Our Consolidated Balance Sheet includes the following assets and liabilities of our hardwoods and Westwood Shipping Lines operations as of December 31, 2010.
 
DECEMBER 31,
2010
ASSETS
 
Receivables, less allowances
$
36

Inventories
63

Prepaid expenses
7

Total current assets
106

Property and equipment, net
43

Other assets
15

Total assets
$
164

Liabilities
 
Accounts payable
$
8

Accrued liabilities
24

Total current liabilities
$
32

 
SALE OF HARDWOODS

On August 1, 2011, we completed the sale of our hardwoods operations to American Industrial Partners for consideration of $109 million, of which $25 million is a note receivable. During second quarter 2011, we reduced our hardwoods assets to their fair value less selling costs which resulted in the recognition of a $9 million charge. An additional $10 million pension curtailment charge was recognized in third quarter 2011 when the transaction closed. Total pre-tax charges on the sale of $22 million were recorded in our Wood Products segment. We recognized a tax benefit on the sale of $8 million resulting in a year-to-date net loss of $14 million.
The following operating assets were included as part of the transaction:
seven primary hardwood mills with a total capacity of 300 million board feet,
four concentration yards,
three remanufacturing plants,
one log merchandising yard and
sales offices in the U.S., Canada, Japan, China and Hong Kong.

SALE OF WESTWOOD SHIPPING LINES

On September 30, 2011, we completed the sale of Westwood Shipping Lines to J-WesCo of Japan for $58 million in cash. We recognized a pre-tax gain of $49 million in Corporate and Other and recorded tax expense of $18 million, resulting in a net gain of $31 million. This transaction also reduced our operating lease obligations as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2010 by approximately $130 million.

8




NOTE 4: BUSINESS SEGMENTS
We are principally engaged in the growing and harvesting of timber; the manufacture, distribution and sale of forest products; and real estate development and construction. Our principal business segments are:
Timberlands – which includes logs; timber; minerals, oil and gas; and international wood products;
Wood Products – which includes softwood lumber, engineered lumber, structural panels and building materials distribution;
Cellulose Fibers – which includes pulp, liquid packaging board and an equity interest in a newsprint joint venture; and
Real Estate – which includes real estate development, construction and sales.
We sold our hardwoods operations in a transaction that closed on August 1, 2011. The hardwoods results are included in our Wood Products segment and results of discontinued operations for all periods presented in this report.
Corporate and Other includes certain gains or charges that are not related to an individual operating segment and the portion of items such as share-based compensation, pension and postretirement costs, foreign exchange transaction gains and losses associated with financing and other general and administrative expenses that are not allocated to the business segments. Historically, Corporate and Other included the results of our transportation operations. This included our five short line railroads that were sold at the end of 2010 and Westwood Shipping Lines that was sold on September 30, 2011. Westwood results are included in our results of discontinued operations.

9



An analysis and reconciliation of our business segment information to the respective information in the Consolidated Financial Statements is as follows:
 
QUARTER ENDED
 
YEAR-TO-DATE ENDED
DOLLAR AMOUNTS IN MILLIONS    
SEPTEMBER 2011
 
SEPTEMBER 2010
 
SEPTEMBER 2011
 
SEPTEMBER 2010
Sales to and revenues from unaffiliated customers:
 
 
 
 
 
 
 
Timberlands
$
252

 
$
240

 
$
770

 
$
667

Wood Products
630

 
626

 
1,956

 
2,019

Cellulose Fibers
503

 
522

 
1,535

 
1,400

Real Estate
211

 
210

 
562

 
618

Corporate and Other
56

 
66

 
180

 
184

 
1,652

 
1,664

 
5,003

 
4,888

Less sales of discontinued operations
(83
)

(150
)

(402
)

(450
)
 
1,569

 
1,514

 
4,601

 
4,438

Intersegment sales:
 
 
 
 
 
 
 
Timberlands
154

 
145

 
479

 
439

Wood Products
21

 
20

 
66

 
56

Corporate and Other
4

 
5

 
12

 
14

 
179

 
170

 
557

 
509

Total sales and revenues
1,748

 
1,684

 
5,158

 
4,947

Intersegment eliminations
(179
)
 
(170
)
 
(557
)
 
(509
)
Total
$
1,569

 
$
1,514

 
$
4,601

 
$
4,438

Net contribution to earnings from continuing operations:
 
 
 
 
 
 
 
Timberlands
$
62

 
$
75

 
$
415

 
$
226

Wood Products
(76
)
 
(102
)
 
(165
)
 
(135
)
Cellulose Fibers
135

 
181

 
301

 
274

Real Estate
10

 
20

 
17

 
78

Corporate and Other
(16
)
 
5

 
(70
)
 
28

 
115

 
179

 
498

 
471

Net contribution to earnings from discontinued operations
37

 
7

 
20

 
15

Net contribution to earnings
152

 
186

 
518

 
486

Interest expense, net of capitalized interest
(86
)
 
(95
)
 
(296
)
 
(356
)
Income before income taxes (continuing and discontinued operations)
66

 
91

 
222

 
130

Income taxes (continuing and discontinued operations)
91

 
1,025

 
44

 
980

Net earnings attributable to Weyerhaeuser common shareholders
$
157

 
$
1,116

 
$
266

 
$
1,110


NOTE 5: NET EARNINGS PER SHARE
Our basic earnings per share attributable to Weyerhaeuser shareholders were:
$0.29 during third quarter and $0.49 during year-to-date 2011; and
$3.52 during third quarter and $4.49 during year-to-date 2010.
Our diluted earnings per share attributable to Weyerhaeuser shareholders were:
$0.29 during third quarter and $0.49 during year-to-date 2011; and
$3.50 during third quarter and $4.48 during year-to-date 2010.

10



Basic earnings per share is net earnings divided by the weighted average number of our outstanding common shares.
Diluted earnings per share is net earnings divided by the sum of the:
weighted average number of our outstanding common shares and
the effect of our outstanding dilutive potential common shares.
Dilutive potential common shares can include:
outstanding stock options,
restricted stock units and
performance share units.
We use the treasury stock method to calculate the effect of our outstanding dilutive potential common shares. Share-based payment awards that are contingently issuable upon the achievement of specified performance or market conditions are included in our diluted earnings per share calculation in the period in which the conditions are satisfied.
To implement our decision to be taxed as a REIT, we distributed our accumulated earnings and profits to our shareholders, determined under federal income tax provisions, as a “Special Dividend.” At the election of each shareholder, the Special Dividend was paid in cash or Weyerhaeuser common shares. The Special Dividend of $5.6 billion was paid September 1, 2010 and included approximately 324 million common shares. The stock portion of the Special Dividend was treated as the issuance of new shares for accounting purposes and affects our earnings per share only for periods after the distribution. Prior periods are not restated. The required treatment results in earnings per share that is less than would have been the case had the common shares not been issued. Reflected below are pro forma results giving effect to the common stock distribution for diluted earnings per common share for the quarter and year-to-date period ended September 30, 2010 as if the common stock distribution had occurred at the beginning of the period.
Pro Forma 2010 Diluted Earnings per Share to Reflect Special Dividend
 
QUARTER ENDED
 
YEAR-TO-DATE ENDED
DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES    
SEPTEMBER 2010
 
SEPTEMBER 2010
Net earnings attributable to Weyerhaeuser common shareholders
$
1,116

 
$
1,110

Diluted earnings per share:
 
 
 
As reported
$
3.50

 
$
4.48

Pro forma
$
2.08

 
$
2.07

Diluted weighted average shares outstanding:
 
 
 
As reported
318,360

 
247,879

Pro forma
536,923

 
536,558


SHARES EXCLUDED FROM DILUTIVE EFFECT
The following shares were not included in the computation of diluted earnings per share because they were either antidilutive or the required performance or market conditions were not met. Some or all of these shares may be dilutive potential common shares in future periods.

Potential Shares Not Included in the Computation of Diluted Earnings per Share
 
QUARTER ENDED
 
YEAR-TO-DATE ENDED
SHARES IN THOUSANDS    
SEPTEMBER 2011
 
SEPTEMBER 2010
 
SEPTEMBER 2011
 
SEPTEMBER 2010
Stock options
23,666

 
26,677

 
23,666

 
26,677

Performance share units
471

 

 
471

 



11



During 2011, performance share units were granted under our performance share plan. These are disclosed in the above table at the potential maximum amount of shares that may be issued, which is 150 percent of the granted shares. See Note 6: Share-Based Compensation for more information.
During third quarter 2011, we repurchased 1,199,800 shares of common stock for $20 million under the 2008 stock repurchase program. On August 11, 2011, our board of directors replaced the 2008 stock repurchase program and approved the 2011 stock repurchase program under which we are authorized to repurchase up to $250 million of outstanding shares. During third quarter 2011, we repurchased 589,824 shares of common stock for $9 million under the 2011 program. All common stock purchases under the programs were made in open-market transactions. As of September 30, 2011, we had remaining authorization of $241 million for future share repurchases.

NOTE 6: SHARE-BASED COMPENSATION
In 2011, we granted 1,941,686 stock options, 720,120 restricted stock units, 325,736 performance share units, and 52,869 stock appreciation rights. In addition, 283,557 outstanding restricted stock unit awards vested during year-to-date 2011. A total of 2,710,962 shares of common stock were issued as a result of restricted stock unit vesting and stock option exercises.

STOCK OPTIONS
The weighted average exercise price of all of the stock options granted in 2011 was $24.16. The vesting and post-termination vesting terms for stock options granted in 2011 were as follows:
options vest ratably over 4 years;
options vest or continue to vest in the event of death, disability, or retirement at an age of at least 62;
options continue vesting for one year in the event of involuntary termination when the retirement criteria for full or continued vesting have not been met; and
options stop vesting for all other situations including early retirement prior to age 62.

Weighted Average Assumptions Used in Estimating the Value of Stock Options Granted in 2011
 
OPTIONS
Expected volatility
38.56
%
Expected dividends
2.48
%
Expected term (in years)
5.73

Risk-free rate
2.65
%
Weighted average grant date fair value
$
7.54


RESTRICTED STOCK UNITS
The weighted average fair value of the restricted stock units granted 2011 was $23.94. The vesting provisions for restricted stock units granted in 2011 were as follows:
restricted stock units vest ratably over 4 years;
restricted stock units immediately vest in the event of death while employed or disability;
restricted stock units partially vest upon retirement at an age of at least 62 or job elimination depending on the employment period after grant date; and
restricted stock units will be forfeited upon termination of employment in all other situations including early retirement prior to age 62.


12



PERFORMANCE SHARE UNITS
In 2011, as part of a new long-term incentive compensation strategy intended to tie executive compensation more closely to company performance, we granted a target number of performance share units to executives. Performance share units will be converted into shares of Weyerhaeuser stock – to the extent earned – at the end of a four-year timeframe that combines performance and market conditions with vesting requirements. The final number of shares awarded will range from 0 percent to 150 percent of each grant’s target, depending upon actual company performance.
The ultimate number of Performance Share Units earned is based on two measures:
Weyerhaeuser’s cash flow during the first year and
Weyerhaeuser’s relative total shareholder return (TSR) ranking in the S&P 500 during the first two years.
At the end of the performance period, performance share unit payouts would be in shares of our stock. Performance share units granted in 2011 and that are earned vest as follows:
units vest 50 percent, 25 percent and 25 percent on the second, third and fourth anniversaries of the grant date, respectively, as long as the individual remains employed by the company;
units fully vest in the event of death while employed or disability;
units partially vest upon retirement at an age of at least 62 or job elimination depending on the employment period after grant date; and
units will be forfeited upon termination of employment in all other situations including early retirement prior to age 62.
The weighted average grant date fair value of the performance share units was $25.35. Since the award contains a market condition, the effect of the market condition is reflected in the grant date fair value which is estimated using a Monte Carlo simulation model. This model estimates the TSR ranking of the company among the S&P 500 index over the 2 year performance period. Compensation expense is based on the estimated probable number of earned awards and recognized over the four-year vesting period on an accelerated basis. Generally, compensation expense would be reversed if the performance condition is not met unless the requisite service period has been achieved.

Weighted Average Assumptions Used in Estimating the Value of Performance Share Units Granted 2011
 
Performance Share Units
Performance period
2/9/2011 – 2/9/2013

Valuation date closing stock price
$
24.32

Expected dividends
2.47
%
Risk-free rate
0.12% - 0.80%

Volatility
28.65% - 35.74%


STOCK APPRECIATION RIGHTS
Stock appreciation rights are remeasured to reflect the fair value at each reporting period. The following table shows the weighted average assumptions applied to all outstanding stock appreciation rights as of September 30, 2011.


13



Weighted Average Assumptions Used to Remeasure the Value of Stock Appreciation Rights as of September 30, 2011
 
SEPTEMBER 30,
2011
Expected volatility
41.49
%
Expected dividends
3.86
%
Expected term (in years)
2.91

Risk-free rate
0.52
%
Weighted average fair value
$
2.00

The vesting and post-termination vesting terms for stock appreciation rights granted in 2011 are the same as for stock options described above.

NOTE 7: CHARGES FOR RESTRUCTURING, CLOSURES AND ASSET IMPAIRMENTS
We review the carrying value of our assets whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Impairments typically occur when we make decisions to curtail, close, sell or restructure operations.

Charges for restructuring, closures and asset impairments for the quarters and year-to-date periods ended September 30, 2011 and 2010, include:
 
QUARTER ENDED
 
YEAR-TO-DATE ENDED
DOLLAR AMOUNTS IN MILLIONS    
SEPTEMBER 2011
 
SEPTEMBER 2010
 
SEPTEMBER 2011
 
SEPTEMBER 2010
Restructuring and closure charges:
 
 
 
 
 
 
 
Termination benefits
$

 
$
10

 
$
1

 
$
10

Pension and postretirement charges
2

 
3

 
3

 
3

Other restructuring and closure costs
5

 
1

 
11

 
4

 
7

 
14

 
15

 
17

Asset Impairments:
 
 
 
 
 
 
 
Long-lived assets
30

 
2

 
33

 
3

Real estate impairments
2

 

 
2

 
2

Other assets
2

 

 
2

 

 
34

 
2

 
37

 
5

Charges for restructuring, closures and impairments
$
41

 
$
16

 
$
52

 
$
22


Asset impairments in third quarter 2011 included $29 million of impairment charges in the Wood Products segment primarily related to the decision to permanently close four engineered lumber facilities that had been previously indefinitely closed. The fair values of the facilities were determined using significant unobservable inputs (Level 3) based on liquidation values.
Changes in accrued severance related to restructuring and facility closures during the year-to-date period ended September 30, 2011 were as follows:
DOLLAR AMOUNTS IN MILLIONS    
 
Accrued severance as of December 31, 2010
$
20

Charges
1

Payments
(18
)
Accrued severance as of September 30, 2011
$
3



14



NOTE 8: OTHER OPERATING COSTS (INCOME), NET
Other operating costs (income), net:
includes both recurring and occasional income and expense items and
can fluctuate from year to year.

Items Included in Other Operating Costs (Income), Net
 
QUARTER ENDED
 
YEAR-TO-DATE ENDED
DOLLAR AMOUNTS IN MILLIONS    
SEPTEMBER 2011
 
SEPTEMBER 2010
 
SEPTEMBER 2011
 
SEPTEMBER 2010
Gain on sale of non-strategic timberlands
$

 
$

 
$
(152
)
 
$

Gain on disposition of assets
(6
)
 
(9
)
 
(14
)
 
(63
)
Foreign exchange losses (gains), net
18

 
(4
)
 
10

 
(5
)
Land management income
(6
)
 
(6
)
 
(19
)
 
(18
)
Litigation expense
2

 
3

 
2

 
14

Other, net
(5
)
 
(8
)
 
(17
)
 
(24
)
Total other operating costs (income), net
$
3

 
$
(24
)
 
$
(190
)
 
$
(96
)
The $152 million pretax gain on sale of non-strategic timberlands resulted from the sale of 82,000 acres in southwestern Washington.
Gain on disposal of assets in 2010 included pretax gains of $40 million from the sale of certain British Columbia forest licenses and associated rights.
Foreign exchange losses (gains) result from changes in exchange rates, primarily related to our Canadian operations.
Land management income consists primarily of income derived from leasing, renting and granting easement and rights of way on our timberlands.

NOTE 9: INVENTORIES
Forest Products inventories include raw materials, work-in-process and finished goods.
DOLLAR AMOUNTS IN MILLIONS    
SEPTEMBER 30,
2011
 
DECEMBER 31,
2010
Logs and chips
$
57

 
$
66

Lumber, plywood, panels and engineered lumber
140

 
164

Pulp and paperboard
167

 
157

Other products
80

 
79

Materials and supplies
136

 
133

 
$
580

 
$
599

Less LIFO reserve
(112
)
 
(121
)
Total
$
468

 
$
478


The LIFO – the last-in, first-out method – inventory reserve applies to major inventory products held at our U.S. domestic locations. These inventory products include grade and fiber logs, chips, lumber, plywood, oriented strand board, pulp and paperboard.


15



NOTE 10: ACCRUED LIABILITIES
Forest Products accrued liabilities were comprised of the following:
DOLLAR AMOUNTS IN MILLIONS    
SEPTEMBER 30,
2011
 
DECEMBER 31,
2010
Wages, salaries and severance pay
$
154

 
$
165

Pension and postretirement
70

 
70

Vacation pay
46

 
50

Income taxes
85

 
65

Taxes – Social Security and real and personal property
37

 
28

Interest
68

 
110

Customer rebates and volume discounts
50

 
63

Deferred income
65

 
51

Other
97

 
132

Total
$
672

 
$
734


NOTE 11: FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values and carrying values of our long-term debt consisted of the following:
 
SEPTEMBER 30,
2011
 
DECEMBER 31,
2010
DOLLAR AMOUNTS IN MILLIONS    
CARRYING 
VALUE
 
FAIR VALUE
(LEVEL 2)
 
CARRYING 
VALUE
 
FAIR VALUE
(LEVEL 2)
Long-term debt (including current maturities):
 
 
 
 
 
 
 
Forest Products
$
4,192

 
$
4,496

 
$
4,710

 
$
5,029

Real Estate
$
318

 
$
326

 
$
350

 
$
360


To estimate the fair value of long-term debt, we used the following valuation approaches:
market approach – based on quoted market prices for the same types and issues of our debt; or
income approach – based on the discounted value of the future cash flows using market yields for the same type and comparable issues of debt.
The inputs to the valuations are based on market data obtained from independent sources or information derived principally from observable market data.
The difference between the fair value and the carrying value represents the theoretical net premium or discount we would pay or receive to retire all debt at the measurement date.
At the beginning of June 2011, we exercised our right to call approximately $518 million of 6.75 percent notes due in 2012. We recognized a pretax charge in 2011 of $26 million, which included early retirement premiums, unamortized debt issuance costs and other miscellaneous charges in connection with the early extinguishment of debt. This charge is included in interest expense in the Consolidated Statement of Operations.
Real Estate debt maturities were $32 million during 2011.

FAIR VALUE OF OTHER FINANCIAL INSTRUMENTS
We believe that our other financial instruments, including cash, short-term investments, receivables, and payables, have net carrying values that approximate their fair values with only insignificant differences. This is primarily due to:
the short-term nature of these instruments,
carrying short-term investments at expected net realizable value and
the allowance for doubtful accounts.

16




NOTE 12: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
The components of net periodic benefit costs (credits) are:
 
PENSION
 
QUARTER ENDED
 
YEAR-TO-DATE ENDED
DOLLAR AMOUNTS IN MILLIONS    
SEPTEMBER 2011
 
SEPTEMBER 2010
 
SEPTEMBER 2011
 
SEPTEMBER 2010
Service cost
$
11

 
$
11

 
$
36

 
$
33

Interest cost
68

 
70

 
207

 
208

Expected return on plan assets
(104
)
 
(113
)
 
(315
)
 
(336
)
Amortization of actuarial loss
33

 
15

 
102

 
46

Amortization of prior service costs
3

 
4

 
10

 
13

Loss due to curtailment and special termination benefits
13

 
2

 
14

 
5

Total net periodic benefit costs (credits)
$
24

 
$
(11
)
 
$
54

 
$
(31
)
 
OTHER POSTRETIREMENT BENEFITS
 
QUARTER ENDED
 
YEAR-TO-DATE ENDED
DOLLAR AMOUNTS IN MILLIONS    
SEPTEMBER 2011
 
SEPTEMBER 2010
 
SEPTEMBER 2011
 
SEPTEMBER 2010
Service cost
$
1

 
$

 
$
2

 
$
1

Interest cost
6

 
5

 
18

 
18

Amortization of actuarial loss
3

 
3

 
10

 
9

Amortization of prior service credits
(6
)
 
(5
)
 
(17
)
 
(16
)
Adjustments

 

 
4

 

Total net periodic benefit costs
$
4

 
$
3

 
$
17

 
$
12


Loss due to curtailment and special termination benefits includes charges of $11 million related to the sale of our hardwoods and Westwood Shipping Lines operations in third quarter 2011. These charges are included in our results of discontinued operations.

FAIR VALUE OF PENSION PLAN ASSETS
We estimate the fair value of pension plan assets based upon the information available during the year-end reporting process. In some cases, primarily private equity funds, the information available consists of net asset values as of an interim date, cash flows between the interim date and the end of the year and market events. When the differences are significant, we revise the year-end estimated fair value of pension plan assets to incorporate year-end net asset values reflected in audited financial statements received after we have filed our annual report on Form 10-K. Based on the final valuations as of December 31, 2010, the fair value of pension assets increased in second quarter 2011 by $138 million, or 2.9 percent. Based on this information we recorded the following adjustments during second quarter 2011:
$20 million increase in the pension asset;
$86 million decrease in the liability for deferred pension;
$38 million increase in the liability for deferred income taxes; and
$68 million net decrease in cumulative other comprehensive loss, which resulted in an increase in total Weyerhaeuser shareholders' interest.


17



EXPECTED CONTRIBUTIONS AND BENEFIT PAYMENTS
During 2011 we expect to:
be required to contribute approximately $83 million to our Canadian registered and nonregistered pension plans;
contribute $19 million to our U.S. nonqualified pension plans and have no required contribution to the U.S. qualified plan; and
make benefit payments of $44 million to our U.S. and Canadian other postretirement plans.

NOTE 13: COMPREHENSIVE INCOME
Items included in our comprehensive income consisted of the following:
  
QUARTER ENDED
 
YEAR-TO-DATE ENDED
DOLLAR AMOUNTS IN MILLIONS    
SEPTEMBER 2011
 
SEPTEMBER 2010
 
SEPTEMBER 2011
 
SEPTEMBER 2010
Consolidated net earnings
$
157


$
1,116


$
266


$
1,112

Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustments
(40
)
 
19

 
(18
)
 
17

Actuarial gains (losses), net of tax
48

 
(83
)
 
158

 

Prior service credits (costs), net of tax
(1
)
 
13

 
(4
)
 
4

Total other comprehensive income (loss)
7

 
(51
)
 
136

 
21

Total comprehensive income
164

 
1,065

 
402

 
1,133

Less: comprehensive income attributable to noncontrolling interests

 

 

 
(2
)
Comprehensive income attributable to Weyerhaeuser common shareholders
$
164

 
$
1,065

 
$
402

 
$
1,131


The net actuarial gain recognized year-to-date 2011 includes a change in the estimated fair value of pension plan assets and liabilities as of December 31, 2010. See Note 12: Pension and Other Postretirement Benefit Plans.

Cumulative Other Comprehensive Loss
Items included in our cumulative other comprehensive loss are:
DOLLAR AMOUNTS IN MILLIONS    
SEPTEMBER 30,
2011
 
DECEMBER 31,
2010
Foreign currency translation adjustments
$
401

 
$
419

Net pension and other postretirement benefit loss not yet recognized in earnings
(1,200
)
 
(1,358
)
Prior service credit not yet recognized in earnings
141

 
145

Unrealized gains on available-for-sale securities
3

 
3

Total
$
(655
)
 
$
(791
)

NOTE 14: LEGAL PROCEEDINGS, COMMITMENTS AND CONTINGENCIES
This note provides details about our:
legal proceedings and
environmental matters.


18



LEGAL PROCEEDINGS
We are party to legal matters generally incidental to our business. The ultimate outcome of any legal proceeding:
is subject to a great many variables and
cannot be predicted with any degree of certainty.
However, whenever probable losses from litigation could reasonably be determined – we believe that we have established adequate reserves. In addition, we believe the ultimate outcome of the legal proceedings:
could have a material adverse effect on our results of operations, cash flows or financial position in any given quarter or year; but
will not have a material adverse effect on our long-term results of operations, cash flows or financial position.

Current Year Claim
On April 25, 2011, a complaint was filed in the United States District Court for the Western District of Washington on behalf of a person alleged to be a participant in the company’s U.S. Retirement Plan for salaried employees. The complaint alleges violations of the Employee Retirement Security Act (ERISA) with respect to the management of the plan’s assets and seeks certification as a class action. The company believes that its pension plans have been consistently managed in full compliance with established fiduciary standards and is vigorously contesting the claim. The company has filed a motion to dismiss the claim.

ENVIRONMENTAL MATTERS
Our environmental matters include:
site remediation,
asset retirement obligations,
regulation of air emissions in the U.S. and
regulation of water in the U.S.

Site Remediation
Under the Comprehensive Environmental Response Compensation and Liability Act – commonly known as the Superfund – and similar state laws, we:
are a party to various proceedings related to the cleanup of hazardous waste sites and
have been notified that we may be a potentially responsible party related to the cleanup of other hazardous waste sites for which proceedings have not yet been initiated.
As of September 30, 2011, our total accrual for future estimated remediation costs on the active Superfund sites and other sites for which we are responsible was $36 million. This includes an $11 million increase to the reserve that was accrued in second quarter 2011 and is included in our results from discontinued operations.
We change our accrual to reflect:
new information on any site concerning implementation of remediation alternatives,
updates on prior cost estimates and new sites and
costs incurred to remediate sites.
We believe it is reasonably possible – based on currently available information and analysis – that remediation costs for all identified sites may exceed our accrual by up to $100 million.

19



That estimate – in which those additional costs may be incurred over several years – is the upper end of the range of reasonably possible additional costs. The estimate:
is much less certain than the estimates on which our accruals currently are based and
uses assumptions that are less favorable to us among the range of reasonably possible outcomes.
In estimating our current accruals and the possible range of additional future costs, we:
assumed we will not bear the entire cost of remediation of every site,
took into account the ability of other potentially responsible parties to participate and
considered each party’s financial condition and probable contribution on a per-site basis.
We have not recorded any amounts for potential recoveries from insurance carriers.

Asset Retirement Obligations
We have obligations associated with the retirement of tangible long-lived assets consisting primarily of reforestation obligations related to forest management licenses in Canada and obligations to close and cap landfills. As of September 30, 2011, our total accruals for these obligations was $59 million. The accruals have not changed materially since the end of 2010.
Some of our sites have asbestos containing materials. We have met our current legal obligation to identify and manage these materials. In situations where we cannot reasonably determine when asbestos containing materials might be removed from the sites, we have not recorded an accrual because the fair value of the obligation cannot be reasonably estimated.

Regulation of Air Emissions in the U.S.
In March 2011, the United States Environmental Protection Agency (EPA) published a set of final rules that require use of maximum achievable control technology (MACT) for industrial boilers. As disclosed in our Annual Report on Form 10-K for the year ended December 31, 2010, we had previously estimated that we might spend as much as $30 million to $100 million over the next few years to comply with the MACT standards as they were described in the proposed rule. After reviewing the final rules, we now estimate that we might spend as much as $30 million to $45 million over the next few years to comply with the MACT standards. The EPA has stated that they intend to reconsider portions of the final rules in the coming months. Depending on the final outcome of the reconsideration process, our cost projection may change.

Regulation of Water in the U.S.
As a result of litigation (some of which is ongoing), additional federal or state permits may be required in the future under the federal Clean Water Act in one or more of the states in which we operate in relation to pollution discharges from forest roads and other drainage features on forest land and the application of pesticides, including herbicides, on forest lands. Such permits, which have not yet been developed, may entail additional costs. However, we do not expect a disproportionate effect on Weyerhaeuser as compared to comparable operations of other forest landowners.

NOTE 15: INCOME TAXES
As a REIT, we generally are not subject to corporate level tax on income of the REIT that is distributed to shareholders. We will, however, be subject to corporate taxes on built-in-gains (the excess of fair market value over tax basis at January 1, 2010) on sales of real property (other than standing timber) held by the REIT during the first 10 years following the REIT conversion. We also will continue to be required to pay federal corporate income taxes on earnings of our Taxable REIT Subsidiary (TRS), which principally includes our manufacturing businesses, our real estate development business and the portion of our timberlands segment income included in the TRS.
The provision for income taxes is based on the current estimate of the annual effective tax rate. Our 2011 and 2010 income tax rates excluding discrete items are lower than the statutory rate, primarily due to the tax benefits of being a REIT.

20



Our effective income tax rates from continuing operations excluding discrete items were:
(17.9) percent for 2011 and
16.8 percent for 2010.
Discrete items excluded from the calculation of our effective income tax rates include:
DOLLAR AMOUNTS IN MILLIONS    
 
First Quarter 2011:
 
Income taxes on a non-strategic timberlands gain discussed in Note 8
$
(56
)
Second Quarter 2011:
 
Tax benefit on early extinguishment of debt discussed in Note 11
$
10

Third Quarter 2011:
 
Tax benefit related to foreign tax credits
$
83

First Quarter 2010:
 
Medicare Part D subsidy charge
$
(28
)
State tax law and rate changes charge
$
(3
)
Third Quarter 2010:
 
REIT conversion benefit
$
1,043

Medicare Part D subsidy plan change due to plan amendment
$
(4
)
Unrecognized tax benefits and other adjustments
$
(4
)

Due to the Patient Protection and Affordable Care Act, as modified by the Health Care and Education Reconciliation Act, we no longer will be able to claim an income tax deduction for prescription drug benefits provided to retirees and reimbursed under the Medicare Part D subsidy beginning in 2013. During first quarter 2010, we recorded the effect of the change, as accounting rules require the effect of the change to be recorded in the period that the law was enacted.

During third quarter 2010, we reversed certain deferred income tax liabilities, relating to temporary differences of timber assets, as a result of our conversion to a REIT.


21



MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (“MD&A”)

FORWARD-LOOKING STATEMENTS
This report contains statements concerning our future results and performance that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements:
are based on various assumptions we make and
may not be accurate because of risks and uncertainties surrounding the assumptions that we make.
Factors listed in this section – as well as other factors not included – may cause our actual results to differ significantly from our forward-looking statements. There is no guarantee that any of the events anticipated by our forward-looking statements will occur. Or if any of the events occur, there is no guarantee what effect they will have on our operations or financial condition.
We will not update our forward-looking statements after the date of this report.

FORWARD-LOOKING TERMINOLOGY
Some forward-looking statements discuss our plans, strategies and intentions. They use words such as expects, may, will, believes, should, approximately, anticipates, estimates, and plans. In addition, these words may use the positive or negative or other variations of those terms.

STATEMENTS
We make forward-looking statements of our expectations regarding fourth quarter 2011, including:
reduced fee harvest volumes, lower selling prices for Western logs, seasonally higher road and silviculture expenses and lower earnings in our Timberlands segment excluding earnings from disposition of non-strategic timberlands;
seasonally weaker market conditions, lower selling prices for lumber and oriented strand board, reduced sales volumes and operating rates across all products lines and a larger loss from continuing operations in our Wood Products segment excluding special items;
lower selling prices for pulp, slightly higher shipment volumes and slightly lower earnings in our Cellulose Fibers segment; and
higher earnings from single-family homebuilding operations and seasonally higher home closing volume in our Real Estate segment.
We base our forward-looking statements on a number of factors, including the expected effect of:
the economy;
foreign exchange rates, primarily the Canadian dollar and Euro;
adverse litigation outcomes and the adequacy of reserves;
regulations;
changes in accounting principles;
the effect of implementation or retrospective application of accounting methods;
contributions to pension plans;
projected benefit payments;

22



projected tax rates;
IRS audit outcomes and timing of settlements; and
other related matters.

RISKS, UNCERTAINTIES AND ASSUMPTIONS
The major risks and uncertainties – and assumptions that we make – that affect our business and may cause actual results to differ from these forward-looking statements include, but are not limited to:
general economic conditions, including employment rates, housing starts, interest rate levels, availability of financing for home mortgages and strength of the U.S. dollar;
market demand for our products, which is related to the strength of the various U.S. business segments and economic conditions;
performance of our manufacturing operations, including maintenance requirements;
successful execution of our internal performance plans, including restructurings and cost reduction initiatives;
level of competition from domestic and foreign producers;
raw material prices;
energy prices;
transportation costs;
the effect of weather;
the risk of loss from fires, floods, windstorms, hurricanes, pest infestation and other natural disasters;
federal tax policies;
the effect of forestry, land use, environmental and other governmental regulations;
legal proceedings;
the effect of timing of retirements and changes in the market price of our common stock on charges for share-based compensation;
changes in accounting principles;
performance of pension fund investments and related derivatives; and
other factors described under “Risk Factors” in our annual report on Form 10-K.

EXPORTING ISSUES
We are a large exporter, affected by changes in:
economic activity in Europe and Asia – particularly Japan and China;
currency exchange rates – particularly the relative value of the U.S. dollar to the Canadian dollar, Euro and Yen; and
restrictions on international trade or tariffs imposed on imports.


23



RESULTS OF OPERATIONS
In reviewing our results of operations, it is important to understand these terms:
Price realizations refer to net selling prices – this includes selling price plus freight, minus normal sales deductions.
Net contribution to earnings can be positive or negative and refers to earnings (loss) attributable to Weyerhaeuser shareholders before interest expense and income taxes.
In reviewing our results of operations, it is important to understand the following:
Net sales and revenues and operating income included in Consolidated Results below exclude the results of discontinued operations.
Net sales and revenues and net contribution to earnings reported in the individual segment discussions that follow include the results of discontinued operations. Refer to Note 3: Discontinued Operations for a discussion of which segments include the results of our discontinued operations.
In the following discussion, unless otherwise noted, references to increases or decreases in income and expense items, price realizations, shipment volumes, and net contributions to earnings are based on the quarter and year-to-date periods ended September 30, 2011, compared to the quarter and year-to-date periods ended September 30, 2010.

CONSOLIDATED RESULTS
How We Did in Third Quarter and Year-to-Date 2011
NET SALES AND REVENUES / OPERATING INCOME / NET EARNINGS – WEYERHAEUSER COMPANY
Here is a comparison of net sales and revenues to unaffiliated customers, operating income and net earnings for the quarters and year-to-date periods ended September 30, 2011 and 2010:
 
QUARTER ENDED
 
AMOUNT OF
CHANGE
 
YEAR-TO-DATE ENDED
 
AMOUNT OF
CHANGE
DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURES
SEPTEMBER 2011
 
SEPTEMBER 2010
 
2011 VS. 2010
 
SEPTEMBER 2011
 
SEPTEMBER 2010
 
2011 VS. 2010
Net sales and revenues
$
1,569

 
$
1,514

 
$
55

 
$
4,601

 
$
4,438

 
$
163

Operating income
$
100

 
$
160

 
$
(60
)
 
$
463

 
$
400

 
$
63

Earnings of discontinued operations, net of tax
$
24

 
$
4

 
$
20

 
$
12

 
$
9

 
$
3

Net earnings attributable to Weyerhaeuser common shareholders
$
157

 
$
1,116

 
$
(959
)
 
$
266

 
$
1,110

 
$
(844
)
Net earnings per share attributable to Weyerhaeuser common shareholders, basic
$
0.29

 
$
3.52

 
$
(3.23
)
 
$
0.49

 
$
4.49

 
$
(4.00
)
Net earnings per share attributable to Weyerhaeuser common shareholders, diluted
$
0.29

 
$
3.50

 
$
(3.21
)
 
$
0.49

 
$
4.48

 
$
(3.99
)


24



Comparing Third Quarter 2011 with Third Quarter 2010
Net sales and revenues
Net sales and revenues increased $55 million – 4 percent – primarily due to the following:
Wood Products segment sales increased $66 million, primarily due to higher price realizations and shipment volumes for structural lumber and higher shipment volumes for oriented stranded board (OSB); and
Timberlands segment sales increased $12 million, primarily due to higher log prices and volumes sold, partially offset by lower revenue from land exchanges.
These increases were partially offset by a $19 million decrease in Cellulose Fibers segment sales, primarily due to lower pulp prices and volumes sold.
Net earnings attributable to Weyerhaeuser common shareholders
Our net earnings attributable to Weyerhaeuser common shareholders decreased $959 million – 86 percent – primarily due to the following:
$1,043 million reversal of certain deferred income tax liabilities as a result of our conversion to a REIT in 2010;
$35 million decrease in gross margin, primarily due to increased operating costs in our Cellulose Fibers segment and increased pension and postretirement costs in our Corporate and Other segment partially offset by increased operating rates in our Wood Products segment; and
$25 million increase in restructuring, closure and asset impairment charges, primarily due to impairments recognized in our Wood Products segment.
These decreases in our earnings were partially offset by:
$83 million tax benefit related to foreign tax credits in 2011;
$26 million decrease in selling, general and administrative expenses; and
$20 million increase in net earnings of discontinued operations, primarily due to the gain on the sale of Westwood Shipping Lines partially offset by the loss on the sale of our hardwoods operations.

Comparing Year-to-Date 2011 with Year-to-Date 2010
Net sales and revenues
Net sales and revenues increased $163 million – 4 percent – primarily due to the following:
Cellulose Fibers segment sales increased $135 million, primarily due to higher pulp prices and
Timberlands segment sales increased $103 million, primarily due to higher log prices and volumes sold.
These increases were partially offset by a $56 million decrease in Real Estate segment sales, primarily due to lower home closings and fewer land and lot sales.

25



Net earnings attributable to Weyerhaeuser common shareholders
Our net earnings attributable to Weyerhaeuser common shareholders decreased $844 million – 76 percent – primarily due to the following:
$1,043 million reversal of certain deferred income tax liabilities as a result of our conversion to a REIT in 2010;
$31 million decrease in gross margin, primarily due to decreased price realizations for OSB and structural lumber in our Wood Products segment, increased operating costs in our Cellulose Fibers segment and increased pension and postretirement costs in our Corporate and Other segment, partially offset by increased operating rates in our Wood Products segment;
$30 million increase in restructuring, closure and asset impairment charges, primarily due to impairments recognized in our Wood Products segment;
$23 million net gain on the sale of certain British Columbia forest licenses and associated rights recognized in our Wood Products segment in 2010; and
$22 million net gain on the sale of partnership interests in our Real Estate segment in 2010.
These decreases were partially offset by the following:
$96 million net gain on sale of 82,000 acres of non-strategic timberlands in 2011;
$83 million tax benefit related to foreign tax credits in 2011;
$60 million decrease in interest expense due to lower charges associated with the early extinguishment of debt and lower interest expense due to a lower level of debt;
$28 million tax charge recognized in 2010 related to the federal tax law change for Medicare Part D subsidies; and
$27 million decrease in selling, general and administrative expenses.

26




TIMBERLANDS
How We Did Third Quarter and Year-to-Date 2011
Here is a comparison of net sales and revenues to unaffiliated customers, intersegment sales, and net contribution to earnings for the quarters and year-to-date periods ended September 30, 2011 and 2010:

NET SALES AND REVENUES / NET CONTRIBUTION TO EARNINGS – TIMBERLANDS
  
QUARTER ENDED
 
AMOUNT OF
CHANGE
 
YEAR-TO-DATE ENDED
 
AMOUNT OF
CHANGE
DOLLAR AMOUNTS IN MILLIONS    
SEPTEMBER 2011
 
SEPTEMBER 2010
 
2011 VS. 2010
 
SEPTEMBER 2011
 
SEPTEMBER 2010
 
2011 VS. 2010
Net sales and revenues to unaffiliated customers:
 
 
 
 
 
 
 
 
 
 
 
Logs:
 
 
 
 
 
 
 
 
 
 
 
West
$
144

 
$
110

 
$
34

 
$
406

 
$
317

 
$
89

South
53

 
40

 
13

 
143

 
104

 
39

Canada
4

 
3

 
1

 
12

 
12

 

Subtotal logs sales and revenues
201

 
153

 
48

 
561

 
433

 
128

Pay as cut timber sales
9

 
8

 
1

 
25

 
25

 

Timberlands exchanges(1)
2

 
41

 
(39
)
 
62

 
89

 
(27
)
Higher and better-use land sales(1)
5

 
6

 
(1
)
 
11

 
18

 
(7
)
Minerals, oil and gas
14

 
15

 
(1
)
 
43

 
46

 
(3
)
Products from international operations(2)
21

 
17

 
4

 
59

 
49

 
10

Other products

 

 

 
9

 
7

 
2

Subtotal net sales and revenues to unaffiliated customers
252

 
240

 
12

 
770

 
667

 
103

Intersegment sales:
 
 
 
 
 
 
 
 
 
 
 
United States
102

 
103

 
(1
)
 
321

 
308

 
13

Other
52

 
42

 
10

 
158

 
131

 
27

Subtotal intersegment sales
154

 
145

 
9

 
479

 
439

 
40

Total sales and revenues
$
406

 
$
385

 
$
21

 
$
1,249

 
$
1,106

 
$
143

Net contribution to earnings
$
62


$
75

 
$
(13
)
 
$
415


$
226

 
$
189

______________________________ 
(1)
Dispositions of higher and better use timberland and non-strategic timberlands are conducted through Forest Products subsidiaries.
(2)
Includes logs, plywood and hardwood lumber harvested or produced by our international operations, primarily in South America.

Comparing Third Quarter 2011 with Third Quarter 2010
Net sales and revenues – unaffiliated customers
Net sales and revenues to unaffiliated customers increased $12 million – 5 percent – primarily from the following:
Western log sales increased by $34 million due to increased sales volumes of 15 percent and increased price realizations of 14 percent as a result of strong export demand.
Southern log sales increased by $13 million due to increased sales volumes of 48 percent driven by increased harvest levels and increased sales of logs to third parties.
The above items were partially offset by a decrease of $39 million in land exchanges.
Intersegment sales
Intersegment sales increased $9 million – 6 percent – primarily due to increased Canadian log sales volumes.

27



Net contribution to earnings
Net contribution to earnings decreased $13 million – 17 percent – primarily from the following:
$32 million decrease due to less land exchanges and higher and better-use land sales;
$8 million decrease due to lower prices for logs in the South; and
$7 million increase in operating costs, primarily due to higher fuel costs.
The above items were partially offset by:
$19 million increase, primarily due to higher domestic and export prices in the West; and
$16 million increase, primarily due to increased harvest levels of 11 percent in the West and 23 percent in the South.

Comparing Year-to-Date 2011 with Year-to-Date 2010
Net sales and revenues – unaffiliated customers
Net sales and revenues to unaffiliated customers increased $103 million – 15 percent – primarily from the following:
Western log sales increased by $89 million due to increased sales volumes of 12 percent and increased price realizations of 14 percent driven by strong export demand.
Southern log sales increased by $39 million due to increased sales volumes of 50 percent resulting from increased harvest levels and increased sales of logs to third parties.
Sales from our International operations increased by $10 million, primarily due to increased plywood sales volumes of 27 percent.
The above items were partially offset by a decrease of $34 million in land exchanges and higher and better-use land sales.
Intersegment sales
Intersegment sales increased $40 million – 9 percent – primarily from the following:
$27 million increase due to increased Canadian log and chip sales volumes and
$13 million increase due to higher log prices in the West.
Net contribution to earnings
Net contribution to earnings increased $189 million – 84 percent – primarily from the following:
$152 million pretax gain on the first quarter 2011 sale of 82,000 acres of non-strategic timberlands in southwestern Washington;
$65 million increase, primarily due to higher domestic and export prices in the West; and
$40 million increase, primarily due to increased harvest levels of 16 percent in both the West and the South.
The above items were partially offset by:
$27 million increase in operating costs, primarily due to higher fuel and silviculture costs;
$24 million decrease due to less land exchanges and higher and better-use land sales; and
$13 million decrease due to lower prices for logs in the South.


28



Our Outlook
Excluding earnings from disposition of non-strategic timberlands, we expect lower earnings from the Timberlands segment in fourth quarter due to reduced fee harvest volumes and lower selling prices for Western logs. We also anticipate seasonally higher road and silviculture costs. We expect non-strategic timberlands sales to increase in fourth quarter from the very low third quarter level.

THIRD-PARTY LOG SALES VOLUMES AND FEE HARVEST VOLUMES
 
QUARTER ENDED
 
AMOUNT OF
CHANGE
 
YEAR-TO-DATE ENDED
 
AMOUNT OF
CHANGE
VOLUMES IN THOUSANDS    
SEPTEMBER 2011
 
SEPTEMBER 2010
 
2011 VS. 2010
 
SEPTEMBER 2011
 
SEPTEMBER 2010
 
2011 VS. 2010
Third party log sales – cubic meters:
 
 
 
 
 
 
 
 
 
 
 
West
1,385

 
1,205

 
180

 
3,871

 
3,456

 
415

South
1,336

 
903

 
433

 
3,552

 
2,364

 
1,188

Canada
116

 
92

 
24

 
333

 
366

 
(33
)
International
88

 
63

 
25

 
239

 
209

 
30

Total
2,925

 
2,263

 
662

 
7,995

 
6,395

 
1,600

Fee depletion – cubic meters:
 
 
 
 
 
 
 
 
 
 
 
West
1,604

 
1,444

 
160

 
4,962

 
4,279

 
683

South
2,535

 
2,060

 
475

 
7,070

 
6,081

 
989

International
270

 
89

 
181

 
589

 
270

 
319

Total
4,409

 
3,593

 
816

 
12,621

 
10,630

 
1,991


WOOD PRODUCTS
We sold our hardwoods operations in a transaction that closed on August 1, 2011. The hardwoods results are included in our Wood Products segment and results of discontinued operations for all periods presented in this report.
How We Did in Third Quarter and Year-to-Date 2011
Here is a comparison of net sales and revenues to unaffiliated customers and net contribution to earnings for the quarters and year-to-date periods ended September 30, 2011 and 2010:


29



NET SALES AND REVENUES / NET CONTRIBUTION TO EARNINGS – WOOD PRODUCTS