SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the thirteen weeks ended March 28, 1999 or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 1-4825
WEYERHAEUSER COMPANY
A Washington Corporation (IRS Employer Identification
No. 91-0470860)
Tacoma, Washington 98477
Telephone (253) 924-2345
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
------------------------------- ------------------------------
Common Shares ($1.25 par value) Chicago Stock Exchange
New York Stock Exchange
Pacific Stock Exchange
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___.
The number of shares outstanding of the registrant's class of
common stock, as of April 30, 1999, was 200,605,977 common shares
($1.25 par value).
<PAGE>
Weyerhaeuser Company
- -2-
<TABLE>
<CAPTION>
WEYERHAEUSER COMPANY AND SUBSIDIARIES
Index to Form 10-Q Filing
For the thirteen weeks ended March 28, 1999
Page No.
--------
<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statement of Earnings 3
Consolidated Balance Sheet 4-5
Consolidated Statement of Cash Flows 6-7
Notes to Financial Statements 8-17
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 18-22
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 22
Part II. Other Information
Item 1. Legal Proceedings 22-23
Item 2. Changes in Securities (not applicable)
Item 3. Defaults upon Senior Securities (not applicable)
Item 4. Submission of Matters to a Vote of
Security Holders (not applicable)
Item 5. Other Information (not applicable)
Item 6. Exhibits and Reports on Form 8-K 23
</TABLE>
The financial information included in this report has been
prepared in conformity with accounting practices and methods
reflected in the financial statements included in the annual
report (Form 10-K) filed with the Securities and Exchange
Commission for the year ended December 27, 1998. Though not
examined by independent public accountants, the financial
information reflects, in the opinion of management, all
adjustments necessary to present a fair statement of results for
the interim periods indicated. The results of operations for the
thirteen-week period ending March 28, 1999, should not be
regarded as necessarily indicative of the results that may be
expected for the full year.
Signature
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereto duly authorized.
WEYERHAEUSER COMPANY
By /s/ K. J. Stancato
------------------------
K. J. Stancato
Duly Authorized Officer and
Principal Accounting Officer
May 10, 1999
<PAGE>
Weyerhaeuser Company
- -3-
<TABLE>
<CAPTION>
WEYERHAEUSER COMPANY AND SUBSIDIARIES
____________
CONSOLIDATED EARNINGS
For the periods ended
March 28, 1999 and March 29, 1998
(Dollar amounts in millions except as noted and per share figures)
(Unaudited)
Thirteen weeks ended:
March 28, March 29,
1999 1998
--------- ---------
<S> <C> <C>
Net sales and revenues:
Weyerhaeuser $ 2,389 $ 2,338
Real estate and related assets 276 265
--------- ---------
Total net sales and revenues 2,665 2,603
--------- ---------
Costs and expenses:
Weyerhaeuser:
Costs of products sold 1,838 1,820
Depreciation, amortization and fee stumpage 155 149
Selling, general and administrative expenses 164 163
Research and development expenses 13 14
Taxes other than payroll and income taxes 32 34
Charge for impairment of long-lived
assets (Note 13) 91 --
Charge for Year 2000 remediation 17 1
--------- ---------
2,310 2,181
--------- ---------
Real estate and related assets:
Costs and operating expenses 220 225
Depreciation and amortization 1 1
Selling, general and administrative expenses 15 13
Taxes other than payroll and income taxes 2 2
--------- ---------
238 241
--------- ---------
Total costs and expenses 2,548 2,422
--------- ---------
Operating income 117 181
Interest expense and other:
Weyerhaeuser:
Interest expense incurred 67 67
Less interest capitalized 2 1
Equity in income of affiliates (Note 4) 2 6
Other income, net 5 13
Real estate and related assets:
Interest expense incurred 20 21
Less interest capitalized 15 15
Equity in income of joint ventures and
limited partnerships (Note 4) 2 2
Other income, net 10 5
--------- ---------
Earnings before income taxes and cumulative effect of
a change in an accounting principle 66 135
Income taxes (Note 5) 24 50
--------- ---------
Earnings before cumulative effect of a change in an
accounting principle 42 85
Cumulative effect of a change in an accounting
principle (Note 1) 90 --
--------- ---------
Net earnings (loss) $ (48) $ 85
========= =========
Basic and diluted net earnings (loss) per share (Note 2):
Before cumulative effect of a change in an
accounting principle $ 0.21 $ 0.43
Cumulative effect of a change in an
accounting principle (0.45) --
--------- ---------
$ (0.24) $ 0.43
========= =========
Weighted average shares outstanding (thousands):
Basic 199,160 198,747
Dilutive effect of stock options 675 525
--------- ---------
Diluted 199,835 199,272
========= =========
Dividends paid per share $ .40 $ .40
========= =========
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
Weyerhaeuser Company
- -4-
<TABLE>
<CAPTION>
WEYERHAEUSER COMPANY AND SUBSIDIARIES
____________
CONSOLIDATED BALANCE SHEET
March 28, 1999 and December 27, 1998
(Dollar amounts in millions)
March 28, Dec. 27,
1999 1998
--------- ---------
(Unaudited)
Assets
- ------
<S> <C> <C>
Weyerhaeuser
Current assets:
Cash and short-term investments (Note 1) $ 31 $ 28
Receivables, less allowances 991 886
Inventories (Note 6) 1,058 962
Prepaid expenses 295 294
--------- ---------
Total current assets 2,375 2,170
Property and equipment (Notes 7 and 11) 6,382 6,692
Construction in progress 381 315
Timber and timberlands at cost, less fee
stumpage charged to disposals 1,022 1,013
Investments in and advances to equity
affiliates (Notes 4 and 11) 475 482
Other assets and deferred charges 260 262
--------- ---------
10,895 10,934
--------- ---------
Real estate and related assets
Cash and short-term investments 6 7
Receivables, less discounts and allowances 83 81
Mortgage-related financial instruments, less
discounts and allowances 108 119
Real estate in process of development and for sale 619 584
Land being processed for development 876 854
Investments in and advances to joint ventures
and limited partnerships, less reserves (Note 4) 122 120
Other assets 133 135
--------- ---------
1,947 1,900
--------- ---------
Total assets $ 12,842 $ 12,834
========= =========
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
Weyerhaeuser Company
- -5-
<TABLE>
<CAPTION>
March 28, Dec. 27,
1999 1998
--------- ---------
(Unaudited)
Liabilities and shareholders' interest
- --------------------------------------
<S> <C> <C>
Weyerhaeuser
Current liabilities:
Notes payable $ 3 $ 5
Current maturities of long-term debt 94 88
Accounts payable (Note 1) 715 699
Accrued liabilities (Note 8) 654 707
--------- ---------
Total current liabilities 1,466 1,499
Long-term debt (Note 10) 3,569 3,397
Deferred income taxes (Note 5) 1,367 1,404
Deferred pension, other postretirement benefits
and other liabilities 472 488
Commitments and contingencies (Note 14)
--------- ---------
6,874 6,788
--------- ---------
Real estate and related assets
Notes payable and commercial paper 543 564
Long-term debt (Note 10) 697 701
Other liabilities 273 255
Commitments and contingencies (Note 14)
--------- ---------
1,513 1,520
--------- ---------
Total liabilities 8,387 8,308
--------- ---------
Shareholders' interest (Note 12)
Common shares: authorized 400,000,000 shares,
issued 206,072,890 shares, $1.25 par value 258 258
Other capital 415 416
Cumulative other comprehensive (expense) (175) (208)
Retained earnings 4,245 4,372
Treasury common shares, at cost: 6,508,436
and 7,063,917 (288) (312)
--------- ---------
Total shareholders' interest 4,455 4,526
--------- ---------
Total liabilities and
shareholders' interest $ 12,842 $ 12,834
========= =========
</TABLE>
<PAGE>
Weyerhaeuser Company
- -6-
<TABLE>
<CAPTION>
WEYERHAEUSER COMPANY AND SUBSIDIARIES
____________
CONSOLIDATED STATEMENT OF CASH FLOWS
For the thirteen-week periods ended March 28, 1999 and March 29,
1998
(Dollar amounts in millions)
(Unaudited)
Consolidated
--------------------
March 28, March 29,
1999 1998
--------- ---------
<S> <C> <C>
Cash provided by (used for) operations:
Net earnings (loss) $ (48) $ 85
Noncash charges (credits) to income:
Depreciation, amortization and fee stumpage 156 150
Deferred income taxes, net 16 28
Pension and other postretirement benefits (17) 5
Equity in (income) of affiliates, joint
ventures and limited partnerships (4) (8)
Effect of a change in an accounting
principle (Note 1) 142 --
Effect of a change in an accounting
principle - deferred taxes (Note 1) (52) --
Charge for impairment of long-lived
assets (Note 13) 91 --
Decrease (increase) in working capital:
Receivables (104) (48)
Inventories, real estate and land (143) (84)
Prepaid expenses (1) (39)
Mortgage-related financial instruments 7 (16)
Accounts payable and accrued liabilities (21) (53)
(Gain) loss on disposition of assets -- (8)
Other (16) (12)
--------- ---------
Net cash provided by (used for) operations 6 --
--------- ---------
Cash provided by (used for) investing activities:
Property and equipment (90) (78)
Timber and timberlands (16) (12)
Investments in and advances to equity affiliates 5 19
Proceeds from sale of:
Property and equipment 4 19
Mortgage-related financial instruments 6 18
Restructuring the ownership of a
subsidiary (Note 11) -- 218
Intercompany advances -- --
--------- ---------
Net cash provided by (used for) investing activities (91) 184
--------- ---------
Cash provided by (used for) financing activities:
Issuances of debt 22 7
Sale of industrial revenue bonds -- 48
Notes and commercial paper borrowings, net 168 54
Cash dividends (79) (80)
Payments on debt (39) (255)
Purchase of treasury common shares -- (42)
Exercise of stock options 23 5
Other (8) (11)
--------- ---------
Net cash provided by (used for) financing activities 87 (274)
--------- ---------
Net increase (decrease) in cash and short-term investments 2 (90)
Cash and short-term investments at beginning of year 35 122
--------- ---------
Cash and short-term investments at end of period $ 37 $ 32
========= =========
Cash paid (received) during the period for:
Interest, net of amount capitalized $ 106 $ 112
========= =========
Income taxes $ (6) $ 38
========= =========
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
Weyerhaeuser Company
- -7-
<TABLE>
<CAPTION>
Real Estate and
Weyerhaeuser Related Assets
-------------------- --------------------
March 28, March 29, March 28, March 29,
1999 1998 1999 1998
--------- --------- --------- ---------
<C> <C> <C> <C>
$ (77) $ 69 $ 29 $ 16
155 149 1 1
12 24 4 4
(17) 5 -- --
(2) (6) (2) (2)
142 -- -- --
(52) -- -- --
91 -- -- --
(105) (42) 1 (6)
(96) (101) (47) 17
(1) (39) -- --
-- -- 7 (16)
(37) (5) 16 (48)
-- -- -- (8)
4 (13) (20) 1
--------- --------- --------- ---------
17 41 (11) (41)
--------- --------- --------- ---------
(90) (77) -- (1)
(16) (12) -- --
-- 8 5 11
4 4 -- 15
-- -- 6 18
-- 218 -- --
(24) (121) 24 121
--------- --------- --------- ---------
(126) 20 35 164
--------- --------- --------- ---------
22 3 -- 4
-- 48 -- --
189 18 (21) 36
(79) (80) -- --
(35) (72) (4) (183)
-- (42) -- --
23 5 -- --
(8) (11) -- --
--------- --------- --------- ---------
112 (131) (25) (143)
--------- --------- --------- ---------
3 (70) (1) (20)
28 100 7 22
--------- --------- --------- ---------
$ 31 $ 30 $ 6 $ 2
========= ========= ========= =========
$ 101 $ 106 $ 5 $ 6
========= ========= ========= =========
$ (6) $ (1) $ -- $ 39
========= ========= ========= =========
</TABLE>
<PAGE>
Weyerhaeuser Company
- -8-
WEYERHAEUSER COMPANY AND SUBSIDIARIES
____________
NOTES TO FINANCIAL STATEMENTS
For the thirteen-week periods ended March 28, 1999 and March 29, 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. Investments in and advances to equity
affiliates which are not majority owned or controlled are
accounted for using the equity method with taxes provided on
undistributed earnings. Significant intercompany transactions and
accounts are eliminated.
Certain of the consolidated financial statements and notes to
financial statements are presented in two groupings: (1)
Weyerhaeuser (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 2.0 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.
Accounting Pronouncements Implemented
In the first quarter, the company implemented the following
Statements of Position (SOP) issued by the American Institute of
Certified Public Accountants Accounting Standards Executive
Committee:
. 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. The
adoption of this SOP did not have a significant impact on the
company's results of operations or financial position.
. SOP 98-5, Reporting on the Costs of Start-up Activities, which
requires that the costs of start-up activities be expensed as
incurred. In addition, this pronouncement required that all
unamortized start-up costs on the balance sheet at the
implementation date be written off as a cumulative effect of a
change in an accounting principle. The company recorded an after-
tax charge of $90 million, or 45 cents per common share, in the
current quarter to reflect this write-off. This charge included
$9 million for the company's interest in the write-off of
unamortized start-up costs in three of its 50 percent-owned equity
affiliates.
<PAGE>
Weyerhaeuser Company
- -9-
Prospective Accounting Pronouncements
In 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards 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 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.
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Derivatives
The company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are
used to manage well-defined interest rate and foreign exchange
risks. These include:
. Foreign exchange contracts, which are hedges for foreign
denominated accounts receivable and 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 its counterparties to fail to
meet their obligations. The company deals only with highly rated
counterparties.
The notional amounts of these derivative financial instruments are
$104 million and $102 million at March 28, 1999, and December 27,
1998, respectively. These notional amounts do not represent
amounts exchanged by the parties and, thus, are not a measure of
exposure to the company through its use of derivatives. The
exposure in a derivative contract is the net difference between
what each party is required to pay based on the contractual terms
against the notional amount of the contract, such as interest
rates or exchange rates. The use of derivatives does not have a
significant effect on the company's results of operations or its
financial position.
Cash and Short-Term Investments
For purposes of cash flow and fair value reporting, short-term
investments with original maturities of 90 days or less are
considered as cash equivalents. Short-term investments are stated
at cost, which approximates market.
Inventories
Inventories are stated at the lower of cost or market. Cost
includes labor, materials and production overhead. The last-in,
first-out (LIFO) method is used to cost the majority of domestic
raw materials, in process and finished goods inventories. LIFO
inventories were $288 million and $253 million at March 28, 1999,
and December 27, 1998, 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 $227 million and
$228 million greater at March 28, 1999, and December 27, 1998, respectively.
<PAGE>
Weyerhaeuser Company
- -10-
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 costs of products sold as these
inventories are disposed of.
Accounts Payable
The company's banking system provides for the daily replenishment
of major bank accounts as checks are presented for payment.
Accordingly, there were negative book cash balances of $131
million and $139 million at March 28, 1999, and December 27, 1998,
respectively. Such balances result from outstanding checks that
had not yet been paid by the bank and are reflected in accounts
payable in the consolidated balance sheets.
Income Taxes
Deferred income taxes are provided to reflect temporary
differences between the financial and tax bases of assets and
liabilities using presently enacted tax rates and laws.
Pension Plans
The company has pension plans covering most of its employees. The
U.S. plan covering salaried employees provides pension benefits
based on the employee's highest monthly earnings for five
consecutive years during the final ten years before retirement.
Plans covering hourly employees generally provide benefits of
stated amounts for each year of service. Contributions to U.S.
plans are based on funding standards established by the Employee
Retirement Income Security Act of 1974 (ERISA).
Postretirement Benefits Other Than Pensions
In addition to providing pension benefits, the company provides
certain health care and life insurance benefits for some retired
employees and accrues the expected future cost of these benefits
for its current eligible retirees and some employees. All of the
company's salaried employees and some hourly employees may become
eligible for these benefits when they retire.
Reclassifications
Certain reclassifications have been made to conform prior years'
data to the current format.
<PAGE>
Weyerhaeuser Company
- -11-
Real Estate and Related Assets
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.
Mortgage-related financial instruments include mortgage loans
receivable, mortgage-backed certificates and other financial
instruments.
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 period.
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 period.
Options to purchase 576,732 shares at $56.78 per share were
outstanding during the thirteen weeks ending March 28, 1999.
Options to purchase 1,371,080 shares at $51.09 per share, 604,011
shares at $56.78 per share and 150,000 shares at $53.06 per share
were outstanding during the thirteen weeks ending March 29, 1998.
These options were not included in the computation of diluted
earnings per share for the respective periods because the option
exercise prices were greater than the average market prices of
common shares during those periods.
Note 3: Comprehensive Income (Expense)
The company's comprehensive income (expense) is as follows:
<TABLE>
<CAPTION>
Thirteen weeks ended
--------------------
March 28, March 29,
Dollar amounts in millions 1999 1998
--------- ---------
<S> <C> <C>
Net earnings (loss) $ (48) $ 85
Other comprehensive income (expense):
Foreign currency translation adjustments 39 5
Income tax (expense) on foreign currency
translation adjustments (6) (2)
--------- ---------
$ (15) $ 88
========= =========
</TABLE>
Note 4: 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.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.
<PAGE>
Weyerhaeuser Company
- -12-
. 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.
. 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,
which are accounted for by the equity method, is as follows:
<TABLE>
<CAPTION>
March 28, Dec. 27,
1999 1998
Dollar amounts in millions --------- ---------
<S> <C> <C>
Current assets $ 161 $ 165
Noncurrent assets 1,295 1,325
Current liabilities 68 77
Noncurrent liabilities 683 702
</TABLE>
<TABLE>
<CAPTION>
Thirteen weeks ended
--------------------
March 28, March 29,
1999 1998
--------- ---------
<S> <C> <C>
Net sales and revenues $ 164 $ 173
Operating income 20 28
Net income (loss) (4) 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, which are accounted for by the equity
method, is as follows:
<TABLE>
<CAPTION>
March 28, Dec. 27,
1999 1998
Dollar amounts in millions --------- ---------
<S> <C> <C>
Current assets $ 2,624 $ 1,755
Noncurrent assets 172 230
Current liabilities 2,063 1,241
Noncurrent liabilities 117 136
</TABLE>
<TABLE>
<CAPTION>
Thirteen weeks ended
--------------------
March 28, March 29,
1999 1998
--------- ---------
<S> <C> <C>
Net sales and revenues $ 69 $ 57
Operating income 47 34
Net income 40 27
</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.
<PAGE>
Weyerhaeuser Company
- -13-
Note 5: Income Taxes
<TABLE>
<CAPTION>
Provisions for income taxes include the following: Thirteen weeks ended
--------------------
March 28, March 29,
Dollar amounts in millions 1999 1998
--------- ---------
<S> <C> <C>
Federal:
Current $ 3 $ 16
Deferred 13 26
--------- ---------
16 42
--------- ---------
State:
Current 1 3
Deferred -- 1
--------- ---------
1 4
--------- ---------
Foreign:
Current 4 3
Deferred 3 1
--------- ---------
7 4
--------- ---------
Income taxes before cumulative effect of a change
in an accounting principle 24 50
Deferred taxes applicable to the cumulative effect
of a change in an accounting principle (52) --
--------- ---------
$ (28) $ 50
========= =========
</TABLE>
Income tax provisions for interim periods are based on the current
best estimate of the effective tax rate expected to be applicable
for the full year. The effective tax rate reflects anticipated
tax credits, foreign taxes and other tax planning alternatives.
For the periods ended March 28, 1999, and March 29, 1998, the
company's provision for income taxes as a percent of earnings
before income taxes and cumulative effect of a change in an
accounting principle is greater than the 35% federal statutory
rate due principally to the effect of state income taxes. The
effective tax rates for the thirteen-week periods ended March 28,
1999, and March 28, 1998, were 36.5% and 37%, respectively.
Deferred taxes are provided for the temporary differences between
the financial and tax bases of assets and liabilities, applying
presently enacted tax rates and laws. The major sources of these
temporary differences include depreciable and depletable assets,
real estate, and pension and retiree health care liabilities.
Note 6: Inventories
<TABLE>
<CAPTION>
March 28, Dec. 27,
1999 1998
Dollar amounts in millions --------- ---------
<S> <C> <C>
Logs and chips $ 139 $ 108
Lumber, plywood and panels 196 143
Pulp and paper 191 190
Containerboard, paperboard and packaging 101 96
Other products 156 150
Materials and supplies 275 275
--------- ---------
$ 1,058 $ 962
========= =========
</TABLE>
<PAGE>
Weyerhaeuser Company
- -14-
Note 7: Property and Equipment
<TABLE>
<CAPTION>
March 28, Dec. 27,
Dollar amounts in millions 1999 1998
--------- ---------
<S> <C> <C>
Property and equipment, at cost:
Land $ 157 $ 157
Buildings and improvements 1,706 1,667
Machinery and equipment 9,557 9,732
Rail and truck roads 556 555
Other 109 111
--------- ---------
12,085 12,222
Less allowance for depreciation and amortization 5,703 5,530
--------- ---------
$ 6,382 $ 6,692
========= =========
</TABLE>
Note 8: Accrued Liabilities
<TABLE>
<CAPTION>
March 28, Dec. 27,
Dollar amounts in millions 1999 1998
--------- ---------
<S> <C> <C>
Payroll - wages and salaries, incentive awards,
retirement and vacation pay $ 262 $ 305
Taxes - social security and real and personal property 56 46
Interest 51 87
Income taxes 22 16
Other 263 253
--------- ---------
$ 654 $ 707
========= =========
</TABLE>
Note 9: Short-Term Debt
Lines of Credit
The company has short-term bank credit lines that provide for
borrowings of up to the total amount of $650 million, all of which
could be availed of by the company and Weyerhaeuser Real Estate
Company (WRECO) at March 28, 1999, and December 27, 1998. No
portion of these lines has been availed of by the company or WRECO
at March 28, 1999, or December 27, 1998. Neither of the entities
referred to herein is a guarantor of the borrowings of the other.
Note 10: Long-Term Debt
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, has a set of term credit facility agreements with a
group of banks that provide for borrowings of up to $175 million.
$100 million was outstanding under these agreements at March 28,
1999, and December 27, 1998.
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.
Weyerhaeuser reclassified $382 million and $192 million as of
March 28, 1999, and December 27, 1998, respectively.
No portion of these lines has been availed of by the company,
WRECO or WFS at March 28, 1999, and December 27, 1998, except as
noted.
The company's compensating balance agreements were not
significant.
<PAGE>
Weyerhaeuser Company
- -15-
Note 11: Restructuring the Ownership of a Subsidiary
In the first quarter of 1998, the company and Nippon Paper
Industries Co., Ltd. (NPI) completed the restructuring of their
North Pacific Paper Corporation (NORPAC) joint venture. Through
this restructuring, the ownership of NORPAC changed from 80
percent company ownership and 20 percent NPI ownership to 50
percent for each shareholder. This transaction changed the
reporting status of NORPAC from a fully consolidated subsidiary,
with minority elimination, to a joint venture accounted for on the
equity method of accounting. The change in accounting for this
venture resulted in the following significant noncash changes in
the company's consolidated balance sheet: decreases of $621
million in property and equipment, $151 million in deferred taxes,
and $121 million in minority interest in subsidiaries; and an
increase of $168 million in investments in and advances to equity
affiliates. The company received net funds of $218 million and
recognized a gain of $5 million on this transaction.
Note 12: Shareholders' Interest
Common Shares
Common shares reserved for stock option plans were 8,177,000
shares at March 28, 1999, and 7,222,000 shares at December 27,
1998.
Cumulative Other Comprehensive (Expense)
The company's cumulative other comprehensive (expense) includes:
<TABLE>
<CAPTION>
March 28, Dec. 27,
Dollar amounts in millions 1999 1998
--------- ---------
<S> <C> <C>
Foreign currency translation adjustments $ (167) $ (200)
Minimum pension liability adjustment (8) (8)
--------- ---------
$ (175) $ (208)
========= =========
</TABLE>
Note 13: Impairment of Long-Lived Assets
During the 1999 first quarter, the company recorded a pretax
charge of $91 million for the impairment of long-lived assets.
This charge is related to the company's decision to sell its
composite products business and ply-veneer facility and close a
chip export facility. These facilities, with a net book value of
$160 million, are located in Springfield, Oregon; Moncure, North
Carolina; Adel, Georgia; and Coos Bay, Oregon.
The decision to sell the composite products business was an option
explored in a strategic review of this business. In 1996, the
size and scale of the company's position in the composite products
business was significantly reduced with the sale of two composite
products plants as part of a facility disposition. The sale of
the composite products business and ply-veneer facility is
expected to occur in the second quarter of 1999.
The closure of the Coos Bay chip export dock is a result of the
continuing decline in the supply of wood chips in the Pacific
Northwest due largely to a significant decrease in federal timber
sales and related mill closures over the last decade.
The sale or closure of these facilities will not have a material
impact on the company's results of operations or financial
position.
Note 14: Commitments and Contingencies
The company's capital expenditures, excluding acquisitions, were
$615 million in 1998, and are expected to be approximately $785
million in 1999; however, that expenditure level could be
increased or decreased as a consequence of future economic
conditions.
The company is a party to legal proceedings and environmental
matters generally incidental to its business. Although the final
outcome of any legal proceeding or environmental matter is subject
to a great many variables and cannot be predicted with any degree
of certainty, the company presently believes that the ultimate
outcome resulting from these proceedings and matters would not
have a material effect on the company's current financial
position, liquidity or results of operations; however, in any
given future reporting period, such proceedings or matters could
have a material effect on results of operations.
<PAGE>
Weyerhaeuser Company
- -16-
Note 15: Subsequent Events
During April 1999, the following events occurred:
. The company signed an agreement to sell its composite products
facilities and ply-veneer plant to SierraPine Limited. These
facilities are located in Springfield, Oregon; Moncure, North
Carolina; and Adel, Georgia. The transaction is expected to close
in the second quarter. See related Note 13: Impairment of Long-
Lived Assets in Notes to Financial Statements of this Form 10-Q.
. RII Weyerhaeuser World Timberfund (the Timberfund), a joint
venture in which the company has a 50 percent interest, reached an
agreement to acquire all the plantations and solid wood
manufacturing facilities held by CSR Ltd. of Australia in Victoria
and South Australia.
Assets include 62,500 acres of radiata pine plantations, two
softwood lumber mills with a capacity of 115 million board feet, a
lumber treating operation, a pine molding remanufacturing plant, a
chip export business and a 30 percent interest in CSR's sales and
distribution business. Approximately 500 people currently work in
these operations.
Weyerhaeuser Company, through a subsidiary, will assume the
responsibility for all management and marketing activities of the
acquisition.
The Timberfund will pay approximately US $142 million for these
assets and expects to complete the purchase before the end of the
second quarter, subject to Australian government regulatory
approval.
Note 16: Business Segments
The company is principally engaged in the growing and harvesting
of timber and the manufacture, distribution and sale of forest
products. The company's principal 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.
<PAGE>
Weyerhaeuser Company
- -17-
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>
Thirteen weeks ended
--------------------
March 28, March 29,
Dollar amounts in millions 1999 1998
--------- ---------
<S> <C> <C>
Sales to and revenues from unaffiliated customers:
Timberlands $ 153 $ 163
Wood products 1,116 1,018
Pulp, paper and packaging 1,082 1,120
Real estate and related assets 276 265
Corporate and other 38 37
--------- ---------
2,665 2,603
--------- ---------
Intersegment sales:
Timberlands 125 139
Wood products 48 50
Pulp, paper and packaging 32 25
Corporate and other 2 5
--------- ---------
207 219
--------- ---------
Total sales and revenues 2,872 2,822
Intersegment eliminations (207) (219)
--------- ---------
$ 2,665 $ 2,603
========= =========
Approximate contribution (charge) to earnings (1):
Timberlands $ 119 $ 147
Wood products (14) 26
Pulp, paper and packaging 42 52
Real estate and related assets (1) 46 25
Corporate and other (62) (49)
--------- ---------
131 201
Interest expense (67) (67)
Less capitalized interest 2 1
--------- ---------
Earnings before income taxes and the cumulative effect
of a change in an accounting principle 66 135
Income taxes (24) (50)
--------- ---------
Earnings before the cumulative effect of a change in
an accounting principle 42 85
Cumulative effect of a change in an accounting
principle (90) --
--------- ---------
$ (48) $ 85
========= =========
</TABLE>
There were no material changes from year-end 1998 in total assets,
basis of segmentation or basis for measuring segment profit or
loss.
Certain reclassifications have been made to conform prior year's
data to the current format.
(1) Interest expense of $5 million and $6 million in the thirteen
weeks ended March 28, 1999, and March 29, 1998, respectively, is
included in the determination of approximate contributions to
earnings and excluded from interest expense for financial services
businesses.
<PAGE>
Weyerhaeuser Company
- -18-
WEYERHAEUSER COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Consolidated Results
The company reported a net loss of $48 million, or 24 cents, basic
and diluted, per common share in the first quarter compared to a
$85 million profit, or 43 cents basic and diluted earnings per
common share in the same quarter last year. The current quarter
results were impacted by two material nonrecurring charges:
. An after-tax charge of $90 million, or 45 cents per common
share, from the cumulative effect of a change in an accounting
policy which required the company to write off the unamortized
balance of capitalized start-up costs at year-end 1998. This
charge included $9 million for the company's interest in the write-
off of unamortized start-up costs in three of its 50 percent-owned
equity affiliates.
. An after-tax charge of $60 million, or 30 cents per common
share, associated with the recognition of impairment of long-lived
assets in four of the company's composite products facilities, a
ply-veneer facility and a chip export dock. The composite products
and ply-veneer facilities are expected to be sold in the second
quarter while the chip export dock is expected to be closed before
the end of the year.
Earnings for the quarter before these charges were $102 million,
or 51 cents per common share, an increase of 19 percent over the
1998 first quarter.
Consolidated net sales and revenues were $2.7 billion in the
quarter, up 2 percent from the $2.6 billion the prior year. This
increase was principally in the wood products segment as lumber
prices strengthened in the quarter.
Timberlands
First quarter operating earnings were $119 million in 1999, a
decline of 19 percent from the $147 million earned in 1998. Sales
to unaffiliated customers were $153 million compared to $163
million a year ago. Intersegment sales were $125 million for the
quarter, down from $139 million reported a year ago. Volume in
both the domestic and foreign log markets was generally stable
throughout the quarter and showed some improvement late in the
period. Domestic prices remain well below last year's first
quarter levels while export prices remain unchanged from the same
period a year ago. Log production for this segment was 129 million
cubic feet in the quarter compared to 127 million cubic feet in
the 1998 first quarter. Raw material sales for this segment were
68 million cubic feet, up from last year's volume of 54 million
cubic feet.
Wood Products
Operating earnings, before a $94 million charge for impairment of
long-lived assets ($91 million) and related exit costs ($3
million), were $80 million compared to $26 million in the same
period last year. Including the charge, the segment had a loss of
$14 million for the quarter. Sales were $1.1 billion, up 10
percent from the 1998 first quarter. The strong earnings before
the charge are the result of demand for lumber and panel products
due to the continued strong domestic housing market. Lumber and
oriented strand board volumes were up compared to the same period
last year along with stronger prices for plywood and oriented strand board.
<PAGE>
Weyerhaeuser Company
- -19-
Third party sales and total production volumes for the major
products in this segment for the thirteen weeks ended March 28,
1999, and March 29, 1998, are as follows:
<TABLE>
<CAPTION>
Third Party Sales Total Production
------------------- -------------------
Thirteen weeks Thirteen weeks
ended ended
------------------- -------------------
March 28, March 29, March 28, March 29,
Products (in millions) 1999 1998 1999 1998
- ---------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Softwood lumber-board feet 1,220 1,131 1,019 980
Softwood plywood and
veneer-square feet (3/8") 415 436 251 237
Composite panels-square
feet (3/4") 152 145 134 127
Oriented strand board-square
feet (3/8") 679 640 656 533
Hardwood lumber-board feet 99 86 91 87
Engineered wood products-lineal
feet 39 32 -- --
Hardwood doors (thousands) 180 188 178 209
Raw materials-cubic feet 84 77 -- --
Logs-cubic feet -- -- 154 148
</TABLE>
Pulp, Paper and Packaging
The segment reported operating earnings of $42 million, down 20
percent from the 1998 first quarter results of $52 million, but 21
percent higher than the fourth quarter 1998 results. Sales for the
quarter were $1.1 billion, comparable to the same period a year
ago. Prices were lower than a year ago and the previous quarter
across all product lines, offset in part by higher sales volumes
and lower operating costs.
Third party sales and total production volumes for the major
products in this segment for the thirteen weeks ended March 28,
1999, and March 29, 1998, are as follows:
<TABLE>
<CAPTION>
Third Party Sales Total Production
------------------- -------------------
Thirteen weeks Thirteen weeks
ended ended
------------------- -------------------
March 28, March 29, March 28, March 29,
Products (in thousands) 1999 1998 1999 1998
- ----------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Pulp-air-dry metric tons 583 520 579 495
Paper-tons 371 266 403 289
Paperboard-tons 61 59 61 64
Containerboard-tons 115 81 597 612
Packaging-MSF 11,110 10,927 11,725 11,531
Recycling-tons 671 616 1,027 954
</TABLE>
Real Estate and Related Assets
First quarter operating earnings were $46 million compared to $25
million in 1998; an increase of 84 percent. Sales and revenues
were $276 million, an increase of 4 percent over the prior year.
Improved operating performance and the strength of the housing
markets in which the company operates - especially California -
contributed to the strong performance.
Costs and Expenses
Excluding the noncash charge of $91 million for impairment of long-
lived assets and the $17 million charge for Year 2000 remediation,
total costs and expenses incurred in the first quarter of 1999
were virtually unchanged from the same period a year ago.
Weyerhaeuser's costs of products sold, as a percentage of sales
were 77 percent for the current quarter compared to 78 percent in
the 1998 first quarter. Cost reduction efforts, primarily in the
pulp, paper and packaging segment, contributed to a decrease in
the costs of products sold compared to the 1998 first quarter.
Other income (expense) is an aggregation of both recurring and
nonrecurring items and, as a result, can fluctuate from year to
year. There were no significant individual items in the first
quarters of either 1999 or 1998.
<PAGE>
Weyerhaeuser Company
- -20-
Liquidity and Capital Resources
General
The company is committed to the maintenance of a sound,
conservative capital structure. This commitment is based upon two
considerations: the obligation to protect the underlying
interests of its shareholders and lenders and the desire to have
access, at all times, to all major financial markets.
The important elements of the policy governing the company's
capital structure are as follows:
. To view separately the capital structures of Weyerhaeuser
Company, Weyerhaeuser Real Estate Company and related
subsidiaries, given the very different nature of their assets and
business activities. The amount of debt and equity associated
with the capital structure of each will reflect the basic earnings
capacity, real value and unique liquidity characteristics of the
assets dedicated to that business.
. The combination of maturing short-term debt and the structure
of long-term debt will be managed judiciously to minimize
liquidity risk.
Operations
Consolidated net cash provided by operations in the first quarter
was $6 million. Net cash from operations, before net changes in
working capital, of $268 million was offset by an increased use of
funds for working capital. Significant noncash charges were
depreciation, amortization and fee stumpage of $156 million; the
net effect of a change in an accounting principle, i.e., the write-
off of unamortized capitalized start-up costs, of $90 million; and
the charge of $91 million for the write-down of impaired assets to
fair market value. These noncash charges were offset in part by
the net loss of $48 million and a noncash credit of $17 million
for pension and other postretirement benefits.
Working capital cash requirements for Weyerhaeuser included
increases of $105 million in accounts receivable and $96 million
in inventories along with a decrease of $37 million in accounts
payable and accrued liabilities. The increase in receivables
reflects the seasonal increase in sales in late first quarter
versus late fourth quarter of 1998. The inventory increase was
across all product lines with the inventory turnover rate dropping
from 11.8 turns in the 1998 fourth quarter to 10.9 turns in the
current quarter. Real estate and related assets cash outflows
included $47 million for the acquisition and development of land
and residential lots for construction.
Earnings before interest expense and income taxes plus noncash
charges for the principal business segments were:
. $131 million for the timberlands segment for the current
quarter compared to $160 million in 1998. Operating earnings for
this segment were $28 million lower than last year.
. $123 million for the wood products segment in 1999 first
quarter compared to $73 million in the same period last year. The
current quarter includes a noncash charge of $91 million for
impairment of long-lived assets.
. $134 million for the pulp, paper and packaging segment in the
current quarter compared to $136 million in 1998.
Investing
Capital expenditures for the quarter were $106 million. The
capital spending by segment was $22 million for timberlands, $24
million for wood products, $58 million for pulp, paper and
packaging and $2 million for corporate and other. The company
currently anticipates capital expenditures, excluding
acquisitions, to approximate $785 million for the year; however,
this expenditure level could increase or decrease as a consequence
of future economic conditions.
The cash needed to meet capital and other needs during the quarter
was generated principally from the sale of commercial paper.
Financing
During the current quarter, Weyerhaeuser increased its interest
bearing debt by $176 million. This was primarily from commercial
paper borrowings of $189 million offset in part by debt payments
of $35 million. The real estate and related assets segment
utilized intercompany borrowings to reduce third party debt by $25
million in the quarter.
<PAGE>
Weyerhaeuser Company
- -21-
The company's debt to total capital ratio was 41 percent at the
end of the quarter. This is comparable to the 40 percent at the
end of 1998 first quarter and 39 percent at the end of 1998.
During the first quarter, the company paid $79 million in cash
dividends.
Environmental Matters
During the first quarter of 1999, the National Marine Fisheries
Service (NMFS) announced decisions under the Endangered Species
Act (ESA) with respect to various species of fish that spawn in
the Pacific Northwest (Washington, Oregon, Idaho and northern
California). Several populations of chinook, chum and sockeye
salmon and steelhead trout were determined to be threatened or
endangered. Several other populations were proposed to be listed
as threatened or endangered, listing decisions on several other
populations were deferred, and designations of critical habitat
were proposed for several populations. In April 1999, NMFS
proposed listing cutthroat trout in portions of Washington and
Oregon and delisting cutthroat trout in Oregon's Umpqua River
drainage.
The ESA automatically prohibits the "take" of species listed as
endangered and gives NMFS authority to prohibit the "take" of
species it lists as threatened. NMFS announced that it intends to
adopt rules to prohibit "take" of the species it has listed as
threatened, except "incidental take" that may result from
activities regulated under state or local programs approved by
NMFS. State agencies and local governments are reviewing their
environmental regulations regarding forestry and other land use
activities and are considering adoption of stronger regulations to
help protect habitat for such species and obtain such approvals
from NMFS. Requirements to protect habitat for threatened and
endangered species have resulted in restrictions in timber
harvests on nonfederal timberlands, including some timberlands of
the company. In the future, such requirements could result in
restrictions on timber harvest and other forest management
practices on some of the company's timberlands, could increase
operating costs, and could affect timber supply and prices in some
regions. The company does not believe that such restrictions will
have a significant effect on the company's total harvest of timber
in 1999 or 2000, although they may have such an effect in the
future.
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 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 the 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, including costs to be capitalized, 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 first quarter of 1999, the company has
incurred $73 million of remediation costs, of which $54 million
was incurred in 1997 and 1998 and $12.5 million has been
capitalized for new hardware and software. The company expects
substantial additional costs to be incurred in the second and
third 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.
<PAGE>
Weyerhaeuser Company
- -22-
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.
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.
Quantitative and Qualitative Disclosures About Market Risk
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 its
counterparties to fail to meet their obligations. Interest rate
swaps are described as follows:
<TABLE>
<CAPTION>
Dollar amounts in millions
Variable Rate at
March 28, 1999
----------------------------
Notional Maturity Fixed Fair Value
Amount Date Rate % % Based On of Swap(1)
- -------- ---------- ------ ---- -------------------- ----------
<S> <C> <C> <C> <C> <C>
$ 27 4/1/99 6.70 8.94 11.95% - Kenny index $ --
75 11/6/99(2) 6.85 4.94 30 day LIBOR (3.7)
- -------- ----------
$ 102 $ (3.7)
======== ==========
</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.
At March 28, 1999, the company had a Canadian dollar contract in
the US dollar equivalent amount of $2 million to help meet the
funding requirements of its Canadian operations at the end of the
quarter.
Part II. Other Information
Item 1. 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 Regional Air Pollution Control Authority (Lane
County, Oregon) 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.
<PAGE>
Weyerhaeuser Company
- -23-
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. In February
1999, the court entered an order certifying the class. The
company has filed an appeal and the Court of Appeals has issued a
stay of the certification decision pending its review. 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 25 other hardboard siding cases, two of which
purport to be statewide class actions on behalf of owners of
property in Iowa and Oregon that contain the company's hardboard
siding.
In April 1999, the company received a Notice of Violation (NOV)
from the Georgia Environmental Protection Department (EPD) for air
emission issues at its Adel, Georgia, facility. The NOV addresses
the facility's failure to satisfy the percentage of Volatile
Organic Compounds (VOC) removal required for the biofilter. The
NOV requires the company to submit an application for a permit
amendment which contains a monitoring plan for VOC emissions, a
proposed VOC mass emission limit, proof of compliance with that
limit, and a detailed schedule for the installation of a
continuous VOC emission monitor and flow monitor that meets state
requirements. The required response to the NOV is being prepared
by the company.
The company is also a party to various proceedings relating to the
cleanup 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 6. Exhibits and Reports on Form 8-K
Exhibits
27 Financial Data Schedules
Reports on Form 8-K
The registrant filed reports on Form 8-K dated January 7, January
21 and April 14, 1999, reporting information under Item 5, Other
Events.
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