SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR
X 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the twenty-six weeks ended June 29, 1997 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 (253) 924-2345
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
- ------------------------------- ----------------------
Common Shares ($1.25 par value) Chicago Stock Exchange
New York Stock Exchange
Pacific Stock Exchange
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No ___.
The number of shares outstanding of the registrant's class of common
stock, as of August 1, 1997 was 199,396,624 common shares ($1.25 par
value).
<PAGE>
Weyerhaeuser Company
- -2-
<TABLE>
<CAPTION>
WEYERHAEUSER COMPANY AND SUBSIDIARIES
Index to Form 10-Q Filing
For the Twenty-six Weeks Ended June 29, 1997
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 16-21
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 23
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
29, 1996. 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 twenty-six
week period ending June 29, 1997 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
August 11, 1997
<PAGE>
Weyerhaeuser Company
- -3-
WEYERHAEUSER COMPANY AND SUBSIDIARIES
------------------
CONSOLIDATED EARNINGS
For the periods ended
June 29, 1997 and June 30, 1996
(Dollar amounts in millions except per share figures)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Twenty-six
weeks ended weeks ended
----------------- ----------------
June 29, June 30, June 29, June 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales and revenues:
Weyerhaeuser $ 2,680 $ 2,643 $ 5,074 $ 5,016
Real estate and financial services 229 243 443 475
-------- -------- -------- --------
Net sales and revenues 2,909 2,886 5,517 5,491
-------- -------- -------- --------
Costs and expenses:
Weyerhaeuser:
Costs of products sold 2,061 2,024 3,949 3,763
Depreciation, amortization and
fee stumpage 155 146 316 288
Selling, general and
administrative expenses 195 169 347 347
Research and development expenses 15 13 28 27
Taxes other than payroll and
income taxes 38 40 75 77
Charge for closure or disposition
of facilities 15 -- 64 --
-------- -------- -------- --------
2,479 2,392 4,779 4,502
-------- -------- -------- --------
Real estate and financial services:
Costs and operating expenses 187 184 340 348
Depreciation and amortization 4 4 8 9
Selling, general and
administrative expenses 25 39 70 76
Taxes other than payroll and
income taxes 2 2 4 4
-------- -------- -------- --------
218 229 422 437
-------- -------- -------- --------
Total costs and expenses 2,697 2,621 5,201 4,939
-------- -------- -------- --------
Operating income 212 265 316 552
Interest expense and other:
Weyerhaeuser:
Interest expense incurred 69 72 138 137
Less interest capitalized 4 8 8 14
Other income (expense), net (14) (31) (16) (24)
Real estate and financial services:
Interest expense incurred 28 35 61 69
Less interest capitalized 17 16 35 34
Other income (expense), net 50 10 61 13
-------- -------- -------- --------
Earnings before income taxes 172 161 205 383
Income taxes (Note 2) 63 58 75 138
-------- -------- -------- --------
Net earnings $ 109 $ 103 $ 130 $ 245
======== ======== ======== ========
Per common share (Note 1):
Net earnings $ .56 $ .52 $ .66 $ 1.24
======== ======== ======== ========
Dividends paid $ .40 $ .40 $ .80 $ .80
======== ======== ======== ========
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
Weyerhaeuser Company
- -4-
WEYERHAEUSER COMPANY AND SUBSIDIARIES
------------------
CONSOLIDATED BALANCE SHEET
June 29, 1997 and December 29, 1996
(Dollar amounts in millions)
<TABLE>
<CAPTION>
June 29, Dec. 29,
1997 1996
-------- --------
(Unaudited)
<S> <C> <C>
Assets
- ------
Weyerhaeuser
Current assets:
Cash and short-term investments (Note 1) $ 18 $ 33
Receivables, less allowances 1,001 902
Inventories (Note 3) 950 1,001
Prepaid expenses 301 289
-------- --------
Total current assets 2,270 2,225
Property and equipment (Note 4) 6,848 7,007
Construction in progress 462 417
Timber and timberlands at cost, less fee
stumpage charged to disposals 1,059 1,073
Other assets and deferred charges 231 246
-------- --------
10,870 10,968
-------- --------
Real estate and financial services
Cash and short-term investments,
including restricted deposits 21 38
Receivables, less discounts and allowances 72 99
Mortgage notes held for sale -- 334
Mortgage loans receivable 70 133
Mortgage-backed certificates and
other pledged financial instruments 141 154
Real estate in process of development and for sale 702 680
Land being processed for development 802 719
Investments in and advances to joint ventures
and limited partnerships, less reserves 111 115
Rental properties, less accumulated depreciation 142 150
Other assets 70 206
-------- --------
2,131 2,628
-------- --------
Total assets $13,001 $13,596
======== ========
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
Weyerhaeuser Company
- -5-
<TABLE>
<CAPTION>
June 29, Dec. 29,
1997 1996
-------- --------
(Unaudited)
<S> <C> <C>
Liabilities and shareholders' interest
- --------------------------------------
Weyerhaeuser
Current liabilities:
Notes payable $ 17 $ 16
Current maturities of long-term debt 10 80
Accounts payable (Note 1) 659 725
Accrued liabilities (Note 5) 600 662
-------- --------
Total current liabilities 1,286 1,483
Long-term debt (Note 7) 3,498 3,546
Deferred income taxes 1,351 1,324
Deferred pension and other liabilities 466 493
Minority interest in subsidiaries 117 113
Commitments and contingencies (Note 9) -- --
-------- --------
6,718 6,959
-------- --------
Real estate and financial services
Notes payable and commercial paper 294 245
Long-term debt (Note 7) 1,197 1,537
Other liabilities 209 251
Commitments and contingencies (Note 9) -- --
-------- --------
1,700 2,033
-------- --------
Total liabilities 8,418 8,992
-------- --------
Shareholders' interest (Note 8)
Common shares: authorized 400,000,000 shares,
issued 206,072,890 shares, $1.25 par value 258 258
Other capital 401 407
Cumulative translation adjustment (101) (93)
Retained earnings 4,344 4,372
Treasury common shares, at cost: 7,254,493
and 7,736,601 (319) (340)
-------- --------
Total shareholders' interest 4,583 4,604
-------- --------
Total liabilities and shareholders' interest $13,001 $13,596
======== ========
</TABLE>
<PAGE>
Weyerhaeuser Company
- -6-
<TABLE>
<CAPTION>
WEYERHAEUSER COMPANY AND SUBSIDIARIES
------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
For the twenty-six week periods ended June 29, 1997 and June 30, 1996
(Dollar amounts in millions)
(Unaudited)
Consolidated
-----------------
June 29, June 30,
1997 1996
-------- --------
<S> <C> <C>
Cash provided by (used for) operations:
Net earnings $ 130 $ 245
Non-cash charges to income:
Depreciation, amortization and fee stumpage 324 297
Deferred income taxes, net 42 97
Charge for closure or disposition of facilities 64 --
Decrease (increase) in working capital:
Accounts receivable (100) (59)
Inventories, prepaid expenses, real estate and land (71) 73
Mortgage notes held for sale and mortgage loans
receivable (74) (87)
Accounts payable and accrued liabilities (108) (263)
Loss on disposition of assets 10 4
(Gain) loss on disposition of a business (37) --
Other 15 (44)
-------- --------
Cash provided by (used for) operations 195 263
-------- --------
Cash provided by (used for) investing activities:
Property and equipment (252) (371)
Timber and timberlands (52) (16)
Property and equipment and timber and timberlands
from acquisitions -- (448)
Proceeds from sale of:
Property and equipment 15 12
Mortgage and investment securities 15 109
Businesses 204 --
Intercompany advances -- --
Other 17 (30)
-------- --------
Cash provided by (used for) investing activities (53) (744)
-------- --------
Cash provided by (used for) financing activities:
Issuances of debt 14 6
Sale of industrial revenue bonds 38 33
Notes and commercial paper borrowings, net 105 855
Cash dividends on common shares (158) (158)
Payments on debt (187) (237)
Purchase of treasury common shares (16) (34)
Exercise of stock options 31 18
Other (1) --
-------- --------
Cash provided by (used for) financing activities (174) 483
-------- --------
Net increase (decrease) in cash and
short-term investments (32) 2
Cash and short-term investments at beginning of year 71 84
-------- --------
Cash and short-term investments at end of period $ 39 $ 86
======== ========
Cash paid (received) during the period for:
Interest, net of amount capitalized $ 162 $ 157
======== ========
Income taxes $ 14 $ 117
======== ========
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
Weyerhaeuser Company
- -7-
<TABLE>
<CAPTION>
Real Estate and
Weyerhaeuser Financial Services
- --------------- ------------------
June 29, June 30, June 29, June 30,
1997 1996 1997 1996
- -------- -------- -------- --------
<C> <C> <C> <C>
$ 94 $ 237 $ 36 $ 8
316 288 8 9
28 58 14 39
64 -- -- --
(101) (57) 1 (2)
38 (23) (109) 96
-- -- (74) (87)
(124) (250) 16 (13)
10 3 -- 1
8 -- (45) --
(15) (12) 30 (32)
- -------- -------- -------- --------
318 244 (123) 19
- -------- -------- -------- --------
(251) (364) (1) (7)
(52) (16) -- --
-- (448) -- --
14 12 1 --
-- -- 15 109
12 -- 192 --
200 (16) (200) 16
5 (39) 12 9
- -------- -------- -------- --------
(72) (871) 19 127
- -------- -------- -------- --------
5 6 9 --
38 33 -- --
(83) 899 188 (44)
(158) (158) -- --
(77) (131) (110) (106)
(16) (34) -- --
31 18 -- --
(1) -- -- --
- -------- -------- -------- --------
(261) 633 87 (150)
- -------- -------- -------- --------
(15) 6 (17) (4)
33 34 38 50
- -------- -------- -------- --------
$ 18 $ 40 $ 21 $ 46
======== ======== ======== ========
$ 134 $ 127 $ 28 $ 30
======== ======== ======== ========
$ 52 $ 134 $ (38) $ (17)
======== ======== ======== ========
</TABLE>
<PAGE>
Weyerhaeuser Company
- -8-
This page intentionally left blank.
<PAGE>
Weyerhaeuser Company
- -9-
WEYERHAEUSER COMPANY AND SUBSIDIARIES
____________
NOTES TO FINANCIAL STATEMENTS
For the twenty-six week periods ended June 29, 1997 and June 30, 1996
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).
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
5.3 million acres of company-owned and .2 million acres of leased
forestland in the United States and 23.7 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 1996, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (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 and SFAS No. 127,
"Deferral of the Effective Date of Certain Provisions of FASB Statement No.
125 -- an amendment of FASB Statement No. 125," which deferred for one year
the effective date of certain provisions. The company's adoption of SFAS
No. 125 in 1997 did not, and the subsequent adoption of SFAS No. 127 will
not, have a significant impact on results of operations or financial
position.
In 1996, the American Institute of Certified Public Accountants issued
Statement of Position 96-1, "Environmental Remediation Liabilities." This
statement, which provides guidance on the recognition and disclosure of
environmental liabilities, is effective for fiscal years beginning after
December 15, 1996. The adoption of this statement in 1997 did not have a
significant impact on the company's results of operations or financial
position.
Prospective Accounting Pronouncements
In 1997 first quarter, the FASB issued the following statements:
. SFAS No. 128, "Earnings per Share," which supersedes APB Opinion No.
15, "Earnings per Share," and is effective for financial statements
issued after December 15, 1997. This statement replaces the
presentation of primary earnings per share (EPS) with a presentation of
basic EPS, which excludes dilution and is computed by dividing income
available to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted EPS, which is
computed similarly to fully diluted EPS pursuant to APB Opinion No.
15, reflects the potential
<PAGE>
Weyerhaeuser Company
- -10-
dilution that would occur if securities or other contracts to issue
common stock were exercised or converted to common stock or resulted
in the issuance of common stock that would then share in the earnings
of the entity.
If SFAS No. 128 were implemented for the current year, the reported EPS
would be as follows:
<TABLE>
<CAPTION>
Thirteen Weeks Twenty-six Weeks
Ended Ended
----------------- -----------------
June 29, June 30, June 29, June 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Basic earnings per share $ .56 $ .52 $ .66 $ 1.24
Diluted earnings per share $ .55 $ .52 $ .65 $ 1.24
</TABLE>
Options to purchase 1,216,850 shares at $45.94 per share and 4,700
shares at $47.13 per share were outstanding during the twenty-six week
period ended June 30, 1996. These options were not included in the
computation of diluted EPS for that period because the option exercise
prices were greater than the average market price of common shares
during the period.
. SFAS No. 129, "Disclosure of Information about Capital Structure,"
which is effective for financial statements for periods ending
after December 15, 1997, continues the existing requirements to
disclose the pertinent rights and privileges of all securities
other than common stock, but expands the number of companies
subject to portions of its requirements. The company's current
capital structure will not require any additional disclosures as a
result of this pronouncement.
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 198,459,704 and 198,313,429 at June 29, 1997, and June 30,
1996, 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.
<PAGE>
Weyerhaeuser Company
- -11-
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 $493
million and $807 million at June 29, 1997, and December 29, 1996,
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 $240
million and $296 million at June 29, 1997, and December 29, 1996,
respectively. The balance of domestic raw material and product
inventories, all materials and supplies inventories, and all foreign
inventories is costed at either the first-in, first-out (FIFO) or
moving average cost methods. Had the FIFO method been used to cost all
inventories, the amounts at which product inventories are stated would
have been $245 million and $239 million greater at June 29, 1997, and
December 29, 1996, respectively.
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
costs 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 $114 million and $164 million at June
29, 1997, and December 29, 1996, 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.
<PAGE>
Weyerhaeuser Company
- -12-
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.
Real Estate and Financial Services
Real estate held for sale is stated at the lower of cost or 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, in which case, it is carried at fair value.
The company's financial services businesses 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 that were outstanding at December 29, 1996
were stated at the lower of cost or market, which was computed by the
aggregate method (unrealized losses were offset by unrealized gains). As
a result of the sale of the company's mortgage banking business during the
quarter, there were no mortgage notes held for sale outstanding at June 29,
1997.
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. These certificates and other financial
instruments are pledged as collateral for the CMO bonds and are held by
banks as trustees. Principal and interest collections are used to meet the
interest payments and reduce the outstanding principal balance of the
bonds.
The CMO bonds are the obligation of the issuer, and neither the company nor
any affiliated company has guaranteed or is otherwise obligated with
respect to the bonds. In 1997, the company elected to write off the
unamortized discounts and premiums on these instruments and carry them at
par value. In 1996 and prior years, these were carried at amortized costs
with discounts and premiums being amortized using a method that approximated
approximated 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: Twenty-six
Weeks Ended
----------------
June 29, June 30,
Dollar amounts in millions 1997 1996
-------- --------
<S> <C> <C>
Federal:
Current $ 17 $ 24
Deferred 39 96
-------- --------
56 120
-------- --------
State:
Current 2 4
Deferred 2 8
-------- --------
4 12
-------- --------
Foreign:
Current 14 13
Deferred 1 (7)
-------- --------
15 6
-------- --------
Total $ 75 $ 138
======== ========
</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 June 29, 1997, and June 30, 1996, 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 twenty-
six week periods ended June 29, 1997, and June 30, 1996, were 36.5% and
36%, 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>
June 29, Dec. 29,
Dollar amounts in millions 1997 1996
-------- --------
<S> <C> <C>
Logs and chips $ 85 $ 120
Lumber, plywood and panels 167 148
Pulp, newsprint and paper 178 202
Containerboard, paperboard and packaging 95 108
Other products 142 146
Materials and supplies 283 277
-------- --------
$ 950 $ 1,001
======== ========
</TABLE>
<PAGE>
Weyerhaeuser Company
- -14-
Note 4: Property and Equipment
<TABLE>
<CAPTION>
June 29, Dec. 29,
Dollar amounts in millions 1997 1996
-------- --------
<S> <C> <C>
Property and equipment, at cost:
Land $ 156 $ 158
Buildings and improvements 1,680 1,686
Machinery and equipment 9,744 9,713
Rail and truck roads and other 596 596
-------- --------
12,176 12,153
Less allowance for depreciation
and amortization 5,328 5,146
-------- --------
$ 6,848 $ 7,007
======== ========
</TABLE>
Note 5: Accrued Liabilities
<TABLE>
<CAPTION>
June 29, Dec. 29,
Dollar amounts in millions 1997 1996
-------- --------
<S> <C> <C>
Payroll - wages and salaries, incentive awards,
retirement and vacation pay $ 271 $ 279
Taxes - social security and real and personal property 64 57
Interest 76 79
Income taxes 24 51
Other 165 196
-------- --------
$ 600 $ 662
======== ========
</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, all of which
could be availed of by the company and WRECO at June 29, 1997, and
borrowings of up to the total amount of $375 million, all of which
could be availed of by the company, WRECO and Weyerhaeuser Mortgage
Company (WMC) at December 29, 1996. No portion of these lines has been
availed of by the company or WRECO at June 29, 1997, and none were
availed of by the company, WRECO or WMC at December 29, 1996. None of
the entities referred to herein is a guarantor of the borrowings of
the others.
WMC had short-term special credit lines that provided for borrowings of
up to $230 million at December 29, 1996. Borrowings against these lines
were $54 million as of December 29, 1996.
Note 7: Long-Term Debt
The company's lines of credit include a five-year competitive advance and
revolving credit facility agreement entered into in 1994 with a group of
banks that provides for borrowings of up to the total amount of $1.55
billion, all of which is available to the company. Borrowings are
at LIBOR or other such interest rates as mutually agreed to between the
borrower and lending banks.
At December 29, 1996, WMC had $25 million outstanding against a one-year
evergreen credit commitment of $35 million entered into in 1990.
WFS has a revolving credit facility agreement that provides for: (1)
borrowings of up to $350 million and $450 million at June 29, 1997, and
December 29, 1996, respectively, 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. $330 million and $355 million were
outstanding under this facility at June 29, 1997, and December 29, 1996,
respectively.
<PAGE>
Weyerhaeuser Company
- -15-
At December 29, 1996, WMC had 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.
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>
June 29, Dec. 29,
Dollar amounts in millions 1997 1996
-------- --------
<S> <C> <C>
Weyerhaeuser $ 807 $ 889
Real estate and financial services -- 248
</TABLE>
No portion of these lines has been availed of by the company, WRECO or WFS
at June 29, 1997, and none was availed of by the company, WRECO, WMC or
WFS at December 29, 1996, except as noted.
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 6,529,301 shares at June
29, 1997, and 6,243,102 shares at December 29, 1996.
Note 9: Commitments and Contingencies
The company's capital expenditures, excluding acquisitions, have averaged
about $912 million in recent years, but are expected to be approximately
$750 million in 1997; however, that 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
- -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:
<TABLE>
<CAPTION>
Thirteen Weeks Twenty-six Weeks
Ended Ended
------------------ ------------------
June 29, June 30, June 29, June 30,
Dollar amounts in millions 1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales and revenues:
Timberlands and wood products $ 1,505 $ 1,368 $ 2,756 $ 2,484
Pulp, paper and packaging 1,144 1,201 2,250 2,418
Real estate 202 195 366 378
Financial services 27 48 77 97
Corporate and other 31 74 68 114
-------- -------- -------- --------
$ 2,909 $ 2,886 $ 5,517 $ 5,491
======== ======== ======== ========
Earnings before interest expense
and income taxes:
Timberlands and wood products(1) $ 211 $ 217 $ 382 $ 369
Pulp, paper and packaging(2) 22 35 (21) 197
Real estate 2 2 7 9
Financial services(3) (4) 48 4 49 7
Corporate and other(5) (46) (33) (82) (76)
-------- -------- -------- ---------
$ 237 $ 225 $ 335 $ 506
======== ======== ======== =========
</TABLE>
(1) 1997 second quarter and year-to-date results include a charge of $15
million associated with the closure of the Plymouth, North Carolina
plywood facility.
(2) 1997 year-to-date results include a special charge of $49 million for
the consolidation, closure or disposition of certain recycling facilities
and the permanent closure of the Longview, Washington corrugated medium
machine.
(3) 1997 second quarter and year-to-date results include a gain of $45
million from the sale of the company's wholly owned subsidiary,
Weyerhaeuser Mortgage Company, based in Woodland Hills, California.
(4) Includes net interest expense of $11 million and $19 million for
thirteen weeks and $26 million and $35 million for twenty-six weeks
related to the financial services businesses.
(5) 1997 year-to-date results include pretax income of $10 million from the
net effect of interest income from the favorable federal income tax
decision related to timber casualty losses incurred in the eruption of
Mount St. Helens in 1980 and the loss incurred in the sale of Shemin
Nurseries, a wholesale nursery business based in Danbury, Connecticut.
Consolidated Results
Consolidated net earnings for the second quarter were $109 million, or 56
cents per common share, compared with $103 million or 52 cents per common
share, in the same quarter last year. Included in the 1997 results was
a special after-tax income item of $19 million, or 9 cents per common
share, which was the net of the gain on the sale of Weyerhaeuser
Mortgage Company, and the costs associated with plans to close the
Plymouth, North Carolina plywood facility. These transactions are a
part of the company's ongoing effort to narrow its focus and upgrade the
quality of the assets of its core businesses.
Net sales and revenues for the quarter were $2.9 billion, unchanged from
the comparable quarter a year ago. Increases in domestic lumber volumes
and pricing over the 1996 first quarter were offset by weaker log exports
and lower pricing in oriented strandboard and most pulp, paper and
packaging products.
<PAGE>
Weyerhaeuser Company
- -17-
Year-to-date earnings were $130 million, or 66 cents per common share,
contrasted to the $245 million and $1.24 per common share reported a year
earlier. 1997 includes a net charge of $5.7 million, or 3 cents per
common share for the effect of special items year-to-date. In addition
to the special items recognized in the current quarter, the current year
results included losses from restructuring in the recycling
business, the permanent closure of a corrugated medium machine and
the sale of the wholesale nursery business, which were offset, in part,
by interest income from the favorable federal income tax decision
related to timber casualty losses incurred in the eruption of Mount
St. Helens in 1980.
Net sales for the first half were $5.5 billion, unchanged from last
year.
Timberlands and Wood Products
The quarter's operating earnings in the timberlands and wood products
segment, including the $15 million charge associated with the plywood mill
closure, were $211 million, compared with $217 million in the 1996
second quarter.
Net sales in this segment were $1.5 billion in the quarter, up from $1.4
billion a year earlier and the $1.3 billion reported in the first quarter.
The continued strong performance of the domestic softwood lumber market
over the comparable periods of 1996 helped moderate the weakness in
oriented strandboard prices compared to a year ago. Export log volumes
were up 30 percent over the first quarter; however, realizations continue
to be unfavorably impacted by the stronger US dollar/Yen exchange rate.
Third party sales and total production volumes for the major products in
this segment for the thirteen weeks and twenty-six weeks ended June 29,
1997, and June 30, 1996, respectively, are as follows:
<TABLE>
<CAPTION>
Thirteen Weeks Twenty-six Weeks
Ended Ended
------------------ ------------------
Third party sales volumes June 29, June 30, June 29, June 30,
(millions) 1997 1996 1997 1996
- ------------------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
Raw materials--cubic feet 150 146 296 278
Softwood lumber--board feet 1,320 1,237 2,456 2,247
Softwood plywood and
veneer--square feet (3/8") 556 590 1,045 1,074
Composite panels--square feet
(3/4") 148 171 291 324
Oriented strand board--square
feet (3/8") 632 535 995 1,194
Hardwood lumber--board feet 97 92 187 181
Engineered wood products--
lineal feet 39 33 66 54
Hardwood doors (thousands) 179 168 347 314
Total production volumes
(millions)
- ------------------------------
Logs--cubic feet 219 213 494 443
Softwood lumber--board feet 1,030 973 2,023 1,815
Softwood plywood and
veneer--square feet (3/8") 288 328 567 646
Composite panels--square feet
(3/4") 126 155 249 292
Oriented strand board--square
feet (3/8") 510 414 996 805
Hardwood lumber--board feet 90 90 175 173
Hardwood doors (thousands) 182 166 364 312
</TABLE>
Pulp, Paper and Packaging
The quarter's operating earnings in the pulp, paper and packaging
segment were $22 million, lower than the $35 million for the second
quarter of 1996, but up significantly from the $6 million, before
special items, reported in the 1997 first quarter.
Segment sales for the quarter were $1.1 billion, down slightly from the
$1.2 billion in the same quarter last year as year-to-year price declines
in most products were offset, in part, by higher volumes.
<PAGE>
Weyerhaeuser Company
- -18-
Third party sales and total production volumes for the major products in
this segment for the thirteen weeks and twenty-six weeks ended June 29,
1997, and June 30, 1996, respectively, are as follows:
<TABLE>
<CAPTION>
Thirteen Weeks Twenty-six Weeks
Ended Ended
------------------ ------------------
Third party sales volumes June 29, June 30, June 29, June 30,
(thousands) 1997 1996 1997 1996
- ------------------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
Pulp--air-dry metric tons 515 528 969 925
Newsprint--metric tons 173 169 333 304
Paper--tons 278 246 582 492
Paperboard--tons 56 56 115 102
Containerboard--tons 104 81 203 147
Packaging--MSF 11,640 10,872 22,593 20,888
Recycling--tons 580 516 1,130 959
Total production volumes
(thousands)
- ------------------------------
Pulp--air-dry metric tons 479 436 999 961
Newsprint--metric tons 173 161 346 295
Paper--tons 273 240 557 501
Paperboard--tons 60 53 109 101
Containerboard--tons 588 598 1,190 1,162
Packaging--MSF 12,155 11,319 23,620 21,946
Recycling--tons 924 882 1,853 1,683
</TABLE>
Real Estate and Financial Services
Real estate and financial services segments earned a combined pre-tax
income of $50 million in the current quarter, including the $45
million gain on the sale of Weyerhaeuser Mortgage Company, compared
to $6 million for the same period last year. The reduction of 6 percent
in revenues from 1996 second quarter reflects the sale of the mortgage
banking business early in the current year's quarter. The 1996 year-to-
date results included the sale of several major commercial real estate
projects.
Costs and Expenses
Weyerhaeuser's cost of products sold for the quarter as a percent of net
sales was 77 percent in the current quarter, unchanged from the 1996 second
quarter, as sales were relatively comparable in both periods. This is down
from the 79 percent reported in the 1997 first quarter.
Depreciation, amortization and fee stumpage for the quarter were up
marginally, and 10 percent year-to-date, over 1996 as new or acquired
facilities were added and optimization, expansion, modernization or upgrade
projects were completed at existing facilities. Non-cash charges to income
related to closure or disposition of facilities were $15 million for the
quarter and $64 million year-to-date.
Costs and expenses for the combined real estate and financial services
segments were lower from period to period as a result of the mortgage
banking business sale.
Other income (expense) is an aggregation of both recurring and occasional
income and expense items and, as a result, fluctuates from period to
period. Individual income (expense) items significant in relation to net
earnings were:
. The gain of $45 million from the sale of the mortgage banking
business by the financial services segment in the current quarter, and
. The Weyerhaeuser year-to-date $10 million net effect of interest
income from the favorable federal income tax decision related to
timber casualty losses incurred in the eruption of Mount St. Helens in
1980, and the loss incurred in the sale of the wholesale nursery
business.
There were no significant items in the comparable periods of 1996.
<PAGE>
Weyerhaeuser Company
- -19-
Liquidity and Capital Resources
General
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
Weyerhaeuser's net cash provided by operations was $318 million in the
first half of 1997 compared to $244 million provided in the same
period of 1996.
For the current year, funds were provided from net income of $94
million along with $316 million from depreciation, amortization and fee
stumpage and $64 million of non-cash charges for the closure or disposition
of facilities.
Working capital, net of the effects of the sale of a business,
increased by $187 million year-to-date. Significant use of funds were an
increase of $101 million in accounts receivable, primarily trade
receivables and a decrease of $124 million in accounts payable and
accrued liabilities, primarily trade payables and income taxes. Funds were
sourced, in part, by a $38 million decrease in inventories as logs and
chips and all pulp, paper and packaging inventories were down from year-
end levels, while wood products stocks were up. Product inventory
turnover rate improved to 12.5 turns in the quarter, up significantly
from 10.9 turns in the first quarter of 1997 and 10.4 turns in the
second quarter of 1996.
For the same period of 1996, the majority of the $330 million working
capital increase was attributable to a reduction of $250 million in
accounts payable and accrued liabilities.
The net cash used by operations in the combined real estate and
financial services segments year-to-date was $123 million, including uses
of a net $109 million for real estate and land purchases and
development and a net $74 million for mortgages held for sale, as
originations exceeded sales.
Earnings before interest expense and income taxes plus non-cash
charges for the twenty-six week periods ended June 29, 1997, and June
30, 1996 were $500 million and $480 million, respectively, for the
timberlands and wood products segment, and $169 million and $364
million, respectively, for the pulp, paper and packaging segment. Earnings
before interest and income taxes of $197 million this year compared to a
loss of $21 million last year was the primary driver in the increase from
period to period for the pulp, paper and packaging segment.
Investing
Capital expenditures for the first half were $304 million compared to $387
million, excluding acquisitions, in the same period of 1996.
Acquisition of southern U.S. timber and timberlands and two sawmills
accounted for spending of $448 million in the first half of 1996. The 1997
spending by segment was $147 million for timberlands and wood products,
$149 million for the pulp, paper and packaging segment and $8 million
for other segments. The company currently anticipates capital
expenditures, excluding acquisitions, to approximate
$750 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 is generated from
internal cash flow and short-term borrowing.
Proceeds from sale of businesses totaled $204 million in the first half
of 1997 with $192 million from the sale of the mortgage banking business
and $12 million from the sale of the wholesale nursery business.
<PAGE>
Weyerhaeuser Company
- -20-
Financing
During the first six months of 1997, Weyerhaeuser decreased long-term debt
by $118 million with funds being used to pay down $77 million of long-term
debt and $83 million of commercial paper borrowings while sourcing $38
million from the sale of industrial revenue bonds. The company's total
debt to equity ratio at the end of the current quarter was 36.7 percent,
down from the prior quarter's 39.3 percent and 37.9 percent at December
1996.
The increase in the 1996 first half was due primarily to issuances of $899
million in notes and commercial paper, offset, in part, by debt payments
of $131 million.
In the real estate and financial services segments, financing
activities provided a net $87 million made up of increases in
commercial paper of $188 million and other debt of $9 million to
support property purchases and construction activity, offset in part, by
debt paydown of $110 million.
During the first half of both 1997 and 1996, the company paid $158
million in cash dividends.
In the second quarter of 1997, the company repurchased $16 million of
common shares as a part of the 11 million share repurchase program. In
the first half of 1996, $34 million was used to repurchase shares.
Subsequent Events
On July 1, 1997, the company completed the purchase of a 51 percent
interest in an existing New Zealand joint venture located in the
northern end of the South Island. The company paid $185 million for
timber, land and related assets, plus an additional amount for the net
working capital at closing. The forested area of the joint venture
consists of 148,000 acres of Crown Forest License cutting rights and
approximately 45,000 acres of freehold land. The company will be
responsible for the management and marketing activities of the joint
venture. RII New Zealand Forests I Inc. continues to hold the
remaining 49 percent interest in the joint venture.
On July 10, 1997, the company announced the closing of the sale of
Saskatoon Chemicals Ltd. to a subsidiary of Sterling Chemicals
Holdings, Inc. The sales price, which is subject to post-closing
adjustments, will approximate $65 million. The company expects the gain
on the sale to have a material effect on its third quarter earnings.
This sale is part of a continuing effort to tighten the company's focus
on its core businesses.
On July 8, 1997, the company and Nippon Paper Industries Co., Ltd.
announced the signing of a memorandum of understanding restructuring
their North Pacific Paper Corporation (NORPAC) joint venture. Under
the agreement, the company and Nippon Paper each will own 50 percent of
NORPAC. The company currently owns 80 percent of the joint venture with
Nippon Paper holding the remaining 20 percent interest.
Marketing responsibilities are unchanged. The agreement is subject to
several contingencies, including approvals by the respective boards. The
company expects this transaction to have a material positive effect on
its cash flow in the quarter in which it closes.
On July 30, 1997, the company issued 6.95 percent debentures in the
amount of $300 million which will be due August 1, 2017. The net
proceeds to be received by the company from the sale of these
debentures will be added to the company's general funds and will be used
for general corporate purposes, including working capital, capital
expenditures and reduction of the company's commercial paper backed by a
long-term credit agreement. Pending such application, the net proceeds may
be invested in marketable securities.
Other Items
Weyerhaeuser, like all other companies using computers and
microprocessors, is faced with the task of addressing the Year 2000
problem over the next two years. The Year 2000 challenge arises from the
nearly universal practice in the computer industry of using two digits
rather than four digits to designate the calendar year (e.g., DD/MM/YY).
This can lead to incorrect results when computer software performs
arithmetic operations, comparisons or data field sorting involving
years later than 1999. The company has embarked on a comprehensive
approach to identify where this problem may occur in its information
technology, manufacturing, and facilities systems. The company plans to
modify or replace its affected systems in a manner that will minimize any
detrimental effects on operations. While it is not possible, at present,
to quantify the overall cost of this work, the company presently
believes that the ultimate outcome resulting from this work will 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 costs could have a material effect on results of
operations.
<PAGE>
Weyerhaeuser Company
- -21-
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.
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 contended that the company overpaid federal income taxes in 1977
through 1983. The alleged overpayments resulted from 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 (successor to the
United States Claims Court) issued an opinion on the casualty loss
issues which resulted 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 United States Supreme
Court denied the government's request for certiorari on January 21, 1997.
The case is on remand to the United States Court of Federal Claims to
apply the decision of the Court of Appeals for the Federal Circuit.
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 sought a declaratory judgment that the insurance companies
were obligated to defend the company and to pay, on the company's
behalf, certain claims relating to alleged environmental damage from
toxic substances to sites owned by third parties and the company. The
company subsequently 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 three phases. Two trials against the
remaining defendant, affecting nine sites, began in October 1994 and
February 1996, respectively, 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 remaining issue to be determined by the
trial court is what, if any, credit will be given for settlement
payments received by the other defendants. With respect to the
remaining sites, a voluntary dismissal was taken on 6 sites, and the
defendant's offer of judgment on the final 10 sites was accepted in June
1997.
The company conducted a review of its 10 major pulp and paper
facilities to evaluate the facilities' compliance with federal
Prevention of Significant Deterioration (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 Notice of Violation (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. No decision has been
made by the Lane County Oregon Regional Air Pollution Control
Authority concerning alleged PSD and permit violations at the
company's Springfield, Oregon, containerboard manufacturing facility.
<PAGE>
Weyerhaeuser Company
- -22-
PART II
Item 1. Legal Proceedings - Continued
- --------------------------------------
The Washington Department of Ecology 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, which has been
paid. The EPA is also investigating.
The Washington Department of Ecology has issued a NOV and a
$40 thousand penalty because of an accidental spill of an estimated
8,700 gallons of crude sulfate turpentine on January 27, 1997, at the
company's pulp and paper operations in Longview. The EPA is also
investigating.
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.
The NOV was referred to the Wisconsin Department of Justice
(WDOJ) for enforcement action on July 2, 1996. Settlement
negotiations with WDNR and WDOJ are ongoing. The company expects a
stipulated judgment and order resolving all issues will be executed on or
before August 31, 1997.
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, the company
removed the asbestos abatement subcontractor from the plantsite. The
WDNR and EPA Region V are 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.
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 sought $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 sought 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 for $2.5 million. On May 8,
1997, after a fairness hearing, the Alabama court entered an order
approving the settlement of the class action.
In November 1996, an action was filed against the company in Superior
Court for King County, Washington, on behalf of a purported class of all
individuals and entities that own property in the United States on which
exterior hardboard siding manufactured by the company has been installed
since 1980. The action alleges the company has manufactured and
distributed defective hardboard siding and has breached express
warranties and consumer protection statutes in its sale of hardboard
siding. The action seeks compensatory damages, including prejudgment
interest, and seeks damages for the cost of replacing siding that rots
subsequent to the entry of any judgment. In January 1997, an action was
filed, also in Superior Court for King County, Washington, on behalf
of a purported class of all individuals, proprietorships,
partnerships, corporations, and other business entities in the United
States on whose homes, condominiums, apartment complexes or commercial
buildings hardboard siding manufactured by the company has been
installed. The action alleges the company has breached express and
implied warranties in its sale of hardboard siding and also has
violated the Consumer Protection Act of the State of Washington. The
action seeks damages, prejudgment interest, costs and reasonable
attorney fees. The company is a defendant in approximately twenty-one
other hardboard siding cases, two of which purport to be class actions on
behalf of purchasers of single- or multi-family residences that contain
the company's hardboard siding, one in Nebraska and one in Iowa.
<PAGE>
Weyerhaeuser Company
- -23-
PART II
Item 1. Legal Proceedings - Continued
- --------------------------------------
On August 7, 1997, the company entered a plea of guilty to a misdemeanor
violation of the Migratory Bird Treaty Act in the U.S. District Court,
Western District of Washington, at Tacoma. The misdemeanor violation
involved the accidental poisoning of a hawk and an owl in the course of
starling pest control at the company's Longview, Washington pulp mill.
The company and the Department of Justice agreed to a disposition of the
misdemeanor which involved an undertaking by the company to conduct a
starling control research project at its Longview mill.
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 4. Submission of Matters to a Vote of Security Holders
Matters voted upon and votes cast at the annual meeting of
shareholders of Weyerhaeuser Company held on Tuesday, April 15, 1997
were:
. The reelection of John W. Creighton, Jr. and W. John Driscoll and
the election of Rt. Hon. Donald F. Mazankowski to the board of
directors.
<TABLE>
<CAPTION>
For Withheld
------------- -------------
<S> <C> <C>
Creighton 178,746,488 2,292,540
Driscoll 178,680,511 2,358,517
Mazankowski 178,407,674 2,631,354
</TABLE>
<TABLE>
<CAPTION>
For Against Abstain Broker Non-votes
----------- ----------- ---------- ------------------
<S> <C> <C> <C> <C>
Shareholder proposal
relating to the CERES
Principles 11,499,599 151,510,483 8,353,231 9,675,715
Shareholder proposal
relating to directors'
compensation 12,391,451 157,183,538 1,788,323 9,675,716
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Not applicable.
(b) The registrant filed reports on Form 8-K dated January 22,
February 24, April 15, May 23, June 19, July 1, July 9, July 11, and
July 17, 1997, reporting information under Item 5, Other Events.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-END> JUN-29-1997
<CASH> 39
<SECURITIES> 0
<RECEIVABLES> 1,073<F1>
<ALLOWANCES> 0
<INVENTORY> 950
<CURRENT-ASSETS> 2,270
<PP&E> 6,848<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,001
<CURRENT-LIABILITIES> 1,286
<BONDS> 4,695
<COMMON> 258
0
0
<OTHER-SE> 4,325
<TOTAL-LIABILITY-AND-EQUITY> 13,001
<SALES> 5,517
<TOTAL-REVENUES> 5,517
<CGS> 4,289
<TOTAL-COSTS> 4,289
<OTHER-EXPENSES> 467
<LOSS-PROVISION> 1
<INTEREST-EXPENSE> 156
<INCOME-PRETAX> 205
<INCOME-TAX> 75
<INCOME-CONTINUING> 130
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 130
<EPS-PRIMARY> .66
<EPS-DILUTED> .66
<FN>
<F1>Receivables are stated net of allowances.
<F2>Property, Plant and equipment is stated net of accumulated depreciation.
</FN>
</TABLE>
