WEYERHAEUSER CO - Quarter Report: 2019 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019

☐	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

(Exact name of registrant as specified in its charter)

Washington		91-0470860
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

220 Occidental Avenue South Seattle, Washington		98104-7800
(Address of principal executive offices)		(Zip Code)

(206) 539-3000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, par value $1.25 per share

New York Stock Exchange

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. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As of July 22, 2019, 744,929,499 shares of the registrant’s common stock ($1.25 par value) were outstanding.

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS:
	CONSOLIDATED STATEMENT OF OPERATIONS	1
	CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME	2
	CONSOLIDATED BALANCE SHEET	3
	CONSOLIDATED STATEMENT OF CASH FLOWS	4
	CONSOLIDATED STATEMENT OF CHANGES IN EQUITY	5
	INDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	6
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	7
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)	16
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	28
ITEM 4.	CONTROLS AND PROCEDURES	28

PART II	OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	28
ITEM 1A.	RISK FACTORS	28
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	28
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	28
ITEM 4.	MINE SAFETY DISCLOSURES	28
ITEM 5.	OTHER INFORMATION	28
ITEM 6.	EXHIBITS	29
	SIGNATURE	30

PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

WEYERHAEUSER COMPANY

CONSOLIDATED STATEMENT OF OPERATIONS

(UNAUDITED)

	QUARTER ENDED						YEAR-TO-DATE ENDED
DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURES	JUNE 2019			JUNE 2018			JUNE 2019			JUNE 2018
Net sales (Note 3)	$	1,692		$	2,065		$	3,335		$	3,930
Costs of sales		1,390			1,447			2,712			2,795
Gross margin		302			618			623			1,135
Selling expenses		21			23			42			46
General and administrative expenses		80			80			169			158
Research and development expenses		2			2			3			4
Other operating costs, net (Note 15)		13			37			49			47
Operating income		186			476			360			880
Non-operating pension and other postretirement benefit costs		(10	)		(13	)		(480	)		(37	)
Interest income and other		6			11			16			23
Interest expense, net of capitalized interest		(91	)		(92	)		(198	)		(185	)
Earnings (loss) before income taxes		91			382			(302	)		681
Income taxes (Note 16)		37			(65	)		141			(95	)
Net earnings (loss)	$	128		$	317		$	(161	)	$	586

Earnings (loss) per share, basic and diluted (Note 4)	$	0.17		$	0.42		$	(0.22	)	$	0.77
Weighted average shares outstanding (in thousands) (Note 4):
Basic		745,486			757,829			746,041			757,317
Diluted		746,232			760,533			746,041			759,992

See accompanying Notes to Consolidated Financial Statements.

WEYERHAEUSER COMPANY

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(UNAUDITED)

	QUARTER ENDED						YEAR-TO-DATE ENDED
DOLLAR AMOUNTS IN MILLIONS	JUNE 2019			JUNE 2018			JUNE 2019			JUNE 2018
Net earnings (loss)	$	128		$	317		$	(161	)	$	586
Other comprehensive income (loss):
Foreign currency translation adjustments		11			(16	)		25			(31	)
Changes in unamortized actuarial loss, net of tax expense of $9, $63, $120, and $82		29			199			373			253
Changes in unamortized net prior service credit, net of tax benefit of $0, $1, $0 and $1		(1	)		—			(1	)		(1	)
Total other comprehensive income		39			183			397			221
Total comprehensive income	$	167		$	500		$	236		$	807

See accompanying Notes to Consolidated Financial Statements.

WEYERHAEUSER COMPANY

CONSOLIDATED BALANCE SHEET

(UNAUDITED)

DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA	JUNE 30, 2019			DECEMBER 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	212		$	334
Receivables, less discounts and allowances of $1 and $1		408			337
Receivables for taxes		157			137
Inventories (Note 5)		425			389
Prepaid expenses and other current assets		132			152
Current restricted financial investments held by variable interest entities (Note 6)		362			253
Total current assets		1,696			1,602
Property and equipment, less accumulated depreciation of $3,437 and $3,376		1,901			1,857
Construction in progress		134			136
Timber and timberlands at cost, less depletion		12,516			12,671
Minerals and mineral rights, less depletion		288			294
Deferred tax assets		33			15
Other assets		461			312
Restricted financial investments held by variable interest entities (Note 6)		—			362
Total assets	$	17,029		$	17,249
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt (Note 9)	$	—		$	500
Current debt (nonrecourse to the company) held by variable interest entities (Note 6)		302			302
Borrowings on line of credit (Note 9)		140			425
Accounts payable		271			222
Accrued liabilities (Note 8)		510			490
Total current liabilities		1,223			1,939
Long-term debt (Note 9)		6,153			5,419
Deferred tax liabilities		17			43
Deferred pension and other postretirement benefits (Note 7)		515			527
Other liabilities		397			275
Total liabilities		8,305			8,203
Commitments and contingencies (Note 11)
Equity:
Common shares: $1.25 par value; authorized 1,360 million shares; issued and outstanding: 744,905 thousand shares at June 30, 2019 and 746,391 thousand shares at December 31, 2018		931			933
Other capital		8,130			8,172
Retained earnings		418			1,093
Accumulated other comprehensive loss (Note 12)		(755	)		(1,152	)
Total equity		8,724			9,046
Total liabilities and equity	$	17,029		$	17,249

See accompanying Notes to Consolidated Financial Statements.

WEYERHAEUSER COMPANY

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

	YEAR-TO-DATE ENDED
DOLLAR AMOUNTS IN MILLIONS	JUNE 2019			JUNE 2018
Cash flows from operations:
Net earnings (loss)	$	(161	)	$	586
Noncash charges to earnings (loss):
Depreciation, depletion and amortization		247			239
Basis of real estate sold		81			34
Deferred income taxes, net		(166	)		25
Pension and other postretirement benefits (Note 7)		496			55
Share-based compensation expense		16			18
Change in:
Receivables, less allowances		(87	)		(101	)
Receivables and payables for taxes		(25	)		15
Inventories		(32	)		(36	)
Prepaid expenses		3			(1	)
Accounts payable and accrued liabilities		45			(70	)
Pension and postretirement benefit contributions and payments		(27	)		(32	)
Other		(8	)		1
Net cash from operations		382			733
Cash flows from investing activities:
Capital expenditures for property and equipment		(112	)		(144	)
Capital expenditures for timberlands reforestation		(31	)		(34	)
Proceeds from note receivable held by variable interest entities (Note 6)		253			—
Other		19			29
Net cash from (used in) investing activities		129			(149	)
Cash flows from financing activities:
Cash dividends on common shares		(507	)		(485	)
Net proceeds from issuance of long-term debt (Note 9)		739			—
Payments on long-term debt (Note 9)		(512	)		(62	)
Proceeds from borrowings on line of credit (Note 9)		385			—
Payments on line of credit (Note 9)		(670	)		—
Proceeds from exercise of stock options		4			48
Repurchases of common shares (Note 4)		(60	)		—
Other		(12	)		(8	)
Net cash used in financing activities		(633	)		(507	)
Net change in cash and cash equivalents		(122	)		77
Cash and cash equivalents at beginning of period		334			824
Cash and cash equivalents at end of period	$	212		$	901
Cash paid during the period for:
Interest, net of amount capitalized of $2 and $6	$	187		$	172
Income taxes	$	51		$	58

See accompanying Notes to Consolidated Financial Statements.

WEYERHAEUSER COMPANY

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(UNAUDITED)

	QUARTER ENDED						YEAR-TO-DATE ENDED
DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA	JUNE 2019			JUNE 2018			JUNE 2019			JUNE 2018
Common shares:
Balance at beginning of period	$	931		$	946		$	933		$	944
Issued for exercised stock options and vested restricted stock units		—			1			1			3
Repurchases of common shares (Note 4)		—			—			(3	)		—
Balance at end of period		931			947			931			947
Other Capital:
Balance at beginning of period		8,121			8,466			8,172			8,439
Issued for exercise of stock options		2			22			4			46
Repurchases of common shares (Note 4)		—			—			(57	)		—
Shared-based compensation		7			9			16			18
Other transactions, net		—			(1	)		(5	)		(7	)
Balance at end of period		8,130			8,496			8,130			8,496
Retained Earnings:
Balance at beginning of period		543			1,365			1,093			1,078
Net earnings (loss)		128			317			(161	)		586
Dividends on common shares		(253	)		(243	)		(507	)		(485	)
Adjustments related to accounting pronouncements and other		—			2			(7	)		262
Balance at end of period		418			1,441			418			1,441
Accumulated other comprehensive loss:
Balance at beginning of period		(794	)		(1,786	)		(1,152	)		(1,562	)
Other comprehensive income (loss)		39			183			397			221
Adjustments related to accounting pronouncements and other		—			—			—			(262	)
Balance at end of period (Note 12)		(755	)		(1,603	)		(755	)		(1,603	)
Total equity:
Balance at end of period	$	8,724		$	9,281		$	8,724		$	9,281

Dividends paid per common share	$	0.34		$	0.32		$	0.68		$	0.64

See accompanying Notes to Consolidated Financial Statements.

INDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1:	BASIS OF PRESENTATION	7

NOTE 2:	BUSINESS SEGMENTS	7

NOTE 3:	REVENUE RECOGNITION	8

NOTE 4:	NET EARNINGS (LOSS) PER SHARE AND SHARE REPURCHASES	8

NOTE 5:	INVENTORIES	9

NOTE 6:	VARIABLE INTEREST ENTITIES	10

NOTE 7:	PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS	10

NOTE 8:	ACCRUED LIABILITIES	11

NOTE 9:	LONG-TERM DEBT AND LINE OF CREDIT	11

NOTE 10:	FAIR VALUE OF FINANCIAL INSTRUMENTS	11

NOTE 11:	LEGAL PROCEEDINGS, COMMITMENTS AND CONTINGENCIES	11

NOTE 12:	ACCUMULATED OTHER COMPREHENSIVE LOSS	12

NOTE 13:	SHARE-BASED COMPENSATION	12

NOTE 14:	LEASES	13

NOTE 15:	OTHER OPERATING COSTS, NET	14

NOTE 16:	INCOME TAXES	15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE QUARTERS and YEARS-TO-DATE ENDED JUNE 30, 2019 AND 2018

NOTE 1: BASIS OF PRESENTATION

Our consolidated financial statements provide an overall view of our results of operations 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.

Throughout these Notes to Consolidated Financial Statements, unless specified otherwise, references to “Weyerhaeuser,” “we,” “the company” and “our” refer to the consolidated company.

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 information and footnote disclosures normally included in our annual Consolidated Financial Statements have been condensed or omitted. These quarterly 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, 2018. Results of operations for interim periods should not necessarily be regarded as indicative of the results that may be expected for the full year.

NOTE 2: BUSINESS SEGMENTS

We are principally engaged in growing and harvesting timber; manufacturing, distributing, and selling products made from trees; maximizing the value of every acre we own through the sale of higher and better use (HBU) properties; and monetizing reserves of minerals, oil, gas, coal, and other natural resources on our timberlands. Our business segments are categorized based primarily on products and services which includes:

●	Timberlands – logs, timber and leased recreational access;

●	Real Estate & ENR – sales of HBU properties, rights to explore for and extract hard minerals, construction materials, oil and gas production, wind, solar and coal; and

●	Wood Products – softwood lumber, engineered wood products, structural panels, medium density fiberboard and building materials distribution.

A reconciliation of our business segment information to the respective information in the Consolidated Statement of Operations is as follows:

	QUARTER ENDED						YEAR-TO-DATE ENDED
DOLLAR AMOUNTS IN MILLIONS	JUNE 2019			JUNE 2018			JUNE 2019			JUNE 2018
Sales to unaffiliated customers:
Timberlands⁽¹⁾	$	401		$	476		$	832		$	966
Real Estate & ENR		81			58			199			109
Wood Products⁽¹⁾		1,210			1,531			2,304			2,855
		1,692			2,065			3,335			3,930
Intersegment sales:
Timberlands⁽¹⁾		131			139			256			281

Total sales		1,823			2,204			3,591			4,211
Intersegment eliminations⁽¹⁾		(131	)		(139	)		(256	)		(281	)
Total	$	1,692		$	2,065		$	3,335		$	3,930
Net contribution to earnings (loss):
Timberlands	$	102		$	161		$	222		$	350
Real Estate & ENR		35			22			90			47
Wood Products		81			329			150			599
		218			512			462			996
Unallocated items⁽²⁾		(36	)		(38	)		(566	)		(130	)
Net contribution to earnings (loss)		182			474			(104	)		866
Interest expense, net of capitalized interest		(91	)		(92	)		(198	)		(185	)
Earnings (loss) before income taxes		91			382			(302	)		681
Income taxes		37			(65	)		141			(95	)
Net earnings (loss)	$	128		$	317		$	(161	)	$	586

(1)

In January 2019, we changed the way we report our Canadian Forestlands operations, which are primarily operated to supply Weyerhaeuser’s Canadian Wood Products manufacturing facilities. As a result, we no longer report related intersegment sales in the Timberlands segment and we will now record the minimal associated third-party log sales in the Wood Products segment. These collective transactions did not contribute any earnings to the Timberlands segment. We have conformed prior year presentations with the current year.

(2)

Unallocated items are gains or charges not related to, or allocated to, an individual operating segment. They include all or a portion of items such as share-based compensation, pension and postretirement costs, elimination of intersegment profit in inventory and LIFO, foreign exchange transaction gains and losses, interest income and other as well as legacy obligations.

NOTE 3: REVENUE RECOGNITION

A reconciliation of revenue recognized by our major products:

	QUARTER ENDED				YEAR-TO-DATE ENDED
DOLLAR AMOUNTS IN MILLIONS	JUNE 2019		JUNE 2018		JUNE 2019		JUNE 2018
Net sales to unaffiliated customers:
Timberlands Segment
Delivered logs⁽¹⁾:
West
Domestic sales	$	104	$	136	$	205	$	273
Export grade sales		90		126		194		255
Subtotal West		194		262		399		528
South		156		158		315		315
North		17		20		46		45
Subtotal delivered logs sales		367		440		760		888
Stumpage and pay-as-cut timber		10		11		19		26
Recreational and other lease revenue		15		14		30		28
Other⁽²⁾		9		11		23		24
Net sales attributable to Timberlands segment		401		476		832		966
Real Estate & ENR Segment
Real estate		59		38		155		72
Energy and natural resources		22		20		44		37
Net sales attributable to Real Estate & ENR segment		81		58		199		109
Wood Products Segment
Structural lumber		495		681		939		1,250
Oriented strand board		156		277		316		509
Engineered solid section		134		139		250		268
Engineered I-joists		86		92		156		170
Softwood plywood		44		55		88		105
Medium density fiberboard		45		47		83		90
Complementary building products		167		160		304		297
Other⁽³⁾		83		80		168		166
Net sales attributable to Wood Products segment		1,210		1,531		2,304		2,855
Total net sales	$	1,692	$	2,065	$	3,335	$	3,930

(1)

In January 2019, we changed the way we report our Canadian Forestlands operations. We no longer report intersegment sales related to these operations in the Timberlands segment and now record the minimal associated third-party log sales within the Wood Products segment. Refer to Note 2: Business Segments for additional details.

(2)	Other Timberlands sales include seeds and seedlings from our nursery operations and chips.

(3)	Other Wood Products sales include chips, other byproducts and third-party residual log sales from our Canadian Forestlands operations.

NOTE 4: NET EARNINGS (LOSS) PER SHARE AND SHARE REPURCHASES

Our basic and diluted earnings (loss) per share were:

●	$0.17 during second quarter 2019 and $(0.22) during year-to-date 2019;

●	$0.42 during second quarter 2018 and $0.77 during year-to-date 2018.

Basic earnings (loss) per share is net earnings (loss) divided by the weighted average number of our outstanding common shares, including stock equivalent units where there is no circumstance under which those shares would not be issued. Diluted earnings (loss) per share is net earnings (loss) divided by the sum of the weighted average number of our outstanding common shares and the effect of our outstanding dilutive potential common shares.

	QUARTER ENDED				YEAR-TO-DATE ENDED
SHARES IN THOUSANDS	JUNE 2019		JUNE 2018		JUNE 2019		JUNE 2018
Weighted average common shares outstanding – basic		745,486		757,829		746,041		757,317
Dilutive potential common shares:
Stock options		354		1,628		—		1,655
Restricted stock units		334		512		—		540
Performance share units		58		564		—		480
Total effect of outstanding dilutive potential common shares		746		2,704		—		2,675
Weighted average common shares outstanding – dilutive		746,232		760,533		746,041		759,992

We use the treasury stock method to calculate the dilutive effect of our outstanding stock options, restricted stock units and performance share units. 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.

Potential Shares Not Included in the Computation of Diluted Earnings (Loss) per Share

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.

	QUARTER ENDED				YEAR-TO-DATE ENDED
SHARES IN THOUSANDS	JUNE 2019		JUNE 2018		JUNE 2019		JUNE 2018
Stock options		2,490		—		2,848		—
Restricted stock units		—		—		359		—
Performance share units		999		486		1,074		486

Share Repurchase Program

On February 7, 2019, our board of directors approved and announced a new share repurchase program (the 2019 Repurchase Program) under which we are authorized to repurchase up to $500 million of outstanding shares. Concurrently, the board terminated the remaining repurchase authorization under the share repurchase program approved by the board in November 2015.

During year-to-date 2019, we repurchased over 2.3 million common shares for approximately $60 million under the 2019 Repurchase Program. As of June 30, 2019, we had remaining authorization of approximately $440 million for future share repurchases.

All common share purchases under the share repurchase program are expected to be made in open-market transactions. We record share repurchases upon trade date as opposed to the settlement date when cash is disbursed. We record a liability for repurchases that have not yet been settled as of period end. There were no unsettled repurchases as of June 30, 2019 or December 31, 2018.

NOTE 5: INVENTORIES

Inventories include raw materials, work-in-process, finished goods, as well as materials and supplies.

DOLLAR AMOUNTS IN MILLIONS	JUNE 30, 2019		DECEMBER 31, 2018
LIFO inventories:
Logs	$	16	$	11
Lumber, plywood, panels and fiberboard		80		75
Other products		13		10
FIFO or moving average cost inventories:
Logs		33		35
Lumber, plywood, panels, fiberboard and engineered wood products		101		86
Other products		83		83
Materials and supplies		99		89
Total	$	425	$	389

LIFO – the last-in, first-out method – applies to major inventory products held at our U.S. locations. The FIFO – the first-in, first-out method – or moving average cost methods apply to the balance of our U.S. raw material and product inventories, all material and supply inventories and all foreign inventories. If we used FIFO for all LIFO inventories, our stated inventories would have been higher by $79 as of June 30, 2019, and December 31, 2018.

NOTE 6: VARIABLE INTEREST ENTITIES

From 2002 through 2004, we sold certain nonstrategic timberlands. As a result of these sales, buyer-sponsored and monetization variable interest entities, or special purpose entities (SPEs), were formed. We are the primary beneficiary and consolidate the assets and liabilities of the SPEs involved in these transactions.

The assets of the buyer-sponsored SPEs are financial investments which consist of bank guarantees. These bank guarantees are in turn backed by bank notes, which are the liabilities of the monetization SPEs. Interest earned from the financial investments within the buyer-sponsored SPEs is used to pay interest accrued on the corresponding monetization SPE’s note.

During first quarter 2019, we received $253 million in proceeds related to our buyer-sponsored SPEs at maturity.

During fourth quarter 2018, we paid $209 million related to liabilities from our monetized SPEs at maturity.

The financial investment related to our remaining buyer-sponsored SPE is $362 million, which is scheduled to mature in first quarter 2020. We have classified this in current assets on our Consolidated Balance Sheet. The note related to our remaining monetization SPE is $302 million and is scheduled to mature in third quarter of 2019. We have classified this in current liabilities on our Consolidated Balance Sheet.

NOTE 7: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

The components of net periodic benefit cost are:

	PENSION
	QUARTER ENDED						YEAR-TO-DATE ENDED
DOLLAR AMOUNTS IN MILLIONS	JUNE 2019			JUNE 2018			JUNE 2019			JUNE 2018
Service cost	$	8		$	8		$	16		$	18
Interest cost		40			59			83			119
Expected return on plan assets		(54	)		(100	)		(116	)		(200	)
Amortization of actuarial loss		28			52			58			113
Amortization of prior service cost		1			1			2			2
Settlement charge		(6	)		—			449			—
Total net periodic benefit cost - pension	$	17		$	20		$	492		$	52

	OTHER POSTRETIREMENT BENEFITS
	QUARTER ENDED						YEAR-TO-DATE ENDED
DOLLAR AMOUNTS IN MILLIONS	JUNE 2019			JUNE 2018			JUNE 2019			JUNE 2018
Interest cost	$	1		$	1		$	3		$	3
Amortization of actuarial loss		2			2			4			4
Amortization of prior service credit		(2	)		(2	)		(3	)		(4	)
Total net periodic benefit cost - other postretirement benefits	$	1		$	1		$	4		$	3

For the periods presented, service cost is included in “Costs of sales,” “Selling expenses,” and “General and administrative expenses” with the remaining components included in “Non-operating pension and other postretirement benefit costs” in our Consolidated Statement of Operations.

Actions to Reduce Pension Plan Obligations

As part of our continued efforts to reduce pension plan obligations, we transferred approximately $1.5 billion of U.S. qualified pension plan assets and liabilities to an insurance company through the purchase of a group annuity contract in January 2019. In connection with this transaction, we recorded a noncash pretax preliminary settlement charge of $455 million during first quarter 2019, accelerating the recognition of previously unrecognized losses in “Accumulated other comprehensive loss”, that would have otherwise been recorded in subsequent periods. In the second quarter, we finalized the prior year-end fair value of pension plan assets and obligations, which reduced the settlement charge by $6 million for a final settlement charge of $449 million. Refer to “Fair Value of Pension Plan Assets and Obligations” below.

The settlement triggered a remeasurement of plan assets and liabilities. We updated the discount rate used to measure our projected benefit obligation for the U.S. qualified pension plan as of January 31, 2019 and to calculate the related net periodic benefit cost for the remainder of 2019 to 4.30 percent from 4.40 percent as of December 31, 2018. All other assumptions remain unchanged. The net effect of the remeasurement was a $24 million reduction in funded status, primarily driven by the decrease in discount rate. This change in funded status was reflected in our first quarter 2019 Consolidated Balance Sheet.

Fair Value of Pension Plan Assets and Obligations

We estimate the fair value of pension plan assets based upon the information available during the year end reporting process. In some cases, primarily with regard to private equity funds, the information available consists of net asset values as of an interim date in addition to cash flows between the interim date and the end of the year and market events. We update the year end estimated fair value of pension plan assets to incorporate year end net asset values reflected in financial statements received after we have filed our Annual Report on Form 10-K.

During second quarter 2019, we recorded an increase to the beginning of year fair value of the pension assets of $16 million, or less than 1 percent. We also updated our census data that is used to estimate our beginning of the year projected benefit obligation for our pension plans, which resulted in a projected benefit obligation decrease of $6 million, or less than 1 percent. The net effect of these updates was a $22 million improvement in funded status as of December 31, 2018. This change in funded status was reflected in our second quarter 2019 Consolidated Balance Sheet.

Expected Funding and Benefit Payments

We do not anticipate being required to make a contribution to our U.S. qualified pension plan for 2019. For all other U.S. and Canadian pension and postretirement plans we expect to contribute or make benefit payments of approximately $40 million in 2019.

NOTE 8: ACCRUED LIABILITIES

Accrued liabilities were comprised of the following:

DOLLAR AMOUNTS IN MILLIONS	JUNE 30, 2019		DECEMBER 31, 2018
Compensation and employee benefit costs	$	157	$	192
Current portion of lease liabilities (Note 14)		29		—
Customer rebates, volume discounts and deferred income		116		99
Interest		102		109
Taxes payable		32		30
Other		74		60
Total	$	510	$	490

NOTE 9: LONG-TERM DEBT AND LINE OF CREDIT

In February 2019, we issued $750 million of 4.00 percent notes due in November 2029. The net proceeds after deducting the discount, underwriting fees and issuance costs were $739 million. In March 2019, a portion of the net proceeds were used to redeem our $500 million 7.38 percent note due in October 2019. A pretax charge of $12 million was included in "Interest expense, net of capitalized interest" in the Consolidated Statement of Operations in first quarter 2019, for make-whole premiums, unamortized debt issuance costs and unamortized debt discounts in connection with the early extinguishment of the $500 million note.

As of June 30, 2019 and December 31, 2018, we had $140 million and $425 million, respectively, of outstanding borrowings on our $1.5 billion five-year senior unsecured revolving credit facility. This credit facility expires in March 2022.

NOTE 10: FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair values and carrying values of our long-term debt and line of credit consisted of the following:

	JUNE 30, 2019				DECEMBER 31, 2018
DOLLAR AMOUNTS IN MILLIONS	CARRYING VALUE		FAIR VALUE (LEVEL 2)		CARRYING VALUE		FAIR VALUE (LEVEL 2)
Long-term debt (including current maturities) and line of credit⁽¹⁾:
Fixed rate	$	5,928	$	6,995	$	5,694	$	6,345
Variable rate		365		365		650		650
Total debt	$	6,293	$	7,360	$	6,344	$	6,995

(1)	Excludes nonrecourse debt held by our Variable Interest Entities (VIEs).

To estimate the fair value of fixed rate long-term debt we used the market approach, which is based on quoted market prices we received for the same types and issues of our debt.

We believe that our variable rate long-term debt and line of credit instruments have net carrying values that approximate their fair values with only insignificant differences.

The inputs to these 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.

FAIR VALUE OF OTHER FINANCIAL INSTRUMENTS

We believe that our other financial instruments, including cash and cash equivalents, short-term investments, mutual fund investments held in grantor trusts, 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 and the allowance for doubtful accounts.

NOTE 11: LEGAL PROCEEDINGS, COMMITMENTS AND CONTINGENCIES

Legal Proceedings

We are party to various legal proceedings arising in the ordinary course of business. We are not currently a party to any legal proceeding that management believes could have a material adverse effect on our Consolidated Balance Sheet, Consolidated Statement of Operations, or Consolidated Statement of Cash Flows.

Environmental Matters

Site Remediation

Under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) – 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 June 30, 2019, our total accrual for future estimated remediation costs on the active Superfund sites and other sites for which we are potentially responsible was approximately $61 million. These amounts are recorded in "Accrued liabilities" and "Other liabilities" on our Consolidated Balance Sheet.

Asset Retirement Obligations

We have obligations associated with the future 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 June 30, 2019, our accrued balance for these obligations was $32 million. These obligations are recorded in "Accrued liabilities" and "Other liabilities" on our Consolidated Balance Sheet.

Some of our sites have materials containing asbestos. We have met our current legal obligation to identify and manage these materials. In situations where we cannot reasonably determine when materials containing asbestos might be removed from the sites, we have not recorded an accrual because the fair value of the obligation cannot be reasonably estimated.

NOTE 12: ACCUMULATED OTHER COMPREHENSIVE LOSS

Changes in amounts included in our accumulated other comprehensive loss by component are:

	QUARTER ENDED						YEAR-TO-DATE ENDED
DOLLAR AMOUNTS IN MILLIONS	JUNE 2019			JUNE 2018			JUNE 2019			JUNE 2018
PENSION⁽¹⁾
Balance at beginning of period	$	(1,000	)	$	(2,002	)	$	(1,343	)	$	(1,810	)
Other comprehensive income (loss) before reclassifications		10			158			(14	)		166
Amounts reclassified from accumulated other comprehensive loss to earnings⁽²⁾		18			41			385			87
Total other comprehensive income		28			199			371			253
Reclassification of certain effects due to tax law changes⁽³⁾		—			—			—		$	(246	)
Balance at end of period	$	(972	)	$	(1,803	)	$	(972	)	$	(1,803	)
OTHER POSTRETIREMENT BENEFITS⁽¹⁾
Balance at beginning of period	$	(18	)	$	(33	)	$	(19	)	$	(25	)
Amounts reclassified from other comprehensive income (loss) to earnings⁽²⁾		—			—			1			(1	)
Total other comprehensive income (loss)		—			—			1			(1	)
Reclassification of certain effects due to tax law changes⁽³⁾		—			—			—		$	(7	)
Balance at end of period	$	(18	)	$	(33	)	$	(18	)	$	(33	)
TRANSLATION ADJUSTMENTS AND OTHER
Balance at beginning of period	$	224		$	249		$	210		$	273
Translation adjustments		11			(16	)		25			(31	)
Total other comprehensive income (loss)		11			(16	)		25			(31	)
Reclassification of accumulated unrealized gains on available-for-sale securities⁽⁴⁾		—			—			—			(9	)
Balance at end of period	$	235		$	233		$	235		$	233
Accumulated other comprehensive loss, end of period	$	(755	)	$	(1,603	)	$	(755	)	$	(1,603	)

(1)	Amounts presented are net of tax.

(2)	Amounts of actuarial loss and prior service (cost) credit are components of net periodic benefit cost (credit). See Note 7: Pension and Other Postretirement Benefit Plans.

(3)	We reclassified certain tax effects from tax law changes of $253 million from "Accumulated other comprehensive loss" to "Retained earnings" on our Consolidated Balance Sheet in accordance with ASU 2018-02 which we adopted in 2018.

(4)	We reclassified accumulated unrealized gains from available-for-sale securities of $9 million from "Accumulated other comprehensive loss" to "Retained earnings" on our Consolidated Balance Sheet in accordance with ASU 2016-01 which we adopted in 2018.

NOTE 13: SHARE-BASED COMPENSATION

Share-based compensation activity during year-to-date 2019 included the following:

SHARES IN THOUSANDS	GRANTED		VESTED
Restricted Stock Units (RSUs)		952		630
Performance Share Units (PSUs)		421		153

A total of 863 thousand shares of common stock were issued as a result of RSU vestings, PSU vestings and stock option exercises.

Restricted Stock Units

The weighted average fair value of the RSUs granted in 2019 was $25.75. The vesting provisions for RSUs granted in 2019 were consistent with prior year grants.

Performance Share Units

The weighted average grant date fair value of PSUs granted in 2019 was $29.66. The final number of shares granted in 2019 will range from 0 percent to 150 percent of each grant's target, depending upon actual company performance compared against the S&P 500 as well as an industry peer group. These measures are consistent with those utilized in prior year grants. The vesting provisions for PSUs granted in 2019 were consistent with prior year grants.

Weighted Average Assumptions Used in Estimating the Value of Performance Share Units Granted in 2019

		PERFORMANCE SHARE UNITS
Performance period		1/1/2019 – 12/31/2021
Valuation date average stock price⁽¹⁾		$25.83
Expected dividends		5.25%
Risk-free rate		2.43% – 2.55%
Expected volatility		22.50% – 27.40%

(1)	Calculated as an average of the high and low prices on grant date.

NOTE 14: LEASES

We account for leases in accordance with ASC Topic 842, Leases, which we adopted on January 1, 2019, using the modified retrospective transition approach at the beginning of the adoption period through a cumulative-effect adjustment to retained earnings. This adoption resulted in the recognition of right-of-use assets ("ROU assets") of $165 million and lease liabilities of $172 million, with the difference of $7 million recorded to "Retained earnings", on our Consolidated Balance Sheet on January 1, 2019.

The majority of our operating leases are related to our office and warehouse space, and the majority of our financing leases are related to vehicles and forklifts. Our leases have remaining lease terms of approximately 1 year to 25 years. Options to renew, extend or terminate a lease are reflected in our lease terms when we believe it is reasonably certain we will exercise that option. When our leases do not provide an implicit or an explicit interest rate, we use our incremental borrowing rate in determining the present value of lease payments.

Lease expense:

	QUARTER ENDED		YEAR-TO-DATE ENDED
DOLLAR AMOUNTS IN MILLIONS	JUNE 2019		JUNE 2019
Operating lease costs	$	5	$	10
Financing lease costs⁽¹⁾		4		8
Total lease costs	$	9	$	18

Supplemental cash flow information:

	YEAR-TO-DATE ENDED
DOLLAR AMOUNTS IN MILLIONS	JUNE 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	10
Financing cash flow for financing leases⁽¹⁾	$	8
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases	$	5
Financing leases	$	4

(1)	Interest expense related to financing leases was immaterial during second quarter 2019 and year-to-date 2019.

Supplemental balance sheet information related to leases was as follows:

DOLLAR AMOUNTS IN MILLIONS		JUNE 30, 2019
LEASES	BALANCE SHEET CLASSIFICATION
Assets
Operating lease right-of-use assets	Other assets	$	126
Financing lease right-of-use assets	Property and equipment, less accumulated depreciation		33
Total leased assets		$	159
Liabilities
Current:
Operating lease liabilities	Accrued liabilities	$	15
Financing lease liabilities	Accrued liabilities		14
Noncurrent:
Operating lease liabilities	Other liabilities		114
Financing lease liabilities	Other liabilities		24
Total lease liabilities		$	167

Weighted average remaining lease term as of June 30, 2019:

Operating leases		11 years
Financing leases		3 years

Weighted average discount rate as of June 30, 2019:

Operating leases			4.2	%
Financing leases			3.0	%

Maturities of lease liabilities as of June 30, 2019

DOLLAR AMOUNTS IN MILLIONS	OPERATING LEASES			FINANCING LEASES
2019	$	10		$	8
2020		20			13
2021		17			9
2022		17			6
2023		16			3
Thereafter		81			—
Total lease payments		161			39
Less: interest		(32	)		(1	)
Total present value of lease liabilities	$	129		$	38

Our operating lease commitments as of December 31, 2018 were:

DOLLAR AMOUNTS IN MILLIONS
2019	$	35
2020		29
2021		26
2022		24
2023		18
Thereafter		78

NOTE 15: OTHER OPERATING COSTS, NET

Other operating costs, net:

●	includes both recurring and occasional income and expense items and

●	can fluctuate from year to year.

Items Included in Other Operating Costs, Net

	QUARTER ENDED						YEAR-TO-DATE ENDED
DOLLAR AMOUNTS IN MILLIONS	JUNE 2019			JUNE 2018			JUNE 2019		JUNE 2018
Charges for product remediation	$	—		$	20		$	—	$	—
Foreign exchange losses (gains), net		(2	)		(2	)		1		—
Litigation expense, net		9			8			34		13
Other, net		6			11			14		34
Total other operating costs, net	$	13		$	37		$	49	$	47

NOTE 16: INCOME TAXES

As a REIT, we generally are not subject to federal corporate income taxes on REIT taxable income that is distributed to shareholders. We are required to pay corporate income taxes on earnings of our wholly-owned TRSs, which includes our Wood Products segment earnings and portions of our Timberlands and Real Estate & ENR segments' earnings.

The quarterly provision for income taxes is based on our current estimate of the annual effective tax rate and is adjusted for discrete taxable events that may occur during the quarter. Our 2019 estimated annual effective tax rate for our TRSs, excluding discrete items, is a 37.6 percent benefit. The estimated annual effective tax rate is a benefit due to a projected pretax loss at our TRSs and varies from the U.S. federal statutory tax rate of 21 percent, primarily due to state income tax benefits related to unitary state filings.

In 2019, we recorded as a discrete item a benefit of $109 million related to the tax effects of the noncash pretax settlement charge recorded in connection with our U.S. pension plan. Refer to Note 7: Pension and Other Postretirement Benefit Plans for additional details.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)

NOTE ABOUT 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, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may appear throughout this report. These forward-looking statements generally are identified by words such as “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” and expressions such as “will be,” “will continue,” “will likely result,” and similar words and expressions. Forward-looking statements are based on our current expectations and assumptions and are not guarantees of future performance. The realization of our expectations and the accuracy of our assumptions are subject to a number of risks and uncertainties that could cause actual results to differ materially from the content of these forward-looking statements. These risks and uncertainties include, but are not limited to:

●	the effect of general economic conditions, including employment rates, interest rate levels, housing starts, general availability of financing for home mortgages and the relative strength of the U.S. dollar;

●	market demand for the company's products, including market demand for our timberland properties with higher and better uses, which is related to, among other factors, the strength of the various U.S. business segments and U.S. and international economic conditions;

●	changes in currency exchange rates, particularly the relative value of the U.S. dollar to the Japanese yen, the Chinese yuan, and the Canadian dollar, and the relative value of the euro to the yen;

●	restrictions on international trade and tariffs imposed on imports or exports;

●	the availability and cost of shipping and transportation;

●	economic activity in Asia, especially Japan and China;

●	performance of our manufacturing operations, including maintenance and capital requirements;

●	potential disruptions in our manufacturing operations;

●	the level of competition from domestic and foreign producers;

●	our operational excellence initiatives;

●

the successful and timely execution and integration of our strategic acquisitions, including our ability to realize expected benefits and synergies, and the successful and timely execution of our strategic divestitures, each of which is subject to a number of risks and conditions beyond our control including, but not limited to, timing and required regulatory approvals;

●	raw material availability and prices;

●	the effect of weather;

●	changes in global or regional climate conditions and governmental response to such changes;

●	the risk of loss from fires, floods, windstorms, hurricanes, pest infestation and other natural disasters;

●	energy prices;

●	transportation and labor availability and costs;

●	federal tax policies;

●	the effect of forestry, land use, environmental and other governmental regulations;

●	legal proceedings;

●	performance of pension fund investments and related derivatives;

●	the effect of timing of employee retirements and changes in the market price of our common stock on charges for share-based compensation;

●	the accuracy of our estimates of costs and expenses related to contingent liabilities;

●	changes in accounting principles; and

●	other risks and uncertainties identified in our 2018 Annual Report on Form 10-K, which are incorporated herein by reference, as well as those set forth from time to time in our other public statements and other reports and filings with the SEC.

Forward-looking statements speak only as of the date they are made, and we undertake no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events, or otherwise.

RESULTS OF OPERATIONS

In reviewing our results of operations, it is important to understand these terms:

●	Sales realizations for Timberlands and Wood Products refer to net selling prices. This includes selling price plus freight, minus normal sales deductions. Real Estate transactions are presented at the contract sales price before commissions and closing costs, net of any credits.

●	Net contribution to earnings does not include interest expense or income taxes.

ECONOMIC AND MARKET CONDITIONS AFFECTING OUR OPERATIONS

The demand for grade logs within our Timberlands segment is directly affected by production levels of domestic wood-based building products. The strength of the U.S. housing market strongly affects demand in our Wood Products segment, as does repair and remodeling activity. Our Timberlands segment, specifically the Western region, is also affected by export demand and trade policy. Japanese housing starts are a key driver of export log demand in Japan. The demand for pulpwood from our Timberlands segment is directly affected by the production of pulp, paper and OSB as well as the demand for biofuels, such as pellets made from pulpwood.

In second quarter 2019, housing starts averaged approximately 1.26 million total units on a seasonally adjusted annual basis according to the U.S Census Bureau. This was a 5 percent gain over first quarter 2019. Multifamily units increased to 406 thousand on a seasonally adjusted annual basis, an improvement of 20 percent from first quarter 2019 and 15 percent over the same period in 2018. Single family units accounted for 67 percent of total housing starts in second quarter 2019 and averaged 842 thousand on a seasonally adjusted annual basis, which was 3 percent lower than first quarter 2019 and 6 percent lower than second quarter 2018. Severe weather in second quarter 2019 was a contributing factor to the decline in starts compared with second quarter 2018. As weather moderates, we continue to expect full year U.S. housing starts to increase slightly over 2018. We attribute this continued improvement primarily to ongoing employment growth, strong consumer confidence and mortgage rates, which have declined significantly since peaking in late 2018 and remain affordable on a historic basis.

According to the Joint Center for Housing of Harvard University, the Leading Indicator of Remodeling Activity (LIRA) projects that the year-over-year change in residential remodeling expenditures was an average increase of 7.2 percent during 2018 and an expected average increase of 5.8 percent during 2019.

In U.S. wood product markets, second quarter 2019 prices for most products retreated from first quarter 2019. The price of the framing lumber composite averaged $344/MBF in second quarter 2019, a 3 percent decline from first quarter 2019. Douglas fir lumber was an exception with prices for certain products increasing during second quarter 2019, such as Douglas fir 2X4 green lumber which increased 9 percent. Oriented Strand Board price slipped 12 percent to $187/MSF for the North Central 7/16 inch indicator. According to Forest Economic Advisors, LLC, U.S. lumber consumption is expected to rise 3 percent in the second half of 2019 versus the same period in 2018.

Domestic log markets in the west improved modestly, rising 2 percent over first quarter 2019 for Douglas fir sawlogs and was directionally consistent with the rise in lumber prices. In the South, weather was closer to seasonal norms and delivered sawlogs posted a small increase of 1 percent over first quarter 2019.

The quarterly average export prices posted small declines over first quarter 2019 pricing, falling 2 percent for China logs and 5 percent for Japan grade logs. Log inventories in Chinese ports increased 1.5 percent in June 2019 compared to May 2019 as reported by International Wood Markets China Bulletin. Despite this overall increase, there was a decline in North American Hemlock and Douglas fir volumes which were 13.7 percent below May levels in the month of June. Exchange rates also affect our export business to China. A weaker yuan relative to the U.S. dollar reduces the competitiveness of U.S. logs relative to those imported from other countries whose currencies have not appreciated in a similar manner. In second quarter 2019 the yuan continued to decrease slightly relative to the U.S. dollar, falling from 6.75 yuan per U.S. dollar in first quarter 2019 to 6.82 yuan per US dollar in second quarter 2019.

In Japan, total housing starts for April and May 2019 are down 5.7 percent and 8.7 percent, respectively, compared to the same months in 2018. However, in the key Post and Beam segment, starts were flat overall, rising 2.8 percent in April to fall back a similar 3.1 percent in May compared to April and May 2018.

We expect demand from China and Japan in 2019 to be similar to 2018 levels.

Our Real Estate & ENR segment is affected by the health of the U.S. economy and especially the U.S. housing sector of the economy. According to the Realtors Land Institute (RLI) of the National Association of Realtors (NAR), the dollar volume of rural properties sold, including timber, grew 2 percent in 2018, and per acre prices were also up 2 percent on average. Additionally, RLI expects these trends to continue with prices and volumes of land transactions forecast to rise 3 percent in 2019.

CONSOLIDATED RESULTS

How We Did Second Quarter 2019 and Year-to-Date 2019

	QUARTER ENDED				AMOUNT OF CHANGE			YEAR-TO-DATE ENDED					AMOUNT OF CHANGE
DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER-SHARE FIGURES	JUNE 2019		JUNE 2018		2019 VS. 2018			JUNE 2019			JUNE 2018		2019 VS. 2018
Net sales	$	1,692	$	2,065	$	(373	)	$	3,335		$	3,930	$	(595	)
Costs of sales		1,390		1,447		(57	)		2,712			2,795		(83	)
Operating income		186		476		(290	)		360			880		(520	)
Net earnings (loss)		128		317		(189	)		(161	)		586		(747	)
Earnings (loss) per share, basic and diluted		0.17		0.42		(0.25	)		(0.22	)		0.77		(0.99	)

Comparing Second Quarter 2019 with Second Quarter 2018

Net sales

Net sales decreased $373 million – 18 percent – primarily due to:

●	a $321 million decrease in Wood Products sales to unaffiliated customers, primarily attributable to decreased sales realizations across the majority of our product lines and

●	a $75 million decrease in Timberlands sales to unaffiliated customers, primarily attributable to decreased sales realizations and volumes in the West.

These decreases were partially offset by a $23 million increase in Real Estate & ENR net sales to unaffiliated customers, which was primarily attributable to increased acres sold.

Costs of sales

Costs of sales decreased $57 million – 4 percent – primarily due to decreased sales volumes within our Wood Products and Timberlands segments, partially offset by an increase in acres sold within our Real Estate & ENR segment. Refer to additional analysis of fluctuations within our Timberlands, Real Estate, Energy and Natural Resources and Wood Products discussions below.

Operating income

Operating income decreased $290 million – 61 percent – primarily due to a $316 million decrease in consolidated gross margin, as described above. This was partially offset by a $24 million decrease in other operating costs, primarily attributable to a $20 million product remediation charge recorded in second quarter 2018 with no similar charge in the second quarter 2019.

Net earnings

Net earnings decreased $189 million – 60 percent – primarily due to a $290 million decrease in operating income, as described above. This was partially offset by a $102 million change in income taxes resulting from a $37 million income tax benefit in second quarter 2019 compared to a $65 million income tax charge in second quarter 2018 (refer to Income Taxes).

Comparing Year-to-Date 2019 with Year-to-Date 2018

Net sales

Net sales decreased $595 million – 15 percent – primarily due to:

●	a $551 million decrease in Wood Products sales to unaffiliated customers, primarily attributable to decreased sales realizations as well as decreased sales volumes across the majority of our product lines and

●	a $134 million decrease in Timberlands sales to unaffiliated customers, primarily attributable to decreased sales realizations and volumes in the West.

These decreases were partially offset by a $90 million increase in Real Estate & ENR net sales to unaffiliated customers, which was primarily attributable to increased acres sold.

Costs of sales

Costs of sales decreased $83 million – 3 percent – primarily due to decreased sales volumes within our Wood Products and Timberlands segments, partially offset by an increase in acres sold within our Real Estate & ENR segment. Refer to additional analysis of fluctuations within our Timberlands, Real Estate, Energy and Natural Resources and Wood Products discussions below.

Operating income

Operating income decreased $520 million – 59 percent – primarily due to a $512 million decrease in consolidated gross margin, as described above.

Net earnings

Net earnings decreased $747 million – 127 percent – primarily due to:

●	a $520 million decrease in operating income, as discussed above;

●	a $449 million increase in non-operating pension and other postretirement benefit costs related to the pension settlement charge (refer to Note 7: Pension and Other Postretirement Benefit Plans) and

●	a $13 million increase in interest expense (refer to Interest Expense).

This was partially offset by a $236 million change in income taxes resulting from a $141 million income tax benefit for year-to-date 2019 compared to a $95 million income tax charge for year-to-date 2018 (refer to Income Taxes).

TIMBERLANDS

How We Did Second Quarter 2019 and Year-to-Date 2019

	QUARTER ENDED				AMOUNT OF CHANGE			YEAR-TO-DATE ENDED				AMOUNT OF CHANGE
DOLLAR AMOUNTS IN MILLIONS	JUNE 2019		JUNE 2018		2019 VS. 2018			JUNE 2019		JUNE 2018		2019 VS. 2018
Net sales to unaffiliated customers:
Delivered logs:
West	$	194	$	262	$	(68	)	$	399	$	528	$	(129	)
South		156		158		(2	)		315		315		—
North		17		20		(3	)		46		45		1
Subtotal delivered logs sales		367		440		(73	)		760		888		(128	)
Stumpage and pay-as-cut timber		10		11		(1	)		19		26		(7	)
Recreational and other lease revenue		15		14		1			30		28		2
Other⁽¹⁾		9		11		(2	)		23		24		(1	)
Subtotal net sales to unaffiliated customers		401		476		(75	)		832		966		(134	)
Intersegment sales		131		139		(8	)		256		281		(25	)
Total sales	$	532	$	615	$	(83	)	$	1,088	$	1,247	$	(159	)
Costs of sales	$	405	$	431	$	(26	)	$	818	$	853	$	(35	)
Operating income and Net contribution to earnings	$	102	$	161	$	(59	)	$	222	$	350	$	(128	)

(1)	Other Timberlands sales includes seeds and seedlings from our nursery operations and chips.

Comparing Second Quarter 2019 with Second Quarter 2018

Net sales to unaffiliated customers

Net sales to unaffiliated customers decreased $75 million – 16 percent – primarily due to a $68 million decrease in Western log sales, attributable to a 21 percent decrease in log prices as well as a 6 percent decrease in sales volumes.

Intersegment sales

Intersegment sales decreased $8 million – 6 percent – primarily due to a decrease in Western log prices, as discussed above.

Costs of sales

Costs of sales decreased $26 million – 6 percent – primarily due to a decrease in Western log sales volumes, as discussed above, as well as a decrease in sales volumes in the South and North.

Operating income and Net contribution to earnings

Operating income and net contribution to earnings decreased $59 million – 37 percent – primarily due to the change in gross margin, as discussed above.

Comparing Year-to-Date 2019 with Year-to-Date 2018

Net sales to unaffiliated customers

Net sales to unaffiliated customers decreased $134 million – 14 percent – primarily due to a $129 million decrease in Western log sales, attributable to a 20 percent decrease in log prices as well as a 5 percent decrease in sales volumes.

Intersegment sales

Intersegment sales decreased $25 million – 9 percent – primarily due to a decrease in Western log prices, as discussed above.

Costs of sales

Costs of sales decreased $35 million – 4 percent – primarily due to a decrease in Western log sales volumes, as discussed above, as well as a decrease in sales volumes in the South.

Operating income and Net contribution to earnings

Operating income and net contribution to earnings decreased $128 million – 37 percent – primarily due to the change in gross margin, as discussed above.

Third-Party Log Sales Volumes and Fee Harvest Volumes

	QUARTER ENDED				AMOUNT OF CHANGE			YEAR-TO-DATE ENDED				AMOUNT OF CHANGE
VOLUMES IN THOUSANDS	JUNE 2019		JUNE 2018		2019 VS. 2018			JUNE 2019		JUNE 2018		2019 VS. 2018
Third party log sales – tons:
West⁽¹⁾		1,864		1,984		(120	)		3,784		4,003		(219	)
South		4,400		4,560		(160	)		8,899		9,070		(171	)
North		263		313		(50	)		757		717		40
Total		6,527		6,857		(330	)		13,440		13,790		(350	)
Fee harvest volumes – tons:
West⁽¹⁾		2,455		2,360		95			4,840		4,803		37
South		6,367		6,630		(263	)		12,859		13,381		(522	)
North		378		423		(45	)		1,005		972		33
Total		9,200		9,413		(213	)		18,704		19,156		(452	)

(1)	Western logs are primarily transacted in thousand board feet (MBF) but are converted to ton equivalents for external reporting purposes.

REAL ESTATE, ENERGY AND NATURAL RESOURCES

How We Did Second Quarter 2019 and Year-to-Date 2019

	QUARTER ENDED				AMOUNT OF CHANGE		YEAR-TO-DATE ENDED				AMOUNT OF CHANGE
DOLLAR AMOUNTS IN MILLIONS	JUNE 2019		JUNE 2018		2019 VS. 2018		JUNE 2019		JUNE 2018		2019 VS. 2018
Net sales:
Real estate	$	59	$	38	$	21	$	155	$	72	$	83
Energy and natural resources		22		20		2		44		37		7
Total	$	81	$	58	$	23	$	199	$	109	$	90
Costs of sales	$	39	$	30	$	9	$	95	$	49	$	46
Net contribution to earnings	$	35	$	22	$	13	$	90	$	47	$	43

The timing of real estate sales is a function of many factors, including the general state of the economy, demand in local real estate markets, the ability to obtain entitlements, the ability of buyers to obtain financing, the number of competing properties listed for sale, the seasonal nature of sales (particularly in the northern states), the plans of adjacent landowners, our expectation of future price appreciation, the timing of harvesting activities, and the availability of government and not-for-profit funding. In any period, the average sales price per acre will vary based on the location and physical characteristics of parcels sold.

Comparing Second Quarter 2019 with Second Quarter 2018

Net sales

Net sales increased $23 million – 40 percent – primarily due to increased acres sold, partially offset by decreased average price per acre.

Costs of sales

Costs of sales increased $9 million – 30 percent – primarily due to increased acres sold, as discussed above.

Net contribution to earnings

Net contribution to earnings increased $13 million – 59 percent – primarily due to the increase in gross margin, as discussed above.

Comparing Year-to-Date 2019 with Year-to-Date 2018

Net sales

Net sales increased $90 million – 83 percent – primarily due to increased acres sold, partially offset by a slight decrease in average price per acre.

Costs of sales

Costs of sales increased $46 million – 94 percent – primarily due to increased acres sold, as discussed above.

Net contribution to earnings

Net contribution to earnings increased $43 million – 91 percent – primarily due to increased gross margin, as discussed above.

REAL ESTATE SALES STATISTICS

	QUARTER ENDED				AMOUNT OF CHANGE			YEAR-TO-DATE ENDED				AMOUNT OF CHANGE
	JUNE 2019		JUNE 2018		2019 VS. 2018			JUNE 2019		JUNE 2018		2019 VS. 2018
Acres sold		47,031		16,290		30,741			85,865		38,061		47,804
Average price per acre	$	1,063	$	2,258	$	(1,195	)	$	1,678	$	1,847	$	(169	)

WOOD PRODUCTS

How We Did Second Quarter 2019 and Year-to-Date 2019

	QUARTER ENDED				AMOUNT OF CHANGE			YEAR-TO-DATE ENDED				AMOUNT OF CHANGE
DOLLAR AMOUNTS IN MILLIONS	JUNE 2019		JUNE 2018		2019 VS. 2018			JUNE 2019		JUNE 2018		2019 VS. 2018
Net sales:
Structural lumber	$	495	$	681	$	(186	)	$	939	$	1,250	$	(311	)
Oriented strand board		156		277		(121	)		316		509		(193	)
Engineered solid section		134		139		(5	)		250		268		(18	)
Engineered I-joists		86		92		(6	)		156		170		(14	)
Softwood plywood		44		55		(11	)		88		105		(17	)
Medium density fiberboard		45		47		(2	)		83		90		(7	)
Other products produced⁽¹⁾		83		80		3			168		166		2
Complementary building products		167		160		7			304		297		7
Total	$	1,210	$	1,531	$	(321	)	$	2,304	$	2,855	$	(551	)
Costs of sales	$	1,070	$	1,125	$	(55	)	$	2,037	$	2,145	$	(108	)
Operating income and Net contribution to earnings	$	81	$	329	$	(248	)	$	150	$	599	$	(449	)

(1)	Other products produced includes sales of chips, other byproducts and third-party residual log sales from our Canadian Forestlands operations.

Comparing Second Quarter 2019 with Second Quarter 2018

Net sales

Net sales decreased $321 million – 21 percent – primarily due to:

●	a $186 million decrease in structural lumber sales attributable to a 28 percent decrease in realizations, partially offset by a 1 percent increase in sales volumes;

●	a $121 million decrease in oriented strand board sales attributable to a 42 percent decrease in realizations, as well as a 3 percent decrease in sales volumes;

●	an $11 million decrease in softwood plywood sales attributable to an 18 percent decrease in realizations, as well as a 3 percent decrease in sales volumes;

●	a $6 million decrease in engineered I-joists sales attributable to a 9 percent decrease in sales volumes, partially offset by a 2 percent increase in realizations and

●	a $5 million decrease in engineered solid section sales attributable to a 5 percent decrease in sales volumes, partially offset by a 3 percent increase in realizations.

These decreases were partially offset by a $7 million increase in sales for complementary building products.

Costs of sales

Costs of sales decreased $55 million – 5 percent – primarily due to lower sales volumes across most product lines, as discussed above.

Operating income and Net contribution to earnings

Operating income and net contribution to earnings decreased $248 million – 75 percent – primarily due to the change in gross margin, as discussed above.

Comparing Year-to-Date 2019 with Year-to-Date 2018

Net sales

Net sales decreased $551 million – 19 percent – primarily due to:

●	a $311 million decrease in structural lumber sales primarily attributable to a 25 percent decrease in realizations;

●	a $193 million decrease in oriented strand board sales attributable to a 36 percent decrease in realizations as well as a 3 percent decrease in sales volumes;

●	an $18 million decrease in engineered solid section sales attributable to a 10 percent decrease in sales volumes, partially offset by a 4 percent increase in realizations;

●	a $17 million decrease in softwood plywood sales attributable to a 15 percent decrease in realizations as well as a 1 percent decrease in sales volumes;

●	a $14 million decrease in engineered I-joists sales attributable to a 12 percent decrease in sales volumes, partially offset by a 5 percent increase in realizations and

●	a $7 million decrease in medium density fiberboard sales attributable to a 7 percent decrease in sales volumes.

These decreases were partially offset by a $7 million increase in sales for complementary building products.

Costs of sales

Costs of sales decreased $108 million – 5 percent – primarily due to lower sales volumes across most product lines, as discussed above.

Operating income and Net contribution to earnings

Operating income and net contribution to earnings decreased $449 million – 75 percent – primarily due to the change in gross margin, as discussed above.

Third-Party Sales Volumes

	QUARTER ENDED				AMOUNT OF CHANGE			YEAR-TO-DATE ENDED				AMOUNT OF CHANGE
VOLUMES IN MILLIONS⁽¹⁾	JUNE 2019		JUNE 2018		2019 VS. 2018			JUNE 2019		JUNE 2018		2019 VS. 2018
Structural lumber – board feet		1,274		1,261		13			2,407		2,401		6
Oriented strand board – square feet (3/8”)		733		754		(21	)		1,450		1,493		(43	)
Engineered solid section – cubic feet		6.1		6.4		(0.3	)		11.3		12.6		(1.3	)
Engineered I-joists – lineal feet		52		57		(5	)		93		106		(13	)
Softwood plywood – square feet (3/8”)		115		118		(3	)		230		233		(3	)
Medium density fiberboard – square feet (3/4”)		55		55		—			99		106		(7	)

(1)	Sales volumes include sales of internally produced products and products purchased for resale primarily through our distribution business.

PRODUCTION AND OUTSIDE PURCHASE VOLUMES

Outside purchase volumes are primarily purchased for resale through our distribution business. Production volumes are produced for sale through our own sales organizations and through our distribution business. Production of oriented strand board and engineered solid section are also used to manufacture engineered I-joists.

	QUARTER ENDED				AMOUNT OF CHANGE			YEAR-TO-DATE ENDED				AMOUNT OF CHANGE
VOLUMES IN MILLIONS	JUNE 2019		JUNE 2018		2019 VS. 2018			JUNE 2019		JUNE 2018		2019 VS. 2018
Structural lumber – board feet:
Production		1,193		1,180		13			2,338		2,340		(2	)
Outside purchase		58		49		9			113		96		17
Total		1,251		1,229		22			2,451		2,436		15
Oriented strand board – square feet (3/8”):
Production		736		747		(11	)		1,465		1,481		(16	)
Outside purchase		88		110		(22	)		169		210		(41	)
Total		824		857		(33	)		1,634		1,691		(57	)
Engineered solid section – cubic feet:
Production		6.0		6.4		(0.4	)		11.9		12.7		(0.8	)
Outside purchase		0.2		0.1		0.1			0.2		1.1		(0.9	)
Total		6.2		6.5		(0.3	)		12.1		13.8		(1.7	)
Engineered I-joists – lineal feet:
Production		47		52		(5	)		91		108		(17	)
Outside purchase		3		4		(1	)		5		7		(2	)
Total		50		56		(6	)		96		115		(19	)
Softwood plywood – square feet (3/8”):
Production		104		105		(1	)		202		202		—
Outside purchase		19		20		(1	)		35		40		(5	)
Total		123		125		(2	)		237		242		(5	)
Medium density fiberboard – square feet (3/4"):
Production		61		57		4			106		107		(1	)
Total		61		57		4			106		107		(1	)

UNALLOCATED ITEMS

Net Contribution to Earnings – Unallocated Items

	QUARTER ENDED						AMOUNT OF CHANGE			YEAR-TO-DATE ENDED						AMOUNT OF CHANGE
DOLLAR AMOUNTS IN MILLIONS	JUNE 2019			JUNE 2018			2019 VS. 2018			JUNE 2019			JUNE 2018			2019 VS. 2018
Unallocated corporate function and variable compensation expense	$	(12	)	$	(19	)	$	7		$	(31	)	$	(37	)	$	6
Liability classified share-based compensation		—			(2	)		2			(4	)		(2	)		(2	)
Foreign exchange loss		2			2			—			(1	)		—			(1	)
Elimination of intersegment profit in inventory and LIFO		(5	)		3			(8	)		(10	)		(18	)		8
Other		(17	)		(20	)		3			(56	)		(59	)		3
Operating income (loss)		(32	)		(36	)		4			(102	)		(116	)		14
Non-operating pension and other postretirement benefit costs		(10	)		(13	)		3			(480	)		(37	)		(443	)
Interest income and other		6			11			(5	)		16			23			(7	)
Net contribution to earnings (loss)	$	(36	)	$	(38	)	$	2		$	(566	)	$	(130	)	$	(436	)

Comparing Second Quarter 2019 with Second Quarter 2018

Unallocated Items net contribution to earnings increased $2 million – 5 percent – primarily due to small fluctuations such as, a $7 million decrease in unallocated corporate function and variable compensation expense and an $8 million decrease in elimination of intersegment profit in inventory and LIFO.

Comparing Year-to-Date 2019 with Year-to-Date 2018

Unallocated Items net contribution to earnings decreased $436 million – 335 percent – primarily due to an increase in non-operating pension and other postretirement benefit costs, which is primarily attributable to the $449 million noncash pretax pension settlement charge recorded during year-to-date 2019. The settlement charge is related to the transfer of pension assets and liabilities through the purchase of a group annuity contract (refer to Note 7: Pension and Other Postretirement Benefit Plans for further details).

INTEREST EXPENSE

Our interest expense, net of capitalized interest, was:

●	$91 million for second quarter 2019 and $198 million year-to-date 2019

●	$92 million for second quarter 2018 and $185 million year-to-date 2018.

Interest expense decreased by $1 million compared to second quarter 2018 primarily due to the decreased weighted average interest rate on our debt portfolio, partially offset by an increase in average long-term debt principal outstanding (refer to Note 9: Long-Term Debt and Line of Credit for further details).

Interest expense increased by $13 million compared to year-to-date 2018, primarily due to a $12 million charge related to the early extinguishment of debt recorded in first quarter 2019. The remaining change is a result of interest expense related to our line of credit during year-to-date 2019, as there was no related activity in 2018. Refer to Note 9: Long-Term Debt and Line of Credit for further details.

INCOME TAXES

Our provision for income taxes was:

●	a $37 million benefit for second quarter 2019 and a $141 million benefit year-to-date 2019;

●	a $65 million expense for second quarter 2018 and a $95 million expense year-to-date 2018.

Our provision for income taxes is primarily driven by earnings (losses) generated by our TRSs. During 2019, a noncash pretax settlement charge of $449 million was recorded related to the transfer of pension assets and liabilities through the purchase of a group annuity contract. As a result of this charge, we recognized a tax provision benefit of approximately $109 million in 2019. Overall performance results for our business segments can be found in Consolidated Results.

Refer to Note 16: Income Taxes and Note 7: Pension and Other Postretirement Benefit Plans for additional information.

LIQUIDITY AND CAPITAL RESOURCES

We are committed to maintaining an appropriate capital structure that provides flexibility and enables us to protect the interests of our shareholders and lenders and maintain access to all major financial markets.

CASH FROM OPERATIONS

Consolidated net cash provided by our operations was:

●	$382 million for year-to-date 2019 and

●	$733 million for year-to-date 2018.

Net cash from operations decreased $351 million, primarily due to:

●	decreased cash flows from our business segments and

●	cash used in working capital changes.

CASH FROM (USED IN) INVESTING ACTIVITIES

Consolidated net cash used in or provided by investing activities was:

●	$129 million cash provided by investing activities for year-to-date 2019 and

●	$149 million cash used in investing activities for year-to-date 2018.

Net cash from investing activities increased $278 million, primarily due to:

●	$253 million of cash proceeds received related to our buyer-sponsored SPEs during first quarter 2019 and

●	a $32 million decrease in cash outflow for property and equipment capital expenditures.

Summary of Capital Spending by Business Segment

	YEAR-TO-DATE ENDED
DOLLAR AMOUNTS IN MILLIONS	JUNE 2019		JUNE 2018
Timberlands	$	51	$	57
Real Estate & ENR		—		—
Wood Products		83		120
Unallocated Items		9		1
Total	$	143	$	178

We expect our net capital expenditures for 2019 will be approximately $380 million. The amount we spend on capital expenditures could change.

CASH USED IN FINANCING ACTIVITIES

Consolidated net cash used in financing activities was:

●	$633 million for year-to-date 2019 and

●	$507 million for year-to-date 2018.

Net cash used in financing activities increased $126 million, primarily due to:

●	a $450 million increase in cash used for payments of long-term debt;

●	a $285 million net cash outflow related to borrowings on our line of credit, with no similar activity during year-to-date 2018;

●	a $60 million cash outflow for the repurchase of common shares, with no similar activity during year-to-date 2018;

●	a $44 million decrease in cash received from exercise of stock options and

●	a $22 million increase in cash used for payment of dividends on common shares.

These increases in cash used were partially offset by $739 million cash proceeds received from the issuance of long-term debt.

Line of Credit

Refer to Note 9: Long-Term Debt and Line of Credit for further information.

Long-Term Debt

In February 2019, we issued $750 million of 4.00 percent notes due in November 2029. The net proceeds after deducting the discount, underwriting fees, and issuance costs were $739 million. In March 2019, a portion of the net proceeds were used to redeem our outstanding $500 million 7.38 percent note due in October 2019. A pretax charge of $12 million was included in "Interest expense, net of capitalized interest" in the Consolidated Statement of Operations in first quarter 2019, for make-whole premiums, unamortized debt issuance costs and unamortized debt discounts in connection with the early extinguishment of debt.

During first quarter 2018, we paid our $62 million 7.00 percent debenture at maturity.

Refer to Note 9: Long-Term Debt and Line of Credit for further information.

Our 2017 revolving credit agreement and our 2017 term loan agreement utilize the London Inter-bank Offered Rate (LIBOR) as a basis for one of the interest rate options available to the company. We expect that the LIBOR rate will be discontinued at some point during 2021. We expect to work with our lenders to identify a suitable replacement rate and amend our debt agreements to reflect this new reference rate accordingly. We do not believe that the discontinuation of LIBOR as a reference rate in our debt agreements will have a material adverse effect on our financial position or materially affect our interest expense.

Debt Covenants

During year-to-date 2019, there have been no significant changes to the debt covenants presented in our 2018 Annual Report on Form 10-K for our existing long-term debt instruments.

Option Exercises

We received cash proceeds from the exercise of stock options of:

●	$4 million for year-to-date 2019 and

●	$48 million for year-to-date 2018.

Our average stock price was $25.30 and $35.94 for year-to-date 2019 and 2018, respectively.

Dividend Payments

We paid cash dividends on common shares of:

●	$507 million for year-to-date 2019 and

●	$485 million for year-to-date 2018.

The increase in dividends paid is primarily due to an increase in our dividends from 64 cents per share for year-to-date 2018 to 68 cents per share for year-to-date 2019.

Share Repurchases

During year-to-date 2019, we repurchased over 2.3 million common shares for approximately $60 million under the 2019 Repurchase Program. There were no unsettled repurchases as of June 30, 2019 or December 31, 2018. Refer to Note 4: Net Earnings (Loss) Per Share and Share Repurchases for further information.

PERFORMANCE MEASURES

We use Adjusted Earnings before Interest, Taxes, Depreciation, Depletion and Amortization (Adjusted EBITDA) as a key performance measure to evaluate the performance of the consolidated company and our business segments. This measure should not be considered in isolation from, and is not intended to represent an alternative to, our results reported in accordance with U.S. generally accepted accounting principles (U.S. GAAP). However, we believe Adjusted EBITDA provides meaningful supplemental information for investors about our operating performance, better facilitates period to period comparisons, and is widely used by analysts, lenders, rating agencies and other interested parties.

Our definition of Adjusted EBITDA may be different from similarly titled measures reported by other companies. Adjusted EBITDA, as we define it, is operating income adjusted for depreciation, depletion, amortization, basis of real estate sold, and special items.

Adjusted EBITDA by Segment

	QUARTER ENDED						AMOUNT OF CHANGE			YEAR-TO-DATE ENDED						AMOUNT OF CHANGE
DOLLAR AMOUNTS IN MILLIONS	JUNE 2019			JUNE 2018			2019 VS. 2018			JUNE 2019			JUNE 2018			2019 VS. 2018
Adjusted EBITDA by Segment:
Timberlands	$	175		$	240		$	(65	)	$	368		$	508		$	(140	)
Real Estate & ENR		71			47			24			177			88			89
Wood Products		128			385			(257	)		243			671			(428	)
		374			672			(298	)		788			1,267			(479	)
Unallocated Items		(31	)		(35	)		4			(80	)		(86	)		6
Adjusted EBITDA	$	343		$	637		$	(294	)	$	708		$	1,181		$	(473	)

We reconcile Adjusted EBITDA by segment to "Net earnings" for the consolidated company and to "Operating income" for the business segments, as those are the most directly comparable U.S. GAAP measures for each. The table below reconciles Adjusted EBITDA for the quarter ended June 30, 2019:

DOLLAR AMOUNTS IN MILLIONS	Timberlands		Real Estate & ENR		Wood Products		Unallocated Items			Total
Adjusted EBITDA by Segment:
Net earnings										$	128
Interest expense, net of capitalized interest											91
Income taxes											(37	)
Net contribution to earnings (loss)	$	102	$	35	$	81	$	(36	)	$	182
Non-operating pension and other postretirement benefit costs⁽¹⁾		—		—		—		10			10
Interest income and other		—		—		—		(6	)		(6	)
Operating income (loss)		102		35		81		(32	)		186
Depreciation, depletion and amortization		73		3		47		1			124
Basis of real estate sold		—		33		—		—			33
Special items included in operating income (loss)		—		—		—		—			—
Adjusted EBITDA	$	175	$	71	$	128	$	(31	)	$	343

(1)

Non-operating pension and other postretirement benefit costs includes a pretax special item consisting of a $6 million benefit from finalizing the noncash settlement charge incurred in first quarter 2019 related to the transfer of pension assets and liabilities through the purchase of a group annuity contract.

The table below reconciles Adjusted EBITDA for the quarter ended June 30, 2018:

DOLLAR AMOUNTS IN MILLIONS	Timberlands		Real Estate & ENR		Wood Products		Unallocated Items			Total
Adjusted EBITDA by Segment:
Net earnings										$	317
Interest expense, net of capitalized interest											92
Income taxes											65
Net contribution to earnings (loss)	$	161	$	22	$	329	$	(38	)	$	474
Non-operating pension and other postretirement benefit costs		—		—		—		13			13
Interest income and other		—		—		—		(11	)		(11	)
Operating income (loss)		161		22		329		(36	)		476
Depreciation, depletion and amortization		79		3		36		1			119
Basis of real estate sold		—		22		—		—			22
Special items included in operating income (loss)⁽¹⁾		—		—		20		—			20
Adjusted EBITDA	$	240	$	47	$	385	$	(35	)	$	637

(1)	Operating income (loss) includes pretax special items consisting of $25 million of product remediation charges, partially offset by $5 million of insurance recoveries.

The table below reconciles Adjusted EBITDA for the year-to-date period ended June 30, 2019:

DOLLAR AMOUNTS IN MILLIONS	Timberlands		Real Estate & ENR		Wood Products		Unallocated Items			Total
Adjusted EBITDA by Segment:
Net earnings (loss)										$	(161	)
Interest expense, net of capitalized interest⁽¹⁾											198
Income taxes											(141	)
Net contribution to earnings (loss)	$	222	$	90	$	150	$	(566	)	$	(104	)
Non-operating pension and other postretirement benefit costs⁽²⁾		—		—		—		480			480
Interest income and other		—		—		—		(16	)		(16	)
Operating income (loss)		222		90		150		(102	)		360
Depreciation, depletion and amortization		146		6		93		2			247
Basis of real estate sold		—		81		—		—			81
Special items included in operating income (loss)⁽³⁾		—		—		—		20			20
Adjusted EBITDA	$	368	$	177	$	243	$	(80	)	$	708

(1)	Interest expense, net of capitalized interest includes a pretax special item of $12 million related to a charge for the early extinguishment of debt.

(2)

Non-operating pension and other postretirement benefit costs includes a pretax special item consisting of a $449 million noncash settlement charge related to the transfer of approximately $1.5 billion of U.S. qualified pension plan assets and liabilities to an insurance company through the purchase of a group annuity contract.

(3)	Operating income (loss) includes a pretax special item consisting of a $20 million legal charge.

The table below reconciles Adjusted EBITDA for the year-to-date period ended June 30, 2018:

DOLLAR AMOUNTS IN MILLIONS	Timberlands		Real Estate & ENR		Wood Products		Unallocated Items			Total
Adjusted EBITDA by Segment:
Net earnings										$	586
Interest expense, net of capitalized interest											185
Income taxes											95
Net contribution to earnings (loss)	$	350	$	47	$	599	$	(130	)	$	866
Non-operating pension and other postretirement benefit costs		—		—		—		37			37
Interest income and other		—		—		—		(23	)		(23	)
Operating income (loss)		350		47		599		(116	)		880
Depreciation, depletion and amortization		158		7		72		2			239
Basis of real estate sold		—		34		—		—			34
Special items included in operating income (loss)⁽¹⁾		—		—		—		28			28
Adjusted EBITDA	$	508	$	88	$	671	$	(86	)	$	1,181

(1)	Operating income (loss) includes pretax special items consisting of $25 million of product remediation insurance recoveries; $25 million of product remediation charges; and $28 million of environmental remediation expense.

CRITICAL ACCOUNTING POLICIES

There have been no significant changes during year-to-date 2019 to the critical accounting policies presented in our 2018 Annual Report on Form 10-K.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

LONG-TERM INDEBTEDNESS OBLIGATIONS

The following summary of our long-term indebtedness obligations includes:

●	scheduled principal repayments for the next five years and after;

●	weighted average interest rates for debt maturing in each of the next five years and after; and

●	estimated fair values of outstanding obligations.

We estimate the fair value of our debt instruments using quoted market prices we received for the same types and issues of our debt or on the discounted value of the future cash flows using market yields for the same type and comparable issues of debt. Changes in market rates of interest affect the fair value of our fixed-rate debt.

Summary of Long-Term Indebtedness Principal Obligations as of June 30, 2019

DOLLAR AMOUNTS IN MILLIONS	2019			2020			2021			2022			2023			THEREAFTER			TOTAL⁽¹⁾⁽²⁾			FAIR VALUE
Fixed-rate debt	$	—		$	—		$	719		$	—		$	1,876		$	3,324		$	5,919		$	6,995
Average interest rate		—	%		—	%		5.58	%		—	%		4.91	%		6.69	%		5.99	%	N/A
Variable-rate debt⁽³⁾	$	—		$	—		$	—		$	—		$	—		$	225		$	225		$	225
Average interest rate		—	%		—	%		—	%		—	%		—	%		4.00	%		4.00	%	N/A

(1)	Excludes $9 million of unamortized discounts, capitalized debt expense and business combination fair value adjustments.

(2)	Does not include nonrecourse debt held by our Variable Interest Entities (VIEs). See Note 6: Variable Interest Entities for further information on our VIEs and the related nonrecourse debt.

(3)

Excludes borrowings under our line of credit of $140 million as of June 30, 2019. Our line of credit expires in 2022, at which time all outstanding amounts must be repaid. The timing of the repayment of the current outstanding balance is uncertain. See Note 9: Long-Term Debt and Line of Credit for further information on our line of credit.

Item 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Disclosure controls are controls and other procedures that are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, to allow timely decisions regarding required disclosure. The company’s principal executive officer and principal financial officer have concluded that the company’s disclosure controls and procedures were effective as of June 30, 2019, based on an evaluation of the company’s disclosure controls and procedures as of that date.

CHANGES IN INTERNAL CONTROLS

No changes occurred in the company’s internal control over financial reporting during year-to-date 2019 that have materially affected, or are reasonably likely to materially affect, the company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

Refer to Note 11: Legal Proceedings, Commitments and Contingencies.

Item 1A. RISK FACTORS

There have been no material changes with respect to the risk factors disclosed in our 2018 Annual Report on Form 10-K.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

On February 7, 2019, our board of directors approved and announced a new share repurchase program under which we are authorized to repurchase up to $500 million of outstanding shares. Concurrently, the board terminated the remaining repurchase authorization under the share repurchase program approved by the board in November 2015.

There were no share repurchases during second quarter 2019.

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

None.

Item 6. EXHIBITS


31	Certification pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.

32	Certification pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).

101.INS	XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH	XBRL Taxonomy Extension Schema Document

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	XBRL Taxonomy Extension Label Linkbase Document

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

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
	(Registrant)

Date: July 26, 2019	By:	/s/ David M. Wold
		David M. Wold
		Vice President and Chief Accounting Officer
		(Principal Accounting Officer and Duly Authorized Officer)