SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
X OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 27, 1998 or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to ______
Commission File Number 1-4825
WEYERHAEUSER COMPANY
A Washington Corporation (IRS Employer Identification
No. 91-0470860)
Tacoma, Washington 98477
Telephone (253) 924-2345
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
- --------------------------------- ---------------------------
Common Shares ($1.25 par value) Chicago Stock Exchange
New York Stock Exchange
Pacific Stock Exchange
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes _X_ No ___.
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 26, 1999, 199,177,383 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 $11,104,139,102.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the fiscal year
ended December 27, 1998 are incorporated by reference into Parts I, II and
IV.
Portions of the Notice of 1999 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
----
<S> <C> <C>
Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market Price of and Dividends on the Registrant's
Common Equity and Related Stockholder Matters 11
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk 11
Item 8. Financial Statements and Supplementary Information 11
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 11
PART III
Item 10. Directors and Executive Officers of the Registrant 12
Item 11. Executive Compensation 12
Item 12. Security Ownership of Certain Beneficial Owners and
Management 12
Item 13. Certain Relationships and Related Transactions 12
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 13
Signatures 14
Report of Independent Public Accountants on Financial
Statement Schedules 15
Schedule II Valuation and Qualifying Accounts 16
</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 the growing and harvesting of timber and the
manufacture, distribution and sale of forest products, real estate
development and construction, and other real estate related activities.
Its business segments are timberlands; wood products; pulp, paper and
packaging; and real estate and related assets.
Information with respect to the description and general development of the
company's business, included on pages 38 through 42, Description of the
Business of the Company, contained in the company's 1998 Annual Report to
Shareholders, is incorporated herein by reference.
Financial information with respect to industry segments and geographical
areas, included in Notes 18 and 19 of Notes to Financial Statements
contained in the company's 1998 Annual Report to Shareholders, is
incorporated herein by reference.
Timberlands
The company is engaged in the management of 5.1 million acres of company-
owned and .2 million acres of leased commercial forestland in the United
States (3.3 million acres in the South and 2 million acres in the Pacific
Northwest), most of it highly productive and located extremely well to
serve both domestic and international markets. The standing timber
inventory on these lands is approximately 94 million cunits (a cunit is 100
cubic feet of solid wood). 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 27, 1998
--------- -------------------------------------------
Millions Fee Long-term License
of Cunits Ownership Leases Arrangements Total
--------- --------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
Geographic Area
United States
West 56 1,989 -- -- 1,989
South 38 3,110 241 -- 3,351
--------- --------- --------- ------------ --------
Total United States 94 5,099 241 -- 5,340
--------- --------- --------- ------------ --------
Canada (1)
Alberta 91 -- -- 7,453 7,453
British Columbia 10 32 -- 2,867 2,899
Ontario 34 1 -- 4,220 4,221
Saskatchewan 118 -- -- 12,462 12,462
--------- --------- --------- ------------ --------
Total Canada 253 33 -- 27,002 27,035
--------- --------- --------- ------------ --------
TOTAL 347 5,132 241 27,002 (2) 32,375
========= ========= ========= ============ ========
</TABLE>
<TABLE>
<CAPTION>
Thousands of Acres
Thousands of Acres Millions of -----------------------
-------------------- Seedlings Stocking
Harvested(3) Planted Planted Control Fertilization
------------ ------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
1998 Activity
West 34.2 34.8 18.0 5.3 89.2
South 63.7 55.9 33.2 2.8 271.8
------------ ------- ----------- -------- -------------
Total United
States 97.9 90.7 51.2 8.1 361.0
============ ======= =========== ======== =============
_______________________________
(1) Managed by Canadian operations.
(2) Includes approximately 18.9 million acres of productive forestland.
(3) Includes 1.2 thousand acres of right-of-way and other harvest that does
not require planting.
3
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART I
- ----------------------------------------------------------------------
Item 1. Business - Continued
- -----------------------------
Sales volumes (millions):
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Raw materials - cubic ft. 259 235 254 254 271
</TABLE>
Selected product prices:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Export logs (#2 sawlog-bark on)
- $/MBF
Cascade - Douglas fir $ 807 $ 978 $1,330 $1,365 $1,168
Coastal - Hemlock 519 628 611 750 804
Coastal - Douglas fir 807 981 1,246 1,217 1,085
</TABLE>
Wood Products
The company's wood products businesses produce and sell softwood lumber,
plywood and veneer; oriented strand board, composite and other panels;
hardwood lumber; doors and treated products. These products are sold
primarily through the company's own sales organizations. Building
materials are sold to wholesalers, retailers and industrial users. The raw
materials required to produce these products are purchased from third
parties, transferred at market price from the company's timberlands, or
obtained from long-term licensing arrangements covering approximately 27
million acres in Canada (of which 18.9 million acres are considered to be
productive forestland).
Sales volumes by major product are as follows (millions):
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Softwood lumber - board ft. 4,995 4,869 4,745 4,515 4,402
Softwood plywood and veneer
- sq. ft. (3/8") 1,842 2,042 2,172 2,324 2,685
Composite panels - sq. ft. (3/4") 586 551 604 648 660
Oriented strand board - sq. ft. (3/8") 2,697 2,462 2,083 1,931 1,803
Hardwood lumber - board ft. 334 362 349 293 254
Engineered wood products - lineal ft. 164 137 116 128 71
Hardwood doors (thousands) 789 730 652 648 617
Raw materials - cubic ft. 315 325 304 260 165
</TABLE>
Selected product prices:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Lumber (common) - $/MBF
2x4 Douglas fir (kiln dried) 340 418 422 332 408
2x4 Douglas fir (green) 315 381 386 308 364
2x4 Southern yellow pine
(kiln dried) 395 453 422 364 419
2x4 Spruce-pine-fir (kiln dried) 288 354 351 251 343
Plywood (1/2" CDX) - $/MSF
West 279 312 307 331 334
South 295 261 256 301 298
Oriented strand board
(7/16"-24/16)
North Central price - $/MSF 202 142 184 245 265
</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; 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, 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; and Recycling, which operates an extensive
wastepaper collection system and markets it to company mills and worldwide
customers.
Sales volumes by major product are as follows (thousands):
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Pulp - air-dry metric tons 2,012 1,982 1,868 2,060 2,068
Paper - tons (1) 1,181 1,146 1,007 1,006 998
Paperboard - tons 236 243 205 230 201
Containerboard - tons 323 389 346 259 254
Packaging - MSF 44,299 44,508 42,323 34,342 34,483
Newsprint - metric tons (2) 62 684 629 663 638
Recycling - tons 2,546 2,229 2,011 1,467 985
</TABLE>
Selected product prices (per ton):
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Pulp - NBKP-air-dry metric-U.S. $ 516 $ 566 $ 579 $ 883 $ 566
Paper - uncoated free sheet-U.S. 665 740 745 946 617
Linerboard - 42 lb.-Eastern U.S. 354 326 367 505 367
Newsprint - metric-West Coast U.S. 588 550 636 662 460
Recycling - old corrugated
containers 54 76 53 128 78
Recycling - old newsprint 22 15 18 99 46
</TABLE>
_______________________________
(1) Reflects the acquisition of the Dryden, Ontario, fine paper mill
in October 1998.
(2) Reflects the ownership restructuring of the North Pacific Paper
Corporation (NORPAC) newsprint facility from a fully consolidated
subsidiary to an equity affiliate in February 1998.
5
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART I
- ----------------------------------------------------------------------
Item 1. Business - Continued
- -----------------------------
Real Estate and Related Assets
The company's real estate and related assets businesses are
principally engaged in real estate development and construction
through the company's real estate subsidiary, Weyerhaeuser Real Estate
Company, and in other real estate related activities through the
company's financial services subsidiary, Weyerhaeuser Financial
Services, Inc. Development and construction consists of developing
single-family housing and residential lots for sale, including the
development of master-planned communities.
Volume information:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Units sold:
Single-family units (1) 3,089 2,914 2,773 3,114 3,934
Multi-family units (1) 276 324 234 117 475
Residential lots (1) 2,455 1,988 2,522 1,628 2,157
Amounts in millions:
Loan servicing portfolio (2) $ -- $ -- $ 4,354 $10,952 $11,300
Single-family loan
originations (2) $ -- $ 1,168 $ 3,436 $ 2,196 $ 2,763
</TABLE>
_______________________________
(1) Includes one-half of joint venture sales.
(2) Reflects the sale of the company's wholly-owned subsidiary,
Weyerhaeuser Mortgage Company, in the second quarter of 1997.
6
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART I
- ----------------------------------------------------------------------
Item 2. Properties
- -------------------
Timberlands
Timberlands annual log production (in millions):
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Logs - cubic ft. 495 476 412 420 392
Fee harvest - cubic ft. 585 541 496 518 525
</TABLE>
Wood Products
Facilities and annual production are summarized by major product as follows
(millions):
<TABLE>
<CAPTION>
Production Number of
Capacity Facilities 1998 1997 1996 1995 1994
---------- ---------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Softwood lumber
- board ft. 4,161 27 4,025 3,968 3,701 3,419 3,249
Softwood plywood
and veneer
- sq. ft. (3/8") 1,017 5 960 1,092 1,243 1,292 1,249
Composite panels
- sq. ft. (3/4") 575 5 510 478 535 583 594
Oriented strand
board - sq.
ft. (3/8") 2,240 6 2,179 2,041 1,687 1,654 1,568
Hardwood lumber
- board ft. 386 12 342 345 333 278 229
Hardwood doors
(thousands) 850 1 788 740 646 643 597
Logs - cubic ft. -- -- 526 519 500 494 279
</TABLE>
Principal manufacturing facilities are located as follows:
<TABLE>
<S> <C>
Softwood lumber and plywood Hardwood lumber
Alabama, Arkansas, Georgia, Arkansas, Michigan,
Louisiana, Mississippi, Oklahoma, Oregon,
North Carolina, Oklahoma, Oregon, Pennsylvania,
Washington and Alberta, Washington and Wisconsin
British Columbia, Ontario
and Saskatchewan, Canada Hardwood doors
Wisconsin
Oriented strand board
Michigan, North Carolina,
West Virginia and Alberta, Canada
Composite panels
Georgia, North Carolina, Oregon
and Wisconsin
</TABLE>
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 as follows
(thousands):
<TABLE>
<CAPTION>
Production Number of
Capacity Facilities 1998 1997 1996 1995 1994
---------- ---------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Pulp - air-dry
metric tons 2,255 9 1,971 2,063 2,004 2,159 2,041
Paper - tons (1) 1,594 6 1,235 1,128 1,034 1,060 982
Paperboard - tons 230 1 237 231 206 229 189
Containerboard
- tons 2,600 4 2,291 2,381 2,331 2,329 2,357
Packaging - MSF 50,000 44 46,410 46,488 44,471 36,041 36,020
Newsprint -
metric tons (2) -- -- 69 704 631 687 651
Recycling - tons -- 24 3,833 3,655 3,428 2,754 2,042
</TABLE>
Principal manufacturing facilities are located as follows:
<TABLE>
<S> <C>
Pulp Packaging
Georgia, Mississippi, North Arizona, California, Colorado,
Carolina, Washington and Alberta, Connecticut, Florida, Georgia,
British Columbia, Ontario and Hawaii, Illinois, Indiana, Iowa,
Saskatchewan, Canada Kentucky, Maryland, Michigan,
Minnesota, Mississippi, Missouri,
Paper Nebraska, New Jersey, New York,
Mississippi, North Carolina, North Carolina, Ohio, Oregon,
Washington, Wisconsin and Tennessee, Texas, Virginia,
Ontario and Saskatchewan, Canada Washington and Wisconsin
Paperboard Recycling
Washington Arizona, California, Colorado,
Illinois, Iowa, Kansas, Maryland,
Containerboard Minnesota, Nebraska, North
North Carolina, Oklahoma and Carolina, Oklahoma, Oregon,
Oregon Tennessee, Texas, Utah, Virginia
and Washington
</TABLE>
_______________________________
(1) Reflects the acquisition of the Dryden, Ontario, Canada, fine paper
facility in October 1998.
(2) Reflects the ownership restructuring of the North Pacific Paper
Corporation (NORPAC) newsprint facility from a fully consolidated
subsidiary to an equity affiliate in February 1998.
8
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART I
- ----------------------------------------------------------------------
Item 2. Properties - Continued
- -------------------------------
Real Estate and Related Assets
<TABLE>
<S> <C>
Single-family housing Commercial development
California, Maryland, Nevada, California, Florida, Maryland
Texas, Virginia and Washington and Washington
Residential land development Real estate investments
Arkansas, California, Florida, Arizona, California, Colorado,
Georgia, Maryland, Nevada, North Nevada, Oregon and Washington
Carolina, Texas, Virginia and
Washington
Mortgage securities
California
</TABLE>
9
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART I
- ----------------------------------------------------------------------
Item 3. Legal Proceedings
- --------------------------
The company conducted a review of its 10 major pulp and paper facilities to
evaluate the facilities' compliance with federal Prevention of Significant
Deterioration (PSD) regulations. The results of the reviews were disclosed
to seven state agencies and the Environmental Protection Agency (EPA)
during 1994 and 1995. All PSD compliance issues identified in the review
have been resolved, except for PSD issues at the company's Springfield,
Oregon containerboard facility. A final decision is expected to be made by
the Lane County Oregon Regional Air Pollution Control Authority concerning
alleged PSD and permit violations at the company's Springfield, Oregon,
containerboard manufacturing facility upon issuance of the facility's Title
V permit in 1999.
In June 1998, a lawsuit was filed against the company in Superior Court,
San Francisco County, California, on behalf of a purported class of
individuals and entities that own property in the United States on which
exterior hardboard siding manufactured by the company has been installed
since 1981. The action alleges the company manufactured and distributed
defective hardboard siding, breached express warranties and consumer
protection statutes and failed to disclose to consumers the alleged
defective nature of its hardboard siding. The action seeks compensatory
and punitive damages, costs and reasonable attorney fees. In December
1998, the complaint was amended narrowing the purported class to
individuals and entities in the state of California. On February 4, 1999,
the court entered an order certifying the class. The company intends to
seek a review of that order. In September 1998, a lawsuit purporting to be
a class action involving hardboard siding was filed against the company in
Superior Court, King County, Washington. The complaint was amended, in
January 1999, to allege a class consisting of individuals and entities that
own homes or other structures in the United States on which exterior
hardboard siding manufactured by the company at its former Klamath Falls,
Oregon facility has been installed since January 1981. The amended
complaint alleges the company manufactured defective hardboard siding,
engaged in unfair trade practices and failed to disclose to customers the
alleged defective nature of its hardboard siding. The amended complaint
seeks compensatory damages, punitive or treble damages, restitution,
attorney fees, costs of the suit and such other relief as may be
appropriate. The company is a defendant in approximately twenty-four other
hardboard siding cases, one of which purports to be a state-wide class
action on behalf of purchasers of single or multi-family residences in Iowa
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 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 any ultimate
outcome resulting from these proceedings and matters, 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 proceedings or matters 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 27, 1998.
10
<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 prices, stockholders and dividends
included in Notes 20 and 21 of Notes to Financial Statements in the
company's 1998 Annual Report to Shareholders, is incorporated herein by
reference.
Item 6. Selected Financial Data
- --------------------------------
Information with respect to selected financial data included in Note 21 of
Notes to Financial Statements in the company's 1998 Annual Report to
Shareholders, is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
- --------------------------------------------------------------------------
Results of Operations
- ---------------------
Information with respect to Management's Discussion and Analysis included
on pages 2, 16-23, 30-34 and 38-49 contained in the company's 1998 Annual
Report to Shareholders, is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
- ---------------------------------------------------------------------
Information with respect to market risk of financial instruments
included on page 48 contained in the company's 1998 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 1998 Annual Report to Shareholders are incorporated herein by
reference:
<TABLE>
<CAPTION>
Page(s) in Annual
Report to
Shareholders
------------------
<S> <C>
Report of Independent Public Accountants 50
Consolidated Statement of Earnings 51
Consolidated Balance Sheet 52, 53
Consolidated Statement of Cash Flows 54, 55
Consolidated Statement of Shareholders' Interest 56
Notes to Financial Statements 57-73
Selected Quarterly Financial Information (Unaudited) 71
</TABLE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
- -------------------------------------------------------------------------
Financial Disclosure
- --------------------
Not applicable.
11
<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 1999 Annual Meeting of Shareholders and Proxy
Statement dated March 8, 1999 is incorporated herein by reference.
The executive officers of the company are as follows:
<TABLE>
<CAPTION>
Name Title Age
- ------------------- ------------------------ ---
<S> <C> <C>
William R. Corbin Executive Vice President 57
Richard C. Gozon Executive Vice President 60
Richard E. Hanson Senior Vice President 55
Steven R. Hill Senior Vice President 51
Mack L. Hogans Senior Vice President 50
Thomas M. Luthy Senior Vice President 61
Steven R. Rogel President 56
William C. Stivers Executive Vice President 60
George H. Weyerhaeuser, Jr. Senior Vice President 45
</TABLE>
Item 11. Executive Compensation
- --------------------------------
Information with respect to executive compensation included on pages 5
through 14 of the Notice of 1999 Annual Meeting of Shareholders and Proxy
Statement dated March 8, 1999 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 5 and 6 of the Notice of 1999 Annual
Meeting of Shareholders and Proxy Statement dated March 8, 1999 is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
Not applicable.
12
<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
1998 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
---------------
<S> <C>
Report of Independent Public Accountants on Financial
Statement Schedules 15
Schedule II - Valuation and Qualifying Accounts 16
</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 1998
Annual Report to Shareholders and incorporated herein by reference.
Exhibits:
<TABLE>
<S> <C>
3 - (i) Articles of Incorporation (incorporated by
reference to 1997 Form 10-K filed with the
Securities and Exchange Commission on
March 13, 1998 - Commission File Number 1-4825)
(ii) Bylaws
10 - Material Contracts
(a) Agreement with W. R. Corbin
(b) Agreement with R. C. Gozon (incorporated by
reference to 1995 Form 10-K filed with the
Securities and Exchange Commission on
March 15, 1996 - Commission File Number 1-4825)
(c) Agreement with S. R. Rogel (incorporated by
reference to 1997 Form 10-K filed with the
Securities and Exchange Commission on
March 13, 1998 - Commission File Number 1-4825)
(d) Agreement with T. M. Luthy
11 - Statement Re: Computation of Per Share Earnings
(incorporated by reference to Note 2 of the company's
1998 Annual Report to Shareholders)
13 - Portions of the company's 1998 Annual Report to
Shareholders specifically incorporated by reference
herein
22 - Subsidiaries of the Registrant
23 - Consent of Independent Public Accountants
27 - Financial Data Schedules
</TABLE>
Reports on Form 8-K
The registrant filed reports on Form 8-K dated January 23, April 16, June
16, July 14, and October 13, 1998, and January 7 and January 21, 1999,
reporting information under Item 5, Other Events.
13
<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
12, 1999.
Weyerhaeuser Company
/s/ Steven R. Rogel
--------------------------
Steven R. Rogel
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 12, 1999.
/s/ Steven R. Rogel /s/ Martha R. Ingram
- ---------------------------------- --------------------------
Steven R. Rogel Martha R. Ingram
President, Principal Executive Director
Officer and Director
/s/ George H. Weyerhaeuser /s/ John Kieckhefer
- ---------------------------------- --------------------------
George H. Weyerhaeuser John I. Kieckhefer
Chairman of the Board and Director Director
/s/ William C. Stivers /s/ Donald F. Mazankowski
- ---------------------------------- --------------------------
William C. Stivers Donald F. Mazankowski
Principal Financial Officer Director
/s/ Kenneth J. Stancato /s/ William D. Ruckelshaus
- ---------------------------------- --------------------------
Kenneth J. Stancato William D. Ruckelshaus
Principal Accounting Officer Director
/s/ W. John Driscoll /s/ Richard H. Sinkfield
- ---------------------------------- --------------------------
W. John Driscoll Richard H. Sinkfield
Director Director
/s/ P. M. Hawley
- ---------------------------------- --------------------------
Philip M. Hawley James N. Sullivan
Director Director
14
<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 10, 1999. Our audit was made for
the purpose of forming an opinion on those statements taken as a whole.
The schedule listed on page 13 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 10, 1999
15
<PAGE>
Weyerhaeuser Company and Subsidiaries
FINANCIAL STATEMENT SCHEDULES
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
Schedule II - Valuation and
Qualifying Accounts
For the three years ended
December 27, 1998
Dollar amounts in millions
Deductions
Balance at from/ Balance at
Beginning Charged Additions (to) End of
Description of Period to Income Reserve Period
- ----------- ---------- --------- -------------- ----------
<S> <C> <C> <C> <C>
Weyerhaeuser
Reserve deducted from
related asset accounts:
Doubtful accounts
- Accounts receivable
1998 $ 6 $ 4 $ 5 $ 5
========== ========= ============== ==========
1997 $ 7 $ 5 $ 6 $ 6
========== ========= ============== ==========
1996 $ 9 $ 4 $ 6 $ 7
========== ========= ============== ==========
Real Estate and
Related Assets
Reserves and allowances
deducted from related
asset accounts:
Receivables
1998 $ 6 $ 1 $ 1 $ 6
========== ========= ============== ==========
1997 $ 9 $ -- $ 3 $ 6
========== ========= ============== ==========
1996 $ 7 $ 3 $ 1 $ 9
========== ========= ============== ==========
Mortgage-related financial
instruments
1998 $ 27 $ -- $ 18 (1) $ 9
========== ========= ============== ==========
1997 $ 7 $ 13 $ (7)(2) $ 27
========== ========= ============== ==========
1996 $ 2 $ -- $ (5)(2) $ 7
========== ========= ============== ==========
Investments in and
advances to joint
ventures and
limited partnerships
1998 $ 6 $ 3 $ 5 $ 4
========== ========= ============== ==========
1997 $ 27 $ -- $ 21 $ 6
========== ========= ============== ==========
1996 $ 38 $ -- $ 11 $ 27
========== ========= ============== ==========
</TABLE>
_______________________________
(1) Includes allowances transferred to other assets.
(2) Includes allowances transferred in from other liabilities.
16
<PAGE>
Weyehaeuser Company and Subsidiaries
EXHIBITS INDEX
- --------------------------------------------------------------------------
Exhibits:
<TABLE>
<S> <C>
3 - (i) Articles of Incorporation (incorporated by
reference to 1997 Form 10-K filed with the
Securities and Exchange Commission on
March 13, 1998 - Commission File Number 1-4825)
(ii) Bylaws
10 - Material Contracts
(a) Agreement with W. R. Corbin
(b) Agreement with R. C. Gozon (incorporated by
reference to 1995 Form 10-K filed with the
Securities and Exchange Commission on
March 15, 1996 - Commission File Number 1-4825)
(c) Agreement with S. R. Rogel (incorporated by
reference to 1997 Form 10-K filed with the
Securities and Exchange Commission on
March 13, 1998 - Commission File Number 1-4825)
(d) Agreement with T. M. Luthy
11 - Statement Re: Computation of Per Share Earnings
(incorporated by reference to Note 2 of the company's
1998 Annual Report to Shareholders)
13 - Portions of the company's 1998 Annual Report to
Shareholders specifically incorporated by reference
herein
22 - Subsidiaries of the Registrant
23 - Consent of Independent Public Accountants
27 - Financial Data Schedules
</TABLE>
17
<PAGE>
Weyerhaeuser Company and Subsidiaries
Exhibit 22
Subsidiaries of the Registrant
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percentage
State or Ownership of
Country of Immediate
Name Incorporation Parent
---- ------------- -------------
<S> <C> <C>
Columbia & Cowlitz Railway Company Washington 100%
DeQueen and Eastern Railroad Company Arkansas 100
Dynetherm, Inc. Alabama 100
Fisher Lumber Company California 100
Golden Triangle Railroad Mississippi 100
Green Arrow Motor Express Company Delaware 100
Gryphon Asset Management, Inc. Delaware 100
Mississippi & Skuna Valley Railroad
Company Mississippi 100
Mountain Tree Farm Company Washington 50
North Pacific Paper Corporation Delaware 50
NORPAC Sales Corporation Guam 100
Norpac Resources Inc. Delaware 100
Pacific Veneer, Ltd. Washington 100
SCA Weyerhaeuser Packaging Holding British Virgin
Company Asia Limited Islands 50
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 Company of Nevada Nevada 100
Weyerhaeuser Construction Company Washington 100
Weyerhaeuser de Mexico, S.A. de C.V. Mexico 100
Weyerhaeuser del Bajio, S.A. de C.V. Mexico 100
Weyerhaeuser Financial Services, Inc. Delaware 100
CMO Finance Corp. Nevada 100
MJ Finance Corporation California 100
Mortgage Securities III 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
Pass-Through Finance Corp. California 100
18
<PAGE>
Weyerhaeuser Company and Subsidiaries
Exhibit 22
Subsidiaries of the Registrant - Continued
- --------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Percentage
State or Ownership of
Country of Immediate
Name Incorporation Parent
---- ------------- -------------
<S> <C> <C>
RFS Finance Corp. California 100%
Trimark Development Company California 100
Trimark Realty Advisors, Inc. California 100
WFI Servicing Company Nevada 100
Woodland Hills Properties-W., Inc. Nevada 100
Weyerhaeuser Venture Company Nevada 100
Las Positas Land Co. California 100
WAMCO, Inc. Nevada 100
Weyerhaeuser Forestlands
International, Inc. Washington 100
Weyerhaeuser International, Inc. Washington 100
Weyerhaeuser Canada Ltd. Canada 100
Princeton Co-Generation (VCC) Corp. Canada 90
Wapawekka Lumber Ltd. Canada 51
Weyerhaeuser (Barbados) SRL Barbados 100
Marlborough Capital Corp. SRL Barbados 100
Weyerhaeuser (BVI) Ltd. British Virgin
Islands 100
Weyerhaeuser New Zealand
Holdings, Inc. New Zealand 100
Nelson Forest Products Company New Zealand 100
Weyerhaeuser New Zealand, Inc. New Zealand 100
Weyerhaeuser Saskatchewan Ltd. Canada 100
Weyerhaeuser China, Ltd. Washington 100
Weyerhaeuser GMBH Germany 100
Weyerhaeuser (Asia) Limited Hong Kong 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 International Finance
Company Delaware 100
Weyerhaeuser Company Nova Scotia Canada 100
Weyerhaeuser Raw Materials, Inc. Delaware 100
19
<PAGE>
Weyerhaeuser Company and Subsidiaries
Exhibit 22
Subsidiaries of the Registrant - Continued
- --------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Percentage
State or Ownership of
Country of Immediate
Name Incorporation Parent
---- ------------- -------------
<S> <C> <C>
Weyerhaeuser Real Estate Company Washington 100%
Centennial Homes, Inc. Texas 100
Midway Properties, Inc. North Carolina 100
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
Weyerhaeuser Realty Investors, Inc. Washington 100
Winchester Homes, Inc. Delaware 100
SC-WHI, Inc. Delaware 100
Weyerhaeuser Sales Company Nevada 100
Weyerhaeuser Servicios, S.A. de C.V. Mexico 100
The Wray Company Arizona 100
</TABLE>
20
<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. 333-
36753 on Form S-3 and Nos. 33-60527, 33-60529, 33-60521, 33-47392, 333-
10165, 333-01565 and 333-56673 on Form S-8.
ARTHUR ANDERSEN LLP
Seattle, Washington,
March 12, 1999
21
<PAGE>
highlights
- ----------
<TABLE>
<CAPTION>
dollar amounts in millions except
per-share figures. 1998 1997
- ------------------------------------------------------------------
<S> <C> <C>
Net sales and revenues $ 10,766 $ 11,210
------------------------
Net earnings before nonrecurring items 339 351
Effect of nonrecurring items (1) (45) (9)
------------------------
Net earnings 294 342
------------------------
Cash flow from operations,
before working capital changes 1,018 1,092
Capital expenditures (excluding
acquisitions) 615 656
Total assets 12,834 13,075
Shareholders' interest 4,526 4,649
</TABLE>
<TABLE>
<CAPTION>
1998 1997
-----------------------------------------------------------
before effect of before effect of
nonre- nonre- nonre- nonre-
curring curring curring curring
items items(1) net items items(1) net
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per
common share (2)
First quarter $ .43 $ -- $ .43 $ .22 $ (.12) $ .10
Second quarter .34 -- .34 .47 .09 .56
Third quarter .56 -- .56 .53 .04 .57
Fourth quarter .38 (.23) .15 .54 (.05) .49
-----------------------------------------------------------
$ 1.71 $ (.23) $ 1.48 $ 1.76 $ (.04) $ 1.72
===========================================================
</TABLE>
(1) The 1998 nonrecurring items are charges primarily associated with the
closure of the Longview, Washington chemical facility; changing the British
Columbia lumber operations; and the streamlining of pulp and paper operations.
The 1997 nonrecurring items are the net of gains on the sales of
Weyerhaeuser Mortgage Company and Saskatoon Chemicals, Ltd., and interest
income from a favorable federal income tax decision offset by the loss on
the sale of Shemin Nurseries; the consolidation, closure or disposition of
certain recycling facilities; and closure of two plywood facilities, an
export lumber mill and a corrugated medium machine.
(2) Diluted earnings per common share by quarter for 1998 and 1997
were $0.43, $0.34, $0.55 and $0.15; and $0.10, $0.55, $0.57 and $0.49,
respectively.
<TABLE>
<CAPTION>
market prices-high/low 1998 1997
- ------------------------------------------------------------------
<S> <C> <C>
First quarter $ 57 15/16 - 44 15/16 $ 50 5/8 - 44 1/2
Second quarter 61 7/16 - 44 9/16 55 1/4 - 42 5/8
Third quarter 47 7/16 - 36 3/4 63 15/16 - 51 5/8
Fourth quarter 51 9/16 - 41 3/4 60 3/4 - 46 1/16
--------------------------------------------
Year $ 61 7/16 - 36 3/4 $ 63 15/16 - 42 5/8
============================================
</TABLE>
The consolidated financial statements include: (1) Weyerhaeuser
Company (Weyerhaeuser), principally engaged in the growing and
harvesting of timber and the manufacture, distribution and sale of
forest products, and (2) Real estate and related assets,
principally engaged in real estate development and construction,
and other real estate related activities.
<PAGE>
statistical data
- -----------------
<TABLE>
<CAPTION>
NET SALES 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------
(millions of dollars)
<S> <C> <C> <C> <C> <C>
To unaffiliated customers:
Raw materials (logs, chips
and timber) $ 599 $ 760 $ 830 $ 850 $ 877
Other products 37 37 37 32 25
---------------------------------------
$ 636 $ 797 $ 867 $ 882 $ 902
=======================================
Intersegment sales $ 488 $ 520 $ 513 $ 574 $ 502
=======================================
</TABLE>
<TABLE>
<CAPTION>
SALES VOLUMES
- ---------------------------------------------------------------------
(millions)
<S> <C> <C> <C> <C> <C>
Raw materials--cubic feet 259 235 254 254 271
</TABLE>
<TABLE>
<CAPTION>
ANNUAL PRODUCTION CAPACITY
- ---------------------------------------------------------------------
(millions)
<S> <C> <C> <C> <C> <C>
Logs--cubic feet 495 476 412 420 392
Fee harvest--cubic feet 585 541 496 518 525
</TABLE>
16
<PAGE>
timberlands
- ------------
FOR NEARLY 100 YEARS, we have managed our timberland asset for
growth. What started out as 900,000 acres in 1900 now encompasses
more than 5.3 million acres throughout the United States and timber
licenses on 27 million acres in Canada. We've also grown
internationally with joint ventures in New Zealand and Uruguay.
During 1998, this focus on growth once again produced strong
results from our Timberlands sector. We did, however, feel the
effect of the Asian economic situation. Prices for both export and
domestic logs dropped in response to lower Asian demand and higher
inventories in the United States. This drop was offset somewhat by
higher stumpage values in the southern United States.
OPERATING EARNINGS were $487 million compared with $535 million in
1997. NET SALES in 1998 were $636 million compared with $797
million the prior year. Our Timberlands sector is focusing on three
strategies to enhance its earnings potential.
CAPTURE THE MAXIMUM VALUE from our increasing harvest level. Due to
our advanced forestry practices, we'll see a significant increase
in the volume of timber we harvest over the next 10 years. At 1997
prices, the pre-tax cash flow generated by these forests will
increase by more than 50 percent. In addition, selective pruning
will produce knot-free wood for use in high-margin appearance-grade
lumber.
INVEST IN TIMBERLANDS WITH LOW COST AND HIGH PRODUCTION. The
Southern Hemisphere - especially New Zealand and South America -
represents significant growth opportunities. We own a 51 percent
interest in 193,000 acres of managed forestland and related assets
in New Zealand.
17
<PAGE>
As the majority owner, Weyerhaeuser is responsible for the
management and marketing activities of the joint venture. We've
also made additional investments through our partnership with
institutional investors known as the World Timberfund. This
partnership currently holds a 97 percent interest in a venture that
has acquired 234,000 acres of private agricultural land in Uruguay
that is being converted into plantation forests.
LOWER COSTS AND IMPROVE QUALITY. To maximize the returns, we manage
our timberlands as if they were a stand-alone operation. This means
reducing costs and improving the quality of our product. We've
reduced overhead costs by improving work systems and eliminating
redundancy and waste. To improve quality, we've used selective
pruning to produce knot-free wood. Within the next five years,
we'll begin harvesting this timber for use in appearance-grade
lumber and other higher-value products that command higher market
values. Weyerhaeuser is a leader in the development of the
Sustainable Forestry Initiative (SM) (SFI), a comprehensive program
developed by members of the American Forest & Paper Association.
Under SFI, participating private forest landowners follow a land
stewardship ethic that integrates forestry and conservation
practices. This ensures that we meet present needs without
compromising the ability of future generations to access wood and
enjoy a healthy environment. We view SFI as a natural extension of
our long-standing commitment to environmental stewardship and
sustainable forestry. In the future, we will continue to manage
this asset to enhance its value and generate shareholder value.
18
<PAGE>
<TABLE>
<CAPTION>
- --------------------
PRINCIPAL LOCATIONS
- ---------------------------------------------------------------------
<S> <C> <C> <C>
WESTERN TIMBERLANDS Acres owned 1,989,000 Oregon, Washington
- ---------------------------------------------------------------------
SOUTHERN TIMBERLANDS Acres owned 3,110,000 Alabama, Arkansas,
Acres leased 241,000 Georgia, Louisiana,
----------
3,351,000 Mississippi, North
Carolina, Oklahoma
- ---------------------------------------------------------------------
CANADIAN TIMBERLANDS* Acres licensed 27,002,000 Alberta, British
(of which 18,938,000 Columbia, Ontario,
acres are productive) Saskatchewan
- ---------------------------------------------------------------------
* Managed by Canadian operations.
</TABLE>
19
<PAGE>
statistical data
- -----------------
<TABLE>
<CAPTION>
NET SALES 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------
(millions of dollars)
<S> <C> <C> <C> <C> <C>
Softwood lumber $ 1,793 $ 2,094 $ 1,988 $ 1,648 $ 1,880
Softwood plywood and veneer 452 502 519 591 636
Oriented strand board,
composite and other
panel products 765 594 667 752 750
Hardwood lumber 240 272 235 193 175
Engineered wood products 330 284 233 207 157
Raw materials (logs, chips
& timber) 228 232 220 228 91
Other products 667 599 511 430 401
--------------------------------------------
$ 4,475 $ 4,577 $ 4,373 $ 4,049 $ 4,090
============================================
</TABLE>
<TABLE>
<CAPTION>
SALES VOLUMES 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------
(millions)
<S> <C> <C> <C> <C> <C>
Softwood lumber--board feet 4,995 4,869 4,745 4,515 4,402
Softwood plywood and veneer--square
feet (3/8") 1,842 2,042 2,172 2,324 2,685
Composite panels--square feet (3/4") 586 551 604 648 660
Oriented strand board--square
feet (3/8") 2,697 2,462 2,083 1,931 1,803
Hardwood lumber--board feet 339 362 349 293 254
Engineered wood products--linear feet 164 137 116 128 71
Hardwood doors (thousands) 789 730 652 648 617
Raw materials--cubic feet 315 325 304 260 165
</TABLE>
<TABLE>
<CAPTION>
ANNUAL PRODUCTION CAPACITY 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------
(thousands)
<S> <C> <C> <C> <C> <C> <C>
Softwood lumber--board feet 4,161 4,025 3,968 3,701 3,419 3,249
Softwood plywood and veneer
--square feet (3/8") 1,017 960 1,092 1,243 1,292 1,249
Composite panels--square
feet (3/4") 575 510 478 535 583 594
Oriented strand board
--square feet (3/8") 2,240 2,179 2,041 1,687 1,654 1,568
Hardwood lumber--board feet 386 342 345 333 278 229
Hardwood doors (thousands) 850 788 740 646 643 597
Logs--cubic feet -- 526 519 500 494 279
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL LOCATIONS
- ------------------------------------------------------------------------
<S> <C> <S> <C>
Softwood lumber, plywood and veneer 32 Hardwood lumber 12
Composite panels 5 Hardwood doors 1
Oriented strand board 6
</TABLE>
20
<PAGE>
wood products
- --------------
Our focus on customers and improved operating efficiencies helped
the Wood Products sector withstand the challenges of a mixed
market. Domestically, our oriented strand board and plywood markets
benefited from another year of robust housing starts. This was
offset, however, by the effects of the Japanese economy on lumber.
Weak demand from Japan pushed import and domestic lumber into the
US market resulting in low prices despite high demand.
In 1998, our Wood Products sector produced: OPERATING EARNINGS of
$208 million, excluding nonrecurring charges associated with
changes to our Western Canada lumber operations to make them more
competitive. This compares with $212 million, excluding charges
associated with the closure of two plywood facilities and an export
lumber mill, in 1997. NET SALES of $4.5 billion compared with $4.6
billion in 1997. Over the next five years, we will enhance the
earnings potential of this sector by:
FOCUSING ON CUSTOMERS. We develop "value propositions" with
customers so they know what to expect from Weyerhaeuser. It's an
approach that ensures that we work on those things providing the
most value to customers. Such "value propositions" range from
providing large distributors with special lumber grades to
developing product and delivery improvements. Our Installer's
Edge(TM) oriented strand board (OSB) is just one outgrowth of this
approach. Early OSB required special installation in wet
conditions. Working with customers, Weyerhaeuser developed a
product that addressed this problem. This lowers the cost of
installation for builders and increases use of our product. Similar
"value propositions" result in products with higher margins and
increased customer loyalty.
LEVERAGING THE INTERNAL ALIGNMENT between our timber,
manufacturing, sales and distribution operations to efficiently
serve target industry segments. Industrial, treated truss and
engineered products are examples of how we match our focus on
industry segments with the strength of a "one-company" approach to
reduce costs and meet the unique needs of key customers.
21
<PAGE>
ENHANCING INTERNAL GROWTH OPPORTUNITIES. Over the next five years
we will continue to significantly increase our production
capabilities through modernization. This includes deploying new
technologies that increase the amount of lumber per log while
producing higher-quality lumber. We also involve our employees to
help develop ways to increase our uptime and reduce the amount of
time it takes to complete projects. As a result, we expect to
increase lumber production by 35 percent and production of oriented
strand board and plywood by 17 percent at our existing facilities.
STRATEGICALLY GROWING THE BUSINESS. Wood Products consists of
businesses targeted for potential growth. Most of this growth will
come from operational improvements to existing facilities. We also
expect to grow our appearance-grade wood capabilities to maximize
our practice of selectively pruning existing timber. Such pruning
reduces knots thereby creating "clear" wood for use in lumber that
produces higher margins. While growth through acquisitions is not a
primary strategy for Wood Products, we will take this approach in
selected cases. Our purchase of the Dryden, Ontario, paper
facility, for example, also provided an opportunity to add two
mills to our Canadian lumber position. This acquisition enhances
our product mix and allows us to better serve Eastern markets.
Through operational excellence, we expect to achieve our earnings
growth while maintaining capital spending near depreciation levels
over the next five years. This will improve the returns on invested
capital and is key to achieving our shareholder return goals.
22
<PAGE>
<TABLE>
<CAPTION>
-------------------
PRINCIPAL LOCATIONS
- -------------------------------------------------------------------------------
<S> <C>
SOFTWOOD LUMBER produces dimension lumber. United States:
Alabama, Arkansas, Georgia,
Louisiana, Mississippi, North
Carolina, Oklahoma, Oregon,
Washington
Canada:
Alberta, British Columbia,
Ontario, Saskatchewan
- -------------------------------------------------------------------------------
PLYWOOD manufactures softwood structural United States:
and "appearance" panels for home remodelers, Alabama, Arkansas,
builders and industrial use. Oklahoma, Washington (veneer)
- -------------------------------------------------------------------------------
ORIENTED STRAND BOARD produces structural United States:
sheathing, subflooring, underlayments and other Michigan, North Carolina,
panels for residential and commercial West Virginia
construction. Canada:
Alberta
- -------------------------------------------------------------------------------
COMPOSITE PRODUCTS makes industrial United States:
particleboard and medium density fiberboard used Georgia, North Carolina,
primarily in furniture, laminating, countertops, Oregon, Wisconsin
millwork, door manufacturing and for export.
- -------------------------------------------------------------------------------
HARDWOOD LUMBER produces hardwood lumber and United States:
components for use in manufacturing cabinets Arkansas, Michigan,
and furniture. Oklahoma, Oregon,
Pennsylvania, Washington,
Wisconsin
- -------------------------------------------------------------------------------
BUILDING MATERIALS DISTRIBUTION sells a broad United States:
range of building materials from a network of Alabama, Arizona,
in-market customer service centers, satellites California, Colorado,
and reload operations located throughout North Florida, Georgia, Idaho,
America. Illinois, Indiana, Iowa,
Kansas, Kentucky, Louisiana,
Michigan, Minnesota,
Missouri, Montana, Nevada,
New Jersey, New York, North
Carolina, Ohio, Oklahoma,
Oregon, Pennsylvania,
Tennessee, Texas, Utah,
Virginia, Washington,
Wisconsin
Canada:
Alberta, British Columbia,
Manitoba, Nova Scotia, Ontario,
Quebec
- -------------------------------------------------------------------------------
ARCHITECTURAL DOORS produces architectural United States:
doors used mainly in offices, schools and Wisconsin
hospitals.
- -------------------------------------------------------------------------------
PRODUCTS
- ---------
</TABLE>
23
<PAGE>
statistical data
- -----------------
<TABLE>
<CAPTION>
NET SALES 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------
(millions of dollars)
<S> <C> <C> <C> <C> <C>
Pulp $ 935 $ 986 $ 954 $ 1,616 $ 1,012
Paper (1) 869 842 803 1,001 664
Paperboard and
containerboard 298 301 281 325 240
Packaging 1,894 1,781 1,921 1,863 1,495
Newsprint (2) 37 416 451 508 356
Recycling 191 189 140 266 121
Other products 88 94 98 103 178
--------------------------------------------
$ 4,312 $ 4,609 $ 4,648 $ 5,682 $ 4,066
============================================
</TABLE>
<TABLE>
<CAPTION>
SALES VOLUMES 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------
(millions)
<S> <C> <C> <C> <C> <C>
Pulp--air-dry metric tons 2,012 1,982 1,868 2,060 2,068
Paper--tons (1) 1,181 1,146 1,007 1,006 998
Paperboard--tons 236 243 205 230 201
Containerboard--tons 323 389 346 259 254
Packaging--MSF 44,299 44,508 42,323 34,342 34,483
Newsprint--metric tons (2) 62 684 629 663 638
Recycling--tons 2,546 2,229 2,011 1,467 985
</TABLE>
<TABLE>
<CAPTION>
ANNUAL PRODUCTION CAPACITY 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------
(thousands)
<S> <C> <C> <C> <C> <C> <C>
Pulp--air-dry
metric tons 2,255 1,971 2,063 2,004 2,159 2,041
Paper--tons (1) 1,594 1,235 1,128 1,034 1,060 982
Paperboard--tons 230 237 231 206 229 189
Containerboard
--tons 2,600 2,291 2,381 2,331 2,329 2,357
Packaging--MSF 50,000 46,410 46,488 44,471 36,041 36,020
Newsprint--metric
tons (2) -- 69 704 631 687 651
Recycling--tons -- 3,833 3,655 3,428 2,754 2,042
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MANUFACTURING FACILITIES
- -------------------------------------------------------------------------
<S> <C> <S> <C>
Pulp 9 Containerboard 4
Paper 6 Packaging 44
Paperboard 1 Recycling 24
</TABLE>
(1) Reflects the acquisition of the Dryden, Ontario, fine paper mill
in October 1998.
(2) Reflects the ownership restructuring of the North Pacific Paper
Corporation (NORPAC) newsprint facility from a fully consolidated
subsidiary to an equity affiliate in February 1998.
30
<PAGE>
pulp, paper and packaging
- -------------------------
IMPROVED OPERATING EFFICIENCIES and a disciplined approach to
capital spending helped our Pulp, Paper and Packaging sector
withstand difficult market conditions. During the year, Asian
demand for pulp, paper and containerboard declined while imports of
fine papers into the United States increased significantly. This
led to high inventories and weak industry prices across most
product lines.
The effect of these forces was evident in our 1998 results:
OPERATING EARNINGS were $192 million, unchanged from 1997 levels.
1998 operating earnings exclude nonrecurring charges associated
with the closure of a chlor-alkali facility and the streamlining
of pulp and paper operations. Operating earnings for 1997 exclude
a gain for the sale of a chemical facility and charges associated
with the consolidation, closure or disposition of some recycling
facilities. NET SALES were $4.3 billion in 1998 compared with $4.6
billion the prior year.
Although these results are better than many in our industry, we are
improving our performance to deliver superior shareholder returns.
We have identified five specific ways to grow revenues and improve
margins from our Pulp, Paper and Packaging sector.
LOWER COSTS AND INCREASE OUTPUT from existing facilities. We've
significantly improved the efficiency of our operations by engaging
employees in the design and implementation of improved work
systems. This approach has increased the reliability and
performance of our mills while allowing us to maintain stringent
control on overhead costs. In the future, our goal is to use
process improvements to increase output from existing facilities by
1.5 to 2 percent annually.
31
<PAGE>
MAINTAIN TIGHT CONTROLS ON CAPITAL SPENDING. Capital spending in
1998 was $325 million compared with $315 million last year. This is
the second year we've kept spending at, or below, depreciation
levels. It also marks the third consecutive year of positive net
cash flows in difficult market conditions. Such results reflect our
strategy of investing capital to improve operating efficiencies
at existing facilities rather than adding new capacity.
GROW FINE PAPER. In September, we acquired the Dryden, Ontario,
fine paper facility and related assets. The acquisition adds
380,000 short tons of fine paper a year to our system, gives us
additional geographic range and increases our ability to serve the
fast-growing retail paper market. Our Fine Paper business has a
sustained record of performance improvements that we will extend to
the Dryden operations.
SELECTIVELY GROW CONTAINERBOARD PACKAGING. As one of the industry's
largest providers of packaging solutions, we are prudently growing
this business to meet the evolving needs of our customers. In May,
we opened a box plant in Shanghai with SCA Packaging Europe BV to
serve existing customers doing business in China. In October, we
formed a joint venture with Wilton Connor Packaging to meet the
needs of our domestic customers in the rapidly growing point-of-
purchase display market.
REPOSITION MARKET PULP. We're improving the competitive position of
market pulp by reducing its exposure to volatile commodity markets.
We'll build on past successes to reduce this exposure to less than
50 percent through product enhancements developed by our extensive
research and development capabilities. By differentiating our pulp,
we'll add value for customers, improve margins and increase returns
to shareholders.
We're confident we can overcome our current market challenges to
position Weyerhaeuser as a leader in shareholder return. We will do
that by continuing to improve efficiencies and differentiating our
products in ways customers recognize and value.
32
<PAGE>
<TABLE>
<CAPTION>
---------------------
PRINCIPAL LOCATIONS
- -------------------------------------------------------------------------------
<S> <C>
MARKET PULP manufactures wood pulp for global United States:
markets. Georgia, Mississippi, North
Carolina, Washington
Canada:
Alberta, British Columbia,
Ontario, Saskatchewan
- -------------------------------------------------------------------------------
FINE PAPER manufactures a range of both coated United States:
and uncoated fine papers and markets its Mississippi, North Carolina,
products through paper merchants. Washington, Wisconsin
Canada:
Ontario, Saskatchewan
- -------------------------------------------------------------------------------
BLEACHED PAPERBOARD produces and markets United States:
bleached paperboard to West Coast and Pacific Washington
Rim customers for production of liquid
containers such as milk and juice cartons.
- -------------------------------------------------------------------------------
CONTAINERBOARD PACKAGING manufactures United States:
containerboard (medium and linerboard) and Arizona, California,
corrugated boxes. Colorado, Connecticut,
Florida, Georgia, Hawaii,
Illinois, Indiana, Iowa,
Kentucky, Maryland, Michigan,
Minnesota, Mississippi,
Missouri, Nebraska, New
Jersey, New York, North
Carolina, Ohio, Oklahoma,
Oregon, Tennessee, Texas,
Virginia, Washington,
Wisconsin
- -------------------------------------------------------------------------------
RECYCLING operates an extensive wastepaper United States:
collection system to supply company mills and Arizona, California,
national and international customers. Colorado, Illinois,
Iowa, Kansas, Maryland,
Minnesota, Nebraska, North
Carolina, Oklahoma, Oregon,
Tennessee, Texas, Utah,
Virginia, Washington
- -------------------------------------------------------------------------------
PRODUCTS
- ----------
</TABLE>
33
<PAGE>
real estate and related assets
- -------------------------------
Continued execution of its strategic plan, combined with a robust
domestic housing market, resulted in strong earnings for our Real
Estate business. For the year, the sector reported earnings of $124
million. This compares with $66 million before a gain associated
with the sale of Weyerhaeuser Mortgage Company in 1997.
TO MAXIMIZE ITS EARNING POTENTIAL, our Real Estate business focuses
on the home-building and land-development business. Improved
earnings resulted from increased operating efficiencies and
improved margins and inventory turnover. During the year, the
backlog of homes sold, both in absolute terms and as a percentage
of in-process inventory, was increased to record levels. Home-
building and land-development sales increased over the prior year.
THESE IMPROVEMENTS HELPED PRODUCE strong earnings by our real
estate operations. With home-building and land-development
activities in Southern California, Las Vegas, Houston, Maryland,
Virginia and the Puget Sound area in Washington state, Weyerhaeuser
Real Estate Company continues to be among the largest home builders
in its selected markets.
<TABLE>
<CAPTION>
--------------------
PRINCIPAL LOCATIONS
- -------------------------------------------------------------------------------
<S> <C>
LAND MANAGEMENT United States:
Arkansas, Georgia, North
Carolina, Washington
- -------------------------------------------------------------------------------
PARDEE CONSTRUCTION COMPANY United States:
Nevada, Southern California
- -------------------------------------------------------------------------------
QUADRANT CORPORATION United States:
Washington
- -------------------------------------------------------------------------------
TRENDMAKER HOMES United States:
Texas
- -------------------------------------------------------------------------------
WINCHESTER HOMES United States:
Maryland, Virginia
- -------------------------------------------------------------------------------
WEYERHAEUSER REALTY INVESTORS United States:
California, Washington
- -------------------------------------------------------------------------------
OPERATIONS
- -----------
</TABLE>
34
<PAGE>
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 other real estate related activities.
The company has 35,000 employees, of whom 34,000 are employed in its
timber-based businesses, and of this number, approximately 18,000 are
are covered by collective bargaining agreements, which generally are
negotiated on a multi-year basis.
Approximately 1,000 of the company's employees are involved in the
activities of its real estate and related assets segment.
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 company's subsidiaries
in the real estate and related assets segment operate in highly
competitive markets, competing with numerous regional and national firms
in real estate development and construction and other real estate related
activities.
In 1998, the company's sales to customers outside the United States
totaled $1.8 billion (including exports of $1.1 billion from the United
States and $700 million of Canadian export and domestic sales), or
17 percent of total consolidated sales and revenues, compared with
20 percent in 1997. The company believes these sales contributed a
higher proportion of aggregate operating profits. 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.
BUSINESS SEGMENTS
TIMBERLANDS
The company is engaged in the management of 5.1 million acres of company-
owned and .2 million acres of leased commercial forestland in the United
States (3.3 million acres in the South and 2 million acres in the Pacific
Northwest), most of it highly productive and located extremely well to
serve both domestic and international markets. The standing timber
inventory on these lands is approximately 94 million cunits (a cunit is
100 cubic feet of solid wood). 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, through its wholly owned subsidiary, Weyerhaeuser New
Zealand Inc., is responsible for the management and marketing activities
of a New Zealand joint venture located on the northern end of the South
Island consisting of 151,000 acres of Crown Forest License cutting rights
and approximately 42,000 acres of freehold land.
The company, through its wholly owned subsidiary, Weyerhaeuser Forestlands
International, is a 50 percent owner in RII Weyerhaeuser World Timberfund,
L.L.P., a joint-venture partnership, which makes investments outside the
United States. This joint venture owns 97 percent of a Uruguayan venture,
Colonvade, S.A., which has acquired over 234,000 acres of private grazing
land that is currently being converted into plantation forests.
<TABLE>
<CAPTION>
Dollar amounts in millions 1998 1997 1996 1995 1994
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers:
Raw materials (logs, chips
and timber) $ 599 $ 760 $ 830 $ 850 $ 877
Other products 37 37 37 32 25
----------------------------------
$ 636 $ 797 $ 867 $ 882 $ 902
==================================
Intersegment sales $ 488 $ 520 $ 513 $ 574 $ 502
==================================
Approximate contributions
to earnings $ 487 $ 535 $ 503 $ 560 $ 565
==================================
</TABLE>
38
<PAGE>
WOOD PRODUCTS
The company's wood products businesses produce and sell softwood lumber,
plywood and veneer; oriented strand board, composite and other panels;
hardwood lumber; doors and treated products. These products are sold
primarily through the company's own sales organizations. Building
materials are sold to wholesalers, retailers and industrial users. The
raw materials required to produce these products are purchased from third
parties, transferred at market price from the company's timberlands, or
obtained from long-term licensing arrangements covering approximately
27 million acres in Canada (of which 18.9 million acres are considered to
be productive forestland).
During the 1998 fourth quarter, the company changed its British Columbia
lumber operations by permanently closing the Lumby sawmill, converting the
Merritt mill to a planer-only operation and reconfiguring its remaining
four sawmills to achieve improved production.
<TABLE>
<CAPTION>
Dollar amounts
in millions 1998 1997 1996 1995 1994
- ------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers:
Softwood lumber $ 1,793 $ 2,094 $ 1,988 $ 1,648 $ 1,880
Softwood plywood
and veneer 452 502 519 591 636
Oriented strand
board, composite
and other panels 765 594 667 752 750
Hardwood lumber 240 272 235 193 175
Engineered wood
products 330 284 233 207 157
Raw materials (logs,
chips and timber) 228 232 220 228 91
Other products 667 599 511 430 401
--------------------------------------------
$ 4,475 $ 4,577 $ 4,373 $ 4,049 $ 4,090
============================================
Approximate
contributions to
earnings (1) (2) $ 183 $ 172 $ 302 $ 248 $ 469
============================================
</TABLE>
(1) After nonrecurring charges totaling $25 million for changes to
the British Columbia lumber operations in 1998.
(2) After nonrecurring charges totaling $40 million associated
with the closure of a lumber mill and two plywood facilities in
1997.
PULP, PAPER AND PACKAGING
The company's pulp, paper and packaging businesses include: Pulp, which
manufactures chemical wood pulp for world markets; 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, 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; and Recycling, which operates an extensive wastepaper
collection system and markets it to company mills and worldwide customers.
During the first quarter of 1998, the company completed the ownership
restructure of its newsprint joint venture, North Pacific Paper Corporation
(NORPAC). Through this restructuring, the ownership changed from 80 percent
company ownership and 20 percent Nippon Paper Industries Co., Ltd., to
50 percent for each shareholder. The company provides raw materials,
management, marketing and support services to this joint venture.
The company took charges for the closure of the Longview, Washington,
chlor-alkali facility and the streamlining of the pulp and paper operations
in the 1998 fourth quarter.
In the fourth quarter of 1998, the company completed the purchase of the
Dryden, Ontario, Canada, uncoated freesheet mill and related assets from
Bowater Inc. This facility has the capacity to produce 380,000 short tons
of fine paper per year and a small amount of bleached softwood market pulp.
Two lumber mills, with 200 million board feet of capacity, and timber
licenses comprising 4.35 million acres were also part of this purchase.
In 1998, the company's 50 percent owned joint venture, SCA Weyerhaeuser
Packaging Holding Company Asia Ltd., opened a newly constructed
containerboard packaging facility in Shanghai, China. Construction
continues on another facility in Wuhan, China, which is expected to open
in 1999.
39
<PAGE>
In the 1998 fourth quarter, the company and Wilton Connor Packaging, Inc.,
formed a joint venture, Wilton Connor LLC, based in Charlotte, North
Carolina. This joint venture, in which the company has a 50 percent
ownership interest, supplies full-service, value-added turnkey packaging
solutions that assist product manufacturers in the areas of retail marketing
and distribution.
<TABLE>
<CAPTION>
Dollar amounts
in millions 1998 1997 1996 1995 1994
- ------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers:
Pulp $ 935 $ 986 $ 954 $ 1,616 $ 1,012
Paper 869 842 803 1,001 664
Paperboard and
containerboard 298 301 281 325 240
Packaging 1,894 1,781 1,921 1,863 1,495
Newsprint(1) 37 416 451 508 356
Recycling 191 189 140 266 121
Other products 88 94 98 103 178
--------------------------------------------
$ 4,312 $ 4,609 $ 4,648 $ 5,682 $ 4,066
============================================
Approximate
contributions to
earnings (2) (3) $ 150 $ 164 $ 307 $ 1,181 $ 211
============================================
</TABLE>
(1) As of February 1998, the company's ownership in its newsprint
subsidiary changed from 80 percent to 50 percent; therefore, these
results reflect one month's sales.
(2) After nonrecurring charges of $42 million associated with the
closure of the Longview, Washington, chlor-alkali facility and
streamlining pulp and paper operations in 1998.
(3) After the gain of $21 million on the sale of Saskatoon Chemicals,
Ltd., and charges totaling $49 million for the closure of a corrugated
medium machine and the restructuring of the recycling business in 1997.
REAL ESTATE AND RELATED ASSETS
The company, through its subsidiary, Weyerhaeuser Real Estate Company
(WRECO), is engaged in developing single-family housing and residential
lots for sale, including development of master-planned communities.
Operations are concentrated mainly in selected metropolitan areas in
Southern California, Nevada, Washington, Texas, Maryland and Virginia.
<TABLE>
<CAPTION>
Dollar amounts
in millions 1998 1997 1996 1995 1994
- -------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales to and revenues
from unaffiliated
customers:
Single-family units $ 834 $ 688 $ 573 $ 563 $ 686
Multi-family units 36 29 12 -- 26
Residential lots 103 91 76 60 65
Commercial lots 23 57 50 29 7
Commercial buildings 100 68 43 4 35
Acreage 36 41 25 36 20
Interest(1) 18 35 70 76 84
Loan origination and
servicing fees (1) -- 35 100 84 88
Other 42 49 60 67 106
--------------------------------------------
$ 1,192 $ 1,093 $ 1,009 $ 919 $ 1,117
============================================
Approximate
contributions to
earnings (2) $ 124 $ 111 $ 43 $ (277) $ 18
============================================
</TABLE>
(1) Interest and loan origination and servicing fees relate principally
to the company's operations in financial services through its subsidiary,
Weyerhaeuser Mortgage Company, which was sold in the second quarter of 1997.
(2) After a $45 million gain on the sale of Weyerhaeuser Mortgage Company
in 1997 and a charge of $290 million to dispose of certain real estate
assets in 1995.
CORPORATE AND OTHER
Corporate and other includes marine transportation and general
corporate expense.
<TABLE>
<CAPTION>
Dollar amounts
in millions 1998 1997 1996 1995 1994
- ------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers $ 151 $ 134 $ 217 $ 256 $ 223
===========================================
Approximate
contributions to
earnings (1) (2) $ (225) $ (186) $ (183) $ (217) $ (142)
===========================================
</TABLE>
(1) After nonrecurring charges of $4 million for streamlining corporate
operations in 1998.
(2) After a $10 million gain, which is the net effect of interest income
from a favorable federal income tax decision and the loss incurred in the
sale of Shemin Nurseries in 1997.
40
<PAGE>
ENVIRONMENTAL MATTERS
Since 1990, a number of fish and wildlife species that occur in streams and
timberlands in the Pacific Northwest (Washington, Oregon, Idaho and northern
California) have been listed as threatened or endangered in at least some
portions of their ranges under the Endangered Species Act (ESA). These
include the northern spotted owl, marbled murrelet, Umpqua River cutthroat
trout, several Snake River salmon runs, coho salmon, bull trout and
steelhead trout. Petitions have been filed to list other species and
additional populations of some of those species 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. Federal and state requirements
to protect habitat for threatened and endangered species have resulted in
restrictions on timber harvest on some nonfederal timberlands in the Pacific
Northwest, including some timberlands of the company. Additional regulatory
actions taken by federal or state agencies to protect habitat for these
species may, in the future, result in restrictions on timber harvests and
other forest management practices in such states, including company
timberlands in western Washington and western Oregon, could increase
operating costs, and could affect timber supply and prices. The company
believes that such restrictions will not have a significant effect on the
company's total harvest of timber or production of forest products in 1999,
although they may have such an effect in the future.
The listing of the red-cockaded woodpecker as an endangered species under
the ESA had some effect on the harvest of public and private timber in the
southeastern United States, but has had little effect 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 effect 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 affect future timber harvests on some of the company's timberlands and
could affect timber supply and prices in some regions. In addition,
regulations protecting wetlands may affect future harvest and forest
management practices on some of the company's timberlands, particularly in
southeastern states.
In February 1995, the company obtained U.S. Fish and Wildlife Service
approval of a Habitat Conservation Plan (HCP) and Incidental Take Permit
with respect to northern spotted owls on approximately 209,000 acres of its
Oregon coastal timberlands, which is expected to remain in effect for at
least 50 years. In December 1996, the company applied to the U.S. Fish and
Wildlife Service and the National Marine Fisheries Service for a multiple-
species HCP covering approximately 400,000 acres of company timberlands in
western Oregon. If the HCP is approved and the related Incidental Take
Permit is issued, the company would be authorized to "take" members of
species currently listed or proposed for listing under the ESA and members
of all or most species that may become listed in the future in the course of
conducting forest management and other activities on those lands. Under
both HCPs, there are limits on the amounts of covered lands that can be sold
or exchanged unless the new owner agrees to be bound by the HCP and related
documents or the agencies approve the change in ownership. The company also
has 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 and 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.
Forest practice acts in some of the states in which the company has timber
increasingly affect 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 states and some local governments
regulate certain forest practices through various permit programs. Each
state in which the company owns timberlands has developed "best management
practices" (BMPs) to reduce the effects 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 to
achieve water-quality standards under the Clean Water Act or to preserve
aquatic habitats. 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
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
41
<PAGE>
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(SM) 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(SM) may
require some increases in operating costs.
The combination of the forest management and harvest restrictions and
effects 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. 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 effects described in the above paragraphs
have had, or in 1999 or 2000 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 effects 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 $108 million
(18 percent of total capital expenditures excluding acquisitions) in 1998.
Based on its understanding of current regulatory requirements, the company
expects that average expenditures will range from $100 million to $110
million (13 to 14 percent of total capital expenditures) in 1999 and 2000.
The company is involved in the environmental investigation or remediation
of numerous sites. 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, others are
third-party sites involving several parties who have a joint and several
obligation to remediate the site, and some are superfund sites where the
company has been named as a potentially responsible party. 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 $12 million in 1998 and expects to spend
$13 million in 1999 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 $90 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 V of the
Clean Air Act requires updated comprehensive operating permits at many of
the company's manufacturing operations. The company will continue to
prepare the permit applications in 1999 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 noncombustion sources under the Clean Air Act,
and revised wastewater effluent limitations under the Clean Water Act.
The original proposal has been modified on two occasions. The final rule
was approved by the administrator of the EPA in November 1997 and went into
effect in early 1998. The Cluster Rules will require the company to commit
over the next several years approximately $80 million of additional capital
to further reduce air emissions and wastewater discharges.
42
<PAGE>
financial review
- ------------------------------------------------------------------------------
RESULTS OF OPERATIONS
1998 COMPARED WITH 1997
Consolidated net sales and revenues for 1998 were $10.8 billion, a decrease
of 4 percent over the prior year's $11.2 billion. Lower average prices in
the major products were the principal factor in this unfavorable variance
compared with 1997. In total, revenue changes as a result of volume
variances were unchanged from the prior year.
1998 net earnings were $294 million, or $1.48 basic earnings per common
share, a 14 percent decrease from $342 million, or $1.72 basic earnings per
common share in 1997. The 1998 results reflect an after-tax charge of $45
million, or 23 cents per common share, primarily associated with
streamlining pulp and paper operations, the closure of the Longview chlor-
alkali facility and changes to the British Columbia lumber operations.
During the year, the company also incurred pretax charges of $42 million on
Year 2000 remediation work. 1997 earnings included an after-tax net charge
of $9 million, or 4 cents per common share, related to the closure of
operating facilities, offset in part by the gain on sale of businesses.
Diluted earnings per common share, which are based upon the inclusion of
outstanding stock options in the weighted average number of shares
outstanding, were $1.47 and $1.72 for 1998 and 1997, respectively.
The timberlands segment's operating earnings for 1998 were $487 million
compared with $535 million in 1997. The current year's results were hurt
by a soft export market early in the year that weakened prices for both
domestic and export logs. Net sales for the year were $636 million
compared with $797 million in 1997. Export log prices did improve
throughout the year and were above 1997 fourth-quarter levels at year-end.
Operating earnings for the wood products segment were $208 million before
the $25 million nonrecurring pretax charge associated with changes in the
British Columbia lumber operations. This compares with the $212 million
earned before nonrecurring pretax charges of $40 million for the closure of
two plywood facilities and an export sawmill in 1997. This segment posted
net sales of $4.5 billion for the year, comparable to $4.6 billion in the
prior year. Oriented strand board enjoyed a strong year with both volumes
and prices above 1997 levels. Lower prices for lumber, however, offset the
effects of higher volume driven by domestic housing starts.
The pulp, paper and packaging segment had operating earnings of $192
million in 1998 before the nonrecurring pretax $42 million charge
associated with streamlining pulp and paper operations and the closure of
the Longview, Washington, chlor-alkali facility. This is comparable to the
$192 million earned in 1997 before a pretax nonrecurring charge of $28
million, which is the net of a $49 million charge for facility closures,
offset in part by a $21 million gain on the sale of the Saskatoon,
Saskatchewan, Canada, chemical business. Sales for the segment were $4.3
billion for the year compared with $4.6 billion in the prior year. Prices
for most grades of pulp and paper were below 1997 levels. The ownership
restructuring of the North Pacific Paper Corporation newsprint facility
from a fully consolidated subsidiary to a 50 percent owned equity affiliate
in February 1998 also unfavorably impacted segment sales for the year.
The real estate and related assets segment posted operating earnings of
$124 million in 1998, compared with 1997 earnings of $66 million, before
the gain of $45 million on the sale of Weyerhaeuser Mortgage Company.
Improved operating performance and the strong housing market contributed to
stronger earnings. Net sales and revenues were $1.2 billion in 1998
compared with $1.1 billion in 1997. This increase was primarily from the
sale of single-family units, offset in part by the elimination of loan
origination and service fees generated in previous years by the mortgage
banking business. The sale of commercial properties was essentially
unchanged from year to year.
Weyerhaeuser's costs of products sold were $398 million or 5 percent less
in 1998 than 1997. This is consistent with the reduction in Weyerhaeuser
net sales and maintains the costs of products sold as a percentage of sales
at 78 percent, the same as 1997. Charges of $71 million in 1998 and $89
million in 1997 for the closure or disposition of facilities were included
in costs and expenses. The product inventory turnover rate was 11.8 turns
for the year, slightly less than the 12.1 turns in 1997.
The real estate and related assets segment costs and operating expenses
rose in 1998 on par with the increase in sales and revenues. Selling,
general and administrative expenses decreased by $43 million for 1998 due
principally to the sale of the mortgage banking business.
Other income (expense) is an aggregation of both recurring and occasional
income and expense items and, as a result, can fluctuate from year to year.
There were no significant individual items in 1998. Significant items in
1997 for Weyerhaeuser were interest income of $18 million from a favorable
federal income tax decision, a loss of $8 million from the sale of the
wholesale nursery business
43
<PAGE>
and a gain of $21 million from the sale of the Saskatoon chemical facility.
The real estate and related assets segment had a gain of $45 million from
the sale of the mortgage banking business in 1997.
CHARGE FOR CLOSURE OR DISPOSITION OF FACILITIES
In 1998 and 1997, the company took pretax charges of $71 million and $89
million, respectively, for closure or disposition of facilities. The
operating results of these facilities prior to these exit activities were
not material to the company's results of operations. The company expects
the principal portion of these exit activities to be completed by 1999 year-
end. These charges were related to the following facilities or activities:
1998:
. $25 million for changes in the British Columbia lumber operations -- Due
to increased costs, the market impact of U.S. lumber quotas and the effect
of the size and location of the mills on the business' competitiveness, the
company is repositioning its British Columbia lumber operations. This
includes permanently closing a sawmill in Lumby, converting the Merritt
mill to a planer-only operation, and reconfiguring the company's remaining
four sawmills in the province to achieve improved production capacity.
Approximately 200 jobs are affected by these changes.
. $22 million for closure of the Longview, Washington, chlor-alkali
facility -- The company is closing this facility by the end of the first
quarter of 1999 because of current market conditions and the need to invest
significant capital to ensure continued safe operation of the plant. This
closure completes the company's exit from chemical manufacturing.
Approximately 100 jobs will be eliminated by this closure.
. $20 million for pulp and paper operations reorganization -- Streamlining
efforts in these businesses will affect approximately 460 employees.
. $4 million for corporate operations streamlining -- The outsourcing of
the company's employee benefits administration and the closure of the urban
waste recovery business will result in the elimination of approximately 80
positions.
These costs are categorized in the aggregate as follows:
<TABLE>
<CAPTION>
Dollar amounts in millions 1998
- ----------------------------------------------------------
<S> <C>
Termination and other employee-related costs $ 39
Dispositions of property and equipment
at net book value 16
Write-off of inventories 1
Environmental cleanup 9
Other exit activities 6
---------
$ 71
=========
</TABLE>
1997:
. $34 million for the closure, consolidation or disposition of recycling
facilities -- The company is making adjustments to the nationwide system to
meet the needs of internal and external customers in an increasingly
competitive marketplace. Approximately 330 jobs are affected by these
changes.
. $15 million for the permanent closure of the corrugated medium machine
and administrative reorganization at the Longview, Washington, plant
site -- The company determined that the machine was not large enough to be a
cost-competitive operation and after examining the limited options available
decided to permanently close the operation. No employees were affected in
1997 by the machine closure; however, the administrative reorganization
displaced 29 employees.
. $25 million for the closures of the Plymouth, North Carolina, and
Philadelphia, Mississippi, plywood facilities -- These closures were a part
of the company's long-term strategy to align its wood products
manufacturing facilities with the changing future sources of raw materials.
The company closed the Plymouth facility rather than modernize it due to
market conditions and high raw material values. In addition, this facility
lacked an independent energy source, a problem that would have required a
substantial investment. Approximately 240 jobs were eliminated by this
closure.
The closure of the Philadelphia facility allowed the company to
strengthen the production capability of a sawmill that operates on the same
site. This was the company's oldest and smallest plywood operation and was
located in a very competitive woodbasket in which raw material costs have
risen significantly in recent years. The closure resulted in the
elimination of approximately 165 plywood related jobs.
. $15 million for the closure of the Coos Bay, Oregon, export sawmill and
scaling back of related logging operations -- Changing customer
requirements, including declining demand for post-and-beam style housing
and increased customer acceptance of substitute products in the Japanese
market, eroded demand for products from this mill. Japanese homebuilders
are using more dimension lumber, laminated beams and prefabricated panels,
a trend that will further erode demand for post-and-beam lumber. This
closure resulted in the loss of an estimated 200 positions at the mill.
These costs are categorized in the aggregate as follows:
<TABLE>
<CAPTION>
Dollar amounts in millions 1997
- -----------------------------------------------------------
<S> <C>
Termination and other employee-related costs $ 20
Dispositions of property and equipment
at net book value 45
Write-off of goodwill at net book value 14
Write-off of inventories 4
Environmental cleanup 2
Leasehold termination costs 1
Other exit activities 3
---------
$ 89
=========
</TABLE>
44
<PAGE>
1997 COMPARED WITH 1996
During 1997, the company's consolidated net sales and revenues were $11.2
billion compared with $11.1 billion in the prior year. Sales were
relatively even from year to year in all the operating segments, with
increased volumes in most product lines offsetting unfavorable price
variances. While the real estate and related assets segment included only
four months of revenues from Weyerhaeuser Mortgage Company due to the sale
of this business in May, the lost revenues were more than offset by
increased revenues from real estate activity.
Net earnings for the year were $342 million, or $1.72 basic earnings per
common share, compared with $463 million, or $2.34 basic earnings per
common share, in 1996. The 1997 earnings included an after-tax net charge
of $9 million, or 4 cents per common share, related to the charges incurred
for closures of operating facilities, offset in part by the gain on sale of
businesses. Diluted earnings per common share, which is based upon the
weighted average number of shares outstanding plus shares the company may
be obligated to issue to satisfy stock options, were $1.72 and $2.33 for
1997 and 1996, respectively.
1997 operating earnings in the timberlands segment were $535 million
compared with $503 million in 1996. The wood products segment earned $212
million, before nonrecurring charges totaling $40 million for the closure
of two plywood facilities and an export sawmill in 1997, compared with $302
million in 1996. The combined decrease from year to year in these two
segments was the combination of weak export demand for logs and lumber and
lower domestic structural panel prices, offset somewhat by a stronger
domestic lumber market.
The pulp, paper and packaging segment had operating earnings of $192
million in 1997 before a net charge of $28 million compared with $307
million in the previous year. The net charge included a $49 million charge
for the consolidation, closure or disposition of certain recycling
facilities, the closure of a corrugated medium machine, and a gain of $21
million from the sale of a chemical facility in Saskatoon, Saskatchewan,
Canada. Volume increases in all product lines were more than offset by
weaker average prices when compared with 1996, although pulp, paper and
packaging markets improved each quarter in 1997. The paper and packaging
markets continued this improvement through the fourth quarter; however,
pulp markets began to weaken during the quarter due to a decline in demand
in Asia.
The real estate and related assets segment earned $66 million for the year
before a $45 million gain on the sale of the company's wholly owned
subsidiary, Weyerhaeuser Mortgage Company, reflecting stronger real estate
markets, an increased focus on the home building and land development
businesses, and improved operating efficiencies.
The increase in Weyerhaeuser's costs of products sold, as a percentage of
sales, to 78 percent in 1997 compared with the prior year's 75 percent can
be attributed to the price weaknesses described above. Charges of $89
million incurred for the closure of production facilities were a factor in
the increase in costs and expenses for 1997 over the prior year. The
product inventory turnover rate was 12.1 turns for the year compared with
10.3 turns in 1996.
The increase in costs and operating expenses in the real estate and
related assets segment is consistent with the increased revenues from the
strong real estate markets. Reduced selling, general and administrative
expenses, compared with the prior year, are due primarily to the sale of
the mortgage banking business.
Other income (expense) is an aggregation of both recurring and occasional
income and expense items and, as a result, can fluctuate from year to year.
Individual items significant in relation to net earnings in 1997 were: a
gain of $45 million from the sale of the mortgage banking business,
interest income of $18 million from the favorable federal income tax
decision related to timber casualty losses incurred in the eruption of
Mount St. Helens in 1980, a loss of $8 million from the sale of the
wholesale nursery business, and a gain of $21 million from the sale of the
Saskatoon chemical facility. There were no significant individual items in
1996.
45
<PAGE>
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 change is
the net of decreases of $1 billion in the pulp, paper and packaging segment
and $15 million in timberlands, offset in part by an increase of $324
million in 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 basic earnings per
common share, compared with record earnings of $799 million, or $3.93 basic
earnings per common share, in 1995. The 1995 earnings were net of an after-
tax charge of $184 million ($290 million pretax), or 90 cents per common
share, for the disposal of certain real estate assets in the real estate
and related assets segment. 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 segment operating earnings were $503 million, down from
1995 earnings of $560 million.
Wood products segment earnings were $302 million in 1996, up significantly
from 1995 earnings of $248 million. Tight supplies and disruptions related
to countervailing duties on imports from Canada contributed to strong
lumber results. The panel markets were 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 the prior
year.
The real estate and related assets segment earned $43 million from
operations in 1996 compared with $13 million, before the charge for
disposal of certain real estate assets, 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 costs 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.
The real estate and related assets segment 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
nonoperating income and expense items and, as a result, may fluctuate from
period to period. No individual income or expense item in 1995 or 1996 was
significant in relation to net earnings.
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 related assets, 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.
46
<PAGE>
OPERATIONS
Consolidated net cash provided by operations was $1.1 billion in 1998, an
increase of 8 percent over the prior year. $1 billion of this amount was
provided by cash flow from operations before changes in working capital,
while decreases in working capital accounted for $104 million. In 1997,
cash flow from operations before changes in working capital provided $1.1
billion with working capital increases using $54 million.
Cash flow from operations before changes in working capital by segment was
as follows:
<TABLE>
<CAPTION>
Dollar amounts in millions 1998 1997 1996
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Timberlands $ 533 $ 606 $ 584
Wood products 373 384 462
Pulp, paper and packaging 528 566 660
Real estate and related assets 22 9 68
Corporate and other (438) (473) (527)
----------------------------------
$ 1,018 $ 1,092 $ 1,247
==================================
</TABLE>
Consolidated cash flow from operations before changes in working capital
in 1998 was provided by net earnings of $294 million along with noncash
charges of $616 million from depreciation, amortization and fee stumpage,
deferred taxes of $160 million, and noncash charges of $71 million for
closure or disposition of facilities. This was offset in part by a noncash
pension and other postretirement benefits net credit of $39 million and
equity in income of affiliates, joint ventures and limited partnerships net
credit of $42 million. In 1997, net earnings of $342 million and noncash
charges from depreciation, amortization and fee stumpage of $628 million,
deferred taxes of $75 million and noncash charges of $89 million for
closure or disposition of facilities were the significant items in cash
provided from operations before changes in working capital. Noncash
credits came from the gain on disposition of businesses, principally $45
million from the sale of the mortgage banking business in the real estate
and related assets segment.
Weyerhaeuser's 1998 working capital, net of the effects of the NORPAC
equity restructuring from a fully consolidated subsidiary to an equity
affiliate and the purchase of the Dryden paper mill and sawmills, decreased
by $86 million. Cash was provided by decreases in receivables, inventories
and prepaid expenses. In 1997, increases in receivables along with
decreases in accounts payable and accrued liabilities were the principal
items in a cash use of $44 million.
Net working capital in the real estate and related assets segment provided
funds of $18 million in 1998 compared with a $10 million use of funds in
1997. The principal cause was the decrease in mortgage-related financial
instruments in 1998 as a result of the company's exit from the mortgage
banking business.
INVESTING
Capital expenditures in 1998, excluding acquisitions, were $615 million,
down 6 percent from the $656 million spent in 1997. They are currently
expected to approximate $785 million, excluding acquisitions, in 1999;
however, these expenditures could be increased or decreased as a
consequence of future economic conditions.
Capital spending by segment, excluding acquisitions, over the past three
years was as follows:
<TABLE>
<CAPTION>
Dollar amounts in millions 1998 1997 1996
- --------------------------------------------------------------------
<S> <C> <C> <C>
Timberlands $ 87 $ 75 $ 72
Wood products 169 239 346
Pulp, paper and packaging 325 315 415
Corporate and other 34 27 46
-----------------------------
$ 615 $ 656 $ 879
=============================
</TABLE>
In 1998, the company acquired the Dryden, Ontario, Canada, paper mill and
sawmills at a cost of $494 million for property and equipment and $49
million for working capital. Acquisitions of property in 1997 amounted to
$13 million, with an additional $2 million for working capital. Also in
1997, the company expended $190 million to acquire a 51 percent interest in
a forestry joint venture in New Zealand.
The cash needed to meet capital and other Weyerhaeuser needs in 1998 was
generated by internal cash flow, proceeds from the NORPAC equity
restructuring and dividends from subsidiaries, which are eliminated upon
consolidation. In the real estate and related assets segment, proceeds
from the sale of mortgage-related financial instruments, reduction of
holdings in equity affiliates and sale of property accounted for the cash
provided by investing activities.
In 1997, the sale of the wholesale nursery business and the Saskatoon
chemical facility provided $76 million of cash to Weyerhaeuser, while the
sale of the mortgage banking business provided $192 million of cash to the
real estate and related assets segment.
47
<PAGE>
FINANCING
During the year, Weyerhaeuser reduced its interest-bearing debt by $35
million. Debt payments of $87 million were offset, in part, by the sale of
$48 million of industrial revenue bonds. The company's debt to total
capital ratio was 39 percent at the end of the year compared with 38
percent at the prior year-end.
The real estate and related assets segment reduced its long-term debt by
$331 million during the year while increasing its short-term notes and
commercial paper by a similar amount, leaving interest-bearing debt
virtually unchanged from the end of 1997.
Cash dividends of $319 million were paid during the year; comparable to
the $317 million paid in 1997. Although common share dividends have
exceeded the company's target ratio in recent years, the intent, over time,
is to pay dividends to common shareholders in the range of 35 to 45 percent
of common share earnings. Weyerhaeuser also received intercompany
dividends of $190 million and $150 million from Weyerhaeuser Real Estate
Company and Weyerhaeuser Financial Services, Inc., in 1998 and 1997,
respectively. These dividends are eliminated on a consolidated basis.
During the 1998 first quarter, the company expended $42 million to
purchase 925,000 shares of its common stock. This completed the 11 million-
share repurchase program that commenced in 1995.
To ensure its ability to meet future commitments, Weyerhaeuser Company and
Weyerhaeuser Real Estate Company have established unused bank lines of
credit in the maximum aggregate sum of $1,050 million. Neither of the
entities is a guarantor of the borrowings of the other under any of these
credit facilities.
MARKET RISK OF FINANCIAL INSTRUMENTS
As part of the company's financing activity, derivative securities are
sometimes used to achieve the desired mix of fixed versus floating rate
debt and to manage the timing of finance opportunities. The company does
not hold or issue derivative financial instruments for trading. The
company's derivative instruments, which are matched directly against
outstanding borrowings, are "pay fixed, receive variable" interest rate
swaps with highly rated counterparties in which the interest payments are
calculated on a notional amount. The 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 company is exposed to
credit-related gains or losses in the event of nonperformance by
counterparties to these financial instruments; however, the company does
not expect any counterparties to fail to meet their obligations. Interest
rate swaps are described as follows:
<TABLE>
<CAPTION>
Variable Rate at
at December 27, 1998
Dollar amounts in millions -------------------------
Notional Maturity Fixed Fair Value
Amount Date Rate % % Based On of Swap (1)
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 27 5/1/99 6.70 8.20 11.95% -- Kenny index $ .1
75 12/6/99 (2) 6.85 5.63 30 day LIBOR (3.1)
- ----------------------------------------------------------------------------
$ 102 $ (3.0)
============================================================================
</TABLE>
(1) The amount of the obligation under each swap is based on the assumption
that such swap had terminated at the end of the fiscal period, and provides
for the netting of amounts payable by and to the counterparty. In each
case, the amount of such obligation is the net amount so determined.
(2) Includes the value of an option, by the counterparty, to extend for two
years at maturity date.
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. (See Note 14 of Notes to
Financial Statements.)
YEAR 2000
Weyerhaeuser, like all other companies using computers and microprocessors,
is faced with the task of addressing the Year 2000 problem before the end
of 1999. The Year 2000 challenge arises from the nearly universal practice
in the computer industry of using two digits rather than four digits to
designate the calendar year (e.g., DD/MM/YY). This can lead to incorrect
results when computer software performs arithmetic operations, comparisons
or data field sorting involving years later than 1999. The company has
conducted a comprehensive inventory to identify where
48
<PAGE>
this problem may occur in its information technology, manufacturing and
facilities systems. The company is engaged in modifying or replacing its
affected systems in a manner that will minimize any detrimental effects on
operations and has substantially completed its goal of correcting affected
systems that would have a critical effect on its business operations. While
some significant components remain uncorrected, the company believes that
all such systems have been identified and has plans in place to correct such
systems by the end of second quarter of 1999. The company expects to
complete the testing and verification of such systems during 1999.
While it is difficult at present to fully quantify the overall cost of
this work, the company estimates that the overall cost of remediation could
approach $100 million. The company presently believes that such costs
will not have a material effect on the company's current financial position
or liquidity; however, in any given future reporting period, such costs
could have a material effect on results of operations. Through the fourth
quarter of 1998, the company has incurred $54 million of remediation costs,
of which $1 million was incurred in 1997 and $11 million has been
capitalized for new hardware and software. The company expects substantial
additional costs to be incurred in the first and second quarters of 1999.
Depending on whether suppliers, customers and other entities with which
the company does business are able to successfully address the Year 2000
issue, the company's results of operations could be materially adversely
affected in any given future reporting period during which such a Year 2000
event occurred. As a result, the company is communicating with such
entities to determine their state of readiness. The company is also
developing contingency plans to allow primary operations of the company to
continue if the company's significant systems or such entities are
disrupted by the Year 2000 problem. The company currently expects that its
contingency plans will be developed by the end of the second quarter of
1999. In addition, the company has initiated a process to develop joint
contingency plans with its customers and suppliers. The company currently
expects that it will be prepared in the event of systems failures to
continue to do business, although such operations may be at a higher cost.
These estimates and conclusions contain forward-looking statements that
are subject to risks and uncertainties that could cause actual results to
differ materially. The company's current estimates of the amount of time
and the costs necessary to address the Year 2000 problem are based on the
facts and circumstances existing at this time. The estimates were derived
using multiple assumptions of future events, including the continued
availability of certain resources, implementation success and other
factors. New developments may occur that could affect the company's
estimates, such as the amount of planning and modification needed to
achieve full resolution of the Year 2000 problem; the availability and cost
of resources; the company's ability to discover and correct all Year 2000
sensitive computer code and equipment; and the ability of suppliers,
customers and other entities to bring their systems into compliance.
ACCOUNTING MATTERS
PROSPECTIVE PRONOUNCEMENTS
During the year, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999, which for the
company is the fiscal year 2000.
Also in 1998, the American Institute of Certified Public Accountants
Accounting Standards Executive Committee issued the following Statements of
Position (SOP) that are effective for fiscal years beginning after December
15, 1998:
. SOP 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use."
. SOP 98-5, "Reporting on the Costs of Start-Up Activities."
These statements are described in "Note 1. Summary of Significant
Accounting Policies" of Notes to Financial Statements.
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.
49
<PAGE>
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 27, 1998, and December 28, 1997, and the related consolidated
statements of earnings, cash flows and shareholders' interest for each of
the three years in the period ended December 27, 1998. 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 27, 1998, and December 28, 1997, and the
results of their operations and their cash flows for each of the three
years in the period ended December 27, 1998, in conformity with generally
accepted accounting principles.
Seattle, Washington,
February 10, 1999 ARTHUR ANDERSEN LLP
50
<PAGE>
consolidated statement of earnings
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the three-year period ended
December 27, 1998
Dollar amounts in millions
except per-share figures 1998 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales and revenues:
Weyerhaeuser $ 9,574 $ 10,117 $ 10,105
Real estate and related assets 1,192 1,093 1,009
-------------------------------
Total net sales and revenues 10,766 11,210 11,114
-------------------------------
Costs and expenses:
Weyerhaeuser:
Costs of products sold 7,468 7,866 7,610
Depreciation, amortization and
fee stumpage 611 616 601
Selling, general and administrative
expenses 649 646 702
Research and development expenses 57 56 54
Taxes other than payroll and income taxes 130 142 151
Charge for closure or disposition of
facilities (Note 15) 71 89 --
Charge for Year 2000 remediation 42 1 --
-------------------------------
9,028 9,416 9,118
-------------------------------
Real estate and related assets:
Costs and operating expenses 1,016 909 726
Depreciation and amortization 5 12 16
Selling, general and administrative
expenses 53 96 173
Taxes other than payroll and income taxes 8 8 11
-------------------------------
1,082 1,025 926
-------------------------------
Total costs and expenses 10,110 10,441 10,044
-------------------------------
Operating income 656 769 1,070
Interest expense and other:
Weyerhaeuser:
Interest expense incurred 264 271 273
Less interest capitalized 7 15 21
Equity in income (loss) of
affiliates (Note 3) 28 (7) 5
Other income (expense), net (Note 4) 15 (10) (63)
Real estate and related assets:
Interest expense incurred 77 110 132
Less interest capitalized 61 69 65
Equity in income of joint ventures and
limited partnerships (Note 3) 14 14 5
Other income, net (Note 4) 23 70 22
-------------------------------
Earnings before income taxes 463 539 720
Income taxes (Note 5) 169 197 257
-------------------------------
Net earnings $ 294 $ 342 $ 463
===============================
Per common share (Note 2):
Basic net earnings $ 1.48 $ 1.72 $ 2.34
===============================
Diluted net earnings $ 1.47 $ 1.72 $ 2.33
===============================
Dividends paid $ 1.60 $ 1.60 $ 1.60
===============================
</TABLE>
See notes on pages 57 through 73.
51
<PAGE>
consolidated balance sheet
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 27, December 28,
Dollar amounts in millions 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Weyerhaeuser
Current assets:
Cash and short-term investments (Note 1) $ 28 $ 100
Receivables, less allowances of $5 and $6 886 913
Inventories (Note 7) 962 983
Prepaid expenses 294 298
-----------------------
Total current assets 2,170 2,294
Property and equipment (Note 8) 6,692 6,991
Construction in progress 315 354
Timber and timberlands at cost,
less fee stumpage charged to disposals 1,013 996
Investments in and advances to equity
affiliates (Note 3) 482 249
Other assets and deferred charges 262 187
-----------------------
10,934 11,071
-----------------------
Real estate and related assets
Cash and short-term investments, including
restricted deposits of $16 in 1997 7 22
Receivables, less discounts and allowances
of $6 and $6 81 62
Mortgage-related financial instruments, less
discounts and allowances of $9 and $27
(Notes 1 and 13) 119 173
Real estate in process of development and
for sale (Note 9) 584 593
Land being processed for development 854 845
Investments in and advances to joint ventures
and limited partnerships, less reserves of
$4 and $6 (Note 3) 120 116
Other assets 135 193
-----------------------
1,900 2,004
-----------------------
Total assets $ 12,834 $ 13,075
=======================
</TABLE>
See notes on pages 57 through 73.
52
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
December 27, December 28,
Dollar amounts in millions 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' INTEREST
Weyerhaeuser
Current liabilities:
Notes payable $ 5 $ 25
Current maturities of long-term debt 88 17
Accounts payable (Note 1) 699 694
Accrued liabilities (Note 10) 707 648
-----------------------
Total current liabilities 1,499 1,384
Long-term debt (Notes 12 and 13) 3,397 3,483
Deferred income taxes (Note 5) 1,404 1,418
Deferred pension, other postretirement
benefits and other liabilities (Note 6) 488 498
Minority interest in subsidiaries -- 121
Commitments and contingencies (Note 14)
-----------------------
6,788 6,904
-----------------------
Real estate and related assets
Notes payable and commercial paper (Note 11) 564 228
Long-term debt (Notes 12 and 13) 701 1,032
Other liabilities 255 262
Commitments and contingencies (Note 14)
-----------------------
1,520 1,522
-----------------------
Total liabilities 8,308 8,426
-----------------------
Shareholders' interest (Note 16):
Common shares: authorized 400,000,000 shares,
issued 206,072,890 shares, $1.25 par value 258 258
Other capital 416 407
Retained earnings 4,372 4,397
Cumulative other comprehensive expense (208) (123)
Treasury common shares, at cost: 7,063,917
and 6,586,939 (312) (290)
-----------------------
Total shareholders' interest 4,526 4,649
-----------------------
Total liabilities and shareholders' interest $ 12,834 $ 13,075
=======================
</TABLE>
53
<PAGE>
consolidated statement of cash flows
- -----------------------------------------------------------------------
<TABLE>
<CAPTION>
For the three-year period ended Consolidated
December 27, 1998 ----------------------------
Dollar amounts in millions 1998 1997 1996
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Cash provided by (used for) operations:
Net earnings $ 294 $ 342 $ 463
Noncash charges (credits) to income:
Depreciation, amortization and fee stumpage 616 628 617
Deferred income taxes, net 160 75 181
Pension and other postretirement benefits (39) 23 34
Charge for closure or disposition of
facilities 71 89 --
Equity in (income) loss of affiliates,
joint ventures and limited partnerships (42) (7) (10)
Decrease (increase) in working capital:
Accounts receivable 1 (9) 67
Inventories, real estate and land 56 (13) 56
Prepaid expenses 16 (10) 12
Mortgage-related financial instruments 28 (64) 19
Accounts payable and accrued liabilities 3 42 (113)
(Gain) loss on disposition of assets (2) 5 1
(Gain) loss on disposition of a business -- (58) --
Other (40) (5) (39)
--------------------------
Cash provided by operations 1,122 1,038 1,288
--------------------------
Cash provided by (used for) investing
activities:
Property and equipment (562) (610) (829)
Timber and timberlands (53) (46) (50)
Property and equipment and timber and
timberlands from acquisitions (494) (13) (448)
Working capital from acquisitions (49) (2) (33)
Investments in and advances to equity
affiliates 6 (182) (2)
Proceeds from sale of:
Property and equipment (Note 15) 66 85 74
Businesses -- 268 --
Mortgage-related financial instruments 66 55 106
Restructuring the ownership of a subsidiary 218 -- --
Intercompany advances -- -- --
Other (15) (21) 28
--------------------------
Cash provided by (used for) investing
activities (817) (466) (1,154)
--------------------------
Cash provided by (used for) financing
activities:
Issuances of debt 165 632 142
Sale of industrial revenue bonds 48 38 33
Notes and commercial paper borrowings, net 328 (577) 534
Cash dividends (319) (317) (317)
Intercompany cash dividends -- -- --
Payments on debt (577) (359) (513)
Purchase of treasury common shares (42) (22) (45)
Exercise of stock options 19 61 20
Other (14) 23 (1)
--------------------------
Cash provided by (used for) financing
activities (392) (521) (147)
--------------------------
Net increase (decrease) in cash and
short-term investments (87) 51 (13)
Cash and short-term investments at
beginning of year 122 71 84
--------------------------
Cash and short-term investments at
end of year $ 35 $ 122 $ 71
==========================
Cash paid (received) during the year for:
Interest, net of amount capitalized $ 282 $ 287 $ 322
==========================
Income taxes $ 66 $ 21 $ 168
==========================
</TABLE>
See notes on pages 57 through 73.
54
<PAGE>
- -----------------------------------------------------------------------
<TABLE>
<CAPTION>
Real Estate and
Weyerhaeuser Company Related Assets
----------------------------- -----------------------------
1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$ 214 $ 271 $ 434 $ 80 $ 71 $ 29
611 616 601 5 12 16
149 88 121 11 (13) 60
(37) 22 33 (2) 1 1
71 89 -- -- -- --
(28) 7 (5) (14) (14) (5)
30 (17) 75 (29) 8 (8)
40 15 (42) 16 (28) 98
16 (10) 12 -- -- --
-- -- -- 28 (64) 19
-- (32) (86) 3 74 (27)
8 13 8 (10) (8) (7)
-- (13) -- -- (45) --
8 (10) (13) (48) 5 (26)
- ---------------------------------------------------------------
1,082 1,039 1,138 40 (1) 150
- ---------------------------------------------------------------
(560) (607) (820) (2) (3) (9)
(53) (46) (50) -- -- --
(494) (13) (448) -- -- --
(49) (2) (33) -- -- --
(41) (221) (3) 47 39 1
42 39 61 24 46 13
-- 76 -- -- 192 --
-- -- -- 66 55 106
218 -- -- -- -- --
(3) 42 (26) 3 (42) 26
(13) (18) 15 (2) (3) 13
- ---------------------------------------------------------------
(953) (750) (1,304) 136 284 150
- ---------------------------------------------------------------
6 618 12 159 14 130
48 38 33 -- -- --
(2) (695) 637 330 118 (103)
(319) (317) (317) -- -- --
190 150 -- (190) (150) --
(87) (78) (174) (490) (281) (339)
(42) (22) (45) -- -- --
19 61 20 -- -- --
(14) 23 (1) -- -- --
- ---------------------------------------------------------------
(201) (222) 165 (191) (299) (312)
- ---------------------------------------------------------------
(72) 67 (1) (15) (16) (12)
100 33 34 22 38 50
- ---------------------------------------------------------------
$ 28 $ 100 $ 33 $ 7 $ 22 38
===============================================================
$ 261 $ 244 $ 255 $ 21 $ 43 $ 67
===============================================================
$ (4) $ 54 $ 188 $ 70 $ (33) $ (20)
===============================================================
</TABLE>
55
<PAGE>
consolidated statement of shareholders' interest
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the three-year 1998 1997 1996
period ended -------------- --------------- ---------------
December 27, 1998 Compre- Compre- Compre-
Dollar amounts hensive hensive hensive
in millions Total Income Total Income Total Income
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common stock issued:
Balance at end of year $ 258 $ 258 $ 258
------- ------- -------
Other capital:
Balance at beginning of year 407 407 415
Stock options exercised (1) (11) (8)
Other transactions (net) 10 11 --
------- ------- -------
Balance at end of year 416 407 407
------- ------- -------
Retained earnings:
Balance at beginning of year 4,397 4,372 4,226
Net earnings 294 $ 294 342 $ 342 463 $ 463
Cash dividends on
common shares (319) (317) (317)
------- ------- -------
Balance at end of year 4,372 4,397 4,372
------- ------- -------
Cumulative other
comprehensive expense:
Balance at beginning of
year (123) (93) (90)
Other comprehensive
expense:
Foreign currency
translation
adjustments (90) (44) (4)
Income tax benefit on
foreign currency
translation
adjustments 13 14 1
Excess additional
pension liability (13) -- --
Income tax benefit on
excess additional
pension liability 5 -- --
------- ------- -------
Net other comprehensive
expense (85) (85) (30) (30) (3) (3)
------------------------------------------------
Comprehensive income 209 312 460
------- ------- -------
Balance at end of year (208) (123) (93)
------- ------- -------
Common stock held in
treasury:
Balance at beginning of
year (290) (340) (323)
Purchase of treasury common
shares (42) (22) (45)
Stock options exercised 20 72 28
------- ------- -------
Balance at end of year (312) (290) (340)
------- ------- -------
Total shareholders'interest:
Balance at end of year $4,526 $4,649 $4,604
================================================
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Shares of common stock (in thousands):
Issued at end of year 206,073 206,073 206,073
-----------------------------
In treasury:
Balance at beginning of year 6,587 7,737 7,303
Purchase of treasury common shares 925 496 1,086
Stock options exercised (448) (1,646) (642)
Used in acquisition of capital assets -- -- (10)
-----------------------------
Balance at end of year 7,064 6,587 7,737
-----------------------------
Outstanding at end of year 199,009 199,486 198,336
=============================
</TABLE>
See notes on pages 57 through 73.
56
<PAGE>
notes to financial statements
- ----------------------------------------------------------------------------
For the three-year period ended December 27, 1998
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. Investments in and advances to equity
affiliates that are not majority owned or controlled are accounted
for using the equity method.
Certain of the consolidated financial statements and notes to
financial statements are presented in two groupings: (1)
Weyerhaeuser (the company), principally engaged in the growing and
harvesting of timber and the manufacture, distribution and sale of
forest products, and (2) Real estate and related assets, principally
engaged in real estate development and construction and other real
estate related activities.
NATURE OF OPERATIONS
The company's principal business segments, which account for the
majority of sales, earnings and the asset base, are:
. Timberlands, which is engaged in the management of 5.1 million
acres of company-owned and .2 million acres of leased commercial
forestland in the United States (3.3 million acres in the South and
2 million acres in the Pacific Northwest).
. Wood products, which produces 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. It is also engaged in the
management of 27 million acres of forestland in Canada under long-
term licensing arrangements (of which 18.9 million acres are
considered to be productive forestland).
. Pulp, paper and packaging, which manufactures and sells pulp,
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 years 1996 through 1998 each had 52 weeks.
ACCOUNTING PRONOUNCEMENTS IMPLEMENTED
In 1998, the company implemented the following pronouncements of the
Financial Accounting Standards Board (FASB):
. Statement of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income," which establishes standards for
reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of financial
statements.
. SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information," which requires companies to determine segments
based on how management makes decisions about allocating resources
to segments and measuring their performance. Disclosures for each
segment are similar to those required under current standards, with
the addition of certain quarterly requirements. This statement also
requires entity-wide disclosure about products and services, the
countries in which the company holds material assets and reports
material revenues, and its significant customers. Previously
reported segment information has been restated to conform to the
requirements of this new pronouncement.
. SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits, an amendment of FASB Statements No. 87, 88
and 106," which revises employers' disclosures about pensions and
other postretirement benefit plans. It does not change the
measurement or recognition of those plans. It standardizes the
disclosure requirements for pensions and other postretirement
benefits to the extent practicable, requires additional information
on changes in benefit obligations and fair values of plan assets
that will facilitate financial analysis, and eliminates certain
disclosures that are no longer considered useful.
PROSPECTIVE ACCOUNTING PRONOUNCEMENTS
In 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting
and reporting standards for derivative instruments, including
certain derivatives embedded in other contracts, and hedging
activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position
and measure those instruments at fair value. This
57
<PAGE>
statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999, which for the company is the fiscal
year 2000. Assuming that the company's current minimal involvement
in derivatives and hedging activities continues after the
implementation date of this statement, the company believes that the
future adoption of this statement will not have a material impact on
its results of operations or financial position.
Also during 1998, the American Institute of Certified Public
Accountants Accounting Standards Executive Committee issued the
following Statements of Position (SOP):
. SOP 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use," which provides guidelines on the
accounting for internally developed computer software. This SOP is
effective for fiscal years beginning after December 15, 1998. The
company believes that the future adoption of this SOP will not have
a significant impact on its results of operations or financial
position.
. SOP 98-5, "Reporting on the Costs of Start-Up Activities," which
requires the costs of start-up activities be expensed as incurred.
This SOP must be adopted in fiscal years beginning after December
15, 1998. When this SOP is adopted, the company must record a
cumulative effect of a change in accounting principle to write off
any unamortized start-up costs that remain on the balance sheet at
the date the new SOP is adopted. The company estimates that the
pretax impact of this pronouncement, when implemented in the first
quarter of 1999, will be from $135 million to $145 million ($85
million to $92 million after-tax, or $.43 to $.46 basic earnings per
common share).
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
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 of real estate and related
assets receivables and mortgage-related financial instruments, of
which $68 million and $119 million are in the western geographical
region of the United States at December 27, 1998, and December 28,
1997, 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. These
contracts generate gains or losses that are recognized at the
contracts' respective settlement dates.
. 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.
The company is exposed to credit-related gains or 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
$102 million and $492 million at December 27, 1998, and December 28,
1997, 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 company's use of derivatives does not have a significant effect
on the company's results of operations or its financial position.
CASH AND SHORT-TERM INVESTMENTS
For purposes of cash flow and fair value reporting, short-term
investments with original maturities of 90 days or less are
considered as cash equivalents. Short-term investments are stated at
cost, which approximates market.
58
<PAGE>
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 approximately half of domestic raw
materials, in process and finished goods inventories. LIFO
inventories were $253 million and $246 million at December 27, 1998,
and December 28, 1997, 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 $228 million and $237
million greater at December 27, 1998, and December 28, 1997,
respectively.
PROPERTY AND EQUIPMENT
The company's property accounts are maintained on an individual
asset basis. Betterments and replacements of major units are
capitalized. Maintenance, repairs and minor replacements are
expensed. Depreciation is provided generally on the straight-line or
unit-of-production method at rates based on estimated service lives.
Amortization of logging railroads and truck roads is provided
generally as timber is harvested and is based upon rates determined
with reference to the volume of timber estimated to be removed over
such facilities.
The cost and related depreciation of property sold or retired is
removed from the property and allowance for depreciation accounts
and the gain or loss is included in earnings.
TIMBER AND TIMBERLANDS
Timber and timberlands are carried at cost less fee stumpage charged
to disposals. Fee stumpage is the cost of standing timber and is
charged to fee timber disposals as fee timber is harvested, lost as
the result of casualty or sold. Depletion rates used to relieve
timber inventory are determined with reference to the net carrying
value of timber and the related volume of timber estimated to be
available over the growth cycle. 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 $139 million
and $185 million at December 27, 1998, and December 28, 1997,
respectively. Such balances result from outstanding checks that had
not yet been paid by the bank and are reflected in accounts payable
in the consolidated balance sheets.
INCOME TAXES
Deferred income taxes are provided to reflect temporary differences
between the financial and tax bases of assets and liabilities using
presently enacted tax rates and laws.
PENSION PLANS
The company has pension plans covering most of its employees. The
U.S. plan covering salaried employees provides pension benefits
based on the employee's highest monthly earnings for five
consecutive years during the final 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 RELATED ASSETS
With the sale of the mortgage banking business in 1997, the
financial services segment was no longer material to the results of
the company. Therefore, the remaining activities in financial
services that are principally real estate related were combined with
real estate into one segment entitled real estate and related assets
in 1997.
Real estate held for sale is stated at the lower of cost or fair
value, less costs to sell. 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.
59
<PAGE>
Mortgage-related financial instruments include mortgage loans
receivable, mortgage-backed certificates and other financial
instruments. Mortgage-backed certificates (see Note 13) are carried
at par value, adjusted for any unamortized discount or premium.
These certificates and other financial instruments are pledged as
collateral for the collateralized mortgage obligation (CMO) bonds
and are held by banks as trustees. Principal and interest
collections are used to meet the interest payments and reduce the
outstanding principal balance of the bonds. Related CMO bonds are
the obligation of the issuer, and neither the company nor any
affiliated company has guaranteed or is otherwise obligated with
respect to the bonds.
NOTE 2. NET EARNINGS PER COMMON SHARE
Basic net earnings per common share are based on the weighted
average number of common shares outstanding during the respective
periods. Diluted net earnings per common share are based on the
weighted average number of common shares outstanding and stock
options outstanding at the beginning of or granted during the
respective periods.
<TABLE>
<CAPTION>
Weighted Per-
Dollar amounts in millions Average Share
except per-share figures Net Earnings Shares (000) Amount
- ----------------------------------------------------------------
<S> <C> <C> <C>
1998:
Basic $ 294 198,914 $ 1.48
======
Stock options granted -- 336
--------------------------
Diluted $ 294 199,250 $ 1.47
==================================
1997:
Basic $ 342 198,967 $ 1.72
======
Stock options granted -- 573
--------------------------
Diluted $ 342 199,540 $ 1.72
==================================
1996:
Basic $ 463 198,318 $ 2.34
======
Stock options granted -- 486
--------------------------
Diluted $ 463 198,804 $ 2.33
==================================
</TABLE>
Options for which the exercise price was greater than the average
market price of common shares for the period were not included in
the computation of diluted earnings per share. These options to
purchase shares were as follows:
<TABLE>
<CAPTION>
Year Options to Purchase Exercise Price
- -------------------------------------------------------
<S> <C> <C>
1998 1,332,080 $51.09
586,539 $56.78
150,000 $53.06
- -------------------------------------------------------
1997 150,000 $53.06
- -------------------------------------------------------
1996 1,216,400 $45.94
4,700 $47.13
1,178,400 $48.13
- -------------------------------------------------------
</TABLE>
NOTE 3. EQUITY AFFILIATES
WEYERHAEUSER
The company's investments in affiliated companies that are not
majority owned or controlled are accounted for using the equity
method. Investments carried at equity are:
. Cedar River Paper Company - A 50 percent owned joint venture in
Cedar Rapids, Iowa, that manufactures liner and medium
containerboard from recycled fiber.
. Nelson Forests Joint Venture - An investment in which the company
owns a 51 percent financial interest and has a 50 percent voting
interest, which holds Crown Forest License cutting rights and
freehold land on the South Island of New Zealand.
. SCA Weyerhaeuser Packaging Holding Company Asia Ltd. - A 50
percent owned joint venture formed to build or buy containerboard
packaging facilities to serve manufacturers of consumer and
industrial products in Asia. Currently, one facility is in operation
and another is under construction in China.
. RII Weyerhaeuser World Timberfund, L.L.P. - A 50 percent owned
joint venture with institutional investors to make investments in
timberlands and related assets outside the United States. The
primary focus of this partnership is in pine forests in the Southern
Hemisphere.
. North Pacific Paper Corporation - A 50 percent owned joint venture
that has a newsprint manufacturing facility in Longview, Washington.
This venture was formed in February 1998 through a restructuring of
the company's 80 percent ownership, which was fully consolidated, to
50-50 ownership with Nippon Paper Industries Co., Ltd.
60
<PAGE>
. Wilton Connor LLC - A 50 percent owned joint venture in Charlotte,
North Carolina, formed in October 1998. This venture supplies full-
service, value-added turnkey packaging solutions that assist product
manufacturers in the areas of retail marketing and distribution.
Unconsolidated financial information for affiliated companies that
are accounted for by the equity method is as follows:
<TABLE>
<CAPTION>
December December
Dollar amounts in millions 27, 1998 28, 1997
- ----------------------------------------------------------------
<S> <C> <C>
Current assets $ 165 $ 94
Noncurrent assets 1,325 678
Current liabilities 77 56
Noncurrent liabilities 702 420
---------------------
</TABLE>
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------
<S> <C> <C>
Net sales and revenues $ 696 $ 214
Operating income 110 14
Net income (loss) 52 (14)
---------------------
</TABLE>
The company provides goods and services to these affiliates, which
vary by entity, in the form of raw materials, management and
marketing fees, support services and shipping services.
Additionally, the company purchases finished product from certain of
these entities. The aggregate total of these transactions is not
material to the results of operations of the company.
REAL ESTATE AND RELATED ASSETS
Investments in and advances to joint ventures and limited
partnerships that are not majority owned or controlled are accounted
for using the equity method with taxes provided on undistributed
earnings as appropriate. Unconsolidated financial information for
joint ventures and limited partnerships that are accounted for by
the equity method is as follows:
<TABLE>
<CAPTION>
December December
Dollar amounts in millions 27, 1998 28, 1997
- ----------------------------------------------------------------
<S> <C> <C>
Current assets $ 1,755 $ 1,689
Noncurrent assets 230 284
Current liabilities 1,241 1,306
Noncurrent liabilities 136 145
---------------------
</TABLE>
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------
<S> <C> <C>
Net sales and revenues $ 244 $ 242
Operating income 133 136
Net income 103 108
---------------------
</TABLE>
The company may charge management and/or development fees to the
joint ventures or limited partnerships. The aggregate total of these
transactions is not material to the results of operations of the
company.
NOTE 4. OTHER INCOME (EXPENSE), NET
Other income (expense) is an aggregation of both recurring and
occasional income and expense items and, as a result, can fluctuate
from year to year. Individual income (expense) items significant in
1997 in relation to net earnings were:
WEYERHAEUSER:
. The interest income of $18 million from the favorable federal
income tax decision related to timber casualty losses incurred in
the eruption of Mount St. Helens in 1980.
. The loss of $8 million from the sale of the wholesale nursery
business.
. The gain of $21 million from the sale of the Saskatoon chemical
facility.
REAL ESTATE AND RELATED ASSETS:
. The gain of $45 million from the sale of the mortgage banking
business.
There were no significant individual items in 1998 or 1996.
61
<PAGE>
NOTE 5. INCOME TAXES
Earnings before income taxes are comprised of the following:
<TABLE>
<CAPTION>
Dollar amounts in millions 1998 1997 1996
- ----------------------------------------------------------------
<S> <C> <C> <C>
Domestic earnings $ 413 $ 432 $ 614
Foreign earnings 50 107 106
-----------------------------
$ 463 $ 539 $ 720
=============================
</TABLE>
Provisions for income taxes include the following:
<TABLE>
<CAPTION>
Dollar amounts in millions 1998 1997 1996
- ----------------------------------------------------------------
<S> <C> <C> <C>
Federal:
Current $ (7) $ 65 $ 41
Deferred 138 86 166
-----------------------------
131 151 207
-----------------------------
State:
Current 8 6 2
Deferred 10 3 16
-----------------------------
18 9 18
-----------------------------
Foreign:
Current 8 45 33
Deferred 12 (8) (1)
-----------------------------
20 37 32
-----------------------------
$ 169 $ 197 $ 257
=============================
</TABLE>
A reconciliation between the federal statutory tax rate and the
company's effective tax rate follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax on income 35.0% 35.0% 35.0%
State income taxes, net of
federal tax benefit 2.8 1.3 2.4
All other, net (1.3) .2 (1.7)
-----------------------------
Effective income tax rate 36.5% 36.5% 35.7%
=============================
</TABLE>
The net deferred income tax (liabilities) assets include the
following components:
<TABLE>
<CAPTION>
December December
Dollar amounts in millions 27, 1998 28, 1997
- ----------------------------------------------------------------
<S> <C> <C>
Current (included in prepaid expenses) $ 98 $ 90
Noncurrent (1,404) (1,418)
Real estate and related assets
(included in other assets) 16 28
---------------------
Total $(1,290) $(1,300)
=====================
</TABLE>
The deferred tax (liabilities) assets are comprised of the
following:
<TABLE>
<CAPTION>
December December
Dollar amounts in millions 27, 1998 28, 1997
- -----------------------------------------------------------------
<S> <C> <C>
Depreciation $(1,260) $(1,352)
Depletion (207) (176)
Capitalized interest and
taxes - real estate development (68) (71)
Other (240) (189)
---------------------
Total deferred tax (liabilities) (1,775) (1,788)
---------------------
Pension and other postretirement benefits 100 128
Charges for impairment of long-lived assets 39 43
Alternative minimum tax credit carryforward 69 63
Other 277 254
Total deferred tax assets 485 488
---------------------
$(1,290) $(1,300)
=====================
</TABLE>
As of December 27, 1998, the company has available approximately
$69 million of alternative minimum tax credit carryforward, which
does not expire, and foreign tax credit carryforwards of $1 million,
$1 million and $1 million expiring in 2001, 2002 and 2003,
respectively.
The company intends to reinvest undistributed earnings of certain
foreign subsidiaries; therefore, no U.S. taxes have been provided.
These earnings totaled approximately $789 million at the end of
1998. 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 $40
million.
62
<PAGE>
NOTE 6. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
The company sponsors several qualified and nonqualified pension and
other postretirement benefit plans for its employees. The following
table provides a reconciliation of the changes in the plans' benefit
obligations and fair value of plan assets over the two-year period
ending December 27, 1998:
<TABLE>
<CAPTION>
Other
Postretirement
Pension Benefits
----------------- -----------------
Dollar amounts in millions 1998 1997 1998 1997
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Reconciliation of benefit
obligation:
Benefit obligation at
beginning of year $ 1,736 $ 1,594 $ 213 $ 232
Service cost 54 57 4 5
Interest cost 134 128 19 16
Plan participants'
contributions -- -- 3 2
Actuarial (gain)/loss 97 57 53 (27)
Foreign currency exchange
rate changes (15) (6) (1) (1)
Benefits paid (143) (129) (15) (14)
Plan curtailments,
settlements and special
termination benefits 3 1 -- --
Plan amendments 62 36 (2) --
Business combinations
and divestitures 94 (2) 3 --
-----------------------------------
Benefit obligation at
end of year $ 2,022 $ 1,736 $ 277 $ 213
===================================
Reconciliation of fair value
of plan assets:
Fair value of plan
assets at beginning of
year (actual) $ 2,420 $ 1,959 $ 2 $ 2
Actual return on
plan assets 481 584 -- --
Foreign currency exchange
rate changes (13) (5) -- --
Employer contributions 7 6 -- --
Plan participants'
contributions -- -- -- --
Benefits paid (138) (124) -- --
Plan settlements -- (2) -- --
Business combinations
and divestitures 92 -- -- --
-----------------------------------
Fair value of plan
assets at end of
year (estimated) $ 2,849 $ 2,418 $ 2 $ 2
===================================
</TABLE>
The company funds its qualified pension plans and accrues for
nonqualified pension benefits and health and life postretirement
benefits. The funded status of these plans at December 27, 1998, and
December 28, 1997, is as follows:
<TABLE>
<CAPTION>
Other
Postretirement
Pension Benefits
----------------- ------------------
December December December December
Dollar amounts in millions 27, 1998 28, 1997 27, 1998 28, 1997
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Funded status $ 827 $ 683 $ (260) $ (200)
Unrecognized net
liability/(asset) 1 2 -- --
Unrecognized prior
service cost 142 97 (2) --
Unrecognized net (gain)/loss (991) (867) (2) (55)
Unrecognized net transition
(asset)/obligation (15) (19) -- --
--------------------------------------
Prepaid/(accrued) benefit
cost $ (36) $ (104) $ (264) $ (255)
=======================================
Amounts recognized in
balance sheet consist of:
Prepaid benefit cost $ 21
Accrued benefit liability (75)
Intangible asset 10
Cumulative other
comprehensive expense 8
---------
Net amount recognized $ (36)
=========
</TABLE>
The assets of the U.S. and Canadian pension plans, as of December
27, 1998, and December 28, 1997, consist of a highly diversified mix
of equity, fixed income and real estate securities.
Approximately 1,500 employees are covered by union-administered
multi-employer pension plans to which the company makes negotiated
contributions based generally
63
<PAGE>
on fixed amounts per hour per employee. Contributions to these plans
were $5 million in 1998, $7 million in 1997 and $5 million in 1996.
The company sponsors multiple defined benefit postretirement plans
for its U.S. employees. Medical plans have various levels of
coverage and plan participant contributions. Life insurance plans
are noncontributory. Canadian employees are covered under multiple
defined benefit postretirement plans that provide medical and life
insurance benefits.
Weyerhaeuser sponsors various defined contribution plans for U.S.
salaried and hourly employees. The basis for determining plan
contribution varies by plan. The amounts charged to operations and
contributed to the plans for participating employees were $37
million, $34 million and $32 million in 1998, 1997 and 1996,
respectively.
The assumptions used in the measurement of the company's benefit
obligations are as follows:
<TABLE>
<CAPTION>
Other
Postretirement
Pension Benefits
---------------------- --------------------
1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Discount rate 7.25% 7.75% 7.75% 7.25% 7.75% 7.75%
Expected return on
plan assets 11.50% 11.50% 11.50% 5.75% 5.75% 5.75%
Rate of compensation
increase:
Salaried 4.50% 4.50% 4.50% 4.50% 4.50% 4.50%
Hourly 3.00% 3.00% 3.00% 3.00% 3.00% 3.00%
-------------------------------------------
</TABLE>
For measurement purposes, a 7.5 percent annual rate of increase in
the per capita cost of covered health care benefits was assumed for
1998. Beginning in 1999, the rate is assumed to decrease by 0.5
percent annually to a level of 4.5 percent for the year 2004 and all
years thereafter.
The components of net periodic benefit costs are:
<TABLE>
<CAPTION>
Other
Postretirement
Pension Benefits
Dollar amounts ---------------------- --------------------
in millions 1998 1997 1996 1998 1997 1996
- ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 54 $ 56 $ 51 $ 4 $ 5 $ 5
Interest cost 134 128 115 18 15 16
Expected return on
plan assets (236) (194) (171) -- -- --
Amortization of
(gain)/loss (23) 8 14 (1) (2) (1)
Amortization of
prior service cost 14 10 7 -- -- --
Amortization of
unrecognized
transition
(asset)/obligation (4) (4) (4) -- -- --
(Gain)/loss due to
closure, sale and
other 1 1 2 -- -- --
-------------------------------------------
$ (60) $ 5 $ 14 $ 21 $ 18 $ 20
===========================================
</TABLE>
The accrued (prepaid) pension costs for the projected benefit
obligation, accumulated benefit obligation and fair value of plan
assets for pension plan(s) with accumulated benefit obligations in
excess of plan assets were $178 million, $203 million and $102
million, respectively, as of December 27, 1998, and $54 million, $81
million and $4 million, respectively, as of December 28, 1997.
Assumed health care cost trend rates have a significant effect on
the amounts reported for the health care plans. A one percent change
in assumed health care cost trend rates would have the following
effects:
<TABLE>
<CAPTION>
As of December 27, 1998
Dollar amounts in millions 1% Increase 1% Decrease
- -----------------------------------------------------------------
<S> <C> <C>
Effect on total of service and
interest cost components $ 1 $ (1)
Effect on accumulated
postretirement benefit obligation 12 (11)
------------------------------
</TABLE>
NOTE 7. INVENTORIES
<TABLE>
<CAPTION>
December December
Dollar amounts in millions 27, 1998 28, 1997
- ----------------------------------------------------------------
<S> <C> <C>
Logs and chips $ 108 $ 103
Lumber, plywood and panels 143 154
Pulp, newsprint and paper 190 185
Containerboard, paperboard and packaging 96 107
Other products 150 152
Materials and supplies 275 282
---------------------
$ 962 $ 983
=====================
</TABLE>
64
<PAGE>
NOTE 8. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
December December
Dollar amounts in millions 27, 1998 28, 1997
- ----------------------------------------------------------------
<S> <C> <C>
Property and equipment, at cost:
Land $ 157 $ 158
Buildings and improvements 1,667 1,721
Machinery and equipment 9,732 9,954
Rail and truck roads 555 550
Other 111 97
---------------------
12,222 12,480
Less allowance for depreciation
and amortization 5,530 5,489
---------------------
$ 6,692 $ 6,991
=====================
</TABLE>
NOTE 9. REAL ESTATE IN PROCESS OF DEVELOPMENT AND FOR SALE
Properties held by the company's real estate and related assets
segment include:
<TABLE>
<CAPTION>
December December
Dollar amounts in millions 27, 1998 28, 1997
- ----------------------------------------------------------------
<S> <C> <C>
Dwelling units $ 180 $ 207
Residential lots 237 223
Commercial lots 120 79
Commercial projects 27 56
Acreage 19 27
Other inventories 1 1
---------------------
$ 584 $ 593
=====================
</TABLE>
NOTE 10. ACCRUED LIABILITIES
<TABLE>
<CAPTION>
December December
Dollar amounts in millions 27, 1998 28, 1997
- ----------------------------------------------------------------
<S> <C> <C>
Payroll -- wages and salaries, incentive
awards, retirement and vacation pay $ 305 $ 268
Taxes -- Social Security and real
and personal property 46 53
Interest 87 91
Income taxes 16 42
Other 253 194
---------------------
$ 707 $ 648
=====================
</TABLE>
NOTE 11. SHORT-TERM DEBT
BORROWINGS
Real estate and related assets segment short-term borrowings were
$564 million with a weighted average interest rate of 5.5 percent at
December 27, 1998, and $228 million with a weighted average interest
rate of 5.7 percent at December 28, 1997.
LINES OF CREDIT
The company has short-term bank credit lines that provide for
borrowings of up to the total amount of $650 million and $425
million, all of which could be availed of by the company and
Weyerhaeuser Real Estate Company (WRECO) at December 27, 1998, and
December 28, 1997, respectively. No portions of these lines have
been availed of by the company or WRECO at December 27, 1998, or
December 28, 1997. None of the entities referred to herein is a
guarantor of the borrowings of the others.
65
<PAGE>
NOTE 12. LONG-TERM DEBT
DEBT
Weyerhaeuser long-term debt, including the current portion, is as
follows:
<TABLE>
<CAPTION>
December December
Dollar amounts in millions 27, 1998 28, 1997
- -----------------------------------------------------------------
<S> <C> <C>
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
8 1/2% debentures due 2025 300 300
7.95% debentures due 2025 250 250
6.95% debentures due 2017 300 300
6.95% debentures due 2027 300 300
Industrial revenue bonds, rates from
2.5% (variable) to 9.85% (fixed),
due 1999-2028 779 784
Medium-term notes, rates from 6.43%
to 8.91%, due 1999-2005 246 246
Commercial paper/credit agreements 192 194
Other 18 26
----------------------
$ 3,485 $ 3,500
======================
</TABLE>
<TABLE>
<S> <C> <C>
Portion due within one year $ 88 $ 17
======================
</TABLE>
<TABLE>
Long-term debt maturities are (millions):
<S> <C>
1999 $ 88
2000 100
2001 81
2002 199
2003 210
Thereafter 2,807
</TABLE>
Real estate and related assets segment long-term debt, including the
current portion, is as follows:
<TABLE>
<CAPTION>
December December
Dollar amounts in millions 27, 1998 28, 1997
- -----------------------------------------------------------------
<S> <C> <C>
Notes payable, unsecured; weighted
average interest rates are approximately
6.9% and 7% $ 531 $ 652
Bank and other borrowings, unsecured;
weighted average interest rates
are approximately 5.5% and 5.9% 100 250
Notes payable, secured; weighted average
interest rates are approximately
8.4% and 8.2% 13 30
Collateralized mortgage obligation bonds 57 100
----------------------
$ 701 $ 1,032
======================
</TABLE>
<TABLE>
<S> <C> <C>
Portion due within one year $ 121 $ 350
======================
</TABLE>
<TABLE>
Long-term debt maturities are (millions):
<S> <C>
1999 $ 121
2000 127
2001 262
2002 80
2003 78
Thereafter 33
</TABLE>
LINES OF CREDIT
The company's lines of credit include a five-year revolving credit
facility agreement entered into in 1997 with a group of banks that
provides for borrowings of up to the total amount of $400 million,
all of which is available to the company. Borrowings are at LIBOR
plus a spread or other such interest rates mutually agreed to
between the borrower and lending banks.
Weyerhaeuser Financial Services, Inc. (WFS), a wholly owned
subsidiary, paid down a revolving credit facility agreement
effective June 1998. $75 million was outstanding under this facility
at December 28, 1997. WFS has
66
<PAGE>
negotiated a new set of term credit facility agreements with a group
of banks that provide for borrowings of up to $175 million. At
December 27, 1998, $100 million had been drawn and is outstanding.
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
or WFS at December 27, 1998, or December 28, 1997, except as noted
above.
The company's compensating balance agreements were not significant.
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
December 27, 1998 December 28, 1997
----------------- ------------------
Carrying Fair Carrying Fair
Dollar amounts in millions Value Value Value Value
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Weyerhaeuser:
Financial liabilities:
Long-term debt (including
current maturities) $3,485 $3,820 $3,500 $3,859
------------------------------------
Real estate and related
assets:
Financial assets:
Mortgage loans receivable 53 58 64 74
Mortgage-backed
certificates and other
pledged financial
instruments 66 69 109 117
------------------------------------
Total financial assets 119 127 173 191
------------------------------------
Financial liabilities:
Long-term debt (including
current maturities) 701 718 1,032 1,044
------------------------------------
</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 the real estate and related assets
segment, 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 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 (pledged to secure collateralized mortgage obligations)
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
In June 1998, a lawsuit was filed against the company in Superior
Court, San Francisco County, California, on behalf of a purported
class of individuals and entities that own property in the United
States on which exterior hardboard siding manufactured by the
company has been installed since 1981. The action alleges the
company manufactured and distributed defective hardboard siding,
breached express warranties and consumer protection statutes, and
failed to disclose to consumers the alleged defective nature of its
hardboard siding. The action seeks compensatory and punitive
damages, costs and reasonable attorney fees. In December 1998, the
complaint was amended, narrowing the purported class to individuals
and entities in the state of California. On February 4, 1999, the
court entered an order certifying the class. The company intends to
seek a review of that order. In September 1998, a lawsuit purporting
to be a class action involving hardboard siding was filed against
the company in Superior Court, King County, Washington. The
complaint was amended in January 1999 to allege a class consisting
of individuals and entities that own homes or other structures in
the United States on which exterior hardboard siding manufactured by
the company at its former Klamath Falls, Oregon facility, had been
installed from January 1981. The amended complaint alleges the
company manufactured defective hardboard siding, engaged in unfair
trade practices and failed to disclose to customers the alleged
defective nature of its hardboard siding. The amended complaint
seeks compensatory damages, punitive or treble damages, restitution,
attorney fees, costs of the suit and such other relief as may be
appropriate. The company is a defendant in approximately twenty-four
other hardboard siding cases, one of which purports to be a
statewide class action on behalf of purchasers of single or multi-
family residences in Iowa that contain the company's hardboard
siding.
67
<PAGE>
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 $90 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 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, including those
described in this note, 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 1998 capital expenditures, excluding acquisitions,
were $615 million and are expected to approximate $785 million in
1999; however, the 1999 expenditure level could be increased or
decreased as a consequence of future economic conditions.
During the normal course of business, the company's subsidiaries
included in its real estate and related assets segment have entered
into certain financial commitments comprised primarily of guarantees
made on $40 million of partnership borrowings and limited recourse
obligations associated with $98 million of sold mortgage loans. The
fair value of the recourse on these loans is estimated to be $4
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. CLOSURE, DISPOSITION OR SALE OF FACILITIES
In 1998 and 1997, the company took pretax charges of $71 million and
$89 million, respectively, for the closure or disposition of
facilities. (See "Charge for Closure or Disposition of Facilities"
in the company's Financial Review, page 44.)
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.
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 27, 1998, and
December 28, 1997; and
. 40,000,000 preference shares having a par value of $1.00 per
share, of which none were issued and outstanding at December 27,
1998, and December 28, 1997.
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.
68
<PAGE>
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.
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, "Accounting for Stock-Based
Compensation," net income and earnings per share would have been
reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------
<S> <C> <C> <C>
Net income (in millions):
As reported $ 294 $ 342 $ 463
Pro forma 279 332 454
Basic earnings per common share:
As reported $ 1.48 $ 1.72 $ 2.34
Pro forma 1.40 1.67 2.29
Diluted earnings per common share:
As reported $ 1.47 $ 1.72 $ 2.33
Pro forma 1.40 1.66 2.28
-------------------------
</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>
1998 1997 1996
- ----------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate 5.60% 6.42% 5.81%
Expected life 4.3 years 4.9 years 6.4 years
Expected volatility 27.08% 26.21% 25.61%
Expected dividend yield 3.03% 3.44% 3.48%
-------------------------------
Changes in the number of shares subject to option are summarized as
follows:
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------
<S> <C> <C> <C>
Shares (in thousands):
Outstanding, beginning of year 5,848 6,243 5,972
Granted 1,981 1,563 1,222
Exercised 512 1,864 925
Forfeited 95 91 26
Expired -- 3 --
-----------------------
Outstanding, end of year 7,222 5,848 6,243
-----------------------
Exercisable, end of year 5,304 4,309 5,022
-----------------------
Weighted average exercise price:
Outstanding, beginning of year $43.32 $40.56 $38.17
Granted 52.85 46.54 45.94
Exercised 38.98 36.70 32.11
Forfeited 50.37 44.68 43.46
Expired -- 37.75 --
Outstanding, end of year 46.15 43.32 40.56
Weighted average grant
date fair value of options 12.31 11.26 11.40
-----------------------
</TABLE>
The following table summarizes information about stock options
outstanding at December 27, 1998:
<TABLE>
<CAPTION>
Weighted
Weighted Average
Average Remaining
Price Options Options Exercise Contractual
Range Outstanding Exercisable Price Life
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
$20-$35 228 228 $25.34 1.77 years
$35-$46 4,012 4,012 $43.44 6.55 years
$47-$57 2,982 1,064 $51.38 8.01 years
------------------------
7,222 5,304
========================
</TABLE>
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 business segments are timberlands (including logs,
chips and timber); wood products (including softwood lumber, plywood
and veneer; composite panels; oriented strand board; hardwood
lumber; treated products; doors; raw materials; and building
materials distribution); pulp, paper and packaging (including pulp,
paper, containerboard, packaging, paperboard and recycling); and
real estate and related assets.
The timber-based businesses involve a high degree of integration
among timber operations; building materials conversion facilities;
and pulp, paper, containerboard and paperboard primary manufacturing
and secondary conversion facilities. This integration includes
extensive transfers of raw materials, semi-finished materials and
end products between and among these groups. The company's
accounting policies for segments are the same as those described in
"Note 1. Summary of Significant Accounting Policies." Management
evaluates segment performance based on the contributions to earnings
of the respective segments. Accounting for segment profitability in
integrated manufacturing sites involves allocation of joint
conversion and common facility costs based upon the extent of usage
by the respective product lines at that facility. Transfer of
products between segments is accounted for at current market values.
69
<PAGE>
An analysis and reconciliation of the company's business segment
information to the respective information in the consolidated
financial statements is as follows:
<TABLE>
<CAPTION>
For the three-year period
ended December 27, 1998
Dollar amounts in millions 1998 1997 1996
- ----------------------------------------------------------------
<S> <C> <C> <C>
Sales to and revenues from
unaffiliated customers:
Timberlands $ 636 $ 797 $ 867
Wood products 4,475 4,577 4,373
Pulp, paper and packaging 4,312 4,609 4,648
Real estate and related assets 1,192 1,093 1,009
Corporate and other 151 134 217
--------------------------
$10,766 $11,210 $11,114
==========================
Intersegment sales:
Timberlands $ 488 $ 520 $ 513
Wood products 184 190 246
Pulp, paper and packaging 74 95 88
Corporate and other 13 35 35
--------------------------
759 840 882
--------------------------
Total sales and revenues 11,525 12,050 11,996
Intersegment eliminations (759) (840) (882)
--------------------------
$10,766 $11,210 $11,114
==========================
Approximate contribution (charge)
to earnings:(1)
Timberlands $ 487 $ 535 $ 503
Wood products 183 172 302
Pulp, paper and packaging 150 164 307
Real estate and related assets 124 111 43
Corporate and other (225) (186) (183)
--------------------------
719 796 972
Interest expense(1) (324) (341) (338)
Less capitalized interest 68 84 86
--------------------------
Earnings before income taxes 463 539 720
Income taxes (169) (197) (257)
--------------------------
$ 294 $ 342 $ 463
==========================
Depreciation, amortization and fee
stumpage:
Timberlands $ 55 $ 72 $ 79
Wood products 188 171 148
Pulp, paper and packaging 348 353 355
Real estate and related assets 5 12 16
Corporate and other 20 20 19
--------------------------
$ 616 $ 628 $ 617
==========================
Noncash charges for closure or
disposition of facilities:
Wood products $ 25 $ 40 $ --
Pulp, paper and packaging 42 49 --
Corporate and other 4 -- --
--------------------------
$ 71 $ 89 $ --
==========================
Equity in income/(loss) from equity
affiliates, joint ventures
and limited partnerships:
Timberlands $ 1 $ 3 $ --
Pulp, paper and packaging 27 (10) 5
Real estate and related assets 14 14 5
--------------------------
$ 42 $ 7 $ 10
==========================
Capital expenditures (including
acquisitions):
Timberlands $ 87 $ 75 $ 505
Wood products 212 240 361
Pulp, paper and packaging 776 327 415
Real estate and related assets 2 3 9
Corporate and other 32 24 37
--------------------------
$ 1,109 $ 669 $ 1,327
==========================
Investments in and advances to equity
affiliates, joint ventures and
limited partnerships:
Timberlands $ 218 $ 216 $ --
Pulp, paper and packaging 264 33 35
Real estate and related assets
(less reserves) 120 116 115
--------------------------
$ 602 $ 365 $ 150
==========================
Assets:
Timberlands $ 1,675 $ 1,676 $ 1,578
Wood products 2,129 2,128 2,080
Pulp, paper and packaging 6,346 6,589 6,721
Real estate and related assets 1,900 2,004 2,628
Corporate and other 1,164 1,160 1,184
--------------------------
13,214 13,557 14,191
Less: Intersegment eliminations (380) (482) (595)
--------------------------
$12,834 $13,075 $13,596
==========================
</TABLE>
Certain reclassifications have been made to conform prior years'
data to the current format.
(1) Interest expense of $17 million, $40 million and $67 million in
1998, 1997 and 1996, respectively, is included in the determination
of "approximate contribution to earnings" and excluded from
"interest expense" for financial services businesses.
70
<PAGE>
NOTE 19. GEOGRAPHICAL AREAS
The company attributes sales to and revenues from unaffiliated
customers in different geographical areas on the basis of the
location of the customer.
Export sales from the United States consist principally of pulp,
paperboard, logs, lumber and wood chips to Japan; containerboard,
pulp, lumber and recycling material to other Pacific Rim countries;
and pulp and hardwood lumber to Europe.
Long-lived assets consist of timber and timberlands and property
and equipment used in the generation of revenues in the different
geographical areas.
Selected information related to the company's operations by
geographical area is as follows:
<TABLE>
<CAPTION>
For the three-year period
ended December 27, 1998
Dollar amounts in millions 1998 1997 1996
- ----------------------------------------------------------------
<S> <C> <C> <C>
Sales to and revenues from
unaffiliated customers:
United States $ 8,999 $ 8,985 $ 8,676
Japan(1) 604 1,032 1,320
Canada 514 510 473
Europe 338 354 323
Other foreign countries 311 329 322
--------------------------
$10,766 $11,210 $11,114
==========================
Export sales from the United States:
Japan(1) $ 501 $ 893 $ 1,185
Other 588 634 573
--------------------------
$ 1,089 $ 1,527 $ 1,758
==========================
Earnings before income taxes:
United States $ 413 $ 432 $ 614
Foreign entities 50 107 106
--------------------------
$ 463 $ 539 $ 720
==========================
Long-lived assets:
United States $ 6,649 $ 7,426 $ 7,562
Canada 1,345 903 930
Other foreign countries 26 12 5
--------------------------
$ 8,020 $ 8,341 $ 8,497
==========================
</TABLE>
(1) 1998 export sales to Japan include only one month's sales of
newsprint due to the company's change in ownership of its newsprint
subsidiary from 80 percent to 50 percent in February.
NOTE 20. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
Dollar amounts
in millions
except per-share First Second Third Fourth
figures Quarter Quarter Quarter Quarter Year
- ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales:
1998 $ 2,603 $ 2,676 $ 2,736 $ 2,751 $10,766
1997 2,608 2,909 2,823 2,870 11,210
Operating income:
1998 188 161 225 82 656
1997 104 212 233 220 769
Earnings before
income taxes:
1998 135 109 175 44 463
1997 33 172 180 154 539
Net earnings:
1998 85 69 110 30 294
1997 21 109 114 98 342
Net earnings per
common share:
Basic
1998 .43 .34 .56 .15 1.48
1997 .10 .56 .57 .49 1.72
Diluted
1998 .43 .34 .55 .15 1.47
1997 .10 .55 .57 .49 1.72
Dividends per
common share:
1998 .40 .40 .40 .40 1.60
1997 .40 .40 .40 .40 1.60
Market prices --
high/low:
1998 57 15/16-44 15/16
61 7/16-44 9/16
47 7/16-36 3/4
51 9/16-41 3/4
61 7/16-36 3/4
1997 50 5/8-44 1/2
55 1/4 -42 5/8
63 15/16-51 5/8
60 3/4-46 1/16
63 15/16-42 5/8
--------------------------------------------
</TABLE>
71
<PAGE>
NOTE 21. HISTORICAL SUMMARY
<TABLE>
<CAPTION>
Dollar amounts
in millions except
per-share figures 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER COMMON SHARE:
Basic net earnings
(loss) from
continuing
operations, before
extraordinary item
and effect of
accounting
changes $ 1.48 1.72 2.34 3.93 2.86
Extraordinary
item(4) $ -- -- -- -- --
Effect of
accounting
changes $ -- -- -- -- --
------------------------------------------------
Basic net earnings
(loss) $ 1.48 1.72 2.34 3.93 2.86
================================================
Diluted net
earnings (loss)
from continuing
operations, before
extraordinary
item and effect of
accounting
changes $ 1.47 1.72 2.33 3.92 2.86
Extraordinary
item(4) $ -- -- -- -- --
Effect of
accounting
changes $ -- -- -- -- --
------------------------------------------------
Diluted net
earnings (loss) $ 1.47 1.72 2.33 3.92 2.86
================================================
Dividends paid $ 1.60 1.60 1.60 1.50 1.20
Shareholders'
interest (end of
year) $ 22.74 23.30 23.21 22.57 20.86
FINANCIAL POSITION:
Total assets:
Weyerhaeuser $ 10,934 11,071 10,968 10,359 9,750
Real estate and
related assets $ 1,900 2,004 2,628 2,894 3,408
------------------------------------------------
$ 12,834 13,075 13,596 13,253 13,158
================================================
Long-term debt (net
of current
portion):
Weyerhaeuser:
Long-term debt $ 3,397 3,483 3,546 2,983 2,713
Capital lease
obligations $ 2 2 2 2 --
Convertible
subordinated
debentures $ -- -- -- -- --
Limited recourse
income
debenture $ -- -- -- -- --
------------------------------------------------
$ 3,399 3,485 3,548 2,985 2,713
================================================
Real estate and
related assets:
Long-term debt $ 580 682 814 1,608 1,873
================================================
Shareholders'
interest $ 4,526 4,649 4,604 4,486 4,290
Percent earned on
shareholders'
interest 6.4% 7.4% 10.2% 18.2% 14.3%
OPERATING RESULTS:
Net sales and
revenues:
Weyerhaeuser $ 9,574 10,117 10,105 10,869 9,281
Real estate and
related assets $ 1,192 1,093 1,009 919 1,117
------------------------------------------------
$ 10,766 11,210 11,114 11,788 10,398
================================================
Net earnings (loss)
from continuing
operations before
extraordinary item
and effect of
accounting
changes:
Weyerhaeuser $ 214 271 434 981 576
Real estate and
related assets $ 80 71 29 (182)(3) 13
------------------------------------------------
$ 294(1) 342(2) 463 799 589
Extraordinary
item (4) $ -- -- -- -- --
Effect of
accounting
changes $ -- -- -- -- --
------------------------------------------------
Net earnings
(loss) $ 294 342 463 799 589
================================================
STATISTICS
(UNAUDITED):
Number of employees 35,032 35,778 39,020 39,558 36,665
Salaries and wages $ 1,645 1,706 1,781 1,779 1,610
Employee benefits $ 347 355 370 408 357
Total taxes $ 437 478 557 736 618
Timberlands
(thousands
of acres):
U.S. fee ownership 5,099 5,171 5,326 5,302 5,587
Long-term license
arrangements 27,002 23,715 22,863 22,866 17,849
Number of
shareholder
accounts at
year-end:
Common 19,559 20,981 22,528 23,446 24,131
Preferred -- -- -- -- --
Preference -- -- -- -- --
Average common
and common
equivalent shares
outstanding
(thousands) 198,914 198,967 198,318 203,525 205,543
------------------------------------------------
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989 1988
- ------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
2.58 1.83 (.50) 1.87 1.56 2.68
.25 -- -- -- -- --
-- -- (.30) -- -- --
- ------------------------------------------------------------------
2.83 1.83 (.80) 1.87 1.56 2.68
==================================================================
2.56 1.82 (.50) 1.87 1.56 2.68
.25 -- -- -- -- --
-- -- (.30) -- -- --
- ------------------------------------------------------------------
2.81 1.82 (.80) 1.87 1.56 2.68
==================================================================
1.20 1.20 1.20 1.20 1.20 1.15
19.34 17.85 17.25 19.21 18.55 18.14
9,087 8,566 7,551 7,556 7,371 6,983
3,670 9,720 9,435 8,800 8,605 8,401
- ------------------------------------------------------------------
12,757 18,286 16,986 16,356 15,976 15,384
==================================================================
2,998 2,659 2,195 2,168 1,502 1,644
-- -- -- 7 23 37
-- 193 193 193 -- --
-- 188 204 204 204 198
- ------------------------------------------------------------------
2,998 3,040 2,592 2,572 1,729 1,879
==================================================================
2,086 2,411 2,421 2,637 2,006 2,318
==================================================================
3,966 3,646 3,489 3,864 4,148 4,044
15.2% 10.4% (4.4)% 9.8% 8.3% 14.6%
8,315 7,744 7,167 7,447 8,355 7,861
1,230 1,522 1,606 1,619 1,826 1,467
- ------------------------------------------------------------------
9,545 9,266 8,773 9,066 10,181 9,328
==================================================================
459 332 (25) 340 377 516
68 40 (76) 54 (36) 50
- ------------------------------------------------------------------
527 372 (101)(5) 394 341(6) 566
52 -- -- -- -- --
-- -- (61) -- -- --
- ------------------------------------------------------------------
579 372 (162) 394 341 566
==================================================================
36,748 39,022 38,669 40,621 45,214 46,976
1,585 1,580 1,476 1,531 1,563 1,423
347 323 321 318 325 292
577 443 173 446 403 511
5,512 5,592 5,488 5,592 5,664 5,775
17,845 18,828 13,491 13,491 13,324 13,324
25,282 26,334 26,937 28,187 29,847 30,379
-- -- -- -- 12 25
-- -- -- -- 443 351
204,866 203,373 201,578 203,673 204,331 207,785
- ------------------------------------------------------------------
</TABLE>
(1) 1998 results reflect nonrecurring charges of $71 million less
related tax effect of $26 million, or $45 million.
(2) 1997 results reflect net nonrecurring charges of $13 million
less related tax effect of $4 million, or $9 million.
(3) 1995 results reflect a charge for disposal of certain real
estate assets of $290 million less related tax effect of $106
million, or $184 million.
(4) 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.
(5) 1991 results reflect restructuring and other charges of $445
million less related tax effect of $162 million, or $283 million.
(6) 1989 results reflect net nonrecurring items of $401 million less
related tax effect of $141 million, or $260 million.
73
<PAGE>
BYLAWS
OF
WEYERHAEUSER COMPANY
(as amended through February 11, 1999)
ARTICLE I
PRINCIPAL OFFICE
----------------
The principal office of this corporation, and its registered office in
the State of Washington, is the Weyerhaeuser Headquarters Building, 33663
Weyerhaeuser Way South, Federal Way, Washington.
The registered agent of the corporation is the Secretary of the
corporation.
ARTICLE II
SHAREHOLDERS' MEETINGS
----------------------
1. (a) The annual meeting of shareholders at which the Directors
are elected shall be held at 9:00 a.m. on the third Tuesday in April at the
registered office of the corporation, or at such other time or place within
or without the State of Washington as may be designated by the Board of
Directors, for the purpose of electing directors, and for the transaction
only of such other business as is properly brought before the meeting, in
accordance with these bylaws."
(b) To be properly brought before the meeting, business must be
of a nature that is appropriate for consideration at an annual meeting and
must be (i) specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the Board of Directors, (ii) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors, or (iii) otherwise properly brought before the meeting by a
shareholder. In addition to any other applicable requirements, for
business to be properly brought before the annual meeting by a shareholder,
the shareholder must have given timely notice thereof in writing to the
Secretary of the corporation. To be timely, each such notice must be
given, either by personal delivery or by United States mail, postage
prepaid, to the Secretary of the corporation, not less than 90 days nor
more than 120 days prior to the meeting; provided, however, that in the
event that less than 100 days' notice or prior public disclosure of the date
of the meeting is given or made to shareholders, notice by the shareholder
to be timely must be so received not later than the close of business on
the 10th day following the day on which such notice of the date of the
annual meeting was mailed or such public disclosure was made, whichever
first occurs. Each such notice to the Secretary shall set forth as to each
matter the shareholder proposes to bring before the annual meeting (w) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting,
(x) the name and address of record of the
1
<PAGE>
shareholder proposing such business, (y) the class or series and number of
shares of the corporation which are owned by the shareholder, and (z) any
material interest of the shareholder in such business.
(c) Notwithstanding anything in these bylaws to the contrary, no
business shall be transacted at the annual meeting except in accordance
with the procedures set forth in this Section; provided, however, that
nothing in this Section shall be deemed to preclude discussion by any
shareholder of any business properly brought before the annual meeting, in
accordance with these bylaws.
2. Special meetings of shareholders shall be held at such time and
place as shall be stated in the notice of special meeting solely for such
purpose or purposes as may be stated in the notice of said meeting. Except
as otherwise specifically required by law and subject to the rights of the
holders of any class or series of stock having a preference over the common
shares as to dividends or upon liquidation, special meetings of
shareholders may be called only by the Board of Directors pursuant to a
resolution adopted by the affirmative vote of a majority of the entire
Board of Directors (as defined in Section 1 of Article III).
3. The record date for the determination of shareholders entitled to
notice of and to vote at each annual or special meeting of shareholders
shall be the close of business on the eighth Friday preceding each such
meeting, provided, however, that the Board of Directors may by resolution
fix a different record date for any particular meeting of shareholders.
4. Every shareholder shall furnish in writing to the principal
transfer agent, his post office address at which notice of shareholders'
meetings and any other notices or communications pertaining to the
corporation's affairs or business may be served upon or mailed to him; and
every shareholder shall forthwith advise the principal transfer agent in
writing of any change of address.
ARTICLE III
DIRECTORS
---------
1. The business and affairs of this corporation shall be managed
under the direction of a Board of Directors consisting of not fewer than
nine (9) nor more than thirteen (13) directors, the exact number to be
determined from time to time by resolution adopted by the affirmative vote
of a majority of the entire Board of Directors, each director to hold
office until his successor shall have been elected and qualified. Whenever
used in these bylaws, the phrase "entire Board of Directors" shall mean
that number of directors fixed by the most recent resolution adopted
pursuant to the preceding sentence prior to the date as of which a
determination of the number of directors then constituting the entire Board
of Directors shall be relevant for any purpose under these bylaws. Subject
to the rights of holders of any class or series of stock having a
preference over the common shares as to dividends or upon liquidation,
nominations for the election of directors may be made by the Board of
Directors or a committee appointed by the Board of Directors or by any
shareholder entitled to vote generally in the election of directors.
However, any shareholder entitled to vote generally in the election of
directors may nominate one or more persons for election as directors at a
meeting only if written notice of such shareholder's intent to make such
nomination or nominations has been given, either by personal delivery or by
United
2
<PAGE>
States mail, postage prepaid, to the Secretary of the corporation not less
than 90 days nor more than 120 days prior to the meeting; provided, however,
that in the event that less than 100 days' notice or prior public disclosure
of the date of the meeting is given or made to shareholders, notice by the
shareholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date
of meeting was mailed or such public disclosure was made, whichever first
occurs. Each such notice to the Secretary shall set forth: (i) the name
and address of record of the shareholder who intends to make the
nomination; (ii) a representation that the shareholder is a holder of
record of shares of the corporation entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice; (iii) the name, age, business
and residence addresses, and principal occupation or employment of each
nominee; (iv) a description of all arrangements or understandings between
the shareholder and each nominee and any other person or persons (naming
such person or persons) pursuant to which the nomination or nominations are
to be made by the shareholder; (v) such other information regarding each
nominee proposed by such shareholder as would be required to be included in
a proxy statement filed pursuant to the proxy rules of the Securities and
Exchange Commission; and (vi) the consent of each nominee to serve as a
director of the corporation if so elected. The corporation may require any
proposed nominee to furnish such other information as may reasonably be
required by the corporation to determine the eligibility of such proposed
nominee to serve as a director of the corporation. The presiding officer
of the meeting may, if the facts warrant, determine that a nomination was
not made in accordance with the foregoing procedure, and if he should so
determine, he shall so declare to the meeting and the defective nomination
shall be disregarded.
2. Meetings of the Board of Directors, regular or special, may be
held at any place within or without the State of Washington. The times and
places for holding meetings of the Board of Directors may be fixed from
time to time by resolution of the Board of Directors or (unless contrary to
a resolution of the Board of Directors) in the notice of the meeting.
3. The annual meeting of the Board of Directors may be held
immediately following the adjournment of the annual meeting of shareholders
at the place at which the annual meeting of shareholders is held or at such
other time or place fixed by resolution of the Board of Directors.
4. Special meetings of the Board of Directors shall be held whenever
called by the Chairman of the Board, the President or the Secretary or by
any two or more directors. Notice of each special meeting of the Board
shall, if mailed, be addressed to each director at the address designated
by him for that purpose or, if none is designated, at his last known
address and be mailed on or before the third day before the date on which
the meeting is to be held; or such notice shall be sent to each director at
such address by telegraph, cable, wireless, telex or other electronic means
of transmission, or be delivered to him personally, not later than the day
before the date on which such meeting is to be held. Every such notice
shall state the time and place of the meeting but need not state the
purposes of the meeting, except to the extent required by law. If mailed,
each notice shall be deemed given when deposited, with postage thereon
prepaid, in a post office or official depository under the exclusive care
and custody of the United States Postal Service. Such mailing shall be by
first class mail.
3
<PAGE>
ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
------------------------------
1. (a) The Board of Directors may, by resolution passed by a
majority of the whole Board, designate three or more of their number to
constitute an Executive Committee, and shall include therein the Chairman
of the Board. The Executive Committee, except to the extent limited in the
aforesaid resolution or by law, shall have and exercise, in the interval
between meetings of the Board of Directors, the authority and powers of the
Board of Directors in the management of the business of the corporation.
(b) Meetings of the Executive Committee may be held at any time
and at any place upon call of the Chairman of the Board or the Secretary or
any two members of the Committee. Notice, which need not state the purpose
of the meeting, shall be given orally, in writing or by telegraph not less
than twenty-four hours prior to the time of the holding of said meeting,
except that if a meeting is held at a time and place fixed in a resolution
of the Executive Committee or the Board of Directors, no notice shall be
required.
(c) Three of the members of the Executive Committee shall
constitute a quorum for the transaction of business and the act of three of
the members of the Executive Committee present at a meeting shall be the
act of the Executive Committee. All action taken by the Executive
Committee shall be reported to the next meeting of the Board of Directors,
unless before such meeting a copy of said minutes shall have been given to
each Director.
2. (a) The Board of Directors may, by resolution passed by a
majority of the whole Board, define the powers, authority, and functions
of, designate the number of members and name the Chairmen and other members
of such other committees of the Board of Directors as the Board shall from
time to time determine.
(b) Meetings of such a committee may be had at any time and at
any place upon call of the Chairman of the committee, the Chairman of the
Board or any other two members of the committee. Notice, which need not
state the purpose of the meeting, shall be given orally, in writing or by
telegraph not less than twenty-four hours prior to the time of the holding
of said meeting, except that if a meeting is held at a time and place fixed
in a resolution of the Committee, or the Board of Directors, no notice
shall be required.
(c) Two of the members of such a committee shall constitute a
quorum of the committee for the transaction of its business and the act of
two of the members of the committee present at a meeting shall be the act
of the committee. All action taken by such a committee shall be reported
to the next meeting of the Board of Directors, unless before such meeting a
copy of the minutes of the committee meeting shall have been given to each
Director.
4
<PAGE>
ARTICLE V
OFFICERS
--------
1. The officers of this corporation shall include those elected by
the Board of Directors and those appointed by the chief executive officer.
The officers of this corporation to be elected by the Board of Directors
shall be: a Chairman of the Board of Directors; a President; one or more
Executive Vice Presidents; one or more Senior Vice Presidents; a Secretary;
a Treasurer; a General Counsel; a Controller; and a Director of Taxes. The
officers of this corporation which may from time to time be appointed by
the chief executive officer shall be the Vice Presidents and such
additional officers and assistant officers of this corporation as he may
determine.
2. At its annual meeting the Board of Directors shall elect such of
the officers of this corporation as are to be elected by it and each such
officer shall hold office until the next such annual meeting or until a
successor shall have been duly elected and qualified or until his death,
resignation, retirement or removal by the Board of Directors. A vacancy in
any such office may be filled for the unexpired portion of the term at any
meeting of the Board of Directors. Such of the officers of this
corporation as are appointed by the chief executive officer shall serve for
such periods of time as he may determine or until a successor shall have
been appointed or until his death, resignation, retirement or removal from
office.
3. Any Director or officer may resign his office at any time. Such
resignation shall be made in writing and delivered to and filed with the
Secretary, except that a resignation of the Secretary shall be delivered to
and filed with the chief executive officer. A resignation so made shall be
effective upon its delivery unless some other time be fixed in the
resignation, and then from the date so fixed.
4. The Board of Directors may appoint and remove at will such agents
and committees as the business of the corporation shall require, each of
whom shall exercise such powers and perform such duties as may from time to
time be prescribed or assigned by the chief executive officer, the Board of
Directors or by other provisions of these bylaws.
ARTICLE VI
POWERS AND DUTIES OF OFFICERS
-----------------------------
1. The Chairman of the Board of Directors shall, when present,
preside at all meetings of the Board of Directors, the Executive Committee,
and the shareholders. The Chairman shall advise with and assist the
President in any possible way, and shall perform such duties as may be
assigned to him by the Board or the President.
2. The President shall be the chief executive officer of the
corporation and shall be vested with general authority and control of its
affairs, and over the officers, agents and employees of the corporation,
subject to the Board of Directors. He shall, in the absence of the
Chairman of the Board, preside at all meetings of the Board of Directors,
the Executive Committee and the shareholders, and shall perform all the
duties devolving upon him by law as
5
<PAGE>
the chief executive officer of the corporation. He shall from time to time
report to the Board of Directors any information and recommendations
concerning the business or affairs of the corporation which may be proper
or needed, and shall see that all orders and resolutions of the Board of
Directors are carried into effect, and shall perform such other duties and
services, not inconsistent with law or these bylaws, as pertain to his
office, or as are required by the Board of Directors.
3. (a) The Executive Vice Presidents, the Senior Vice Presidents
and the Vice Presidents shall have and exercise such powers and discharge
such duties as may from time to time be conferred upon and delegated to
them respectively, by the chief executive officer, or by these bylaws, or
by the Board of Directors.
(b) In the absence of the chief executive officer or in the case
of his inability to act, the President, or in the absence of the President
or in the case of his inability to act, the most senior Executive Vice
President present, or in the absence or inability to act of any Executive
Vice President, the most senior Senior Vice President present, shall be
vested with all the powers and shall perform all the duties of said chief
executive officer during his absence or inability to act, or until his
successor shall have been elected.
4. (a) The Treasurer shall attend to the collection, receipt and
disbursement of all moneys belonging to the corporation. He shall have
authority to endorse, on behalf of the corporation, all checks, notes,
drafts, warrants and orders, and he shall have custody over all securities
of the corporation. He shall have such additional powers and such other
duties as he may from time to time be assigned or directed to perform by
these bylaws or by the Board of Directors or by the chief executive
officer.
(b) The Assistant Treasurers, in the order of their seniority,
shall have all of the powers and shall perform the duties of the Treasurer
in case of the absence of the Treasurer or his inability to act, and shall
have such other powers and duties as they may from time to time be assigned
or directed to perform.
5. (a) The Secretary shall have the care and custody of the
corporate and stock books and the corporate seal of the corporation. He
shall attend all meetings of the shareholders, and, when possible, all
meetings of the Board of Directors and of the Executive Committee, and
shall record all votes and the minutes of all proceedings in books kept for
that purpose. He shall sign such instruments in behalf of the corporation
as he may be authorized by the Board of Directors or by law to do, and
shall countersign, attest and affix the corporate seal to all certificates
and instruments where such countersigning or such sealing and attestation
are necessary to the true and proper execution thereof. He shall see that
proper notice is given of all meetings of the shareholders of which notice
is required to be given, and shall have such powers and duties as he may
from time to time be assigned or directed to perform by these bylaws, by
the Board of Directors or the chief executive officer.
(b) The Assistant Secretaries, in the order of their seniority,
shall have all of the powers and shall perform the duties of the Secretary
in case of the absence of the Secretary or his inability to act, and shall
have such other powers and duties as they may from time to time be assigned
or directed to perform.
6
<PAGE>
6. The General Counsel shall attend all meetings of the shareholders
and, upon request, meetings of the Board of Directors and the Executive
Committee of the corporation, and act as advisor thereof, and shall have
general supervision of all legal matters of the corporation, and at all
times be subject to the direction of the chief executive officer and the
Board of Directors of the corporation.
7. (a) The Controller shall be the chief accounting officer of the
corporation with authority over and custody of the financial and property
books and records of the corporation. He shall maintain adequate records
of all assets, liabilities and transactions of the corporation; and shall
have such additional powers and duties as he may from time to time be
assigned or directed to perform by these bylaws or by the Board of
Directors or by the chief executive officer.
(b) The Assistant Controllers, in the order of their seniority,
shall have all of the powers and shall perform the duties of the Controller
in case of the absence of the Controller or his inability to act, and shall
have such other powers and duties as they may from time to time be assigned
or directed to perform.
ARTICLE VII
CERTIFICATES OF STOCK
1. All certificates of stock shall be in such form as shall be
approved by the Board of Directors, shall be numbered in the order of their
issue, shall be dated, shall be signed by the Chairman of the Board, the
President, an Executive Vice President, a Senior Vice President, or a Vice
President, and by the Secretary or an Assistant Secretary, provided, that
where any such certificate is manually countersigned by a Registrar, other
than the corporation or its employee, the signatures of the Chairman of the
Board, President, Executive Vice President, Senior Vice President, Vice
President, Secretary, or Assistant Secretary, and the Transfer Agent upon
such certificates may be facsimiles. In case any officer or officers who
shall have signed or whose facsimile signature or signatures shall have
been used on any such certificate or certificates shall cease to be such
officer or officers of the corporation, whether because of death,
resignation, or otherwise, before such certificate or certificates shall
have been delivered by the corporation, such certificate or certificates
may nevertheless be issued and delivered by the corporation as though the
person or persons who signed such certificate or certificates or whose
facsimile signature or signatures were used thereon had not ceased to be
such officer or officers of the corporation.
2. The corporation shall, if and whenever the Board of Directors so
determines, maintain one or more transfer offices each in charge of a
Transfer Agent designated by the Board of Directors where the shares of the
corporation shall be directly transferable; and likewise, one or more
registration offices each in charge of a Registrar designated by the Board
of Directors where such certificates shall be registered. One person or
corporation may be designated as both Transfer Agent and Registrar. When
any such transfer and registration office or offices are maintained and the
Transfer Agent or Agents and Registrar or Registrars shall have been
designated for such office or offices, no certificate for shares of the
corporation shall be valid unless countersigned by a Transfer Agent so
designated and by a Registrar so designated.
7
<PAGE>
3. Except as otherwise provided in the articles of incorporation or
a resolution of the Board of Directors of this corporation, transfer of
fractional shares shall not be made upon the records or books of the
corporation, nor shall certificates for fractional shares be issued by the
corporation.
4. The corporation may issue a new certificate in place of any
certificate theretofore issued by it alleged to have been lost or
destroyed. The Board of Directors shall require the owner of the lost,
destroyed or mutilated certificate, or his legal representative, to give
the corporation a bond in such sum and with such surety or sureties as it
may direct, to indemnify the corporation against any claim that shall be
made against it on account of the alleged loss or destruction of such
certificate.
5. The Board of Directors may make such additional rules and
regulations, not contrary to law or these bylaws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares
of the corporation.
ARTICLE VIII
CONTRACTS
---------
The Board of Directors may authorize any officer or officers, agent or
agents, to enter into any contract or to execute and deliver any instrument
in the name and on behalf of the corporation, and such authority may be
general or confined to specific instances; and unless so authorized by the
Board of Directors or by these bylaws, no officer, agent or employee shall
have any power or authority to bind the corporation by any contract or
undertaking, or to pledge its credit or to render it liable for any purpose
or on any account.
ARTICLE IX
FISCAL YEAR
-----------
The fiscal year of this corporation shall be the period beginning with
the opening of business on the first Monday following the last Sunday of
the preceding fiscal year, and ending with the close of business for the
last Sunday of the following December.
8
<PAGE>
ARTICLE X
CORPORATE SEAL
--------------
The corporate seal shall be the one of which an impression is affixed
in the left hand margin hereof, bearing the words:
"WEYERHAEUSER COMPANY
CORPORATE SEAL
STATE OF WASHINGTON"
ARTICLE XI
NOTICES AND WAIVERS
-------------------
1. Whenever notice is required under these bylaws or by statute, and
such notice is given by mail, the time of giving such notice shall be
deemed to be the time when the same is placed in the United States mail,
postage prepaid, and addressed to the party to be notified, at his last
known address.
2. Any shareholder, officer, director or member of the Executive
Committee may waive at any time any notice required to be given under these
bylaws, either by separate writing or directly upon the face of the
records.
ARTICLE XII
INDEMNIFICATION
---------------
1. This corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that the person is or was a director,
officer or employee, or who is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee or agent of
another foreign or domestic corporation, partnership, joint venture, trust,
other enterprise, or employee benefit plan against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by the person
in connection with such action, suit or proceeding to the fullest extent
and in the manner set forth in and permitted by the Business Corporation
Act of the State of Washington, and any other applicable law, as from time
to time in effect. Such right of indemnification shall not be deemed
exclusive of any other rights to which the person may be entitled apart
from the foregoing provisions. For purposes of this Article "director,
officer or employee" shall include persons who hold such positions in this
corporation or in a wholly owned subsidiary, or hold, at the written
request of an officer of this corporation, an equivalent position in
another enterprise. The rights granted by this Article shall apply whether
or not the person continues to be a director, officer or employee at the
time liability or expense is incurred.
9
<PAGE>
2. This corporation shall have power to the fullest extent permitted
by the Business Corporation Act of the State of Washington to purchase and
maintain insurance on behalf of any person who is, or was, a director,
officer, employee or agent of this corporation or is or was serving at the
request of this corporation as on officer, director, employee or agent of
another corporation, partnership, joint venture, trust, other enterprise,
or employee benefit plan against any liability asserted against him or
incurred by him in any such capacity or arising out of his status as such,
whether or not this corporation would have the power to indemnify the
person against such liability under the provisions of Section 1 of this
Article XII or under the Business Corporation Act of the State of
Washington or any other provision of law.
ARTICLE XIII
1. These bylaws may be altered, amended or repealed or new bylaws
enacted by the affirmative vote of a majority of the entire Board of
Directors (if notice of the proposed alteration or amendment is contained
in the notice of the meeting at which such vote is taken or if all
directors are present) or at any regular meeting of the shareholders (or at
any special meeting thereof duly called for that purpose) by the
affirmative vote of a majority of the shares represented and entitled to
vote at such meeting (if notice of the proposed alteration or amendment is
contained in the notice of such meeting).
2. Notwithstanding anything contained in Section 1 of this Article
XIII to the contrary, either (i) the affirmative vote of the holders of at
least 80% of the votes entitled to be cast by the holders of all shares of
the corporation entitled to vote generally in the election of directors,
voting together as a single class, or (ii) the affirmative vote of a
majority of the entire Board of Directors with the concurring vote of a
majority of the Continuing Directors, voting separately and as a subclass
of directors, shall be required to alter, amend or repeal, or adopt any
provision inconsistent with, Sections 1 and 2 of Article II, Section 1 of
Article III, Article XII and this Section 2 of this Article XIII. For
purposes of this Article XIII, the term "Continuing Director" shall mean
any member of the Board of Directors who was a member of the Board of
Directors on August 13, 1985 or who is elected to the Board of Directors
after August 13, 1985 upon the recommendation of a majority of the
Continuing Directors, voting separately and as a subclass of directors on
such recommendation.
Supplemental Retirement Agreement
for William R. Corbin
July 20, 1992
In consideration of your employment with Weyerhaeuser Company
(the Company), the Company will provide you with the Supplemental
Retirement Benefit (SRB) described below.
The SRB will be a non-qualified supplemental retirement benefit
paid by the Company calculated under the terms of the
Weyerhaeuser Company Retirement Plan for Salaried Employees and
the Weyerhaeuser Company Supplemental Retirement Plan (the
"Weyerhaeuser Plans").
Your SRB will be equal to your:
Weyerhaeuser Target Benefit less your
----
Weyerhaeuser Salaried Retirement Benefit.
For purposes of this agreement, the above benefits are defined as
follows:
Weyerhaeuser Target Benefit: The single-annuity retirement
benefit you would be eligible for under the Weyerhaeuser Plans
if, during your first five years of service with the Company, you
received two years of service credit for vesting and benefit
calculation purposes for every year of service with the Company.
Your Weyerhaeuser Target Benefit will, accordingly, vest when you
have 2.5 years of service with the Company and you will receive
10 years of service credit if you have five years or more of
service with the Company. The terms of the Weyerhaeuser Plans in
effect at the time of your termination from the Company will
apply in the calculation of this target benefit.
Weyerhaeuser Salaried Retirement Benefit: Your vested single-
annuity retirement benefit from the Weyerhaeuser Plans (if any)
earned to your date of termination from the Company assuming the
benefit would begin on the same date you elect your Weyerhaeuser
Target Benefit to begin.
If your Weyerhaeuser Target Benefit begins prior to the date your
Weyerhaeuser Salaried Retirement Benefit could begin, the benefit
under the Weyerhaeuser Plans will be assumed to begin on the
earliest date allowable under the Weyerhaeuser Plans. The offset
to the Weyerhaeuser Target Benefit will also begin on the
earliest date your benefit under the Weyerhaeuser Plans could
begin.
<PAGE>
The Company currently provides access to health coverage for
retirees and shares in the cost of this coverage based on years
of service. The Company's contribution to your coverage and your
eligibility for retiree health care will include any additional
years of service used to calculate your Weyerhaeuser Target
Benefit.
If you are involuntarily terminated by the Company (other than
termination for gross negligence in job performance or willful
violation of Company rules) prior to July 27, 1997, your
Weyerhaeuser Target Benefit will include additional service
credit for benefit calculation purposes for each month of
severance paid to you under your agreement with the Company dated
July 20, 1992 and you will be eligible to commence your SRB and
commence retiree health care benefits at age 55. In no event,
however, will your Weyerhaeuser Target Benefit include more than
ten years of service credit.
Your SRB is a non-qualified retirement benefit which will be paid
from the general assets of the Company. This agreement does not
in any way guarantee that you will qualify for a benefit under
the Weyerhaeuser Plans. You must independently meet the benefit
eligibility requirements outlined in the Weyerhaeuser Plans on
the date you actually terminate from the Company.
The above agreed to this 20th day of July, 1992.
/s/ John W. Creighton, Jr.
- ------------------------------------
John W. Creighton, Jr.
President
Weyerhaeuser Company
/s/ W. R. Corbin
- ------------------------------------
William R. Corbin
April 24, 1998
Thomas M. Luthy
8 Enatai Drive
Bellevue, WA 98004
Dear Tom:
I am pleased you are willing to extend your retirement date
and continue as Senior Vice President - Wood Products. We
agreed that you would continue to lead the wood products
organization through this year, participate in year-end
performance and bonus management activity and then retire on
March 31, 1999.
In consideration of your decision to extend your retirement
date, we agreed to adjust your salary, effective March 2,
1998, to $337,000. Further, the company will pay a
retention incentive bonus amount of $325,000 in the manner
noted below on the condition that you continue to provide
active services in the above capacity through March 31,
1999.
You have agreed to defer this $325,000 bonus into "Stock
Equivalents" under the same terms as the Company's
Comprehensive Incentive Compensation Plan (the "Plan"),
except as described below. The bonus will be converted to
Weyerhaeuser Share Equivalents based on the average of the
high and the low price on April 27, 1998.
As you know, the Plan provides for a mandatory deferral
period of five years. For purposes of your retention
incentive bonus, the mandatory deferral period will be four
years, beginning April 27, 1998. After the deferral period,
you may convert the stock equivalents to an interest-bearing
account. Additionally, the Plan provides for a premium,
however your retention incentive bonus will contain no such
premium feature.
You must irrevocably elect a payment schedule prior to April
27, 1998 with payments beginning no earlier than four years
from April 27, 1998 and according to the limits of the Plan.
Your Management Incentive Bonus for 1998 and the first
quarter of 1999 will be determined per the normal Plan
provisions and payout processes.
<PAGE>
Thomas M. Luthy
April 24, 1998
Page 2
While you and I expect that you will be employed through
March of 1999, in the event of death, disability or
termination, the provisions of the company plans covering
these events and the Comprehensive Incentive Compensation
Plan would apply.
Please let me know if you have any questions or concerns.
Sincerely,
/s/ Steven R. Rogel
- --------------------
Steven R. Rogel
President and CEO
Accepted this 24th day of April 1998.
/s/ Thomas M. Luthy
- ---------------------
Thomas M. Luthy
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