SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO
X SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 29, 1996 or
TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 1-4825
WEYERHAEUSER COMPANY
A Washington Corporation (IRS Employer
Identification No.
91-0470860)
Tacoma, Washington 98477
Telephone (206) 924-2345
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
- ------------------------------- -------------------------
Common Shares ($1.25 par value) Chicago Stock Exchange
New York Stock Exchange
Pacific Stock Exchange
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___.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [ ].
As of February 21, 1997, 198,549,288 shares of the registrant's common
stock ($1.25 par value) were outstanding and the aggregate market
value of the registrant's voting shares held by non-affiliates was
approximately $9,182,904,570.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the fiscal year
ended December 29, 1996 are incorporated by reference into Parts I, II
and IV.
Portions of the Notice of 1997 Annual Meeting of Shareholders and
Proxy Statement are incorporated by reference into Part III.
<PAGE>
Weyerhaeuser Company and Subsidiaries
TABLE OF CONTENTS
- ----------------------------------------------------------------
<TABLE>
<CAPTION>
PART I Page
----
<C> <C> <S>
Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market Price of and Dividends on the Registrant's
Common Equity and Related Stockholder Matters 13
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 8. Financial Statements and Supplementary Information 13
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 13
PART III
Item 10. Directors and Executive Officers of the Registrant 14
Item 11. Executive Compensation 14
Item 12. Security Ownership of Certain Beneficial Owners
and Management 14
Item 13. Certain Relationships and Related Transactions 14
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 15
Signatures 16
Report of Independent Public Accountants on
Financial Statement Schedules 17
Schedule II Valuation and Qualifying Accounts 18
</TABLE>
2
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART I
- -----------------------------------------------------------------
Item 1. Business
- -----------------
Weyerhaeuser Company (the company) was incorporated in the state of
Washington in January 1900, as Weyerhaeuser Timber Company. It is
principally engaged in growing and harvesting of timber and the
manufacture, distribution and sale of forest products, real estate
development and construction, and financial services. Its principal
business segments include timberlands and wood products; pulp, paper
and packaging; real estate; and financial services.
Information with respect to the description and general development of
the company's business, included on pages 42 through 47, Description
of the Business of the Company, contained in the company's 1996 Annual
Report to Shareholders, is incorporated herein by reference.
Financial information with respect to industry segments, included in
Note 18 of Notes to Financial Statements contained in the company's
1996 Annual Report to Shareholders, is incorporated herein by
reference.
Timberlands and Wood Products
The company owns approximately 5.3 million acres of commercial
forestland in the United States (61% in the South and 39% in the
Pacific Northwest), most of it highly productive and located
extremely well to serve both domestic and international markets. The
company has, additionally, long-term license arrangements in Canada
covering approximately 22.9 million acres (of which 15 million acres
are considered to be productive forestland). The combined total
timber inventory on these U.S. and Canadian lands is approximately
266 million cunits (a cunit is 100 cubic feet of solid wood), of which
approximately 75% is softwood species. The relationship between cubic
measurement and the quantity of end products that may be produced from
timber varies according to the species, size and quality of timber,
and will change through time as the mix of these variables changes.
To sustain the timber supply from its fee timberlands, the company is
engaged in extensive planting, suppression of nonmerchantable species,
precommercial and commercial thinning, fertilization and operational
pruning, all of which increase the yield from its fee timberland
acreage.
<TABLE>
<CAPTION>
Inventory Thousands of Acres at December 29, 1996
--------- -------------------------------------------
Millions Fee Long- term License
of Cunits Ownership Leases Arrangements Total
--------- --------- ---------- ------------ -------
<C> <S> <S> <S> <S> <S>
Geographic Area
United States
West 57 2,077 -- -- 2,077
South 35 3,249 229 -- 3,478
--------- --------- ---------- ------------ -------
Total United
States 92 5,326 229 -- 5,555
--------- --------- ---------- ------------ -------
Canada
Alberta 91 -- -- 6,704 6,704
British
Columbia 10 38 -- 3,800 3,838
Saskatchewan 73 -- -- 12,359 12,359
--------- --------- ---------- ------------ -------
Total Canada 174 38 -- 22,863 22,901
--------- --------- ---------- ------------ -------
TOTAL 266 5,364 229 22,863 28,456
========= ========= ========== ============ =======
</TABLE>
<TABLE>
<CAPTION>
Thousands of Acres
Thousands of Acres Millions of -----------------------
------------------ Seedlings Stocking
Harvested Planted Planted Control Fertilization
--------- ------- ----------- -------- -------------
<C> <S> <S> <S> <S> <S>
1996 Activity
West 38.0 42.6 21.7 4.0 48.4
South 51.9 45.2 25.5 .5 223.1
--------- ------- ----------- -------- ------------
Total United
States 89.9 87.8 47.2 4.5 271.5
========= ======= =========== ======== =============
</TABLE>
3
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART I
- -----------------------------------------------------------------
Item 1. Business - Continued
- -----------------------------
The company's wood products businesses produce and sell softwood
lumber, plywood and veneer; composite panels; oriented strand board;
hardwood lumber and plywood; doors; treated products; logs; chips and
timber. These products are sold primarily through the company's own
sales organizations. Building materials are sold to wholesalers,
retailers and industrial users.
Sales volumes by major product class are as follows (millions):
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----- ----- ----- ----- -----
<C> <S> <S> <S> <S> <S>
Raw materials - cubic ft. 577 535 564 547 545
Softwood lumber - board ft. 4,745 4,515 4,402 4,230 3,440
Softwood plywood and veneer -
sq. ft. (3/8") 2,172 2,324 2,685 2,435 2,227
Composite panels - sq. ft. (3/4") 604 648 660 626 590
Oriented strand board -
sq. ft. (3/8") 2,083 1,931 1,803 1,672 1,484
Hardboard - sq. ft. (7/16") 193 201 167 140 133
Hardwood lumber - board ft. 349 293 254 240 218
Engineered wood products -
lineal ft. 116 128 71 47 --
Hardwood doors (thousands) 652 648 617 556 514
</TABLE>
Selected product prices:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
<C> <S> <S> <S> <S> <S>
Export logs (#2 sawlog-
bark on) - $/MBF
Cascade - Douglas fir $1,330 $1,365 $1,168 $1,224 $ 930
Coastal - Hemlock 611 750 804 831 562
Coastal - Douglas fir 1,246 1,217 1,085 1,104 858
Lumber (common) - $/MBF
2x4 Douglas fir (kiln dried) 422 332 408 418 295
2x4 Douglas fir (green) 386 308 364 383 261
2x4 Southern yellow
pine (kiln dried) 422 364 419 397 285
2x4 Spruce-pine-fir
(kiln dried) 351 251 343 334 231
Plywood (1/2" CDX) - $/MSF
West 307 331 334 321 281
South 256 301 298 282 249
Oriented strand board
(7/16"-24/16) North Central
price - $/MSF 184 245 265 236 217
</TABLE>
4
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART I
- -----------------------------------------------------------------
Item 1. Business - Continued
- -----------------------------
Pulp, Paper and Packaging
The company's pulp, paper and packaging businesses include: Pulp,
which manufactures chemical wood pulp for world markets; Newsprint,
which manufactures newsprint at the company's North Pacific Paper
Corporation mill and markets it to West Coast and Japanese newspaper
publishers; Paper, which manufactures and markets a range of both
coated and uncoated fine papers through paper merchants and printers;
Containerboard Packaging, which manufactures linerboard and
corrugating medium, which is primarily used in the production of
corrugated packaging, and manufactures and markets industrial and
agricultural packaging; Paperboard, which manufactures and markets
bleached paperboard, used for production of liquid containers, to West
Coast and Pacific Rim customers; Recycling, which operates an
extensive wastepaper collection system and markets it to company mills
and worldwide customers; and Chemicals, which produces chlorine,
caustic and tall oil, which are used principally by the company's
pulp, paper and packaging operations. In 1993, the Personal Care
Products business, which manufactured disposable diapers marketed
under the private-label brands of many of North America's largest
retailers was sold through an initial public offering of stock.
Sales volumes by major product class are as follows (thousands):
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
<C> <S> <S> <S> <S> <S>
Pulp - air-dry metric tons 1,868 2,060 2,068 1,886 1,238
Newsprint - metric tons 629 663 638 609 575
Paper - tons 1,007 1,006 998 990 966
Paperboard - tons 205 230 201 222 238
Containerboard - tons 346 259 254 290 318
Packaging - MSF 42,323 34,342 34,483 31,386 29,414
Recycling - tons 2,011 1,467 985 851 778
Personal care products -
standard cases -- -- -- -- 17,017
</TABLE>
Selected product prices (per ton):
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<C> <S> <S> <S> <S> <S>
Pulp - NBKP-air-dry metric-U.S. $579 $883 $566 $445 $551
Paper - uncoated free sheet-U.S. 745 946 617 627 630
Linerboard - 42 lb.-Eastern U.S. 367 505 367 295 343
Newsprint - metric - West Coast U.S. 636 662 460 435 433
OCC 53 128 78 27 30
ONP 18 99 46 16 13
</TABLE>
5
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART I
- -----------------------------------------------------------------
Item 1. Business - Continued
- -----------------------------
Real Estate
The company, through its real estate subsidiary, Weyerhaeuser Real
Estate Company, is engaged primarily in developing single-family
housing and residential lots for sale, including the development of
master-planned communities. Operations are mainly concentrated in
selected metropolitan areas in Southern California, Nevada,
Washington, Texas, Maryland and Virginia.
Volumes sold:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----- ----- ----- ----- -----
<C> <S> <S> <S> <S> <S>
Single-family units (1) 2,773 3,114 3,934 3,879 3,917
Multi-family units (1) 234 117 475 1,141 60
Lots (1) 2,522 1,628 2,157 1,372 2,762
Commercial space
(thousand sq. ft.) 569 -- 389 88 142
</TABLE>
(1) Includes one-half of joint venture sales.
Financial Services
The company, through its financial services subsidiary, Weyerhaeuser
Financial Services, Inc., is involved in a range of financial
services. The principal operating unit is Weyerhaeuser Mortgage
Company, which has origination offices in 19 states, with a servicing
portfolio of $4.4 billion involving approximately 46,000 loans
throughout the country. Mortgages are resold in the secondary market
through mortgage-backed securities to financial institutions and
investors. Through its insurance services organization, it also
offers a broad line of property, life and disability insurances.
The company has signed an agreement for the sale of its wholly owned
subsidiary, Weyerhaeuser Mortgage Company. This sale is expected to
close in the second quarter of 1997, subject to regulatory approvals
and other contingencies. GNA Corporation, a subsidiary that
specialized in the sale of life insurance annuities and mutual funds
to the customers of financial institutions, was sold in April 1993.
Republic Federal Savings & Loan Association, a subsidiary that
operated in Southern California, was dissolved in 1992.
Volume information (millions):
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------- ------- ------- ------ -------
<C> <S> <S> <S> <S> <S>
Loan servicing portfolio $ 4,354 $10,952 $11,300 $ 8,400 $ 9,800
Single-family
loan originations 3,436 2,196 2,763 4,405 3,380
</TABLE>
6
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART I
- -----------------------------------------------------------------
Item 2. Properties
- -------------------
Timberlands and Wood Products
Facilities and annual production are summarized by major product class
as follows (millions):
<TABLE>
<CAPTION>
Production Number of
Capacity Facilities 1996 1995 1994 1993 1992
---------- ---------- ----- ----- ----- ----- -----
<C> <S> <S> <S> <S> <S> <S> <S>
Logs - cubic ft. -- -- 912 914 671 673 749
Softwood lumber -
board ft. 3,765 28 3,695 3,419 3,249 3,135 2,782
Softwood plywood
and veneer -
sq. ft. (3/8") 1,181 7 1,243 1,292 1,249 1,188 1,125
Composite panels
- sq. ft. (3/4") 585 5 535 583 594 564 540
Oriented strand
board -
sq. ft. (3/8") 2,105 6 1,687 1,654 1,568 1,443 1,234
Hardboard - sq.
ft. -(7/16") -- -- 86 124 122 120 118
Hardwood lumber
- board ft. 409 11 333 278 229 221 210
Hardwood doors
(thousands) 717 1 646 643 597 522 469
</TABLE>
Principal manufacturing facilities are located as follows:
Softwood lumber and plywood Hardwood lumber
Alabama, Arkansas, Georgia, Arkansas, Oklahoma, Oregon,
Louisiana, Mississippi, Pennsylvania, Washington and
North Carolina, Oklahoma, Oregon, Wisconsin
Washington and Alberta, British
Columbia and Saskatchewan, Canada Hardwood doors
Wisconsin
Composite panels
Georgia, North Carolina, Oregon
and Wisconsin
Oriented strand board
Michigan, North Carolina, West
Virginia and Alberta, Canada
7
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART I
- -----------------------------------------------------------------
Item 2. Properties - Continued
- -------------------------------
Pulp, Paper and Packaging
Facilities and annual production are summarized by major product class
as follows (thousands):
<TABLE>
<CAPTION>
Produc-
tion Number
Capa- of Faci-
city lities 1996 1995 1994 1993 1992
-------- -------- ------ ------ ------ ------ ------
<C> <S> <S> <S> <S> <S> <S> <S>
Pulp - air-dry
metric tons 2,145 8 2,004 2,159 2,041 2,096 1,506
Newsprint -
metric tons 700 1 631 687 651 618 588
Paper - tons 1,076 5 1,034 1,060 982 1,007 971
Paperboard - tons 220 1 206 229 189 217 229
Containerboard
- tons 2,440 4 2,331 2,329 2,357 2,269 2,240
Packaging - MSF 48,000 45 44,471 36,041 36,020 32,795 31,040
Recycling - tons -- 40 3,428 2,754 2,042 1,847 1,692
Personal care
products -
standard cases -- -- -- -- -- -- 16,743
</TABLE>
Principal manufacturing facilities are located as follows:
Pulp Containerboard
Georgia, Mississippi, North North Carolina, Oklahoma and
Carolina, Washington and Oregon
Alberta, British Columbia and
Saskatchewan, Canada Packaging
Arizona, California,
Newsprint Connecticut, Florida, Georgia,
Washington Hawaii, Illinois, Indiana, Iowa,
Kentucky, Maryland, Michigan,
Paper Minnesota, Mississippi,
Mississippi, North Carolina, Missouri, Nebraska, New Jersey,
Washington, Wisconsin and New York, North Carolina, Ohio,
Saskatchewan, Canada Oregon, Tennessee, Texas,
Virginia, Washington and
Paperboard Wisconsin
Washington
Recycling
Arizona, California, Colorado,
Florida, Georgia, Idaho,
Illinois, Indiana, Iowa, Kansas,
Maryland, Minnesota, Nebraska,
North Carolina, Oklahoma,
Oregon, Pennsylvania, Tennessee,
Texas, Utah, Virginia,
Washington, West Virginia and
Alberta and British Columbia,
Canada
Chemicals
Georgia, Mississippi, North
Carolina, Oklahoma, Washington
and Saskatchewan, Canada
8
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART I
- -----------------------------------------------------------------
Item 2. Properties - Continued
- -------------------------------
Real Estate
The company has six primary facilities that operate in the following
product lines and locations:
Single-family housing Commercial development
California, Maryland, Nevada, California, Florida, Maryland
Texas, Virginia and Washington and Washington
Residential land development
Arkansas, California, Florida,
Georgia, Maryland, Nevada, North
Carolina, Texas, Virginia and
Washington
Financial Services
The company has four primary facilities that operate in the following
product lines and locations:
Mortgage banking and insurance Real estate investments
Branches in 19 states with major Arizona, California, Colorado,
concentrations in California, Nevada, Oregon and Washington
Hawaii, Nevada and Texas
Mortgage securities
California
9
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART I
- -----------------------------------------------------------------
Item 3. Legal Proceedings
- --------------------------
Trial began in May 1992 in a federal income tax refund case that the
company filed in July 1989 in the United States Claims Court. The
complaint seeks a refund of federal income taxes that the company
contends it overpaid in 1977 through 1983. The alleged overpayments
are the result of the disallowance of certain timber casualty losses
and certain deductions claimed by the company arising from export
transactions. The refund sought was approximately $29 million, plus
statutory interest from the dates of the alleged overpayments. The
company settled the portion of the case relating to export
transactions and received a tax refund of approximately $10 million,
plus statutory interest. In September 1994, the United States Court
of Federal Claims issued an opinion on the casualty loss issues which
will result in the allowance of additional tax refunds of
approximately $2 million, plus statutory interest. Both the company
and the government appealed the decision. On August 2, 1996, the
Court of Appeals for the Federal Circuit issued its opinion on the
remaining timber casualty loss issues, ruling in favor of the company
on both the company's appeal and the government's appeal. The United
States Supreme Court denied the government's request for certiorari on
January 21, 1997.
On March 6, 1992, the company filed a complaint in the Superior Court
for King County, Washington, against a number of insurance companies.
The complaint seeks a declaratory judgment that the insurance
companies named as defendants are obligated under the terms and
conditions of the policies sold by them to the company to defend the
company and to pay, on the company's behalf, certain claims asserted
against the company. The claims relate to alleged environmental
damage to third-party sites and to some of the company's own property
to which allegedly toxic material was delivered or on which allegedly
toxic material was placed in the past. Since December 1992, the
company has agreed to settlements with all but one of the defendants.
The remaining defendant provided first layer excess coverage during a
three year period. That defendant's liability on groups of sites is
being tried in phases. Two trials against the remaining defendant,
affecting nine sites, began in October 1994 and February 1996 and
resulted in verdicts assigning 100 percent clean-up responsibility to
the defendant on three sites, partial responsibility on three others
and a finding of no liability as to the remaining three. The trial
court has ruled that the primary policy has been exhausted and imposed
an obligation on the remaining defendant to provide a defense on one
of the sites, a ruling that may be expanded to include other sites.
After voluntary dismissal on 6 sites, trial for the remaining 10 sites
has been set for June 1997.
The company received from the Lane County, Oregon Regional Air
Pollution Control Authority (LRAPA) a draft Notice of Violation which
seeks penalties for alleged Prevention of Significant Deterioration
(PSD) violations at the company's Springfield, Oregon, particleboard
operations. LRAPA informed the company in July 1995 that it will
withdraw its draft Notice of Violation (NOV) and will not seek fines
or penalties. On September 15, 1995, however, LRAPA issued a revised
draft NOV (the Revised Draft NOV), which alleged that the Springfield
particleboard facility had violated a condition of its Air Contaminant
Discharge Permit. The allegations in the Revised Draft NOV are based
upon the same facts and circumstances relied upon by LRAPA in the
prior draft NOV. The company has contested LRAPA's issuance of the
Revised Draft NOV. On June 8, 1996, the company and LRAPA entered
into a Stipulated Final Order (SFO) to resolve all past and ongoing
alleged PSD issues, contested matters and alleged violations
associated with extended hours of operation at the Springfield
particleboard facility. In exchange for a full resolution of all past
and ongoing contested matters, the company agreed to pay a total civil
penalty of $19.5 thousand, of which $7.5 thousand was paid directly to
LRAPA. The remaining $12 thousand civil penalty was suspended. The
company also agreed to implement a Supplemental Environmental Project
(SEP) consisting of the funding of the preparation of a nitrogen
oxides (Nox) emission inventory for Lane County. The emission
inventory will be conducted by an outside environmental consultant at
a cost not to exceed $40 thousand.
The company conducted a review of its 10 major pulp and paper
facilities to evaluate the facilities' compliance with federal PSD
regulations. The results of the reviews were disclosed to seven state
agencies and the Environmental Protection Agency (EPA) during 1994 and
1995. At the Cosmopolis, Washington, Columbus, Mississippi, and Flint
River, Georgia, facilities, the state regulatory agencies agreed with
the company's conclusions regarding the status of each facility. For
the Cosmopolis facility, the Washington Department of Ecology agreed
the changes made at the facility did not require PSD review. For the
Columbus and Flint River facilities, the states concluded the original
PSD permits issued to the facilities require updating. The company
will update emissions data for the Columbus and Flint River facilities
as part of the Title V permitting process. No penalties were assessed
for the issues identified at Columbus and Flint River. Agreements
resolving the alleged PSD issues have been reached with the states of
Washington, Oklahoma and North Carolina, as noted below. No issues
were identified at the company's Rothschild, Wisconsin, facility. In
April 1995, EPA Region X issued a NOV to the company and to North
Pacific Paper Corporation (NORPAC), a joint venture in which the
company has an 80 percent ownership interest. The NOV addresses
alleged PSD violations at NORPAC's Longview, Washington, newsprint
manufacturing facility. A settlement resolving alleged PSD issues at
the Longview/NORPAC complex was reached with the State of Washington
on January 26, 1996. On November 14, 1995, the company entered into a
settlement with the State of Oklahoma to resolve alleged PSD
violations at the company's Valliant, Oklahoma, containerboard
manufacturing facility. The company also entered into Special Orders
by Consent with the State of North Carolina to resolve alleged PSD
issues at the New Bern, North Carolina, pulp mill and the Plymouth,
North Carolina, pulp and paper complex. No decision has been made by
the LRAPA concerning alleged PSD and permit violations at the
company's Springfield, Oregon, containerboard manufacturing facility.
10
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART I
- -----------------------------------------------------------------
Item 3. Legal Proceedings - Continued
- --------------------------------------
The Washington Department of Ecology investigated the accidental
release of chorine, chlorine dioxide and noncondensable gasses in July
1994 at the company's pulp mill in Longview, and issued a $10 thousand
penalty for the chlorine release and a $5 thousand penalty for the
noncondensable gasses release which have been paid by the company. In
June 1995, EPA issued an Administrative Complaint against the company,
seeking penalties of $225 thousand and alleging a failure to timely
report the chlorine release. The company settled the matter on
January 21, 1997, agreeing to pay a penalty of $68 thousand and to
perform supplemental environmental projects in the amount of
$110 thousand. On September 25, 1996, the company learned that the
EPA has commenced a preliminary criminal investigation of the
incident, and in late November learned that the investigation had been
discontinued.
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 notice of violation
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 April 9, 1993, the company entered into a SFO with the Oregon
Department of Environmental Quality (DEQ) for alleged air emissions in
excess of permit levels and PSD noncompliance at the company's North
Bend, Oregon, containerboard facility. The SFO established a
compliance schedule for installing control technology. A Supplemental
SFO assessed a $247 thousand initial penalty and a $500 per day
stipulated penalty until compliance was demonstrated. On November 15,
1995, DEQ issued a letter, indicating that the company had satisfied
the requirements of the SFO and Supplemental SFO. No further
penalties were assessed against the company. Termination of the SFO
will occur after issuance of the federal air operating permit to the
North Bend containerboard facility. The North Bend containerboard
facility received its federal air operating permit on July 1, 1996.
On June 20, 1996, the Wisconsin Department of Natural Resources (WDNR)
issued a NOV for alleged air violations at the Marshfield, Wisconsin,
wood products manufacturing facility. No penalty was assessed in the
NOV. Since the WDNR lacks an administrative mechanism to assess
penalties for alleged regulatory non-compliance, it referred the NOV
to the Wisconsin Department of Justice for enforcement action on
July 2, 1996. The Wisconsin Department of Justice has accepted the
referral.
On October 2, 1996, the WDNR conducted an inspection of a building
demolition project at the company's Marshfield, Wisconsin facility.
The WDNR noted several potential non-compliance issues in the work
performed by the asbestos abatement subcontractor retained for the
project. Upon learning of the issues observed by WDNR, 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 seeks $1 billion in compensatory and
punitive damages for diminution in property value, personal injuries
and mental anguish allegedly resulting from the discharge of purported
hazardous substances, including dioxins and furans, by the company's
pulp and paper mill in Columbus, Mississippi, and the alleged
fraudulent concealments of such discharge. The complaint also seeks
an injunction prohibiting future releases and the removal of hazardous
substances allegedly released in the past. On August 20, 1993, a
companion action was filed in Greene County, Alabama, on behalf of a
similar purported class of riparian owners with essentially the same
claims as the Mississippi case. By order dated April 5, 1995, venue
of the Alabama action was transferred to Sumter County, Alabama. On
January 20, 1995, the court in the Alabama action certified a class of
all persons who, as of the date the action commenced, were riparian
owners, lessees and licensees of properties located on the Tennessee
Tombigbee Waterway in Greene, Sumter, Pickens and Marengo counties,
Alabama, and Lowndes and Noxubee counties, Mississippi, to determine
whether the company is liable to the members of the class for
compensatory and/or punitive damages and to determine the amount of
punitive damages, if any, to be awarded to the class as a whole. By
order dated April 12, 1995, as orally amended on February 1, 1996, the
geographical boundaries of the class were amended to run from below
the Columbus mill's wastewater discharge pipe to just above the
confluence of the Black Warrior River and the Tennessee Tombigbee
Waterway. The class is estimated to range from approximately 1,000 to
1,500 members. In late July, 1996, the company reached an agreement
to settle both the Mississippi action and the Alabama action for
$2.5 million. The agreement is subject to the approval of the court
in the Alabama action.
11
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART I
- -----------------------------------------------------------------
Item 3. Legal Proceedings - Continued
- --------------------------------------
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 fifteen
other hardboard siding cases, one of which purports to be a class
action on behalf of purchasers of single- or multi-family residences
in Nebraska that contain the company's hardboard siding.
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
- ------------------------------------------------------------
There were no matters submitted to a vote of security holders during
the fourth quarter of the fiscal year ended December 29, 1996.
12
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART II
- -----------------------------------------------------------------
Item 5. Market Price of and Dividends on the Registrant's Common
- ----------------------------------------------------------------
Equity and Related Stockholder Matters
- --------------------------------------
Information with respect to market information, stockholders and
dividends included in Notes 19 and 20 of Notes to Financial Statements
in the company's 1996 Annual Report to Shareholders, is incorporated
herein by reference.
Item 6. Selected Financial Data
- --------------------------------
Information with respect to selected financial data included in Note
20 of Notes to Financial Statements in the company's 1996 Annual
Report to Shareholders, is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition
- -------------------------------------------------------------------
and Results of Operations
- -------------------------
On February 24, 1997, the company announced that it expects to take an
after-tax charge of approximately $25 million, or 12 cents per common
share, against earnings in the 1997 first quarter. This charge will
reflect the impact of closure, consolidation or disposal of recycling
facilities; the permanent closure of its corrugated medium machine at
Longview, Washington; the anticipated sale of its wholly-owned
subsidiary, Shemin Nurseries, Inc., a wholesale nursery business based
in Danbury, Connecticut; and interest income from the favorable
federal income tax decision relating to casualty losses associated
with the eruption of Mount St. Helens in 1980.
The company also expects to close the sale of its wholly-owned
subsidiary, Weyerhaeuser Mortgage Company, in the second quarter of
1997, although it is subject to regulatory approvals and other
contingencies. If this transaction closes as presently anticipated,
the company expects it to have a material favorable effect on
operating results and cash flow in the quarter in which it closes.
Additional information with respect to Management's Discussion and
Analysis included on pages 1, 8-9, 12-13, 18-19, 24-25, 28-29, 34-35
and 40-52; contained in the company's 1996 Annual Report to
Shareholders, is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Information
- -----------------------------------------------------------
Financial statements and supplementary information, contained in the
company's 1996 Annual Report to Shareholders are incorporated herein
by reference:
<TABLE>
<CAPTION>
Page(s) in
Annual Report
to
Shareholders
------------
<C> <S>
Report of Independent Public Accountants 52
Consolidated Statement of Earnings 53
Consolidated Balance Sheet 54-55
Consolidated Statement of Cash Flows 56-57
Consolidated Statement of Shareholders' Interest 58
Notes to Financial Statements 59-77
Selected Quarterly Financial Information (Unaudited) 75
</TABLE>
Item 9. Changes in and Disagreements with Accountants on Accounting
- -------------------------------------------------------------------
and Financial Disclosure
- ------------------------
Not applicable.
13
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART III
- -----------------------------------------------------------------
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
Information with respect to Directors of the company included on pages
1 through 4 of the Notice of 1997 Annual Meeting of Shareholders and
Proxy Statement dated March 3, 1997 is incorporated herein by
reference.
The executive officers of the company are as follows:
<TABLE>
<CAPTION>
Name Title Age
- ---------------------- ------------------------ ---
<C> <S> <S>
William R. Corbin Executive Vice President 55
John W. Creighton, Jr. President 64
Richard C. Gozon Executive Vice President 58
Steven R. Hill Senior Vice President 49
Mack L. Hogans Senior Vice President 48
Norman E. Johnson Senior Vice President 63
Thomas M. Luthy Senior Vice President 59
William C. Stivers Senior Vice President 58
</TABLE>
Item 11. Executive Compensation
- -------------------------------
Information with respect to executive compensation included on pages 5
through 13 of the Notice of 1997 Annual Meeting of Shareholders and
Proxy Statement dated March 3, 1997 is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and
- ------------------------------------------------------------
Management
- ----------
Information with respect to security ownership of certain beneficial
owners and management included on pages 4 and 5 of the Notice of 1997
Annual Meeting of Shareholders and Proxy Statement dated March 3, 1997
is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
Information with respect to certain relationships and related
transactions included on page 17 of the Notice of 1997 Annual Meeting
of Shareholders and Proxy Statement dated March 3, 1997 is
incorporated herein by reference.
14
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART IV
- -----------------------------------------------------------------
Item 14. Exhibits, Financial Statement Schedules and Reports on
- -----------------------------------------------------------------
Form 8-K
- --------
Financial Statements
The consolidated financial statements of the company, together with
the report of independent public accountants, contained in the
company's 1996 Annual Report to Shareholders, are incorporated in
Part II, Item 8 of this Form 10-K by reference.
<TABLE>
<CAPTION>
Page Number(s)
Financial Statement Schedules in Form 10-K
- ----------------------------- --------------
<C> <S>
Report of Independent Public Accountants on Financial
Statement Schedules 17
Schedule II - Valuation and Qualifying Accounts 18
</TABLE>
All other financial statement schedules have been omitted because they
are not applicable or the required information is included in the
consolidated financial statements, or the notes thereto, contained in
the company's 1996 Annual Report to Shareholders and incorporated
herein by reference.
Exhibits:
- ---------
3 - Articles of Incorporation and Bylaws
10 - Material Contracts
(a) Agreement with N. E. Johnson
(b) Agreement with W. R. Corbin
(c) Agreement with R. C. Gozon
11 - Statement Re: Computation of Per Share Earnings
(incorporated by reference to Note 1 of the 1996
Weyerhaeuser Company Annual Report to Shareholders)
13 - Portions of the 1996 Weyerhaeuser Company Annual
Report to Shareholders specifically incorporated by
reference herein
22 - Subsidiaries of the Registrant
23 - Consent of Independent Public Accountants
27 - Financial Data Schedules
Reports on Form 8-K
- -------------------
The registrant filed reports on Form 8-K dated February 14, April 24,
July 17, July 26 and October 15, 1996, and January 22 and February 25,
1997, respectively, reporting information under Item 5, Other Events.
15
<PAGE>
Weyerhaeuser Company and Subsidiaries
SIGNATURES
- -----------------------------------------------------------------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized on
March 14, 1997.
Weyerhaeuser Company
/s/ John W. Creighton, Jr.
------------------------------
John W. Creighton, Jr.
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the registrant in the capacities indicated on March 14, 1997.
/s/ John W. Creighton, Jr. /s/ P. M. Hawley
- -------------------------------- ---------------------------
John W. Creighton, Jr. Philip M. Hawley
President, Principal Executive Director
Officer and Director
/s/ Martha R. Ingram
---------------------------
/s/ George H. Weyerhaeuser Martha R. Ingram
- -------------------------------- Director
George H. Weyerhaeuser
Chairman of the Board and
Director /s/ John Kieckhefer
----------------------------
John I. Kieckhefer Director
/s/ William C. Stivers
- --------------------------------
William C. Stivers
Principal Financial Officer /s/ William D. Ruckelshaus
----------------------------
William D. Ruckelshaus
Director
/s/ Kenneth J. Stancato
- --------------------------------
Kenneth J. Stancato /s/ Richard H. Sinkfield
Principal Accounting Officer ----------------------------
Richard H. Sinkfield
Director
/s/ William Clapp
- --------------------------------
William H. Clapp
Director
/s/ W. John Driscoll
- --------------------------------
W. John Driscoll
Director
16
<PAGE>
Weyerhaeuser Company and Subsidiaries
FINANCIAL STATEMENT SCHEDULES
- -----------------------------------------------------------------
Report of Independent Public Accountants on Financial Statement
Schedules
To Weyerhaeuser Company:
We have audited in accordance with generally accepted auditing
standards, the financial statements included in Weyerhaeuser
Company's annual report to shareholders incorporated by reference in
this Form 10-K, and have issued our report thereon dated February 6,
1997. Our audit was made for the purpose of forming an opinion on
those statements taken as a whole. The schedule listed on page 15
is the responsibility of the company's management and is presented
for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Seattle, Washington,
February 6, 1997
17
<PAGE>
Weyerhaeuser Company and Subsidiaries
FINANCIAL STATEMENT SCHEDULES
- -----------------------------------------------------------------
<TABLE>
<CAPTION>
Schedule II - Valuation
and Qualifying Accounts
For the three years ended
December 29, 1996
Dollar amounts in
millions
Balance at Deductions Balance at
Beginning Charged from End of
Description of Period to Income Reserve Period
- ----------- ---------- --------- ---------- ----------
<C> <S> <S> <S> <S>
Weyerhaeuser
Reserve deducted from
related asset accounts:
Doubtful accounts -
Accounts receivable
1996 $ 9 $ 4 $ 6 $ 7
========== ========= =========== ==========
1995 $ 10 $ 2 $ 3 $ 9
========== ========= =========== ==========
1994 $ 10 $ 4 $ 4 $ 10
========== ========= =========== ==========
Real Estate and
Financial Services
Reserves and allowances
deducted from related
asset accounts:
Receivables
1996 $ 7 $ 3 $ 1 $ 9
========== ========= =========== ==========
1995 $ 4 $ 1 $ (2)(1) $ 7
========== ========= =========== ==========
1994 $ 7 $ 1 $ 4 $ 4
========== ========= =========== ==========
Mortgage loans receivable
1996 $ 2 $ -- $ (5)(2) $ 7
========== ========= =========== ==========
1995 $ 8 $ -- $ 6 $ 2
========== ========= =========== ==========
1994 $ 4 $ 4 $ -- $ 8
========== ========= =========== ==========
Investment in and
advances to joint
ventures and
limited partnerships
1996 $ 38 $ -- $ 11 $ 27
========== ========= =========== ==========
1995 $ 49 $ -- $ 11 $ 38
========== ========= =========== ==========
1994 $ 57 $ 2 $ 10 $ 49
========== ========= =========== ==========
</TABLE>
(1) Includes allowances transferred in on partnership notes that were
consolidated.
(2) Includes allowances transferred in from other liabilities.
18
<PAGE>
Weyerhaeuser Company and Subsidiaries
Exhibit 22
Subsidiaries of the Registrant
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
Percentage
State or Ownership of
Country of Immediate
Name Incorporation Parent
---- ------------- ------------
<C> <S> <S>
Colonvade S.A. Uruguay 100%
Columbia & Cowlitz Railway Company Washington 100
DeQueen and Eastern Railroad Company Arkansas 100
Fisher Lumber Company California 100
Golden Triangle Railroad Mississippi 100
Green Arrow Motor Express Company Delaware 100
Gryphon Asset Management, Inc. Delaware 100
J.H. Hamlen & Son, Inc. Arkansas 100
Mississippi & Skuna Valley
Railroad Company Mississippi 100
Mountain Tree Farm Company Washington 50
North Pacific Paper Corporation Delaware 80
NORPAC Sales Corporation Guam 100
Pacific Veneer, Ltd. Washington 90
SCA Weyerhaeuser Packaging Holding British Virgin
Company Asia Limited Islands 50
Shemin Nurseries, Inc. Delaware 100
Texas, Oklahoma & Eastern
Railroad Company Oklahoma 100
United Structures, Inc. California 100
Westwood Shipping Lines, Inc. Washington 100
Weycomp Claims Management Service, Inc. Texas 100
Weyerhaeuser Construction Company Washington 100
Weyerhaeuser Financial Services, Inc. Delaware 100
CMO Finance Corp. Nevada 100
MJ Finance Corporation California 100
Mortgage Securities III Corporation Nevada 100
Mortgage Securities IV Corporation Nevada 100
R4 Participant Corporation Nevada 100
ver Bes' Insurance Company Vermont 100
de Bes' Insurance Ltd. Bermuda 100
Weyerhaeuser Financial Investments, Inc. Nevada 100
Abfall Finance Corp. California 100
Brookview, Inc. Nevada 100
The Giddings Mortgage Investment Company California 100
Gudig Abfall, Inc. California 100
Kachura Finance Corp. California 100
Laurel Real Estate Development, Inc. California 100
McGNT Finance Corp. California 100
Pass-Through Finance Corp. California 100
RFS Development Corporation California 100
RFS Finance Corp. California 100
RFS Insurance Agency California 100
RFS Service Corporation California 100
</TABLE>
19
<PAGE>
Weyerhaeuser Company and Subsidiaries
Exhibit 22
Subsidiaries of the Registrant - Continued
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
Percentage
State or Ownership of
Country of Immediate
Name Incorporation Parent
---- ------------- ------------
<C> <S> <S>
R. J. Plaza II, Inc. Nevada 100%
Trimark Development Company California 100
Trimark Realty Advisors, Inc. California 100
Weyerhaeuser Properties, Inc. Nevada 100
Woodland Hills Properties-W., Inc. Nevada 100
Monthill, Inc. California 100
Placer Business Center, Inc. California 100
Terman Properties, Inc. California 100
WVC II, Inc. Nevada 100
Weyerhaeuser Mortgage Company California 100
Mason-McDuffie Mortgage Corporation Delaware 100
Mason-McDuffie Service Corporation California 100
Southwest Partners, Inc. California 100
Westwood Associates California 100
Westwood Insurance Agency California 100
Westwood Insurance Agency of
Arizona, Inc. Arizona 100
WMC Mortgage Co. International California 100
WMC Finance Corp. I California 100
Weyerhaeuser Venture Company Nevada 100
Las Positas Land Co. California 100
WAMCO, Inc. Nevada 100
Weyerhaeuser Realty Investors, Inc. Washington 100
Weyerhaeuser Forestlands
International, Inc. Washington 100
Weyerhaeuser International, Inc. Washington 100
Weyerhaeuser Canada Ltd. Canada 100
Saskatoon Chemicals Ltd. Canada 100
Weyerhaeuser Saskatchewan Ltd. Canada 100
Weyerhaeuser China, Ltd. Washington 100
Weyerhaeuser GMBH Germany 100
Weyerhaeuser (Asia) Limited Hong Kong 100
Weyerhaeuser Italia, S.r.l. Italy 100
Weyerhaeuser Japan Ltd. Japan & Delaware 100
Weyerhaeuser Korea Ltd. Korea 100
Weyerhaeuser, S.A. Panama 100
Weyerhaeuser Taiwan Ltd. Delaware 100
Weyerhaeuser International Sales Corp. Guam 100
Weyerhaeuser (Mexico) Inc. Washington 100
Weyerhaeuser Midwest, Inc. Washington 100
Weyerhaeuser Overseas Finance Co. Delaware 100
Weyerhaeuser Real Estate Company Washington 100
Centennial Homes, Inc. Texas 100
Midway Properties, Inc. North Carolina 100
</TABLE>
20
<PAGE>
Weyerhaeuser Company and Subsidiaries
Exhibit 22
Subsidiaries of the Registrant - Continued
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
Percentage
State or Ownership of
Country of Immediate
Name Incorporation Parent
---- ------------- ------------
<C> <S> <S>
Pardee Construction Company California 100%
Marmont Realty Company California 100
Pardee Construction Company of Nevada Nevada 100
Pardee Investment Company California 100
Parvada, Inc. Nevada 100
The Quadrant Corporation Washington 100
Quadrant Real Estate Services, Inc. Washington 100
South Jersey Assets, Inc. New Jersey 100
Scarborough Constructors, Inc. Florida 100
Silverthorn Country Club, Inc. Florida 100
TMI, Inc. Texas 100
Weyerhaeuser Real Estate
Company of Nevada Nevada 100
Winchester Homes, Inc. Delaware 100
SC-WHI, Inc. Delaware 100
The Wray Company Arizona 100
</TABLE>
21
<PAGE>
Weyerhaeuser Company and Subsidiaries
Exhibit 23
Consent of Independent Public Accountants
- ----------------------------------------------------------------------
As independent public accountants, we hereby consent to the
incorporation of our reports included and incorporated by reference in
this Form 10-K, into Weyerhaeuser Company's previously filed
Registration Statement No. 33-52789 on Form S-3 and Nos. 33-60527, 33-
60529, 33-60521, 33-60525, 33-25928, 33-24979, 33-47392, 33-10165, 33-
41414, 2-88109, 2-27929, 2-58498, 2-81463 and 333-01565 on Form S-8.
ARTHUR ANDERSEN LLP
Seattle, Washington,
March 14, 1997
22
<PAGE>
HIGHLIGHTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Dollar amounts in millions except per-share figures 1996 1995
- ---------------------------------------------------------------------
<C> <S> <S>
Net sales and revenues $11,114 $11,788
- ---------------------------------------------------------------------
Net earnings before special charge 463 983
Less: special charge(1) -- 184
- ---------------------------------------------------------------------
Net earnings 463 799
- ---------------------------------------------------------------------
Cash flow from operations,
before working capital changes 1,262 1,856
Capital expenditures (excluding acquisitions) 879 996
Total assets 13,596 13,253
Shareholders' interest 4,604 4,486
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
1995
----------------------------------------
Before
1996 Special Charge (1)Special Charge Net
- ---------------------------------------------------------------------
<C> <S> <S> <S> <S>
Net earnings per
common share:
First quarter $ .72 $ 1.00 $ 1.00
Second quarter .52 1.21 1.21
Third quarter .60 1.37 (.90) .47
Fourth quarter .50 1.25 1.25
- ---------------------------------------------------------------------
$ 2.34 $ 4.83 $(.90) $ 3.93
=====================================================================
</TABLE>
(1) The after-tax charge of $184 million ($290 million less
income taxes of $106 million) taken in 1995 is a result of:
(a) the company's decision to accelerate the disposition of
some of the affected assets and (b) the implementation of
Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," which required the
company to change its method of valuing long-lived assets.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
Market prices - high/low 1996 1995
- -----------------------------------------------------------------------
<C> <S> <S>
First quarter $49 1/2 - 39 15/16 $42 5/8 - 36 7/8
Second quarter 49 7/8 - 41 3/4 47 3/8 - 37 1/2
Third quarter 48 1/4 - 39 1/2 50 3/8 - 44 3/4
Fourth quarter 48 1/8 - 43 7/8 48 - 40 7/8
- -----------------------------------------------------------------------
Year $49 7/8 - 39 1/2 $50 3/8 - 36 7/8
- -----------------------------------------------------------------------
</TABLE>
The consolidated financial statements include: (1)
Weyerhaeuser Company (Weyerhaeuser), 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 including
Weyerhaeuser Real Estate Company, which is involved in real
estate development and construction, and Weyerhaeuser
Financial Services, Inc., whose principal subsidiary is
Weyerhaeuser Mortgage Company.
1
<PAGE>
PULP, PAPER AND PACKAGING STATISTICAL DATA
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
NET SALES 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------
<C> <S> <S> <S> <S> <S>
(Millions of dollars)
Pulp $ 954 $ 1,616 $ 1,012 $ 823 $ 711
Newsprint 451 508 356 322 326
Paper 803 1,001 664 648 673
Paperboard and
containerboard 281 325 240 255 321
Packaging 1,921 1,863 1,495 1,302 1,323
Recycling 140 266 121 77 93
Chemicals 63 63 45 32 31
Personal care products -- -- -- -- 514
Miscellaneous products 35 40 133 120 117
- ----------------------------------------------------------------------
$ 4,648 $ 5,682 $ 4,066 $ 3,579 $ 4,109
======================================================================
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
SALES VOLUMES 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------
<C> <S> <S> <S> <S> <S>
(Thousands)
Pulp -- air-dry
metric tons 1,868 2,060 2,068 1,886 1,238
Newsprint -- metric tons 629 663 638 609 575
Paper -- tons 1,007 1,006 998 990 966
Paperboard -- tons 205 230 201 222 238
Containerboard -- tons 346 259 254 290 318
Packaging -- MSF 42,323 34,342 34,483 31,386 29,414
Recycling -- tons 2,011 1,467 985 851 778
Personal care products
-- standard cases -- -- -- -- 17,017
- ----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
ANNUAL PRODUCTION CAPACITY 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------
<C> <S> <S> <S> <S> <S> <S>
(Thousands)
Pulp -- air-dry
metric tons 2,145 2,004 2,159 2,041 2,096 1,506
Newsprint -- metric tons 700 631 687 651 618 588
Paper -- tons 1,076 1,034 1,060 982 1,007 971
Paperboard -- tons 220 206 229 189 217 229
Containerboard -- tons 2,440 2,331 2,329 2,357 2,269 2,240
Packaging -- MSF 48,000 44,471 36,041 36,020 32,795 31,040
Recycling -- tons -- 3,428 2,754 2,042 1,847 1,692
Personal care products --
standard cases -- -- -- -- -- 16,743
- ---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
PRINCIPAL MANUFACTURING FACILITIES
- ---------------------------------------------------------------------------
<C> <S>
Pulp 8
- ---------------------------------------------------------------------------
Newsprint 1
- ---------------------------------------------------------------------------
Paper 5
- ---------------------------------------------------------------------------
Paperboard 1
- ---------------------------------------------------------------------------
Containerboard 4
- ---------------------------------------------------------------------------
Packaging 45
- ---------------------------------------------------------------------------
Recycling 40
- ---------------------------------------------------------------------------
Chemicals 7
- ---------------------------------------------------------------------------
</TABLE>
8
<PAGE>
TIMBERLANDS AND WOOD PRODUCTS STATISTICAL DATA
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
NET SALES 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------
<C> <S> <S> <S> <S> <S>
(Millions of dollars)
Raw materials (logs, chips and timber) $1,066 $1,102 $1,091 $1,021 $ 872
Softwood lumber 1,988 1,648 1,880 1,704 1,138
Softwood plywood and veneer 519 591 636 567 498
Oriented strand board, composite and
other panel products 667 752 750 623 495
Hardwood lumber 235 193 175 154 127
Engineered wood products 233 207 157 100 --
Miscellaneous products 532 438 303 299 287
- --------------------------------------------------------------------------
$5,240 $4,931 $4,992 $4,468 $3,417
==========================================================================
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
SALES VOLUMES 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------
<C> <S> <S> <S> <S> <S>
(Millions)
Raw materials -- cubic feet 577 535 564 547 545
Softwood lumber -- board feet 4,745 4,515 4,402 4,230 3,440
Softwood plywood and veneer --
square feet (3/8") 2,172 2,324 2,685 2,435 2,227
Composite panels -- square feet (3/4") 604 648 660 626 590
Oriented strand board --
square feet (3/8") 2,083 1,931 1,803 1,672 1,484
Hardboard -- square feet (7/16") 193 201 167 140 133
Hardwood lumber -- board feet 349 293 254 240 218
Engineered wood products -- lineal feet 116 128 71 47 --
Hardwood doors (thousands) 652 648 617 556 514
- --------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
ANNUAL PRODUCTION CAPACITY 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------
<C> <S> <S> <S> <S> <S> <S>
(Millions)
Logs -- cubic feet -- 912 914 671 673 749
Softwood lumber -- board feet 3,765 3,695 3,419 3,249 3,135 2,782
Softwood plywood and veneer
-- square feet (3/8") 1,181 1,243 1,292 1,249 1,188 1,125
Composite panels --
square feet (3/4") 585 535 583 594 564 540
Oriented strand board
-- square feet (3/8") 2,105 1,687 1,654 1,568 1,443 1,234
Hardboard -- square feet (7/16") -- 86 124 122 120 118
Hardwood lumber -- board feet 409 333 278 229 221 210
Hardwood doors (thousands) 717 646 643 597 522 469
- --------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
PRINCIPAL MANUFACTURING FACILITIES
- --------------------------------------------------------------------------
<C> <S>
Softwood lumber, plywood and veneer 35
- --------------------------------------------------------------------------
Composite panels 5
- --------------------------------------------------------------------------
Oriented strand board 6
- --------------------------------------------------------------------------
Hardwood lumber 11
- --------------------------------------------------------------------------
Hardwood doors 1
- --------------------------------------------------------------------------
</TABLE>
9
<PAGE>
PULP, PAPER AND PACKAGING
After a prolonged downturn through the early 1990s, the 18-
month rebound in pulp and paper prices in 1994 and 1995
came as a welcome but short-lived respite. Prices across
all products and grades tumbled in 1996, producing earnings
for the Pulp, Paper and Packaging sector of $307 million
compared with $1.2 billion in 1995. Net sales were $4.6
billion compared with $5.7 billion last year.
<TABLE>
<CAPTION>
- --------------------------------
Pulp, Paper, Packaging Earnings
(millions of dollars)
<C> <S>
1996 $307
1995 $1,181
1994 $211
1993 $61
1992 $251
- -------------------------------
</TABLE>
Despite the challenge of this recent cycle, 1996 has been a
rewarding year as the sector focused on fundamentals,
effectively making the most of a down market by building a
stronger foundation for long-term growth. This foundation
includes gains in asset utilization, improvements in product
mix and innovation, and continued discipline in capital
spending.
As a result of this focused strategy, mills further improved
operating efficiency and customer relationships.
Unscheduled downtime to adjust an inventory buildup in late
1995 and 1996 prevented the sector from fully realizing the
benefit of these improvements, but they are firmly in place.
As inventories and markets adjust, operations should reap
further benefits in operating efficiency and work-systems
improvements, leading to increased return on capital.
The sector continued a disciplined approach to capital
spending in 1996. With major modernizations completed, our
assets are well positioned to compete into the next century.
As a result, spending to sustain and improve assets totaled
12
<PAGE>
$415 million, just two-thirds of the average annual capital
allocation over the past three years. In the next four
years, we plan to push down capital spending even further,
to an annual average of $400 million, exclusive of any
acquisitions or major expansion opportunities. Sector
capital outlay in 1997 is projected to be at the lowest
level in 10 years, approximately equal to depreciation.
<TABLE>
<CAPTION>
- ----------------------------------------------------
Pulp, Paper, Packaging Capital Spending*
(millions of dollars)
<C> <S>
1997 Estimated $400
1996 $415
1995 $501
1994 $794
1993 $652
*Excludes acquisitions
- ----------------------------------------------------
</TABLE>
Looking to the future, sector growth is expected to come
primarily through strategic acquisitions and expanded
business partnerships. Operations will continue to focus on
the basics: improving process reliability, asset utilization
and work systems; and achieving outstanding customer
satisfaction. These initiatives, coupled with continued
improvement in product mix and disciplined capital spending,
will continue to lift the Pulp, Paper and Packaging
businesses nearer to the top of their peer groups.
The Containerboard Packaging business has grown to become
the largest domestic producer of corrugated packaging,
increasing volume from 2.4 million tons in 1995 to 2.9
million tons in 1996. High asset utilization of existing
and modernized facilities and complete integration of the
nine Westvaco packaging plants purchased in 1995 contributed
to the higher volumes. Nationwide, the business is shipping
40 percent more product per packaging plant than the
industry average. The containerboard mill system benefited
from a record start-up of the No. 2 paper machine in August
at the joint venture Cedar River
13
<PAGE>
Paper Company. An alliance with SCA Packaging Europe BV
resulted in a unique joint venture, SCA Weyerhaeuser
Packaging Holding Company Asia Limited, that will pursue
opportunities to manufacture and supply high-quality
packaging to the fast-growing economies of Asia.
The Newsprint business attained its second-best year ever.
Improved operating efficiency at the North Pacific Paper
Corporation (NORPAC) joint venture with Nippon Paper
Industries Co., Ltd., of Japan resulted in solid
profitability despite declining domestic prices. NORPAC
successfully completed a major upgrade of the No. 2 paper
machine and its de-inked pulp facility to better capture
market opportunities. Operating improvements to the No. 1
and No. 3 machines - resulting in increased uptime, reduced
waste and running at target rates - netted a 2 percent gain
in productivity and lowered costs. Weyerhaeuser's balance
between the North American and Japanese markets paid off
during the cycle as the U.S. market struggled and the
Japanese market grew by 4 percent. Nearly 100 pressroom
visits by NORPAC employees in both the United States and
Japan deepened operator knowledge of customer needs and
demonstrated the business's commitment to customer service.
Fine paper prices plunged to early 1990s levels, yet the
Fine Paper business delivered its third-highest profit in
the business's history. These significant results are due
to employee involvement, process reliability, strong
customer relationships and improved product mix. Growth has
been led by non-capital investments in improved work systems
as team-led efforts in marketing, product development and
manufacturing helped create new products with higher
margins. Current value-added office and printing products,
such as First Choice TM, Cougar TM
18
<PAGE>
and Lynx TM, are reducing the cyclical nature of the Fine
Paper business and capturing higher returns on assets. New
products introduced in 1996, including several aimed at the
small- and home-office markets, are strengthening the basis
for value-added product lines. Two independent customer
satisfaction surveys in 1996 ranked the Fine Paper business
first overall. Strengths are knowledgeable employees, fast
and accurate responses to customer inquiries, quality of
products, on-time deliveries, and strategic use of
electronic commerce.
World pulp markets experienced extreme volatility in both
price and volume. An inventory buildup through 1995 coupled
with a recession in Europe, which accounts for 40 percent of
market demand, triggered a price collapse of 50 percent in
less than six months. Weyerhaeuser sales were somewhat less
volatile than others in the industry because of our strategy
to focus on more stable grades, particularly fluff and northern
softwood papergrade, and strong long-term customer relationships.
The Pulp business continued to increase the sale of specialty fluff
pulps, bringing specialty products to about 25 percent of total
fluff pulp sales by year-end. Created for specific markets
and tailored to customer specifications, these new products
add greater stability and higher margins to the product mix.
The Recycling business stepped up to the challenge of
supplying increased volumes of wastepaper used by internal
containerboard mills. It did so during a volatile market,
with prices dipping to 1993 levels. Recycling continues to
be an important business at Weyerhaeuser. Volumes in 1996
increased nearly 40 percent, from 2.8 million tons to
19
<PAGE>
3.4 million tons. 1997 will be a year in which we pause
from the rapid growth of recent years and examine the
effectiveness of our nationwide system to meet the needs of
internal and external customers in an increasingly
competitive marketplace.
Westwood Shipping provides product transportation timed to
meet customer needs and to ensure product quality. Lower
pulp shipments in 1996 were offset in part by strong
newsprint and lumber orders to Japan. With no noticeable
impact on customers, Westwood centralized its North American
service organization in 1996. Operating units were reduced
from five to two, supported by a new computer system.
In 1996, the Pulp, Paper and Packaging sector effectively
broadened its base of manufacturing excellence, marketing
innovation and customer service. Building on this foundation
will lift the sector to its highest goal: to lead the
industry in the creation of shareholder value.
24
<PAGE>
TIMBERLANDS AND WOOD PRODUCTS
Timberlands and Wood Products businesses posted solid
performances in 1996. Though higher labor and materials
costs and weaker prices for oriented strand board eroded
some of the gains, earnings rose in response to increasing
demand and rising prices for softwood lumber, and continued
results from business improvement efforts. The sector
reported operating earnings of $805 million compared with
earnings of $808 million in 1995. Net sales were $5.2
billion compared with $4.9 billion last year.
<TABLE>
<CAPTION>
- ---------------------------------------
Timberlands and Wood Products Earnings
<C> <S>
(millions of dollars)
1996 $805
1995 $808
1994 $1,034
1993 $891
1992 $515
- --------------------------------------
</TABLE>
Domestically, following a weak first quarter, demand and
prices for lumber surged in response to a strong U.S.
housing market. For much of the year, demand for lumber
matched capacity. Price volatility also increased, the
result of changing distribution patterns and uncertainty
resulting from the imposition of quotas on Canadian imports
into the United States. Log volumes and prices remained
relatively stable the entire year.
Growing demand for Western-style wood housing in Japan
fueled record international lumber demand in 1996. Lumber
exports to Japan from Weyerhaeuser's Canadian and Western
U.S. mills increased by 30 percent to 380 million board
feet.
Structural Panels experienced a difficult year due primarily
to a dramatic increase in oriented strand board (OSB)
capacity. Prices for OSB weakened significantly in the
latter part of 1996.
Hardwood Lumber reported a solid year, buoyed by robust
international markets and the successful integration of mills
25
<PAGE>
acquired in 1995. This Weyerhaeuser business has become the
largest in the North American hardwood industry by providing
a range of proprietary and standard products, mainly to
industrial customers worldwide.
The Building Materials Distribution business, encompassing
52 customer service centers throughout the United States and
Canada, experienced improved earnings and a 5 percent
increase in sales over 1995. Updated computerized
information systems effectively improved on-time deliveries,
order-fill rates and inventory management, resulting in
improved customer service.
<TABLE>
<CAPTION>
- ------------------------------------------------
Timberlands and Wood Products Capital Spending*
(millions of dollars)
<C> <S>
1997 Estimated $300
1996 $418
1995 $446
1994 $257
1993 $241
*Excludes acquisitions
- -----------------------------------------------
</TABLE>
The sector maintained its focus on managing capital
expenditures, improving operating efficiency, and improving
customer satisfaction. Key sources of the sector's business
improvements are reducing operating costs, improving raw
material usage, making product improvements, and delivering
customer service. Success in these areas will continue to
move the sector toward becoming the best.
Weyerhaeuser enhanced its position as the world's largest
private owner of merchantable softwood timber by making
major adjustments to its forestland portfolio, adjustments
that will increase raw material supplies to Weyerhaeuser's
Southern manufacturing facilities. The company acquired
661,200 acres of Southern pine forest in Mississippi and
Louisiana and an additional 118,000 acres in central
Georgia. Included in the Mississippi-Louisiana purchase
were two state-of-the-art dimension lumber mills and long-
term agreements with two contract sawmills. These purchases
28
<PAGE>
match the company's strategy of acquiring quality assets
that fit core businesses.
Negotiations to exchange 180,000 acres of environmentally
sensitive Weyerhaeuser forestland in Arkansas and Oklahoma
with federal agencies were finalized in 1996. In return,
Weyerhaeuser received from the U.S. Forest Service and U.S.
Fish and Wildlife Service 47,500 acres of forestland well
suited for sustainable timber production. The exchange
supplements timber supplies for the company's area mills and
transfers to public ownership wetlands and mixed forests
ideal for wildlife management and recreation.
In August the company sold its long-time holdings near
Klamath Falls, Ore. By selling 600,000 acres of
predominantly pine forest and the related manufacturing
operations, the company narrowed its focus in the Pacific
Northwest to the production of Douglas fir and hemlock.
Timberlands strengthened forestry operations nationwide with
a major restructuring to improve management effectiveness.
The effort is expected to improve operational performance
throughout the Timberlands business in 1997, as units take
advantage of improved work processes, best practices and a
flatter organizational structure where employees are
empowered to make decisions that directly affect safety,
operations, the environment and customers.
1996 marked the 30th anniversary of Weyerhaeuser's decision
to develop High Yield Forestry. In the past three decades,
sustained investments in forestry research, reforestation
and silviculture have dramatically increased the amount of
wood growing in the company's private forests. Weyerhaeuser
expects its annual harvest from U.S. fee timberlands to
increase approximately 70 percent above present levels over
the next 20 years.
29
<PAGE>
Recent forestry research on improving wood quality is
projected to add significant future value to the timber
harvested. While most opportunities for increasing volume
have been captured, Timberlands continues to invest in
pruning, genetics and other technologies to enhance wood
quality and compatibility with specific manufacturing
applications.
Wood Products businesses made important strides in 1996 in
the area of work systems improvement. Underscored by an
abiding commitment to their customers, employees are taking
ownership to increase volumes, lower costs, make deliveries
on time, and improve product quality and performance.
Typical of the more than two dozen wood products facilities
is Cottage Grove (Ore.) Lumber, where operational uptime
increased from 90 to 95 percent and product yield per log
increased from 92 to 98 percent. Better use of assets
resulting in increased manufacturing time and higher volumes
leads to increased return on capital. With commitment and
ownership, Wood Products employees are making the key
decisions affecting operating efficiency, customer service
and product quality that result in lasting improvements to
our business operations.
Our Timberlands and Wood Products assets are of high
quality. A capable work force is concentrating on improving
manufacturing processes and work systems that will further
improve returns on invested capital to create future value
for our shareholders.
34
<PAGE>
REAL ESTATE AND FINANCIAL SERVICES
Combined earnings for the Real Estate and Financial Services
sectors increased from $13 million in 1995, before a special
charge, to $43 million in 1996, primarily the result of
Weyerhaeuser Real Estate Company realizing benefits from its
business restructuring efforts.
The real estate company improved results from its primary
businesses and markets while continuing to make significant
progress liquidating marginal assets identified in 1995.
With home building and land development activities in
Southern California, Las Vegas, Houston, Maryland, Virginia
and the Puget Sound area, the company continues to be one of
the top 20 home builders in the United States.
As part of its ongoing portfolio review and effort to
concentrate on core businesses, Weyerhaeuser Company
announced in September it had retained an investment banking
firm to explore strategic options with respect to
Weyerhaeuser Mortgage Company, a subsidiary of Weyerhaeuser
Financial Services, Inc. As a result, an agreement has been
signed to sell Weyerhaeuser Mortgage Company to owners more
strongly focused on financial products.
35
<PAGE>
1996 EVENTS AND ACCOMPLISHMENTS
In a company the size of Weyerhaeuser, it is not possible to
include all of the major events and accomplishments in the
Letter to Shareholders or the segment narratives. Listed
below are some additional highlights of 1996.
SAFETY
Safety is a core value for Weyerhaeuser people; however,
five employees and three contractors lost their lives
working for the company in 1996. These fatalities occurred
even as the company continued to reduce the number of lost-
time accidents, clearly demonstrating the need for further
improvement.
Lost-time accidents decreased 6 percent, from a rate of
0.86 per 100 employees in 1995 to 0.81 per 100 employees in
1996. Over the last five years, the lost-time accident rate
has improved 72 percent, a tribute to the efforts of
Weyerhaeuser employees everywhere.
. The Senior Management Team Safety Excellence Award
was established in 1996 to recognize "the best of the best"
- - those units that have completed five years and/or 1
million work hours without a lost-time accident and have
achieved "stretch" safety targets. Award winners during
1996 are containerboard packaging plants in Olympia, Wash.,
Jackson, Miss., and Barrington, N.J.; containerboard mills
in Valliant, Okla., and Springfield, Ore.; the NORPAC
newsprint mill in Longview, Wash.; the Flint River pulp mill
in Oglethorpe, Ga.; timberlands in Mississippi/Alabama; the
Puget Sound chip export center in Tacoma, Wash.; the Smith
Island log yard in Everett, Wash.; seed orchards in Sequim,
Wash., and Central Point, Ore.; and the nursery in Aurora, Ore.
. The pulp and paper complex in Columbus, Miss., was
recertified as an "OSHA Star" plant site for another three
years by the U.S. Department of Labor, officially designating
Columbus "one of the safest pulp and paper-making complexes in
America." This is the second time Columbus has been named. Also,
the softwood lumber mill in Barnesville, Ga., was designated an
"OSHA Star" plant site for the first time in 1996, joining the
containerboard mill in Valliant, Okla., which was certified in 1995.
CUSTOMERS
. Four Pulp, Paper and Packaging operations received the Jack
Waechter Award for Customer Excellence: containerboard packaging
plants in Belleville, Ill., and Salinas, Calif.; the pulp mill in
Grande Prairie, Alberta; and the fine paper plant in Longview, Wash.
The award recognizes exceptional commitment to customer satisfaction.
. After two years as a certified supplier to Xerox, the paper mill
in Prince Albert, Sask., has been rated Xerox's number-one supplier.
. The pulp and paper complex in Columbus, Miss., was recertified as
an ISO 9002 facility by the International Quality Management Institute,
Mississaugha, Ont. The designation means the mill's processes meet or
exceed internationally recognized standards for assured quality and
consistency.
. The oriented strand board mill in Grayling, Mich., won the 1996 Wood
Products Manufacturing Excellence Award. In its third year, the award
promotes excellence in manufacturing by challenging operations to
demonstrate world-class operational standards and share best practices.
Grayling was a recipient in 1995 also.
PARTNERSHIPS
. In an agreement with the Rocky Mountain Elk Foundation, Weyerhaeuser
will provide habitat for elk and other big game on its 2.1 million acres
of forestland in the Pacific Northwest. Weyerhaeuser also has agreed to
work with the Croatan National Forest and the U.S. Fish and Wildlife Service
to manage habitat for the red-cockaded woodpecker on its forestland in North
Carolina.
40
<PAGE>
. In 1996, the company submitted for federal approval its first-ever
multi-species Habitat Conservation Plan (HCP), covering 400,000 acres of
company timberland near Cottage Grove and Springfield, Ore. The 40- to
80-year plan will increase biological diversity and protect special habitats
while ensuring the sustainable production of wood. Also, the company worked
with the U.S. Fish and Wildlife Service to complete an HCP to protect the
endangered American burying beetle in Arkansas and Oklahoma.
CITIZENSHIP
. For the second year running, Weyerhaeuser ranked number one in
responsibility to the community and environment among forest industry
companies, according to Fortune magazine's annual Corporate Reputation
Survey.
. The Pulp business's Flint River pulp mill in Oglethorpe, Ga., was the
first of the forest products industry accepted into the EPA's eXcellence
and Leadership Program (Project XL) and is now an official Project XL site.
Participation is based on continued commitment to minimum impact
manufacturing through voluntary pollution prevention. The facility has
won eight environmental awards for water and air quality from state and
national organizations, including the 1996 Water Protection Citizen of
the Year from the Georgia Chamber of Commerce and Department of Natural
Resources.
. The Oregon Department of Fish and Wildlife selected Weyerhaeuser as
the recipient of the Landowner of the Year award for the company's work
in improving wildlife habitat in the Willamette region.
. In 1996, the Weyerhaeuser Company Foundation expanded its Excellence
in Recycling awards to include seven states. These competitions are open
to elementary and secondary schools within the states and recognize
effective education regarding the value of integrated waste management.
States currently participating are Alabama, Arkansas, Mississippi,
North Carolina, Oklahoma, Oregon and Washington.
. Along with representatives from education, associations, industry
and environmental organizations, Weyerhaeuser people participated in the
Seventh American Forest Congress held in Washington, D.C., to work on
reaching agreement about the future management of U.S. forests.
. Weyerhaeuser and others in the forest products industry completed
the second year of implementing the American Forest and Paper Association's
Sustainable Forestry Initiative (R), a comprehensive program of forestry
and conservation practices.
. Weyerhaeuser foresters and scientists have completed watershed
analyses for 1.2 million acres of forestland in the western United States
and Canada. Seven analyses were finished in Oregon and Washington in
1996, for a total of 27 completed since 1993. In British Columbia,
assessments of eight more watersheds were completed on land managed under
long-term leases. Watershed analysis is a comprehensive assessment of a
watershed followed by a management plan to protect water quality and fish
habitat. It is a key process Weyerhaeuser uses to conserve precious
natural resources while continuing to manage forestlands for the
sustainable production of wood.
. The Kamloops, B.C., pulp mill received a National Industry Energy
Innovator Award for participating in the Canadian Industry Program for
Energy Conservation, a voluntary network of industry associations.
Weyerhaeuser Canada and the Kamloops mill were recognized by Natural
Resources Canada for ongoing efforts in formalizing and meeting
energy-efficiency targets and programs.
41
<PAGE>
1996 FINANCIAL REPORT
CONTENTS
42 Description of the Business of the Company
48 Financial Review
52 Report of Independent Public Accountants
53 Consolidated Statement of Earnings
54 Consolidated Balance Sheet
56 Consolidated Statement of Cash Flows
58 Consolidated Statement of Shareholders' Interest
59 Notes to Financial Statements
76 Historical Summary
- -------------------------------------------------------------
This report includes statements concerning the company's
future results and performance that are forward-looking
statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements are subject
to uncertainties and risks that may cause actual results to
differ materially from those projected. The company's
businesses are cyclical in nature and are influenced by
economic factors such as interest rates, housing starts,
industrial production and GDP growth in the United States.
The company's performance is also affected by its ability to
successfully implement its business improvement plans and
other internal performance objectives and its ability to
achieve expected returns on numerous capital projects. Many
of the company's products are used in the manufacture of
other products and face the threat of customers substituting
other materials. The company is also a large exporter and
is affected both by changes in economic activity in Europe
and Asia, particularly by changes in GDP and housing starts
in Japan, our largest export market, and by changes in
currency exchange rates. The company's timberlands and
manufacturing facilities are subject to extensive forestry,
land use and environmental regulations that change
frequently and are discussed in more detail on pages 45
through 47 of this report. The company's major businesses
are also affected by government policies regarding the
management of public lands in the United States and Canada
and by international trade restrictions. In addition to
unanticipated changes in government regulation and policy,
natural disasters and unusual weather conditions can damage
the company's forests and operations and impact supply
conditions for the company's products.
- ------------------------------------------------------------
DESCRIPTION OF THE BUSINESS OF THE COMPANY
- ------------------------------------------------------------
Weyerhaeuser Company (the company) was incorporated in the
state of Washington in January 1900 as Weyerhaeuser Timber
Company. It is principally engaged in the growing and
harvesting of timber and the manufacture, distribution and
sale of forest products, real estate development and
construction, and financial services.
The company has 39,700 employees, of whom 37,300 are
employed in its timber-based businesses, and of this number,
approximately 17,500 are covered by collective bargaining
agreements, which generally are negotiated on a multi-year
basis.
Approximately 2,400 of the company's employees are
involved in the activities of its real estate and financial
services subsidiaries.
The major markets, both domestic and foreign, in which the
company sells its products are highly competitive, with
numerous strong sellers competing in each. Many of the
company's products also compete with substitutes for wood
and wood fiber products. The real estate and financial
services subsidiaries also operate in highly competitive
markets, competing with numerous regional and national firms
in real estate development and construction and in financial
services.
In 1996, the company's sales to customers outside the
United States totaled $2.7 billion (including exports of
$1.8 billion from the United States and $.9 billion of
42
<PAGE>
Canadian export and domestic sales), or 24 percent of total
consolidated sales and revenues. The company believes these
sales contributed a higher proportion of aggregate operating
profits (see Note 2 of Notes to Financial Statements). All
sales to customers outside the United States are subject to
risks related to international trade and to political,
economic and other factors that vary from country to
country.
PRINCIPAL BUSINESS SEGMENTS
TIMBERLANDS AND WOOD PRODUCTS
The company owns approximately 5.3 million acres of
commercial forestland in the United States (61 percent in
the South and 39 percent in the Pacific Northwest), most of
it highly productive and located extremely well to serve
both domestic and international markets. The company has,
additionally, long-term license arrangements in Canada
covering approximately 22.9 million acres (of which 15
million acres are considered to be productive forestland).
The combined total timber inventory on these U.S. and
Canadian lands is approximately 266 million cunits (a cunit
is 100 cubic feet of solid wood), of which approximately 75
percent is softwood species. The relationship between cubic
measurement and the quantity of end products that may be
produced from timber varies according to the species, size
and quality of timber, and will change through time as the
mix of these variables changes. To sustain the timber
supply from its fee timberlands, the company is engaged in
extensive planting, suppression of nonmerchantable species,
precommercial and commercial thinning, fertilization and
operational pruning, all of which increase the yield from
its fee timberland acreage.
The company's wood products businesses produce and sell
softwood lumber, plywood and veneer; composite panels;
oriented strand board; hardwood lumber and plywood; doors;
treated products; logs; chips and timber. These products
are sold primarily through the company's own sales
organizations. Building materials are sold to wholesalers,
retailers and industrial users.
The company, through its wholly owned subsidiary,
Weyerhaeuser Forestlands International, formed a joint-
venture partnership with institutional investors represented
by UBS Resource Investments International, a unit of UBS
Asset Management (New York) Inc., which will make
investments in timberlands and related assets outside the
United States. The primary focus of this partnership will
be in pine forests in the Southern Hemisphere. The company
will be a 50 percent owner of the joint venture, the total
size of which is expected to be approximately $400 million.
The joint venture will be capitalized over time through
equal cash contributions by the company and the investor
group.
During the 1996 third quarter, the company started up its
new oriented strand board (OSB) mill in Sutton, West
Virginia. The mill, which is designed to produce
approximately 550 million square feet (3/8" basis) annually,
is the company's sixth OSB operation and the largest single-
line OSB mill in the United States.
Also in the third quarter, the company sold its Klamath
Falls, Oregon, hardboard, particleboard and plywood
manufacturing operations; 600,000 acres of predominantly
pine timberlands; and its nursery and seed orchard
facilities in Eastern Oregon. Revenues and operating
earnings of these operations were not material to the
company.
During the year, the company acquired 779,000 acres of
private commercial timberlands and two sawmills in the
southern United States. A portion of these timberlands was
involved in a like-kind exchange for the Klamath Falls
timberlands.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
Dollar amounts in millions 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------
<C> <S> <S> <S> <S> <S>
Net sales:
Raw materials (logs, chips
and timber) $1,066 $1,102 $1,091 $1,021 $ 872
Softwood lumber 1,988 1,648 1,880 1,704 1,138
Softwood plywood and veneer 519 591 636 567 498
Oriented strand board,
composite and other panels 667 752 750 623 495
Hardwood lumber 235 193 175 154 127
Engineered wood products 233 207 157 100 --
Miscellaneous products 532 438 303 299 287
- ------------------------------------------------------------------------
$5,240 $4,931 $4,992 $4,468 $3,417
========================================================================
Approximate contributions
to earnings $ 805 $ 808 $1,034 $ 891 $ 515
========================================================================
</TABLE>
43
<PAGE>
PULP, PAPER AND PACKAGING
The company's pulp, paper and packaging businesses include:
Pulp, which manufactures chemical wood pulp for world
markets; Newsprint, which manufactures newsprint at the
company's North Pacific Paper Corporation mill and markets
it to West Coast and Japanese newspaper publishers; Paper,
which manufactures and markets a range of both coated and
uncoated fine papers through paper merchants and printers;
Containerboard Packaging, which manufactures linerboard and
corrugating medium, which is primarily used in the
production of corrugated packaging, and manufactures and
markets industrial and agricultural packaging; Paperboard,
which manufactures and markets bleached paperboard, used for
production of liquid containers, to West Coast and Pacific
Rim customers; Recycling, which operates an extensive
wastepaper collection system and markets it to company mills
and worldwide customers; and Chemicals, which produces
chlorine, caustic and tall oil, which are used principally
by the company's pulp, paper and packaging operations.
In 1993, the Personal Care Products business, which
manufactured disposable diapers sold under the private-label
brands of many of North America's largest retailers, was
sold through an initial public offering of stock.
The company and SCA Packaging Europe BV formed a joint
venture in 1996 to pursue opportunities to build or buy
containerboard packaging facilities to serve manufacturers
of consumer and industrial products in Asia.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Dollar amounts in millions 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------
<C> <S> <S> <S> <S> <S>
Net sales:
Pulp $ 954 $1,616 $1,012 $ 823 $ 711
Newsprint 451 508 356 322 326
Paper 803 1,001 664 648 673
Paperboard and containerboard 281 325 240 255 321
Packaging 1,921 1,863 1,495 1,302 1,323
Recycling 140 266 121 77 93
Chemicals 63 63 45 32 31
Personal care products -- -- -- -- 514
Miscellaneous products 35 40 133 120 117
- ----------------------------------------------------------------------
$4,648 $5,682 $4,066 $3,579 $4,109
======================================================================
Approximate contributions
to earnings $ 307 $1,181 $ 211 $ 61 $ 251
======================================================================
</TABLE>
REAL ESTATE
The company, through its real estate subsidiary,
Weyerhaeuser Real Estate Company, is engaged in developing
single-family housing and residential lots for sale,
including the development of master-planned communities.
Operations are mainly concentrated in selected metropolitan
areas in Southern California, Nevada, Washington, Texas,
Maryland and Virginia.
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Dollar amounts in millions 1996 1995 1994 1993 1992
- ------------------------------------------------------------
<C> <S> <S> <S> <S> <S>
Net sales and revenues:
Single-family units $573 $ 563 $686 $615 $569
Multi-family units 12 -- 26 30 4
Residential lots 76 60 65 43 39
Commercial lots 50 29 7 41 6
Commercial buildings 43 4 35 3 5
Acreage 25 36 20 27 20
Other 25 31 72 70 47
- ------------------------------------------------------------
$804 $ 723 $911 $829 $690
=============================================================
Approximate contributions
to earnings (1) $ 35 $(231) $ 7 $ 18 $ 13
=============================================================
</TABLE>
(1) After a special charge of $232 million to dispose of
certain real estate assets in 1995.
44
<PAGE>
FINANCIAL SERVICES
The company, through its financial services subsidiary,
Weyerhaeuser Financial Services, Inc., is involved in a
range of financial services. The principal operating unit
is Weyerhaeuser Mortgage Company (WMC), which has
origination offices in 19 states, with a servicing portfolio
of $4.4 billion covering approximately 46,000 loans
throughout the country. Mortgages are resold in the
secondary market through mortgage-backed securities to
financial institutions and investors. Through its insurance
services organization, it also offers a broad line of
property, life and disability insurances.
GNA Corporation, a subsidiary that specialized in the sale
of life insurance annuities and mutual funds to the
customers of financial institutions, was sold in April 1993.
The company has signed an agreement for the sale of WMC.
Revenues and operating earnings of WMC are not material to
the company.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Dollar amounts in millions 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------
<C> <S> <S> <S> <S> <S>
Net sales and revenues:
Interest $ 70 $ 76 $ 84 $ 110 $ 144
Investment income 1 3 2 116 452
Loan origination and
servicing fees 100 84 88 127 103
Premiums 9 9 10 14 21
Other revenues 25 24 22 34 112
- ----------------------------------------------------------------------
$ 205 $ 196 $ 206 $ 401 $ 832
======================================================================
Approximate contributions
to earnings (1) $ 8 $ (46) $ 11 $ 76 $ 68
======================================================================
</TABLE>
(1) After a special charge of $58 million to dispose of
certain real estate assets in 1995 and a $42 million gain on
sale of GNA Corporation in 1993.
CORPORATE AND OTHER
Corporate and other includes wholesale nursery and garden
supply products, which are sold primarily to retailers and
landscapers by the company's sales force; marine
transportation; and general corporate expense.
The company has offered for sale its wholly owned
wholesale nursery and garden supply products subsidiary,
Shemin Nurseries, Inc. The sale of this business is
expected to close in the first half of 1997. Revenues and
operating earnings of these operations are not material to
the company.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Dollar amounts in millions 1996 1995 1994 1993 1992
- -------------------------------------------------------------------
<C> <S> <S> <S> <S> <S>
Net sales $ 217 $ 256 $ 223 $ 269 $ 220
===================================================================
Approximate contributions
to earnings (1) $(183) $(217) $(142) $ (46) $(107)
===================================================================
</TABLE>
(1)After a $70 million gain on disposal of infant diaper
business in 1993.
ENVIRONMENTAL MATTERS
In 1990 the northern spotted owl was listed as a threatened
species under the Endangered Species Act (ESA). In 1992 the
marbled murrelet was listed as a threatened species under
the ESA, and in 1996 the Umpqua River Cutthroat Trout was
listed as a threatened species. Certain Snake River salmon
runs have been listed as threatened or endangered under the
ESA. The National Marine Fisheries Service has proposed
listing coho salmon that spawn in Oregon coastal rivers as a
threatened species. Petitions have been filed to list
certain Pacific Northwest salmon runs, steelhead trout, bull
trout and other fish populations as threatened or endangered
under the ESA. A consequence of these listings has been,
and a consequence of future listings may be, reductions in
the sale and harvest of timber on federal timberlands in the
Pacific Northwest. Requirements to protect habitat for
threatened and endangered species on non-federal timberlands
has resulted, and may in the future result, in restrictions
on timber harvest on some non-federal timberlands in the
Pacific Northwest, including some timberlands of the
company. The listing of the red-cockaded woodpecker as an
endangered species under the ESA had some impact on the
harvest of public and private timber in the southeastern
United States, but has had little impact on the company's
operations. Other ESA-listed species (e.g., American
burying beetle and gopher tortoise) occur on or near some of
the company's southern timberlands, but have had little
impact on the company's operations. Other federal ESA
listings, or designations of fish and wildlife species as
endangered, threatened or otherwise sensitive under various
state laws, could impact future timber harvests on some of
the company's timberlands and could impact timber supply and
prices in some regions. In addition, statutory
45
<PAGE>
requirements with respect to the protection of wetlands may
affect future harvest and forest management practices on
some of the company's timberlands, particularly in
southeastern states.
In April 1994, the Clinton administration adopted its plan
with respect to management of federal timberlands in the
Pacific Northwest. This plan has reduced timber sales from
certain federal lands in western Washington, western Oregon
and northern California by more than 75 percent from harvest
levels in the 1980s. Subsequently, the Clinton
administration has begun similar planning efforts and
adopted interim timber sale policies for federal timberlands
in the intermountain west and certain other regions. These
reductions in federal timber sales have seriously reduced
log supplies to many independent sawmills that have been
important suppliers of wood chips to the company's pulp and
paper mills in Washington and Oregon. Alternative sources
of wood chips and recycled fiber have become available, and
some companies have reduced manufacturing capacity or
production levels in response to reduced federal timber
harvests. The company does not anticipate that reductions
in federal timber harvests will require significant
curtailments of capacity or production at its current
manufacturing facilities.
The administration also has stated that reduced timber
harvest on federal lands will provide the opportunity to
clarify the uncertainty surrounding federal policies for
protection of northern spotted owls on some private lands.
On February 7, 1995, the administration proposed a special
rule to clarify federal harvest restrictions on some private
lands in Washington and California. The company believes
that the regulatory changes might ultimately allow it to
harvest fee timber in some areas where it has not been
operating because of uncertainties regarding regulations
intended to protect the northern spotted owl. Whether those
regulatory changes will be implemented is uncertain. If
those regulatory changes are not implemented, the company
might not harvest some timber that it otherwise might
harvest in 1997 and 1998.
Because those regulatory changes may not be implemented,
and in order to avoid existing uncertainty under the ESA,
the company, in February 1995, developed a Habitat
Conservation Plan (HCP) and obtained from the U.S. Fish and
Wildlife Service an Incidental Take Permit with respect to
northern spotted owls on approximately 209,000 acres of its
Oregon coastal timberlands. That HCP establishes a protocol
for the harvest of timber and the protection of the northern
spotted owl on those timberlands and is expected to remain
in effect for at least 50 years. In December 1996, the
company applied for an Incidental Take Permit covering
approximately 400,000 acres of company timberlands in
western Oregon. If the related HCP and Implementation
Agreement are approved and that permit is issued by the U.S.
Fish and Wildlife Service and the National Marine Fisheries
Service, the company would be authorized to "take" all
species currently listed or proposed for listing under the
ESA (including the northern spotted owl), and all or most
species that may become listed in the future, in the course
of conducting timber harvest and other forest management and
land use activities on those lands. Pursuant to both of
those HCPs, there are limits on the amount of land covered
by the HCPs that can be transferred unless the U.S. Fish and
Wildlife Service approves the transfer or the new owner
agrees to be bound by the HCP and related documents. In
1996 the company obtained from the U.S. Fish and Wildlife
Service an Incidental Take Permit for the American burying
beetle covering approximately 25,000 acres of lands in
Oklahoma that it acquired from the United States in an
exchange with the U.S. Forest Service and certain nearby
lands that the company already owned. The company also has
entered into agreements with the U.S. Fish and Wildlife
Service to reduce uncertainties under the ESA with respect
to red-cockaded woodpeckers on some of its timberlands in
North Carolina and northern spotted owls on some of its
timberlands in Washington.
The company believes the most effective way to manage its
timberlands for the growth and harvest of timber and the
protection of wildlife and fish habitat is to develop plans
for the management of timber and other resources on those
lands and obtain approval of those plans from the
appropriate federal or state agencies. Accordingly, the
company is seeking to develop HCPs or other arrangements
with federal and state fish and wildlife agencies for some
other parts of its Pacific Northwest timberlands that would
address the protection of wildlife and fish habitat for both
listed and non-listed species.
Forest practice acts in some of the states in which the
company has timber increasingly impact present or future
harvest and forest management activities. For example,
forest practice acts in Washington and Oregon limit the size
of clearcuts, require that some timber be left unharvested
in riparian areas and sometimes in other areas to protect
water quality, fish habitat and wildlife, regulate
construction of forest roads and conduct of other forest
management activities, require reforestation following
timber harvest, and contain procedures for state agencies to
review and approve proposed forest practice activities.
Other state and some local governments regulate certain
forest practices through various permit programs. Each of
the states in which the company owns timberlands has
developed "best management practices" (BMPs) to reduce the
impacts of forest practices on water quality and aquatic
habitats. Additional and more stringent regulations and
regulatory programs may be adopted by various state and
local governments. These current or future forest practice
acts, BMPs and other programs may reduce the volumes of
timber that can be harvested, increase operating and
administrative costs, and make it more difficult to
46
<PAGE>
respond to rapid changes in markets, extreme weather or
other unexpected circumstances. However, the company does
not anticipate that it will be disproportionately affected
by these programs as compared with typical owners of
comparable timberlands or that these programs will
significantly disrupt its planned operations over large
areas or for extended periods.
In addition, the company participates in the Sustainable
Forestry Initiative(R) sponsored by the American Forest &
Paper Association, a code of conduct designed to supplement
government regulatory programs with voluntary landowner
initiatives to further protect certain public resources and
values. Compliance with the Sustainable Forestry
Initiative(R) may require some increases in operating costs.
The combination of the forest management and harvest
restrictions and impacts described in the preceding
paragraphs has increased operating costs, resulted in
changes in the value of timber and logs from the company's
Pacific Northwest timberlands, and contributed to increases
in the prices paid for wood products and wood chips during
periods of high demand. The company does not know whether
these effects will continue. One additional effect may be
the continuation of some reduced usage of, and some
substitution of other products for, lumber and plywood.
The company does not believe that the restrictions and
impacts described in the above paragraphs have had, or in
1997 or 1998 will have, a significant effect on the
company's total harvest of timber, although they may have
such an effect in the future.
In addition to the foregoing, the company is subject to
federal, state or provincial and local air, water and land
pollution control, solid and hazardous waste management,
disposal and remediation laws and regulations in all areas
in which it has operations, and to market demands with
respect to chemical content of some products and use of
recycled fiber. Compliance with these laws, regulations and
demands usually involves capital expenditures as well as
operating costs. The company cannot easily quantify future
amounts of capital expenditures required to comply with
these laws, regulations and demands, or the impact on
operating costs, because in some instances compliance
standards have not been developed or have not become final
or definitive. In addition, compliance with standards
frequently serves other purposes such as extension of
facility life, increase in capacity, changes in raw material
requirements, or increase in economic value of assets or
products. While it is difficult to isolate the
environmental component of most manufacturing capital
projects, the company estimates that capital expenditures
for environmental compliance were approximately $76 million
(9 percent of total capital expenditures excluding
acquisitions) in 1996. Based on its understanding of
current regulatory requirements, the company expects that
expenditures will range from $60 million to $75 million (8
to 10 percent of total capital expenditures) in 1997 and
1998.
The company is involved in the environmental investigation
or remediation of numerous sites, including 43 superfund
sites where the company has been named as a potentially
responsible party. Some of the sites are on property
presently or formerly owned by the company where the company
has the sole obligation to remediate the site or shares that
obligation with one or more parties, and others are third-
party sites involving several parties who have a joint and
several obligation to remediate the site. The company's
liability with respect to these sites ranges from
insignificant at some sites to substantial at others,
depending on the quantity, toxicity and nature of materials
deposited by the company at the site and, with respect to
some sites, the number and economic viability of the other
responsible parties.
The company spent approximately $25 million in 1996 and
expects to spend $21 million in 1997 on environmental
remediation of these sites. It is the company's policy to
accrue for environmental remediation costs when it is
determined that it is probable that such an obligation
exists and the amount of the obligation can be reasonably
estimated. Based on currently available information and
analysis, the company believes that it is reasonably
possible that costs associated with all identified sites may
exceed current accruals by amounts that may prove
insignificant or that could range, in the aggregate, up to
approximately $120 million over several years. This
estimate of the upper end of the range of reasonably
possible additional costs is much less certain than the
estimates upon which accruals are currently based and
utilizes assumptions less favorable to the company among the
range of reasonably possible outcomes.
An Environmental Protection Agency (EPA) regulation under
Title 5 of the Clean Air Act requires additional operating
permits at many of the company's manufacturing operations.
The company will continue to prepare the permit applications
in 1997 and anticipates that it will be able to obtain the
necessary permits.
The EPA published proposed regulations on December 17,
1993, known as the "cluster rules," which would establish
maximum achievable control technology standards for non-
combustion sources under the Clean Air Act, and the
development of revised wastewater effluent limitations under
the Clean Water Act. The original proposal has been
modified on two occasions, and a modified proposal is
presently expected to be adopted in 1997. If the cluster
rules are adopted as currently proposed, they will require
the company to commit additional capital to further reduce
air emissions and wastewater discharges by 2000. Depending
on the final limits contained in the rules ultimately
adopted by the EPA, the estimates of that additional capital
range from $90 million to $230 million, which will further
increase the annual percentage of the company's total
capital expenditures devoted to environmental compliance.
47
<PAGE>
FINANCIAL REVIEW
RESULTS OF OPERATIONS
1996 COMPARED WITH 1995
Consolidated net sales and revenues were $11.1 billion in
1996, a decrease of 6 percent from the record $11.8 billion
posted in 1995. This decrease is the net of a $1 billion
decrease in the pulp, paper and packaging segment and an
increase of $309 million for timberlands and wood products.
Pulp, paper, corrugated packaging and recycled products
experienced material unfavorable price variances offset, in
part, by favorable volume variances in the packaging
business related to the acquisition of nine facilities in
late 1995. Wood products benefited from favorable price and
volume variances in lumber.
Net earnings for 1996 were $463 million, or $2.34 per
common share, compared with record earnings of $799 million,
or $3.93 per common share, in 1995. The 1995 earnings were
net of an after-tax special charge of $184 million ($290
million pretax), or 90 cents per common share, within the
real estate and financial services segments. Lower prices
in the pulp, paper and packaging segment, which were in
sharp contrast with the record 1995 levels, accounted for
the decline in 1996 earnings.
The timberlands and wood products segment operating
earnings were $805 million, comparable to 1995 earnings of
$808 million, as it benefited from strong demand in the
United States and Japan. Tight supplies and disruptions
related to countervailing duties on imports from Canada
contributed to strong lumber results. The panel markets
have been negatively impacted by the excess capacity of
oriented strand board as new facilities came on line in
1996.
The pulp, paper and packaging segment reported operating
earnings of $307 million in 1996 compared with a record
performance of $1.2 billion in 1995. The downturn in pulp
and paper prices, which began in the fourth quarter of 1995
as customers cut back on purchases in order to reduce excess
inventories, continued as prices were significantly lower
than last year.
The combined real estate and financial services segments
earned $43 million from operations in 1996 compared with $13
million, before the special charge, in 1995. Real estate
benefited from several major commercial project closings and
increased residential property sales along with reduced
costs as the result of the disposition of certain impaired
properties. Improved financial services results reflected
the sale of capitalized servicing rights and increased loan
originations in the company's mortgage banking business.
Weyerhaeuser's cost of products sold, as a percentage of
sales, increased to 75 percent in 1996 compared with 69
percent in 1995, reflecting the significant decline in pulp,
paper and packaging pricing. Additionally, inventory
turnover rates were lower in 1996 compared with the higher
rates experienced in the peak price periods of 1995.
Real estate and financial services segments costs and
operating expenses in 1996 rose 7 percent over the 1995
level, consistent with the 10 percent increase in revenues
from year to year. The decline in depreciation and
amortization was directly related to the disposition of
certain impaired assets and sale of substantially all of the
capitalized servicing rights in the mortgage banking
business. Selling, general and administrative expenses
increased over 1995 primarily due to the opening of
additional branch offices in 1996 by the mortgage banking
business.
Other income (expense) is an aggregation of both recurring
and occasional non-operating income and expense items and,
as a result, may fluctuate from period to period. No
individual income or expense item in 1996 was significant in
relation to net earnings.
1995 COMPARED WITH 1994
The company's consolidated net sales and revenues increased
13 percent to a record $11.8 billion in 1995 compared with
$10.4 billion in 1994. The pulp, paper and packaging
segment accounted for $5.7 billion of this record
performance, 40 percent over its sales of $4.1 billion in
1994, with strong year-to-year improvement in all product
lines. These markets weakened in the fourth quarter, and
this weakness persisted in 1996 as customers continued to
reduce inventories. The timberlands and wood products
segment sales of $4.9 billion approximated 1994's. The real
estate and financial services segments had combined sales of
$919 million, down from the prior year's $1.1 billion,
largely attributable to declines in single-family home
sales.
The company also achieved record earnings of $799 million,
or $3.93 per common share, in 1995, which was 36 percent
over the $589 million, or $2.86 per common share, recorded
in 1994. The 1995 earnings were net of an after-tax charge
of $184 million ($290 million pretax), or 90 cents per
common share, within the real estate and financial services
segments. The 1994 earnings included a net contribution of
$.03 per common share for the return of countervailing duty
by the U.S. government against Canadian lumber imports and
the expected cost of postretirement benefits for Canadian
employees.
48
<PAGE>
Operating earnings in the timberlands and wood products
segment were $808 million, down from the record $1 billion
for the previous year. This was attributable to price
declines primarily in softwood lumber, caused by a drop in
domestic housing starts.
The pulp, paper and packaging segment posted record
operating earnings of $1.2 billion in 1995 compared with
$211 million earned in 1994. Significant price improvement
over the prior year and ongoing improvements in operations
were the key factors in recovery in this segment.
The company's real estate and financial services segments
recorded a combined operating loss of $277 million for the
year after reflecting a $290 million charge to operations.
The majority of the charge was a direct result of the
company's decision to accelerate the disposition of certain
real estate assets previously held for development and use.
The remainder of the charge resulted from the application of
those provisions of Statement of Financial Accounting
Standards (SFAS) No. 121 relating to the valuation of assets
held for future use where estimated undiscounted future cash
flows from those assets did not exceed the carrying value of
those assets. Before these actions, the combined segments
earned $13 million compared with $18 million in 1994.
Weyerhaeuser's cost of products sold as a percentage of
net sales decreased to 69 percent in 1995 compared with 73
percent in 1994. The company continued to benefit from its
mill modernization program and implementation of its
business improvement plans, offset in part by the costs
associated with higher sales activity, principally in the
pulp, paper and packaging segment. Depreciation expense
increased over the prior year as a result of the completion
and start-up of several mill modernization projects in late
1994 in the pulp, paper and packaging segment. The
expansion of the company's Performance Share Plan to include
all employees was the major contributor to the $109 million
increase in selling, general and administrative expenses.
Contributions made by the company into this plan are
invested in company stock on behalf of each employee. The
size of the contribution, if any, is decided by the board of
directors each year on the basis of that year's profits and
the company's performance relative to its competition.
Excluding the revaluation charge, the decrease in costs
and operating expenses of the real estate and financial
services segments are in line with the reduced sales
activity.
Other income (expense) is an aggregation of both recurring
and occasional non-operating income and expense items and,
as a result, may fluctuate from period to period. No
individual income or expense item in 1995 was significant in
relation to net earnings.
Weyerhaeuser's interest expense incurred was up $34
million over the prior year as a result of prefunding 1995
debt maturities that were due late in the year as well as an
increase in the company's combined long- and short-term debt
levels. Capitalized interest was $16 million less than the
prior year as mill modernization projects at Longview,
Washington, and Plymouth, North Carolina, were completed.
1994 COMPARED WITH 1993
The company's 1994 consolidated sales and revenues were
$10.4 billion, a 9 percent increase over the $9.5 billion
reported in 1993. Net earnings were $589 million, or $2.86
per common share, compared with 1993 net earnings of $579
million, or $2.83 per common share. 1994 earnings included
the return of countervailing duty by the U.S. government
against Canadian lumber imports and the expected cost of
postretirement benefits for Canadian employees. The net
effect of these two items contributed $.03 per common share.
1993 earnings included gains of $132 million, or $.65 per
common share, from the sale of assets and extinguishment of
debt, and a $15 million, or $.08 per common share, charge to
earnings to reflect the revised 1993 federal corporate tax
rate in the company's deferred tax accounts.
The continuation in 1994 of the company's major
modernization projects, started in 1993, accounted for the
significant increase in capitalized interest from year to
year.
The significant changes from 1993 in other income were
attributable to the $70 million pretax gain on the disposal
of the company's investment in the infant diaper business
and the real estate and financial services pretax gain of
$42 million on the sale of GNA Corporation, both in 1993.
The timberlands and wood products segment posted record
operating earnings of $1 billion in 1994, which was a 16
percent increase over the $891 million reported in 1993.
Sales for this segment were $5 billion, up 12 percent over
the $4.5 billion reported in 1993. This segment posted
record performances during 1994 as the businesses continued
to accomplish their business improvement plans, timber
supplies remained tight and markets remained strong
throughout the year.
The pulp, paper and packaging segment's 1994 operating
earnings were $211 million, up substantially from 1993's $61
million. This segment reported sales of $4.1 billion for
the year, an increase of 14 percent over the $3.6 billion in
1993. Strong demand coupled with continued price
improvement over the prior year in both the domestic and
export pulp, paper and packaging markets were the key
factors in this recovery.
49
<PAGE>
The combined real estate and financial services segments
earned $18 million in 1994 compared with 1993 earnings of
$94 million, which included a pretax gain of $42 million on
the sale of GNA Corporation as well as one quarter of GNA
operating results.
BUSINESS IMPROVEMENT PLANS
In 1994 business improvement plans were developed to improve
the annual pretax earnings of the company by $600 million by
the end of 1997. Given the volatility of prices in many of
the company's product lines and changing material and labor
costs, the improvement plans were developed, stated and are
being tracked in 1994 dollars. The year-to-year impact of
these plans will obviously vary as prices and costs change
each year.
These plans were developed by each unit of the company and
did not require any major capital investment. They focused
on the manageable variables at each operating unit that have
the greatest impact on profitability, i.e., production
volume, manufacturing cost, product mix and controllable
overhead.
The company achieved improvements totaling $120 million
and $276 million, as measured in 1994 dollars, in 1996 and
1995, respectively. The rate of improvement slowed in 1996
as weak pulp and paper markets resulted in periodic
production curtailments that negatively impacted
productivity. With market conditions expected to improve,
the company still anticipates achieving the $600 million
goal by the end of 1997.
The annualized improvements realized and expected to be
realized over the 1995 to 1997 period, in 1994 dollars, with
1998 as the first full year of benefit, are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
Total
1997 sustainable
Dollar amounts in millions 1995 1996 goal goal
- --------------------------------------------------------------
<C> <S> <S> <S> <S>
Pulp, paper and
packaging $146 $ 49 $105 $300
Timberlands and
wood products 130 71 99 300
- --------------------------------------------------------------
$276 $120 $204 $600
==============================================================
</TABLE>
The breakdown of the $600 million in improvements by
source and business segment, in 1994 dollars, is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Timberlands Pulp,
and Wood Paper and
Products Packaging Total
- ------------------------------------------------------------
<C> <S> <S> <S>
Dollar amounts in millions
Incremental volume $ 115 $ 152 $ 267
Manufacturing cost
reduction 90 87 177
Higher-value mix 81 54 135
Overhead savings 14 7 21
- ------------------------------------------------------------
$ 300 $ 300 $ 600
============================================================
</TABLE>
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 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. Long-term debt maturities are
shown in Note 12 of Notes to Financial Statements.
OPERATIONS
In 1996 the company generated $1.3 billion of cash flow from
operations before changes in working capital compared with
$1.9 billion in 1995. Net earnings provided by Weyerhaeuser
were $434 million, down $547 million from the $981 million
provided in 1995 due primarily to the decline of prices for
pulp, paper and corrugated packaging products in the current
year.
The real estate and financial services segments provided
$29 million from net earnings in 1996 compared with a net
loss of $182 million in 1995. Included in the 1995 net loss
was a pretax, non-cash charge of $290 million resulting from
the company's decision to accelerate the disposition of
certain real estate assets previously
50
<PAGE>
held for development and use along with the application of
those provisions of SFAS No. 121 relating to the valuation
of assets held for future use when estimated undiscounted
future cash flows from the assets did not exceed the
carrying value of those assets.
Cash flow from operations before changes in working
capital by business segment was as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------
Dollar amounts in millions 1996 1995 1994
- --------------------------------------------------------
<C> <S> <S> <S>
Timberlands and wood
products $ 1,045 $ 1,026 $ 1,226
Pulp, paper and packaging 665 1,567 530
Real estate 41 23 16
Financial services 57 46 33
Corporate and other (546) (806) (545)
- --------------------------------------------------------
$ 1,262 $ 1,856 $ 1,260
========================================================
</TABLE>
Weyerhaeuser's cash flow from changes in net working
capital during the year was $41 million with increases in
inventories and prepaids along with reductions in accrued
liabilities and accounts payable being partially offset by a
decrease in receivables.
The majority of the $82 million of funds provided from
working capital in the real estate and financial services
segments came from decreases in real estate and land
inventories and mortgages held for sale, as sales exceeded
originations.
INVESTING
Capital expenditures, excluding acquisitions, were $879
million compared with $996 million in 1995. They are
currently expected to approximate $750 million, excluding
acquisitions, in 1997; however, these expenditures could be
increased or decreased as a consequence of future economic
conditions.
The company spent $448 million in 1996 for the acquisition
of private commercial timberlands and two lumber mills in
the southern United States. In 1995 the company acquired
three hardwood lumber mills and timber and timberlands in
the Pacific Northwest, nine corrugated packaging plants and
five recycling collection facilities using $77 million of
cash and $46 million of the company's treasury common
shares.
Recent capital spending, excluding acquisitions, has been
in the following areas:
<TABLE>
<CAPTION>
- --------------------------------------------------
Dollar amounts in millions 1996 1995 1994
- --------------------------------------------------
<C> <S> <S> <S>
Timberlands and wood
products $ 418 $446 $ 257
Pulp, paper and packaging 415 501 794
Corporate and other 46 49 51
- -------------------------------------------------
$ 879 $996 $1,102
=================================================
</TABLE>
Proceeds from the sale of property and equipment included
$33 million received for the production facilities and
logging equipment in the sale of the company's Klamath Falls
manufacturing and timberlands operations. The timberlands
portion of this transaction involved like-kind exchanges for
other timberlands in the southern United States.
In 1996 the company's financial services segment's
mortgage banking business provided funds from the sale of
substantially all of its capitalized servicing rights and
remaining adjustable-rate mortgages plus reduction in assets
pledged as collateral for the collateralized mortgage
obligation (CMO) bonds. The sale of adjustable-rate
mortgages had commenced in 1995.
FINANCING
Weyerhaeuser's long-term debt grew approximately $500
million during the year with the major activity being a $637
million increase in net commercial paper borrowings and a
$33 million sale of industrial revenue bonds offset, in
part, by the payment of $115 million of the company's medium-
term notes and $40 million of fixed-rate debt. As a result,
the company's long-term debt as a percent of shareholders'
equity increased to 77 percent at the end of 1996 compared
with 67 percent a year earlier.
The combined real estate and financial services segments
utilized funds received from the sale of impaired assets,
capitalized servicing rights and adjustable-rate mortgages
to reduce net borrowings by $312 million.
The company paid $317 million in cash dividends in 1996
compared with $306 million in 1995. The increase is
attributable to the quarterly dividend rate being raised
from 30 cents to 40 cents effective with the second quarter
of 1995, resulting in an annualized rate of $1.60 per common
share. Although common share dividends have exceeded the
company's target payout ratio in recent years, it is our
intent, over time, to pay dividends to our common
shareholders in a range of 35 to 45 percent of common share
earnings.
The company repurchased $45 million of common shares
during the year as a part of the 10 million share repurchase
program, which commenced in the second quarter of 1995,
bringing the total acquired to 9.6 million shares. In 1996
the company's board of directors authorized an increase of 1
million shares in the repurchase program, bringing the
authorized total to 11 million, to offset shares issued in
conjunction with a recent acquisition.
To ensure its ability to meet future commitments,
Weyerhaeuser Company, Weyerhaeuser Real Estate Company and
Weyerhaeuser Mortgage Company, a subsidiary of Weyerhaeuser
Financial Services, Inc., have established unused bank lines
of credit in the maximum aggregate sum of approximately $2.1
billion. None of the entities is a guarantor of the
borrowings of the others under any of these credit
facilities.
51
<PAGE>
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.
ACCOUNTING MATTERS
PROSPECTIVE ACCOUNTING PRONOUNCEMENTS
In June 1996, the FASB issued SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," to provide accounting and
reporting guidance for transfers and servicing of financial
assets and extinguishments of liabilities. The statement
uses the "financial-components approach" in which, after a
transfer of financial assets, an entity would recognize all
financial assets and services it controls and all
liabilities it has incurred and remove financial assets and
liabilities from the balance sheet when control is
surrendered or when they are extinguished, respectively. It
is to be applied to transfers and servicing of financial
assets and extinguishment of liabilities occurring after
December 31, 1996. This statement will supersede several
previous statements, including SFAS No. 122, "Accounting for
Mortgage Servicing Rights -- an amendment of FASB Statement
No. 65," which the company had implemented in 1995. In
1996, the FASB issued 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 believes that the future adoption
of these statements will not have a significant impact on
results of operations or financial position.
ACCOUNTING AND REPORTING STANDARDS COMMITTEE
During the year, the Accounting and Reporting Standards
Committee, comprised of four outside directors, reviewed
with the company's management and with its independent
public accountants the scope and results of the company's
internal and external audit activities and the adequacy of
the company's internal accounting controls. The committee
also reviewed current and emerging accounting and reporting
requirements and practices affecting the company.
- ------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS OF WEYERHAEUSER COMPANY:
We have audited the accompanying consolidated balance sheets
of Weyerhaeuser Company (a Washington corporation) and
subsidiaries as of December 29, 1996, and December 31, 1995,
and the related consolidated statements of earnings, cash
flows and shareholders' interest for each of the three years
in the period ended December 29, 1996. These financial
statements are the responsibility of the company's
management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of Weyerhaeuser Company and subsidiaries as of
December 29, 1996, and December 31, 1995, and the results of
their operations and their cash flows for each of the three
years in the period ended December 29, 1996, in conformity
with generally accepted accounting principles.
Seattle, Washington,
February 6, 1997 ARTHUR ANDERSEN LLP
52
<PAGE>
CONSOLIDATED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
- ------------------------------------------------------------
For the three-year period ended
December 29, 1996
Dollar amounts in millions
except per-share figures 1996 1995 1994
- ------------------------------------------------------------
<C> <S> <S> <S>
Net sales and revenues:
Weyerhaeuser $10,105 $10,869 $ 9,281
Real estate and financial services 1,009 919 1,117
- ------------------------------------------------------------
Net sales and revenues 11,114 11,788 10,398
- ------------------------------------------------------------
Costs and expenses:
Weyerhaeuser:
Costs of products sold 7,610 7,516 6,819
Depreciation, amortization and
fee stumpage 601 580 504
Selling, general and
administrative expenses 702 724 615
Research and development expenses 54 51 47
Taxes other than payroll and
income taxes 151 155 151
- ------------------------------------------------------------
9,118 9,026 8,136
- ------------------------------------------------------------
Real estate and financial services:
Costs and operating expenses 726 681 851
Depreciation and amortization 16 41 30
Selling, general and
administrative expenses 173 139 152
Taxes other than payroll and
income taxes 11 8 9
Charge for impairment of
long-lived assets (Note 1) -- 290 --
- ------------------------------------------------------------
926 1,159 1,042
- ------------------------------------------------------------
Total costs and expenses 10,044 10,185 9,178
- ------------------------------------------------------------
Operating income 1,070 1,603 1,220
Interest expense and other:
Weyerhaeuser:
Interest expense incurred 273 271 237
Less interest capitalized 21 20 36
Other income (expense),
net (Note 3) (58) (71) (42)
Real estate and financial services:
Interest expense incurred 132 140 154
Less interest capitalized 65 76 78
Other income (expense),
net (Note 3) 27 27 19
- ------------------------------------------------------------
Earnings before income taxes 720 1,244 920
Income taxes (Note 4) 257 445 331
- ------------------------------------------------------------
Net earnings $ 463 $ 799 $ 589
============================================================
Per common share (Note 1):
Net earnings $ 2.34 $ 3.93 $ 2.86
- ------------------------------------========================
Dividends paid $ 1.60 $ 1.50 $ 1.20
============================================================
</TABLE>
See notes on pages 59 through 77.
53
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
- ------------------------------------------------------------
December 29, December 31,
Dollar amounts in millions 1996 1995
- ------------------------------------------------------------
<C> <S> <S>
ASSETS
Weyerhaeuser
Current assets:
Cash and short-term
investments (Note 1) $ 33 $ 34
Receivables, less allowances
of $7 and $9 902 976
Inventories (Note 7) 1,001 960
Prepaid expenses 289 265
- ------------------------------------------------------------
Total current assets 2,225 2,235
Property and equipment (Note 8) 7,007 6,717
Construction in progress 417 509
Timber and timberlands at cost,
less fee stumpage charged
to disposals 1,073 666
Other assets and deferred charges 246 232
- ------------------------------------------------------------
10,968 10,359
- ------------------------------------------------------------
Real estate and financial services
Cash and short-term investments,
including restricted deposits
of $18 and $22 38 50
Receivables, less discounts and
allowances of $9 and $7 99 92
Mortgage notes held
for sale (Note 13) 334 332
Mortgage loans receivable, less
discounts and allowances
of $7 and $2 (Note 13) 133 155
Mortgage-backed certificates and
other pledged financial instruments
(Notes 1 and 13) 154 185
Real estate in process of development
and for sale (Note 9) 680 776
Land being processed for development 719 688
Investments in and advances to joint
ventures and limited partnerships,
less reserves of $27 and $38 115 113
Rental properties, less
accumulated depreciation 150 184
Other assets 206 319
- ------------------------------------------------------------
2,628 2,894
- ------------------------------------------------------------
Total assets $13,596 $13,253
============================================================
</TABLE>
See notes on pages 59 through 77.
54
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------
December 29, December 31,
Dollar amounts in millions 1996 1995
- ------------------------------------------------------------
<C> <S> <S>
LIABILITIES AND SHAREHOLDERS'
INTEREST
Weyerhaeuser
Current liabilities:
Notes payable $ 16 $ 24
Current maturities of
long-term debt 80 125
Accounts payable (Note 1) 725 747
Accrued liabilities (Note 10) 662 707
- ------------------------------------------------------------
Total current liabilities 1,483 1,603
Long-term debt (Notes 12 and 13) 3,546 2,983
Deferred income taxes (Note 4) 1,324 1,196
Deferred pension and other
liabilities (Notes 5 and 6) 493 509
Minority interest in subsidiaries 113 111
Commitments and contingencies
(Note 14)
- ------------------------------------------------------------
6,959 6,402
- ------------------------------------------------------------
Real estate and financial services
Notes payable and commercial
paper (Note 11) 245 338
Long-term debt (Notes 12 and 13) 1,537 1,753
Other liabilities 251 274
Commitments and contingencies
(Note 14)
- ------------------------------------------------------------
2,033 2,365
- ------------------------------------------------------------
Total liabilities 8,992 8,767
- ------------------------------------------------------------
Shareholders' interest (Note 16):
Common shares: authorized
400,000,000 shares, issued
206,072,890 shares,
$1.25 par value 258 258
Other capital 407 415
Cumulative translation adjustment (93) (90)
Retained earnings 4,372 4,226
Treasury common shares, at cost:
7,736,601 and 7,302,878 (340) (323)
- ------------------------------------------------------------
Total shareholders' interest 4,604 4,486
- ------------------------------------------------------------
Total liabilities and
shareholders' interest $13,596 $13,253
============================================================
</TABLE>
55
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Consolidated
----------------------------
For the three-year period
ended December 29, 1996
Dollar amounts in millions 1996 1995 1994
- -------------------------------------------------------------
<C> <S> <S> <S>
Cash flows provided by operations:
Net earnings (loss) $ 463 $ 799 $ 589
Non-cash charges to income:
Depreciation, amortization
and fee stumpage 617 621 534
Deferred income taxes, net 181 103 127
Charge for impairment of
long-lived assets -- 290 --
Changes in working capital:
Accounts receivable 67 (33) (125)
Inventories, prepaid expenses,
real estate and land 68 (159) (6)
Mortgage notes held for sale and
mortgage loans receivable 19 (18) 360
Other liabilities (113) (102) 198
(Gain) loss on disposition
of assets 1 43 10
Other (5) 12 (7)
- -------------------------------------------------------------
Net cash provided by operations 1,298 1,556 1,680
- -------------------------------------------------------------
Cash flows from investing in
the business:
Property and equipment (829) (928) (1,061)
Timber and timberlands (50) (68) (41)
Property and equipment and timber
and timberlands from acquisitions (448) (77) --
Mortgage securities acquired (4) (13) (64)
Proceeds from sale of:
Property and equipment (Note 15) 74 19 44
Businesses -- -- 14
Mortgage securities 106 25 139
Other (13) 204 (297)
- -------------------------------------------------------------
Net cash flows from investing in
the business (1,164) (838) (1,266)
- -------------------------------------------------------------
Cash flows from financing
activities:
Sale of debentures and notes 142 723 174
Sale of industrial revenue bonds 33 150 134
Notes and commercial paper
borrowings, net 534 (439) (143)
Cash dividends on common shares (317) (306) (247)
Payments on debentures, notes,
bank credit agreements,capital
leases and CMO bonds (513) (661) (362)
Purchase of treasury common shares (45) (379) --
Exercise of stock options 20 19 16
Other (1) (4) (2)
- -------------------------------------------------------------
Net cash flows from financing
activities (147) (897) (430)
- -------------------------------------------------------------
Net increase (decrease) in cash
and short-term investments (13) (179) (16)
Cash and short-term investments at
beginning of year 84 263 279
- -------------------------------------------------------------
Cash and short-term investments at
end of year $ 71 $ 84 $ 263
=============================================================
Cash paid during the year for:
Interest, net of
amount capitalized $ 322 $ 302 $ 279
==========================
Income taxes $ 168 $ 332 $ 141
=============================================================
</TABLE>
See notes on pages 59 through 77.
56
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Real Estate and
Weyerhaeuser Company Financial Services
- ------------------------------ ----------------------------
1996 1995 1994 1996 1995 1994
- -------------------------------------------------------------
<S> <S> <S> <S> <S> <S>
$ 434 $ 981 $ 576 $ 29 $ (182) $ 13
601 580 504 16 41 30
121 183 115 60 (80) 12
-- -- -- -- 290 --
75 (60) (126) (8) 27 1
(30) (148) (12) 98 (11) 6
-- -- -- 19 (18) 360
(86) (82) 272 (27) (20) (74)
8 43 15 (7) -- (5)
20 14 (20) (25) (2) 13
- -------------------------------------------------------------
1,143 1,511 1,324 155 45 356
- -------------------------------------------------------------
(820) (915) (1,047) (9) (13) (14)
(50) (68) (41) -- -- --
(448) (77) -- -- -- --
-- -- -- (4) (13) (64)
61 19 20 13 -- 24
-- -- -- -- -- 14
-- -- -- 106 25 139
(52) (50) (49) 39 254 (248)
- -------------------------------------------------------------
(1,309) (1,091) (1,117) 145 253 (149)
- -------------------------------------------------------------
12 583 22 130 140 152
33 150 134 -- -- --
637 (159) (83) (103) (280) (60)
(317) (306) (247) -- -- --
(174) (480) (49) (339) (181) (313)
(45) (379) -- -- -- --
20 19 16 -- -- --
(1) (4) (2) -- -- --
- -------------------------------------------------------------
165 (576) (209) (312) (321) (221)
- -------------------------------------------------------------
(1) (156) (2) (12) (23) (14)
34 190 192 50 73 87
- -------------------------------------------------------------
$ 33 $ 34 $ 190 $ 38 $ 50 $ 73
=============================================================
$ 255 $ 236 $ 201 $ 67 $ 66 $ 78
=============================================================
$ 188 $ 346 $ 92 $ (20) $ (14) $ 49
=============================================================
</TABLE>
57
<PAGE>
Consolidated Statement of Shareholders' Interest
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
For the three-year period ended
December 29, 1996
Dollar amounts in millions 1996 1995 1994
- ----------------------------------------------------------------
<C> <S> <S> <S>
Common stock issued:
Balance at end of year $ 258 $ 258 $ 258
- ----------------------------------------------------------------
Other capital:
Balance at beginning of year 415 416 411
Stock options exercised (8) (3) 5
Other transactions (net) -- 2 --
- ----------------------------------------------------------------
Balance at end of year 407 415 416
- ----------------------------------------------------------------
Cumulative translation adjustment:
Balance at beginning of year (90) (107) (73)
Translation adjustment (3) 17 (34)
- ----------------------------------------------------------------
Balance at end of year (93) (90) (107)
- ----------------------------------------------------------------
Retained earnings:
Balance at beginning of year 4,226 3,733 3,391
Net earnings 463 799 589
Cash dividends on common shares (317) (306) (247)
- ----------------------------------------------------------------
Balance at end of year 4,372 4,226 3,733
- ----------------------------------------------------------------
Common stock held in treasury:
Balance at beginning of year (323) (10) (21)
Purchases of treasury common shares (45) (379) --
Stock options exercised 28 22 11
Used in acquisition of capital assets -- 44 --
- ----------------------------------------------------------------
Balance at end of year (340) (323) (10)
- ----------------------------------------------------------------
Total shareholders' interest:
Balance at end of year $ 4,604 $ 4,486 $ 4,290
================================================================
Shares of common stock (in thousands):
Issued at end of year 206,073 206,073 206,073
- ----------------------------------------------------------------
In treasury:
Balance at beginning of year 7,303 455 984
Purchases of treasury common shares 1,086 8,494 --
Stock options exercised (642) (648) (529)
Used in acquisition of
capital assets (10) (998) --
- ----------------------------------------------------------------
Balance at end of year 7,737 7,303 455
- ----------------------------------------------------------------
Outstanding at end of year 198,336 198,770 205,618
================================================================
</TABLE>
See notes on pages 59 through 77.
58
<PAGE>
NOTES TO FINANCIAL STATEMENTS
For the three-year period ended December 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 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 con-
struction, and Weyerhaeuser Financial Services, Inc. (WFS),
whose principal subsidiary is Weyerhaeuser Mortgage Company
(WMC). GNA Corporation, a subsidiary of WFS, was sold in
April 1993.
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 forestland
in the United States and 22.9 million acres of forestland in
Canada under long-term licensing arrangements (of which 15
million acres are considered to be productive forestland)
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.
FISCAL YEAR-END
The company's fiscal year ends on the last Sunday of the
year. Fiscal year 1995 had 53 weeks, and fiscal years 1996
and 1994 had 52 weeks.
ACCOUNTING PRONOUNCEMENTS IMPLEMENTED
In 1995, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS)
No. 123, "Accounting for Stock-Based Compensation," which
requires companies to change what they disclose about their
employee stock-based compensation plans, recommends that
they change the accounting for these plans to a fair-value
based method and requires those companies that do not change
their accounting to disclose what their earnings and earn-
ings per share would have been if they had changed. The
company will continue to account for these plans using the
method of accounting prescribed by Accounting Principles
Board (APB) Opinion No. 25 and has conformed to the
disclosure requirements of SFAS No. 123 for fiscal years
1995 and 1996. Note 17 discusses the company's stock-based
compensation plan relative to the requirements of SFAS No.
123.
PROSPECTIVE ACCOUNTING PRONOUNCEMENTS
In June 1996, the FASB issued SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," to provide accounting and
reporting guidance for transfers and servicing of financial
assets and extinguishments of liabilities. The statement
uses the "financial-components approach" in which, after a
transfer of financial assets, an entity would recognize all
financial assets and services it controls and all
liabilities it has incurred and remove financial assets and
liabilities from the balance sheet when control is
surrendered or when they are extinguished, respectively. It
is to be applied to transfers and servicing of financial
assets and extinguishment of liabilities occurring
after December 31, 1996. This statement will supersede
several previous statements, including SFAS No. 122,
"Accounting for Mortgage Servicing Rights -- an amendment of
FASB Statement No. 65," which the company had implemented
in 1995. In 1996, the FASB issued 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 believes that the future
adoption of these statements will not have a significant
impact on results of operations or financial position.
59
<PAGE>
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 198,318,000, 203,525,000 and
205,543,000 for the years ended December 29, 1996, December
31, 1995, and December 25, 1994, 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 finan-
cial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
FINANCIAL INSTRUMENTS
The company has, where appropriate, estimated the fair value
of financial instruments. These fair value amounts may be
significantly affected by the assumptions used, including
the discount rate and estimates of cash flow. Accordingly,
the estimates presented are not necessarily indicative of
the amounts that could be realized in a current market
exchange. Where these estimates approximate carrying value,
no separate disclosure of fair value is shown.
Financial instruments that potentially subject the company
to concentrations of credit risk consist primarily of
mortgage notes held for sale or investment and mortgage
loans receivable, of which $417 million and $457 million are
in the western geographical region of the United States at
December 29, 1996, and December 31, 1995, respectively.
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 accounts payable, have
gains or losses recognized at settlement date.
. Interest rate swaps entered into with major banks or
financial institutions in which the company pays a fixed
rate and receives a floating rate with the interest payments
being calculated on a notional amount. The premiums
received by the company on the sale of these swaps are
treated as deferred income and amortized against interest
expense over the term of the agreements.
. Hedging transactions entered into by the company's
mortgage banking subsidiary to protect both the completed
loan inventory and loans in process against changes in
interest rates. The financial instruments used to manage
interest rate risk are forward sales commitments, interest
rate futures and options. Hedging gains and losses realized
during the commitment and warehousing period are deferred to
the extent of unrealized gains on the related mortgage loans
held for sale.
The company is exposed to credit-related losses in the
event of nonperformance by counterparties to financial
instruments but does not expect any counterparties to fail
to meet their obligations. The company deals only with
highly rated counterparties. The notional amounts of these
derivative financial instruments are $807 million and $891
million at December 29, 1996, and December 31, 1995,
respectively. These notional amounts do not represent
amounts exchanged by the parties and, thus, are not a
measure of exposure to the company through its use of
derivatives. The exposure in a derivative contract is the
net difference between what each party is required to pay
based on the contractual terms against the notional
amount of the contract, such as interest rates or
exchange rates. The use of derivatives does not have a
significant effect on the company's results of operations or
its financial position.
CASH AND SHORT-TERM INVESTMENTS
For purposes of cash flow and fair value reporting, short-
term investments with original maturities of 90 days or less
are considered as cash equivalents. Short-term investments
are stated at cost, which approximates market.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost
includes labor, materials and production overhead. The last-
in, first-out (LIFO) method is used to cost the majority of
domestic raw materials, in process and finished goods
inventories. LIFO inventories were $296 million and $305
million at December 29, 1996, and December 31, 1995,
respectively. The balance of domestic raw material and
product inventories, all materials and supplies inventories,
and all foreign inventories 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 $239 million and $267 million greater
at December 29, 1996, and December 31, 1995, 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
60
<PAGE>
provided generally on the straight-line or unit-of-
production method at rates based on estimated service lives.
Amortization of logging railroads and truck roads is
provided generally as timber is harvested and is based upon
rates determined with reference to the volume of timber
estimated to be removed over such facilities.
The cost and related depreciation of property sold or
retired is removed from the property and allowance for
depreciation accounts and the gain or loss is included in
earnings.
TIMBER AND TIMBERLANDS
Timber and timberlands are carried at cost less fee stumpage
charged to disposals. Fee stumpage is the cost of standing
timber and is charged to fee timber disposals as fee timber
is harvested, lost as the result of casualty or sold.
Depletion rates used to relieve timber inventory are
determined with reference to the net carrying value of
timber and the related volume of timber estimated to be
recoverable. Timber carrying costs are expensed as
incurred. The cost of timber harvested is included in
the carrying values of raw material and product
inventories, and in the cost of products sold as these
inventories are disposed of.
ACCOUNTS PAYABLE
The company's banking system provides for the daily
replenishment of major bank accounts as checks are presented
for payment. Accordingly, there were negative book cash
balances of $164 million and $149 million at December 29,
1996, and December 31, 1995, respectively. Such balances
result from outstanding checks that had not yet been paid by
the bank and are reflected in accounts payable in the
consolidated balance sheets.
INCOME TAXES
Deferred income taxes are provided to reflect temporary dif-
ferences between the financial and tax bases of assets and
liabilities using presently enacted tax rates and laws.
PENSION PLANS
The company has pension plans covering most of its em-
ployees. 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 10
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.
In 1995, the company implemented SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," which requires companies to
change their method of valuing long-lived assets. The
company's decision to accelerate the disposition of certain
real estate assets previously held for development and use
along with the implementation of this pronouncement resulted
in a $290 million charge to operations in the third quarter
of 1995. The majority of the charge was a direct result of
the company's decision to accelerate the disposition of
those assets. The remainder of the charge resulted from the
application of those provisions of SFAS No. 121 relating to
the valuation of assets held for future use where estimated
undiscounted future cash flows from those assets did not
exceed the carrying value of those assets.
The company's evaluation of each asset first considered
the availability of appraisal information, then comparable
sales information, and finally discounted estimated cash
flows. Because appraisal information was very limited for
the assets evaluated, the majority of the assets were valued
based upon comparable sales data or discounted estimated
cash flows. The discount rate considered applicable market
conditions and risks associated with each asset. In those
cases where a discount rate was used, it was 20 percent.
Subsequent sales have demonstrated that the valuation
assumptions used were reasonable. The company is continuing
with its original plans to dispose of most of the affected
assets over a two-year period. The carrying value of the
affected assets at December 29, 1996, and December 31, 1995,
was approximately $141 million and $291 million, respectively.
Prior to its implementation of SFAS No. 121, the company
recorded its inventory, assets held for development and for
sale, at the lower of cost or net realizable value. Net
realizable value was determined based upon the estimated
selling price in the ordinary
61
<PAGE>
course of business less estimated costs of completion
to include holding costs during construction and costs of
disposal. If carrying cost exceeded net realizable value,
a valuation allowance was provided.
The company's financial services businesses are engaged in
the mortgage banking industry, hold mortgage-backed
certificates and other financial instruments pledged as
collateral for collateralized mortgage obligation (CMO)
bonds, and also offer insurance services (see Note 12).
The company's mortgage banking business was servicing
mortgage loans, which had an aggregated principal balance of
approximately $4.4 billion at December 29, 1996.
Mortgage notes held for sale are stated at the lower of
cost or market, which is computed by the aggregate method
(unrealized losses are offset by unrealized gains).
Mortgage-backed certificates are carried at par value,
adjusted for any unamortized discount or premium. Man-
agement'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. They are
carried at amortized cost. Discounts and premiums are amortized
using a method that approximates the effective interest method
over their estimated lives.
NOTE 2.
FOREIGN OPERATIONS AND EXPORT SALES
The following net assets, net sales and earnings before
income taxes, related to operations outside the United
States, principally Canada, are included in the company's
consolidated financial statements:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Dollar amounts December 29, December 31, December 25,
in millions 1996 1995 1994
- ----------------------------------------------------------------
<C> <S> <S> <S>
Net assets:
Working capital $ 160 $ 72 $ 29
Timber-cutting rights 5 2 2
Property and equipment, net 930 894 826
Other assets 35 40 42
- ----------------------------------------------------------------
1,130 1,008 899
Other liabilities (262) (253) (235)
- ----------------------------------------------------------------
Net assets $ 868 $ 755 $ 664
================================================================
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
Dollar amounts in millions 1996 1995 1994
- ------------------------------------------------------------------
<C> <S> <S> <S>
Net sales $ 1,316 $ 1,582 $ 1,390
- ------------------------------------------------------------------
Earnings before income taxes:
Foreign entities $ 106 $ 392 $ 268
U.S. entities with foreign activity 5 18 23
- ------------------------------------------------------------------
</TABLE>
The company is engaged in the sale of products for export from
the United States. These sales consist principally of pulp,
newsprint, paperboard, containerboard, logs, lumber and wood chips
to Japan; pulp, containerboard, lumber and plywood to Europe; and
logs to China and Korea. The following table compares the
company's export sales from the United States to customers in Japan
and elsewhere with its total net sales and revenues.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
Dollar amounts in millions 1996 1995 1994
- -----------------------------------------------------------------
<C> <S> <S> <S>
Export sales from the United States:
Customers in Japan $ 1,185 $ 1,173 $ 1,034
Customers outside Japan 573 763 506
- -----------------------------------------------------------------
Total export sales 1,758 1,936 1,540
- -----------------------------------------------------------------
Total net sales and revenues $11,114 $11,788 $10,398
=================================================================
</TABLE>
62
<PAGE>
NOTE 3.
OTHER INCOME (EXPENSE), NET
Other income (expense), net, is an aggregation of both
recurring and occasional non-operating income and expense
items and, as a result, may fluctuate from period to period.
No individual income or expense item for the three-year
period ended December 29, 1996, was significant in relation
to net earnings.
NOTE 4.
INCOME TAXES
Earnings before income taxes are comprised of the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Dollar amounts in millions 1996 1995 1994
- ----------------------------------------------------------------
<C> <S> <S> <S>
Domestic earnings $ 614 $ 852 $ 652
Foreign earnings 106 392 268
- ----------------------------------------------------------------
$ 720 $1,244 $ 920
================================================================
</TABLE>
Provisions for income taxes include the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
Dollar amounts in millions 1996 1995 1994
- ------------------------------------------------------------------
<C> <S> <S> <S>
Federal:
Current $ 41 $ 177 $ 84
Deferred 166 92 114
- ------------------------------------------------------------------
207 269 198
- ------------------------------------------------------------------
State:
Current 2 31 17
Deferred 16 4 7
- ------------------------------------------------------------------
18 35 24
- ------------------------------------------------------------------
Foreign:
Current 33 134 103
Deferred (1) 7 6
- ------------------------------------------------------------------
32 141 109
- ------------------------------------------------------------------
$ 257 $ 445 $ 331
==================================================================
</TABLE>
A reconciliation between the federal statutory tax rate and
the company's effective tax rate follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------
<C> <S> <S> <S>
Statutory tax on income 35% 35% 35%
State income taxes, net of federal tax benefit 2 2 2
All other, net (1) (1) (1)
- ------------------------------------------------------------------
Effective income tax rate 36% 36% 36%
==================================================================
</TABLE>
The net deferred income tax (liabilities) assets include the
following components:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
Dollar amounts December 29, December 31,
in millions 1996 1995
- -----------------------------------------------------------------
<C> <S> <S>
Current (included in
prepaid expenses) $ 84 $ 75
Noncurrent (1,324) (1,196)
Real estate and financial services
(included in other assets) 12 72
- -----------------------------------------------------------------
Total $ (1,228) $ (1,049)
=================================================================
</TABLE>
63
<PAGE>
The deferred tax (liabilities) assets are comprised of the
following:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
Dollar amounts December 29, December 31,
in millions 1996 1995
- -----------------------------------------------------------------
<C> <S> <S>
Depreciation $ (1,303) $ (1,220)
Depletion (143) (115)
Capitalized interest and taxes --
real estate development (76) (77)
Other (178) (140)
- -----------------------------------------------------------------
Total deferred tax (liabilities) (1,700) (1,552)
- -----------------------------------------------------------------
Pension and retiree health care 125 121
Charges for impairment of
long-lived assets 56 93
Environmental and other reserves 17 50
Alternative minimum tax credit
carryforward 46 20
Other 228 219
- -----------------------------------------------------------------
Total deferred tax assets 472 503
- -----------------------------------------------------------------
$ (1,228) $ (1,049)
=================================================================
</TABLE>
As of December 29, 1996, the company has available approximately
$46 million of alternative minimum tax credit
carryforward, which does not expire, and foreign tax credit
carryforwards of $1 million, $4 million, $1 million and $1
million expiring in 1998, 1999, 2000 and 2001, respectively.
The company intends to reinvest undistributed earnings of
certain foreign subsidiaries; therefore, no U.S. taxes have
been provided. These earnings totaled approximately $792 million
at the end of 1996. While it is not practicable to
determine the income tax liability that would result from
repatriation, it is estimated that withholding taxes
payable upon repatriation would approximate $47 million.
NOTE 5.
PENSION PLANS
Net annual pension cost (income) includes the following
components:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
Dollar amounts in millions 1996 1995 1994
- -----------------------------------------------------------------
<C> <S> <S> <S>
Service cost-benefits earned during
the period $ 49 $ 37 $ 43
Interest cost on projected
benefit obligation 111 104 96
Actual return on plan assets (414) (466) (9)
Net amortization and deferrals 254 323 (121)
Pension expense due to sales,
closures and other 2 -- --
- -----------------------------------------------------------------
$ 2 $ (2) $ 9
=================================================================
</TABLE>
The assumptions used were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------
<C> <S> <S> <S>
Discount rate 7.75% 7.75% 8.75%
Rate of increase in compensation levels 4.5% 4.5% 4.5%
Expected long-term rate of return
on plan assets 11.5% 11.5% 11.5%
- -----------------------------------------------------------------
</TABLE>
64
<PAGE>
The following table sets forth the plans' funded status and
amounts recognized in the company's consolidated balance
sheet for its U.S. and Canadian pension plans:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
December 29, 1996 December 31, 1995
------------------------- --------------------------
Assets Accu- Assets Accu-
Exceed mulated Exceed mulated
Accu- Benefits Accu- Benefits
Dollar amounts mulated Exceed mulated Exceed
in millions Benefits Assets Total Benefits Assets Total
- ----------------------------------------------------------------------
<C> <S> <S> <S> <S> <S> <S>
Accumulated
benefit
obligation:
Vested $1,337 $ 17 $1,354 $ 1,254 $ 28 $1,282
Non-vested 29 -- 29 27 -- 27
- ----------------------------------------------------------------------
$1,366 $ 17 $1,383 $ 1,281 $ 28 $1,309
======================================================================
Projected benefit
obligation $1,498 $ 30 $1,528 $ 1,413 $ 34 $1,447
Fair value of
plan assets (1,933) (22) (1,955) (1,627) (24) (1,651)
Unrecognized
prior service
cost (58) (10) (68) (57) (12) (69)
Unrecognized
net gain 539 2 541 316 5 321
Unrecognized net
transition asset 27 (1) 26 32 (2) 30
- ----------------------------------------------------------------------
Accrued/(prepaid)
pension cost $ 73 $ (1) $ 72 $ 77 $ 1 $ 78
======================================================================
</TABLE>
The assets of the U.S. and Canadian pension plans, as of
December 29, 1996, and December 31, 1995, consist of a
highly diversified mix of equity, fixed income and real
estate securities.
Approximately 1,740 employees are covered by union
administered multi-employer pension plans to which the
company makes negotiated contributions based generally on
fixed amounts per hour per employee. Contributions to these
plans were $5 million in 1996, $7 million in 1995 and $7
million in 1994.
NOTE 6.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The company sponsors defined benefit postretirement plans
for its U.S. employees that provide medical and life
insurance coverage as follows:
. Two salaried retiree medical plans that cover
substantially all salaried employees who retire under the
company's retirement plan and their spouses. Plan I covers
those retired or eligible to retire as of January 1, 1990, and
provides full health coverage. Plan II includes those
salaried employees not eligible for Plan I, under which the
company provides a fixed dollar amount per year of service
toward the premium, with the retiree paying the remainder.
The company reserves the right to revise the fixed dollar
amount.
. An hourly retiree medical plan that covers approximately
3,600 active hourly employees and their spouses. For some,
the coverage stops at age 65, while others have lifetime
coverage. In some units the retiree must pay a portion of the
premium, while in others the company pays the full cost. There
are approximately 1,800 retired hourly employees and their
spouses currently covered under these programs.
. A salaried retiree life insurance plan that starts at 80
percent of salary at retirement and reduces to six thousand
dollars in 20 percent increments. Approximately 4,400
persons who are retired or were eligible to retire as of
December 31, 1991, are subject to a different schedule.
. An hourly retiree life insurance plan in which
approximately 11,000 active hourly employees are eligible
and approximately 2,000 hourly retirees have coverage. Most
of these are covered by fixed dollar amount coverage that is
graded down after retirement. Some units have pay-related
insurance on which the company pays the full cost.
Weyerhaeuser sponsors various defined contribution plans
for U.S. salaried and hourly employees. The basis for
determining plan contributions varies by plan. The amounts
charged to operations and contributed to the plans for
participating employees were $32 million and $28 million in
1996 and 1995, respectively.
The company sponsors three defined benefit and two defined
contribution postretirement plans for its Canadian employees
that provide medical and life insurance. Collectively, 310
retired employees are covered and 281 active employees are
eligible for coverage in these five plans as of year-end
1996.
65
<PAGE>
The following table sets forth the U.S. and Canadian plans'
combined accrued postretirement benefit obligation as of
December 29, 1996, and December 31, 1995:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
Dollar amounts December 29, December 31,
in millions 1996 1995
- -----------------------------------------------------------------
<C> <S> <S>
Accumulated postretirement
benefit obligation:
Retirees:
Health $ 102 $ 119
Life 25 22
Fully eligible and other active
plan participants:
Health 86 87
Life 14 12
- -----------------------------------------------------------------
227 240
Unrecognized actuarial gain 31 9
- -----------------------------------------------------------------
Accrued postretirement benefit obligation $ 258 $ 249
=================================================================
</TABLE>
Net annual postretirement benefit costs included the following
components:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Dollar amounts in millions 1996 1995 1994
- ----------------------------------------------------------------
<C> <S> <S> <S>
Service cost benefits attributed to
service during the period:
Health $ 4 $ 3 $ 4
Life 1 -- 1
Interest cost on accumulated
postretirement benefit obligation:
Health 13 16 16
Life 3 3 2
Amortization of gain -- health (1) (1) --
- ----------------------------------------------------------------
Net postretirement benefit cost $ 20 $ 21 $ 23
================================================================
</TABLE>
For measurement purposes, a 10.5, 8.5 and 8.0 percent
annual rate of increase in the per capita cost of covered
health care benefits was assumed for 1994, 1995 and 1996,
respectively. Beginning in 1997, the rate is assumed to
decrease by 0.5 percent annually to a level of 5.5 percent
for the year 2001 and all years thereafter. The effect of a
one percent increase in the assumed health care cost trend
rates would increase the accumulated postretirement benefit
obligation as of December 29, 1996, by 10.3 percent, and the
aggregate of the service and interest cost components of net
annual postretirement benefit cost for 1996 by 12.9 percent.
Other assumptions used were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------
<C> <S> <S> <S>
Discount rate 7.75% 7.75% 8.5%
Rate of increase in compensation levels:
Salaried 4.5% 4.5% 4.5%
Hourly 3.0% 3.0% 3.0%
- -----------------------------------------------------------------
</TABLE>
NOTE 7.
INVENTORIES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Dollar amounts December 29, December 31,
in millions 1996 1995
- ----------------------------------------------------------------
<C> <S> <S>
Logs and chips $ 120 $ 173
Lumber, plywood and panels 148 135
Pulp, newsprint and paper 202 158
Containerboard, paperboard and packaging 108 107
Other products 146 117
Materials and supplies 277 270
- ----------------------------------------------------------------
$ 1,001 $ 960
================================================================
</TABLE>
66
<PAGE>
NOTE 8.
PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Dollar amounts December 29, December 31,
in millions 1996 1995
- ----------------------------------------------------------------
<C> <S> <S>
Property and equipment, at cost:
Land $ 158 $ 167
Buildings and improvements 1,686 1,582
Machinery and equipment 9,713 9,253
Rail and truck roads and other 596 615
- ----------------------------------------------------------------
12,153 11,617
Less allowance for depreciation
and amortization 5,146 4,900
- ----------------------------------------------------------------
$ 7,007 $ 6,717
================================================================
</TABLE>
NOTE 9.
REAL ESTATE IN PROCESS OF DEVELOPMENT AND FOR SALE
Properties held by the company's real estate and financial
services businesses include:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
Dollar amounts December 29, December 31,
in millions 1996 1995
- -----------------------------------------------------------------
<C> <S> <S>
Dwelling units $ 198 $ 234
Residential lots 264 212
Commercial lots 135 136
Commercial projects 31 125
Acreage 49 68
Other inventories 3 1
- -----------------------------------------------------------------
$ 680 $ 776
=================================================================
</TABLE>
NOTE 10.
ACCRUED LIABILITIES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
Dollar amounts December 29, December 31,
in millions 1996 1995
- -----------------------------------------------------------------
<C> <S> <S>
Payroll -- wages and salaries,
incentive awards, retirement
and vacation pay $ 279 $ 265
Taxes -- Social Security and real
and personal property 57 50
Interest 79 82
Accrued income taxes 51 117
Other 196 193
- -----------------------------------------------------------------
$ 662 $ 707
=================================================================
</TABLE>
67
<PAGE>
NOTE 11.
SHORT-TERM DEBT
BORROWINGS
Real estate and financial services short-term borrowings
were $245 million with a weighted average interest rate of 4.7
percent at December 29, 1996, and $338 million with a weighted
average interest rate of 4.3 percent at December 31, 1995.
LINES OF CREDIT
The company has short-term bank credit lines that provide
for borrowings of up to the total amount of $375 million and
$725 million, all of which was available to the company,
WRECO and WMC at December 29, 1996, and December 31, 1995,
respectively. No portion of these lines has been availed of by
the company, WRECO or WMC at December 29, 1996, or December
31, 1995. None of the entities referred to herein is a
guarantor of the borrowings of the others.
WMC has short-term special credit lines that provide for
borrowings of up to $230 million at December 29, 1996, and
December 31, 1995. Borrowings against these lines were $54
million and $115 million as of December 29, 1996, and December
31, 1995, respectively.
NOTE 12.
LONG-TERM DEBT
DEBT
Weyerhaeuser long-term debt, including the current portion,
is as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
Dollar amounts December 29, December 31,
in millions 1996 1995
- -----------------------------------------------------------------
<C> <S> <S>
8 3/8% debentures due 2007 $ 150 $ 150
7.50% debentures due 2013 250 250
7.25% debentures due 2013 250 250
7 1/8% debentures due 2023 250 250
9.05% notes due 2003 200 200
7.28% note -- 40
8 1/2% debentures due 2025 300 300
7.95% debentures due 2025 250 250
Industrial revenue bonds, rates from
2.45% (variable) to 10.0% (fixed),
due 1997-2028 746 717
Medium-term notes, rates from
6.43% to 8.91%, due 1997-2005 313 428
Commercial paper/credit agreements 889 252
Other 28 21
- -----------------------------------------------------------------
$3,626 $3,108
=================================================================
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
<C> <S> <S>
Portion due within one year $ 80 $ 125
=================================================================
</TABLE>
Long-term debt maturities during the next five years are
(millions):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
<C> <S>
1997 $ 80
1998 10
1999 974
2000 99
2001 78
- ----------------------------------------------------------------
</TABLE>
68
<PAGE>
Real estate and financial services long-term debt, including
the current portion, is as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
Dollar amounts December 29, December 31,
in millions 1996 1995
- -----------------------------------------------------------------
<C> <S> <S>
Notes payable, unsecured; weighted
average interest rates
are approximately 6.4% and 7.3% $ 735 $ 780
Bank and other borrowings, unsecured;
weighted average interest rates are
approximately 5.5% and 5.7% 380 505
Notes payable, secured; weighted average
interest rate is approximately 8.5% 41 46
Collateralized mortgage obligation bonds 133 159
Commercial paper/credit agreement 248 263
- -----------------------------------------------------------------
$1,537 $1,753
=================================================================
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
<C> <S> <S>
Portion due within one year $ 723 $ 145
=================================================================
</TABLE>
Long-term debt maturities during the next five years are
(millions):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
<C> <S>
1997 $723
1998 179
1999 127
2000 126
2001 172
- -----------------------------------------------------------------
</TABLE>
LINES OF CREDIT
At December 29, 1996, 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 can be availed of by the company, and
$1 billion, which can be availed of by WMC. Borrowings
are at LIBOR or other such interest rates as mutually agreed
to between the borrower and lending banks.
At December 29, 1996, and December 31, 1995, WMC had $25
million and $35 million, respectively, outstanding against a
one-year evergreen credit commitment entered into in 1990.
WMC has a revolving credit agreement with a bank to
provide for: (1) borrowings of up to $35 million for two
years at prime rate, LIBOR or such other rate as may be
agreed upon by WMC and the banks, (2) a commitment fee based on
the unused credit, and (3) conversion of the note as of July
1, 1999, to a five-year term loan payable in equal quarterly
installments. At December 29, 1996, there was no portion
outstanding, while at December 31, 1995, $20 million was
outstanding under this revolving credit agreement.
WFS has a revolving credit agreement that provides for: (1)
borrowings of up to $450 million at December 29, 1996, and $525
million at December 31, 1995, at LIBOR or other such rates as
may be agreed upon by WFS and the banks, and (2) a commitment
fee on the unused portion of the credit. $355 million and
$450 million were outstanding under this facility at December
29, 1996, and December 31, 1995, respectively. To the extent
that these credit commitments expire more than one year
after the balance sheet date and are unused, an equal amount of
commercial paper is classifiable as long term debt. Amounts so
classified are shown in the tables in this note.
No portion of these lines has been availed of by the company,
WRECO, WMC or WFS at December 29, 1996, or December 31, 1995,
except as noted.
The company's compensating balance agreements were not
significant.
69
<PAGE>
NOTE 13.
FAIR VALUE OF FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
December 29, 1996 December 31, 1995
----------------- -----------------
Carrying Fair Carrying Fair
Dollar amounts in millions Value Value Value Value
- ------------------------------------------------------------------
<C> <S> <S> <S> <S>
Weyerhaeuser:
Financial liabilities:
Long-term debt (including
current maturities) $3,626 $3,809 $3,108 $3,469
- ------------------------------------------------------------------
Real estate and financial services:
Financial assets:
Mortgage notes held for sale 334 335 332 332
Mortgage loans receivable 133 126 155 138
Mortgage-backed certificates and
other pledged financial
instruments 154 165 185 193
Financial liabilities:
Long-term debt (including
current maturities) 1,537 1,553 1,753 1,792
- ------------------------------------------------------------------
</TABLE>
The methods and assumptions used to estimate fair value of each
class of financial instruments for which it is practicable to
estimate that value are as follows:
. Long-term debt, including real estate and financial services,
is estimated based on quoted market prices for the same issues
or on the discounted value of the future cash flows expected to
be paid using incremental rates of borrowing for similar liabilities.
. Mortgage notes held for sale are estimated using the quoted
market prices for securities backed by similar loans adjusted
for differences in loan characteristics. The estimated fair
value is net of related hedge instruments, which were estimated
based upon quoted market prices for securities.
. Mortgage loans receivable are estimated based on the
discounted value of estimated future cash flows using current
rates for loans with similar terms and risks.
. Mortgage-backed certificates and other pledged financial
instruments are estimated using the quoted market prices for
securities backed by similar loans and restricted deposits held
at cost.
NOTE 14.
LEGAL PROCEEDINGS, COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
On November 2, 1992, an action was filed against the company in
the Circuit Court for the First Judicial District of Hinds
County, Mississippi, on behalf of a purported class of riparian
property owners in Mississippi and Alabama whose properties
are located on the Tennessee Tombigbee Waterway, Aliceville Lake,
Cedar Creek and the Magoway Creek. The complaint seeks $1
billion in compensatory and punitive damages for diminution
in property value, personal injuries and mental anguish
allegedly resulting from the discharge of purported
hazardous substances, including dioxins and furans, by the
company's pulp and paper mill in Columbus, Mississippi, and
the alleged fraudulent concealments of such discharge. The
complaint also seeks an injunction prohibiting future
releases and the removal of hazardous substances allegedly
released in the past. On August 20, 1993, a companion
action was filed in Greene County, Alabama, on behalf of a
similar purported class of riparian owners with essentially
the same claims as the Mississippi case. By order dated April
5, 1995, venue of the Alabama action was transferred to Sumter
County, Alabama. On January 20, 1995, the court in the
Alabama action certified a class of all persons who, as of
the date the action commenced, were riparian owners, lessees
and licensees of properties located on the Tennessee
Tombigbee Waterway in Greene, Sumter, Pickens and Marengo
counties, Alabama, and Lowndes and Noxubee counties,
Mississippi, to determine whether the company is liable to the
members of the class for compensatory and/or punitive damages
and to determine the amount of punitive damages, if any, to be
awarded to the class as a whole. By order dated April 12,
1995, as orally amended on February 1, 1996, the geographical
boundaries of the class were amended to run from below the
Columbus mill's wastewater discharge pipe to just above the
confluence of the Black Warrior River and the Tennessee
Tombigbee Waterway. The class is estimated to range from
approximately 1,000 to 1,500 members. In late July 1996, the
company reached an agreement to settle both the Mississippi
action and the Alabama action for $2.5 million. The agreement
is subject to the approval of the court in the Alabama 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
70
<PAGE>
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 fifteen other hardboard
siding cases, one of which purports to be a class action on
behalf of purchasers of single- or multi-family residences in
Nebraska that contain the company's hardboard siding.
ENVIRONMENTAL
It is the company's policy to accrue for environmental
remediation costs when it is determined that it is probable
that such an obligation exists and the amount of the obligation
can be reasonably estimated. Based on currently available
information and analysis, the company believes that it is
reasonably possible that costs associated with all identified
sites may exceed current accruals by amounts that may prove
insignificant or that could range, in the aggregate, up to
approximately $120 million over several years. This estimate
of the upper end of the range of reasonably possible additional
costs is much less certain than the estimates upon which accruals
are currently based, and utilizes assumptions less favorable to
the company among the range of reasonably possible outcomes. In
estimating both its current accruals for environmental remediation
and the possible range of additional future costs, the company has
assumed that it will not bear the entire cost of remediation of
every site to the exclusion of other known potentially
responsible parties who may be jointly and severally liable.
The ability of other potentially responsible parties to
participate has been taken into account, based generally on
each party's financial condition and probable contribution on
a per-site basis. No amounts have been recorded for potential
recoveries from insurance carriers.
The company is a party to legal proceedings and envi-
ronmental 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, including those described
above, 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.
OTHER ITEMS
The company's capital expenditures, excluding acquisitions,
have averaged about $912 million in recent years but are
expected to approximate $750 million in 1997; however, the
1997 expenditure level could be increased or decreased as a
consequence of future economic conditions.
During the normal course of business, the company's real
estate and financial services subsidiaries have entered into
certain financial commitments comprised primarily of agreements
to fund up to $159 million in mortgage loans at fixed and
floating prices, guarantees made on $56 million of partnership
borrowings, and limited recourse obligations associated
with $1.1 billion of sold mortgage loans. The fair value of
the recourse on these loans is estimated to be $7 million,
which is based upon market spreads for sales of similar loans
without recourse or estimates of the credit risk of the
associated recourse obligation.
NOTE 15.
PROCEEDS FROM SALE OF PROPERTY AND EQUIPMENT
In 1996, the company sold its Klamath Falls, Oregon, hardboard,
particleboard and plywood manufacturing operations; 600,000
acres of predominantly pine timberlands; and its nursery and
seed orchard facilities. Proceeds from the sale of the
property and equipment in this transaction amounted to $33
million. The resulting gain on this transaction was not
material to the company's pretax income. The timberlands
portion of this transaction involved a like-kind exchange for
other timberlands, primarily private commercial timberlands
in southeastern Louisiana and southern Mississippi
previously owned by Cavenham Forest Industries.
71
<PAGE>
NOTE 16.
SHAREHOLDERS' INTEREST
PREFERRED AND PREFERENCE SHARES
The company is authorized to issue:
. 7,000,000 preferred shares having a par value of $1.00
per share, of which none were issued and outstanding at
December 29, 1996, and December 31, 1995; and
. 40,000,000 preference shares having a par value of $1.00
per share, of which none were issued and outstanding at
December 29, 1996, and December 31, 1995.
The preferred and preference shares may be issued in one or
more series with varying rights and preferences including
dividend rates, redemption rights, conversion terms, sinking
fund provisions, values in liquidation and voting rights.
When issued, the outstanding preferred and preference shares
rank senior to outstanding common shares as to dividends and
assets available on liquidation.
The company has reserved but not issued 2,000,000 shares of
cumulative preference shares, fourth series, for the
exercise of the rights described under the Shareholder
Rights Plan.
SHAREHOLDER RIGHTS PLAN
In December 1986, the company adopted, and in February 1989
amended, a Shareholder Rights Plan (the "Plan") and declared a
dividend distribution of 0.6667 right on each outstanding
common share. Each right entitles its holder to purchase
after the distribution date and until December 1996 one one-
hundredth of a share of the company's cumulative preference
shares, fourth series, at a price of $70, subject to
adjustment. The distribution date is the earlier of 20
business days after the announcement that a person or group
has acquired 20 percent or more of Weyerhaeuser's
outstanding common shares or 20 business days after a person or
group commences a tender or exchange offer that could result in
the person or group owning 20 percent or more of the company's
outstanding common shares. Following the distribution date, if
anyone owning 20 percent or more of the company's outstanding
common shares merges with the company, with the company as the
survivor, and the company's common shares are not changed or
exchanged, or engages in certain self-dealing transactions
with the company, or if an event occurs that results in such
20 percent owner's interest being increased by more than one
percent (e.g., a reverse stock split), or if anyone acquires
30 percent or more of the company's outstanding common shares,
each right holder, other than such person or group, will be
able, upon payment of the right's exercise price, to acquire
shares of the company's common stock or other securities or
assets having an aggregate market value equal to twice the
right's purchase price. If, after the company announces that
someone owns 20 percent or more of the company's outstanding
common shares, the company is acquired in a merger or other
business combination, and the company is not the survivor, or
the company engages in a merger or other business combination
transaction in which the company is the surviving
corporation but the company's common shares are changed or
exchanged, or if 50 percent of the company's earning power or
assets is sold in one or several related transactions, each
right holder, other than any 20 percent shareholder, will
receive shares of the acquiring company's common stock
having a market value equal to twice the right's exercise
price. Subject to certain time periods and conditions, the
Plan may be amended and the rights may be redeemed at a
price of $.05 per right, subject to adjustment. The Plan
terminated, in accordance with its provisions, in December
1996.
NOTE 17.
STOCK-BASED COMPENSATION PLAN
The company's Long-Term Incentive Compensation Plan (the
"Plan") was approved at the 1992 Annual Meeting of Shareholders.
The Plan provides for the purchase of the company's common
stock at its market price on the date of grant by certain key
officers and other employees of the company and its subsidiaries
who are selected from time to time by the Compensation Committee
of the Board of Directors. No more than 10 million shares may be
issued under the Plan. The term of options granted under the Plan
may not exceed 10 years from the grant date. Grantees are 25 percent
vested after one year, 50 percent after two years, 75 percent after
three years, and 100 percent after four years.
72
<PAGE>
The company accounts for all options under APB Opinion No. 25
and related interpretations, under which no compensation has
been recognized. Had compensation costs for the Plan been
determined consistent with SFAS No. 123, net income and
earnings per share would have been reduced to the following pro
forma amounts:
<TABLE>
<CAPTION>
- -------------------------------------------------------------
1996 1995
- -------------------------------------------------------------
<C> <S> <S>
Net income (in millions):
As reported $463 $799
Pro forma 454 791
Earnings per share:
As reported $2.34 $3.93
Pro forma 2.29 3.88
- --------------------------------------------------------------
</TABLE>
Because the SFAS No. 123 method of accounting has not been
applied to options granted prior to fiscal year 1995, the
resulting pro forma compensation cost may not be representative
of that to be expected in future years.
The fair value of each option grant is estimated on the
date of the grant using the Black-Scholes option pricing
model with the following weighted average assumptions used
for grants:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
1996 1995
- --------------------------------------------------------------
<C> <S> <S>
Risk-free interest rate 5.81% 7.47%
Expected life 6.4 years 6.4 years
Expected volatility 25.61% 26.27%
Expected dividend yield 3.48% 4.05%
- --------------------------------------------------------------
</TABLE>
Changes in the number of shares subject to option are
summarized as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------
<C> <S> <S> <S>
Shares (in thousands):
Outstanding,
beginning of year 5,972 5,687 5,177
Granted 1,222 1,155 1,312
Exercised 925 859 623
Forfeited 26 11 178
Expired -- -- 1
- --------------------------------------------------------------
Outstanding, end
of year 6,243 5,972 5,687
- --------------------------------------------------------------
Exercisable, end
of year 5,022 4,817 4,375
- --------------------------------------------------------------
Weighted average
exercise price:
Outstanding,
beginning of year $38.17 $36.27 $32.32
Granted 45.94 39.47 47.53
Exercised 32.11 27.34 28.06
Forfeited 43.46 40.10 33.16
Expired -- -- 19.96
Outstanding, end
of year 40.56 38.17 36.27
Weighted average
grant date fair value
of options 11.40 10.41 N/A
- --------------------------------------------------------------
</TABLE>
871 of the 6,243 options outstanding at December 29, 1996,
have exercise prices between $20 and $35, with a weighted
average exercise price of $25.29 and a weighted average
remaining contractual life of 3.24 years. All of these
options are exercisable. The remaining 5,372 options have
exercise prices between $35 and $49, with a weighted
average exercise price of $43.04 and a weighted average
remaining contractual life of 7.32 years. 4,150 of these
options are exercisable; their weighted average exercise
price is $42.18.
NOTE 18.
BUSINESS SEGMENTS
The company is principally engaged in the growing and
harvesting of timber and the manufacture, distribution and
sale of forest products. The four principal business segments
are timberlands and wood products (including softwood lumber,
plywood and veneer; composite panels; oriented strand board;
logs; chips; timber; doors; hardwood lumber and plywood; and
treated products); pulp, paper and packaging (including pulp,
newsprint, paper, containerboard, paperboard, packaging,
recycling and chemicals); real estate development and
construction; and financial services.
The timber-based businesses involve a high degree of
integration among timber operations; building materials
conversion facilities; and pulp, newsprint, paper, container
board and paperboard primary manufacturing and secondary
conversion facilities, including extensive transfers of raw
materials, semi-finished materials and end products between and
among these groups. Accounting for segment profitability
involves allocations of joint raw materials and conversion
costs and the use of transfer prices that attempt to
approximate current market values.
73
<PAGE>
The following table sets forth an analysis of the company's
operations by the four principal business segments:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
Dollar amounts
in millions 1996 1995 1994
- -----------------------------------------------------------------
<C> <S> <S> <S>
Sales to and revenues from
unaffiliated customers:
Timberlands and wood products $ 5,240 $ 4,931 $ 4,992
Pulp, paper and packaging 4,648 5,682 4,066
Real estate 804 723 911
Financial services 205 196 206
Corporate and other 217 256 223
- -----------------------------------------------------------------
11,114 11,788 10,398
--------------------------
Intersegment sales and revenues:
Timberlands and wood products 322 558 357
Pulp, paper and packaging 88 168 82
Corporate and other 35 33 31
- -----------------------------------------------------------------
445 759 470
--------------------------
Total sales and revenues 11,559 12,547 10,868
Eliminations (445) (759) (470)
- -----------------------------------------------------------------
$11,114 $11,788 $10,398
=================================================================
Approximate contribution (charge) to
earnings (1)(2):
Timberlands and wood products $ 805 $ 808 $ 1,034
Pulp, paper and packaging 307 1,181 211
Real estate 35 (231) 7
Financial services 8 (46) 11
Corporate and other (183) (217) (142)
- -----------------------------------------------------------------
972 1,495 1,121
Interest expense (338) (347) (315)
Less capitalized interest 86 96 114
- -----------------------------------------------------------------
Earnings before income taxes 720 1,244 920
Income taxes (257) (445) (331)
- -----------------------------------------------------------------
$ 463 $ 799 $ 589
=================================================================
Depreciation, amortization and
fee stumpage:
Timberlands and wood products $ 227 $ 211 $ 189
Pulp, paper and packaging 355 350 302
Real estate 4 5 7
Financial services 12 36 23
Corporate and other 19 19 13
- -----------------------------------------------------------------
$ 617 $ 621 $ 534
=================================================================
Capital expenditures (including
acquisitions):
Timberlands and wood products $ 866 $ 508 $ 257
Pulp, paper and packaging 415 562 794
Real estate 2 10 10
Financial services 7 3 4
Corporate and other 37 36 37
- -----------------------------------------------------------------
$ 1,327 $ 1,119 $ 1,102
=================================================================
Assets:
Timberlands and wood products $ 3,658 $ 2,940 $ 2,713
Pulp, paper and packaging 6,721 6,797 6,283
Real estate 1,578 1,543 1,716
Financial services 1,050 1,362 1,730
Corporate and other 1,184 1,151 1,439
- -----------------------------------------------------------------
14,191 13,793 13,881
Eliminations (595) (540) (723)
- -----------------------------------------------------------------
$13,596 $13,253 $13,158
=================================================================
</TABLE>
(1) 1995 "approximate contribution to earnings" includes
special charges of $232 million and $58 million for real estate
and financial services, respectively, to dispose of certain
real estate assets.
(2) Interest expense of $67 million, $64 million and $76
million in 1996, 1995 and 1994, respectively, is included in
the determination of "approximate contribution to earnings" for
financial services.
74
<PAGE>
NOTE 19.
SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
Dollar amounts in millions First Second Third Fourth
except per-share figures Quarter Quarter Quarter Quarter Year
- ------------------------------------------------------------------
<C> <S> <S> <S> <S> <S>
Net sales:
1996 $2,605 $2,886 $2,852 $2,771 $11,114
1995 (1) 2,686 3,009 3,037 3,056 11,788
Operating income:
1996 287 262 286 235 1,070
1995 (2) 419 482 247 455 1,603
Earnings before
income taxes:
1996 222 161 187 150 720
1995 (2) 328 386 149 381 1,244
Net earnings:
1996 142 103 120 98 463
1995 (2) 207 246 95 251 799
Net earnings per
common share:
1996 .72 .52 .60 .50 2.34
1995 (2) 1.00 1.21 .47 1.25 3.93
Dividends per common share:
1996 .40 .40 .40 .40 1.60
1995 .30 .40 .40 .40 1.50
Market prices -- high/low:
1996 49 1/2 - 39 15/16
49 7/8 - 41 3/4
48 1/4 - 39 1/2
48 1/8 - 43 7/8
49 7/8 - 39 1/2
1995 42 5/8 - 36 7/8
47 3/8 - 37 1/2
50 3/8 - 44 3/4
48 - 40 7/8
50 3/8 - 36 7/8
- ------------------------------------------------------------------
</TABLE>
(1) 1995 net sales of $2,745, $3,074 and $3,112 as previously
reported in Form 10-Q for the first, second and third quarters,
respectively, have been revised to properly reflect the
recording of intercompany sales and related cost of sales.
(2) 1995 third quarter results include a special pretax charge
of $290 million, or $184 million after-tax ($.90 per common
share), to dispose of certain real estate assets.
75
<PAGE>
NOTE 20.
HISTORICAL SUMMARY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
Dollar amounts
in millions except
per-share figures 1996 1995 1994 1993 1992
- ------------------------------------------------------------------
<C> <S> <S> <S> <S> <S>
Per common share:
Net earnings (loss) from
continuing operations,
before extraordinary
item and effect of
accounting changes: $ 2.34 3.93 2.86 2.58 1.83
Extraordinary item (2) $ -- -- -- .25 --
Effect of accounting
changes $ -- -- -- -- --
----------------------------------------
Net earnings (loss) $ 2.34 3.93 2.86 2.83 1.83
========================================
Dividends paid $ 1.60 1.50 1.20 1.20 1.20
Shareholders' interest
(end of year) $ 23.21 22.57 20.86 19.34 17.85
Financial position:
Total assets:
Weyerhaeuser $10,968 10,359 9,750 9,087 8,566
Real estate and
financial services $ 2,628 2,894 3,408 3,670 9,720
----------------------------------------
$13,596 13,253 13,158 12,757 18,286
========================================
Long-term debt (net of
current portion):
Weyerhaeuser:
Long-term debt $ 3,546 2,983 2,713 2,998 2,659
Capital lease obli-
gations $ 2 2 -- -- --
Convertible subordi-
nated debentures $ -- -- -- -- 193
Limited recourse
income debenture $ -- -- -- -- 188
----------------------------------------
$ 3,548 2,985 2,713 2,998 3,040
========================================
Real estate and
financial services:
Long-term debt $ 814 1,608 1,873 2,086 2,411
========================================
Redeemable preferred and
preference shares
(thousands):
Weyerhaeuser $ -- -- -- -- --
Shareholders' interest $ 4,604 4,486 4,290 3,966 3,646
Percent earned on
shareholders' interest 10.2% 18.2% 14.3% 15.2% 10.4%
Operating results:
Net sales and revenues:
Weyerhaeuser $10,105 10,869 9,281 8,315 7,744
Real estate and
financial services $ 1,009 919 1,117 1,230 1,522
----------------------------------------
$11,114 11,788 10,398 9,545 9,266
========================================
Net earnings (loss) from
continuing operations
before extraordinary
item and effect of
accounting changes:
Weyerhaeuser $ 434 981 576 459 332
Real estate and
financial services $ 29 (182)(1) 13 68 40
----------------------------------------
$ 463 799 589 527 372
Extraordinary item (2) $ -- -- -- 52 --
Effect of accounting
changes $ -- -- -- -- --
----------------------------------------
Net earnings (loss) $ 463 799 589 579 372
========================================
Statistics (unaudited):
Number of employees 39,661 39,431 36,665 36,748 39,022
Salaries and wages $ 1,494 1,779 1,610 1,585 1,580
Employee benefits $ 358 408 357 347 323
Total taxes $ 559 736 618 577 443
Timberlands (thousands
of acres):
U.S. fee ownership 5,326 5,302 5,587 5,512 5,592
Long-term license
arrangements 22,863 22,866 17,849 17,845 18,828
Number of shareholder
accounts at year-end:
Common 22,528 23,446 24,131 25,282 26,334
Preferred -- -- -- -- --
Preference -- -- -- -- --
Average common and common
equivalent shares
outstanding (thousands) 198,318 203,525 205,543 204,866 203,373
- ------------------------------------------------------------------
</TABLE>
(1) 1995 results reflect a special charge for disposal of certain
real estate assets of $290 million less related tax effect of
$106 million, or $184 million.
(2) 1993 results reflect an extraordinary net gain as a result
of extinguishing certain debt obligations of $86 million less
related tax effect of $34 million, or $52 million.
(3) 1991 results reflect restructuring and other charges of
$445 million less related tax effect of $162 million, or $283 million.
(4) 1989 results reflect net special items charges of $401 million
less related tax effect of $141 million, or $260 million.
76
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
1991 1990 1989 1988 1987 1986
- -----------------------------------------------------------------
<S> <S> <S> <S> <S> <S>
(.50) 1.87 1.56 2.68 2.12 1.27
-- -- -- -- -- --
(.30) -- -- -- -- --
- -----------------------------------------------------------------
(.80) 1.87 1.56 2.68 2.12 1.27
=================================================================
1.20 1.20 1.20 1.15 .90 .87
17.25 19.21 18.55 18.14 16.54 14.82
7,551 7,556 7,371 6,983 6,418 5,889
9,435 8,800 8,605 8,401 6,499 5,083
- -----------------------------------------------------------------
16,986 16,356 15,976 15,384 12,917 10,972
=================================================================
2,195 2,168 1,502 1,644 1,540 1,412
-- 7 23 37 51 63
193 193 -- -- -- --
204 204 204 198 181 172
- -----------------------------------------------------------------
2,592 2,572 1,729 1,879 1,772 1,647
=================================================================
2,421 2,637 2,006 2,318 2,130 1,699
=================================================================
-- -- -- -- -- 14,700
3,489 3,864 4,148 4,044 3,714 3,251
(4.4)% 9.8% 8.3% 14.6% 12.8% 8.4%
7,167 7,447 8,355 7,861 6,988 5,650
1,606 1,619 1,826 1,467 1,397 1,241
- ----------------------------------------------------------------
8,773 9,066 10,181 9,328 8,385 6,891
================================================================
(25) 340 377 516 379 180
(76) 54 (36) 50 68 97
- ----------------------------------------------------------------
(101)(3) 394 341(4) 566 447 277
-- -- -- -- -- --
(61) -- -- -- -- --
- ----------------------------------------------------------------
(162) 394 341 566 447 277
================================================================
38,669 40,621 45,214 46,976 45,123 41,757
1,476 1,531 1,563 1,423 1,277 1,143
321 318 325 292 250 225
173 446 403 511 467 310
5,488 5,592 5,664 5,775 5,813 5,904
13,491 13,491 13,324 13,324 12,064 12,064
26,937 28,187 29,847 30,379 32,535 31,682
-- -- 12 25 26 1,825
-- -- 443 351 106 7
201,578 203,673 204,331 207,785 202,544 195,456
- --------------------------------------------------------------
</TABLE>
77
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-END> DEC-29-1996
<CASH> 71
<SECURITIES> 0
<RECEIVABLES> 1017<F1>
<ALLOWANCES> 16
<INVENTORY> 1001
<CURRENT-ASSETS> 2225
<PP&E> 12153<F1>
<DEPRECIATION> 5146
<TOTAL-ASSETS> 13596
<CURRENT-LIABILITIES> 1483
<BONDS> 5083
<COMMON> 258
0
0
<OTHER-SE> 4346
<TOTAL-LIABILITY-AND-EQUITY> 13596
<SALES> 11114
<TOTAL-REVENUES> 11114
<CGS> 8336
<TOTAL-COSTS> 8336
<OTHER-EXPENSES> 779
<LOSS-PROVISION> 2
<INTEREST-EXPENSE> 319
<INCOME-PRETAX> 720
<INCOME-TAX> 257
<INCOME-CONTINUING> 463
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 463
<EPS-PRIMARY> 2.34
<EPS-DILUTED> 2.34
<FN>
<F1>Receiviables and PP&E are stated at gross.
</FN>
</TABLE>
