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 thirteen weeks ended March 31, 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
Tokyo 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 May 3, 1996 was 198,447,199 common shares ($1.25 par
value).
<PAGE>
Weyerhaeuser Company
- -2-
<TABLE>
<CAPTION>
WEYERHAEUSER COMPANY AND SUBSIDIARIES
Index to Form 10-Q Filing
For the Thirteen Weeks Ended March 31, 1996
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 8-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14-17
Part II. Other Information
Item 1. Legal Proceedings 18-19
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 19
</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 thirteen week period ending March 31, 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
May 10, 1996
<PAGE>
Weyerhaeuser Company
- -3-
<TABLE>
<CAPTION>
WEYERHAEUSER COMPANY AND SUBSIDIARIES
____________
CONSOLIDATED EARNINGS
For the thirteen week periods ended
March 31, 1996 and March 26, 1995
(Dollar amounts in millions except per share figures)
(Unaudited)
March 31, March 26,
1996 1995
--------- ---------
<S> <C> <C>
Net sales and revenues:
Weyerhaeuser $ 2,373 $ 2,504
Real estate and financial services 232 182
--------- ---------
Net sales and revenues 2,605 2,686
--------- ---------
Costs and expenses:
Weyerhaeuser:
Costs of products sold 1,739 1,752
Depreciation, amortization and fee stumpage 142 129
Selling, general and administrative expenses 178 160
Research and development expenses 14 11
Taxes other than payroll and income taxes 37 43
--------- ---------
2,110 2,095
--------- ---------
Real estate and financial services:
Costs and operating expenses 164 130
Depreciation and amortization 5 9
Selling, general and administrative expenses 37 31
Taxes other than payroll and income taxes 2 2
--------- ---------
208 172
--------- ---------
Total costs and expenses 2,318 2,267
--------- ---------
Operating income 287 419
Interest expense and other:
Weyerhaeuser:
Interest expense incurred 65 64
Less interest capitalized 6 6
Other income (expense), net 7 (22)
Real estate and financial services:
Interest expense incurred 34 33
Less interest capitalized 18 18
Other income (expense), net 3 4
--------- ---------
Earnings before income taxes 222 328
Income taxes (Note 2) 80 121
--------- ---------
Net earnings $ 142 $ 207
========= =========
Per common share (Note 1):
Net earnings $ .72 $ 1.00
========= =========
Dividends paid $ .40 $ .30
========= =========
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
Weyerhaeuser Company
- -4-
<TABLE>
<CAPTION>
WEYERHAEUSER COMPANY AND SUBSIDIARIES
____________
CONSOLIDATED BALANCE SHEET
March 31, 1996 and December 31, 1995
(Dollar amounts in millions)
March 31, Dec. 31,
1996 1995
----------- ----------
(Unaudited)
<S> <C> <C>
Assets
- ------
Weyerhaeuser
Current assets:
Cash and short-term investments (Note 1) $ 28 $ 34
Receivables, less allowances 966 976
Inventories (Note 3) 1,092 960
Prepaid expenses 305 265
----------- ----------
Total current assets 2,391 2,235
Property and equipment (Note 4) 6,677 6,717
Construction in progress 593 509
Timber and timberlands at cost, less fee
stumpage charged to disposals 898 666
Other assets and deferred charges 233 232
----------- ----------
10,792 10,359
----------- ----------
Real estate and financial services
Cash and short-term investments,
including restricted deposits 51 50
Receivables, less discounts and allowances 150 92
Mortgage notes held for sale 477 332
Mortgage loans receivable 154 155
Investments 61 70
Mortgage-backed certificates and
other pledged financial instruments 179 185
Real estate in process of development and for sale,
less reserves 766 776
Land being processed for development,
less reserves 673 688
Deferred acquisition costs 14 84
Investments in and advances to joint ventures
and limited partnerships, less reserves 90 113
Rental properties, less accumulated depreciation 172 184
Other assets 136 165
----------- ---------
2,923 2,894
----------- ---------
Total assets $ 13,715 $ 13,253
=========== =========
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
Weyerhaeuser Company
- -5-
<TABLE>
<CAPTION>
March 31, Dec. 31,
1996 1995
----------- ----------
(Unaudited)
<S> <C> <C>
Liabilities and shareholders' interest
- --------------------------------------
Weyerhaeuser
Current liabilities:
Notes payable $ 18 $ 24
Current maturities of long-term debt 106 125
Accounts payable (Note 1) 665 747
Accrued liabilities (Note 5) 580 707
----------- ----------
Total current liabilities 1,369 1,603
Long-term debt (Note 7) 3,592 2,983
Deferred income taxes 1,223 1,196
Deferred pension and other liabilities 511 509
Minority interest in subsidiaries 112 111
Commitments and contingencies (Note 9) -- --
----------- ----------
6,807 6,402
----------- ----------
Real estate and financial services
Notes payable and commercial paper 257 338
Collateralized mortgage obligation bonds 154 159
Long-term debt (Note 7) 1,711 1,594
Other liabilities 262 274
Commitments and contingencies (Note 9) -- --
----------- ----------
2,384 2,365
----------- ----------
Total liabilities 9,191 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 411 415
Cumulative translation adjustment (89) (90)
Retained earnings 4,289 4,226
Treasury common shares, at cost:
7,847,419 and 7,302,878 (345) (323)
----------- ----------
Total shareholders' interest 4,524 4,486
----------- ----------
Total liabilities and shareholders' interest $ 13,715 $ 13,253
=========== ==========
</TABLE>
<PAGE>
Weyerhaeuser Company
- -6-
<TABLE>
<CAPTION>
WEYERHAEUSER COMPANY AND SUBSIDIARIES
____________
CONSOLIDATED STATEMENT OF CASH FLOWS
For the thirteen week periods ended March 31, 1996 and March 26, 1995
(Dollar amounts in millions)
(Unaudited)
Consolidated
-------------------
March 31, March 26,
1996 1995
--------- ---------
<S> <C> <C>
Cash flows provided by operations:
Net earnings $ 142 $ 207
Non-cash charges to income:
Depreciation, amortization and fee stumpage 147 138
Deferred income taxes, net 50 51
Changes in working capital:
Accounts receivable (51) (28)
Inventories, prepaid expenses, real estate and land (134) (183)
Mortgage notes held for sale and mortgage loans
receivable (138) 38
Other liabilities (210) 7
(Gain) loss on disposition of assets 11 2
Other (11) 20
--------- ---------
Net cash provided by operations (194) 252
--------- ---------
Cash flows from investing in the business:
Property and equipment (182) (172)
Timber and timberlands (239) (11)
Mortgage and investment securities acquired (2) (23)
Proceeds from sale of:
Property and equipment 2 9
Mortgage and investment securities 83 7
Other 14 1
--------- ---------
Net cash flows from investing in the business (324) (189)
--------- ---------
Cash flows from financing activities:
Sale of debentures, notes and CMO bonds 5 554
Notes and commercial paper borrowings, net 679 90
Cash dividends on common shares (79) (62)
Payments on debentures, notes, bank credit agreements,
income debenture, capital leases and CMO bonds (66) (378)
Purchase of treasury common shares (34) --
Exercise of stock options 8 1
--------- ---------
Net cash flows from financing activities 513 205
--------- ---------
Net increase (decrease) in cash and short-term investments (5) 268
Cash and short-term investments at beginning of year 84 263
--------- ---------
Cash and short-term investments at end of period $ 79 $ 531
========= =========
Cash paid (received) during the period for:
Interest, net of amount capitalized $ 116 $ 97
========= =========
Income taxes $ 90 $ (2)
========= =========
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
Weyerhaeuser Company
- -7-
<TABLE>
<CAPTION>
Real Estate and
Weyerhaeuser Financial Services
- -------------------- --------------------
March 31, March 26, March 31, March 26,
1996 1995 1996 1995
- --------- --------- --------- ---------
<C> <C> <C> <C>
$ 137 $ 205 $ 5 $ 2
142 129 5 9
27 50 23 1
10 (55) (61) 27
(172) (154) 38 (29)
-- -- (138) 38
(218) 11 8 (4)
11 2 -- --
-- 11 (11) 9
- --------- --------- --------- ---------
(63) 199 (131) 53
- --------- --------- --------- ---------
(181) (170) (1) (2)
(239) (11) -- --
-- -- (2) (23)
2 9 -- --
-- -- 83 7
(4) 36 18 (35)
- --------- --------- --------- ---------
(422) (136) 98 (53)
- --------- --------- --------- ---------
5 554 -- --
625 (107) 54 197
(79) (62) -- --
(46) (167) (20) (211)
(34) -- -- --
8 1 -- --
- --------- --------- --------- ---------
479 219 34 (14)
- --------- --------- --------- ---------
(6) 282 1 (14)
34 190 50 73
- --------- --------- --------- ---------
$ 28 $ 472 $ 51 $ 59
========= ========= ========= =========
$ 100 $ 81 $ 16 $ 16
========= ========= ========= =========
$ 107 $ 13 $ (17) $ (15)
========= ========= ========= =========
</TABLE>
<PAGE>
Weyerhaeuser Company
- -8-
WEYERHAEUSER COMPANY AND SUBSIDIARIES
____________
NOTES TO FINANCIAL STATEMENTS
For the thirteen week periods ended March 31, 1996 and March 26, 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 5.4 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.
Changes in Accounting Principles
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 implementation of this
pronouncement, along with the company's decision to accelerate the
disposition of some of those real estate assets, resulted in a charge
of $290 million to operations. The company currently plans to dispose
of most of the impaired assets over the next two years. The carrying
value of the affected assets at March 31, 1996 and December 31, 1995
was approximately $261 million and $291 million, respectively.
In 1995 fourth quarter, the company implemented SFAS No. 122,
"Accounting for Mortgage Servicing Rights -- an Amendment of FASB
Statement No. 65," which modifies the treatment of the capitalization
of servicing rights by mortgage banking enterprises. The change
constitutes a simplification in procedures, eliminating the separate
treatment of servicing rights acquired through loan origination and
those acquired through purchasing transactions, as previously required
under SFAS No. 65. The change also requires that the enterprise
periodically evaluate servicing rights for impairment. The adoption
of this pronouncement by WMC did not have a significant impact on
results of operations or financial position.
<PAGE>
Weyerhaeuser Company
- -9-
Prospective Accounting Changes
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.
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 198,195,035 and 205,628,338 at
March 31, 1996 and March 26, 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.
The notional amounts of these derivative financial instruments are
$1.1 billion and $.9 billion at March 31, 1996 and December 31, 1995,
respectively. The company's 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.
<PAGE>
Weyerhaeuser Company
- -10-
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 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. 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.
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 $149 million at March 31, 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 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.
<PAGE>
Weyerhaeuser Company
- -11-
Weyerhaeuser Real Estate Company
Real estate held for sale is stated at the lower of cost or fair
value. The determination of fair value is based on market pricing of
comparable assets when available, or the present value of expected
future cash flows from these assets. Real estate held for development
is stated at cost to the extent it does not exceed the future
undiscounted net cash flows.
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.
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.
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.
Note 2: Income Taxes
<TABLE>
<CAPTION>
Provisions for income taxes include the following: Thirteen Weeks Ended
--------------------
March 31, March 26,
Dollar amounts in millions 1996 1995
--------- ---------
<S> <C> <C>
Federal:
Current $ 19 $ 36
Deferred 50 47
--------- ---------
69 83
--------- ---------
State:
Current 3 6
Deferred 4 3
--------- ---------
7 9
--------- ---------
Foreign:
Current 8 28
Deferred (4) 1
--------- ---------
4 29
--------- ---------
Total $ 80 $ 121
========= =========
</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 March 31, 1996 and March 26, 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
thirteen week periods ended March 31, 1996 and March 26, 1995 are 36%
and 37%, respectively.
<PAGE>
Weyerhaeuser Company
- -12-
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>
March 31, Dec. 31,
Dollar amounts in millions 1996 1995
--------- ---------
<S> <C> <C>
Logs and chips $ 182 $ 173
Lumber, plywood and panels 170 135
Pulp, newsprint and paper 222 158
Containerboard, paperboard and packaging 115 107
Other products 129 117
Materials and supplies 274 270
--------- ---------
$ 1,092 $ 960
========= =========
</TABLE>
Note 4: Property and Equipment
<TABLE>
<CAPTION>
March 31, Dec. 31,
Dollar amounts in millions 1996 1995
--------- ---------
<S> <C> <C>
Property and equipment, at cost:
Land $ 167 $ 167
Buildings and improvements 1,588 1,582
Machinery and equipment 9,296 9,253
Rail and truck roads and other 614 615
--------- ---------
11,665 11,617
Less allowance for depreciation
and amortization 4,988 4,900
--------- ---------
$ 6,677 $ 6,717
========= =========
</TABLE>
Note 5: Accrued Liabilities
<TABLE>
<CAPTION>
March 31, Dec. 31,
Dollar amounts in millions 1996 1995
--------- ---------
<S> <C> <C>
Payroll - wages and salaries, incentive awards,
retirement and vacation pay $ 206 $ 265
Taxes - social security and real
and personal property 66 50
Interest 41 82
Accrued income taxes 56 117
Other 211 193
--------- ---------
$ 580 $ 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
March 31, 1996 and December 31, 1995, respectively. No portion of
these lines has been availed of by the company, WRECO or WMC at
March 31, 1996 and December 31, 1995. None of the entities referred
to herein is a guarantor of the borrowings of the others.
<PAGE>
Weyerhaeuser Company
- -13-
WMC has short-term special credit lines that provide for borrowings of
up to $230 million at March 31, 1996 and December 31, 1995.
Borrowings against these lines were $121 million and $115 million as
of March 31, 1996 and December 31, 1995, respectively.
Note 7: Long-Term Debt
At March 31, 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 March 31, 1996 or December 31, 1995.
At March 31, 1996 and December 31, 1995, WMC had $35 million
outstanding against a one-year evergreen credit commitment entered
into in 1990.
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 installments. At March 31, 1996 and December 31, 1995,
$10 million and $20 million, respectively, were outstanding under this
agreement.
During 1992 WFS entered into a credit facility agreement, which was
subsequently amended in May 1994 and provides for: (1) borrowings of
up to $525 million at March 31, 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.
$450 million was outstanding under this facility at March 31, 1996 and
December 31, 1995.
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>
March 31, Dec. 31,
Dollar amounts in millions 1996 1995
--------- ---------
<S> <C> <C>
Weyerhaeuser $ 877 $ 252
Real estate and financial services 394 263
</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 6,884,256 shares at
March 31, 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.
<PAGE>
Weyerhaeuser Company
- -14-
WEYERHAEUSER COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Net sales and revenues and earnings before interest expense and income
taxes by segment are:
<TABLE>
<CAPTION>
Thirteen Weeks Ended
--------------------
March 31, March 26,
Dollar amounts in millions 1996 1995
--------- ---------
<S> <C> <C>
Net sales and revenues:
Timberlands and wood products $ 1,116 $ 1,187
Pulp, paper and packaging 1,217 1,269
Real estate 180 140
Financial services 52 42
Corporate and other 40 48
--------- ---------
$ 2,605 $ 2,686
========= =========
Earnings before interest expense and
income taxes:
Timberlands and wood products $ 152 $ 241
Pulp, paper and packaging 162 208
Real estate 7 1
Financial services (1) 3 3
Corporate and other (43) (67)
--------- ---------
$ 281 $ 386
========= =========
(1) Includes net interest expense of $16 million and $15 million related
to the financial services businesses.
</TABLE>
Results of Operations
Net sales in the first quarter of 1996 were $2.6 billion, down 3
percent from the $2.7 billion reported in the same quarter of 1995.
Net earnings for the quarter were $142 million, or 72 cents per common
share, as compared with $207 million, or $1.00 per common share. The
1996 first quarter results reflected rapidly declining prices for most
pulp, paper and packaging products and significantly lower wood
products prices compared to year ago levels.
The timberlands and wood products segment's net sales for the quarter
were $1.1 billion, slightly less than the $1.2 billion recorded in
1995 first quarter. The segment's operating earnings were $152
million for the quarter, compared to $241 million in the same quarter
last year. The quarter's results were depressed by extreme weather
conditions which disrupted operations and delayed the normal spring
pickup in new home construction. Finished product prices were lower
than 1995 same quarter levels; however, activity in the U.S. began
improving in March and the quarter ended on a positive note.
Third party sales and total production volumes for the major products
in this segment for the thirteen weeks ended March 31, 1996 and
March 26, 1995 are as follows:
<PAGE>
Weyerhaeuser Company
- -15-
<TABLE>
Third Party Sales Total Production
-------------------- --------------------
Thirteen Weeks Ended Thirteen Weeks Ended
-------------------- --------------------
March 31, March 26, March 31, March 26,
Products (in millions) 1996 1995 1996 1995
- ---------------------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Raw materials--cubic feet 132 135 -- --
Logs--cubic feet -- -- 230 238
Softwood lumber--board feet 1,010 1,035 842 841
Softwood plywood and veneer--
square feet (3/8") 484 546 318 313
Composite panels--square feet (3/4") 153 159 137 146
Oriented strand board--
square feet (3/8") 460 458 391 402
Hardboard--square feet (7/16") 56 39 33 29
Hardwood lumber--board feet 89 66 83 60
Engineered wood products--lineal feet 21 27 -- --
Hardwood doors (thousands) 146 154 146 156
</TABLE>
The pulp, paper and packaging segment's net sales for the quarter were
$1.2 billion for the current quarter, compared to $1.3 billion and
$1.5 billion in the 1995 first and fourth quarters, respectively.
Operating earnings were $162 million in the quarter, down 22 percent
from the $208 million in 1995 first quarter and 47 percent from the
$304 million in 1995 fourth quarter. The falling pulp and paper
products prices are a result of customers choosing to work off their
inventories rather than placing new orders. There are signs of
improvements in pulp and paper shipments that indicate that customers
are nearing the end of depleting these inventories. However,
continued erosion in the segment's second quarter earnings is expected
from both lower average prices and production curtailments.
The acquisition of nine corrugated packaging plants in the fourth
quarter of 1995 accounted for a 23 percent increase in sales and
production volumes in the first quarter of 1996 over the same period
in 1995. The recycling business added nine centers in 1995, which
raised the current quarter's sales volumes by 67 percent and
production volumes by 39 percent over the 1995 first quarter. These
gains in volumes were more than offset by pricing declines that
resulted from the oversupply of inventories of market pulp, paper and
newsprint.
Third party sales and total production volumes for the major products
in this segment for the thirteen weeks ended March 31, 1996 and
March 26, 1995 are as follows:
<TABLE>
Third Party Sales Total Production
-------------------- --------------------
Thirteen Weeks Ended Thirteen Weeks Ended
-------------------- --------------------
March 31, March 26, March 31, March 26,
Products (in thousands) 1996 1995 1996 1995
- ----------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Pulp--air-dry metric tons 397 501 525 542
Newsprint--metric tons 135 160 134 167
Paper--tons 246 267 261 263
Paperboard--tons 46 56 48 57
Containerboard--tons 66 62 564 613
Packaging--MSF 10,016 8,188 10,627 8,650
Recycling--tons 443 265 801 577
</TABLE>
The real estate and financial services segments earned a combined
$10 million in the current quarter, compared to $4 million a year ago.
The quarter's performance was favorably impacted by an increase in
revenues of $50 million, or 27 percent, over the 1995 first quarter.
This results from several major commercial project closings and an
increase in single family closings in the real estate segment and an
increase in loan servicing revenues in the company's mortgage banking
business.
Worldwide economic conditions are uncertain, making it difficult to
determine when things will improve. In light of this uncertainty, the
company anticipates lower earnings in the second quarter of 1996.
There was no material change in the total consolidated costs and
expenses and interest expense incurred from 1995 to 1996.
<PAGE>
Weyerhaeuser Company
- -16-
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 week periods ended March 31, 1996 and March 26,
1995 was significant in relation to net earnings.
Liquidity and Capital Resources
General
Earnings before interest expense and income taxes plus non-cash
charges for the thirteen week periods ended March 31, 1996 and
March 26, 1995 were $198 million and $284 million, respectively, for
the timberlands and wood products segment, and $252 million and
$290 million, 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
The company generated $350 million of cash flow from operations before
working capital changes in 1996 first quarter. This is down from the
$398 million in the same quarter a year ago, due primarily to reduced
net earnings. Weyerhaeuser's net working capital increased
$390 million during the first quarter 1996. This was caused by a
$132 million growth in inventories across all product lines, which
aligns with the reduction in sales, and a $209 million decrease in
accounts payable and accrued liabilities. In the same period last
year, working capital increased $491 million, with the majority due to
the proceeds of a $250 million debenture issue being invested in
marketable securities at month-end.
The increase in the working capital of the real estate and financial
services segments is attributed to an increase of $138 million in
mortgages held for sale as originations exceeded sales.
Investing
Capital expenditures for the quarter were $421 million, compared to
$183 million in the same period last year. The 1996 spending by
segment was: $305 million for timberlands and wood products, of which
$239 million was for timber and timberlands including the acquisition
of southern private commercial forestland; $108 million for the pulp,
paper and packaging segment; and $8 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.
The cash needed to meet these and other company needs was generated
from internal cash flow and short-term borrowing.
Financing
During the first quarter of 1996, the company paid $79 million in cash
dividends, compared to $62 million in the first quarter of 1995. The
quarterly dividend rate was 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 $34 million of common shares in the quarter as
a part of the 10 million share repurchase program, which commenced in
the second quarter of 1995, bringing the total acquired to 9.3 million
shares at March 31, 1996.
<PAGE>
Weyerhaeuser Company
- -17-
Notes and commercial paper borrowings increased by $679 million from
1995 year-end. This increase is included in the balance of
$1.3 billion reclassified to long-term debt at March 31, 1996.
Other Items
On February 28, 1996, the company signed an agreement to acquire
ownership and long-term leases to 661,200 acres of private commercial
forestland and two sawmills in southeastern Louisiana and southern
Mississippi from Cavenham Forest Industries, a subsidiary of Hansen
Plc, for $500 million. This acquisition is not expected to have a
significant impact on the company's financial position or liquidity.
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
- -18-
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 have appealed 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.
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.
No trial schedule has been set for the 16 sites remaining in the case.
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.
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.
Agreements resolving the alleged PSD issues have been reached with the
states of Washington, Oklahoma and North Carolina, as noted below. 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 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. The company is currently
negotiating with the LRAPA to resolve 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.
<PAGE>
Weyerhaeuser Company
- -19-
The Washington State Department of Ecology has issued a NOV to the
company, advising the company that it may issue a penalty 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 Stipulated Final Order
(SFO) with the Oregon Department of Environmental Quality (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. DEQ will
terminate the SFO upon issuance of the federal air operating permit to
the North Bend containerboard facility in mid-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. Neither the Mississippi action nor the Alabama action
is presently scheduled for trial.
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, 1996
and April 24, 1996, reporting information under Item 5, Other
Events.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-END> MAR-31-1996
<CASH> 79
<SECURITIES> 0
<RECEIVABLES> 1116<F1>
<ALLOWANCES> 0
<INVENTORY> 1092
<CURRENT-ASSETS> 2391
<PP&E> 6677<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 13715
<CURRENT-LIABILITIES> 1369
<BONDS> 5457
<COMMON> 258
0
0
<OTHER-SE> 4266
<TOTAL-LIABILITY-AND-EQUITY> 13715
<SALES> 2605
<TOTAL-REVENUES> 2605
<CGS> 1903
<TOTAL-COSTS> 1903
<OTHER-EXPENSES> 186
<LOSS-PROVISION> 1
<INTEREST-EXPENSE> 75
<INCOME-PRETAX> 222
<INCOME-TAX> 80
<INCOME-CONTINUING> 142
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 142
<EPS-PRIMARY> .72
<EPS-DILUTED> .72
<FN>
<F1>Receivables are stated net of allowances.
<F2>Property, Plant and Equipment is stated net of accumulated depreciation.
</FN>
</TABLE>
