SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
X OF THE SECURITIES EXCHANGE ACT OF 1934
For the thirty-nine weeks ended September 24, 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 October 27, 2000, was 212,831,984 common shares ($1.25 par value).
<PAGE>
Weyerhaeuser Company
-2-
WEYERHAEUSER COMPANY AND SUBSIDIARIES
Index to Form 10-Q Filing
For the thirty-nine weeks ended September 24, 2000
<TABLE>
Page No.
--------
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statement of Earnings 3
Consolidated Balance Sheet 4-5
Consolidated Statement of Cash Flows 6-7
Notes to Financial Statements 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 26-27
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 (not applicable)
Item 5. Other Information (not applicable)
Item 6. Exhibits and Reports on Form 8-K 28
</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 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 thirty-nine week period
ending September 24, 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
November 3, 2000
<PAGE>
Weyerhaeuser Company
-3-
<TABLE>
<CAPTION>
WEYERHAEUSER COMPANY AND SUBSIDIARIES
____________
CONSOLIDATED STATEMENT OF EARNINGS
For the periods ended September 24, 2000, and September 26, 1999
(Dollar amounts in millions except as noted and per share data)
(Unaudited)
Thirteen Thirty-nine
weeks ended weeks ended
---------------- ----------------
Sept. Sept. Sept. Sept.
24, 26, 24, 26,
2000 1999 2000 1999
------- ------- -------- -------
<S> <C> <C> <C> <C>
Net sales and revenues:
Weyerhaeuser $3,349 $2,809 $10,573 $7,928
Real estate and related assets 341 311 943 901
------- ------- -------- -------
Total net sales and revenues 3,690 3,120 11,516 8,829
------- ------- -------- -------
Costs and expenses:
Weyerhaeuser:
Costs of products sold 2,533 2,046 7,857 5,940
Depreciation, amortization and fee
stumpage 194 152 593 460
Selling, general and administrative
expenses 240 192 760 550
Research and development expenses 14 12 41 38
Taxes other than payroll and income
taxes 33 32 105 97
Charges for integration and closure
of facilities (Note 13) 14 -- 43 94
Charge for settlement of hardboard
siding claims (Note 14) -- -- 130 --
Charge for Year 2000 remediation -- 4 -- 31
------- ------- -------- -------
3,028 2,438 9,529 7,210
------- ------- -------- -------
Real estate and related assets:
Costs and operating expenses 282 257 777 735
Depreciation and amortization 1 2 4 4
Selling, general and administrative
expenses 13 11 38 39
Taxes other than payroll and income
taxes 1 2 5 6
------- ------- -------- -------
297 272 824 784
------- ------- -------- -------
Total costs and expenses 3,325 2,710 10,353 7,994
------- ------- -------- -------
Operating income 365 410 1,163 835
Interest expense and other:
Weyerhaeuser:
Interest expense incurred 87 62 260 196
Less interest capitalized 4 3 13 7
Equity in income of affiliates
(Note 4) 17 5 42 13
Other income (expense), net (Note 5) 3 1 (4) 8
Real estate and related assets:
Interest expense incurred 22 18 61 56
Less interest capitalized 19 14 50 44
Equity in income of unconsolidated
subsidiaries (Note 4) 9 18 62 29
Other income (expense), net (Note 5) 5 2 12 12
------- ------- -------- -------
Earnings before income taxes and
cumulative effect of a change in an
accounting principle 313 373 1,017 696
Income taxes (Note 6) 114 136 371 254
------- ------- -------- -------
Earnings before cumulative effect of
a change in an accounting principle 199 237 646 442
Cumulative effect of a change in an
accounting principle (Note 1) -- -- -- 89
------- ------- -------- -------
Net earnings $ 199 $ 237 $ 646 $ 353
======= ======= ======== =======
Per common share (Note 2):
Basic net earnings before cumulative
effect of a change in an accounting
principle $ 0.90 $ 1.18 $ 2.84 $ 2.21
Cumulative effect of a change in an
accounting principle -- -- -- (0.45)
------- ------- -------- -------
$ 0.90 $ 1.18 $ 2.84 $ 1.76
======= ======= ======== =======
Diluted net earnings before
cumulative effect of a change in
an accounting principle $ 0.90 $ 1.18 $ 2.83 $ 2.20
Cumulative effect of a change in an
accounting principle -- -- -- (0.44)
------- ------- -------- -------
$ 0.90 $ 1.18 $ 2.83 $ 1.76
======= ======= ======== =======
Dividends paid per share $ 0.40 $ 0.40 $ 1.20 $ 1.20
======= ======= ======== =======
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
Weyerhaeuser Company
-4-
<TABLE>
<CAPTION>
WEYERHAEUSER COMPANY AND SUBSIDIARIES
____________
CONSOLIDATED BALANCE SHEET
September 24, 2000, and December 26, 1999
(Dollar amounts in millions)
Sept. Dec.
24, 26,
2000 1999
---------- --------
(Unaudited)
<S> <C> <C>
Assets
------
Weyerhaeuser
Current assets:
Cash and short-term investments (Note 1) $ 73 $ 1,640
Receivables, less allowances 1,410 1,296
Inventories (Note 7) 1,469 1,329
Prepaid expenses 367 278
---------- --------
Total current assets 3,319 4,543
Property and equipment (Note 8) 8,045 7,560
Construction in progress 654 355
Timber and timberlands at cost, less fee
stumpage charged to disposals 1,662 1,667
Investments in and advances to equity affiliates
(Note 4) 564 950
Goodwill, net of accumulated amortization 1,146 792
Other assets and deferred charges 578 533
---------- --------
15,968 16,400
---------- --------
Real estate and related assets
Cash and short-term investments 14 3
Receivables, less discounts and allowances 97 94
Mortgage-related financial instruments, less
discounts and allowances 76 84
Real estate in process of development
and for sale 662 556
Land being processed for development 919 956
Investments in unconsolidated entities, less
reserves (Note 4) 186 124
Other assets 135 122
---------- --------
2,089 1,939
---------- --------
Total assets $18,057 $18,339
========== ========
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
Weyerhaeuser Company
-5-
<TABLE>
<CAPTION>
Sept. Dec.
24, 26,
2000 1999
---------- --------
(Unaudited)
<S> <C> <C>
Liabilities and shareholders' interest
--------------------------------------
Weyerhaeuser
Current liabilities:
Notes payable and commercial paper $ 862 $ 54
Current maturities of long-term debt (Note 11) 88 855
Accounts payable (Note 1) 927 961
Accrued liabilities (Note 9) 796 1,093
---------- --------
Total current liabilities 2,673 2,963
Long-term debt (Note 11) 3,982 3,945
Deferred income taxes (Note 6) 2,209 1,985
Deferred pension, other postretirement benefits
and other liabilities 777 773
Commitments and contingencies (Note 15)
---------- --------
9,641 9,666
---------- --------
Real estate and related assets
Notes payable and commercial paper 733 676
Long-term debt (Note 11) 428 479
Other liabilities 367 345
Commitments and contingencies (Note 15)
---------- --------
1,528 1,500
---------- --------
Total liabilities 11,169 11,166
---------- --------
Shareholders' interest (Note 12)
Common shares: authorized 400,000,000 shares,
issued and outstanding: 212,824,084 and
226,039,188, $1.25 par value 266 283
Exchangeable shares; no par value; unlimited
shares authorized; issued and held by
nonaffiliates: 6,291,031 and 8,809,994 428 598
Other capital 2,492 2,443
Retained earnings 3,744 4,016
Cumulative other comprehensive (expense) (42) (167)
---------- --------
Total shareholders' interest 6,888 7,173
---------- --------
Total liabilities and shareholders' interest $18,057 $18,339
========== ========
</TABLE>
<PAGE>
Weyerhaeuser Company
-6-
<TABLE>
<CAPTION>
WEYERHAEUSER COMPANY AND SUBSIDIARIES
____________
CONSOLIDATED STATEMENT OF CASH FLOWS
For the thirty-nine week periods ended September 24, 2000, and
September 26, 1999
(Dollar amounts in millions)
(Unaudited)
Consolidated
------------------
Sept. Sept.
24, 26,
2000 1999
-------- --------
<S> <C> <C>
Cash provided by (used for) operations:
Net earnings $ 646 $ 353
Noncash charges (credits) to income:
Depreciation, amortization and fee stumpage 597 464
Deferred income taxes, net 111 141
Pension and other postretirement benefits (128) (67)
Equity in (income) loss of affiliates and
unconsolidated entities (104) (42)
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) 43 94
Decrease (increase) in working capital:
Receivables 7 (201)
Inventories, real estate and land (153) (82)
Prepaid expenses (101) 10
Mortgage-related financial instruments 4 17
Accounts payable and accrued liabilities (495) 131
(Gain) loss on disposition of assets (6) 18
Other 6 (9)
-------- --------
Net cash provided by (used for) operations 557 916
-------- --------
Cash provided by (used for) investing activities:
Property and equipment (520) (301)
Timber and timberlands (56) (35)
Acquisition of businesses - net of cash acquired
(Note 16) (642) --
Investments in and advances to equity affiliates 71 (23)
Proceeds from sale of:
Property and equipment 23 9
Businesses -- 80
Mortgage-related financial instruments 6 16
Intercompany advances -- --
Other 10 11
-------- --------
Net cash provided by (used for) investing
activities (1,108) (243)
-------- --------
Cash provided by (used for) financing activities:
Issuances of debt 12 34
Notes and commercial paper borrowings, net 889 (128)
Cash dividends (274) (240)
Payments on debt (971) (322)
Repurchase of common shares (808) --
Exercise of stock options 9 91
Other 138 (15)
-------- --------
Net cash provided by (used for) financing
activities (1,005) (580)
-------- --------
Net increase (decrease) in cash and short-term
investments (1,556) 93
Cash and short-term investments at beginning of year 1,643 35
-------- --------
Cash and short-term investments at end of period $ 87 $ 128
======== ========
Cash paid during the period for:
Interest, net of amount capitalized $ 285 $ 237
======== ========
Income taxes $ 217 $ 18
======== ========
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
Weyerhaeuser Company
-7-
<TABLE>
<CAPTION>
Real Estate and
Weyerhaeuser Related Assets
------------------ ------------------
Sept. Sept. Sept. Sept.
24, 26, 24, 26,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C>
$ 532 $ 261 $ 114 $ 92
593 460 4 4
101 134 10 7
(124) (66) (4) (1)
(42) (13) (62) (29)
-- 89 -- --
130 -- -- --
43 94 -- --
10 (194) (3) (7)
(47) (17) (106) (65)
(101) 10 -- --
-- -- 4 17
(518) 56 23 75
(6) 18 -- --
14 (8) (8) (1)
-------- -------- -------- --------
585 824 (28) 92
-------- -------- -------- --------
(504) (292) (16) (9)
(56) (35) -- --
(642) -- -- --
30 (49) 41 26
23 8 -- 1
-- 80 -- --
-- -- 6 16
(4) (72) 4 72
10 11 -- --
-------- -------- -------- --------
(1,143) (349) 35 106
-------- -------- -------- --------
11 32 1 2
832 (134) 57 6
(274) (240) -- --
(917) (113) (54) (209)
(808) -- -- --
9 91 -- --
138 (15) -- --
-------- -------- -------- --------
(1,009) (379) 4 (201)
-------- -------- -------- --------
(1,567) 96 11 (3)
1,640 28 3 7
-------- -------- -------- --------
$ 73 $ 124 $ 14 $ 4
======== ======== ======== ========
$ 274 $ 224 $ 11 $ 13
======== ======== ======== ========
$ 160 $ 16 $ 57 $ 2
======== ======== ======== ========
</TABLE>
<PAGE>
Weyerhaeuser Company
-8-
WEYERHAEUSER COMPANY AND SUBSIDIARIES
____________
NOTES TO FINANCIAL STATEMENTS
For the thirty-nine week periods ended September 24, 2000, and September
26, 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 $0.45 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 June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting
for Derivative Instruments and Hedging Activities. SFAS 133 establishes
new accounting and reporting standards for derivative financial
instruments and for hedging activities. SFAS 133 requires the
measurement of derivatives at fair value and recognition in the balance
sheet as an asset or liability, depending on the company's rights or
obligations under the applicable derivative contract. Subsequent to the
issuance of SFAS 133, the FASB received many requests to clarify certain
issues causing difficulties in implementation. In June 2000, the FASB
issued SFAS 138, Accounting for Certain Derivative Instruments and
Certain Hedging Activities, an amendment to FASB Statement No. 133, which
responds to those requests by amending certain provisions of SFAS 133.
SFAS 133 and the corresponding amendments under SFAS 138 will be
effective as of the first quarter of the company's fiscal year 2001.
Assuming that the company's current minimal involvement in derivatives
and hedging activities continues after
<PAGE>
Weyerhaeuser Company
-9-
the effective date of this statement, the company believes that the
future adoption of this statement will not have a material impact on its
financial position, results of operations or cash flow.
. 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 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.
. In September 2000, the Emerging Issues Task Force (EITF) of the FASB
reached a consensus on EITF Issue No. 00-10, Accounting for Shipping and
Handling Fees and Costs. This consensus requires that all shipping and
handling fees charged to customers be reported as revenues and all
shipping and handling costs incurred by a seller be reported as operating
expenses. Compliance with the EITF consensus is applicable for the
fourth quarter of fiscal years beginning after December 15, 1999. The
company has historically recorded certain shipping and handling costs as
a reduction of gross sales, in accordance with standard industry
practice. Compliance with the EITF consensus will require
reclassification of these costs to operating expenses. However, 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 $107
million and $385 million at September 24, 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 $397 million
and $358 million at September 24, 2000, and December 26, 1999,
respectively. The balances of domestic raw material and product
inventories, all materials and supplies inventories, and all foreign
inventories are 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 $234 million and $227 million greater at September 24, 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 $107 million and $185 million at September
24, 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 sheet.
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.
<PAGE>
Weyerhaeuser Company
-11-
Shareholders' Interest
The company has revised its presentation of repurchased company shares to
more closely reflect legal treatment of equity. As a result, prior year
presentations of common shares, other capital and retained earnings have
been restated.
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.
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.
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.
Note 2: Net Earnings Per Share
<TABLE>
<CAPTION>
Thirteen Thirty-nine
weeks ended weeks ended
---------------- ----------------
Sept. Sept. Sept. Sept.
24, 26, 24, 26,
2000 1999 2000 1999
------- ------- -------- -------
<S> <C> <C> <C> <C>
Weighted average shares
outstanding (thousands):
Basic 220,495 200,307 227,676 200,307
Dilutive effect of stock options 49 854 261 765
------- ------- -------- -------
Diluted weighted average shares
outstanding 220,544 201,161 227,937 201,072
======= ======= ======== =======
</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 150,000 shares at $53.06 per share, 1,516,300 shares at
$53.75 per share, 537,329 shares at $56.78 per share, 2,500 shares at
$68.41 per share and 205,900 shares at $65.56 per share were outstanding
during the thirty-nine weeks ending September 24, 2000. Options to purchase
2,500 shares at $68.41 per share were outstanding during the thirty-nine
weeks ending September 26, 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 Thirty-nine
weeks ended weeks ended
---------------- ----------------
Sept. Sept. Sept. Sept.
24, 26, 24, 26,
Dollar amounts in millions 2000 1999 2000 1999
------- ------- -------- -------
<S> <C> <C> <C> <C>
Net earnings $ 199 $ 237 $ 646 $ 353
Other comprehensive income (expense):
Foreign currency translation
adjustments 45 (8) 138 67
Income tax (expense) on foreign
currency translation adjustments (3) 2 (13) (11)
------- ------- -------- -------
Comprehensive income $ 241 $ 231 $ 771 $ 409
======= ======= ======== =======
</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.
. 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.
<PAGE>
Weyerhaeuser Company
-13-
. ForestExpress, LLC - A 31.75 percent owned joint venture formed
during 2000 to develop and operate a global, web-enabled, business-to-
business marketplace for the forest products industry. Other equity
members of the joint venture, which is headquartered in Atlanta, Georgia,
include Georgia-Pacific Corp., International Paper and The Mead
Corporation.
. MAS Capital Management Partners, L.P. - A 50 percent owned limited
partnership formed during 2000 for the purpose of providing investment
management services to institutional and individual investors in the area
of alternative investments.
Unconsolidated financial information for affiliated companies, which
are accounted for by the equity method, is as follows:
<TABLE>
<CAPTION>
Sept. Dec.
24, 26,
Dollar amounts in millions 2000 1999
---------- --------
<S> <C> <C>
Current assets $ 263 $ 525
Noncurrent assets 1,437 1,885
Current liabilities 199 275
Noncurrent liabilities 618 816
</TABLE>
<TABLE>
<CAPTION>
Thirteen Thirty-nine
weeks ended weeks ended
---------------- ----------------
Sept. Sept. Sept. Sept.
24, 26, 24, 26,
Dollar amounts in millions 2000 1999 2000 1999
------- ------- -------- -------
<S> <C> <C> <C> <C>
Net sales and revenues $ 232 $ 203 $ 690 $ 544
Operating income 30 19 93 66
Net income 19 8 63 17
</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>
Sept. Dec.
24, 26,
Dollar amounts in millions 2000 1999
---------- --------
<S> <C> <C>
Current assets $ 11,848 $ 11,457
Noncurrent assets 207 159
Current liabilities 10,498 10,577
Noncurrent liabilities 124 115
</TABLE>
<TABLE>
<CAPTION>
Thirteen Thirty-nine
weeks ended weeks ended
---------------- ----------------
Sept. Sept. Sept. Sept.
24, 26, 24, 26,
Dollar amounts in millions 2000 1999 2000 1999
------- ------- -------- -------
<S> <C> <C> <C> <C>
Net sales and revenues $ 399 $ 200 $1,086 $ 426
Operating income 168 86 472 227
Net income 127 70 399 183
</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.
<PAGE>
Weyerhaeuser Company
-14-
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.
There were no significant individual items in 2000 or 1999.
Note 6: Income Taxes
<TABLE>
<CAPTION>
Provisions for income taxes include the following: Thirty-nine
weeks ended
----------------
Sept. Sept.
24, 26,
Dollar amounts in millions 2000 1999
-------- -------
<S> <C> <C>
Federal:
Current $ 139 $ 76
Deferred 83 112
-------- -------
222 188
-------- -------
State:
Current 19 13
Deferred 5 5
-------- -------
24 18
-------- -------
Foreign:
Current 102 24
Deferred 23 24
-------- -------
125 48
-------- -------
Income taxes before cumulative effect of a change in
an accounting principle 371 254
Deferred taxes applicable to the cumulative effect of
a change in an accounting principle -- (52)
-------- -------
$ 371 $ 202
======== =======
</TABLE>
Income tax provisions for interim periods are based on the current best
estimate of the effective tax rate expected to be applicable for the full
year. The effective tax rate reflects anticipated tax credits, foreign
taxes and other tax planning alternatives.
For the periods ended September 24, 2000, and September 26, 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 thirty-nine week
periods ended September 24, 2000, and September 26, 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>
Sept. Dec.
24, 26,
Dollar amounts in millions 2000 1999
---------- --------
<S> <C> <C>
Logs and chips $ 210 $ 197
Lumber, plywood, panels and engineered wood 353 297
Pulp and paper 208 161
Containerboard, paperboard and packaging 186 160
Other products 196 207
Materials and supplies 316 307
---------- --------
$ 1,469 $ 1,329
========== ========
</TABLE>
<PAGE>
Weyerhaeuser Company
-15-
Note 8: Property and Equipment
<TABLE>
<CAPTION>
Sept. Dec.
24, 26,
Dollar amounts in millions 2000 1999
---------- --------
<S> <C> <C>
Property and equipment, at cost:
Land $ 225 $ 219
Buildings and improvements 2,138 1,933
Machinery and equipment 11,165 10,499
Rail and truck roads 691 577
Other 162 149
---------- --------
14,381 13,377
Less allowance for depreciation and amortization 6,336 5,817
---------- --------
$ 8,045 $ 7,560
========== ========
</TABLE>
Note 9: Accrued Liabilities
<TABLE>
<CAPTION>
Sept. Dec.
24, 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 65 48
Product warranties 17 83
Interest 66 105
Income taxes 4 58
Other 242 386
---------- --------
$ 796 $ 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 September 24, 2000, and
December 26, 1999, respectively. No portions of these lines have been
availed of by the company or WRECO at September 24, 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 $700 million and $745 million at September 24, 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 September 24, 2000, and December 26, 1999.
No portion of these lines has been availed of by the company at September
24, 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
September 24, 2000, and December 26, 1999, is as follows:
<TABLE>
<CAPTION>
Sept. Dec.
24, 26,
In thousands 2000 1999
---------- --------
<S> <C> <C>
Balance at beginning of year 226,039 199,009
New issuance 45 20,157
Retraction of exchangeable shares 2,712 4,568
Repurchase of common shares (16,182) --
Stock options exercised 210 2,305
---------- --------
Balance at end of period 212,824 226,039
========== ========
</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
September 24, 2000, and December 26, 1999, is as follows:
<TABLE>
<CAPTION>
Sept. Dec.
24, 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 (2,712) (4,568)
---------- --------
Balance at end of period 6,291 8,810
========== ========
</TABLE>
Cumulative Other Comprehensive (Expense)
The company's cumulative other comprehensive (expense) includes:
<TABLE>
<CAPTION>
Sept. Dec.
24, 26,
Dollar amounts in millions 2000 1999
---------- --------
<S> <C> <C>
Foreign currency translation adjustments $ (34) $ (159)
Minimum pension liability adjustment (8) (8)
---------- --------
$ (42) $ (167)
========== ========
</TABLE>
Note 13: Charges for Integration and Closure of Facilities
In 2000, the company incurred $43 million of pretax charges related to the
MacMillan Bloedel acquisition. These expenditures included a $7 million
accrual for the closure of a Weyerhaeuser containerboard packaging plant
and $36 million of costs incurred for the transition and integration of
activities.
<PAGE>
Weyerhaeuser Company
-17-
During the 1999 first quarter, the company recorded a pretax charge of $94
million for the impairment and disposition of certain long-lived assets.
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, were 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.
Note 14: Charge for Settlement of Hardboard Siding Claims
In the 2000 second 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, are expected to
be approximately $800 million in 2000, as compared to actual expenditures
of $566 million in 1999. However, the expected 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 September 24, 2000, including assumed debt of $703 million, totaled
$3,022 million. Through September 24, 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.
The purchase price to MB shareholders of $2,319 million was calculated as
follows:
<TABLE>
<S> <C>
Weyerhaeuser common and exchangeable shares issued
through September 24, 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>
<PAGE>
Weyerhaeuser Company
-18-
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 99
Deferred tax effect of applying purchase accounting 375
Less: historical net assets (951)
------------
Total excess costs $ 1,860
============
</TABLE>
The above calculation of excess purchase price is preliminary. The company
will finalize this allocation by November 1, 2000. As of September 24,
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 830
------------
Total excess costs $ 1,860
============
</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 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)
Thirty-nine
weeks ended
Dollar amounts in millions Sept. 26, 1999
--------------
<S> <C>
Net sales and revenues $ 10,944
Net earnings before the cumulative effect of a change
in an accounting principle 501
Net earnings 409
Earnings per share:
Basic $ 1.75
Diluted $ 1.72
</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 TJI 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.
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.
<PAGE>
Weyerhaeuser Company
-19-
The purchase price, plus estimated direct transaction costs and expenses,
and the deferred tax effect of applying purchase accounting as of September
24, 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 September 24,
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 2000 second 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 Thirty-nine
weeks ended weeks ended
---------------- ----------------
Sept. Sept. Sept. Sept.
24, 26, 24, 26,
Dollar amounts in millions 2000 1999 2000 1999
------- ------- -------- -------
<S> <C> <C> <C> <C>
Sales to and revenues from
unaffiliated customers:
Timberlands $ 151 $ 166 $ 795 $ 495
Wood products 1,606 1,337 5,092 3,865
Pulp, paper and packaging 1,546 1,253 4,550 3,435
Real estate and related assets 341 311 943 901
Corporate and other 46 53 136 133
------- ------- -------- -------
3,690 3,120 11,516 8,829
------- ------- -------- -------
Intersegment sales:
Timberlands 212 132 681 383
Wood products 64 65 196 162
Pulp, paper and packaging 51 26 110 82
Corporate and other 5 4 11 8
------- ------- -------- -------
332 227 998 635
------- ------- -------- -------
Total sales and revenues 4,022 3,347 12,514 9,464
Intersegment eliminations (332) (227) (998) (635)
------- ------- -------- -------
$3,690 $3,120 $11,516 $8,829
======= ======= ======== =======
Approximate contribution (charge) to
earnings (1):
Timberlands $ 111 $ 130 $ 437 $ 392
Wood products 55 202 187 363
Pulp, paper and packaging 252 105 675 180
Real estate and related assets (1) 54 56 181 147
Corporate and other (76) (61) (216) (197)
------- ------- -------- -------
396 432 1,264 885
Interest expense 87 62 260 196
Less capitalized interest 4 3 13 7
------- ------- -------- -------
Earnings before income taxes and the
cumulative effect of a change in
an accounting principle 313 373 1,017 696
Income taxes 114 136 371 254
------- ------- -------- -------
Earnings before the cumulative
effect of a change in an
accounting principle 199 237 646 442
Cumulative effect of a change in an
accounting principle -- -- -- 89
------- ------- -------- -------
$ 199 $ 237 $ 646 $ 353
======= ======= ======== =======
</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 $3 million and $4 million for the thirteen weeks and
$11 million and $12 million for the thirty-nine weeks ended September
24, 2000, and September 26, 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 third quarter were $199 million, or $0.90
basic and diluted earnings per share, a decrease of 16 percent from 1999
third quarter earnings of $237 million, or $1.18 basic and diluted earnings
per share.
Consolidated net sales and revenues for the quarter were $3.7 billion,
an increase of 18 percent over the $3.1 billion reported in the same period
last year.
The third quarter results were negatively impacted by weak markets for wood
products, but benefited from the strong performance of the pulp, paper and
packaging sector, the addition of the MacMillan Bloedel Limited (MB) and
Trus Joist International (TJI) acquisitions and the related acquisition
synergies the company is achieving.
Year-to-date earnings were $646 million, or $2.84 basic earnings per share
($2.83 diluted) compared to $353 million, or $1.76 basic and diluted
earnings per share for the prior year. The year-to-date results include an
after-tax charge of $82 million, or $0.36 per share, to cover estimated
costs of a nationwide class action settlement and claims related to
hardboard siding. See Note 14 of Notes to Financial Statements. Prior
year results were impacted by an after-tax charge of $89 million, or $0.45
per share from the cumulative effect of a change in an accounting principle
and $60 million, or $0.30 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 $728 million, or $3.20 basic earnings
per share, in 2000, compared to $502 million, or $2.51 per share, in 1999.
Consolidated net sales and revenues year to date were $11.5 billion, up 30
percent from $8.8 billion in the prior year.
Timberlands
Third quarter operating earnings for the timberlands segment were
$111 million, a 15 percent decrease from $130 million reported last year.
Year-to-date segment operating earnings of $437 million compares to $392
million reported in 1999.
Sales to unaffiliated customers were $151 million, down 9 percent from $166
million in the 1999 third quarter. Intersegment sales were
$212 million compared to $132 million reported a year ago, primarily due to
acquisition related increases. After weakening throughout much of the
quarter due to soft lumber markets, domestic log prices stabilized during
September. Domestic log prices, however, remain below last year's levels,
a trend the company expects to continue through the fourth quarter. Export
markets strengthened during the quarter, resulting in September prices
reaching their highest levels since 1997. Export markets may weaken during
the fourth quarter due to seasonal factors.
Wood Products
This segment recorded operating earnings of $55 million for the quarter, a
73 percent decrease from a record $202 million in the same quarter last
year. Year-to-date operating earnings of $187 million included a $130
million pretax charge to cover estimated costs of the nationwide class
action settlement and claims related to hardboard siding. Operating
earnings for the first nine months of 1999 were $363 million, which
included $94 million in pretax charges related to the impairment and
disposition of certain long-lived assets. Excluding these charges, the
segment earned $317 million in the first nine months of 2000 compared to
$457 million in 1999. The markets for most of the company's wood products
continued to weaken during the quarter, leading to lower earnings. The
addition of the MB and TJI acquisitions contributed to higher sales volumes
for most products, but realizations were impacted by lower prices. An
exception was the demand for engineered wood products, which held up well
during the quarter. At the end of the quarter, softwood lumber prices had
stabilized but market conditions remain weak.
Sales were $1.6 billion in the quarter, up 20 percent from the $1.3 billion
reported for the third quarter of 1999.
<PAGE>
Weyerhaeuser Company
-22-
Third party sales and total production volumes for the major products in
the timberlands and wood products segments for the thirteen and thirty-nine
weeks ended September 24, 2000, and September 26, 1999, are as follows:
<TABLE>
<CAPTION>
Thirteen Thirty-nine
weeks ended weeks ended
---------------- ----------------
Sept. Sept. Sept. Sept.
24, 26, 24, 26,
Third party sales volumes (millions) 2000 1999 2000 1999
------------------------------------ ------- ------- -------- -------
<S> <C> <C> <C> <C>
Timberlands:
Raw materials - cubic feet 64 72 478 212
Wood products:
Softwood lumber - board feet 1,804 1,408 5,386 4,122
Softwood plywood and veneer -
square feet (3/8") 572 476 1,666 1,394
Composite panels - square feet (3/4") 97 54 292 333
Oriented strand board - square
feet (3/8") 761 616 2,431 1,960
Hardwood lumber - board feet 100 97 299 300
Hardwood doors (thousands) 200 193 564 567
Raw materials - cubic feet 90 67 273 200
Total production volumes (millions)
-----------------------------------
Timberlands:
Logs - cubic feet 182 129 559 386
Wood products:
Softwood lumber - board feet 1,322 1,067 4,206 3,260
Softwood plywood and veneer -
square feet (3/8") 320 260 987 773
Composite panels - square feet
(3/4") 50 18 163 246
Oriented strand board - square
feet (3/8") 851 589 2,516 1,726
Hardwood lumber - board feet 94 95 291 286
Hardwood doors (thousands) 202 194 573 564
Logs - cubic feet 119 132 362 384
</TABLE>
Pulp, Paper and Packaging
Operating earnings for the quarter were $252 million, a 140 percent
increase over $105 million reported in the third quarter of 1999. Year-to-
date operating earnings of $675 million are ahead of prior year earnings of
$180 million.
Third quarter sales were $1.5 billion, a 23 percent increase over $1.3
billion in the same quarter a year ago. Strong earnings in the segment
were driven by higher prices and the addition of the MB containerboard and
packaging business. The segment's earnings were unfavorably impacted by
extended downtime during the quarter due to equipment failure at the Prince
Albert pulp mill. Orders for market pulp and containerboard from the non-
Japanese Asian markets were lower in the quarter and this weakness is
continuing into the fourth quarter. This decline in orders will result in
lower production levels in the company's pulp and containerboard businesses
during the fourth quarter.
<PAGE>
Weyerhaeuser Company
-23-
Third party sales and total production volumes for the major products in
this segment for the thirteen and thirty-nine weeks ended September 24,
2000, and September 26, 1999, are as follows:
<TABLE>
<CAPTION>
Thirteen Thirty-nine
weeks ended weeks ended
---------------- ----------------
Sept. Sept. Sept. Sept.
24, 26, 24, 26,
Third party sales volumes (thousands) 2000 1999 2000 1999
------------------------------------ ------- ------- -------- -------
<S> <C> <C> <C> <C>
Pulp - air-dry metric tons 541 561 1,563 1,675
Paper - tons 408 360 1,171 1,086
Paperboard - tons 64 65 192 183
Containerboard - tons 195 118 721 373
Packaging - MSF 13,086 11,329 39,883 33,877
Recycling - tons 764 709 2,280 2,075
Total production volumes (thousands)
------------------------------------
Pulp - air-dry metric tons 574 555 1,707 1,632
Paper - tons 391 343 1,190 1,117
Paperboard - tons 68 68 193 188
Containerboard - tons 782 634 2,635 1,851
Packaging - MSF 13,817 11,626 41,950 35,421
Recycling - tons 1,073 1,064 3,312 3,166
</TABLE>
Real Estate and Related Assets
The segment earned $54 million in the quarter, a 4 percent decrease from
$56 million in the same quarter last year. Year-to-date operating earnings
of $181 million exceed last year's earnings of $147 million by 23 percent.
Year-to-date 2000 earnings include a $21 million gain on the sale of assets
within a real estate joint venture. Third quarter revenues were $341 million
in 2000 compared to $311 million in 1999. While national new home sales
appear to be weakening, housing demand remains strong in the markets in
which the company operates.
Costs and Expenses
Third quarter costs and expenses were $3.3 billion, a 23 percent increase
over the same period last year. The increase includes the incremental
operating and one-time transition costs related to the MB and TJI acquisitions.
Weyerhaeuser's costs of products sold, as a percentage of net sales, was 76
percent for the current quarter as compared to 73 percent for the third
quarter of 1999, due to lower sales prices in the current quarter. As of
the end of the third quarter of 2000, the company has achieved $83 million
in synergies associated with the integration of the MB and TJI
acquisitions, of which $35 million was achieved in the third quarter.
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.
There were no significant individual items in the third quarter of 2000 or
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.
<PAGE>
Weyerhaeuser Company
-24-
. The combination of maturing short-term debt and the structure of long-
term debt will be managed judiciously to minimize liquidity risk.
Operations
Year-to-date consolidated net cash provided by operations was $557 million,
a decrease of $359 million from $916 million provided in 1999.
Cash provided by operations before net changes in working capital was
$1,295 million, an increase of $254 million over the $1,041 million
provided in the first nine months of 1999. This increase was due primarily
to increases of $293 million in net earnings and $133 million in
depreciation, amortization and fee stumpage over 1999, which resulted from
additional assets acquired in the MB and TJI acquisitions. In addition, a
$130 million noncash charge was recognized in 2000 for the settlement of
hardboard siding claims. Significant noncash charges in 1999 included $89
million, net of income taxes, for the effect of a change in an accounting
principle and $94 million for impairment and disposition of certain long-
lived assets. These charges were offset, in part, by increases of $61
million in pension and other postretirement benefits and $62 million in
equity earnings of affiliates and unconsolidated entities.
Cash required for working capital by Weyerhaeuser for the first nine months
of 2000 was $656 million, an increase of $511 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 $47 million
in inventories and $101 million in prepaid expenses along with a decrease
of $518 million in accounts payable and accrued liabilities. The inventory
increase was across all product lines with an inventory turnover rate of
10.7 turns for the current quarter compared to 10.9 turns in the 2000
second quarter and 12.4 turns in the 1999 third 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, interest
and income taxes.
Real estate and related assets working capital cash outflows included $106
million expended for the acquisition and development of land and
residential lots for construction in excess of products sold.
Year-to-date earnings before interest expense and income taxes plus noncash
charges for the principal business segments were:
. Timberlands - $497 million, an increase of $68 million over $429 million
reported in 1999. This reflects increases in both operating earnings and
depreciation, amortization and fee stumpage.
. Wood products - $499 million compared to $582 million in 1999. Operating
earnings declined by $176 million while depreciation increased by $54
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 $94 million for the impairment and disposition of certain
long-lived assets.
. Pulp, paper and packaging - $990 million compared to $456 million in 1999
as a result of significantly improved operating earnings and increased
depreciation.
Investing
Capital expenditures, excluding acquisitions, for the first nine months
were $576 million compared to $336 million a year ago. 2000 capital
spending by segment was $86 million for timberlands, $206 million for wood
products, $252 million for pulp, paper and packaging, $16 million for real
estate and related assets, and $16 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 nine months of the year, the company expended $48 million
to acquire two sawmills and distribution capabilities in Australia and $594
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.
<PAGE>
Weyerhaeuser Company
-25-
Financing
Year to date, Weyerhaeuser has decreased its interest-bearing debt by $74
million. Payments of $917 million on long-term debt obligations were
offset, in part, by an increase of $832 million in commercial paper
borrowings. The company's debt to total capital ratio was 37 percent at
the end of the quarter. This is comparable to 36 percent at both the end
of the 1999 third quarter and year end 1999.
The real estate and related assets segment increased third party debt by $4
million to finance real estate purchases. This was the net of $58 million
provided by commercial paper and other borrowings less $54 million used to
pay off scheduled note maturities.
Cash dividends of $274 million were paid in the first nine months of 2000
compared to $240 million in 1999. This reflects the additional shares
issued in the MB acquisition.
During the first nine months of 2000, the company expended $808 million to
purchase 16.2 million of its common shares. This completed the 12 million
share repurchase program authorized by the board of directors in January
and commenced a second program authorized in June to repurchase an
additional 10 million shares, which should be completed within a year.
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 became effective September 8,
2000, for steelhead and will become effective 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
September 2000 in the aggregate amount of $61 million, compared to $45
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 $23 million and $16 million in the
first nine months of 2000 and 1999, respectively. The company incurred
remediation costs of $7 million and $8 million during the first nine months
of 2000 and 1999, respectively, and charged these costs against the
reserve.
<PAGE>
Weyerhaeuser Company
-26-
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 an 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 (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. 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.
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.
. On October 2, 2000, the company's wholly owned Canadian subsidiary,
Weyerhaeuser Company Limited, announced the closure 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 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 September 24, 2000, the company had a long position in
Canadian dollars with a fair value of $52 million, a long position in
German DMs with a fair value of $1 million and a short position in
Japanese yen with a fair value of $19 million. The corresponding
contract values are $51 million, $2 million and $21 million,
respectively.
. Interest rate swaps entered into with major 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
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 September 24, 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 September
24, 2000, based on the 30-day LIBOR, was 6.62 percent, with the fair value
of the swap being a loss of $1.5 million. The amount of the obligation
<PAGE>
Weyerhaeuser Company
-27-
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. The company deals only with highly rated counterparties.
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 has conducted
a review of two wood products facilities that were recently acquired to
evaluate their compliance with PSD and new source review regulations.
The company has entered into a proposed class action settlement of
hardboard siding claims against the company. The settlement class consists
of all persons who own or owned structures in the United States on which
the company's hardboard siding has been installed from January 1, 1981
through December 31, 1999. The proposed settlement received preliminary
approval from the Superior Court, San Francisco County, California on July
12, 2000. The court set December 21, 2000, as the date for a hearing on
final approval of the proposed settlement. The company took an after-tax
charge of $82 million in the second quarter to cover the estimated cost of
the settlement and related costs. If the proposed nationwide class action
settlement is approved, two cases in which class actions have been claimed
but not certified in Oregon and Texas and one case in Washington claiming a
class that has been dismissed and is now on appeal will be dismissed. Cases
pending in South Carolina and Iowa in which statewide classes have been
sought but not certified, could proceed as individual cases but could not
be certified as class actions on behalf of any claimants included in a
certified nationwide class. At the end of the third quarter, the company
also was a defendant in about 25 nonclass hardboard siding cases involving
primarily 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.
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.
<PAGE>
Weyerhaeuser Company
-28-
Item 1. Legal Proceedings - Continued
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. Settlement negotiations are
ongoing.
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 24, April 20, July
10, July 18, and October 23, 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.
<PAGE>
Weyerhaeuser Company and Subsidiaries
EXHIBITS INDEX
-------------------------------------------------------------------------
Exhibits:
27 - Financial Data Schedules
