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 thirty-nine weeks ended September 25,1994 or
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
A Washington Corporation (IRS Employer Identification
No. 91-0470860)
Tacoma, Washington 98477
Telephone (206) 924-2345
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
- ------------------------------ ------------------------
Common Shares ($1.25 par value) Midwest Stock Exchange
New York Stock Exchange
Pacific Stock Exchange
Tokyo Stock Exchange
Rights to Purchase Cumulative Preference Shares, New York Stock Exchange
Fourth Series
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 X No ___.
The number of shares outstanding of the registrant's class of common
stock, as of October 28, 1994 was 205,612,323 common shares ($1.25 par
value).
<PAGE>
Weyerhaeuser Company
- -2-
This page intentionally left blank.
<PAGE>
Weyerhaeuser Company
- -3-
<TABLE>
<CAPTION>
WEYERHAEUSER COMPANY AND SUBSIDIARIES
Index to Form 10-Q Filing
For the Thirty-nine Weeks Ended September 25, 1994
Page No.
----------
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statement of Earnings 4-5
Consolidated Balance Sheet 6-7
Consolidated Statement of Cash Flows 8-9
Notes to Financial Statements 11-17
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 19-21
Part II. Other Information
Item 1. Legal Proceedings 22-23
Item 2. Changes in Securities (not applicable)
Item 3. Defaults upon Senior Securities (not applicable)
Item 4. Submission of Matters to a Vote of Security Holders (not applicable)
Item 5. Other Information (not applicable)
Item 6. Exhibits and Reports on Form 8-K 23
</TABLE>
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 26, 1993. Though not examined by independent public
accountants, 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 thirty-nine week period ending September 25, 1994 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 thereto duly authorized.
WEYERHAEUSER COMPANY
By /s/ K. J. Stancato
-----------------------------
K. J. Stancato
Duly Authorized Officer and
Principal Accounting Officer
November 4, 1994
<PAGE>
Weyerhaeuser Company
- -4-
<TABLE>
<CAPTION>
WEYERHAEUSER COMPANY AND SUBSIDIARIES
____________
CONSOLIDATED EARNINGS
For the thirteen and thirty-nine week periods ended
September 25, 1994 and September 26, 1993
(Dollar amounts in thousands except per share figures)
(Unaudited)
Thirteen weeks ended: Sept. 25, Sept. 26,
1994 1993
---------- ----------
<S> <C> <C>
Net sales and revenues:
Weyerhaeuser $2,388,088 $1,955,911
Real estate and financial services 292,575 269,017
---------- ----------
2,680,663 2,224,928
---------- ----------
Costs and expenses:
Weyerhaeuser:
Costs of products sold 1,784,203 1,502,250
Depreciation, amortization and fee stumpage 121,253 111,435
Selling, general and administrative expenses 159,263 136,936
Research and development expenses 10,755 10,636
Taxes other than payroll and income taxes 37,614 37,381
---------- ----------
2,113,088 1,798,638
---------- ----------
Real estate and financial services:
Costs and operating expenses 229,990 183,711
Depreciation and amortization 7,495 9,302
Selling, general and administrative expenses 34,034 47,647
Taxes other than payroll and income taxes 1,751 2,281
---------- ----------
273,270 242,941
---------- ----------
2,386,358 2,041,579
---------- ----------
Operating income 294,305 183,349
Interest expense and other:
Weyerhaeuser:
Interest expense incurred 59,898 54,699
Less interest capitalized 8,743 6,170
Other income (expense), net (3,057) 10,060
Real estate and financial services:
Interest expense incurred 37,772 41,026
Less interest capitalized 19,196 19,656
Other income (expense), net 2,789 6,508
---------- ----------
Earnings before income taxes 224,306 130,018
Income taxes (Note 2) 79,900 63,400
---------- ----------
Net earnings $144,406 $66,618
========== ==========
Per common share (Note 1):
Net earnings $ .71 $ .32
========== ===========
Dividends paid $ .30 $ .30
========== ===========
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
Weyerhaeuser Company
- -5-
<TABLE>
<CAPTION>
Thirty-nine weeks ended: Sept. 25, Sept. 26,
1994 1993
---------- ----------
<S> <C> <C>
Net sales and revenues:
Weyerhaeuser $6,825,858 $6,080,433
Real estate and financial services 839,005 873,016
---------- ----------
7,664,863 6,953,449
---------- ----------
Costs and expenses:
Weyerhaeuser:
Costs of products sold 5,062,693 4,518,992
Depreciation, amortization and fee stumpage 366,557 333,230
Selling, general and administrative expenses 450,918 434,339
Research and development expenses 34,107 30,708
Taxes other than payroll and income taxes 113,702 106,868
---------- ----------
6,027,977 5,424,137
---------- ----------
Real estate and financial services:
Costs and operating expenses 633,737 580,652
Depreciation and amortization 22,449 32,990
Selling, general and administrative expenses 117,666 152,541
Taxes other than payroll and income taxes 6,007 7,141
---------- ----------
779,859 773,324
---------- ----------
6,807,836 6,197,461
---------- ----------
Operating income 857,027 755,988
Interest expense and other:
Weyerhaeuser:
Interest expense incurred 176,410 157,113
Less interest capitalized 26,405 14,222
Other income (expense), net (33,013) 73,754
Real estate and financial services:
Interest expense incurred 115,357 130,389
Less interest capitalized 59,339 57,687
Other income (expense), net 11,735 52,784
---------- ----------
Earnings before income taxes and extraordinary item 629,726 666,933
Income taxes before extraordinary item (Note 2) 229,900 241,368
---------- ----------
Earnings before extraordinary item 399,826 425,565
Extraordinary item, net of applicable taxes of _ 52,052
$33,732 (Note 9)
---------- ----------
Net earnings $399,826 $477,617
========== ==========
Per common share (Note 1):
Earnings before extraordinary item $ 1.95 $ 2.08
Extraordinary item _ .25
---------- ----------
Net earnings $ 1.95 $ 2.33
========== ==========
Dividends paid $ .90 $ .90
========== ==========
</TABLE>
<PAGE>
Weyerhaeuser Company
- -6
<TABLE>
<CAPTION>
WEYERHAEUSER COMPANY AND SUBSIDIARIES
____________
CONSOLIDATED BALANCE SHEET
September 25, 1994 and December 26, 1993
(Dollar amounts in thousands)
Sept. 25, Dec. 26,
1994 1993
----------- ----------
(Unaudited)
<S> <C> <C>
Assets
- ------
Weyerhaeuser
Current assets:
Cash and short-term investments,
including restricted deposits $18,586 $73,257
Receivables, less allowances 899,942 782,507
Inventories (Note 3) 745,075 762,471
Prepaid expenses 303,811 280,511
----------- -----------
Total current assets 1,967,414 1,898,746
Property and equipment (Note 4) 5,763,975 5,606,072
Construction in progress 942,837 666,177
Timber and timberlands at cost, less fee
stumpage charged to disposals 605,637 604,773
Other assets and deferred charges 215,970 191,946
----------- -----------
Total assets 9,495,833 8,967,714
----------- -----------
Real estate and financial services
Cash and short-term investments,
including restricted deposits 45,170 86,598
Receivables, less discounts and allowances 107,713 135,347
Mortgage and construction notes and
mortgage loans receivable 613,441 830,569
Investments 52,205 60,355
Mortgage-backed certificates and
restricted deposits 219,831 349,757
Real estate in process of development,
less reserves 727,954 738,597
Land being processed for development,
less reserves 723,823 699,611
Deferred acquisition costs 62,553 39,751
Other assets 765,588 730,154
----------- -----------
Total assets 3,318,278 3,670,739
----------- -----------
$12,814,111 $12,638,453
============ ===========
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
Weyerhaeuser Company
- -7-
<TABLE>
<CAPTION>
Sept. 25, Dec. 26,
1994 1993
----------- ----------
(Unaudited)
<S> <C> <C>
Liabilities and shareholders' interest
- --------------------------------------
Weyerhaeuser
Current liabilities:
Notes payable $1,586 $4,624
Current maturities of senior long-term debt 18,387 14,522
Accounts payable 600,331 492,040
Accrued liabilities (Note 5) 666,382 565,002
----------- -----------
Total current liabilities 1,286,686 1,076,188
----------- -----------
Senior long-term debt (Note 6) 3,032,728 2,997,890
Deferred income taxes 977,916 904,332
Deferred pension and other liabilities 551,267 535,162
Minority interest in subsidiaries 103,055 109,314
Commitments (Note 8) - -
----------- -----------
Total liabilities 5,951,652 5,622,886
----------- -----------
Real estate and financial services
Notes and commercial paper 210,921 289,038
Collateralized mortgage obligation bonds 191,342 307,416
Long-term debt (Note 6) 1,881,972 1,997,146
Other liabilities 392,222 455,871
----------- -----------
Total liabilities 2,676,457 3,049,471
----------- -----------
Shareholders' interest (Note 7)
Common shares: authorized 400,000,000 shares,
issued 206,072,890 shares, $1.25 par value 257,591 257,591
Other capital 416,450 411,096
Cumulative translation adjustment (84,218) (73,363)
Retained earnings 3,606,045 3,391,217
Treasury common shares, at cost:
470,257 and 983,952 (9,866) (20,445)
----------- -----------
Total shareholders' interest 4,186,002 3,966,096
----------- -----------
$12,814,111 $12,638,453
=========== ===========
</TABLE>
<PAGE>
Weyerhaeuser Company
- -8-
<TABLE>
<CAPTION>
WEYERHAEUSER COMPANY AND SUBSIDIARIES
____________
CONSOLIDATED STATEMENT OF CASH FLOWS
For the thirty-nine week periods ended
September 25, 1994 and September 26, 1993
Dollar amounts in thousands
(Unaudited)
Consolidated
----------------------
Sept. 25, Sept. 26,
1994 1993
----------- -----------
<S> <C> <C>
Cash flows provided by operations:
Net earnings $399,826 $477,617
Non-cash charges to income:
Depreciation, amortization and fee stumpage 389,006 366,220
Deferred income taxes, net 78,100 114,733
Contributions to employee investment plans _ 2,462
Extraordinary item, including current tax benefit _ (90,419)
Deferred income taxes on extraordinary item _ 38,367
Changes in working capital:
Receivables (107,914) (107,579)
Inventories, prepaid expenses, real estate and land (1,657) (236,725)
Mortgages held for sale 193,532 (60,413)
Other liabilities 109,546 116,368
(Gain) loss on disposition of assets 2,482 (7,026)
Gain on sales of businesses _ (111,750)
Other (62,073) (11,439)
---------- ----------
Net cash provided by operations 1,000,848 490,416
---------- ----------
Cash flows from investing in the business:
Property and equipment (782,665) (631,374)
Timber and timberlands (19,422) (39,048)
Mortgage and investment securities acquired (32,325) (773,428)
Proceeds from sale of:
Property, equipment, timber and timberlands 35,580 25,223
Businesses 14,250 615,784
Mortgage and investment securities 130,613 454,604
Other (1,212) (42,803)
---------- ----------
Net cash flows from investing in the business (655,181) (391,042)
---------- ----------
Cash flows from financing activities:
Sale of debentures, notes and CMO bonds 133,645 973,375
Sale of industrial revenue bonds 126,500 107,500
Notes and commercial paper borrowings, net (187,727) (511,409)
Proceeds from issuance of investment contracts _ 60,943
Cash dividends on common shares (184,998) (184,313)
Intercompany cash dividends on common shares _ _
Payments on debentures, notes, bank credit
agreements, income debenture, capital leases,
industrial revenue bonds and CMO bonds (343,524) (991,714)
Exercise of stock options 15,462 18,422
Other (1,124) 7,882
---------- ----------
Net cash flows from financing activities (441,766) (519,314)
---------- -----------
Net increase (decrease) in cash and short-term investments (96,099) (419,940)
Cash and short-term investments at beginning of year 159,855 524,325
---------- ----------
Cash and short-term investments at end of period $63,756 $104,385
========== ==========
Cash paid (received) during the year for:
Interest, net of amount capitalized $232,270 $260,408
========== ==========
Income taxes $131,547 $124,955
========== ==========
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
Weyerhaeuser Company
- -9-
<TABLE>
<CAPTION>
Real Estate and
Weyerhaeuser Financial Services
- ---------------------------- --------------------------
Sept. 25, Sept. 26, Sept. 25, Sept. 26,
1994 1993 1994 1993
--------- --------- --------- ----------
<C> <C> <C> <C>
$388,645 $419,274 $11,181 $58,343
366,557 333,230 22,449 32,990
73,584 132,444 4,516 (17,711)
_ 2,462 _ _
_ (90,419) _ _
_ 38,367 _ _
(117,422) (75,265) 9,508 (32,314)
(5,848) (142,341) 4,191 (94,384)
_ _ 193,532 (60,413)
181,566 15,452 (72,020) 100,916
7,121 (5,900) (4,639) (1,126)
_ (70,199) _ (41,551)
(29,297) 3,696 (32,776) (15,135)
---------- --------- --------- --------
864,906 560,801 135,942 (70,385)
---------- --------- --------- --------
(771,038) (616,140) (11,627) (15,234)
(19,422) (39,048) _ _
_ _ (32,325) (773,428)
12,300 23,090 23,280 2,133
_ 204,100 14,250 411,684
_ _ 130,613 454,604
(7,107) (11,146) 5,895 (31,657)
--------- --------- --------- ---------
(785,267) (439,144) 130,086 48,102
--------- --------- --------- ---------
16,927 807,079 116,718 166,296
126,500 107,500 _ _
(65,996) (648,001) (121,731) 136,592
_ _ _ 60,943
(184,998) (184,313) _ _
_ 435,000 _ (435,000)
(41,081) (654,256) (302,443) (337,458)
15,462 18,422 _ _
(1,124) 7,882 _ _
--------- --------- --------- ---------
(134,310) (110,687) (307,456) (408,627)
--------- --------- --------- ---------
(54,671) 10,970 (41,428) (430,910)
73,257 40,985 86,598 483,340
--------- --------- --------- ---------
$18,586 $51,955 $45,170 $52,430
========= ========= ========= =========
$174,641 $178,480 $57,629 $81,928
========= ========= ========= =========
$62,982 $127,183 $68,565 ($2,228)
========= ========= ========= =========
</TABLE>
<PAGE>
Weyerhaeuser Company
- -10-
This page intentionally left blank.
<PAGE>
Weyerhaeuser Company
- -11-
WEYERHAEUSER COMPANY AND SUBSIDIARIES
____________
NOTES TO FINANCIAL STATEMENTS
For the thirty-nine week periods ended September 25, 1994 and
September 26, 1993
(Dollar amounts in thousands except per share figures)
Note 1: Summary of Significant Accounting and Reporting Policies
Consolidation
The consolidated financial statements include the accounts of
Weyerhaeuser Company and all of its majority-owned domestic and
foreign subsidiaries. Significant intercompany transactions and
accounts are eliminated.
Certain of the consolidated financial statements and notes to
financial statements are presented in two groupings: (1) Weyerhaeuser
Company (Weyerhaeuser, or the company), which is principally engaged
in the growing and harvesting of timber and the manufacture,
distribution and sale of forest products, and (2) Real estate and
financial services, which includes Weyerhaeuser Real Estate Company
(WRECO), which is involved in real estate development and
construction, and Weyerhaeuser Financial Services, Inc. (WFS), whose
principal subsidiaries are Weyerhaeuser Mortgage Company (WMC) and
Mortgage Securities Corporations. GNA Corporation, a subsidiary of
WFS, was sold in April 1993.
Net Earnings Per Common Share
Net earnings per common share are based on the weighted average number
of common shares outstanding during the respective periods. Average
common equivalent shares (stock options) outstanding have not been
included, as the computation would not be dilutive. Weighted average
common shares outstanding were 205,521,610 and 204,807,330 at
September 25, 1994 and September 26, 1993, respectively.
Fully diluted earnings-per-share amounts are not applicable because
the effect of the conversion of the stock options is not dilutive.
Accounting Changes
In November 1992, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 112,
Employers' Accounting for Postemployment Benefits (SFAS 112), which
requires accrual accounting be used for the cost of benefits provided
to former or inactive employees who have not yet retired. In the
first quarter of 1994, the company adopted SFAS 112 by recording a
cumulative catch-up charge to earnings. The adoption of this
pronouncement did not have a significant impact on the company's
results of operations or its financial position.
In May 1993, the FASB issued SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities which addresses the
accounting and reporting for investments in equity securities that
have readily determinable fair values and all investments in debt
securities. The adoption of this pronouncement in 1994 did not have a
significant impact on the company's results of operations or its
financial position.
Inventories
Inventories are stated at the lower of cost or market. Cost includes
labor, materials and production overhead. The last-in, first-out
(LIFO) method is used to cost the majority of domestic raw materials,
in process and finished goods inventories; either the first-in, first-
out (FIFO) or average cost method is used to cost all other
inventories.
Property and Equipment
The company's property accounts are maintained on an individual asset
basis. Betterments and replacements of major units are capitalized.
Maintenance, repairs and minor replacements are expensed.
Depreciation is provided generally on the straight-line or unit-of-
production methods at rates based on estimated service lives.
Amortization of logging rail and truck
<PAGE>
Weyerhaeuser Company
- -12-
roads is provided generally as timber is harvested and is based upon
rates determined with reference to the volume of timber estimated to
be removed over such facilities.
The cost and related depreciation of property sold or retired is
removed from the property and allowance for depreciation accounts and
gain or loss is recorded.
Timber and Timberlands
Timber and timberlands are carried at cost less fee stumpage charged
to disposals. Fee stumpage is the cost of standing timber and is
charged to fee timber disposals as fee timber is harvested, lost as
the result of casualty or sold. Stumpage rates are determined with
reference to the cost of timber and the related volume of timber
estimated to be recoverable. Timber carrying costs are expensed as
incurred.
Income Taxes
Under SFAS No. 109, Accounting for Income Taxes, deferred income taxes
are provided to reflect temporary differences between the financial
and tax bases of assets and liabilities using presently enacted tax
rates and laws.
Pension Plans
The company has pension plans covering most of its employees. The
U.S. plan covering salaried employees provides pension benefits based
on the employee's highest monthly earnings for five consecutive years
during the final ten years before retirement. Plans covering hourly
employees generally provide benefits of stated amounts for each year
of service. Contributions to U.S. plans are based on funding
standards established by the Employee Retirement Income Security Act
of 1974 (ERISA).
Postretirement Benefits Other Than Pensions
In addition to providing pension benefits, the company provides
certain health care and life insurance benefits for some retired
employees and accrues the expected future cost of these benefits for
its current eligible retirees and some employees. All of the
company's salaried employees and some hourly employees may become
eligible for these benefits when they retire.
Cash and Short-Term Investments
For purposes of cash flow and fair value reporting, short-term
investments with original maturities of 90 days or less are considered
as cash equivalents. Short-term investments are stated at cost, which
approximates market.
Foreign Exchange Contracts
The company enters into foreign exchange contracts as a hedge for
foreign accounts receivable. Market value gains and losses are
recognized and offset against foreign exchange gains or losses on the
foreign receivables.
WRECO
WRECO recognizes income from the sales of single family housing units
when construction has been completed, required down payments received
and title has passed to the customer. Income from the sales of multi-
family, commercial properties, developed lots and undeveloped land is
recognized when required down payments are received and other income
recognition criteria are satisfied.
Real estate is stated at the lower of cost or net realizable value.
The determination of net realizable value is based on WRECO's plans
for its property and its financial ability to carry out such plans.
Changes in future market demand, interest rates and company plans may
affect net realizable value. Land, land development and construction
costs, including capitalized carrying costs, are accumulated and
allocated to individual units in proportion to relative sales value.
<PAGE>
Weyerhaeuser Company
- -13-
Weyerhaeuser Financial Services
Weyerhaeuser Mortgage Company and its subsidiaries are primarily
engaged in the mortgage banking industry and also offer insurance
services.
- Mortgage notes held for sale are stated at the lower of cost or
market, which is computed by the aggregate method (unrealized
losses are offset by unrealized gains). Hedging transactions are
entered into to protect the inventory value from increases in
interest rates. Hedge positions are also used to protect the
pipeline of loan applications in process from increases in
interest rates. Hedging gains and losses realized during the
commitment and warehousing period are deferred to the extent of
unrealized gains on the related mortgage loans held for sale.
- The costs associated with purchasing mortgage servicing rights are
deferred. Excess service fees result from loan sales in which WMC
retains the loan servicing rights and are based on the present
value of future servicing revenue less a normal servicing fee,
based upon the estimated remaining life of the loans sold.
The Mortgage Securities Corporations were formed for the limited
purpose of issuing collateralized mortgage obligation bonds (CMO
bonds) secured by Government National Mortgage Association and Federal
National Mortgage Association certificates. The CMO bonds are the
sole obligation of the issuer, and neither the company nor any
affiliated company has guaranteed or is otherwise obligated with
respect to the CMO bonds.
- The mortgage-backed certificates are carried at par value adjusted
for any unamortized discount or premium. These discounts or
premiums are amortized using a method that approximates the
effective interest method over the estimated life of the
underlying mortgage loans.
- CMO bonds are carried at unamortized cost. Discounts and premiums
are amortized using a method that approximates the effective
interest method over their estimated life.
In April 1993, WFS completed the sale of GNA Corporation. As a part
of that transaction, Weyerhaeuser assumed $225 million of outstanding
GNA debt. GNA Corporation and its life insurance subsidiaries
provided annuities, insurance and securities marketed through
financial institutions. During its operation:
- Payments received on investment and limited payment contracts were
recorded directly as deposits.
- Investment income was recorded when earned.
- Investments in bonds were stated at amortized cost; mortgage loans
and other investments were carried at cost.
- The liability for future annuity and contract reserves on single
premium deferred annuities and single premium whole life policies
was the contract holder's account value. The reserve for single
premium immediate annuity benefits was the present value of such
benefits.
<PAGE>
Weyerhaeuser Company
- -14-
Note 2: Income Taxes
Provisions for income taxes include the following:
<TABLE>
<CAPTION>
Thirty-nine Weeks
Ended
---------------------
Sept.25, Sept. 26,
1994 1993
--------- ----------
<S> <C> <C>
Federal:
Current $81,200 $101,761
Deferred 61,000 106,000
-------- --------
142,200 207,761
-------- --------
State:
Current 16,400 16,574
Deferred 3,900 8,000
-------- --------
20,300 24,574
-------- --------
Foreign:
Current 54,200 8,300
Deferred 13,200 733
-------- -------
67,400 9,033
-------- -------
Income taxes before apportionment to
extraordinary item 229,900 241,368
-------- -------
Income taxes apportionable to
extraordinary item:
Current _ (4,635)
Deferred _ 38,367
-------- --------
_ 33,732
-------- --------
$229,900 $275,100
======== ========
</TABLE>
Income tax provisions for interim periods are based on the current
best estimate of the effective tax rate expected to be applicable for
the full year. The effective tax rate reflects anticipated tax
credits, foreign taxes and other tax planning alternatives.
For the thirty-nine week periods ended September 25, 1994 and
September 26, 1993, respectively, the company's provision for income
taxes as a percent of earnings before income taxes was 36.5 percent,
which is greater than the 35 percent federal statutory rate due
principally to the effect of state income taxes.
Under the SFAS 109 liability method, deferred taxes are provided for
the temporary differences between the financial and tax bases of
assets and liabilities, applying presently enacted tax rates and laws.
The major sources of these temporary differences include depreciable
and depletable assets, real estate, restructuring reserves, and
pension and retiree health care liabilities.
<PAGE>
Weyerhaeuser Company
- -15-
<TABLE>
Note 3: Inventories
<CAPTION>
Inventories consist of the following:
Sept. 25, Dec. 26,
1994 1993
--------- --------
<S> <C> <C>
Logs and chips $82,841 $103,195
Lumber, plywood and panels 116,297 92,488
Pulp, newsprint and paper 111,289 124,131
Containerboard, paperboard and containers 59,268 70,915
Other products 114,347 121,949
Materials and supplies 261,033 249,793
-------- --------
$745,075 $762,471
======== ========
</TABLE>
<TABLE>
Note 4: Property and Equipment
<CAPTION>
Sept. 25, Dec. 26,
1994 1993
---------- -----------
<S> <C> <C>
Property and equipment, at cost:
Land $157,433 $157,611
Buildings and improvements 1,462,437 1,416,740
Machinery and equipment 8,161,288 7,839,070
Rail and truck roads and other 628,272 620,136
---------- ----------
10,409,430 10,033,557
Less allowance for depreciation
and amortization 4,645,455 4,427,485
---------- ----------
$5,763,975 $5,606,072
========== ==========
</TABLE>
<TABLE>
Note 5: Accrued Liabilities
<CAPTION>
Accrued liabilities are as follows:
Sept. 25, Dec. 26,
1994 1993
-------- --------
<S> <C> <C>
Payroll - wages and salaries, incentive awards,
retirement, vacation pay and severance pay $234,313 $239,434
Taxes - social security and real
and personal property 69,487 58,952
Interest 42,330 66,967
Income taxes 90,123 12,166
Other 230,129 187,483
-------- --------
$666,382 $565,002
======== ========
</TABLE>
<PAGE>
Weyerhaeuser Company
- -16-
Note 6: Long-Term Debt
The company's lines of credit include:
- A five-year competitive advance and revolving credit facility
agreement entered into in July 1994 with a group of banks which
provides for borrowings of up to the total amount of $1,550,000,
all of which can be availed of by the company and $1,000,000 which
can be availed of by WMC. Borrowings are at LIBOR or other such
interest rates as mutually agreed to between the borrower and
lending banks. This credit facility agreement replaces a similar
agreement for $1,650,000 entered into in 1990.
- Short-term bank credit lines at September 25, 1994, which
provide for borrowings of up to the total amount of:
- $725,000, all of which can be availed of by the company, WRECO
and WMC at September 25, 1994.
- $200,000, all of which can be availed of by the company
and WRECO and $150,000 which can be availed of by WMC at
December 26, 1993.
- A one-year evergreen credit commitment entered into in 1990 with a
group of banks which provides for borrowings of up to the amounts,
and by the entities, as follows:
<TABLE>
<CAPTION>
Sept. 25, Dec. 26,
1994 1993
---------- ----------
<S> <C> <C>
The company and:
WMC and WRECO $ _ $215,000
WMC _ 70,000
WRECO _ 20,000
WMC (only) _ 35,000
</TABLE>
At December 26, 1993, WMC had $35,000 outstanding against this
commitment.
WMC has a revolving credit agreement with a bank to provide for: (1)
borrowings up to $35,000 for three years at prime rate, LIBOR or such
other rate as may be agreed upon by WMC and the banks, (2) a
commitment fee based on the unused credit, and (3) conversion of the
notes as of July 1, 1995, to a five-year term loan payable in equal
quarterly installments. At December 26, 1993, $30,000 was outstanding
under the revolving credit agreement.
During 1992, WFS entered into a three-year term loan facility which
was amended in May 1994 and provides for (1) borrowings of up to
$405,000 at September 25, 1994, and $295,000 at December 26, 1993, at
LIBOR or such other rates as may be agreed upon by WFS and the banks;
and (2) a commitment fee based on the unused credit. $405,000 and
$295,000 were outstanding against this facility at September 25, 1994
and December 26, 1993, respectively.
To the extent that these credit commitments expire more than one year
after the balance sheet date and are unused, an equal amount of
commercial paper is classifiable as long-term debt. Amounts so
classified are:
<TABLE>
<CAPTION>
Sept. 25, Dec. 26,
1994 1993
--------- ---------
<S> <C> <C>
Weyerhaeuser $427,731 $378,727
Real estate and financial services 571,842 616,906
</TABLE>
No portion of these lines has been availed of by the company, WRECO,
WFS, or WMC at September 25, 1994 or December 26, 1993, except as
noted.
In 1993, WFS completed the sale of GNA Corporation. As a part of this
transaction, the company assumed $225,000 of outstanding GNA debt.
Total interest costs incurred by WRECO are capitalized and will
ultimately be accounted for as an element of operating costs.
The company's compensating balance agreements were not significant.
<PAGE>
Weyerhaeuser Company
- -17-
Note 7: Shareholders' Interest
Common shares reserved for stock option plans were 5,716,000 shares at
September 25, 1994 and 5,178,000 shares at December 26, 1993.
Note 8: Commitments and Contingencies
The company's capital expenditures have averaged about $823,000 in
recent years but are expected to be approximately $1,100,000 in 1994;
however, the 1994 expenditure level could be increased or decreased as
a consequence of future economic conditions.
The company is a party to legal proceedings and environmental matters
generally incidental to its business. Although the final outcome of
any legal proceeding or environmental matter is subject to a great
many variables and cannot be predicted with any degree of certainty,
the company presently believes that the ultimate outcome resulting
from these proceedings and matters would not have a material effect on
the company's current financial position, liquidity or results of
operations; however, in any given future reporting period such
proceedings or matters could have a material effect on results of
operations.
Note 9: Extraordinary Item
During the 1993 first quarter, the company realized a net gain of
$52,052 ($85,784 less related tax effect of $33,732) as a result of
extinguishing certain debt obligations.
<PAGE>
Weyerhaeuser Company
- -18-
This page intentionally left blank.
<PAGE>
Weyerhaeuser Company
- -19-
WEYERHAEUSER COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
<TABLE>
Net sales and revenues and earnings before interest expense, income
taxes and extraordinary item by segment are:
<CAPTION>
Thirteen Weeks Thirty-nine
Ended Weeks Ended
---------------------- ---------------------
Sept. 25, Sept. 26, Sept. 25, Sept. 26,
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales and revenues:
Timberlands and wood products $1,278,806 $1,015,966 $3,709,670 $3,161,728
Pulp, paper and packaging 1,053,703 887,830 2,951,561 2,700,574
Real estate 242,704 197,875 681,628 542,134
Financial services 49,871 71,142 157,377 330,882
Corporate and other 55,579 52,115 164,627 218,131
---------- ---------- ---------- ----------
$2,680,663 $2,224,928 $7,664,863 $6,953,449
========== ========== ========== ==========
Earnings before interest expense,
income taxes and extraordinary
item:
Timberlands and wood products $246,146 $165,795 $772,351 $633,410
Pulp, paper and packaging 63,509 2,498 98,827 81,895
Real estate 1,502 1,685 5,467 6,857
Financial services(1) 2,016 9,529 9,396 72,917
Corporate and other (37,712) (960) (106,310) 14,745
---------- --------- --------- --------
$275,461 $178,547 $779,731 $809,824
========== ========= ========= ========
(1)Includes interest expense of $18,576 and $21,370 for thirteen
weeks and $56,018 and $72,702 for thirty-nine weeks related to the
financial services businesses.
</TABLE>
Results of Operations
Net sales for the third quarter of 1994 were $2.7 billion, up 20% from
the $2.2 billion reported in the comparable quarter of 1993. Improved
pricing in most product lines, in particular, converted wood products,
pulp, paper, packaging products and recycled materials along with
volume increases over the prior year's quarter in export raw
materials, lumber and pulp accounted for the gains.
Net earnings in the current quarter were $144 million or 71 cents per
common share, up from the $67 million or 32 cents per common share in
the third quarter of 1993. The prior year's quarter included a charge
of 10 cents per common share which reflected federal tax law changes,
with 8 cents due to the effect of the higher tax rate on the
accumulated temporary differences at December 27, 1992 and 2 cents
related to 1993 prior quarters.
Year-to-date net sales were $7.7 billion, an increase of 10% over the
$7 billion reported in the same period of 1993. This increase was the
result of increased sales volumes in most product lines as well as
stronger pricing in lumber, pulp, packaging products and the recycling
businesses.
The quarter's results brought year-to-date net earnings to
$400 million, or $1.95 per common share compared to $478 million, or
$2.33 per common share reported in the first nine months of 1993. In
addition to the tax rate charge taken in the quarter, net earnings for
the first nine months of 1993 included:
- $44 million or 22 cents per common share on the sale of the
company's infant diaper business which was included as income in
the Corporate and Other segment;
- $52 million or 25 cents per common share from the extinguishment
of debt, which was reported as an extraordinary gain on the
company's consolidated statement of earnings; and
- $36 million or 18 cents per common share from the sale of GNA
Corporation which was included in the Financial Services segment
as other income.
<PAGE>
Weyerhaeuser Company
- -20-
Operating earnings for the timberlands and wood products segment were
$246 million in the third quarter of 1994, a 48% increase over the
$166 million in the year ago quarter. The 1993 results were impacted
by lower earnings in the company's log export business as log
inventories in Japan were reduced.
The pulp, paper and packaging segment's operating earnings were
$63.5 million for the third quarter of 1994 compared with $2.5 million
in the same quarter of 1993. The company continues to realize steady
improvement in earnings for this segment as the momentum develops in
the recovery of the pulp, paper and packaging markets.
The company's real estate and financial services segments earned
$3.5 million in the quarter compared with $11.2 million in the year
ago quarter. The real estate segment has been affected by the
slowdown in housing activity in the United States. In addition, the
financial services segment has been impacted by low levels of loan
origination activity.
The increases in the company's interest expense incurred and interest
capitalized, both in the current quarter and year-to-date are related
to the continuing major mill modernization projects underway at the
Plymouth, North Carolina and Longview, Washington facilities.
Other income is an aggregation of both recurring and occasional non-
operating income and expense items and, as a result, fluctuates from
period to period. No individual income or (expense) item is
significant in relation to net earnings for the nine months other than
the $70.2 million gain on the disposal of the company's investment in
the infant diaper business in the first quarter of 1993, and financial
services' gain of $41.5 million on the sale of GNA Corporation in the
second quarter of 1993.
In November 1994, the company announced a new operating earnings
improvement target of $400 million to be reached by the end of
1997.
Liquidity and Capital Resources
In the first nine months of 1994, consolidated cash flow from
operations was $1 billion compared to $490 million for the same period
a year ago. Significant non-recurring items that affected the 1993
period were the gain on extinguishment of debt and the sale of the
company's infant diaper business and the GNA Corporation.
Working capital for Weyerhaeuser decreased $142 million from year-end
1993, due primarily to a decrease in cash and short-term investments
and an increase in accounts payable and accrued liabilities, partially
offset by an increase in receivables. This is compared to the same
period ending a year ago during which working capital increased by
$110 million as a result of increases in receivables and prepaid
expenses and a decrease in accrued liabilities offset, in part, by
increases in accounts and notes payable.
In 1993, the company's mortgage operations were building an inventory
of mortgage loans receivable, a situation which has been reversed in
1994 as loan sales are now exceeding originations.
The 1993 decrease in mortgage and investment securities acquired and
increases in proceeds from the sale of mortgage and investment
securities and proceeds from issuance of investment contracts are
related to the sale of the GNA Corporation described above.
The reductions in Weyerhaeuser's 1994 year-to-date sales of debentures
and payments on debentures and commercial paper as compared to 1993,
are due to debt restructuring activity in 1993 and increased cash flow
from operations in 1994. Reductions in the real estate and financial
services segments commercial paper activity in 1994 as compared to
1993 are related primarily to the lower volume of loan originations
and increased loan sales described above.
During the thirty-nine week period ended September 25, 1994, the
company paid $185 million in cash dividends and made capital
expenditures of $802 million. The cash needed to meet these and other
company needs was generated principally from internal cash flow. The
company currently anticipates total capital expenditures for 1994 to
approximate $1.1 billion.
The company is committed to the maintenance of a sound, conservative
capital structure. This commitment is based upon two considerations:
the obligation to protect the underlying interests of its shareholders
and lenders and the desire to have access, at all times, to all major
financial markets.
<PAGE>
Weyerhaeuser Company
- -21-
The important elements of the policy governing the company's capital
structure are as follows:
- To view separately the capital structures of Weyerhaeuser Company,
Weyerhaeuser Real Estate Company and Weyerhaeuser Financial
Services, Inc. given the very different nature of their assets and
business activities. The amount of debt and equity associated
with the capital structure of each will reflect the basic earnings
capacity, real value and unique liquidity characteristics of the
assets dedicated to that business.
- The combination of maturing short-term debt and the structure of
long-term debt will be managed judiciously to minimize liquidity
risk.
For the thirty-nine weeks ended September 25, 1994, earnings before
interest expense and income taxes plus non-cash charges for the
timberlands and wood products and the pulp, paper and packaging
segments were $905 million and $313 million, respectively. Capital
expenditures during this period were $159 million by timberlands and
wood products, $605 million by pulp, paper and packaging and
$38 million by other segments. Expenditures in the pulp, paper and
packaging segment are significantly higher than the $452 million for
the same period a year ago as a result of the company's modernization
projects at its Longview, Washington and Plymouth, North Carolina
complexes.
Contingencies
The company is a party to legal proceedings and environmental matters
generally incidental to its business. Although the final outcome of
any legal proceeding or environmental matter is subject to a great
many variables and cannot be predicted with any degree of certainty,
the company presently believes that the ultimate outcome resulting
from these proceedings and matters would not have a material effect on
the company's current financial position, liquidity or results of
operations; however, in any given future reporting period such
proceedings or matters could have a material effect on results of
operations.
<PAGE>
Weyerhaeuser Company
- -22-
Part II. Other Information
Item 1. Legal Proceedings
Trial began in May 1992 in a federal income tax refund case that the
company filed in July 1989 in the United States Claims Court. The
complaint seeks a refund of federal income taxes that the company
contends it overpaid in 1977 through 1983. The alleged overpayments
are the result of the disallowance of certain timber casualty losses
and certain deductions claimed by the company arising from export
transactions. The refund sought was approximately $29 million, plus
statutory interest from the dates of the alleged overpayments. The
company settled the portion of the case relating to export
transactions. In September 1994, the United States Court of Federal
Claims issued an opinion on the casualty loss issues which would not
result in the allowance of substantial additional refunds to the
company. The company currently intends to appeal the decision.
On March 6, 1992, the company filed a complaint in the Superior Court
for King County, Washington against a number of insurance companies.
The complaint seeks a declaratory judgment that the insurance
companies named as defendants are obligated under the terms and
conditions of the policies sold by them to the company to defend the
company and to pay, on the company's behalf, certain claims asserted
against the company. The claims relate to alleged environmental
damage to third-party sites and to some of the company's own property
to which allegedly toxic material was delivered or on which allegedly
toxic material was placed in the past. Since December 1992, the
company has agreed to settlements with all but one of the defendants.
In July 1993, the trial court dismissed fourteen of the thirty-five
sites named in the complaint. In May 1994, the Washington State
Supreme Court reversed the trial court's dismissal of those sites.
Trial on two sites against the sole remaining defendant began in
October 1994.
In April 1992, the Georgia Department of Natural Resources,
Environmental Protection Division issued a Notice of Violation to the
company's Adel, Georgia particleboard plant citing violations of
particulate emission standards. A consent order was entered into on
September 18, 1992 assessing a $35 thousand penalty and a stipulated
penalty of 100 dollars per day until the facility is in full
compliance with particulate emission requirements. The Consent Order
set a compliance deadline of January 31, 1994. The Consent Order
required that the company demonstrate that the facility is in
compliance with regulations under the Prevention of Significant
Deterioration (PSD) regulations under the Clean Air Act. Final
compliance has been demonstrated with respect to both PSD regulations
and particulate emission requirements.
The company has undertaken a review of all its wood products
facilities for compliance with the PSD regulations and has disclosed
PSD compliance issues to certain state agencies and the Environmental
Protection Agency (EPA). The company and the State of Mississippi
Department of Environmental Quality have entered into a consent
agreement concerning PSD regulations at company facilities in
Philadelphia and Bruce, Mississippi, involving penalties of
$170 thousand. The State of Alabama has issued a compliance order
with penalties totaling $100 thousand for noncompliance with PSD
regulations at the company's Millport facility. The company and North
Carolina's Division of Environmental Management have entered into a
consent agreement for its Elkin, North Carolina facility involving
penalties of $140 thousand and are currently negotiating a separate
consent agreement for its Moncure, North Carolina facility involving
penalties of $140 thousand. The company has signed a consent
agreement including penalties of $140 thousand relating to PSD issues
at the company's Wright City, Oklahoma facility with the State of
Oklahoma Department of Environmental Quality. The company has signed
consent agreements with the State of Arkansas concerning PSD related
issues for facilities in Dierks and Mountain Pine, involving
$375 thousand in total penalties for both facilities. Region V of the
EPA has issued a Notice of Violation for permit violations at the
company's Grayling, Michigan facility. The company has negotiated a
settlement of those alleged permit violations and other PSD related
issues with the Michigan Department of Natural Resources that involves
penalties of approximately $499 thousand. In September 1992, the EPA
issued a Section 114 Request for Information concerning PSD compliance
at the company's oriented strand board and medium density fiberboard
mills. In June 1993, the EPA issued a similar Section 114 request for
the company's plywood and particleboard mills. The EPA issued a
notice of violation in August 1994, for nine company facilities
(including all of the facilities mentioned above and the Plymouth,
North Carolina wood products facility) as part of its national PSD
enforcement action against the company and other forest product
companies.
The company has also undertaken a review of its ten major pulp and
paper facilities to evaluate the facilities' compliance with PSD
regulations and has disclosed potential PSD compliance issues to four
state agencies and the EPA. The company is currently working with the
states to negotiate settlements for the alleged violations.
The Washington State Department of Ecology has investigated the
accidental release of chlorine, chlorine dioxide and non-condensable
gasses at the company's pulp mill in Longview, in July 1994 and has
issued a $10 thousand penalty for the chlorine release and a
$5 thousand penalty for the non-condensable gasses release. The EPA
is also investigating the accidental chlorine release.
On April 9, 1993, the company entered into a Stipulated Final Order
(SFO) with the Oregon Department of Environmental Quality for alleged
air emissions in excess of permit levels and PSD noncompliance at the
company's North Bend, Oregon containerboard facility. The SFO
establishes a compliance schedule for installing control technology.
A supplemental SFO
<PAGE>
Weyerhaeuser Company
- -23-
Part II. Other Information
Item 1. Legal Proceedings - continued
assessed upfront penalties of $247 thousand and penalties of
500 dollars per day until compliance is demonstrated. The SFO
required demonstrated compliance by December 1993 and a historical
evaluation of the facility's PSD status. The company has submitted a
plant site PSD review to the state and is awaiting its review.
In August 1992, the EPA issued an administrative complaint for the
assessment of $215 thousand in civil penalties against the company's
Longview, Washington facility. The penalties are based upon alleged
violations of the record keeping and storage provisions of the
polychlorinated biphenyls (PCB) rules contained in the Toxic
Substances Control Act. The company and the EPA settled the complaint
for a maximum penalty of $118 thousand, 50% of which was paid when the
settlement was signed. Payment of the remaining 50% was deferred and
will be eliminated based on the expenditure of more than $118 thousand
by the company to dispose of PCB contaminated transformers.
On November 2, 1992, an action was filed against the company in the
Circuit Court for the First Judicial District of Hinds County,
Mississippi on behalf of a purported class of riparian property owners
in Mississippi and Alabama whose properties are located on the
Tennessee Tombigbee Waterway, Aliceville Lake, Cedar Creek and the
Magoway Creek. The complaint seeks $1 billion in compensatory and
punitive damages for diminution in property value, personal injuries
and mental anguish allegedly resulting from the discharge of purported
hazardous substances, including dioxins and furans, by the company's
pulp and paper mill in Columbus, Mississippi and the alleged
fraudulent concealments of such discharge. The complaint also seeks
an injunction prohibiting future releases and the removal of hazardous
substances allegedly released in the past. On August 20, 1993, a
companion action was filed in Green County, Alabama on behalf of a
similar purported class of riparian owners with essentially the same
claims as the Mississippi case. The action was removed to the Federal
District Court for the Northern District of Alabama, which
subsequently remanded the case to state court. Neither action is
presently scheduled for trial.
The company was sued in the United States District Court for the
District of Alaska by two corporations with which Weyerhaeuser had
entered into financing arrangements, a marketing agreement, and a
technical assistance agreement. The plaintiffs claimed that
Weyerhaeuser breached contractual and common law duties by allegedly
failing to adequately market and ship the plaintiffs' products,
misrepresenting its marketing and shipping capabilities, and acting to
further its interests at the plaintiffs' expense. The plaintiffs in
the First Amended Complaint, filed in May 1992, sought an unstated
amount of damages described as more than $50 million in compensatory
damages plus not less than $75 million in punitive damages. The claim
for punitive damages was dismissed by the trial court. In March 1994,
a jury returned a verdict against the company awarding damages of
$1.2 million. Both the company and the plaintiffs have appealed.
The company is also a party to various proceedings relating to the
clean-up of hazardous waste sites under the Comprehensive
Environmental Response Compensation and Liability Act, commonly known
as "Superfund," and similar state laws. The Environmental Protection
Agency and/or various state agencies have notified the company that it
may be a potentially responsible party with respect to other hazardous
waste sites as to which no proceedings have been instituted against
the company. The company is also a party to other legal proceedings
generally incidental to its business. Although the final outcome of
any legal proceeding is subject to a great many variables and cannot
be predicted with any degree of certainty, the company presently
believes that any ultimate outcome resulting from the legal
proceedings discussed herein, or all of them combined, would not have
a material effect on the company's current financial position,
liquidity or results of operations; however, in any given future
reporting period, such legal proceedings could have a material effect
on results of operations.
Item 6. Exhibits and Reports on Form 8-K
(a) Not applicable.
(b) The registrant has not filed a report on Form 8-K during the
fiscal quarter for which this report on Form 10-Q is filed.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-25-1994
<PERIOD-END> SEP-25-1994
<CASH> 63,756
<SECURITIES> 0
<RECEIVABLES> 1,007,655<F1>
<ALLOWANCES> 0
<INVENTORY> 745,075
<CURRENT-ASSETS> 1,967,414
<PP&E> 5,763,975<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,814,111
<CURRENT-LIABILITIES> 1,286,686
<BONDS> 5,106,042
<COMMON> 257,591
0
0
<OTHER-SE> 3,928,411
<TOTAL-LIABILITY-AND-EQUITY> 12,814,111
<SALES> 7,664,863
<TOTAL-REVENUES> 7,664,863
<CGS> 5,696,430
<TOTAL-COSTS> 5,696,430
<OTHER-EXPENSES> 508,715
<LOSS-PROVISION> 9,192
<INTEREST-EXPENSE> 206,023
<INCOME-PRETAX> 629,726
<INCOME-TAX> 229,900
<INCOME-CONTINUING> 399,826
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 399,826
<EPS-PRIMARY> 1.95
<EPS-DILUTED> 1.95
<FN>
<F1>Receivables are net of allowances.
<F2>PP&E is net of depreciation.
</FN>
</TABLE>
