SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the thirty-nine weeks ended September 28, 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 on
Title of Each Class 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 October 31, 1997 was 199,622,301 common shares ($1.25 par
value).
<PAGE>
Weyerhaeuser Company
- -2-
<TABLE>
<CAPTION>
WEYERHAEUSER COMPANY AND SUBSIDIARIES
Index to Form 10-Q Filing
For the Thirty-nine weeks ended September 28, 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 (not applicable)
Item 5. Other Information (not applicable)
Item 6. Exhibits and Reports on Form 8-K 23
</TABLE>
The financial information included in this report has been prepared in
conformity with accounting practices and methods reflected in the
financial statements included in the annual report (Form 10-K) filed
with the Securities and Exchange Commission for the year ended
December 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 thirty-nine week period ending September 28, 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
November 7, 1997
<PAGE>
Weyerhaeuser Company
- -3-
<TABLE>
<CAPTION>
WEYERHAEUSER COMPANY AND SUBSIDIARIES
____________
CONSOLIDATED EARNINGS
For the periods ended
September 28, 1997 and September 29, 1996
(Dollar amounts in millions except per share figures)
(Unaudited)
Thirteen weeks Thirty-nine
ended weeks ended
------------------- -------------------
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales and revenues:
Weyerhaeuser $ 2,582 $ 2,619 $ 7,656 $ 7,635
Real estate and related assets 241 233 684 708
--------- --------- --------- ---------
Net sales and revenues 2,823 2,852 8,340 8,343
--------- --------- --------- ---------
Costs and expenses:
Weyerhaeuser:
Costs of products sold 2,018 1,982 5,967 5,745
Depreciation, amortization and
fee stumpage 144 149 460 437
Selling, general and
administrative expenses 152 175 499 522
Research and development expenses 13 12 41 39
Taxes other than payroll and
income taxes 34 36 109 113
Charge for closure or
disposition of facilities 10 -- 74 --
--------- --------- --------- ---------
2,371 2,354 7,150 6,856
--------- --------- --------- ---------
Real estate and related assets:
Costs and operating expenses 202 161 542 509
Depreciation and amortization 2 3 10 12
Selling, general and
administrative expenses 13 45 83 121
Taxes other than payroll and
income taxes 2 3 6 7
--------- --------- --------- ---------
219 212 641 649
--------- --------- --------- ---------
Total costs and expenses 2,590 2,566 7,791 7,505
--------- --------- --------- ---------
Operating income 233 286 549 838
Interest expense and other:
Weyerhaeuser:
Interest expense incurred 66 69 204 206
Less interest capitalized 4 3 12 17
Other income (expense), net 6 (17) (10) (41)
Real estate and related assets:
Interest expense incurred 25 32 86 101
Less interest capitalized 18 15 53 49
Other income (expense), net 10 1 71 14
--------- --------- --------- ---------
Earnings before income taxes 180 187 385 570
Income taxes (Note 2) 66 67 141 205
--------- --------- --------- ---------
Net earnings $ 114 $ 120 $ 244 $ 365
========= ========= ========= =========
Per common share (Note 1):
Net earnings $ .57 $ .60 $ 1.23 $ 1.84
========= ========= ========= =========
Dividends paid $ .40 $ .40 $ 1.20 $ 1.20
========= ========= ========= =========
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
Weyerhaeuser Company
- -4-
<TABLE>
<CAPTION>
WEYERHAEUSER COMPANY AND SUBSIDIARIES
____________
CONSOLIDATED BALANCE SHEET
September 28, 1997 and December 29, 1996
(Dollar amounts in millions)
Sept. 28, Dec. 29,
1997 1996
----------- ---------
(Unaudited)
<S> <C> <C>
Assets
- ------
Weyerhaeuser
Current assets:
Cash and short-term investments (Note 1) $ 23 $ 33
Receivables, less allowances 973 902
Inventories (Note 3) 938 1,001
Prepaid expenses 274 289
--------- ---------
Total current assets 2,208 2,225
Property and equipment (Note 4) 6,738 7,007
Construction in progress 528 417
Timber and timberlands at cost, less fee
stumpage charged to disposals 1,005 1,073
Other assets and deferred charges 438 246
--------- ---------
10,917 10,968
--------- ---------
Real estate and related assets
Cash and short-term investments,
including restricted deposits 20 38
Receivables, less discounts and allowances 71 99
Mortgage notes held for sale -- 334
Mortgage loans receivable 67 133
Mortgage-backed certificates and
other pledged financial instruments 153 154
Real estate in process of development and for sale 711 680
Land being processed for development 841 719
Investments in and advances to joint ventures
and limited partnerships, less reserves 114 115
Rental properties, less accumulated depreciation 134 150
Other assets 90 206
--------- ---------
2,201 2,628
--------- ---------
Total assets $ 13,118 $ 13,596
========= =========
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
Weyerhaeuser Company
- -5-
<TABLE>
<CAPTION>
Sept. 28, Dec. 29,
1997 1996
----------- --------
(Unaudited)
<S> <C> <C>
Liabilities and shareholders' interest
- --------------------------------------
Weyerhaeuser
Current liabilities:
Notes payable (Note 6) $ 202 $ 16
Current maturities of long-term debt 12 80
Accounts payable (Note 1) 654 725
Accrued liabilities (Note 5) 591 662
---------- ---------
Total current liabilities 1,459 1,483
Long-term debt (Note 7) 3,275 3,546
Deferred income taxes 1,366 1,324
Deferred pension and other liabilities 505 493
Minority interest in subsidiaries 119 113
Commitments and contingencies (Note 9) -- --
---------- ---------
6,724 6,959
---------- ---------
Real estate and related assets
Notes payable and commercial paper 332 245
Long-term debt (Note 7) 1,152 1,537
Other liabilities 267 251
Commitments and contingencies (Note 9) -- --
---------- ---------
1,751 2,033
---------- ---------
Total liabilities 8,475 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 398 407
Cumulative translation adjustment (105) (93)
Retained earnings 4,378 4,372
Treasury common shares, at cost: 6,517,032 and
7,736,601 (286) (340)
---------- ---------
Total shareholders' interest 4,643 4,604
---------- ---------
Total liabilities and shareholders' interest $ 13,118 $ 13,596
========== =========
</TABLE>
<PAGE>
Weyerhaeuser Company
- -6-
<TABLE>
<CAPTION>
WEYERHAEUSER COMPANY AND SUBSIDIARIES
____________
CONSOLIDATED STATEMENT OF CASH FLOWS
For the thirty-nine week periods ended September 28, 1997 and
September 29, 1996
(Dollar amounts in millions)
(Unaudited)
Consolidated
-------------------
Sept. 28, Sept. 29,
1997 1996
--------- ---------
<S> <C> <C>
Cash provided by (used for) operations:
Net earnings $ 244 $ 365
Non-cash charges to income:
Depreciation, amortization and fee stumpage 470 449
Deferred income taxes, net 70 125
Charge for closure or disposition of facilities 74 --
Decrease (increase) in working capital:
Accounts receivable (72) (6)
Inventories, prepaid expenses, real estate and land (90) 95
Mortgage notes held for sale and mortgage loans
receivable (67) (107)
Accounts payable and accrued liabilities (89) (206)
Loss on disposition of assets 7 7
(Gain) on disposition of businesses (58) --
Other 54 (21)
--------- ---------
Cash provided by (used for) operations 543 701
--------- ---------
Cash provided by (used for) investing activities:
Property and equipment (417) (548)
Timber and timberlands (34) (34)
Interest in a joint venture (190) --
Property and equipment and timber and timberlands
from acquisitions -- (448)
Proceeds from sale of:
Property and equipment 33 64
Mortgage and investment securities 29 111
Businesses 269 --
Intercompany advances -- --
Other 13 (39)
--------- ---------
Cash provided by (used for) investing activities (297) (894)
--------- ---------
Cash provided by (used for) financing activities:
Issuances of debt 508 8
Sale of industrial revenue bonds 38 33
Notes and commercial paper borrowings, net (384) 765
Cash dividends on common shares (238) (238)
Payments on debt (240) (350)
Purchase of treasury common shares (16) (45)
Exercise of stock options 61 19
Other (3) --
--------- ---------
Cash provided by (used for) financing activities (274) 192
--------- ---------
Net increase (decrease) in cash and short-term investments (28) (1)
Cash and short-term investments at beginning of year 71 84
--------- ---------
Cash and short-term investments at end of period $ 43 $ 83
========= =========
Cash paid (received) during the period for:
Interest, net of amount capitalized $ 259 $ 279
========= =========
Income taxes $ 30 $ 137
========= =========
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
Weyerhaeuser Company
- -7-
<TABLE>
<CAPTION>
Real Estate and
Weyerhaeuser Related Assets
------------------- -------------------
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <S> <S> <S>
$ 192 $ 353 $ 52 $ 12
460 437 10 12
51 89 19 36
74 -- -- --
(77) (4) 5 (2)
63 14 (153) 81
-- -- (67) (107)
(135) (209) 46 3
13 10 (6) (3)
(13) -- (45) --
58 (8) (4) (13)
--------- --------- --------- ---------
686 682 (143) 19
--------- --------- --------- ---------
(415) (541) (2) (7)
(34) (34) -- --
(190) -- -- --
-- (448) -- --
19 53 14 11
-- -- 29 111
77 -- 192 --
198 (24) (198) 24
(2) (29) 15 (10)
--------- --------- --------- ---------
(347) (1,023) 50 129
--------- --------- --------- ---------
495 8 13 --
38 33 -- --
(605) 753 221 12
(238) (238) -- --
(81) (178) (159) (172)
(16) (45) -- --
61 19 -- --
(3) -- -- --
--------- --------- --------- ---------
(349) 352 75 (160)
--------- --------- --------- ---------
(10) 11 (18) (12)
33 34 38 50
--------- --------- --------- ---------
$ 23 $ 45 $ 20 $ 38
========= ========= ========= =========
$ 225 $ 229 $ 34 $ 50
========= ========= ========= =========
$ 68 $ 154 $ (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 thirty-nine week periods ended September 28, 1997 and September 29, 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
(or the company), principally engaged in the growing and harvesting of
timber and the manufacture, distribution and sale of forest products,
and (2) Real estate and related assets, principally engaged in real
estate development and construction and other real estate related
activities.
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 Thirty-nine weeks
ended ended
------------------- -------------------
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Basic earnings per share $ .57 $ .60 $ 1.23 $ 1.84
Diluted earnings per share $ .57 $ .60 $ 1.22 $ 1.83
</TABLE>
Options to purchase 1,216,400 shares at $45.94 per share,
4,700 shares at $47.13 per share, and 1,178,400 at $48.13 per
share were outstanding during the thirty-nine week period ended
September 29, 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 198,755,580 and 198,319,551 at
September 28, 1997, and September 29, 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
$492 million and $807 million at September 28, 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
$231 million and $296 million at September 28, 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 $231 million and $239 million greater at September 28,
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 $116 million and $164 million at
September 28, 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 Related Assets
With the sale of the mortgage banking business in the 1997 second
quarter, the financial services segment is no longer material to the
results of the company. Beginning with the 1997 third quarter, the
remaining real estate activities in financial services have been
combined with real estate into one segment entitled real estate and
related assets.
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.
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 year, there were no mortgage notes held for sale
outstanding at September 28, 1997.
Mortgage-backed certificates are carried at par value, adjusted for
any unamortized discount or premium. These certificates and other
financial instruments are pledged as collateral for the collateralized
mortgage obligation (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.
Related 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.
<PAGE>
Weyerhaeuser Company
- -13-
<TABLE>
<CAPTION>
Note 2: Income Taxes
Provisions for income taxes include the following:
Thirty-nine weeks ended
-----------------------
Sept. 28, Sept. 29,
Dollar amounts in millions 1997 1996
----------- ----------
<S> <C> <C>
Federal:
Current $ 39 $ 42
Deferred 71 124
----------- ----------
110 166
----------- ----------
State:
Current 3 6
Deferred 3 7
----------- ----------
6 13
----------- ----------
Foreign:
Current 29 32
Deferred (4) (6)
----------- ----------
25 26
----------- ----------
Total $ 141 $ 205
=========== ==========
</TABLE>
Income tax provisions for interim periods are based on the current
best estimate of the effective tax rate expected to be applicable for
the full year. The effective tax rate reflects anticipated tax
credits, foreign taxes and other tax planning alternatives.
For the periods ended September 28, 1997, and September 29, 1996, the
company's provision for income taxes as a percent of earnings before
income taxes is greater than the 35 percent federal statutory rate due
principally to the effect of state income taxes. The effective tax
rates for the thirty-nine week periods ended September 28, 1997, and
September 29, 1996, were 36.5 percent and 36 percent, respectively.
Deferred taxes are provided for the temporary differences between the
financial and tax bases of assets and liabilities, applying presently
enacted tax rates and laws. The major sources of these temporary
differences include depreciable and depletable assets, real estate,
restructuring reserves, and pension and retiree health care
liabilities.
Note 3: Inventories
<TABLE>
<CAPTION>
Sept. 28, Dec. 29,
Dollar amounts in millions 1997 1996
--------- --------
<S> <C> <C>
Logs and chips $ 75 $ 120
Lumber, plywood and panels 154 148
Pulp, newsprint and paper 181 202
Containerboard, paperboard and packaging 98 108
Other products 150 146
Materials and supplies 280 277
--------- ---------
$ 938 $ 1,001
========= =========
</TABLE>
<PAGE>
Weyerhaeuser Company
- -14-
Note 4: Property and Equipment
<TABLE>
<CAPTION>
Sept. 28, Dec. 29,
Dollar amounts in millions 1997 1996
--------- --------
<S> <C> <C>
Property and equipment, at cost:
Land $ 160 $ 158
Buildings and improvements 1,677 1,686
Machinery and equipment 9,711 9,713
Rail and truck roads and other 597 596
--------- --------
12,145 12,153
Less allowance for depreciation
and amortization 5,407 5,146
--------- --------
$ 6,738 $ 7,007
========= ========
</TABLE>
Note 5: Accrued Liabilities
<TABLE>
<CAPTION>
Sept. 28, Dec. 29,
Dollar amounts in millions 1997 1996
--------- --------
<S> <C> <C>
Payroll - wages and salaries, incentive awards,
retirement and vacation pay $ 256 $ 279
Taxes - social security and real and personal property 63 57
Interest 46 79
Income taxes 47 51
Other 179 196
--------- --------
$ 591 $ 662
========= ========
</TABLE>
Note 6: Short-Term Debt
Debt
The company's short-term debt at September 28, 1997 was $202 million
which included a $190 million bank loan.
Lines of Credit
The company has short-term bank credit lines that provide for
borrowings of up to the total amount of $352.5 million, all of which
could be availed of by the company and Weyerhaeuser Real Estate
Company (WRECO) at September 28, 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 September 28, 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.
At December 29, 1996, WMC had $54 million outstanding against short-
term special credit lines that provided for borrowings of up to
$230 million.
Note 7: Long-Term Debt
Debt
Included in the company's long-term debt is a $300 million
6.95 percent debenture issued during the current quarter and due in
the year 2017.
Lines of Credit
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 $1.1 billion, all of which is available to the company. Borrowings
<PAGE>
Weyerhaeuser Company
- -15-
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.
Weyerhaeuser Financial Services, Inc. (WFS), a wholly owned
subsidiary, has a revolving/term credit facility agreement that
provides for: (1) borrowings of up to $350 million and $450 million
at September 28, 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
September 28, 1997, and December 29, 1996, respectively.
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>
Sept. 28, Dec. 29,
Dollar amounts in millions 1997 1996
--------- --------
<S> <C> <C>
Weyerhaeuser $ 284 $ 889
Real estate and related assets -- 248
</TABLE>
No portion of these lines has been availed of by the company, WRECO or
WFS at September 28, 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 5,689,082 shares at
September 28, 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 Thirty-nine
ended weeks ended
------------------- -------------------
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
Dollar amounts in millions 1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales and revenues:
Timberlands and wood products $ 1,389 $ 1,437 $ 4,145 $ 3,921
Pulp, paper and packaging 1,160 1,130 3,410 3,548
Real estate and related assets (5) 241 233 684 708
Corporate and other 33 52 101 166
--------- --------- --------- ---------
$ 2,823 $ 2,852 $ 8,340 $ 8,343
========= ========= ========= =========
Earnings before interest expense
and income taxes:
Timberlands and wood products (1) $ 172 $ 210 $ 554 $ 579
Pulp, paper and packaging (2) 97 79 76 276
Real estate and
related assets (3) (4) (5) 24 5 80 21
Corporate and other (6) (52) (41) (134) (117)
--------- --------- --------- ---------
$ 241 $ 253 $ 576 $ 759
========= ========= ========= =========
</TABLE>
(1) 1997 third quarter and year-to-date results include charges of
$10 million and $25 million, respectively, associated with the
closures of the Philadelphia, MS and Plymouth, NC, plywood
facilities.
(2) 1997 year-to-date results include special items of $28 million
which is the net of a $49 million charge for the consolidation,
closure or disposition of certain recycling facilities and the
closure of the Longview, WA corrugated medium machine in prior
quarters and a gain of $21 million on the sale of Saskatoon
Chemicals, Ltd. during the current quarter.
(3) 1997 year-to-date results include a gain of $45 million from
the sale of the company's wholly owned subsidiary, Weyerhaeuser
Mortgage Company.
(4) Includes net interest expense of $7 million and $17 million for
thirteen weeks and $33 million and $52 million for thirty-nine
weeks related to the financial services businesses.
(5) With the sale of the mortgage banking business in the 1997 second
quarter, the financial services segment is no longer material to
the results of the company. Beginning with the third quarter
of 1997, financial services, consisting principally of real estate
related assets, has been combined with real estate into one segment.
(6) 1997 year-to-date results include pretax income of $10 million
which is the net effect of interest income from a favorable federal
income tax decision and the loss incurred in the sale of Shemin
Nurseries.
Consolidated Results
Consolidated net earnings for the third quarter were $114 million, or
57 cents per common share, compared with $120 million or 60 cents per
common share, in the same quarter last year. Included in the 1997
quarterly results was a net after-tax gain of $7 million, or 4 cents
per common share, from the gain on the sale of the company's chemical
business in Saskatoon, SK, Canada, offset in part by the costs
associated with the planned closure of the Philadelphia, MS 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 $2.8 billion, equivalent
to the $2.9 billion reported in the comparable quarter a year ago.
Global economic growth continues to drive increasing demand for pulp
and paper products and improved market prices for most pulp, paper and
packaging products. The performance of the timberland and wood
products businesses, however, has been hurt by a weak Japanese housing
market. This slowdown in the Japanese market could continue to affect
results into next year.
Year-to-date earnings were $244 million, or $1.23 per common share,
compared to the $365 million and $1.84 per common share reported a
year earlier. 1997 results include a net gain of $1 million, or
1 cent per common share for the effect of special items year-to-date.
In addition to the special items recognized in the current quarter,
1997 results included losses from restructuring in the recycling
business, the closure of a corrugated medium machine, the closure of
<PAGE>
Weyerhaeuser Company
- -17-
another plywood mill and the sale of the wholesale nursery business,
offset by a gain on the sale of the company's mortgage banking
business and interest income from a favorable federal income tax
decision.
Net sales for the first nine months were $8.3 billion, unchanged from
the same period last year.
Timberlands and Wood Products
Operating earnings in the timberlands and wood products segment for
the quarter, including a $10 million charge associated with the
plywood mill closure, were $172 million. Excluding the charge, the
segment reported operating earnings of $182 million compared with
$210 million in the 1996 third quarter.
The segment had net sales of $1.4 billion in the quarter, equaling the
same period a year earlier and down slightly from the $1.5 billion
reported in the current year's second quarter. In addition to weaker
lumber and log sales to Japan as a result of slower housing starts,
lower domestic structural panel prices affected the segment's
performance.
During the quarter, the company completed the purchase of a 51 percent
interest in an existing New Zealand joint venture. The company paid
$190 million for timber, land and related assets and 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.
Third party sales and total production volumes for the major products
in this segment for the thirteen weeks and thirty-nine weeks ended
September 28, 1997, and September 29, 1996, respectively, are as
follows:
<TABLE>
<CAPTION>
Thirteen weeks Thirty-nine weeks
ended ended
------------------- -------------------
Third party sales volumes Sept. 28, Sept. 29, Sept. 28, Sept. 29,
(millions) 1997 1996 1997 1996
- --------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Raw materials--cubic feet 148 145 444 423
Softwood lumber--board feet 1,249 1,327 3,705 3,574
Softwood plywood and
veneer--square feet (3/8") 536 590 1,581 1,664
Composite panels--square feet (3/4") 135 147 426 471
Oriented strand board--square
feet (3/8") 650 549 1,844 1,544
Hardwood lumber--board feet 90 83 277 264
Engineered wood products--
lineal feet 39 34 105 88
Hardwood doors (thousands) 197 179 544 493
Total production volumes
(millions)
- ---------------------------
Logs--cubic feet 241 221 733 664
Softwood lumber--board feet 1,016 955 3,039 2,770
Softwood plywood and
veneer--square feet (3/8") 291 318 858 964
Composite panels--square feet (3/4") 120 123 369 415
Oriented strand board--square
feet (3/8") 523 426 1,519 1,231
Hardwood lumber--board feet 92 78 267 251
Hardwood doors (thousands) 191 173 555 485
</TABLE>
Pulp, Paper and Packaging
The quarter's operating earnings in the pulp, paper and packaging
segment were $97 million, including the $21 million gain on the sale
of Saskatoon Chemicals, Ltd. Excluding the gain, the segment reported
operating earnings of $76 million, 4 percent off the $79 million
reported in the third quarter of 1996, but up significantly from the
$22 million reported in the 1997 second quarter. The improvement that
began late in the second quarter following implementation of price
increases in pulp, paper and newsprint has continued during the third
quarter.
Net sales for the quarter were $1.2 billion, up slightly from the
$1.1 billion reported both in the same quarter last year and the 1997
second quarter.
<PAGE>
Weyerhaeuser Company
- -18-
Third party sales and total production volumes for the major products
in this segment for the thirteen weeks and thirty-nine weeks ended
September 28, 1997, and September 29, 1996, respectively, are as
follows:
<TABLE>
<CAPTION>
Thirteen weeks Thirty-nine weeks
ended ended
------------------- -------------------
Third party sales volumes Sept. 28, Sept. 29, Sept. 28, Sept. 29,
(thousands) 1997 1996 1997 1996
- -------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Pulp--air-dry metric tons 494 479 1,463 1,404
Newsprint--metric tons 166 150 499 454
Paper--tons 291 248 873 740
Paperboard--tons 62 58 177 160
Containerboard--tons 86 108 289 255
Packaging--MSF 11,180 10,905 33,773 31,793
Recycling--tons 538 514 1,668 1,473
Total production volumes
(thousands)
- --------------------------
Pulp--air-dry metric tons 520 549 1,519 1,510
Newsprint--metric tons 180 165 526 460
Paper--tons 283 262 840 763
Paperboard--tons 64 55 173 156
Containerboard--tons 595 597 1,785 1,759
Packaging--MSF 11,666 11,498 35,286 33,444
Recycling--tons 864 884 2,717 2,567
</TABLE>
Real Estate and Related Assets
With the sale of the mortgage banking business in the 1997 second
quarter, the financial services segment is no longer material to the
results of the company. Beginning with the 1997 third quarter, the
remaining real estate activities in financial services have been
combined with real estate into one segment entitled real estate and
related assets.
This segment's operating earnings for the current quarter were
$24 million compared to $5 million for the same period last year.
This increase reflects the strong housing markets in the area served
by the company's real estate businesses.
Costs and Expenses
Weyerhaeuser's cost of products sold for the quarter as a percent of
net sales was 78 percent in the current quarter, up from the 1996
third quarter and the 77 percent reported in the 1997 second quarter.
Depreciation, amortization and fee stumpage were down marginally for
the quarter and up 5 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
$10 million for the quarter and $74 million year-to-date.
Total costs and expenses for the real estate and related assets
segment were relatively even from period to period. An increase in
costs and operating expenses corresponds with the increase in revenues
from the sale of a large commercial real estate project in the
quarter. Reduced selling, general and administrative costs in the
quarter, when compared to the prior year, are due to the sale of the
mortgage banking business.
Other income (expense) is an aggregation of both recurring and
occasional income or expense items and, as a result, fluctuates from
period to period. An individual income item significant in relation
to net earnings in the third quarter was the gain of $21 million on
the sale of Saskatoon Chemicals, Ltd. In addition, year-to-date items
of significance were the gain of $45 million from the sale of the
mortgage banking business in the real estate and related assets
segment and the $10 million net income effect of interest income from
a favorable federal income tax decision and the loss incurred in the
sale of the wholesale nursery business.
There were no significant individual 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 $686 million in the
first nine months of 1997 compared to $682 million provided in the
same period of 1996. For the current year, funds were provided from
net income of $192 million along with $460 million from depreciation,
amortization and fee stumpage and $74 million of non-cash charges for
the closure or disposition of facilities.
Working capital, net of the effects of the sale of businesses,
increased by $149 million year-to-date; however, there was a reduction
of $38 million for the quarter. Material uses of funds year-to-date
were an increase of $77 million in accounts receivable, primarily
trade receivables, and a net decrease of $135 million in accounts
payable, primarily trade payables, and accrued liabilities. Funds
were sourced, in part, by a $63 million decrease in inventories as
logs and chips and all pulp, paper, and packaging inventories were
down from year-end levels, while wood products inventories were up.
The annualized product inventory turnover rate was 12.6 turns in the
quarter, up slightly from 12.5 turns in the second quarter of 1997 and
up significantly from 10.8 turns in the third quarter of 1996.
For the same period of 1996, the majority of the net $199 million
working capital increase was attributable to a reduction of
$209 million in accounts payable and accrued liabilities.
Year-to-date earnings before interest expense and income taxes plus
non-cash charges for the timberlands and wood products segment were
$733 million, relatively unchanged from $741 million in 1996. The
pulp, paper and packaging segment had $344 million, down from
$535 million a year earlier as a result of lower earnings.
The net cash used by operations in the real estate and related assets
segment year-to-date was $143 million. Cash was provided by net
income of $52 million, including a $45 million gain on the sale of the
mortgage banking business. Increased working capital needs used cash
of $169 million including outlays of $153 million for real estate
purchases and development and a net $67 million for mortgages held for
sale, as originations exceeded sales. This was offset in part from
cash provided by a $46 million increase in accounts payable and
accrued liabilities.
Investing
Capital expenditures, excluding acquisitions, for the first nine
months were $451 million compared to $582 million in the same period
of 1996. Acquisition of southern U.S. timber and timberlands and two
sawmills accounted for spending of $448 million in 1996. The 1997
year-to-date spending by segment was $202 million for timberlands and
wood products, $235 million for the pulp, paper and packaging segment
and $14 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.
During the third quarter, the company expended $190 million to acquire
51 percent of a forestry joint venture in New Zealand.
<PAGE>
Weyerhaeuser Company
- -20-
The cash needed to meet these and other company needs was generated
from internal cash flow, issuance of debt, sale of businesses and
short-term borrowing.
Proceeds from sale of businesses totaled $269 million in the first
nine months of 1997, with $65 million in the current quarter from the
sale of the Saskatoon chemical business. $192 million was received
from the sale of the mortgage banking business and $12 million from
the sale of the wholesale nursery business in prior quarters.
Financing
During the first nine months of 1997, Weyerhaeuser decreased total
debt by $153 million. This was the net of debt repayments of
$81 million and reduction in commercial paper of $605 million offset
by $533 million in new borrowings.
During the quarter, the company issued $300 million of 6.95 percent
20 year debentures for general corporate purposes, entered into a
$190 million short-term note to finance the New Zealand acquisition
and paid down $522 million of its commercial debt.
The company's total debt to equity ratio at the end of the current
quarter was 36.7 percent, down from the second quarter's 37.3 percent
and 37.9 percent at December 1996.
The net increase in debt for the comparable period of 1996 was due,
primarily, to issuances of $761 million in debt and commercial paper,
offset, in part, by debt payments of $178 million.
In the real estate and related assets segment, financing activities
provided a net $75 million made up of increases in commercial paper of
$221 million and other debt of $13 million to support property
purchases and construction activity offset, in part, by debt paydown
of $159 million.
In the first nine months of both 1997 and 1996, the company paid
$238 million in cash dividends.
Year-to-date 1997, the company repurchased $16 million of common
shares as a part of the 11 million share repurchase program. No
shares were repurchased in the current quarter. In the first nine
months of 1996, $45 million was used to repurchase shares.
Subsequent Events
In October 1997, the company issued additional 6.95 percent debentures
in the amount of $300 million which will be due August 1, 2027. 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.
In November 1997, the company entered into a new revolving credit
facility agreement and a 364-day lines of credit agreement. The
$400 million five-year revolving credit facility agreement, available
to the company, replaces the existing $1.1 billion five-year
competitive advance and revolving credit facility agreement entered
into in 1994. The 364-day lines of credit agreement, available to the
company and WRECO, provides for borrowings of up to $400 million. It
replaces existing short-term bank lines of credit that provided for
borrowings up to the amount of $327.5 million at September 28, 1997.
Other Items
During the quarter, 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 effect on its
cash flow in the quarter in which it closes.
<PAGE>
Weyerhaeuser Company
- -21-
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.
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. On October 23, 1997, the United States Court of
Federal Claims entered a judgment in favor of the company for refund
of taxes in the amount of $9 million plus statutory interest. The
company has received a partial refund of $7 million in tax plus
statutory interest.
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
<PAGE>
Weyerhaeuser Company
- -22-
PART II
Item 1. Legal Proceedings - Continued
- --------------------------------------
(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.
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
<PAGE>
Weyerhaeuser Company
- -23-
PART II
Item 1. Legal Proceedings - Continued
- --------------------------------------
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.
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 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,
July 17, September 4, and October 15, 1997, reporting information
under Item 5, Other Events.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-END> SEP-28-1997
<CASH> 43
<SECURITIES> 0
<RECEIVABLES> 1,044<F1>
<ALLOWANCES> 0
<INVENTORY> 938
<CURRENT-ASSETS> 2,208
<PP&E> 6,738<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,118
<CURRENT-LIABILITIES> 1,459
<BONDS> 4,427
<COMMON> 258
0
0
<OTHER-SE> 4,385
<TOTAL-LIABILITY-AND-EQUITY> 13,118
<SALES> 8,340
<TOTAL-REVENUES> 8,340
<CGS> 6,509
<TOTAL-COSTS> 6,509
<OTHER-EXPENSES> 659
<LOSS-PROVISION> 5
<INTEREST-EXPENSE> 225
<INCOME-PRETAX> 385
<INCOME-TAX> 141
<INCOME-CONTINUING> 244
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 244
<EPS-PRIMARY> 1.23
<EPS-DILUTED> 1.23
<FN>
<F1>Receivables are stated net of allowances.
<F2>Property, Plant and Equipment is stated net of accumulated depreciation.
</FN>
</TABLE>
