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 29, 1996 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) Chicago Stock Exchange
New York Stock Exchange
Pacific Stock Exchange
Rights to Purchase Cumulative New York Stock Exchange
Preference Shares, 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, 1996 was 198,310,951 common shares ($1.25 par
value).
<PAGE>
Weyerhaeuser Company
- -2-
WEYERHAEUSER COMPANY AND SUBSIDIARIES
Index to Form 10-Q Filing
For the Thirty-nine Weeks Ended September 29, 1996
<TABLE>
<CAPTION>
Page No.
----------------
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statement of Earnings 3
Consolidated Balance Sheet 4-5
Consolidated Statement of Cash Flows 6-7
Notes to Financial Statements 9-15
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 16-20
Part II. Other Information
Item 1. Legal Proceedings 21-23
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 31, 1995. 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 29, 1996 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, 1996
<PAGE>
Weyerhaeuser Company
- -3-
WEYERHAEUSER COMPANY AND SUBSIDIARIES
____________
CONSOLIDATED EARNINGS
For the periods ended
September 29, 1996 and September 24, 1995
(Dollar amounts in millions except per share figures)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen weeks Thirty-nine
ended weeks ended
------------------- -------------------
Sept. 29, Sept. 24, Sept. 29, Sept. 24,
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales and revenues:
Weyerhaeuser $ 2,619 $ 2,820 $ 7,635 $ 8,107
Real estate and financial services 233 217 708 625
--------- --------- --------- ---------
Total net sales and revenues 2,852 3,037 8,343 8,732
--------- --------- --------- ---------
Costs and expenses:
Weyerhaeuser:
Costs of products sold 1,982 1,943 5,745 5,657
Depreciation, amortization
and fee stumpage 149 127 437 395
Selling, general and
administrative expenses 175 186 522 515
Research and development expenses 12 12 39 35
Taxes other than payroll and
income taxes 36 29 113 113
--------- --------- --------- ---------
2,354 2,297 6,856 6,715
--------- --------- --------- ---------
Real estate and financial services:
Costs and operating expenses 161 161 509 462
Depreciation and amortization 3 9 12 26
Selling, general and
administrative expenses 45 31 121 85
Taxes other than payroll and
income taxes 3 2 7 6
Charges for impairment of long-
lived assets (Note 1) -- 290 -- 290
--------- --------- --------- ---------
212 493 649 869
--------- --------- --------- ---------
Total costs and expenses 2,566 2,790 7,505 7,584
--------- --------- --------- ---------
Operating income 286 247 838 1,148
Interest expense and other:
Weyerhaeuser:
Interest expense incurred 69 71 206 201
Less interest capitalized 3 4 17 16
Other income (expense), net (17) (14) (41) (55)
Real estate and financial services:
Interest expense incurred 32 38 101 107
Less interest capitalized 15 20 49 57
Other income (expense), net 1 1 14 5
--------- --------- --------- ---------
Earnings before income taxes 187 149 570 863
Income taxes (Note 2) 67 54 205 315
--------- --------- --------- ---------
Net earnings $ 120 $ 95 $ 365 $ 548
========= ========= ========= =========
Per common share (Note 1):
Net earnings $ .60 $ .47 $ 1.84 $ 2.68
========= ========= ========= =========
Dividends paid $ .40 $ .40 $ 1.20 $ 1.10
========= ========= ========= =========
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
Weyerhaeuser Company
- -4-
WEYERHAEUSER COMPANY AND SUBSIDIARIES
____________
CONSOLIDATED BALANCE SHEET
September 29, 1996 and December 31, 1995
(Dollar amounts in millions)
<TABLE>
<CAPTION>
Sept. 29 Dec. 31,
1996 1995
----------- ---------
(Unaudited)
<S> <C> <C>
Assets
- ------
Weyerhaeuser
Current assets:
Cash and short-term investments (Note 1) $ 45 $ 34
Receivables, less allowances 981 976
Inventories (Note 3) 947 960
Prepaid expenses 290 265
--------- ---------
Total current assets 2,263 2,235
Property and equipment (Note 4) 6,585 6,717
Construction in progress 727 509
Timber and timberlands at cost, less fee
stumpage charged to disposals 1,102 666
Other assets and deferred charges 245 232
--------- ---------
10,922 10,359
--------- ---------
Real estate and financial services
Cash and short-term investments,
including restricted deposits 38 50
Receivables, less discounts and allowances 93 92
Mortgage notes held for sale 438 332
Mortgage loans receivable 161 155
Investments 52 70
Mortgage-backed certificates and
other pledged financial instruments 172 185
Real estate in process of development and for sale,
less reserves 711 776
Land being processed for development,
less reserves 680 688
Deferred acquisition costs 10 84
Investments in and advances to joint ventures
and limited partnerships, less reserves 115 113
Rental properties, less accumulated depreciation 166 184
Other assets 121 165
--------- ---------
2,757 2,894
--------- ---------
Total assets $ 13,679 $ 13,253
========= =========
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
Weyerhaeuser Company
- -5-
<TABLE>
<CAPTION>
Sept. 29, Dec. 31,
1996 1995
----------- ---------
(Unaudited)
<S> <C> <C>
Liabilities and shareholders' interest
- --------------------------------------
Weyerhaeuser
Current liabilities:
Notes payable $ 9 $ 24
Current maturities of long-term debt 80 125
Accounts payable (Note 1) 685 747
Accrued liabilities (Note 5) 607 707
--------- ---------
Total current liabilities 1,381 1,603
Long-term debt (Note 7) 3,661 2,983
Deferred income taxes 1,285 1,196
Deferred pension and other liabilities 467 509
Minority interest in subsidiaries 112 111
Commitments and contingencies (Note 9) -- --
--------- ---------
6,906 6,402
--------- ---------
Real estate and financial services
Notes payable and commercial paper 229 338
Collateralized mortgage obligation bonds 140 159
Long-term debt (Note 7) 1,558 1,594
Other liabilities 258 274
Commitments and contingencies (Note 9) -- --
--------- ---------
2,185 2,365
--------- ---------
Total liabilities 9,091 8,767
Shareholders' interest (Note 8)
Common shares: authorized 400,000,000 shares,
issued 206,072,890 shares, $1.25 par value 258 258
Other capital 408 415
Cumulative translation adjustment (89) (90)
Retained earnings 4,353 4,226
Treasury common shares, at cost:
7,783,876 and 7,302,878 (342) (323)
--------- ---------
Total shareholders' interest 4,588 4,486
--------- ---------
Total liabilities and shareholders' interest $ 13,679 $ 13,253
========= =========
</TABLE>
<PAGE>
Weyerhaeuser Company
- -6-
WEYERHAEUSER COMPANY AND SUBSIDIARIES
____________
CONSOLIDATED STATEMENT OF CASH FLOWS
For the thirty-nine week periods ended September 29, 1996
and September 24, 1995
(Dollar amounts in millions)
(Unaudited)
<TABLE>
<CAPTION>
Consolidated
-------------------
Sept. 29, Sept. 24,
1996 1995
--------- ---------
<S> <C> <C>
Cash flows provided by operations:
Net earnings $ 365 $ 548
Non-cash charges to income:
Depreciation, amortization and fee stumpage 449 421
Deferred income taxes, net 125 90
Changes in working capital:
Accounts receivable (6) (150)
Inventories, prepaid expenses, real estate and land 95 (170)
Mortgage notes held for sale and mortgage loans
receivable (107) (145)
Other liabilities (206) (79)
(Gain) loss on disposition of assets 7 17
Charges for impairment of long-lived assets -- 290
Other (21) 24
--------- ---------
Net cash provided by operations 701 846
--------- ---------
Cash flows from investing in the business:
Property and equipment (548) (588)
Timber and timberlands (34) (49)
Property and equipment and timber and timberlands
from acquisitions (448) --
Mortgage and investment securities acquired (5) (20)
Proceeds from sale of:
Property and equipment (Note 10) 64 15
Mortgage and investment securities 111 197
Other (34) (4)
--------- ---------
Net cash flows from investing in the business (894) (449)
--------- ---------
Cash flows from financing activities:
Sale of debentures, notes and CMO bonds 8 611
Sale of industrial revenue bonds 33 100
Notes and commercial paper borrowings, net 765 (210)
Cash dividends on common shares (238) (225)
Payments on debentures, notes, bank credit agreements,
income debenture, capital leases, industrial revenue
bonds and CMO bonds (350) (535)
Purchase of treasury common shares (45) (188)
Exercise of stock options 19 17
Other -- (3)
--------- ---------
Net cash flows from financing activities 192 (433)
--------- ---------
Net increase (decrease) in cash and short-term investments (1) (36)
Cash and short-term investments at beginning of year 84 263
--------- ---------
Cash and short-term investments at end of period $ 83 $ 227
========= =========
Cash paid (received) during the period for:
Interest, net of amount capitalized $ 279 $ 252
========= =========
Income taxes $ 137 $ 171
========= =========
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
Weyerhaeuser Company
- -7-
<TABLE>
<CAPTION>
Real Estate and
Weyerhaeuser Financial Services
- -------------------- --------------------
Sept. 29, Sept. 24, Sept. 29, Sept. 24,
1996 1995 1996 1995
- --------- --------- --------- ---------
<C> <C> <C> <C>
$ 353 $ 740 $ 12 $ (192)
437 395 12 26
89 187 36 (97)
(4) (167) (2) 17
14 (134) 81 (36)
-- -- (107) (145)
(209) (95) 3 16
10 17 (3) --
-- -- -- 290
(8) 21 (13) 3
- --------- --------- --------- ---------
682 964 19 (118)
- --------- --------- --------- ---------
(541) (577) (7) (11)
(34) (49) -- --
(448) -- -- --
-- -- (5) (20)
53 15 11 --
-- -- 111 197
(53) (41) 19 37
- --------- --------- --------- ---------
(1,023) (652) 129 203
- --------- --------- --------- ---------
8 566 -- 45
33 100 -- --
753 (411) 12 201
(238) (225) -- --
(178) (176) (172) (359)
(45) (188) -- --
19 17 -- --
-- (3) -- --
- --------- --------- --------- ---------
352 (320) (160) (113)
- --------- --------- --------- ---------
11 (8) (12) (28)
34 190 50 73
- --------- --------- --------- ---------
$ 45 $ 182 $ 38 $ 45
========= ========= ========= =========
$ 229 $ 204 $ 50 $ 48
========= ========= ========= =========
$ 154 $ 186 $ (17) $ (15)
========= ========= ========= =========
</TABLE>
<PAGE>
Weyerhaeuser Company
- -8-
This page intentionally left blank.
<PAGE>
Weyerhaeuser Company
- -9-
WEYERHAEUSER COMPANY AND SUBSIDIARIES
____________
NOTES TO FINANCIAL STATEMENTS
For the thirty-nine week periods ended September 29, 1996 and September 24, 1995
Note 1: Summary of Significant Accounting 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 subsidiary is Weyerhaeuser Mortgage Company (WMC).
Nature of Operations
The company's principal business segments, which account for the
majority of sales, earnings and the asset base, are:
. Timberlands and wood products, which is engaged in the management
of 5.5 million acres of company-owned forestland in the United
States and 18.9 million acres of forestland in Canada under long-
term licensing arrangements and the production of a full line of
solid wood products that are sold primarily through the company's
own sales organizations to wholesalers, retailers and industrial
users in North America, the Pacific Rim and Europe.
. Pulp, paper and packaging, which manufactures and sells pulp,
newsprint, paper, paperboard and containerboard in North American,
Pacific Rim and European markets, and packaging products for the
domestic markets, and which operates an extensive wastepaper
recycling system that serves company mills and worldwide markets.
Accounting Pronouncements Implemented
In 1995 first quarter, the company implemented Statement of Financial
Accounting Standards (SFAS) No. 114, "Accounting by Creditors for
Impairment of a Loan," which requires creditors to measure impairment
based on the present value of expected future cash flows discounted at
the loan's effective interest rate, and SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan--Income Recognition and Disclosures,"
which amended SFAS No. 114 to allow creditors to use existing methods
for recognizing interest on impaired loans and also requires creditors
to disclose certain information about how interest income was recognized
on impaired loans. The adoption of these pronouncements did not have a
significant impact on results of operations or financial position.
In 1995 third quarter, the company implemented SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," which requires companies to change their
method of valuing long-lived assets. The company's decision to
accelerate the disposition of certain real estate assets previously
held for development and use along with the implementation of this
pronouncement resulted in a $290 million charge to operations in the
third quarter of 1995. The majority of the charge was a direct result
of the company's decision to accelerate the disposition of those
assets. The remainder of the charge resulted from the application of
those provisions of SFAS No. 121 relating to the valuation of assets
held for future use where estimated undiscounted future cash flows
from those assets did not exceed the carrying value of those assets.
The company's evaluation of each asset first considered the
availability of appraisal information, then comparable sales
information, and finally discounted estimated cash flows. Because
appraisal information was very limited for the assets evaluated, the
majority of the assets were valued based upon comparable sales data or
discounted estimated cash flows. The discount rate considered applicable
market conditions and risks associated with each asset. In those cases
where a discount rate was used, it was 20%. Subsequent sales have
demonstrated that the valuation assumptions used were reasonable.
The company is continuing with its original plans to dispose of most
of the affected assets over a two-year period. The carrying value
of the affected assets at September 29, 1996 and December 31, 1995
was approximately $158 million and $291 million, respectively.
<PAGE>
Weyerhaeuser Company
- -10-
Prospective Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board (FASB)
issued SFAS No. 123, "Accounting for Stock-Based Compensation," which
requires companies to change what they disclose about their employee
stock-based compensation plans, recommends that they change the
accounting for these plans to a fair-value based method and requires
those companies that do not change their accounting to disclose what
their earnings and earnings per share would have been if they had
changed. This disclosure is applicable for financial statements for
fiscal years beginning after December 15, 1995. The company will
continue to account for these plans using the method of accounting
prescribed by Accounting Principles Board Opinion No. 25 and will
conform to the disclosure requirements of SFAS No. 123 for the fiscal
year 1996.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities,"
to provide accounting and reporting guidance for transfers and
servicing of financial assets and extinguishments of liabilities. The
statement uses the "financial-components approach" in which, after
a transfer of financial assets, an entity would recognize all financial
assets and services it controls and all liabilities it has incurred
and remove financial assets and liabilities from the balance sheet when
control is surrendered or when they are extinguished, respectively. It
is to be applied to transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1996. This
statement supersedes several previous statements, including No. 122,
"Accounting for Mortgage Servicing Rights--an Amendment of FASB
Statement No. 65," which the company had implemented in 1995. The
company believes that the future adoption of this statement will not
have a significant impact on results of operations or financial position.
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 198,319,551 and 204,508,087 at
September 29, 1996 and September 24, 1995, respectively.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Derivatives
The company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used
to manage well-defined interest rate and foreign exchange risks.
These include:
. Foreign exchange contracts, which are hedges for foreign
denominated accounts receivable and payable, have gains or losses
recognized at settlement date.
. Interest rate swaps entered into with major banks or financial
institutions in which the company pays a fixed rate and receives a
floating rate with the interest payments being calculated on a
notional amount. The premiums received by the company on the sale
of these swaps are treated as deferred income and amortized
against interest expense over the term of the agreements.
. Hedging transactions entered into by the company's mortgage
banking subsidiary to protect both the completed loan inventory
and loans in process against changes in interest rates. The
financial instruments used to manage interest rate risk are
forward sales commitments, interest rate futures and options.
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 company is exposed to credit-related losses in the event of
nonperformance by counterparties to financial instruments but does not
expect any counterparties to fail to meet their obligations. The
company deals only with highly rated counterparties.
<PAGE>
Weyerhaeuser Company
- -11-
The notional amounts of these derivative financial instruments are
$1.0 billion and $.9 billion at September 29, 1996 and December 31,
1995, respectively. These notional amounts do not represent amounts
exchanged by the parties and thus are not a measure of exposure to the
company through its use of derivatives. The exposure in a derivative
contract is the net difference between what each party is required to
pay based on the contractual terms against the notional amount of the
contract, such as interest rates or exchange rates. The use of
derivatives does not have a significant effect on the company's
results of operations or its financial position.
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.
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. LIFO inventories were
$284 million and $305 million at September 29, 1996 and December 31, 1995,
respectively. The balance of domestic raw material and product
inventories, all materials and supplies inventories, and all foreign
inventories are costed at either the first-in, first-out (FIFO) or
moving average cost methods.
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 method
at rates based on estimated service lives. Amortization of logging
railroads and truck 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
the gain or loss is included in earnings.
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. Depletion rates used to relieve timber
inventory are determined with reference to the net carrying value of
timber and the related volume of timber estimated to be recoverable.
Timber carrying costs are expensed as incurred. The cost of timber
harvested is included in the carrying values of raw material and
product inventories, and in the cost of products sold as these
inventories are disposed of.
Accounts Payable
The company's banking system provides for the daily replenishment of
major bank accounts as checks are presented. Accordingly, there were
negative book cash balances of $161 million and $149 million at
September 29, 1996 and December 31, 1995, respectively. Such balances
result from outstanding checks that had not yet been paid by the bank
and are reflected in accounts payable in the consolidated balance sheets.
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
<PAGE>
Weyerhaeuser Company
- -12-
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.
Reclassifications
Certain reclassifications have been made to conform prior years' data
to the current format.
Weyerhaeuser Real Estate Company
Real estate held for sale is stated at the lower of cost or fair
fair value. The determination of fair value is based on appraisals
and market pricing of comparable assets when available, or the
discounted value of estimated future cash flows from these assets.
Real estate held for development is stated at cost to the extent
it does not exceed the estimated undiscounted future net cash flows.
Prior to its implementation of SFAS No. 121, the company recorded its
inventory, assets held for development and for sale, at the lower of cost
or net realizable value. Net realizable value was determined based upon
the estimated selling price in the ordinary course of business less
estimated costs of completion to include holding costs during
construction and costs of disposal. If carrying cost exceeded net
realizable value, a valuation allowance was provided.
Weyerhaeuser Financial Services
The company's financial services businesses are engaged in the
mortgage banking industry, hold mortgage-backed certificates and other
financial instruments pledged as collateral for collateralized
mortgage obligation (CMO) bonds, and also offer insurance services.
The company's mortgage banking business was servicing mortgage loans
which had an aggregate principal balance of approximately $4.5 billion
at September 29, 1996.
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).
Mortgage-backed certificates are carried at par value adjusted for any
unamortized discount or premium. Management's intent is to hold these
certificates until maturity.
CMO bonds are carried at unamortized cost. Discounts and premiums are
amortized using a method that approximates the effective interest
method over their estimated lives.
<PAGE>
Weyerhaeuser Company
- -13-
Note 2: Income Taxes
<TABLE>
<CAPTION>
Provisions for income taxes include the following: Thirty-nine Weeks Ended
-----------------------
Sept. 29, Sept. 24,
Dollar amounts in millions 1996 1995
--------- ---------
<S> <C> <C>
Federal:
Current $ 42 $ 114
Deferred 124 74
--------- ---------
166 188
--------- ---------
State:
Current 6 21
Deferred 7 6
--------- ---------
13 27
--------- ---------
Foreign:
Current 32 90
Deferred (6) 10
--------- ---------
26 100
--------- ---------
Total $ 205 $ 315
========= =========
</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 periods ended September 29, 1996 and September 24, 1995, the
company's provision for income taxes as a percent of earnings before
income taxes is greater than the 35% federal statutory rate due
principally to the effect of state income taxes. The effective tax rates
for the thirty-nine week periods ended September 29, 1996 and
September 24, 1995 are 36.0% and 36.5%, respectively.
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.
Note 3: Inventories
<TABLE>
<CAPTION>
Sept. 29, Dec. 31,
Dollar amounts in millions 1996 1995
--------- ---------
<S> <C> <C>
Logs and chips $ 92 $ 173
Lumber, plywood and panels 138 135
Pulp, newsprint and paper 210 158
Containerboard, paperboard and packaging 101 107
Other products 122 117
Materials and supplies 284 270
--------- ---------
$ 947 $ 960
========= =========
</TABLE>
<PAGE>
Weyerhaeuser Company
- -14-
Note 4: Property and Equipment
<TABLE>
<CAPTION>
Sept. 29, Dec. 31,
Dollar amounts in millions 1996 1995
--------- ---------
<S> <C> <C>
Property and equipment, at cost:
Land $ 163 $ 167
Buildings and improvements 1,604 1,582
Machinery and equipment 9,325 9,253
Rail and truck roads and other 602 615
--------- ---------
11,694 11,617
Less allowance for depreciation
and amortization 5,109 4,900
--------- ---------
$ 6,585 $ 6,717
========= =========
</TABLE>
Note 5: Accrued Liabilities
<TABLE>
<CAPTION>
Sept. 29, Dec. 31,
Dollar amounts in millions 1996 1995
--------- ---------
<S> <C> <C>
Payroll - wages and salaries, incentive awards,
retirement and vacation pay $ 232 $ 265
Taxes - social security and real
and personal property 68 50
Interest 42 82
Accrued income taxes 79 117
Other 186 193
--------- ---------
$ 607 $ 707
========= =========
</TABLE>
Note 6: Short-Term Debt
The company has short-term bank credit lines that provide for
borrowings of up to the total amount of $375 million and $725 million,
all of which could be availed of by the company, WRECO and WMC at
at September 29, 1996 and December 31, 1995, respectively. No portion of
these lines has been availed of by the company, WRECO or WMC at
September 29, 1996 and December 31, 1995. None of the entities
referred to herein is a guarantor of the borrowings of the others. WMC
has short-term special credit lines that provide for borrowings of up to
$230 million at September 29, 1996 and December 31, 1995. Borrowings
against these lines were $61 million and $115 million as of September 29,
1996 and December 31, 1995, respectively.
Note 7: Long-Term Debt
At September 29, 1996 and December 31, 1995, 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 that
provides for borrowings of up to the total amount of $1.55 billion,
all of which can be availed of by the company, and $1 billion, 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. No
portion of this line has been availed of by the company or WMC at
September 29, 1996 or December 31, 1995.
WMC entered into an evergreen credit commitment in 1990. At
September 29, 1996, no portion of this commitment was availed of by WMC,
while at December 31, 1995, WMC had $35 million outstanding.
WMC has a revolving credit agreement with a bank to provide for:
(1) borrowings of up to $35 million for two 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 note
as of July 1, 1998, to a five-year term loan payable in equal quarterly
<PAGE>
Weyerhaeuser Company
- -15-
installments. At September 29, 1996, no funds were drawn by WMC under
this agreement, while at December 31, 1995, WMC had $20 million
outstanding.
WFS entered into a credit facility agreement in 1992, which was
subsequently amended in May 1994 and provides for: (1) borrowings of up
to $450 million and $525 million at September 29, 1996 and at
December 31, 1995 at LIBOR or other such rates as may be agreed upon by
WFS and the banks; and (2) a commitment fee on the unused portion of the
credit facility. $375 million and $450 million were outstanding under
this facility at September 29, 1996 and December 31, 1995, 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>
Sept. 29, Dec. 31,
Dollar amounts in millions 1996 1995
--------- ---------
<S> <C> <C>
Weyerhaeuser $ 1,006 $ 252
Real estate and financial services 378 263
</TABLE>
<TABLE>
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.
Note 8: Shareholders' Interest
Common shares reserved for stock option plans were 6,302,177 shares at
September 29, 1996 and 5,972,195 shares at December 31, 1995.
Note 9: Commitments and Contingencies
The company's capital expenditures, excluding acquisitions, have
averaged $869 million in recent years, but are expected to be
approximately $900 million in 1996; however, the 1996 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 10: Proceeds From Sale of Property and Equipment
During the quarter, the company sold its Klamath Falls, Oregon hardboard,
particleboard, and plywood manufacturing operations; 600,000 acres of
predominantly pine timberlands; and its nursery and seed orchard
facilities. The gain on this transaction was not material to the
company's pre-tax income. Proceeds from the sale of the property and
equipment in this transaction amounted to $33 million. The timberlands
portion of this transaction involved a like-kind exchange for other
timberlands, primarily the remaining 50 percent of private commercial
timberlands in southeastern Louisiana and southern Mississippi previously
owned by Cavenham Forest Industries. The first phase of that transaction
took place in the second quarter.
<PAGE>
Weyerhaeuser Company
- -16-
WEYERHAEUSER COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Net sales and revenues and earnings before interest expense and income
taxes by segment are:
Thirteen Weeks Ended Thirty-nine Weeks Ended
--------------------- -----------------------
Sept. 29, Sept. 24, Sept. 29, Sept. 24,
Dollar amounts in millions 1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales and revenues:
Timberlands and wood products $ 1,437 $ 1,263 $ 3,921 $ 3,721
Pulp, paper and packaging 1,130 1,497 3,548 4,197
Real estate 177 169 555 488
Financial services 56 48 153 137
Corporate and other 52 60 166 189
--------- --------- --------- ---------
$ 2,852 $ 3,037 $ 8,343 $ 8,732
========= ========= ========= =========
Earnings before interest expense
and income taxes:
Timberlands and wood products $ 210 $ 196 $ 579 $ 625
Pulp, paper and packaging 79 364 276 877
Real estate (1) 4 (236) 13 (239)
Financial services (1) (2) 1 (57) 8 (50)
Corporate and other (41) (51) (117) (165)
--------- --------- --------- ---------
$ 253 $ 216 $ 759 $ 1,048
========= ========= ========= =========
</TABLE>
(1) 1995 third quarter and year-to-date results include pre-tax charges
of $232 million and $58 million for real estate and financial
services, respectively, to dispose of certain real estate assets.
(2) Includes net interest expense of $17 million and $18 millions for
for thirteen weeks and $52 million and $50 million for thirty-nine
weeks related to the financial services businesses.
Consolidated Results
Net earnings for the 1996 third quarter were $120 million, or 60 cents
per common share compared with $95 million, or 47 cents per common share
in the 1995 third quarter.
The third quarter results reflected strong lumber prices in both domestic
and Japanese markets and improving pulp prices. The higher volumes and
lower operating costs helped offset continuing weak pricing in paper and
packaging products.
The previous year's earnings were impacted by an after-tax charge of
$184 million, or 90 cents per common share. The company's decision to
accelerate the disposition of certain real estate assets previously held
for development and use, along with the implementation of Statement
of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," resulted in the charge to operations. The majority of the charge
was a direct result of the company's decision to accelerate disposition
of those assets in the 1995 third quarter. The remainder of the charge
resulted from the application of those provisions of SFAS No. 121
relating to the valuation of assets held for future use where estimated
undiscounted future cash flows from those assets did not exceed the
carrying value of those assets.
<PAGE>
Weyerhaeuser Company
- -17-
Consolidated net sales and revenues in the current quarter were
$2.9 billion, down 6 percent from the $3 billion recorded for the
comparable quarter of 1995. This variance is the net of: (1) a sales
decrease of $370 million in the pulp, paper and packaging segment, with
material unfavorable price variances in pulp, corrugated shipping
containers, paper and recycled products offset by favorable volume
variances in the packaging business due to the acquisition of nine
facilities in late 1995, and in the recycling business which added nine
centers in 1995; (2) a sales increase of $200 million in the timberlands
and wood products segment where lumber registered favorable price
variances along with some volume increases in lumber, plywood, and
composite panels.
Net income through thirty-nine weeks was $365 million, or $1.84 per
common share compared to $548 million, or $2.68 per common share in the
same period of 1995. Net sales and revenues year-to-date were $8.3
billion, which is down 4 percent from the $8.7 billion recorded in 1995.
Timberlands and Wood Products
Operating earnings for the quarter in the timberlands and wood
products segment were $210 million, an increase of 7 percent over the
$196 million reported in the 1995 third quarter. Principal drivers in
this increase were improved operating efficiencies, higher lumber prices,
and increased shipment volumes in lumber and oriented strand board.
Third party sales and total production volumes for the major products in
this segment for the thirteen weeks and thirty-nine weeks ended
September 29, 1996 and September 24, 1995, respectively, are as follows:
<TABLE>
<CAPTION>
Thirteen Weeks Thirty-nine Weeks
Ended Ended
------------------- -------------------
Sept. 29, Sept. 24, Sept. 29, Sept. 24,
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Third party sales volumes (millions):
Raw materials--cubic feet 145 129 423 397
Softwood lumber--board feet 1,327 1,238 3,574 3,394
Softwood plywood and
veneer--square feet (3/8") 590 606 1,664 1,734
Composite panels--square feet (3/4") 147 173 471 478
Oriented strand board--
square feet (3/8") 549 511 1,544 1,458
Hardboard--square feet (7/16") 48 55 155 144
Hardwood lumber--board feet 83 69 264 203
Engineered wood products--lineal feet 34 41 88 100
Hardwood doors (thousands) 179 155 493 485
Total production volumes (millions):
Logs--cubic feet 233 225 681 676
Softwood lumber--board feet 955 835 2,770 2,586
Softwood plywood and
veneer--square feet (3/8") 318 320 964 949
Composite panels--square feet (3/4") 123 149 415 429
Oriented strand board--
square feet (3/8") 452 408 1,297 1,221
Hardboard--square feet (7/16") 20 31 86 92
Hardwood lumber--board feet 78 67 251 191
Hardwood doors (thousands) 173 161 485 485
</TABLE>
<PAGE>
Weyerhaeuser Company
- -18-
Pulp, Paper and Packaging
The pulp, paper and packaging segment operating earnings this quarter
were $79 million, significantly lower than the $364 million earned in the
comparable quarter last year, but an improvement over the $35 million
reported in 1996 second quarter. The decline in profitability from
the previous year is attributed to lower pricing across all product lines
in the segment, somewhat tempered by ongoing efficiencies and cost
containment, and the increased packaging and recycling volume from the
acquired plants.
Third party sales and total production volumes for the major products in
this segment for the thirteen weeks and thirty-nine weeks ended
September 29, 1996 and September 24, 1995, respectively, are as follows:
<TABLE>
<CAPTION>
Thirteen Weeks Thirty-nine Weeks
Ended Ended
------------------- -------------------
Sept. 29, Sept. 24, Sept. 29, Sept. 24,
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Third party sales volumes (thousands):
Pulp--air-dry metric tons 479 536 1,404 1,559
Newsprint--metric tons 150 163 454 493
Paper--tons 248 242 740 761
Paperboard--tons 58 55 160 171
Containerboard--tons 108 58 255 192
Packaging--MSF 10,905 8,471 31,793 25,157
Recycling--tons 514 390 1,473 1,009
Total production volumes (thousands):
Pulp--air-dry metric tons 549 561 1,510 1,607
Newsprint--metric tons 165 165 460 499
Paper--tons 262 259 763 784
Paperboard--tons 55 53 156 170
Containerboard--tons 597 598 1,759 1,794
Packaging--MSF 11,498 8,840 33,444 26,377
Recycling--tons 884 683 2,567 1,921
</TABLE>
Real Estate and Financial Services
The company's real estate and financial services segments earned a
combined $5 million during the current quarter compared to a loss of
$293 million in the same period a year ago. The 1995 loss included a
$290 million charge to operations. The majority of the charge was a
direct result of the company's decision to accelerate the disposition of
certain real estate assets previously held for development and use. The
remainder of the charge resulted from the application of those provisions
of SFAS No. 121 relating to the valuation of assets held for future use
where estimated undiscounted future cash flows from those assets did not
exceed the carrying value of those assets.
Costs and Expenses
There were no material differences in Weyerhaeuser's costs and expenses
or interest expense incurred from the third quarter of 1995 to 1996.
Weyerhaeuser's cost of products sold, as a percentage of sales, rose to
76 percent in the current quarter compared to 69 percent in the same
quarter last year which was a result of the dramatic increase in pulp,
paper and packaging pricing in 1995. This has started to correct itself
in the current business cycle.
Inventories continue to come down from their cyclical high at the end of
the first quarter of 1996, and turnover rates are lower than those
experienced in the peak of the 1995 pulp, paper and packaging segment
business cycle.
The significant difference in costs and expenses for the real estate and
financial services segments between the two periods was the revaluation
of real estate assets in 1995 described above. Selling, general and
administrative expenses increased in both the current quarter and year
to date, compared to the previous year, as a result of the company's
mortgage banking business opening additional branch offices during 1996.
Other income (expense) 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 for the
thirteen and thirty-nine week periods ended September 29, 1996 and
September 24, 1995 was significant in relation to operating earnings.
<PAGE>
Weyerhaeuser Company
- -19-
Liquidity and Capital Resources
General
Earnings before interest expense and income taxes plus non-cash charges
for the thirty-nine week periods ended September 29, 1996 and
September 24, 1995 were $741 million and $769 million, respectively, for
the timberlands and wood products segment, and $535 million and $1.1
billion, respectively, for the pulp, paper and packaging segment.
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.
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.
Operations
On a consolidated basis, net cash provided by operations in the thirty-
nine week period of 1996 was $701 million compared to $846 million in
the same period of 1995. Net earnings provided by Weyerhaeuser were
$353 million, down $387 million from the $740 million provided in the
same period a year ago due primarily to the decline of prices in the
pulp, paper and packaging markets in the current year.
The real estate and financial services segments provided $12 million
from net earnings in 1996 compared to a net loss of $192 million in 1995.
The 1995 net loss included a $184 million after-tax charge to
operations as a result of the company's decision to accelerate the
disposition of certain real estate assets previously held for
development and use and the application of those provisions of
SFAS No. 121 relating to the valuation of assets held for future use
where estimated undiscounted future cash flows from those assets did not
exceed the carrying value of those assets. This 1995 charge included
in net earnings and a related $93 million use of funds in deferred taxes
are offset by the $290 million charge as a non-cash source of funds.
1996 year-to-date shows minimal change in accounts receivable and
inventories compared to 1995 year-to-date, where significant increases
were the result of strong pulp, paper and packaging markets. The
increase in use of funds for other liabilities in 1996 over 1995 is
related, primarily, to reductions in payroll, interest and taxes payable.
Investing
Capital expenditures for 1996 year-to-date were $582 million,
excluding acquisitions, compared to $637 million in the same period last
year. Acquisitions of timber and timberlands and two sawmills in the
southern U.S. totaled $448 million in the first three quarters of 1996.
The 1996 spending by segment, excluding acquisitions was: $288 million
for timberlands and wood products; $263 million for pulp, paper and
packaging; and $31 million for other segments. The company currently
anticipates capital expenditures, excluding acquisitions, to approximate
$900 million for the year. However, this expenditure level could
increase or decrease as a consequence of future economic conditions.
Proceeds from the sale of the property and equipment include $33
million received for production facilities and logging equipment in the
sale of the company's Klamath Falls manufacturing and timberlands
operations. The timberlands portion of this transaction involved
like-kind exchanges of other timberlands as described in Note 10 of the
Notes to Financial Statements included in this filing.
<PAGE>
Weyerhaeuser Company
- -20-
The company's financial services segment provided $111 million during
1996 from the sale of capitalized servicing rights and adjustable rate
mortgages compared to $197 million due principally to the sale of
adjustable rate mortgages in the same period of 1995.
The cash needed to meet these and other company needs was generated from
internal cash flow and short-term borrowing.
Financing
During the first three quarters of 1996, the company paid $238 million in
cash dividends compared to $225 million in the prior year. The increase
from year to year is attributable to the quarterly dividend rate being
raised from 30 cents to 40 cents effective with the second quarter of
1995, resulting in an annualized rate of $1.60 per common share.
The company repurchased $45 million of common shares in the first three
quarters of 1996 as a part of the 10 million share repurchase program,
which commenced in the second quarter of 1995, bringing the total
acquired to 9.6 million shares at September 29, 1996. The company's
board of directors has authorized an increase of one million shares in
the share repurchase program to 11 million shares to offset shares
issued in conjunction with a recent acquisition.
Weyerhaeuser's long-term debt as a percentage of shareholders' equity
increased in 1996 compared to 1995, due principally to acquisition
activity, with a significant part of it used to fund the acquisition of
southern timberlands, two sawmills and related working capital.
Commercial paper borrowings, which ar e classified as long-term debt,
increased by $753 million in 1996. This increase less debt payments of
$178 million, principally medium term notes and a fixed rate note,
accounts for the increase of $633 million in long-term debt at
September 29, 1996. The 1995 sales of debentures and industrial
revenue bonds and related payments on debentures and other debt and a
reduction in commercial paper were a result of replacing maturing and
higher cost debt, on an accelerated basis, with lower priced
instruments.
The combined real estate and financial services segments used funds
provided by the sale of some commercial real estate properties,
impaired assets, capitalized servicing rights and adjustable rate
mortgages to reduce commercial paper and long-term debt by $160 million
in the first nine months of 1996. In the same period of 1995, these
segments increased commercial paper and other borrowings and sold
mortgage and investment securities to finance construction activity,
fund mortgage loan originations, and pay down higher cost long-term debt.
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
- -21-
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 and received a tax refund of approximately $10 million,
plus statutory interest. In September 1994, the United States Court of
Federal Claims issued an opinion on the casualty loss issues which will
result in the allowance of additional tax refunds of approximately $2
million, plus statutory interest. Both the company and the government
appealed the decision. On August 2, 1996, the Court of Appeals for the
Federal Circuit issued its opinion on the remaining timber casualty loss
issues, ruling in favor of the company on both the company's appeal
and the government's appeal. The government did not seek a rehearing of
the decision, but has requested an extension of the time to request
review by the United States Supreme Court.
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. The remaining defendant provided
first layer excess coverage during a three year period. That defendant's
liability on groups of sites is being tried in phases. Two trials against
the remaining defendant, affecting nine sites, began in October 1994 and
February 1996 and resulted in verdicts assigning 100 percent clean-up
responsibility to the defendant on three sites, partial responsibility on
three others and a finding of no liability as to the remaining three.
The trial court has ruled that the primary policy has been exhausted and
imposed an obligation on the remaining defendant to provide a defense on
one of the sites, a ruling that may be expanded to include other sites.
Trial for the remaining 16 sites has been set for June 1997.
The company received from the Lane County, Oregon Regional Air
Pollution Control Authority (LRAPA) a draft Notice of Violation which
seeks penalties for alleged Prevention of Significant Deterioration (PSD)
violations at the company's Springfield, Oregon, particleboard operations.
LRAPA informed the company in July 1995 that it will withdraw its draft
Notice of Violation (NOV) and will not seek fines or penalties. On
September 15, 1995, however, LRAPA issued a revised draft NOV (the
Revised Draft NOV), which alleged that the Springfield particleboard
facility had violated a condition of its Air Contaminant Discharge Permit
(ACDP). The allegations in the Revised Draft NOV are based upon the same
facts and circumstances relied upon by LRAPA in the prior draft NOV. The
company has contested LRAPA's issuance of the Revised Draft NOV. On
June 18, 1996, the company and LRAPA entered into a Stipulated Final
Order (SFO) to resolve all past and ongoing alleged PSD issues, contested
matters and alleged violations associated with extended hours of
operation at the Springfield particleboard facility. In exchange for a
full resolution of all past and ongoing contested matters, the company
agreed to pay a total civil penalty of $19.5 thousand, of which $7.5
thousand was paid directly to LRAPA. The remaining $12 thousand civil
penalty was suspended. The company also agreed to implement a
Supplemental Environmental Project (SEP) consisting of the funding of
the preparation of a nitrogen oxides (NOx) emission inventory for Lane
County. The emission inventory will be conducted by an outside
environmental consultant at a cost not to exceed $40 thousand.
The company conducted a review of its 10 pulp and paper facilities to
evaluate the facilities' compliance with federal PSD regulations. The
results of the reviews were disclosed to seven state agencies and the
Environmental Protection Agency (EPA) during 1994 and 1995. At the
Cosmopolis, Washington, Columbus, Mississippi, and Flint River, Georgia,
facilities, the state regulatory agencies agreed with the company's
conclusions regarding the status of each facility. For the Cosmopolis
facility, the Washington Department of Ecology agreed the changes made at
the facility did not require PSD review. For the Columbus and Flint
River facilities, the states concluded the original PSD permits issued to
the facilities require updating. The company will update emissions data
for the Columbus and Flint River facilities as part of the Title V
permitting process. No penalties were assessed for the issues identified
at Columbus and Flint River. Agreements resolving the alleged PSD issues
have been reached with the states of Washington, Oklahoma and North
Carolina, as noted below. No issues were identified at the company's
Rothschild, Wisconsin, facility. In April 1995, EPA Region X issued a
NOV to the company and to North Pacific Paper Corporation (NORPAC), a
joint venture in which the company has an 80 percent ownership interest.
The NOV addresses alleged PSD violations at NORPAC's Longview, Washington,
newsprint manufacturing facility. A settlement resolving alleged PSD
issues at the Longview/NORPAC complex was reached with the State of
<PAGE>
Weyerhaeuser Company
- -22-
Washington on January 26, 1996. On November 14, 1995, the company entered
into a settlement with the State of Oklahoma to resolve alleged PSD
violations at the company's Valliant, Oklahoma, containerboard
manufacturing facility. The company also entered into Special Orders by
Consent with the State of North Carolina to resolve alleged PSD issues at
the New Bern, North Carolina, pulp mill and the Plymouth, North Carolina,
pulp and paper complex. No decision has been made by the LRAPA or the
Oregon Department of Environmental Quality (DEQ) concerning alleged PSD
and permit violations at the company's Springfield, Oregon,
containerboard manufacturing facility.
The Washington State Department of Ecology investigated the accidental
release of chlorine, chlorine dioxide and noncondensable gasses in
July 1994 at the company's pulp mill in Longview, and issued a $10
thousand penalty for the chlorine release and a $5 thousand penalty for
the noncondensable gasses release which have been paid by the company.
In June 1995, EPA issued an Administrative Complaint against the company,
seeking penalties of $225 thousand and alleging a failure to timely
report the chlorine release. The company has appealed. On September 25,
1996, the company learned that the EPA has commenced a preliminary
criminal investigation of the incident.
The Washington State Department of Ecology has issued a $10 thousand
penalty to the company because of three accidental chlorine releases
which occurred at the company's pulp mill in Longview on March 18, 1996.
The EPA is also investigating.
On April 9, 1993, the company entered into a SFO with the DEQ for alleged
air emissions in excess of permit levels and PSD noncompliance at the
company's North Bend, Oregon, containerboard facility. The SFO
established a compliance schedule for installing control technology. A
Supplemental SFO assessed a $247 thousand initial penalty and a $500 per
day stipulated penalty until compliance was demonstrated. On November 15,
1995, DEQ issued a letter, indicating that the company had satisfied the
requirements of the SFO and Supplemental SFO. No further penalties were
assessed against the company. Termination of the SFO will occur after
issuance of the federal air operating permit to the North Bend
containerboard facility. The North Bend containerboard facility received
its federal air operating permit on July 1, 1996.
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 Greene
County, Alabama, on behalf of a similar purported class of riparian
owners with essentially the same claims as the Mississippi case. By order
dated April 5, 1995, venue of the Alabama action was transferred to
Sumter County, Alabama. On January 20, 1995, the court in the Alabama
action certified a class of all persons who, as of the date the action
commenced, were riparian owners, lessees and licensees of properties
located on the Tennessee Tombigbee Waterway in Greene, Sumter, Pickens
and Marengo counties, Alabama, and Lowndes and Noxubee counties,
Mississippi, to determine whether the company is liable to the members of
the class for compensatory and/or punitive damages and to determine the
amount of punitive damages, if any, to be awarded to the class as a whole.
By order dated April 12, 1995, as orally amended on February 1, 1996, the
geographical boundaries of the class were amended to run from below the
Columbus mill's wastewater discharge pipe to just above the confluence of
the Black Warrior River and the Tennessee Tombigbee Waterway. The class
is estimated to range from approximately 1,000 to 1,500 members. In late
July, 1996, the company reached an agreement to settle both the
Mississippi action and the Alabama action fo r $2.5 million. The
agreement is subject to the approval of the court in the Alabama action.
On June 20, 1996, the Wisconsin Department of Natural Resources (WDNR)
issued a NOV for alleged air violations at the Marshfield, Wisconsin,
wood products manufacturing facility. No penalty was assessed in the NOV.
Since the WDNR lacks an administrative mechanism to assess penalties for
alleged regulatory non-compliance, it referred the NOV to the Wisconsin
Department of Justice for enforcement action on July 2, 1996. The
Wisconsin Department of Justice has accepted the referral.
On October 2, 1996, the WDNR conducted an inspection of a building
demolition project at the company's Marshfield, Wisconsin facility. The
WDNR noted several potential non-compliance issues in the work performed
by the asbestos abatement subcontractor retained for the project. Upon
learning of the issues observed by WDNR, Weyerhaeuser removed the
asbestos abatement subcontractor from the plantsite. The WDNR and EPA
Region V are currently reviewing the work performed to evaluate whether
an enforcement action should be brought against the asbestos abatement
subcontractor, the general contractor, and/or the company.
<PAGE>
Weyerhaeuser Company
- -23-
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 EPA 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 filed reports on Form 8-K dated February 14,
April 24, July 17, July 26, and October 15, 1996 reporting
information under Item 5, Other Events.
<TABLE> <S> <C>
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<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-END> SEP-29-1996
<CASH> 83
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<PP&E> 6585<F1>
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<TOTAL-ASSETS> 13679
<CURRENT-LIABILITIES> 1381
<BONDS> 5359
<COMMON> 258
0
0
<OTHER-SE> 4330
<TOTAL-LIABILITY-AND-EQUITY> 13679
<SALES> 8343
<TOTAL-REVENUES> 8343
<CGS> 6254
<TOTAL-COSTS> 6254
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<NET-INCOME> 365
<EPS-PRIMARY> 1.84
<EPS-DILUTED> 1.84
<FN>
<F1>Receivables are stated net of allowances and Property, Plant and Equipment
is stated net of accumulated depreciation.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-24-1995
<CASH> 227
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<PP&E> 6229<F1>
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<TOTAL-ASSETS> 13338
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<COMMON> 258
0
0
<OTHER-SE> 4208
<TOTAL-LIABILITY-AND-EQUITY> 13338
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<TOTAL-REVENUES> 8732
<CGS> 6119
<TOTAL-COSTS> 6119
<OTHER-EXPENSES> 830
<LOSS-PROVISION> 5
<INTEREST-EXPENSE> 235
<INCOME-PRETAX> 863
<INCOME-TAX> 315
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<EPS-PRIMARY> 2.68
<EPS-DILUTED> 2.68
<FN>
<F1>Receivables are stated net of allowances and Property, Plant and Equipment
is stated net of accumulated depreciation.
</FN>
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<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-25-1995
<CASH> 291
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<ALLOWANCES> 0
<INVENTORY> 830
<CURRENT-ASSETS> 408
<PP&E> 6209<F1>
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<BONDS> 4443
<COMMON> 258
0
0
<OTHER-SE> 4256
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<SALES> 5695
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<TOTAL-COSTS> 4015
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<LOSS-PROVISION> 3
<INTEREST-EXPENSE> 150
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<INCOME-TAX> 261
<INCOME-CONTINUING> 453
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 453
<EPS-PRIMARY> 2.21
<EPS-DILUTED> 2.21
<FN>
<F1>Receivables are stated net of allowances and Property, Plant and Equipment
is stated net of accumulated depreciation.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-26-1995
<CASH> 531
<SECURITIES> 0
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<ALLOWANCES> 0
<INVENTORY> 870
<CURRENT-ASSETS> 2620
<PP&E> 6134<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 13619
<CURRENT-LIABILITIES> 1818
<BONDS> 4670
<COMMON> 258
0
0
<OTHER-SE> 4175
<TOTAL-LIABILITY-AND-EQUITY> 13619
<SALES> 2686
<TOTAL-REVENUES> 2686
<CGS> 1882
<TOTAL-COSTS> 1882
<OTHER-EXPENSES> 183
<LOSS-PROVISION> 1
<INTEREST-EXPENSE> 73
<INCOME-PRETAX> 328
<INCOME-TAX> 121
<INCOME-CONTINUING> 207
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 207
<EPS-PRIMARY> 1.00
<EPS-DILUTED> 1.00
<FN>
<F1>Receivables are stated net of allowances and Property, Plant and Equipment
is stated net of accumulated depreciation.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-25-1994
<PERIOD-END> DEC-25-1994
<CASH> 263
<SECURITIES> 0
<RECEIVABLES> 1039<F1>
<ALLOWANCES> 14
<INVENTORY> 746
<CURRENT-ASSETS> 2129
<PP&E> 10853<F1>
<DEPRECIATION> 4657
<TOTAL-ASSETS> 13158
<CURRENT-LIABILITIES> 1818
<BONDS> 4666
<COMMON> 258
0
0
<OTHER-SE> 4032
<TOTAL-LIABILITY-AND-EQUITY> 13158
<SALES> 10398
<TOTAL-REVENUES> 10398
<CGS> 7670
<TOTAL-COSTS> 7670
<OTHER-EXPENSES> 694
<LOSS-PROVISION> 6
<INTEREST-EXPENSE> 277
<INCOME-PRETAX> 920
<INCOME-TAX> 331
<INCOME-CONTINUING> 589
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 589
<EPS-PRIMARY> 2.86
<EPS-DILUTED> 2.86
<FN>
<F1>For year end, Receivables and Property, Plant and Equipment are
stated at gross.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-25-1994
<PERIOD-END> SEP-25-1994
<CASH> 197
<SECURITIES> 0
<RECEIVABLES> 1008<F1>
<ALLOWANCES> 0
<INVENTORY> 745
<CURRENT-ASSETS> 2100
<PP&E> 5764<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 12947
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<BONDS> 5106
<COMMON> 258
0
0
<OTHER-SE> 3928
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<SALES> 7665
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<TOTAL-COSTS> 5696
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<INCOME-TAX> 230
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 400
<EPS-PRIMARY> 1.95
<EPS-DILUTED> 1.95
<FN>
<F1>Receivables are stated net of allowances and Property, Plant and Equipment
is stated net of accumulated depreciation.
</FN>
</TABLE>
