SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO
X SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the twenty-six weeks ended June 25, 2000,
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)
Federal Way, Washington 98063
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
Exchangeable Shares (no par value) Toronto 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 July 28, 2000, was 213,711,552 common shares ($1.25 par value).
<PAGE>
Weyerhaeuser Company
-2-
WEYERHAEUSER COMPANY AND SUBSIDIARIES
Index to Form 10-Q Filing
For the twenty-six weeks ended June 25, 2000
Page No.
--------
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 8-20
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 21-26
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 26
Part II. Other Information
Item 1. Legal Proceedings 27-28
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 28
Item 5. Other Information (not applicable)
Item 6. Exhibits and Reports on Form 8-K 29
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 26, 1999.
Though not examined by independent public accountants, the financial
information reflects, in the opinion of management, all adjustments
necessary to present a fair statement of results for the interim periods
indicated. The results of operations for the twenty-six week period ending
June 25, 2000, should not be regarded as necessarily indicative of the
results that may be expected for the full year.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
WEYERHAEUSER COMPANY
By /s/ K. J. Stancato
-------------------------------
K. J. Stancato
Duly Authorized Officer and
Principal Accounting Officer
August 4, 2000
<PAGE>
Weyerhaeuser Company
-3-
WEYERHAEUSER COMPANY AND SUBSIDIARIES
____________
CONSOLIDATED EARNINGS
For the periods ended June 25, 2000, and June 27, 1999
(Dollar amounts in millions except as noted and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Twenty-six
weeks ended weeks ended
---------------- ----------------
June June June June
25, 27, 25, 27,
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales and revenues:
Weyerhaeuser $3,863 $2,730 $7,496 $5,119
Real estate and related assets 324 314 602 590
------- ------- ------- -------
Total net sales and revenues 4,187 3,044 8,098 5,709
------- ------- ------- -------
Costs and expenses:
Weyerhaeuser:
Costs of products sold 2,904 2,059 5,597 3,894
Depreciation, amortization and fee
stumpage 199 153 399 308
Selling, general and administrative
expenses 261 194 520 358
Research and development expenses 15 13 27 26
Taxes other than payroll and income
taxes 35 33 72 65
Charges for integration and closure
of facilities (Note 13) 15 -- 28 94
Charge for settlement of hardboard
siding claims (Note 14) 130 -- 130 --
Charge for Year 2000 remediation -- 10 -- 27
------- ------- ------- -------
3,559 2,462 6,773 4,772
------- ------- ------- -------
Real estate and related assets:
Costs and operating expenses 266 258 495 478
Depreciation and amortization 2 1 3 2
Selling, general and administrative
expenses 12 13 25 28
Taxes other than payroll and income
taxes 2 2 4 4
------- ------- ------- -------
282 274 527 512
------- ------- ------- -------
Total costs and expenses 3,841 2,736 7,300 5,284
------- ------- ------- -------
Operating income 346 308 798 425
Interest expense and other:
Weyerhaeuser:
Interest expense incurred 82 66 173 134
Less interest capitalized 5 2 9 4
Equity in income of affiliates
(Note 4) 15 6 25 8
Other income (expense), net (Note 5) (5) 2 (7) 7
Real estate and related assets:
Interest expense incurred 20 18 39 38
Less interest capitalized 16 15 31 30
Equity in income of unconsolidated
entities (Note 4) 39 4 53 11
Other income (expense), net (Note 5) 3 5 7 10
------- ------- ------- -------
Earnings before income taxes and
cumulative effect of a change in
an accounting principle 317 258 704 323
Income taxes (Note 6) 114 94 257 118
------- ------- ------- -------
Earnings before cumulative effect of a
change in an accounting principle 203 164 447 205
Cumulative effect of a change in an
accounting principle (Note 1) -- -- -- 89
------- ------- ------- -------
Net earnings $ 203 $ 164 $ 447 $ 116
======= ======= ======= =======
Per share (Note 2):
Basic net earnings before cumulative
effect of a change in an accounting
principle $ 0.89 $ 0.82 $ 1.93 $ 1.03
Cumulative effect of a change in an
accounting principle -- -- -- (0.45)
------- ------- ------- -------
$ 0.89 $ 0.82 $ 1.93 $ 0.58
======= ======= ======= =======
Diluted net earnings before
cumulative effect of a change in
an accounting principle $ 0.89 $ 0.81 $ 1.93 $ 1.02
Cumulative effect of a change in an
accounting principle -- -- -- (0.45)
------- ------- ------- -------
$ 0.89 $ 0.81 $ 1.93 $ 0.57
======= ======= ======= =======
Dividends paid per share $ .40 $ .40 $ .80 $ .80
======= ======= ======= =======
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
Weyerhaeuser Company
-4-
WEYERHAEUSER COMPANY AND SUBSIDIARIES
____________
CONSOLIDATED BALANCE SHEET
June 25, 2000, and December 26, 1999
(Dollar amounts in millions)
<TABLE>
<CAPTION>
June Dec.
25, 26,
2000 1999
----------- --------
(Unaudited)
<S> <C> <C>
Assets
-------
Weyerhaeuser
Current assets:
Cash and short-term investments (Note 1) $ 112 $ 1,640
Receivables, less allowances 1,455 1,296
Inventories (Note 7) 1,546 1,329
Prepaid expenses 383 278
-------- --------
Total current assets 3,496 4,543
Property and equipment (Note 8) 8,151 7,560
Construction in progress 588 355
Timber and timberlands at cost, less fee stumpage
charged to disposals 1,653 1,667
Investments in and advances to equity affiliates
(Note 4) 567 950
Goodwill, net of accumulated amortization 1,094 792
Other assets and deferred charges 589 533
-------- --------
16,138 16,400
-------- --------
Real estate and related assets
Cash and short-term investments 3 3
Receivables, less discounts and allowances 88 94
Mortgage-related financial instruments, less
discounts and allowances 78 84
Real estate in process of development and for sale 639 556
Land being processed for development 957 956
Investments in unconsolidated entities, less
reserves (Note 4) 146 124
Other assets 132 122
-------- --------
2,043 1,939
-------- --------
Total assets $18,181 $18,339
======== ========
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
Weyerhaeuser Company
-5-
<TABLE>
<CAPTION>
June Dec.
25, 26,
2000 1999
----------- --------
(Unaudited)
<S> <C> <C>
Liabilities and shareholders' interest
--------------------------------------
Weyerhaeuser
Current liabilities:
Notes payable and commercial paper $ 642 $ 54
Current maturities of long-term debt 133 855
Accounts payable (Note 1) 1,007 961
Accrued liabilities (Note 9) 1,003 1,093
-------- --------
Total current liabilities 2,785 2,963
Long-term debt (Note 11) 3,985 3,945
Deferred income taxes (Note 6) 2,186 1,985
Deferred pension, other postretirement benefits
and other liabilities 792 773
Commitments and contingencies (Note 15)
-------- --------
9,748 9,666
-------- --------
Real estate and related assets
Notes payable and commercial paper 763 676
Long-term debt (Note 11) 427 479
Other liabilities 330 345
Commitments and contingencies (Note 15)
-------- --------
1,520 1,500
-------- --------
Total liabilities 11,268 11,166
-------- --------
Shareholders' interest (Note 12)
Common shares: authorized 400,000,000 shares,
issued: 233,355,366 and 230,797,536,
$1.25 par value 292 288
Exchangeable shares; no par value; unlimited
shares authorized; issued and held by
nonaffiliates: 6,489,863 and 8,809,994 441 598
Other capital 2,256 2,086
Retained earnings 4,839 4,578
Cumulative other comprehensive (expense) (84) (167)
Treasury common shares, at cost:
16,977,164 and 4,758,348 (831) (210)
-------- --------
Total shareholders' interest 6,913 7,173
-------- --------
Total liabilities and shareholders' interest $18,181 $18,339
======== ========
</TABLE>
<PAGE>
Weyerhaeuser Company
-6-
WEYERHAEUSER COMPANY AND SUBSIDIARIES
____________
CONSOLIDATED STATEMENT OF CASH FLOWS
For the twenty-six week periods ended June 25, 2000, and June 27, 1999
(Dollar amounts in millions)
(Unaudited)
<TABLE>
<CAPTION>
Consolidated
------------------
June June
25, 27,
2000 1999
-------- --------
<S> <C> <C>
Cash provided by (used for) operations:
Net earnings $ 447 $ 116
Noncash charges (credits) to income:
Depreciation, amortization and fee stumpage 402 310
Deferred income taxes, net 65 76
Pension and other postretirement benefits (83) (36)
Equity in (income) loss of affiliates and
unconsolidated entities (78) (19)
Effect of a change in an accounting principle -
net of taxes (Note 1) -- 89
Charge for settlement of hardboard siding claims
(Note 14) 130 --
Charges for integration and closure of facilities
(Note 13) 28 94
Decrease (increase) in working capital:
Receivables (29) (191)
Inventories, real estate and land (199) (101)
Prepaid expenses (105) 12
Mortgage-related financial instruments 3 15
Accounts payable and accrued liabilities (229) 99
(Gain) loss on disposition of assets -- 1
Other (23) (9)
-------- --------
Net cash provided by (used for) operations 329 456
-------- --------
Cash provided by (used for) investing activities:
Property and equipment (331) (198)
Timber and timberlands (40) (29)
Acquisition of businesses - net of cash acquired
(Note 16) (643) --
Investments in and advances to equity affiliates 46 (18)
Proceeds from sale of:
Property and equipment -- 7
Businesses -- 80
Mortgage-related financial instruments 4 12
Intercompany advances -- --
Other 44 4
-------- --------
Net cash provided by (used for) investing activities (920) (142)
-------- --------
Cash provided by (used for) financing activities:
Issuances of debt 11 31
Notes and commercial paper borrowings, net 698 (76)
Cash dividends (186) (160)
Payments on debt (920) (161)
Purchase of treasury common shares (630) --
Exercise of stock options 9 90
Other 81 (19)
-------- --------
Net cash provided by (used for) financing activities (937) (295)
-------- --------
Net increase (decrease) in cash and short-term
investments (1,528) 19
Cash and short-term investments at beginning of year 1,643 35
-------- --------
Cash and short-term investments at end of period $ 115 $ 54
======== ========
Cash paid (received) during the period for:
Interest, net of amount capitalized $ 181 $ 142
======== ========
Income taxes $ 115 $ (8)
======== ========
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
Weyerhaeuser Company
-7-
<TABLE>
<CAPTION>
Real Estate and
Weyerhaeuser Related Assets
----------------- -----------------
June June June June
25, 27, 25, 27,
2000 1999 2000 1999
-------- ------- ------- -------
<S> <C> <C> <C>
$ 367 $ 59 $ 80 $ 57
399 308 3 2
62 67 3 9
(81) (35) (2) (1)
(25) (8) (53) (11)
-- 89 -- --
130 -- -- --
28 94 -- --
(35) (201) 6 10
(119) (38) (80) (63)
(105) 12 -- --
-- -- 3 15
(216) 48 (13) 51
-- 1 -- --
(15) 4 (8) (13)
-------- ------- ------- -------
390 400 (61) 56
-------- ------- ------- -------
(317) (196) (14) (2)
(40) (29) -- --
(643) -- -- --
12 (43) 34 25
-- 6 -- 1
-- 80 -- --
-- -- 4 12
(2) (22) 2 22
44 4 -- --
-------- ------- ------- -------
(946) (200) 26 58
-------- ------- ------- -------
11 31 -- --
611 (21) 87 (55)
(186) (160) -- --
(868) (98) (52) (63)
(630) -- -- --
9 90 -- --
81 (19) -- --
-------- ------- ------- -------
(972) (177) 35 (118)
-------- ------- ------- -------
(1,528) 23 -- (4)
1,640 28 3 7
-------- ------- ------- -------
$ 112 $ 51 $ 3 $ 3
======== ======= ======= =======
$ 173 $ 133 $ 8 $ 9
======== ======= ======= =======
$ 58 $ (10) $ 57 $ 2
======== ======= ======= =======
</TABLE>
<PAGE>
Weyerhaeuser Company
-8-
WEYERHAEUSER COMPANY AND SUBSIDIARIES
____________
NOTES TO FINANCIAL STATEMENTS
For the twenty-six week periods ended June 25, 2000, and June 27, 1999
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 5.9 million acres of
company-owned and .5 million acres of leased commercial forestland in
North America.
. 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 forestland in
North America under long-term licensing arrangements.
. 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 Pronouncement Implemented
In the 1999 first quarter, the company implemented the Statement of
Position (SOP) 98-5, Reporting on the Costs of Start-up Activities, issued
by the American Institute of Certified Public Accountants Accounting
Standards Executive Committee, which required 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 $89
million, or 45 cents per share, in the first 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.
Prospective Accounting Pronouncements
. In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (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. The effective date of this pronouncement,
originally fiscal years beginning after June 15, 1999, has been delayed
to fiscal years beginning after June 15, 2000, with the issuance of SFAS
No. 137 in June 1999. In June 2000, the FASB issued SFAS No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging
Activities, an amendment to FASB Statement No. 133, to clarify certain
matters. This will be effective for the company's fiscal year 2001.
Assuming that the company's current minimal involvement in derivatives
and hedging activities continues after the
<PAGE>
Weyerhaeuser Company
-9-
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.
. In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition, to provide
guidance on the recognition, presentation and disclosure of revenue in
financial statements. This SAB states that revenue should not be
recognized until it is realized or realizable and earned and gives
guidance on criteria to apply to make the determination. Originally,
compliance with the accounting guidance contained in this SAB was
applicable to the first fiscal quarter of fiscal years beginning after
December 15, 1999. Subsequently, the SEC has issued deferrals that
extend the compliance requirement until the fourth quarter of fiscal
years beginning after December 15, 1999. Since the company's current
revenue recognition policy effectively complies with this guidance, there
will be no effect on the company's financial position, results of
operations or cash flow.
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.
. An interest rate swap entered into with a major financial institution 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 this swap are treated as deferred
income and amortized against interest expense over the term of the
agreement.
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
$76 million and $385 million at June 25, 2000, and December 26, 1999,
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.
At the end of 1999, the company's cash and short-term investments reflected
$1.6 billion in marketable securities. These liquid investments were being
held to meet cash requirements in early January to complete the $735
million acquisition of TJ International and redeem $750 million in notes
payable.
<PAGE>
Weyerhaeuser Company
-10-
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 $394 million
and $358 million at June 25, 2000, and December 26, 1999, 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 $236 million and $227 million
greater at June 25, 2000, and December 26, 1999, 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 costs of products sold as these inventories are
disposed of.
Goodwill
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over 40 years,
which is the expected period to be benefited.
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 $145 million and $185 million at June 25,
2000, and December 26, 1999, 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).
<PAGE>
Weyerhaeuser Company
-11-
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.
Revenue Recognition
The company's forest products-based operations recognize revenue from
product sales upon shipment to their customers.
The company's real estate operations recognize income from the sales of
single-family housing units when construction has been completed, required
down payments have been received and title has passed to the customer.
Income from multi-family and commercial properties, developed lots and
undeveloped land is recognized when required down payments are received and
other income recognition criteria has been satisfied.
Impairment of Long-Lived Assets to Be Disposed Of
The company accounts for long-lived assets in accordance with SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to
Be Disposed Of. This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets
may not be recoverable. Assets to be disposed of are reported at the lower
of the carrying value or fair value less cost to sell.
Comprehensive Income
Comprehensive income consists of net income, foreign currency translation
adjustments and additional minimum pension liability adjustments. See Note
3: Comprehensive Income (Expense).
Reclassifications
Certain reclassifications have been made to conform prior years' data to
the current format.
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 Share
<TABLE>
<CAPTION>
Thirteen weeks Twenty-six
ended weeks ended
---------------- ----------------
June June June June
25, 27, 25, 27,
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Weighted average shares outstanding
(thousands):
Basic 228,433 199,874 231,271 199,874
Dilutive effect of stock options 279 1,025 455 722
------- ------- ------- -------
Diluted weighted average shares
outstanding 228,712 200,899 231,726 200,596
======= ======= ======= =======
</TABLE>
Basic net earnings per share are based on the weighted average number of
common and exchangeable shares outstanding during the period. Diluted net
earnings per share are based on the weighted average number of common and
exchangeable shares outstanding and stock options outstanding at the
beginning of or granted during the period.
<PAGE>
Weyerhaeuser Company
-12-
Options to purchase 109,400 shares at $55.56 per share, 540,276 shares at
$56.78 per share, 2,500 shares at $68.41 per share and 208,150 shares at
$65.56 per share were outstanding during the twenty-six weeks ending June
25, 2000. Options to purchase 2,500 shares at $68.41 per share were
outstanding during the twenty-six weeks ending June 27, 1999. 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 Twenty-six
ended weeks ended
---------------- ----------------
June June June June
25, 27, 25, 27,
Dollar amounts in millions 2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net earnings $ 203 $ 164 $ 447 $ 116
Other comprehensive income (expense):
Foreign currency translation
adjustments 131 36 94 75
Income tax (expense) on foreign
currency translation adjustments (2) (7) (11) (13)
------- ------- ------- -------
$ 332 $ 193 $ 530 $ 178
======= ======= ======= =======
</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. The
company's significant equity affiliates 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. Two
facilities are in operation 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.
During the 1999 second quarter, this joint venture paid approximately
$142 million to acquire 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 a sales and distribution business
in Australia. Approximately 500 people currently work in these
operations.
Weyerhaeuser Company, through a subsidiary, has the responsibility for
all management and marketing activities of this acquisition.
. North Pacific Paper Corporation - A 50 percent owned joint venture that
has a newsprint manufacturing facility in Longview, Washington.
. Wapawekka Lumber LP - A 51 percent owned limited partnership in
Saskatchewan, Canada, that commenced the operation of a sawmill during
1999. Substantive participating rights by the minority partner preclude
the consolidation of this partnership by the company.
<PAGE>
Weyerhaeuser Company
-13-
. Wilton Connor LLC - A 50 percent owned joint venture in Charlotte, North
Carolina, which supplies full-service, value-added turnkey packaging
solutions to 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>
June Dec.
25, 26,
Dollar amounts in millions 2000 1999
----------- --------
<S> <C> <C>
Current assets $ 264 $ 525
Noncurrent assets 1,422 1,885
Current liabilities 186 275
Noncurrent liabilities 639 816
</TABLE>
<TABLE>
<CAPTION>
Thirteen weeks Twenty-six
ended weeks ended
---------------- ----------------
June June June June
25, 27, 25, 27,
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales and revenues $ 246 $ 180 $ 458 $ 344
Operating income 38 24 63 44
Net income (loss) 28 12 44 8
</TABLE>
The company provides goods and services to these affiliates, which vary by
entity, in the form of raw materials, management and marketing services,
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 unconsolidated entities that are not majority owned or
controlled are accounted for using the equity method with taxes provided on
undistributed earnings as appropriate. These investments include minor
holdings in non-real estate partnerships that have significant assets and
income.
Unconsolidated financial information for unconsolidated entities, which are
accounted for by the equity method, is as follows:
<TABLE>
<CAPTION>
June Dec.
25, 26,
Dollar amounts in millions 2000 1999
----------- --------
<S> <C> <C>
Current assets $ 11,403 $ 11,457
Noncurrent assets 159 159
Current liabilities 10,187 10,577
Noncurrent liabilities 115 115
</TABLE>
<TABLE>
<CAPTION>
Thirteen weeks Twenty-six
ended weeks ended
---------------- ----------------
June June June June
25, 27, 25, 27,
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales and revenues $ 428 $ 157 $ 687 $ 226
Operating income 181 94 304 141
Net income 173 73 272 113
</TABLE>
The company may charge management and/or development fees to these
unconsolidated entities. The aggregate total of these transactions is not
material to the results of operations of the company.
Note 5: 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.
In the current quarter, the company took a $14 million charge for a
judgment against the company, currently under appeal, resulting from the
sale of Oregon assets in 1996. There were no significant individual items
in 1999.
<PAGE>
Weyerhaeuser Company
-14-
Note 6: Income Taxes
<TABLE>
<CAPTION>
Provisions for income taxes include the following: Twenty-six weeks
ended
------------------
June June
25, 27,
Dollar amounts in millions 2000 1999
-------- --------
<S> <C> <C>
Federal:
Current $ 104 $ 23
Deferred 45 61
-------- --------
149 84
-------- --------
State:
Current 15 5
Deferred 1 3
--------- --------
16 8
--------- --------
Foreign:
Current 73 14
Deferred 19 12
--------- --------
92 26
--------- --------
Income taxes before cumulative effect of a change
in an accounting principle 257 118
Deferred taxes applicable to the cumulative effect
of a change in an accounting principle -- (52)
--------- --------
$ 257 $ 66
========= ========
</TABLE>
Income tax provisions for interim periods are based on the current best
estimate of the effective tax rate expected to be applicable for the full
year. The effective tax rate reflects anticipated tax credits, foreign
taxes and other tax planning alternatives.
For the periods ended June 25, 2000, and June 27, 1999, 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 rate for the twenty-six week periods ended
June 25, 2000, and June 27, 1999, was 36.5%.
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 7: Inventories
<TABLE>
<CAPTION>
June Dec.
25, 26,
Dollar amounts in millions 2000 1999
--------- --------
<S> <C> <C>
Logs and chips $ 201 $ 197
Lumber, plywood and panels 421 297
Pulp and paper 215 161
Containerboard, paperboard and packaging 176 160
Other products 223 207
Materials and supplies 310 307
--------- --------
$ 1,546 $ 1,329
========= ========
</TABLE>
<PAGE>
Weyerhaeuser Company
-15-
Note 8: Property and Equipment
<TABLE>
<CAPTION>
June Dec.
25, 26,
Dollar amounts in millions 2000 1999
--------- --------
<S> <C> <C>
Property and equipment, at cost:
Land $ 226 $ 219
Buildings and improvements 2,133 1,933
Machinery and equipment 11,149 10,499
Rail and truck roads 702 577
Other 159 149
--------- --------
14,369 13,377
Less allowance for depreciation and amortization 6,218 5,817
--------- --------
$ 8,151 $ 7,560
========= ========
</TABLE>
Note 9: Accrued Liabilities
<TABLE>
<CAPTION>
June Dec.
25, 26,
Dollar amounts in millions 2000 1999
--------- --------
<S> <C> <C>
Payroll - wages and salaries, incentive awards,
retirement and vacation pay $ 402 $ 413
Taxes - Social Security and real and personal
property 63 48
Product warranties 20 83
Interest 96 105
Income taxes 63 58
Other 359 386
--------- --------
$ 1,003 $ 1,093
========= ========
</TABLE>
Note 10: Short-Term Debt
Lines of Credit
The company had short-term bank credit lines of $865 million and $515
million, all of which could be availed of by the company and Weyerhaeuser
Real Estate Company (WRECO) at June 25, 2000, and December 26, 1999,
respectively. No portions of these lines have been availed of by the
company or WRECO at June 25, 2000, or December 26, 1999. None of the
entities referred to above is a guarantor of the borrowing of the other. In
addition, the company's wholly owned Canadian subsidiary has short-term
bank credit lines that provide for the borrowings of up to $710 million and
$745 million at June 25, 2000, and December 26, 1999, respectively. No
portions of these lines have been availed of by the company's subsidiary.
Note 11: 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.
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 $400 million
at June 25, 2000, and December 26, 1999.
No portion of these lines has been availed of by the company at June 25,
2000, and December 26, 1999, except as noted.
The company's compensating balance agreements were not significant.
<PAGE>
Weyerhaeuser Company
-16-
Note 12: Shareholders' Interest
Common Shares
A reconciliation of common share activity for the periods ending June 25,
2000, and December 26, 1999, is as follows:
<TABLE>
<CAPTION>
June Dec.
25, 26,
In thousands 2000 1999
--------- ---------
<S> <C> <C>
Balance at beginning of year 230,798 206,073
New issuance 44 20,157
Retraction of exchangeable shares 2,513 4,568
--------- ---------
Balance at end of period 233,355 230,798
========= =========
In treasury:
Balance at beginning of year 4,758 7,064
Purchase of treasury common shares 12,425 --
Stock options exercised (206) (2,306)
--------- ---------
Balance at end of period 16,977 4,758
========= =========
</TABLE>
Exchangeable Shares
Exchangeable Shares issued by Weyerhaeuser Company Ltd., a wholly owned
Canadian subsidiary of the company, are, as nearly as practicable, the
economic equivalent of the company's common shares; i.e., they have the
following rights:
. The right to exchange such shares for Weyerhaeuser common shares on a one-
to-one basis.
. The right to receive dividends, on a per-share basis, in amounts that are
the same as, and are payable at the same time as, dividends declared on
Weyerhaeuser common shares.
. The right to vote at all shareholder meetings at which Weyerhaeuser
shareholders are entitled to vote on the basis of one vote per
Exchangeable Share.
. The right to participate upon a Weyerhaeuser liquidation event on a pro-
rata basis with the holders of Weyerhaeuser common shares in the
distribution of assets of Weyerhaeuser.
A reconciliation of Exchangeable Share activity for the periods ending June
25, 2000, and December 26, 1999, is as follows:
<TABLE>
<CAPTION>
June Dec.
25, 26,
In thousands 2000 1999
--------- ---------
<S> <C> <C>
Balance at beginning of year 8,810 --
New issuance 193 13,373
Debentures converted to exchangeable shares -- 5
Retraction (2,513) (4,568)
--------- ---------
Balance at end of period 6,490 8,810
========= =========
</TABLE>
Cumulative Other Comprehensive (Expense)
The company's cumulative other comprehensive (expense) includes:
<TABLE>
<CAPTION>
June Dec.
25, 26,
Dollar amounts in millions 2000 1999
--------- --------
<S> <C> <C>
Foreign currency translation adjustments $ (76) $ (159)
Minimum pension liability adjustment (8) (8)
--------- --------
$ (84) $ (167)
========= ========
</TABLE>
<PAGE>
Weyerhaeuser Company
-17-
Note 13: Charges for Integration and Closure of Facilities
In 2000, the company incurred $28 million of pretax charges related to the
MacMillan Bloedel acquisition. These expenditures included a $7.3 million
accrual for the closure of a Weyerhaeuser containerboard packaging plant
and $20.7 million of costs incurred for the transition and integration of
activities.
During the 1999 first quarter, the company recorded a pretax charge of $91
million for the impairment of long-lived assets to be disposed of. This
charge was 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 composite products business and ply-veneer facility were sold
in the second quarter of 1999. The export chip facility was closed in the
fourth quarter of 1999.
Also in the 1999 first quarter, the company incurred $3 million related to
the disposition of impaired assets.
Note 14: Charge for Settlement of Hardboard Siding Claims
In the current quarter, the company took a pretax charge of $130 million
($82 million net of income taxes) to cover estimated costs of a nationwide
class action settlement and claims related to hardboard siding. The
settlement is subject to court approval and other conditions in the
agreement. In July 2000, the proposed settlement received preliminary
approval from the Superior Court, San Francisco County, California. The
court set December 21, 2000, as the date for a final settlement approval
hearing. This is a claims-based settlement, which means that the claims
will be paid as submitted over a nine-year period. An independent adjuster
will review each claim submitted and determine if it qualifies for payment
under the terms of the settlement agreement.
Note 15: Commitments and Contingencies
The company's capital expenditures, excluding acquisitions, were $566
million in 1999, and are expected to be approximately $800 million in 2000;
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.
Note 16: Acquisitions
MacMillan Bloedel Limited
On November 1, 1999, the company completed its acquisition of MacMillan
Bloedel Limited (MB) following the approval of the transaction by the
shareholders of MB and securing all regulatory approvals in the United
States, Canada and other jurisdictions. The total purchase price updated
through June 25, 2000, including assumed debt of $703 million, totaled
$3,022 million. Through June 25, 2000, the company issued 20 million
common shares, and its wholly owned Canadian subsidiary, Weyerhaeuser
Company Ltd., issued 14 million Exchangeable Shares to fund the
transaction. At the option of the holder, the Exchangeable Shares may be
exchanged for Weyerhaeuser common shares on a one-for-one basis. In
addition, the company issued replacement options in exchange for
outstanding MB options with the number of shares and the exercise price
appropriately adjusted by the exchange ratio.
With the exception of $247 million of cash and short-term investments
acquired, this transaction was a noncash investing activity in which the
company acquired assets and assumed liabilities in exchange for common and
exchangeable shares as described above.
The company accounted for the transaction using the purchase method of
accounting. Accordingly, the assets and liabilities of the acquired
company were included in the Consolidated Balance Sheet and the operating
results were included in the Consolidated Statement of Earnings beginning
November 1, 1999.
<PAGE>
Weyerhaeuser Company
-18-
The purchase price to MB shareholders of $2,319 million was calculated as
follows:
<TABLE>
<S> <C>
Weyerhaeuser common and exchangeable shares issued
through June 25, 2000 33,767,088
Multiplied by the average market price (U.S.) $ 67.953
--------------
Value of common and exchangeable shares issued $ 2,294
Value of replacement options issued for MB stock options 25
--------------
Total purchase price $ 2,319
==============
</TABLE>
The purchase price to MB shareholders, plus estimated direct transaction
costs and expenses, additional accrued liabilities and the deferred tax
effect of applying purchase accounting at November 1, 1999, over the
historical net assets of MB, was calculated as follows:
<TABLE>
<CAPTION>
Dollar amounts in millions
<S> <C>
Purchase price to MB shareholders $ 2,319
Direct transaction costs and expenses 18
Additional accrued liabilities 88
Deferred tax effect of applying purchase accounting 379
Less: historical net assets (952)
--------------
Total excess costs $ 1,852
==============
</TABLE>
The above calculation of excess purchase price is preliminary. The company
will finalize this allocation by November 1, 2000. As of June 25, 2000,
the excess purchase price was allocated as follows:
<TABLE>
<CAPTION>
Dollar amounts in millions
<S> <C>
Plant, property and equipment, timber and timberlands,
and investment in equity affiliates $ 1,030
Goodwill 822
--------------
Total excess costs $ 1,852
==============
</TABLE>
Property, plant and equipment are being depreciated over an average of 20
years. The cost of timber and timberlands is charged to expense as the
related timber is harvested, estimated to be 25 to 40 years. Goodwill is
being amortized on a straight-line basis over 40 years.
The following summarized unaudited pro forma information, assuming this
acquisition occurred at the beginning of fiscal year 1999, is as follows:
<TABLE>
<CAPTION>
Pro Forma Information (unaudited)
Twenty-six weeks
ended
Dollar amounts in millions June 27, 1999
----------------
<S> <C>
Net sales and revenues $ 7,069
Net earnings before the cumulative effect of a change
in an accounting principle 263
Net earnings (loss) 171
Earnings (loss) per share:
Basic and diluted .73
</TABLE>
TJ International
On January 6, 2000, the company acquired a controlling interest in TJ
International (TJI), a 51 percent owner and managing partner of Trus Joist
MacMillan (TJM), through a successful tender offer that represented more
than 90 percent of the total number of outstanding shares. The company had
acquired a 49 percent interest in TJM through its acquisition of MacMillan
Bloedel, completed in November 1999. On January 21, 2000, the company
completed the acquisition through the filing of a short-term merger
document. This acquisition was completed under the terms of an offer by
the company to purchase all outstanding shares of TJ International for $42
per share and stock option cash-outs of certain TJI management personnel.
The total purchase price, including assumed debt of $142 million, was $877
million.
<PAGE>
Weyerhaeuser Company
-19-
The company accounted for the transaction using the purchase method of
accounting. Accordingly, the assets and liabilities of the acquired
company were included in the Consolidated Balance Sheet and the operating
results were included in the Consolidated Statement of Earnings beginning
January 6, 2000.
The purchase price, plus estimated direct transaction costs and expenses,
and the deferred tax effect of applying purchase accounting as of June 25,
2000, was calculated as follows:
<TABLE>
<CAPTION>
Dollar amounts in millions
<S> <C>
Purchase price of tender offer and stock option cash-out $ 735
Direct transaction costs and expenses 21
Deferred tax effect of applying purchase accounting 116
Less: historical net assets (242)
--------------
Total excess costs $ 630
==============
</TABLE>
The above calculation of excess purchase price is preliminary. The company
will finalize this allocation by January 6, 2001. As of June 25, 2000, the
excess purchase price was allocated as follows:
<TABLE>
<CAPTION>
Dollar amounts in millions
<S> <C>
Property, plant and equipment $ 288
Goodwill 342
--------------
Total excess costs $ 630
==============
</TABLE>
Property, plant and equipment are being depreciated over an average of 20
years. Goodwill is being amortized on a straight-line basis over 40 years.
Australian Sawmills and Distribution Capabilities
During the quarter, the company completed its previously announced
acquisition of two sawmills and related assets in Australia from CSR Ltd.
of Australia.
Weyerhaeuser paid approximately US $48 million in cash to acquire:
. Two sawmills with a combined annual production capacity of 171 million
board feet (291,000 cubic meters) of lumber. The mills are located in
Tumut, New South Wales; and Caboolture, Queensland.
. CSR's 70 percent stake in Pine Solutions, Australia's largest softwood
timber distributor. RII Weyerhaeuser World Timberfund LP, a partnership
between Weyerhaeuser and UBS Brinson, acquired a 30 percent ownership of
Pine Solutions last year.
Note 17: 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; engineered wood; 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
-20-
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 Twenty-six
weeks ended weeks ended
---------------- ----------------
June June June June
25, 27, 25, 27,
Dollar amounts in millions 2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales to and revenues from unaffiliated
customers:
Timberlands $ 364 $ 176 $ 644 $ 329
Wood products 1,926 1,412 3,758 2,528
Pulp, paper and packaging 1,528 1,100 3,004 2,182
Real estate and related assets 324 314 602 590
Corporate and other 45 42 90 80
------- ------- ------- -------
4,187 3,044 8,098 5,709
------- ------- ------- -------
Intersegment sales:
Timberlands 350 126 469 251
Wood products 58 49 132 97
Pulp, paper and packaging 15 24 59 56
Corporate and other 3 2 6 4
------- ------- ------- -------
426 201 666 408
------- ------- ------- -------
Total sales and revenues 4,613 3,245 8,764 6,117
Intersegment eliminations (426) (201) (666) (408)
------- ------- ------- -------
$4,187 $3,044 $8,098 $5,709
======= ======= ======= =======
Approximate contribution (charge) to
earnings (1):
Timberlands $ 160 $ 143 $ 327 $ 262
Wood products (6) 174 131 161
Pulp, paper and packaging 237 34 423 75
Real estate and related assets (1) 80 45 127 91
Corporate and other (77) (74) (140) (136)
------- ------- ------- -------
394 322 868 453
Interest expense (82) (66) (173) (134)
Less capitalized interest 5 2 9 4
------- ------- ------- -------
Earnings before income taxes and the
cumulative effect of a change
in an accounting principle 317 258 704 323
Income taxes (114) (94) (257) (118)
------- ------- ------- -------
Earnings before the cumulative
effect of a change in an
accounting principle 203 164 447 205
Cumulative effect of a change in an
accounting principle -- -- -- (89)
------- ------- ------- -------
Net earnings $ 203 $ 164 $ 447 $ 116
======= ======= ======= =======
</TABLE>
There were no material changes from year-end 1999 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 $4 million and $3 million for the thirteen weeks
and $8 million for the twenty-six weeks ended June 25, 2000, and June
27, 1999, respectively, is included in the determination of approximate
contributions to earnings and excluded from interest expense for
financial services businesses.
<PAGE>
Weyerhaeuser Company
-21-
WEYERHAEUSER COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Consolidated Results
Consolidated net earnings for the second quarter were $203 million, or 89
cents basic and diluted earnings per share, an increase of 24 percent over
1999 second quarter earnings of $164 million, or 82 cents basic earnings
(81 cents diluted) per share.
The quarter's results include an after-tax charge of $82 million, or 36
cents per share, to cover estimated costs of a nationwide class action
settlement and claims related to hardboard siding. Excluding this after-
tax charge, net earnings were $285 million, or $1.25 per share.
Consolidated net sales and revenues for the quarter were $4.2 billion, an
increase of 38 percent over the $3 billion reported in the same period last
year.
The second quarter results reflect the continued improvements in the pulp
and containerboard markets, the addition of the MacMillan Bloedel and Trus
Joist acquisitions and the operating improvements and acquisition synergies
the company is achieving.
Year-to-date earnings were $447 million, or $1.93 basic and diluted
earnings per share compared to $116 million, or 58 cents basic earnings (57
cents diluted) per share for the prior year's first half. Current year's
six-month's earnings before the hardboard siding charge were $529 million,
or $2.29 basic earnings per share. 1999 year-to-date results were impacted
by an after-tax charge of $89 million, or 45 cents per share from the
cumulative effect of a change in accounting principle and $60 million, or
30 cents per share associated with the impairment of long-lived assets. See
Notes 1 and 13 of Notes to Financial Statements. Earnings before these
charges were $265 million, or $1.33 per share.
Consolidated net sales and revenues year to date were $8.1 billion, up 42
percent from $5.7 billion in the prior year.
Timberlands
Second quarter operating earnings for the timberlands segment were $160
million, a 12 percent increase over $143 million reported last year. Sales
to unaffiliated customers were $364 million, more than double the $176
million in the 1999 second quarter. Intersegment sales were $350 million
compared to $126 million reported a year ago. These increases resulted from
the addition, through acquisition, of coastal British Columbia and
Australian operations.
Raw material sales volumes to unaffiliated customers were 269 and 414
million cubic feet for the quarter and year to date, respectively, compared
to 72 and 140 million cubic feet, respectively, in the same periods of
1999.
Log production for the segment was 212 and 402 million cubic feet for the
quarter and year to date, respectively, compared to 128 and 257 million
cubic feet, respectively, in 1999.
Wood Products
This segment recorded an operating loss of $6 million for the quarter which
included the $130 million pretax charge to cover estimated costs of the
nationwide class action settlement and claims related to hardboard siding.
Excluding this charge, the segment earned $124 million in the quarter
compared to $174 million in 1999 second quarter. The change was due
primarily to weaker lumber prices resulting from a slowing demand and
seasonally strong supply, offset in part by lower log prices and strong
volumes. Additional earnings from the MacMillan Bloedel and Trus Joist
acquisitions and the synergies achieved through integration contributed
significantly to earnings.
Sales were $1.9 billion in the quarter, up 36 percent from the $1.4 billion
reported for the second quarter of 1999.
<PAGE>
Weyerhaeuser Company
-22-
Third party sales and total production volumes for the major products in
this segment for the twenty-six weeks ended June 25, 2000, and June 27,
1999, are as follows:
<TABLE>
<CAPTION>
Thirteen Twenty-six
weeks ended weeks ended
---------------- ----------------
June June June June
25, 27, 25, 27,
Third party sales volumes (millions) 2000 1999 2000 1999
------------------------------------ ------- ------- ------- -------
<S> <C> <C> <C> <C>
Softwood lumber - board feet 1,925 1,494 3,582 2,714
Softwood plywood and veneer -
square feet (3/8") 590 503 1,094 918
Composite panels - square feet (3/4") 73 127 195 279
Oriented strand board - square
feet (3/8") 968 665 1,670 1,344
Hardwood lumber - board feet 102 104 199 203
Hardwood doors (thousands) 199 194 364 374
Raw materials - cubic feet 92 65 187 133
Total production volumes (millions)
------------------------------------
Softwood lumber - board feet 1,484 1,174 2,910 2,193
Softwood plywood and veneer -
square feet (3/8") 336 262 667 513
Composite panels - square feet (3/4") 58 94 113 228
Oriented strand board - square
feet (3/8") 767 564 1,665 1,137
Hardwood lumber - board feet 102 100 197 191
Hardwood doors (thousands) 201 192 371 370
Logs - cubic feet 72 98 210 252
</TABLE>
Pulp, Paper and Packaging
Operating earnings for the quarter were $237 million compared with $34
million reported in the second quarter of 1999. Sales were $1.5 billion, a
39 percent increase over $1.1 billion in the same quarter a year ago.
Higher realizations for all pulp, paper and packaging products and the
addition of the MacMillan Bloedel packaging business contributed to the
earnings and sales increases. Pulp markets continue to remain strong due
to global economic conditions. Growth in corrugated box shipments slowed in
line with industrial production. The segment's earnings were unfavorably
impacted by 111,000 tons of downtime in the quarter.
Third party sales and total production volumes for the major products in
this segment for the twenty-six weeks ended June 25, 2000, and June 27,
1999, are as follows:
<TABLE>
<CAPTION>
Thirteen Twenty-six
weeks ended weeks ended
---------------- ----------------
June June June June
25, 27, 25, 27,
Third party sales volumes (thousands) 2000 1999 2000 1999
------------------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Pulp - air-dry metric tons 481 531 1,022 1,114
Paper - tons 376 355 763 726
Paperboard - tons 66 57 128 118
Containerboard - tons 232 140 526 255
Packaging - MSF 13,438 11,438 26,797 22,548
Recycling - tons 756 695 1,516 1,366
Total production volumes (thousands)
-------------------------------------
Pulp - air-dry metric tons 546 498 1,133 1,077
Paper - tons 404 371 799 774
Paperboard - tons 68 59 125 120
Containerboard - tons 885 620 1,853 1,217
Packaging - MSF 14,016 12,070 28,133 23,795
Recycling - tons 1,127 1,075 2,239 2,102
</TABLE>
<PAGE>
Weyerhaeuser Company
-23-
Real Estate and Related Assets
The segment earned $80 million in the quarter, a 78 percent increase over
$45 million in the same quarter last year. Revenues were $324 million
compared to second quarter 1999 revenues of $314 million. Year 2000
earnings included a $21 million gain on the sale of a real estate joint
venture. The business continues to produce strong sales in the California
and Washington, D.C. markets.
Costs and Expenses
Excluding the noncash charges of $130 million for the settlement of
hardboard siding claims and $15 million for integration and closure of
facilities, total costs and expenses for the quarter were $3.4 billion.
This compares to $2.5 billion, after a $10 million charge for Y2K
remediation charges reported last year. The 36 percent increase includes
the incremental operating costs of the MacMillan Bloedel and Trus Joist
acquisitions and is in direct proportion to the company's improved sales
performance. Weyerhaeuser's costs of products sold, as a percentage of net
sales, was 75 percent for both the current quarter and the 1999 second
quarter. Cost reduction efforts of $26 million for the quarter and $48
million year to date were achieved primarily in acquisition synergies.
The increase in the real estate and related assets segment's costs and
expenses can be attributed to increased sales volumes over the same period
last year.
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.
In the current quarter, the company took a $14 million charge for a
judgment against the company, currently under appeal, resulting from the
sale of Oregon assets in 1996. There were no significant individual items
in 1999.
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 half of 2000 was
$329 million, a decrease of $127 million from $456 million in the first
half of 1999.
Cash provided by operations before net changes in working capital was $888
million, an increase of $266 million over the $622 million provided in the
first six months of 1999. This increase was due primarily to increases of
$331 million in net earnings and $92 million in depreciation, amortization
and fee stumpage over 1999, which reflect the MacMillan Bloedel (MB) and
Trus Joist International (TJI) acquisitions. A significant noncash source
in 2000 was the $130 million charge taken for the settlement of hardboard
siding claims. Noncash sources amounted to $183 million in 1999; i.e.,
charges of $89 million, net of income taxes, taken for the effect of a
change in an accounting principle, $91 million for the write-down of
impaired assets to fair market value and $3 million for related disposition
costs.
These charges were offset, in part, by increases of $47 million in pension
and other postretirement benefits and $59 million in equity earnings of
affiliates and unconsolidated entities.
<PAGE>
Weyerhaeuser Company
-24-
Cash required for working capital by Weyerhaeuser in the first half of 2000
was $475 million, an increase of $296 million over the 1999 requirement for
the same period. Requirements for 2000, net of the effects of the TJI and
Australian acquisitions, included increases of $119 million in inventories
and $105 million in prepaid expenses along with a decrease of $216 million
in accounts payable and accrued liabilities. The inventory increase was
across all product lines with an inventory turnover rate of 10.9 turns for
the current quarter compared to 10.3 turns in the 2000 first quarter and
12.0 turns in the 1999 second quarter. The increase in prepaid expenses
consists of payments for deferred charges, deposits and advances, including
timber-cutting rights. Accrued liabilities that have decreased since year-
end 1999 include payroll, product warranties and interest.
Real estate and related assets working capital cash outflows included $80
million for the acquisition and development of land and residential lots
for construction.
Year-to-date earnings before interest expense and income taxes plus noncash
charges for the principal business segments were:
. Timberlands - $368 million, an increase of $82 million over $286 million
reported in 1999. This reflects increases in both operating earnings and
depreciation, amortization and fee stumpage.
. Wood products - $383 million compared to $338 million in 1999. Operating
earnings declined by $29 million while depreciation increased by $35
million. 2000 included a noncash charge of $130 million to cover the
estimated costs of the hardboard siding claim. 1999 included a noncash
charge of $91 million for impairment of long-lived assets.
. Pulp, paper and packaging - $634 million compared to $261 million in 1999
as a result of significantly improved operating earnings and increased
depreciation.
Investing
Capital expenditures, excluding acquisitions, for the first six months were
$371 million compared to $227 million a year ago. 2000 capital spending by
segment was $58 million for timberlands, $140 million for wood products,
$149 million for pulp, paper and packaging, $14 million for real estate and
related assets, and $10 million for corporate and other. The company
currently anticipates capital expenditures, excluding acquisitions, to
approximate $800 million for the year; however, this expenditure level
could increase or decrease as a consequence of future economic conditions.
During the first six months of the year, the company expended $48 million
to acquire two sawmills and distribution capabilities in Australia and $595
million to complete its tender offer for the stock of TJI.
The cash needed to meet capital expenditures, investments and other
requirements was generated principally from internal cash flows and the
redemption of short-term securities held at year-end 1999.
Financing
Year to date, Weyerhaeuser has decreased its interest-bearing debt by $246
million. Payments of $868 million on long-term debt obligations were
offset, in part, by an increase of $611 million in commercial paper
borrowings. The company's debt to total capital ratio was 36 percent at
the end of the quarter. This is comparable to 38 percent at the end of the
1999 second quarter and 36 percent at the end of 1999.
The real estate and related assets segment increased third party debt by
$35 million to finance real estate purchases. This was the net of $87
million sourced through commercial paper borrowings less $52 million to pay
off scheduled note maturities.
Cash dividends of $186 million were paid in the first six months of 2000
compared to $160 million in 1999. This reflects the additional shares
issued in the MB acquisition.
During the first six months of 2000, the company expended $630 million to
purchase 12.4 million of its common shares. This completes the 12 million
share repurchase program authorized by the board of directors in January
and commences a second program authorized in June to repurchase an
additional 10 million shares, which should be completed within a year.
<PAGE>
Weyerhaeuser Company
-25-
Environmental Matters
Over the past several years, the National Marine Fisheries Service (NMFS)
has listed as threatened or endangered under the Endangered Species Act
(ESA) various species of salmon and steelhead trout that spawn in the
Pacific Northwest (Washington, Oregon, Idaho and northern California) and
some additional populations have been proposed to be listed. The U.S. Fish
and Wildlife Service also has listed a number of species as threatened or
endangered under the ESA, including the northern spotted owl, marbled
murrelet, bull trout and lynx.
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. In the second quarter, NMFS announced adoption of rules to
prohibit "take" of the salmon species it has listed as threatened, except
"incidental take" that may result from activities regulated under state or
local programs approved by NMFS. The rules will become effective September
8, 2000, for steelhead and January 8, 2001, for most threatened salmon
species. 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.
For example, during the second quarter of 1999, the Washington State
Legislature amended that state's Forest Practices Act to implement a salmon
recovery agreement negotiated among state and federal agencies, Indian
tribes and forest landowner organizations and in the first quarter of 2000
the Washington Forest Practices Board adopted interim rules to implement
that agreement. These rules require additional timber to be left
unharvested in riparian zones along streams and impose added road
construction and maintenance costs, partially offset by reductions in state
timber harvest taxes. The company expects the new rules to require some
reductions in timber harvest from its lands and other private and public
lands in Washington, but does not expect these reductions to significantly
impair its ability to operate its facilities or supply products to its
customers. The new NMFS rules relating to threatened steelhead and salmon
specifically provide for approval of these state rules as an exception to
the prohibition against "take" of those species; the company expects such
approval to be finalized within the next several quarters.
In the future, requirements to protect habitat 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 2000 or 2001, although they may have such an
effect in the future.
The company has established reserves for remediation costs on all of the
approximately 115 active sites across our operations as of the end of June
2000 in the aggregate amount of $51 million, compared to $46 million at the
end of 1999. This increase reflects the incorporation of new information
on all sites concerning remediation alternatives, updates on prior cost
estimates and new sites (none of which were significant) less the costs
incurred to remediate these sites during this period. The company has
accrued remediation costs of $11 million and $8 million in the first six
months of 2000 and 1999, respectively. The company incurred remediation
costs of $5 million year to date in both 2000 and 1999 and charged these
costs against the reserve.
Legal Proceedings
The company announced in June 2000 it had entered into a proposed
nationwide settlement of its hardboard siding class action cases and, as a
result, took a second quarter after-tax charge of $82 million to cover the
estimated cost of the settlement and related claims. In July 2000, the
proposed settlement received preliminary approval from the Superior Court,
San Francisco County, California. The court set December 21, 2000, as the
date for a final settlement approval hearing.
Acquisition of TJ International
On January 6, 2000, the company acquired a controlling interest in TJ
International, a 51 percent owner and managing partner of Trus Joist
MacMillan (TJM) through a successful tender offer that represented more
than 90 percent of the total number of outstanding shares. On January 21,
2000, the company completed the acquisition through the filing of a short-
term merger document. See Note 16: Acquisitions in Notes to Financial
Statements.
<PAGE>
Weyerhaeuser Company
-26-
Other
. During the fourth quarter of 1999, the company announced a new initiative
to streamline and improve delivery of internal support services that is
expected to result in $150 million to $200 million in annual savings.
The company began implementation of these plans during the first quarter
of 2000, a process that may take up to three years to complete. Because
implementation plans are still under review, the specific number of
employees affected, exact timing of the implementation and associated
costs have not been finalized.
. During the quarter, the company's wholly owned Canadian subsidiary,
Weyerhaeuser Company Limited, announced the signing of an agreement to
acquire the operations of Coast Mountain Hardwoods, a subsidiary of
Advent International Corp., in British Columbia. Terms were not
disclosed. The purchase includes a hardwood lumber mill producing more
than 42 million board feet (MMBF) annually; dry kilns with annual
capacity of 20 MMBF; an abrasive planer that produces more than 25 MMBF
annually; and five volume-based forest licenses dispersed in the
Vancouver, B.C. forest region. Weyerhaeuser's Northwest Hardwoods
business will manage the facility in conjunction with Weyerhaeuser
Company Limited and continue to serve as the sole marketer for Coast
Mountain's hardwood products.
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. 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. At June 25, 2000, the net open position of foreign exchange
hedges in Canadian dollars, German DMs and Japanese yen was a short
position of $1 million.
. 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.
At June 25, 2000, the company had one interest rate swap with a maturity
date of November 6, 2001, and a notional amount of $75 million with a fixed
interest rate of 6.85 percent. The variable rate at June 25, 2000, based
on the 30-day LIBOR, was 6.67 percent, with the fair value of the swap
being $.3 million. The amount of the obligation under this swap is based
on the assumption that it 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.
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.
<PAGE>
Weyerhaeuser Company
-27-
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 2000. In addition, the company is conducting
a review of one pulp and paper facility and two wood products facilities
that were recently acquired to evaluate their compliance with PSD and new
source review regulations.
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 been unable
thus far to obtain a reversal of the certification. 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. In July 1999, the company's motion for summary judgment
was granted in this case. The plaintiffs filed a petition for
reconsideration, which was denied in January 2000. The plaintiffs have
appealed this decision. A lawsuit was filed against the company in
District Court, Johnson County, Texas, in June 1999. The case purports to
be a class action on behalf of persons who own structures in the state of
Texas with exterior hardboard siding manufactured by the company. The
complaint alleges defective design, misrepresentation, negligence, breach
of express warranty and fraudulent concealment. The complaint seeks
unspecified compensatory damages. In July 1999, a lawsuit was filed
against the company in the Court of Common Pleas, Beaufort County, South
Carolina. The suit purports to be filed on behalf of all owners of
residential structures or other buildings with hardboard siding
manufactured by the company. The complaint alleges breach of express and
implied warranties, defective design and manufacture, fraud and violation
of South Carolina's unfair trade practices act. The plaintiffs seek
compensatory damages, treble damages and attorneys' fees. The company is a
defendant in two other cases, one in Iowa and the other in Oregon, that
purport to be statewide class actions with similar allegations. In June
2000, the company announced it had entered into a proposed nationwide
settlement of its hardboard siding class action litigation. The proposed
settlement received preliminary approval by the Superior Court, San
Francisco County, California, in July 2000. The court set December 21,
2000, as the date for a final settlement approval hearing. The company has
established a $130 million reserve to cover the estimated cost of the
settlement and related claims. At the end of the second quarter, the
company was a defendant in about 22 nonclass hardboard siding cases
primarily involving multi-family structures and residential developments.
In May 1999, two civil antitrust lawsuits were filed against the company in
U.S. District Court, Eastern District of Pennsylvania. Both suits name as
defendants several other major containerboard and packaging producers. The
complaint in the first case alleges the defendants conspired to fix the
price of linerboard and that the alleged conspiracy had the effect of
increasing the price of corrugated containers. The suit purports to be a
class action on behalf of purchasers of corrugated containers during the
period October 1993 through November 1995. The complaint in the second case
alleges that the company conspired to manipulate the price of linerboard
and thereby the price of corrugated sheets. The suit purports to be a
class action on behalf of purchasers of corrugated sheets during the period
October 1993 through November 1995. Both suits seek damages, including
treble damages, under the antitrust laws.
<PAGE>
Weyerhaeuser Company
-28-
Item 1. Legal Proceedings - Continued
In May 1999, the Equity Committee ("the Committee") in the Paragon Trade
Brands, Inc. bankruptcy proceeding filed a motion in U.S. Bankruptcy Court
for the Northern District of Georgia for authority to prosecute claims
against the company in the name of the debtor's estate. Specifically, the
Committee seeks to assert that the company breached certain warranties in
agreements entered into between Paragon and the company in connection with
Paragon's public offering of common stock in January 1993. The Committee
seeks to recover damages sustained by Paragon as a result of two patent
infringement cases, one brought by Procter & Gamble and the other by
Kimberly-Clark. In September 1999, the court authorized the Committee to
commence an adversary proceeding against the company. The Committee
commenced this proceeding in October 1999, seeking damages in excess of
$420 million against the company.
Subsidiaries of the company, formerly known as MacMillan Bloedel Limited
and MacMillan Bloedel (USA) Inc., have agreed to settle a class action suit
involving claims in the United States (excluding Colorado) alleging the
failure of cement fiber roofing products previously manufactured by
American Cemwood Corporation, a company owned by MacMillan Bloedel (USA)
Inc. The proposed settlement would create a fund of $105 million,
consisting of $65 million in cash and $40 million guaranteed recovery by
the class from certain insurance carriers. The settlement received final
court approval in May 2000. The company has established reserves for
liabilities and legal defense costs it believes are probable and reasonably
estimable with respect to the proposed settlement and pending suits and
claims.
In April 2000, the Environmental Protection Agency (Region X) issued a
notice of violation (NOV) and proposed penalty of $194 thousand to the
company's Mountain Pine, Arkansas, manufacturing facility. The NOV alleges
the facility was in violation of its Title V operating permit because it
had reported multiple instances in which the mill's two boilers had
exceeded pressure drop and scrubber flow rate requirements in its permits.
The company has appealed the proposed penalty.
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 4. Submission of Matters to a Vote of Security Holders
Matters voted upon and votes cast at the annual meeting of shareholders of
Weyerhaeuser Company held on Tuesday, April 18, 2000, were:
. The reelection of W. John Driscoll, Richard F. Haskayne, Robert J.
Herbold, Arnold G. Langbo, Donald F. Mazankowski, and Clayton K. Yeutter
to the board of directors.
For Withheld
----------- ---------
Driscoll 202,337,988 1,659,531
Haskayne 202,412,017 1,585,502
Herbold 201,205,732 2,791,787
Langbo 202,392,153 1,605,366
Mazankowski 202,361,432 1,636,087
Yeutter 202,283,797 1,713,722
For Against Abstain
----------- ---------- ---------
. Shareholder proposal
relating to a 109,154,052 79,177,569 1,952,042
classified board
<PAGE>
Weyerhaeuser Company
-29-
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 24, April 20, July
10 and July 18, 2000, reporting information under Item 5, Other Events.
The registrant filed a Form 8-K on January 10, 2000, which amended a Form 8-
K dated November 9, 1999, reporting information under Item 2, Acquisition
or Disposition of Assets, and Item 7, Financial Statements and Exhibits.
