SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO
X SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended
December 26, 1999, or
TRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period
from _______ to _________
Commission File Number 1-4825
WEYERHAEUSER COMPANY
A Washington Corporation (IRS Employer Identification
No. 91-0470860)
Tacoma, Washington 98477
Telephone (253) 924-2345
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
- --------------------------------------- -----------------------------
Common Shares ($1.25 par value) Chicago Stock Exchange
New York Stock Exchange
Pacific Stock Exchange
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 _____.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [X].
As of February 25, 2000, 227,658,988 shares of the registrant's common
stock ($1.25 par value) were outstanding and the aggregate market
value of the registrant's voting shares held by non-affiliates was
approximately $11,226,434,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the fiscal year
ended December 26, 1999, are incorporated by reference into Parts I,
II and IV.
Portions of the Notice of 2000 Annual Meeting of Shareholders and
Proxy Statement are incorporated by reference into Part III.
<PAGE>
Weyerhaeuser Company and Subsidiaries
TABLE OF CONTENTS
- -------------------------------------------------------------------------
PART I Page
----
Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 11
PART II
Item 5. Market Price of and Dividends on the Registrant's
Common Equity and Related Stockholder Matters 12
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk 12
Item 8. Financial Statements and Supplementary Information 12
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 12
PART III
Item 10. Directors and Executive Officers of the Registrant 13
Item 11. Executive Compensation 13
Item 12. Security Ownership of Certain Beneficial Owners and
Management 13
Item 13. Certain Relationships and Related Transactions 13
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 14
Signatures 15
Report of Independent Public Accountants on Financial
Statement Schedules 16
Schedule II Valuation and Qualifying Accounts 17
2
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART I
- -------------------------------------------------------------------------
Item 1. Business
- -----------------
Weyerhaeuser Company (the company) was incorporated in the state of
Washington in January 1900 as Weyerhaeuser Timber Company. It is
principally engaged in the growing and harvesting of timber and the
manufacture, distribution and sale of forest products, real estate
development and construction, and other real estate related
activities. Its business segments are timberlands; wood products;
pulp, paper and packaging; and real estate and related assets.
Information with respect to the description and general development of
the company's business, included on pages 42 through 46, Description
of the Business of the Company, contained in the company's 1999 Annual
Report to Shareholders, is incorporated herein by reference.
Financial information with respect to industry segments and
geographical areas, included in Notes 20 and 21 of Notes to Financial
Statements contained in the company's 1999 Annual Report to
Shareholders, is incorporated herein by reference.
Timberlands
The company is engaged in the management of 5.9 million acres of
company-owned and .5 million acres of leased commercial forestland in
the United States and British Columbia, most of it highly productive
and located extremely well to serve both domestic and international
markets. The standing timber inventory on these lands is
approximately 96 million cunits (a cunit is 100 cubic feet of solid
wood). The relationship between cubic measurement and the quantity of
end products that may be produced from timber varies according to the
species, size and quality of timber, and will change through time as
the mix of these variables changes. To sustain the timber supply from
its fee timberlands, the company is engaged in extensive planting,
suppression of nonmerchantable species, precommercial and commercial
thinning, fertilization and operational pruning, all of which increase
the yield from its fee timberland acreage.
<TABLE>
<CAPTION>
Inventory Thousands of Acres at December 26, 1999
--------- ------------------------------------------
Millions Long-
of Fee term License
Cunits Ownership Leases Arrangements Total
--------- ----------- ------ ------------ ---------
Geographic Area
<S> <C> <C> <C> <C> <C>
United States
West 52 1,960 - - 1,960
South 44 3,290 495 - 3,785
--------- ----------- ------ ------------ ---------
Total United States 96 5,250 495 - 5,745
--------- ----------- ------ ------------ ---------
Canada(1)
Alberta 99 - - ,515 7,515
British Columbia 158 663 - 5,749 6,412
New Brunswick 1 - - 177 177
Ontario 52 1 - 6,538 6,539
Saskatchewan 116 - - 12,807 12,807
--------- ----------- ------ ------------ ---------
Total Canada 426 664 - 32,786 33,450(2)
--------- ----------- ------ ------------ ---------
TOTAL 522 5,914 495 32,786 39,195
========= =========== ====== ============ =========
</TABLE>
<TABLE>
<CAPTION>
Millions of Thousands of Acres
------------------------
Thousands of Acres Seedlings Stocking
---------------------
Harvested(3) Planted Planted Control Fertilization
------------ ------- ----------- -------- -------------
1999 Activity
<S> <C> <C> <C> <C> <C>
United States
West 33.7 35.1 18.5 8.5 83.8
South 59.0 54.7 30.8 1.9 399.8
------------ ------- ----------- -------- -------------
Total United
States 92.7 89.8 49.3 10.4 483.6
------------ ------- ----------- -------- -------------
Canada
British
Columbia 1.0 - - - 5.0
------------ ------- ----------- -------- -------------
TOTAL 93.7 89.8 49.3 10.4 488.6
============ ======= =========== ======== =============
_______________________________
(1) Managed by Canadian operations.
(2) Includes approximately 23 million acres of productive forestland.
(3) Includes 1.3 thousand acres of right-of-way and other harvest that
does not require planting.
3
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART I
- -------------------------------------------------------------------------
Item 1. Business - Continued
- -----------------------------
</TABLE>
<TABLE>
<CAPTION>
Sales volumes (millions):
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Raw materials - cubic ft. 287 259 235 254 254
</TABLE>
<TABLE>
<CAPTION>
Selected product prices:
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Export logs (#2 sawlog-bark on) - $/MBF
Cascade - Douglas fir $ 829 $ 807 $ 978 $1,330 $1,365
Coastal - Hemlock 532 519 628 611 750
Coastal - Douglas fir 828 808 981 1,246 1,217
</TABLE>
Wood Products
The company's wood products businesses produce and sell softwood
lumber, plywood and veneer; oriented strand board, composite and other
panels; hardwood lumber; doors and treated products. These products
are sold primarily through the company's own sales organizations.
Building materials are sold to wholesalers, retailers and industrial
users. The raw materials required to produce these products are
purchased from third parties, transferred at market price from the
company's timberlands, or obtained from long-term licensing
arrangements.
Sales volumes by major product are as follows (millions):
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Softwood lumber - board ft. 5,734 4,995 4,869 4,745 4,515
Softwood plywood and veneer - sq.
ft. (3/8") 1,902 1,842 2,042 2,172 2,324
Composite panels - sq. ft. (3/4") 410 586 551 604 648
Oriented strand board - sq. ft. (3/8") 2,716 2,697 2,462 2,083 1,931
Hardwood lumber - board ft. 397 339 362 349 293
Doors (thousands) 720 789 730 652 648
Raw materials - cubic ft. 305 315 325 304 260
</TABLE>
<TABLE>
<CAPTION>
Selected product prices:
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Lumber (common) - $/MBF
2x4 Douglas fir (kiln dried) $ 408 $ 340 $ 418 $ 422 $ 332
2x4 Douglas fir (green) 384 315 381 386 308
2x4 Southern yellow pine (kiln dried) 413 395 453 422 364
2x4 Spruce-pine-fir (kiln dried) 342 288 354 351 251
Plywood (1/2" CDX) - $/MSF
West 369 305 312 307 331
South 320 280 261 256 301
Oriented strand board (7/16"-24/16)
North Central price - $/MSF 262 203 142 184 245
</TABLE>
4
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART I
- -------------------------------------------------------------------------
Item 1. Business - Continued
- -----------------------------
Pulp, Paper and Packaging
The company's pulp, paper and packaging businesses include: Pulp,
which manufactures chemical wood pulp for world markets; Paper, which
manufactures and markets a range of both coated and uncoated fine
papers through paper merchants and printers; Containerboard Packaging,
which manufactures linerboard and corrugating medium, primarily used
in the production of corrugated packaging, and manufactures and
markets industrial and agricultural packaging; Paperboard, which
manufactures and markets bleached paperboard, used for production of
liquid containers, to West Coast and Pacific Rim customers; and
Recycling, which operates an extensive wastepaper collection system
and markets it to company mills and worldwide customers.
Sales volumes by major product are as follows (thousands):
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Pulp - air-dry metric tons 2,273 2,012 1,982 1,868 2,060
Paper - tons(1) 1,460 1,181 1,146 1,007 1,006
Paperboard - tons 248 236 243 205 230
Containerboard - tons 576 323 389 346 259
Packaging - MSF 46,483 44,299 44,508 42,323 34,342
Newsprint - metric tons(2) - 62 684 629 663
Recycling - tons 2,785 2,546 2,229 2,011 1,467
</TABLE>
<TABLE>
<CAPTION>
Selected product prices (per ton):
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Pulp - NBKP-air-dry metric-U.S. $ 520 $ 516 $ 566 $ 579 $ 883
Paper - uncoated free sheet-U.S. 646 665 740 745 946
Linerboard - 42 lb.-Eastern U.S. 383 354 326 367 505
Newsprint - metric-West Coast U.S. 512 588 550 636 662
Recycling - old corrugated containers 67 54 76 53 128
Recycling - old newsprint 33 22 15 18 99
</TABLE>
_______________________________
(1) Reflects the acquisition of the Dryden, Ontario, fine paper mill
in October 1998.
(2) Reflects the ownership restructuring of the North Pacific Paper
Corporation (NORPAC) newsprint facility from a fully consolidated
subsidiary to an equity affiliate in February 1998.
5
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART I
- -------------------------------------------------------------------------
Item 1. Business - Continued
- -----------------------------
Real Estate and Related Assets
The company's real estate and related assets businesses are
principally engaged in real estate development and construction
through the company's real estate subsidiary, Weyerhaeuser Real Estate
Company, and in other real estate related activities through the
company's financial services subsidiary, Weyerhaeuser Financial
Services, Inc. Development and construction consists of developing
single-family housing and residential lots for sale, including the
development of master-planned communities.
Volume information:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Units sold:
Single-family units(1) 3,561 3,089 2,914 2,773 3,114
Multi-family units(1) - 276 324 234 117
Residential lots(1) 4,297 2,455 1,988 2,522 1,628
Amounts in millions:
Loan servicing portfolio(2) $ - $ - $ - $4,354 $10,952
Single-family loan originations(2) $ - $ - $1,168 $3,436 $ 2,196
</TABLE>
_______________________________
(1) Includes one-half of joint venture sales.
(2) Reflects the sale of the company's wholly-owned subsidiary,
Weyerhaeuser Mortgage Company, in the second quarter of 1997.
6
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART I
- -------------------------------------------------------------------------
Item 2. Properties
- --------------------
Timberlands
Timberlands annual log production (in millions):
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Logs - cubic ft. 521 495 476 412 420
Fee harvest - cubic ft. 634 585 541 496 518
</TABLE>
Wood Products
Production capacities, facilities and annual production, which reflect
the sale of the Composite Products business in the second quarter of
1999 and the acquisition of MacMillan Bloedel in November 1999, are
summarized by major product as follows (millions):
<TABLE>
<CAPTION>
Production Number of
Capacity Facilities 1999 1998 1997 1996 1995
---------- ---------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Softwood lumber -
board ft. 5,452 37 4,532 4,025 3,968 3,701 3,419
Softwood plywood
and veneer - sq.
ft. (3/8") 1,371 8 1,065 960 1,092 1,243 1,292
Composite panels -
sq. ft. (3/4") 228 3 281 510 478 535 583
Oriented strand
board - sq.
ft. (3/8") 3,365 9 2,452 2,179 2,041 1,687 1,654
Hardwood lumber -
board ft. 386 12 376 342 345 333 278
Doors (thousands) 850 1 732 788 740 646 643
Logs - cubic ft. - - 572 526 519 500 494
</TABLE>
Principal manufacturing facilities are located as follows:
Softwood lumber and plywood Hardwood lumber
Alabama, Arkansas, Georgia, Arkansas, Michigan,
Louisiana, Mississippi, Oklahoma, Oregon,
North Carolina, Oklahoma, Oregon, Pennsylvania, Washington and
Washington; Alberta, British Columbia, Wisconsin
Ontario and Saskatchewan, Canada ;
and Durango, Mexico Doors
Wisconsin
Oriented strand board
Michigan, North Carolina, West Virginia;
Alberta, New Brunswick, Ontario and
Saskatchewan, Canada
Composite panels
Wisconsin; British Columbia, Canada;
and Durango, Mexico
7
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART I
- -------------------------------------------------------------------------
Item 2. Properties-Continued
- -----------------------------
Pulp, Paper and Packaging
Production capacities, facilities and annual production, which reflect
the acquisition of MacMillan Bloedel in November 1999, are summarized
by major product as follows (thousands):
<TABLE>
<CAPTION>
Production Number of
Capacity Facilities 1999 1998 1997 1996 1995
---------- ---------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Pulp - air-dry
metric tons 2,285 9 2,219 2,061 1,973 2,004 2,159
Paper - tons(1) 1,595 6 1,511 1,235 1,128 1,034 1,060
Paperboard - tons 230 1 251 237 231 206 229
Containerboard -
tons 3,694 7 2,622 2,291 2,381 2,331 2,329
Packaging - MSF 66,000 64 48,758 46,410 46,488 44,471 36,041
Newsprint - metric
tons(2) - - - 69 704 631 687
Recycling - tons - 24 4,287 3,833 3,655 3,428 2,754
</TABLE>
Principal manufacturing facilities are located as follows:
Pulp Packaging
Georgia, Mississippi, North Arizona, Arkansas, California,
Carolina, Washington and Colorado, Connecticut, Florida,
Alberta, British Columbia, Georgia, Hawaii, Illinois,
Ontario and Saskatchewan, Canada Indiana, Iowa, Kentucky,
Louisiana, Maryland, Michigan,
Paper Minnesota, Mississippi,
Mississippi, North Carolina, Missouri, Nebraska, New Jersey,
Washington, Wisconsin and New York, North Carolina, Ohio,
Ontario and Saskatchewan, Canada Oregon, Tennessee, Texas,
Virginia, Washington, Wisconsin
Paperboard and Guanajuato, Mexico
Washington
Recycling
Containerboard Arizona, California, Colorado,
Alabama, Kentucky, North Illinois, Iowa, Kansas,
Carolina, Oklahoma, Oregon and Maryland, Minnesota, Nebraska,
Ontario, Canada North Carolina, Oklahoma,
Oregon, Tennessee, Texas, Utah,
Virginia and Washington
_______________________________
(1) Reflects the acquisition of the Dryden, Ontario, Canada, fine
paper facility in October 1998.
(2) Reflects the ownership restructuring of the North Pacific Paper
Corporation (NORPAC) newsprint facility from a fully consolidated
subsidiary to an equity affiliate in February 1998.
8
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART I
- -------------------------------------------------------------------------
Item 2. Properties-Continued
- -----------------------------
Real Estate and Related Assets
Single-family housing Commercial development
California, Maryland, Nevada, California, Florida, Maryland
Texas, Virginia and Washington and Washington
Residential land development Real estate investments
Arkansas, California, Florida, Arizona, California, Colorado,
Georgia, Maryland, Nevada, North Nevada, Oregon and Washington
Carolina, Texas, Virginia and
Washington
Mortgage securities
Washington
9
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART I
- -------------------------------------------------------------------------
Item 3. Legal Proceedings
- --------------------------
The company conducted a review of its 10 major pulp and paper
facilities to evaluate the facilities' compliance with federal
Prevention of Significant Deterioration (PSD) regulations. The
results of the reviews were disclosed to seven state agencies and the
Environmental Protection Agency (EPA) during 1994 and 1995. All PSD
compliance issues identified in the review have been resolved, except
for PSD issues at the company's Springfield, Oregon, containerboard
facility. A final decision is expected to be made by the Lane
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. The company is a defendant in approximately 25 other
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.
10
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART I
- -------------------------------------------------------------------------
Item 3. 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 Equity 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 is subject to 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.
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
- ------------------------------------------------------------
There were no matters submitted to a vote of security holders during
the fourth quarter of the fiscal year ended December 26, 1999.
11
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART I
- -------------------------------------------------------------------------
Item 5. Market Price of and Dividends on the Registrant's Common Equity
- ------------------------------------------------------------------------
and Related Stockholder Matters
- -------------------------------
Information with respect to market prices, stockholders and dividends
included in Notes 22 and 23 of Notes to Financial Statements in the
company's 1999 Annual Report to Shareholders, is incorporated herein
by reference.
Item 6. Selected Financial Data
- --------------------------------
Information with respect to selected financial data included in
Note 23 of Notes to Financial Statements in the company's 1999 Annual
Report to Shareholders, is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition
- --------------------------------------------------------------------
and Results of Operations
- -------------------------
Information with respect to Management's Discussion and Analysis
included on pages 10, 24-31 and 42-54 of the company's 1999 Annual
Report to Shareholders, is incorporated herein by reference.
Subsequent Event - On February 23, 2000, the company announced that
its board of directors has authorized the repurchase of up to
12 million shares, or about five percent, of its outstanding common
stock.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
- --------------------------------------------------------------------
Information with respect to market risk of financial instruments
included on page 52 of the company's 1999 Annual Report to
Shareholders, is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Information
- -----------------------------------------------------------
Financial statements and supplementary information, included in the
company's 1999 Annual Report to Shareholders are incorporated herein
by reference.
<TABLE>
<CAPTION>
Page(s) in
Annual Report
to
Shareholders
-------------
<S> <C>
Report of Independent Public Accountants 54
Consolidated Statement of Earnings 55
Consolidated Balance Sheet 56-57
Consolidated Statement of Cash Flows 58-59
Consolidated Statement of Shareholders' Interest 60
Notes to Financial Statements 61-81
Selected Quarterly Financial Information (Unaudited) 79
</TABLE>
Item 9. Changes in and Disagreements with Accountants on Accounting
- ---------------------------------------------------------------------
and Financial Disclosure
- ------------------------
Not applicable.
12
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART III
- -------------------------------------------------------------------------
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
Information with respect to Directors of the company included on pages
2 through 5 of the Notice of 2000 Annual Meeting of Shareholders and
Proxy Statement dated March 6, 2000, is incorporated herein by
reference.
The executive officers of the company are as follows:
<TABLE>
<CAPTION>
Name Title Age
---- ----- ---
<S> <C> <C>
William R. Corbin Executive Vice President 58
C. William Gaynor Senior Vice President 59
Richard C. Gozon Executive Vice President 61
Richard E. Hanson Senior Vice President 56
Steven R. Hill Senior Vice President 52
Mack L. Hogans Senior Vice President 51
Steven R. Rogel President 57
William C. Stivers Executive Vice President 61
George H. Weyerhaeuser, Jr. Senior Vice President 46
</TABLE>
Item 11. Executive Compensation
- --------------------------------
Information with respect to executive compensation included on pages 5
through 15 of the Notice of 2000 Annual Meeting of Shareholders and
Proxy Statement dated March 6, 2000, is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
Information with respect to security ownership of certain beneficial
owners and management included on pages 6 and 7 of the Notice of 2000
Annual Meeting of Shareholders and Proxy Statement dated March 6,
2000, is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
Not applicable.
13
<PAGE>
Weyerhaeuser Company and Subsidiaries
PART IV
- -------------------------------------------------------------------------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
- -------------------------------------------------------------------------
8-K
- ---
Financial Statements
The consolidated financial statements of the company, together with
the report of independent public accountants, included in the
company's 1999 Annual Report to Shareholders, are incorporated in
Part II, Item 8 of this Form 10-K by reference.
<TABLE>
<CAPTION>
Page
Financial Statement Schedules Number(s)
in Form
10-K
---------
<S> <C>
Report of Independent Public Accountants on Financial
Statement Schedules 16
Schedule II - Valuation and Qualifying Accounts 17
</TABLE>
All other financial statement schedules have been omitted because they
are not applicable or the required information is included in the
consolidated financial statements, or the notes thereto, in the
company's 1999 Annual Report to Shareholders and incorporated herein
by reference.
Exhibits:
3 - (i) Articles of Incorporation
(ii) Bylaws (incorporated by reference to
1998 Form 10-K filed with the Securities and Exchange
Commission on March 12, 1999 - Commission File
Number 1-4825)
10 - Material Contracts
(a) Agreement with W. R. Corbin (incorporated by
reference to 1998 Form 10-K filed with the Securities and
Exchange Commission on March 12, 1999 - Commission File
Number 1-4825)
(b) Agreement with R. C. Gozon (incorporated by
reference to 1995 Form 10-K filed with the Securities and
Exchange Commission on March 15, 1996 - Commission File
Number 1-4825)
(c) Agreement with S. R. Rogel (incorporated by reference to 1997
Form 10-K filed with the Securities and Exchange Commission on
March 13,1998 - Commission File Number 1-4825)
(d) Merger Agreement dated June 20, 1999, among Weyerhaeuser Company
and Weyerhaeuser Exchangeco Limited and MacMillan Bloedel
Limited, including the Plan of Arrangement (incorporated by
reference to the Weyerhaeuser Company Registration
Statement No. 333-84127)
(e) Form of Executive Severance Agreement
11 - Statement Re: Computation of Per Share Earnings
(incorporated by reference to Note 2 of the company's 1999
Annual Report to Shareholders)
13 - Portions of the company's 1999 Annual Report to
Shareholders specifically incorporated by reference herein
22 - Subsidiaries of the Registrant
23 - Consent of Independent Public Accountants
27 - Financial Data Schedules
Reports on Form 8-K
The registrant filed reports on Form 8-K dated January 7, January 21,
April 14, June 22, July 16, September 21, and October 15, 1999, and
January 24, 2000, reporting information under Item 5, Other Events.
The registrant filed a report on Form 8-K dated November 9, 1999,
which was subsequently amended on January 10, 2000, reporting
information under Item 2, Acquisition or Disposition of Assets, and
Item 7, Financial Statements and Exhibits.
14
<PAGE>
Weyerhaeuser Company and Subsidiaries
SIGNATURES
- -------------------------------------------------------------------------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized on
March 10, 2000.
Weyerhaeuser Company
/s/ Steven R. Rogel
-----------------------
Steven R. Rogel
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the registrant in the capacities indicated on March 10, 2000.
/s/ Steven R. Rogel /s/ John Kieckhefer
- ------------------------------------- ---------------------------
Steven R. Rogel John I. Kieckhefer
President, Principal Executive Director
Officer, Director and Chairman of the
Board
/s/ William C. Stivers /s/ Arnold G. Langbo
- ------------------------------------- ---------------------------
William C. Stivers Arnold G. Langbo
Principal Financial Officer Director
/s/ Kenneth J. Stancato /s/ Donald F. Mazankowski
- ------------------------------------- ---------------------------
Kenneth J. Stancato Donald F. Mazankowski
Principal Accounting Officer Director
/s/ W. John Driscoll /s/ William D. Ruckelshaus
- ------------------------------------- ---------------------------
W. John Driscoll William D. Ruckelshaus
Director Director
/s/ R. F. Haskayne /s/ Richard H. Sinkfield
- ------------------------------------- ---------------------------
Richard F. Haskayne Richard H. Sinkfield
Director Director
/s/ Robert J. Herbold /s/ James N. Sullivan
- ------------------------------------- ---------------------------
Robert J. Herbold James N. Sullivan
Director Director
/s/ Martha R. Ingram /s/ George H. Weyerhaeuser
- ------------------------------------- ---------------------------
Martha R. Ingram George H. Weyerhaeuser
Director Director
/s/ Clayton K. Yeutter
---------------------------
Clayton K. Yeutter
Director
15
<PAGE>
Weyerhaeuser Company and Subsidiaries
FINANCIAL STATEMENT SCHEDULES
- -------------------------------------------------------------------------
Report of Independent Public Accountants on Financial Statement
Schedules
To Weyerhaeuser Company:
We have audited in accordance with generally accepted auditing
standards, the financial statements included in Weyerhaeuser
Company's annual report to shareholders incorporated by reference in
this Form 10-K, and have issued our report thereon dated February 9,
2000. Our audit was made for the purpose of forming an opinion on
those statements taken as a whole. The schedule shown on page 17 is
the responsibility of the company's management and is presented for
purposes of complying with the Securities and Exchange Commission's
rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in
the audit of the basic financial statements and, in our opinion,
fairly states in all material respects the financial data required
to be set forth therein in relation to the basic financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
Seattle, Washington,
February 9, 2000
16
<PAGE>
Weyerhaeuser Company and Subsidiaries
FINANCIAL STATEMENT SCHEDULES
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
Schedule II - Valuation and Qualifying Accounts
For the three years ended December 26, 1999
Dollar amounts in millions
Deductions
Balance from/ Balance
at Charged (Additions at
Beginning to to) End of
Description of Period Income Reserve Period
- ----------- --------- ------- ----------- -------
<S> <C> <C> <C> <C>
Weyerhaeuser
Reserve deducted from related asset
accounts:
Doubtful accounts - Accounts
receivable
1999 $ 5 $ 6 $ 1(1) $ 10
======== ======= =========== =======
1998 $ 6 $ 4 $ 5 $ 5
======== ======= =========== =======
1997 $ 7 $ 5 $ 6 $ 6
======== ======= =========== =======
Real Estate and Related Assets
Reserves and allowances deducted
from related asset accounts:
Receivables
1999 $ 6 $ 2 $ 1(2) $ 7
======== ======= =========== =======
1998 $ 6 $ 1 $ 1 $ 6
======== ======= =========== =======
1997 $ 9 $ - $ 3 $ 6
======== ======= =========== =======
Mortgage-related financial
Instruments
1999 $ 9 $ - $ 6 $ 3
======== ======= =========== =======
1998 $ 27 $ - $ 18(3) $ 9
======== ======= =========== =======
1997 $ 7 $ 13 $ (7)(4) $ 27
======== ======= =========== =======
Investments in and advances to joint
ventures and
limited partnerships
1999 $ 4 $ - $ 1(5) $ 3
======== ======= =========== =======
1998 $ 6 $ 3 $ 5 $ 4
======== ======= =========== =======
1997 $ 27 $ - $ 21 $ 6
======== ======= =========== =======
</TABLE>
_______________________________
(1) Includes additional allowances of $4 million in the MacMillan
Bloedel acquisition.
(2) Includes allowances transferred from partnership investments.
(3) Includes allowances transferred to other assets.
(4) Includes allowances transferred in from other liabilities.
(5) Includes the net of allowances transferred to receivables and from
other assets.
17
<PAGE>
Weyerhaeuser Company and Subsidiaries
EXHIBITS INDEX
- -------------------------------------------------------------------------
Exhibits:
3 - (i) Articles of Incorporation
(ii) Bylaws (incorporated by reference to
1998 Form 10-K filed with the Securities and Exchange
Commission on March 12, 1999 - Commission File
Number 1-4825)
10 - Material Contracts
(a) Agreement with W. R. Corbin (incorporated by
reference to 1998 Form 10-K filed with the Securities and
Exchange Commission on March 12, 1999 - Commission File
Number 1-4825)
(b) Agreement with R. C. Gozon (incorporated by
reference to 1995 Form 10-K filed with the Securities and
Exchange Commission on March 15, 1996 - Commission File
Number 1-4825)
(c) Agreement with S. R. Rogel (incorporated by reference to 1997
Form 10-K filed with the Securities and Exchange Commission on
March 13,1998 - Commission File Number 1-4825)
(d) Merger Agreement dated June 20, 1999, among Weyerhaeuser Company
and Weyerhaeuser Exchangeco Limited and MacMillan Bloedel
Limited, including the Plan of Arrangement (incorporated by
reference to the Weyerhaeuser Company Registration
Statement No. 333-84127)
(e) Form of Executive Severance Agreement
11 - Statement Re: Computation of Per Share Earnings
(incorporated by reference to Note 2 of the company's 1999
Annual Report to Shareholders)
13 - Portions of the company's 1999 Annual Report to
Shareholders specifically incorporated by reference herein
22 - Subsidiaries of the Registrant
23 - Consent of Independent Public Accountants
27 - Financial Data Schedules
18
<PAGE>
Weyerhaeuser Company and Subsidiaries
Exhibit 22
Subsidiaries of the Registrant
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percentage
State or Ownership of
Country of Immediate
Name Incorporation Parent
---- ------------- ------------
<S> <C> <C>
Columbia & Cowlitz Railway Company Washington 100%
DeQueen & Eastern Railroad Company Arkansas 100
Dynetherm, Inc. Alabama 100
Fisher Lumber Company California 100
Golden Triangle Railroad Mississippi 100
Green Arrow Motor Express Company Delaware 100
Gryphon Asset Management, Inc. Delaware 100
Mississippi & Skuna Valley Railroad Company Mississippi 100
Mountain Tree Farm Company Washington 50
North Pacific Paper Corporation Delaware 50
Norpac Sales Corporation Guam 100
Norpac Resources Inc. Delaware 100
Pacific Veneer, Ltd. Washington 100
SCA Weyerhaeuser Packaging Holding Company British
Asia Limited Virgin Islands 50
Texas, Oklahoma & Eastern Railroad Company Oklahoma 100
TJ International, Inc. Delaware 100
Norco Windows, Inc. Wisconsin 100
TJI Global, Inc. Barbados 100
Trus Joist MacMillan Limited Partnership Delaware 51
Trus Joist MacMillan Limited British 100
Columbia
TJM Australia Pty. Limited Australia 100
TJM Europe Limited United Kingdom 100
TJM Europe SPRL Belgium 100
TJM Facilities Corporation Delaware 100
Trus Joint MacMillan Ltd., YK Japan 100
Trus Joist Corporation Delaware 100
Trus Joist (Western) Ltd. New Brunswick 100
Trus Joist Japan Co., Ltd. Japan 100
United Structures, Inc. California 100
Westwood Shipping Lines, Inc. Washington 100
Weycomp Claims Management Services, Inc. Texas 100
Weyerhaeuser Company of Nevada Nevada 100
Weyerhaeuser Construction Company Washington 100
Weyerhaeuser de Mexico, S.A. de C.V. Mexico 100
Weyerhaeuser del Bajio, S.A. de C.V. Mexico 100
Weyerhaeuser Financial Services, Inc. Delaware 100
CMO Finance Corp. Nevada 100
MJ Finance Corporation California 100
Mortgage Securities III Corporation Nevada 100
R4 Participant Corporation Nevada 100
ver Bes' Insurance Company Vermont 100
de Bes' Insurance Ltd. Bermuda 100
</TABLE>
19
<PAGE>
Weyerhaeuser Company and Subsidiaries
Exhibit 22
Subsidiaries of the Registrant
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percentage
State or Ownership of
Country of Immediate
Name Incorporation Parent
---- ------------- ------------
<S> <C> <C>
Weyerhaeuser Financial Investments, Inc. Nevada 100%
Abfall Finance Corp. California 100
Brookview, Inc. Nevada 100
The Giddings Mortgage Investment Company California 100
Pass-Through Finance Corp. California 100
RFS Finance Corp. California 100
Trimark Development Company California 100
Trimark Realty Advisors, Inc. California 100
WFI Servicing Company Nevada 100
Woodland Hills Properties-W, Inc. Nevada 100
Weyerhaeuser Venture Company Nevada 100
Las Positas Land Co. California 100
WAMCO, Inc. Nevada 100
Weyerhaeuser Forestlands International, Inc. Washington 100
Weyerhaeuser International, Inc. Washington 100
The Capricorn Corporation Philippines 100
Weyerhaeuser Canada Ltd. Canada 100
Princeton Co-Generation (VCC) Corp. Canada 90
Wapawekka Lumber Ltd. Canada 51
Weyerhaeuser (Barbados) SRL Barbados 100
Marlborough Capital Corp. SRL Barbados 100
Weyerhaeuser (BVI) Ltd. British
Virgin Islands 100
Weyerhaeuser New Zealand Holdings Inc. New Zealand 100
Nelson Forest Products Company New Zealand 100
Weyerhaeuser New Zealand Inc. New Zealand 100
Weyerhaeuser Saskatchewan Ltd. Canada 100
Weyerhaeuser Holdings Limited British
Columbia 100
Weyerhaeuser Company Limited Canada 100
486286 British Columbia Ltd. British
Columbia 50
Altair Property and Casualty Corporation British
Columbia 100
Canadian Maas River Investment N.V. Curacao 100
Weyerhaeuser (Ireland) Ireland 100
Chatham Forest Products Ltd. New Brunswick 100
Eagle Forest Products Limited Partnership New Brunswick 100
Forest Industries Flying Tankers Limited British
Columbia 58
Green Forest Lumber Limited Ontario 100
Monterra Lumber Mills Limited Ontario 83
Weyerhaeuser (Bridgetown) Limited Barbados 100
Weyerhaeuser (UK) Limited England 100
MacMillan Bloedel K.K. Japan 100
</TABLE>
20
<PAGE>
Weyerhaeuser Company and Subsidiaries
Exhibit 22
Subsidiaries of the Registrant
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percentage
State or Ownership of
Country of Immediate
Name Incorporation Parent
---- ------------- ------------
<S> <C> <C>
MacMillan Bloedel Pembroke Limited
Partnership Ontario 100%
MacMillan Guadiana, S.A. de C.V. Mexico 100
Marine Leasings Limited British
Columbia 27
Mid-Island Reman Inc. British
Columbia 49
Saskfor Holdings Inc. Saskatchewan 50
Saskfor MacMillan Limited British
Columbia 100
Sturgeon Falls Repulping Limited Ontario 50
Sturgeon Falls Limited Partnership Ontario 100
Weyerhaeuser (Carlisle) Ltd. Barbados 100
Camarin Limited Barbados 100
Weyerhaeuser (Ewen) Limited British
Columbia 100
Weyerhaeuser (Australia) Pty. Ltd. Australia 100
Weyerhaeuser (Nanaimo) Ltd. British
Columbia 100
Weyerhaeuser (Northumberland) Limited New Brunswick 100
Weyerhaeuser (North Superior) Limited Ontario 100
Weyerhaeuser (Ottawa) Limited Canada 100
Weyerhaeuser Wawa OSB Limited Partnership Ontario 100
Weyerhaeuser China, Ltd. Washington 100
Weyerhaeuser GMBH Germany 100
Weyerhaeuser (Asia) Limited Hong Kong 100
Weyerhaeuser Japan Ltd. Japan 100
Weyerhaeuser Japan Ltd. Delaware 100
Weyerhaeuser Korea Ltd. Korea 100
Weyerhaeuser, S.A. Panama 100
Weyerhaeuser Taiwan Ltd. Delaware 100
Weyerhaeuser International Sales Corp. Guam 100
Weyerhaeuser (Mexico) Inc. Washington 100
Weyerhaeuser Midwest, Inc. Washington 100
Weyerhaeuser Overseas Finance Co. Delaware 100
Weyerhaeuser International Finance Company Delaware 100
Weyerhaeuser Company Nova Scotia Nova Scotia 100
Weyerhaeuser Raw Materials, Inc. Delaware 100
Weyerhaeuser Real Estate Company Washington 100
Centennial Homes, Inc. Texas 100
Midway Properties, Inc. North Carolina 100
Pardee Construction Company California 100
Marmont Realty Company California 100
Pardee Construction Company of Nevada Nevada 100
Pardee Investment Company California 100
Parvada, Inc. Nevada 100
</TABLE>
21
<PAGE>
Weyerhaeuser Company and Subsidiaries
Exhibit 22
Subsidiaries of the Registrant
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percentage
State or Ownership of
Country of Immediate
Name Incorporation Parent
---- ------------- ------------
<S> <C> <C>
The Quadrant Corporation Washington 100%
Quadrant Real Estate Services, Inc. Washington 100
South Jersey Assets, Inc. New Jersey 100
Scarborough Constructors, Inc. Florida 100
Silverthorn Country Club, Inc. Florida 100
TMI, Inc. Texas 100
Weyerhaeuser Real Estate Company of Nevada Nevada 100
Weyerhaeuser Realty Investors, Inc. Washington 100
Winchester Homes, Inc. Delaware 100
SC - WHI, Inc. Delaware 100
Weyerhaeuser Sales Company Nevada 100
Weyerhaeuser Servicios, S.A. de C.V. Mexico 100
Weyerhaeuser (U.S.A.) Inc. Delaware 100
American Cemwood Corporation Oregon 100
MacMillan Bloedel Paper Sales Inc. Delaware 100
MB Administrative Services Inc. Delaware 100
Weyerhaeuser (Alabama) Inc. Alabama 100
Weyerhaeuser (Delaware) Inc. Delaware 100
Weyerhaeuser Distribution Inc. Alabama 100
Weyerhaeuser Clarion Limited Partnership Pennsylvania 100
Trus Joist MacMillan Limited Partnership Delaware 49
Weyerhaeuser Packaging Inc. Alabama 100
MacMillan Bloedel FSC Ltd. Barbados 100
Weyerhaeuser Timberlands Inc. Alabama 100
Weyerhaeuser (Pennsylvania) Inc. Delaware 100
The Wray Company Arizona 100
</TABLE>
22
<PAGE>
Weyerhaeuser Company and Subsidiaries
Exhibit 23
Consent of Independent Public Accountants
- -------------------------------------------------------------------------
As independent public accountants, we hereby consent to the
incorporation of our reports included and incorporated by reference in
this Form 10-K, into Weyerhaeuser Company's previously filed
Registration Statement Nos. 333-36753 and 333-84127 on Form S-3 and
Nos. 33-60527, 333-10165, 333-01565, 333-56673, 333-74311 and 333-
89925 on Form S-8.
ARTHUR ANDERSEN LLP
Seattle, Washington,
March 10, 2000
RESTATED ARTICLES OF INCORPORATION OF
WEYERHAEUSER COMPANY
ARTICLE I
The name of this corporation shall be "Weyerhaeuser
Company."
ARTICLE II
The purposes for which this corporation is organized are:
1. To engage in any form of mining, manufacturing,
mercantile, financial, transportation, real estate, recreation or
service enterprise not contrary to law.
2. Without limiting the generality of the foregoing, to
engage in:
(a) The construction, maintenance and operation of
logging roads, chutes, flumes, and artificial watercourses or
waterways and other ways for the transportation of logs and other
timber products;
(b) Catching, booming, sorting, rafting and holding
logs, lumber or other timber products;
(c) Clearing out and improvement of rivers and streams
and driving, sorting, holding and delivering logs and other
timber products;
(d) Constructing, operating or maintaining telegraph,
telephone and other communication or electronic facilities; and
(e) Building, equipping and operating railway, road or
bridge, canal, airport or other forms of land, water and air
transportation facilities.
ARTICLE III
1. The aggregate number of shares which this corporation
is authorized to issue shall be 447,000,000, consisting of
7,000,000 preferred shares having a par value of $1.00 per share,
40,000,000 preference shares having a par value of $1.00 per
share, and 400,000,000 common shares having a par value of $1.25
per share. Shares redeemed, purchased or otherwise reacquired, or
surrendered to the corporation on conversion, shall have the
status of authorized and unissued shares of the class of which
they were a part when initially issued and may be reissued as
part of the same or a different series of the same class of which
they were a part when initially issued; unless, as part of the
action of the Board of Directors taken to create any series, the
Board of Directors restricts the right of reissuance, in which
case such restricted right will be operative. Each two common
shares having a par value of $1.875 per share heretofore
authorized and issued is hereby changed into three common shares
having a par value of $1.25 per share.
2. The Board of Directors is expressly vested with
authority to divide the preferred shares and the preference
shares into series, each of which shall be so designated as to
distinguish the shares thereof from the shares of all other
series and classes. All preferred shares shall be identical and
1
<PAGE>
all preference shares shall be identical, except in each case as
to the following relative rights and preferences, as to which the
Board of Directors may fix and determine variations among the
different series of each class:
(a) The rate of dividend;
(b) Whether shares may be redeemed and, if so, the
redemption price and the terms and conditions of redemption;
(c) The amount payable upon shares in the event of
voluntary and involuntary liquidation, provided that the
aggregate amount so payable with respect to all series of
preferred shares shall not exceed $350,000,000;
(d) Sinking fund provisions, if any, for the
redemption or purchase of shares;
(e) The terms and conditions, if any, on which shares
may be converted;
(f) If permitted by the laws of the State of
Washington, voting rights, if any.
3. The preferences, limitations and relative rights of the
preferred shares of each series, the preference shares of each
series and the common shares are as follows:
(a) Out of the funds of the corporation legally
available for payment of dividends, the holders of the preferred
shares of each series and the preference shares of each series
shall be entitled to receive, when and as declared by the Board
of Directors, cumulative dividends at the rate determined by the
Board of Directors for such series, and no more. Dividends on
the preferred shares and the preference shares shall accrue on a
daily basis from such date as may be fixed by the Board of
Directors for any series. Unless dividends at the rate
prescribed for each series of preferred shares shall have been
declared and paid or set apart for payment in full on all
outstanding preferred shares for all past dividend periods and
the current dividend period, no dividends shall be declared or
paid upon any class of shares ranking as to dividends subordinate
to the preferred shares, and no sum or sums shall be set aside
for the redemption of preferred shares of any series (including
any sinking fund payment therefor) or for the purchase,
redemption (including any sinking fund payment therefor) or other
acquisition for value of any class or series of shares ranking as
to dividends or assets on a parity with or subordinate to any
such series of preferred shares. Unless dividends at the rate
prescribed for each series of preference shares shall have been
declared and paid or set apart for payment in full on all
outstanding preference shares for all past dividend periods and
the current dividend period, no dividends shall be declared or
paid upon any class of shares ranking as to dividends subordinate
to the preference shares, and no sum or sums shall be set aside
for the redemption of preference shares of any series (including
any sinking fund payment therefor) or for the purchase,
redemption (including any sinking fund payment therefor) or other
acquisition for value of any class or series of shares ranking as
to dividends or assets on a parity with or subordinate to any
such series of preference shares. Accrued and unpaid dividends on
the preferred shares and on the preference shares shall not bear
interest.
(b) Out of any funds of the corporation legally
available for dividends and remaining after full cumulative
dividends upon all series of preferred shares and preference
shares then outstanding shall have been paid or set apart for
payment for all past dividend periods and the current dividend
period, then, and not otherwise, the Board of Directors may
declare and pay or set apart for payment dividends on the common
shares, and the holders of preferred shares and preference shares
shall not be entitled to share therein.
2
<PAGE>
(c) In the event of voluntary or involuntary
liquidation of the corporation, before any distribution of the
assets shall be made to the holders of any class of shares
ranking as to assets subordinate to the preferred shares, the
holders of the preferred shares of each series shall be entitled
to receive out of the assets of the corporation available for
distribution to its shareholders the sum of (i) the amount per
share determined by the Board of Directors as provided in
paragraph 2(c) of this Article III, and (ii) the amount per share
equal to all accrued and unpaid dividends thereon, such sum
constituting the "preferential amount" for the preferred shares.
If, in the event of such liquidation, the assets of the
corporation available for distribution to its shareholders shall
be insufficient to permit full payment to the holders of the
preferred shares of each series of their respective preferential
amounts, then such assets shall be distributed ratably among such
holders in proportion to their respective preferential amounts.
In the event of such liquidation, subject to such right of the
holders of the preferred shares of each series, but before any
distribution of the assets shall be made to the holders of any
class of shares ranking as to assets subordinate to the
preference shares, the holders of the preference shares of each
series shall be entitled to receive out of the assets of the
corporation available for distribution to its shareholders the
sum of (i) the amount per share determined by the Board of Direc
tors as provided in paragraph 2(c) of this Article III, and (ii)
the amount per share equal to all accrued and unpaid dividends
thereon, such sum constituting the "preferential amount" for the
preference shares. If, in the event of such liquidation, after
full payment of the preferential amounts of the preferred shares
of each series, the assets of the corporation available for
distribution to its shareholders shall be insufficient to permit
full payment to the holders of the preference shares of each
series of their respective preferential amounts, then such assets
shall be distributed ratably among such holders in proportion to
their respective preferential amounts. If, in the event of such
liquidation, the holders of the preferred shares of each series
and the preference shares of each series shall have received full
payment of their respective preferential amounts, the holders of
the common shares shall be entitled, to the exclusion of the
holders of the preferred shares of each series and the preference
shares of each series, to share ratably in all remaining assets
of the corporation available for distribution to shareholders.
Neither the consolidation nor merger of the corporation with or
into any other corporation or corporations, the sale or lease of
all or substantially all of the assets of the corporation, nor
the merger or consolidation of any other corporation into and
with the corporation, shall be deemed to be a voluntary or
involuntary liquidation.
(d) Each outstanding preferred share shall be entitled
to one vote, not as a class, on each matter submitted to a vote
at a meeting of shareholders, and the holders of preference
shares shall have no voting rights except as provided in this
Article III, provided, however, that if the Board of Directors is
permitted by law to vary voting rights as between series of a
class, and does in fact do so, then the voting rights of any
series of either class shall be those determined by the Board of
Directors under paragraph 2(f) of this Article III.
Notwithstanding the foregoing: (i) as long as any preferred
shares shall be outstanding, the corporation will not, without
the affirmative vote or consent in writing of at least two-thirds
of the outstanding preferred shares, amend these Articles of
Incorporation for the purpose of, or take any other action to,
(A) increase the aggregate number of preferred shares or shares
of any other class ranking as to dividends or assets on a parity
with or prior to the preferred shares, (B) change the
designations, preferences, limitations, voting or other relative
rights of the preferred shares or of any outstanding series of
preferred shares, (C) effect an exchange, reclassification or
cancellation of all or part of the preferred shares, (D) change
the preferred shares into the same or a different number of
shares, with or without par value of the same or any other class,
or (E) cancel or otherwise affect dividends on the shares of any
series of preferred shares which have accrued but have not been
declared, and (ii) as long as any preference shares shall be
outstanding, the corporation will not, without the affirmative
vote or consent in writing of at least two-thirds of the
outstanding preference shares, amend these Articles of Incor
poration for the purpose of, or take any other action to, (A)
increase the aggregate number of preferred or preference shares
or shares of any other class ranking as to dividends or assets on
a parity with or prior to the preference shares, (B) change the
3
<PAGE>
designations, preferences, limitations, voting or other relevant
rights of the preference shares or of any outstanding series of
preference shares, (C) effect an exchange, reclassification or
cancellation of all or part of the preference shares, (D) change
the preference shares into the same or a different number of
shares, with or without par value, of the same or another class,
or (E) cancel or otherwise affect dividends on the shares of any
series of preference shares which have accrued but have not been
declared.
(e) Whenever dividends on the preferred shares shall
be in arrears in an aggregate amount equal to at least six
quarterly dividends thereon, whether or not consecutive, then the
holders of the preferred shares, voting as a class, shall be
exclusively entitled to elect two additional directors beyond the
number specified in the bylaws to be elected from time to time by
all shareholders and beyond the number specified in this
paragraph (e) to be elected by holders of the preference shares.
Whenever dividends on the preference shares shall be in arrears
in an aggregate amount equal to at least six quarterly dividends
thereon, whether or not consecutive, then the holders of the
preference shares, voting as a class, shall be exclusively
entitled to elect two additional directors beyond the number
specified in the bylaws to be elected from time to time by all
shareholders and beyond the number specified in this paragraph
(e) to be elected by holders of the preferred shares.
(f) At any time when the holders of a class of shares
become entitled as a class to elect additional directors pursuant
to paragraph 3(e) of this Article III (the "special voting
rights"), the maximum authorized number of members of the Board
of Directors shall automatically be increased by the number of
such directors specified in such paragraph 3(e) and the vacancies
so created shall be filled only by vote of the holders of such
class as hereinafter set forth. Whenever the special voting
rights of a class shall have vested, such rights may be exercised
initially either at a special meeting of the holders of such
class called as hereinafter provided or at any annual meeting of
shareholders held for the purpose of electing directors, and
thereafter at such annual meetings. If, at the time of the
vesting of the special voting rights of a class, the date fixed
for the next annual meeting of shareholders is not within 90 days
of such time, the president of the corporation shall call a
special meeting of the holders of such class. Such special
meeting shall be held at the earliest practicable date upon the
notice required and at the place designated for annual meetings
of shareholders. If such special meeting shall not be called by
the president within 20 days after the special voting rights of
such class shall have vested, holders of not less than one-tenth
of the shares of such class entitled to vote at such special
meeting may call such special meeting at the expense of the
corporation. Any holder of shares of a class, the special voting
rights for which shall have vested, shall have access to the
appropriate share ledger of the corporation for the purpose of
causing such special meeting to be so called. At any annual
meeting of shareholders or at any special meeting at which the
holders of a class of shares shall have special voting rights,
20% of the shares of such class entitled to special voting
rights, represented in person or by proxy, shall constitute a
quorum for such class. At any such meeting or adjournment
thereof, (i) the absence of a quorum of a class of shares having
special voting rights shall not prevent the election of
directors, if any, to be elected pursuant to other special voting
rights or pursuant to other than special voting rights, and the
absence of a quorum of shares for the election of directors
pursuant to other than special voting rights shall not prevent
the election of directors pursuant to special voting rights, and
(ii) in the absence of one or more of such quorums, a majority of
the holders, represented in person or by proxy, of each class of
shares which lacks a quorum shall have power to adjourn the
meeting for the election of directors which they are entitled to
elect, from time to time, without notice other than announcement
at the meeting, until a quorum shall be present. If the office
of any director elected pursuant to the special voting rights of
a class becomes vacant by reason of death, resignation,
retirement, disqualification, removal from office, or otherwise,
the remaining director or directors elected pursuant to the
special voting rights of such class shall choose a successor who
shall hold office for the unexpired term in respect of which such
vacancy occurred. The special voting rights of a class shall
continue until all arrears in payment of quarterly dividends on
such class shall have been paid and the dividends thereon for the
4
<PAGE>
current quarter shall have been declared and paid or set apart
for payment. Upon any termination of the special voting rights of
a class, the term of office of the directors then in office
elected pursuant thereto shall terminate immediately and the
maximum authorized number of members of the Board of Directors
shall automatically be reduced accordingly.
(g) Subject to any applicable provision of law or this
Article III, the corporation shall have the right to purchase, or
otherwise reacquire, at public or private sale or otherwise any
shares of any class, except that no preferred shares shall be
purchased unless dividends on all preferred shares have been
declared and paid or set apart for payment in full for all past
dividend periods and no preference shares shall be purchased
unless dividends on all preference shares have been declared and
paid or set apart for payment in full for all past dividend
periods.
4. The Board of Directors may from time to time authorize
the issuance of shares of this corporation, whether now or
hereafter authorized, without first offering such shares to the
shareholders of this corporation.
5. The initial series of preferred shares shall be
designated $2.80 Convertible Cumulative Preferred Shares, First
Series ("First Series Preferred Shares") and shall initially
consist of 4,000,000 shares. The relative rights and preferences
of First Series Preferred Shares shall be as follows:
(a) The dividend rate for the First Series Preferred
Shares shall be $2.80 per share per annum. Subject to the
provisions of Section 3 of this Article III, the first dividend
on the First Series Preferred Shares shall be paid on March 15,
1976 in respect of the period from the date of issuance to March
15, 1976, and thereafter dividends on First Series Preferred
Shares shall be paid quarterly on June 15, September 15, December
15, and March 15 in each instance to holders of record of First
Series Preferred Shares on such dates as may be fixed by the
Board of Directors from time to time. The dividend payment on
each payment date except the aforementioned first payment date
shall be in respect of the quarterly period ending with such
payment date. Dividends on the first issued First Series
Preferred Shares shall accrue on a daily basis from and after the
date of issuance thereof. Dividends on any reissued First Series
Preferred Shares shall accrue on a daily basis from and after the
payment date therefor to which dividends have been paid in full
next preceding the date of reissuance of such shares, provided,
however, that dividends on any subsequently reissued First Series
Preferred Shares reissued after the record date fixed for the
payment of a current dividend on such shares but before the date
of payment of such dividend, shall accrue on a daily basis from
and after such payment date or, if such dividend shall not be
paid in full on such payment date then from and after the next
preceding payment date on which dividends on such shares have
been paid in full. Dividends on First Series Preferred Shares
reissued on any dividend payment date for such shares shall
accrue on a daily basis from and after such payment date.
(b) (1) Pursuant to resolution of the Board of
Directors and subject to the provisions of paragraph 3(a) of this
Article III, the corporation may redeem the whole or from time to
time any part of the First Series Preferred Shares at any time on
or after December 15, 1978, at the following redemption prices
per share for the respective periods indicated:
5
<PAGE>
<TABLE>
<CAPTION>
Date Fixed for
Redemption Within Price Per
The Period (Inclusive) Share
---------------------- ---------
<S> <C>
December 15, 1978 - December 14, 1980 $52.00
December 15, 1980 - December 14, 1982 51.00
December 15, 1982 - December 14, 1984 50.50
December 15, 1984 and thereafter 50.00
</TABLE>
plus, in each case, an amount equal to all accrued and unpaid
dividends on the shares being redeemed to and including the date
fixed for such redemption.
(2) Notice of redemption shall be mailed by the
corporation, not less than 30 or more than 60 days before the
date fixed for redemption, to each transfer agent for the shares
to be redeemed and to each holder of record of such shares
addressed to such holder at his address appearing on the books of
the corporation. Such notice of redemption shall set forth the
date fixed for redemption, the redemption price and the place or
places (including a place in the Borough of Manhattan, the City
of New York) at which the shareholders may obtain payment of the
redemption price plus accrued dividends upon the surrender of the
certificates representing their shares, and shall set forth in
respect to such shares the then current conversion rate and date
on which conversion rights expire, all as determined in
accordance with paragraph 5(e) of this Article III.
(3) On or after the date fixed for redemption and
stated in such notice, each holder of shares that are called for
redemption shall, upon surrender of the certificates representing
such shares to the corporation at the place or places designated
in such notice, be entitled to receive payment of the redemption
price of such shares, plus an amount equal to all accrued and
unpaid dividends thereon to and including the date fixed for
redemption. In case less than all of the shares represented by
any such surrendered certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares.
(4) If less than all the outstanding shares are
to be redeemed, the number of shares of First Series Preferred
Shares to be redeemed and the method of effecting such
redemption, whether by lot or pro rata, shall be as determined by
the Board of Directors.
(5) At any time after a notice of redemption has
been given in the manner prescribed herein and prior to the date
fixed for redemption, the corporation may deposit in trust, with
a bank or trust company having capital, surplus and undistributed
profits aggregating at least $50,000,000, an aggregate amount of
funds sufficient for such redemption, for immediate payment in
the appropriate amounts upon surrender of certificates for such
shares. Upon the deposit of such funds or, if no such deposit is
made, upon the date fixed for redemption (unless the corporation
shall default in making payment of the appropriate amount),
whether or not certificates for shares so called for redemption
have been surrendered for cancellation, the shares to be redeemed
shall be deemed to be no longer outstanding and the holders
thereof shall cease to be shareholders with respect to such
shares and shall have no rights with respect thereto, except for
the right to receive the amount payable upon redemption, but
without interest, and, up to the close of business on the date
fixed for such redemption, the right to convert such shares as
set forth in paragraph 5(e) of this Article III. Such deposit in
trust shall be irrevocable except that any funds deposited by the
corporation which shall not be required for the redemption for
which they were deposited because of the exercise of rights of
conversion subsequent to the date of deposit shall be returned to
the corporation forthwith, and any funds deposited by the
corporation which are unclaimed at the end of one year from the
date fixed for such redemption shall be paid over to the
corporation upon its request, and upon such repayment the holders
6
<PAGE>
of the shares so called for redemption shall look only to the
corporation for payment of the appropriate amount. Any such
unclaimed amounts paid over to the corporation shall, for a
period of six years after the date fixed for such redemption, be
set apart and held by the corporation in trust for the benefit of
the holders of such shares, but no such holder shall be entitled
to receive interest thereon. At the expiration of such six-year
period, all right, title, interest and claim of such holders in
or to such unclaimed amounts shall be extinguished, terminated
and discharged, and such unclaimed amounts shall become part of
the general funds of the corporation free of any claim of such
holders.
(c) The amount referred to in paragraph 2(c) of this
Article III as payable in the event of voluntary or involuntary
liquidation of the corporation shall be $50 per First Series
Preferred Share.
(d) The First Series Preferred Shares shall not be
entitled to the benefit of any sinking fund for the redemption or
purchase of such shares.
(e) (1) Subject to the provisions for adjustment set
forth in subparagraph (2) below, each First Series Preferred
Share shall be convertible at any time at the election of the
holder thereof into 1.2121 common shares (such rate, as adjusted
from time to time, is referred to as the "conversion rate").
Certificates representing shares that a holder thereof has
elected to convert shall be surrendered to any transfer agent of
such shares duly endorsed to the corporation or in blank, or
accompanied by proper instruments of transfer, together with
written notice of the election to convert setting forth the
denominations of common share certificates desired and the names
in which such certificates shall be issued. As soon as
practicable after such surrender of such certificates and the
receipt of such notice, the corporation shall issue and deliver
at the office of such transfer agent to the person who
surrendered such certificates a certificate or certificates for
the number of common shares issuable upon the conversion of such
shares, and a check or cash in respect of any fraction of a
share. Such conversion shall be deemed to have been effected on
the date on which such notice and such certificates shall have
been received, and each person in whose name any certificate for
common shares shall be issuable upon such conversion shall be
deemed to have become on such date the holder of record of the
common shares represented thereby. The right to convert shares
called for redemption shall terminate at the close of business on
the date fixed for such redemption, unless the corporation shall
default in making payment of the amount payable upon such
redemption. The corporation shall make no payment or allowance
for unpaid dividends, whether or not in arrears, on converted
shares or for dividends on the common shares issued upon such
conversion.
(2) The conversion rate for First Series
Preferred Shares shall be subject to adjustment from time to time
only as follows:
(i) If the corporation shall (A) pay to
holders of common shares a dividend in shares of its capital
stock (including common shares), or (B) combine into a
smaller number or subdivide its common shares, or issue by
reclassification of its common shares any shares of the
corporation, the conversion rate for First Series Preferred
Shares in effect immediately prior thereto shall be adjusted
so that the holder of a First Series Preferred Share
surrendered for conversion after the record date fixing
shareholders to be affected by such event shall be entitled
to receive the number of shares of the corporation which he
would have owned or have been entitled to receive after the
happening of any of the events described above, had such
share been converted immediately prior to such record date.
Such adjustment shall be made whenever any such events shall
happen, but shall also be effective retroactively as to any
such share converted between such record date and the date
of the happening of any such events.
7
<PAGE>
(ii) If the corporation shall issue rights or
warrants to holders of common shares entitling them to
subscribe for or purchase common shares at a price per share
less than the current market price per common share (as
defined in part (iv) of this subparagraph (2)) as of the
record date specified below, the number of common shares
into which each First Series Preferred Share shall
thereafter be convertible shall be determined by multiplying
the number of common shares into which such share was
theretofore convertible by a fraction, the numerator of
which shall be the number of common shares outstanding on
the date of issuance of such rights or warrants plus the
number of additional common shares offered for subscription
or purchase, and the denominator of which shall be the
number of common shares outstanding on the date of issuance
of such rights or warrants plus the number of common shares
which the aggregate offering price of the total number of
common shares so offered would purchase at such current
market price. Such adjustment shall be made whenever such
rights or warrants are issued, but shall also be effective
retroactively as to any share converted between the record
date for the determination of shareholders entitled to
receive such rights or warrants and the date such rights or
warrants are issued.
(iii) If the corporation shall distribute to
holders of common shares evidences of its indebtedness or
assets (excluding cash or cash distributions) or rights or
warrants to subscribe other than as set forth in part (ii)
above, the number of common shares into which each First
Series Preferred Share shall thereafter be convertible shall
be determined by multiplying the number of common shares
into which such share was theretofore convertible by a
fraction, the numerator of which shall be the current market
price per common share (as defined in part (iv) of this
subparagraph (2)) as of the date of such distribution, and
the denominator of which shall be such current market price
per common share less the then fair market value (as
determined by the Board of Directors, whose determination
shall be conclusive) of the portion of the assets or
evidences of indebtedness so distributed or such
subscription rights or warrants applicable to one common
share. Such adjustment shall be made whenever any such
distribution is made, but shall also be effective
retroactively as to any share converted between the record
date for the determination of shareholders entitled to
receive such distribution and the date such distribution is
made.
(iv) For the purpose of any computation under
parts (ii) and (iii) of this subparagraph (2), the current
market price per common share as of any date shall be deemed
to be the average of the daily closing prices for the thirty
consecutive business days commencing on the forty-fifth
business day before the date in question. The closing price
for each business day shall be the last reported sales price
regular way or, if no such sale takes place on such business
day, the average of the reported closing bid and asked
prices regular way, in either case on the New York Stock
Exchange or, if the common shares are not listed or admitted
to trading on such exchange, the average of the closing bid
and asked prices as furnished by any member of the New York
Stock Exchange selected by the Board of Directors for that
purpose.
(v) The conversion rate for First Series
Preferred Shares shall always be calculated to the nearest
one one-hundredth of a share. No adjustment in the
conversion rate for First Series Preferred Shares shall be
made unless the conversion rate for such shares after such
adjustment would differ from the conversion rate prior to
such adjustment by one one-hundredth of a common share or
more, provided that any adjustments for First Series
Preferred Shares not made by reason of this part (v) of
subparagraph (2) shall be carried forward and taken into
account in calculating subsequent adjustments.
8
<PAGE>
(vi) Whenever any adjustment in the conversion
rate for First Series Preferred Shares is made, the
corporation shall forthwith (A) file with each transfer
agent for such shares a statement describing the adjustment
and the method of calculation used, together with an opinion
rendered by an independent firm of public accountants of
recognized standing, who may be the corporation's regularly
engaged auditors, that such adjustment was properly
calculated in accordance with the provisions of this
subparagraph (2), and (B) cause a copy of such statement to
be published in a daily newspaper of general circulation in
the Borough of Manhattan, the City of New York, and to be
mailed to the holders of record of such shares.
(3) If the corporation shall consolidate with or
merge into another corporation, or if the corporation shall sell,
lease or transfer to any other person or persons all or
substantially all of the assets of the corporation, holders of
First Series Preferred Shares shall have the right after such
event to convert each share held into the kind and amount of
shares of stock, other securities, cash and property receivable
upon such event by a holder of the number of common shares into
which such shares might have been converted immediately prior to
such event. In any such event, effective provisions shall be made
in the certificate or articles of incorporation of the resulting
or surviving corporation, in any contract of sale, conveyance,
lease or transfer, or otherwise so that the provisions set forth
herein for the protection of the conversion rights of First
Series Preferred Shares shall thereafter continue to be
applicable; and any such resulting or surviving corporation shall
expressly assume the obligation to deliver, upon conversion, such
shares of stock, other securities, cash and property. The
provisions of this subparagraph (3) shall similarly apply to
successive consolidations, mergers, sales, leases or transfers.
(f) The holders of First Series Preferred Shares shall
not be entitled to vote except as provided by Washington statutes
or by this Article III.
6. The initial series of preference shares shall be
designated Convertible Cumulative Preference Shares, First Series
("First Series Preference Shares") and shall initially consist of
272,159 shares. The relative rights and preferences of First
Series Preference Shares shall be as follows:
(a) Dividends on the First Series Preference Shares
shall be payable in cash at the rate per share which from time to
time shall be the greater of (i) one cent per annum and (ii) the
per share amount of cash dividends paid or set apart for payment
on the common shares for the same annual period in respect to
which dividends on the First Series Preference Shares are to be
paid, and no more. Subject to the provisions of paragraph 3 of
this Article III, the first dividend on the First Series
Preference Shares shall be paid on the payment date for dividends
payable on the common shares (the "common shares dividend payment
date") next following the date of initial issuance of First
Series Preference Shares in respect of the period from the date
of issuance to such common shares dividend payment date, and
thereafter dividends on First Series Preference Shares shall be
paid quarterly on the corresponding quarterly common shares
dividend payment dates, in each instance to holders of record of
First Series Preference Shares on such record dates as may be
fixed by the Board of Directors from time to time. The dividend
payment on each payment date, except the aforementioned first
payment date, shall be in respect of the quarterly period ending
with such payment date. Dividends on the first issued First
Series Preference Shares shall accrue at the rate of one cent per
share per annum on a daily basis from and after the date of
issuance thereof. Dividends on any reissued First Series
Preference Shares shall accrue at the rate of one cent per share
per annum on a daily basis from and after the payment date
therefor to which dividends have been paid in full next preceding
the date of reissuance of such shares, provided, however, that
dividends on any subsequently reissued First Series Preference
Shares reissued after the record date fixed for the payment of a
current dividend on such shares but before the date of payment of
such dividend, shall accrue at the one cent per share per annum
rate on a daily basis from and after such payment date or, if
such dividend shall not be paid in full on such payment date then
9
<PAGE>
from and after the next preceding payment date on which dividends
on such shares have been paid in full. Dividends on First Series
Preference Shares reissued on any dividend payment date for such
shares shall accrue at the one cent per share per annum rate on a
daily basis from and after such payment date.
(b) (1) Pursuant to resolution of the Board of
Directors and subject to the provisions of paragraph 3(a) of this
Article III, the corporation may redeem the whole or from time to
time any part of the First Series Preference Shares at any time
on or after September 1, 1984, at the redemption price per share
which is the greater of (X) the closing price per common share
(as defined below in the second sentence of (iv) of paragraph
6(e)(2) of this Article III) on the third business day
immediately preceding the date on which the notice of redemption
is mailed pursuant to subparagraph (2) below, and (Y) $25, plus
an amount equal to all accrued and unpaid dividends on the shares
being redeemed to and including the date fixed for redemption.
(2) Notice of redemption shall be mailed by the
corporation, not less than 30 or more than 60 days before the
date fixed for redemption, to each holder of record of the shares
to be redeemed addressed to such holder at his address appearing
on the books of the corporation. Such notice of redemption shall
set forth the date fixed for redemption, the redemption price and
the place at which the shareholders may obtain payment of the
redemption price plus accrued dividends upon the surrender of the
certificates representing their shares, and shall set forth in
respect to such shares the then current conversion rate and date
on which conversion rights expire, all as determined in
accordance with paragraph 6(e) of this Article III.
(3) On or after the date fixed for redemption and
stated in such notice, each holder of shares that are called for
redemption shall, upon surrender of the certificates representing
such shares to the corporation at the place or places designated
in such notice, be entitled to receive payment of the redemption
price of such shares, plus an amount equal to all accrued and
unpaid dividends thereon to and including the date fixed for
redemption. In case less than all of the shares represented by
any such surrendered certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares.
(4) If less than all of the outstanding shares
are to be redeemed, the number of shares of First Series
Preference Shares to be redeemed and the method of effecting such
redemption, whether by lot or pro rata, shall be as determined by
the Board of Directors.
(5) At any time after a notice of redemption has
been given in the manner prescribed herein and prior to the date
fixed for redemption, the corporation may deposit in trust, with
a bank, trust company, or other financial institution an
aggregate amount of funds sufficient for such redemption, for
immediate payment in the appropriate amounts upon surrender of
certificates for such shares. Upon the deposit of such funds or,
if no such deposit is made, upon the date fixed for redemption
(unless the corporation shall default in making payment of the
appropriate amount), whether or not certificates for shares so
called for redemption have been surrendered for cancellation, the
shares to be redeemed shall be deemed to be no longer outstanding
and the holders thereof shall cease to be shareholders with
respect to such shares and shall have no rights with respect
thereto, except for the right to receive the amount payable upon
redemption, but without interest, and, up to the close of
business on the date fixed for such redemption, the right to
convert such shares as set forth in paragraph 6(e) of this
Article III. Such deposit in trust shall be irrevocable except
that any funds deposited by the corporation which shall not be
required for the redemption for which they were deposited because
of the exercise of rights of conversion subsequent to the date of
deposit shall be returned to the corporation forthwith; and any
funds deposited by the corporation which are unclaimed at the end
of one year from the date fixed for such redemption shall be paid
10
<PAGE>
over to the corporation upon its request, and upon such repayment
the holders of the shares so called for redemption shall look
only to the corporation for payment of the appropriate amount.
Any such unclaimed amounts paid over the to corporation shall,
for a period of six years after the date fixed for such
redemption, be set apart and held by the corporation in trust for
the benefit of the holders of such shares, but no such holder
shall be entitled to receive interest thereon. At the expiration
of such six-year period, all right, title, interest and claim of
such holders in or to such unclaimed amounts shall be
extinguished, terminated and discharged, and such unclaimed
amounts shall become part of the general funds of the corporation
free of any claim of such holders.
(c) The amount referred to in paragraph 2(c) of this
Article III as payable in the event of voluntary or involuntary
liquidation of the corporation shall be $25 per First Series
Preference Share.
(d) The First Series Preference Shares shall not be
entitled to the benefit of any sinking fund for the redemption or
purchase of such shares.
(e) (1) Subject to the provisions for adjustment set
forth in subparagraph (2) below, each First Series Preference
Share shall be convertible at any time at the election of the
holder thereof into one common share (such rate, as adjusted from
time to time, is referred to as the "conversion rate").
Certificates representing shares that a holder therof has elected
to convert shall be surrendered to the corporation duly endorsed
to the corporation or in blank, or accompanied by proper
instruments of transfer, together with written notice of the
election to convert setting forth the denominations of common
share certificates desired and the names in which such
certificates shall be issued. As soon as practicable after such
surrender of such certificates and the receipt of such notice,
the corporation shall issue and deliver at the place designated
in the notice referred to in paragraph 6(b)(2) of this Article
III to the person who surrendered such certificates a certificate
or certificates for the number of common shares issuable upon the
conversion of such shares, and a check or cash in respect of any
fraction of a share. Such conversion shall be deemed to have been
effected on the date on which such notice and such certificates
shall have been received, and each person in whose name any
certificate for common shares shall be issuable upon such
conversion shall be deemed to have become on such date the holder
of record of the common shares represented thereby. The right to
convert shares called for redemption shall terminate at the close
of business on the date fixed for such redemption, unless the
corporation shall default in making payment of the amount payable
upon such redemption. The corporation shall make no payment or
allowance for unpaid dividends, whether or not in arrears, on
converted shares or for dividends on the common shares issued
upon such conversion.
(2) The conversion rate for First Series
Preference Shares shall be subject to adjustment from time to
time only as follows:
(i) If the corporation (A) pay to holders of
common shares a dividend in shares of its capital stock
(including common shares), and not pay to holders of First
Series Preference Shares an equivalent share dividend or (B)
combine into a smaller number or subdivide its common
shares, or issue by reclassification of its common shares
any shares of the corporation, the conversion rate for First
Series Preference Shares in effect immediately prior thereto
shall be adjusted so that the holder of a First Series
Preference Share surrendered for conversion after the record
date fixing shareholders to be affected by such event shall
be entitled to receive the number of shares of the
corporation which he would have owned or have been entitled
to receive after the happening of any of the events
described above, had such share been converted immediately
prior to such record date. Such adjustment shall be made
whenever any of such events shall happen, but shall also be
11
<PAGE>
effective retroactively as to any such share converted
between such record date and the date of the happening of
any such events.
(ii) If the corporation shall issue rights or
warrants to holders of common shares entitling them to
subscribe for or purchase common shares at a price per share
less than the current market price per common share (as
defined in part (iv) of this subparagraph (2)) as of the
record date specified below, the number of common shares
into which each First Series Preference Share shall
thereafter be convertible shall be determined by multiplying
the number of common shares into which such share was
theretofore convertible by a fraction, the numerator of
which shall be the number of common shares outstanding on
the date of issuance of such rights or warrants plus the
number of additional common shares offered for subscription
or purchase, and the denominator of which shall be the
number of common shares outstanding on the date of issuance
of such rights or warrants plus the number of common shares
which the aggregate offering price of the total number of
common shares so offered would purchase at such current
market price. Such adjustment shall be made whenever such
rights or warrants are issued, but shall also be effective
retroactively as to any share converted between the record
date for the determination of shareholders entitled to
receive such rights or warrants and the date such rights or
warrants are issued.
(iii) If the corporation shall distribute
to holders of common shares evidences of its indebtedness or
assets (excluding cash dividends or cash distributions) or
rights or warrants to subscribe other than as set forth in
part (ii) above, the number of common shares into which each
First Series Preference Share shall thereafter be
convertible shall be determined by multiplying the number of
common shares into which such share was theretofore
convertible by a fraction, the numerator of which shall be
the current market price per common share (as defined in
part (iv) of this subparagraph (2)) as of the date of such
distribution, and the denominator of which shall be such
current market price per common share less the then fair
market value (as determined by the Board of Directors, whose
determination shall be conclusive) of the portion of the
assets or evidences of indebtedness so distributed or such
subscription rights or warrants applicable to one common
share. Such adjustment shall be made whenever any such
distribution is made, but shall also be effective
retroactively as to any share converted between the record
date for the determination of shareholders entitled to
receive such distribution and the date such distribution is
made.
(iv) For the purpose of any computation under
parts (ii) and (iii) of this subparagraph (2), the current
market price per common share as of any date shall be deemed
to be the average of the daily closing prices for the thirty
consecutive business days commencing on the forty-fifth
business day before the date in question. The closing price
per common share for each business day shall be the last
sales price regular way or, if no such sale takes place on
such business day, the average of the reported closing bid
and asked prices regular way, in either case as reported in
a composite list that includes stocks traded on the New York
Stock Exchange or, if the common shares are not listed or
admitted to trading on such exchange, the average of the
closing bid and asked prices as furnished by any member of
the New York Stock Exchange selected by the Board of
Directors for that purpose.
(v) The conversion rate for First Series
Preference Shares shall always be calculated to the nearest
one one-hundredth of a share. No adjustment in the
conversion rate for First Series Preference Shares shall be
made unless the conversion rate for such shares after such
adjustment would differ from the conversion rate prior to
12
<PAGE>
such adjustment by one one-hundredth of a common share or
more, provided that any adjustments for First Series
Preference Shares not made by reason of this part (v) of
subparagraph (2) shall be carried forward and taken into
account in calculating subsequent adjustments.
(vi) Whenever any adjustment in the
conversion rate for First Series Preference Shares is made,
the corporation shall make available to any holder of First
Series Preference Shares at the holder's request a statement
describing the adjustment and the method of calculation
used, together with an opinion rendered by an independent
firm of public accountants of recognized standing, who may
be the corporation's regularly engaged auditors, that such
adjustment was properly calculated in accordance with the
provisions of this subparagraph (2).
(3) If the corporation shall consolidate with or
merge into another corporation, or if the corporation shall sell,
lease or transfer to any other person or persons all or
substantially all of the assets of the corporation, holders of
First Series Preference Shares shall have the right after such
event to convert each share held into the kind and amount of
shares of stock, other securities, cash and property receivable
upon such event by a holder of the number of common shares into
which such shares might have been converted immediately prior to
such event. In any such event, effective provisions shall be made
in the certificate or articles of incorporation of the resulting
or surviving corporation, in any contract of sale, conveyance,
lease or transfer, or otherwise so that the provisions set forth
herein for the protection of the conversion rights of First
Series Preference Shares shall thereafter continue to be
applicable; and any such resulting or surviving corporation shall
expressly assume the obligation to deliver, upon conversion, such
shares of stock, other securities, cash and property. The
provisions of this subparagraph (3) shall similarly apply to
successive consolidations, mergers, sales, leases or transfers.
(f) The holders of First Series Preference Shares
shall not be entitled to vote except as provided by Washington
statutes or by this Article III.
7. The second series of preference shares shall be
designated $4.50 Convertible Cumulative Preference Shares, Series
A ("Series A Preference Shares") and shall initially consist of
3,300,000 shares. The relative rights and preferences of Series
A Preference Shares shall be as follows:
(a) The dividend rate for the Series A Preference
Shares shall be $4.50 per share per annum. Subject to the
provisions of Section 3 of this Article III, the first dividend
on the Series A Preference Shares shall be paid on June 15, 1981
in respect of the period from the date of issuance to June 15,
1981, and thereafter dividends on Series A Preference Shares
shall be paid quarterly on September 15, December 15, March 15
and June 15 in each instance to holders of record of Series A
Preference Shares on such dates as may be fixed by the Board of
Directors from time to time. The dividend payment on each
payment date except the aforementioned first payment date shall
be in respect of the quarterly period ending with such payment
date. Dividends on the first issued Series A Preference Shares
shall accrue on a daily basis from and after the date of issuance
thereof. Dividends on any reissued Series A Preference Shares
shall accrue on a daily basis from and after the payment date
therefor to which dividends have been paid in full next preceding
the date of reissuance of such shares, provided, however, that
dividends on any subsequently reissued Series A Preference Shares
reissued after the record date fixed for the payment of a current
dividend on such shares but before the date of payment of such
dividend, shall accrue on a daily basis from and after such
payment date or, if such dividend shall not be paid in full on
such payment date then from and after the next preceding payment
date on which dividends on such shares have been paid in full.
Dividends on Series A Preference Shares reissued on any dividend
payment date for such shares shall accrue on a daily basis from
and after such payment date.
13
<PAGE>
(b) (1) Pursuant to resolution of the Board of
Directors and subject to the provisions of paragraph 3(a) of this
Article III, the corporation may redeem the whole or from time to
time any part of the Series A Preference Shares at any time on or
after March 15, 1984, at the following redemption prices per
share for the respective periods indicated:
<TABLE>
<CAPTION>
Date Fixed for
Redemption Within Price Per
The Period (Inclusive) Share
---------------------- ---------
<S> <C>
March 15, 1984 - March 14, 1985 $53.00
March 15, 1985 - March 14, 1986 52.50
March 15, 1986 - March 14, 1987 52.00
March 15, 1987 - March 14, 1988 51.50
March 15, 1988 - March 14, 1989 51.00
March 15, 1989 - March 14, 1990 50.50
March 15, 1990 and thereafter 50.00
</TABLE>
plus, in each case, an amount equal to all accrued and unpaid
dividends on the shares being redeemed to and including the date
fixed for such redemption.
(2) Notice of redemption shall be mailed by the
corporation, not less than 30 or more than 60 days before the
date fixed for redemption, to each transfer agent for the shares
to be redeemed and to each holder of record of such shares
addressed to such holder at his address appearing on the books of
the corporation. Such notice of redemption shall set forth the
date fixed for redemption, the redemption price and the place or
places (including a place in the Borough of Manhattan, the City
of New York) at which the shareholders may obtain payment of the
redemption price plus accrued dividends upon the surrender of the
certificates representing their shares, and shall set forth in
respect to such shares the then current conversion rate and date
on which conversion rights expire, all as determined in
accordance with paragraph 7(e) of this Article III.
(3) On or after the date fixed for redemption and
stated in such notice, each holder of shares that are called for
redemption shall, upon surrender of the certificates representing
such shares to the corporation at the place or places designated
in such notice, be entitled to receive payment of the redemption
price of such shares, plus an amount equal to all accrued and
unpaid dividends thereon to and including the date fixed for
redemption. In case less than all of the shares represented by
any such surrendered certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares.
(4) If less than all the outstanding shares are
to be redeemed, the number of shares of Series A Preference
Shares to be redeemed and the method of effecting such
redemption, whether by lot or pro rata, shall be as determined by
the Board of Directors.
(5) At any time after a notice of redemption has
been given in the manner prescribed herein and prior to the date
fixed for redemption, the corporation may deposit in trust, with
a bank or trust company having capital, surplus and undistributed
profits aggregating at least $50,000,000, an aggregate amount of
funds sufficient for such redemption, for immediate payment in
the appropriate amounts upon surrender of certificates for such
shares. Upon the deposit of such funds or, if no such deposit is
made, upon the date fixed for redemption (unless the corporation
shall default in making payment of the appropriate amount),
whether or not certificates for shares so called for redemption
14
<PAGE>
have been surrendered for cancellation, the shares to be redeemed
shall be deemed to be no longer outstanding and the holders
thereof shall cease to be shareholders with respect to such
shares and shall have no rights with respect thereto, except for
the right to receive the amount payable upon redemption, but
without interest, and, up to the close of business on the date
fixed for such redemption, the right to convert such shares as
set forth in paragraph 7(e) of this Article III. Such deposit in
trust shall be irrevocable except that any funds deposited by the
corporation which shall not be required for the redemption for
which they were deposited because of the exercise of rights of
conversion subsequent to the date of deposit shall be returned to
the corporation forthwith, and any funds deposited by the
corporation which are unclaimed at the end of one year from the
date fixed for such redemption shall be paid over to the
corporation upon its request, and upon such repayment the holders
of the shares so called for redemption shall look only to the
corporation for payment of the appropriate amount. Any such
unclaimed amounts paid over to the corporation shall, for a
period of six years after the date fixed for such redemption, be
set apart and held by the corporation in trust for the benefit of
the holders of such shares, but no such holder shall be entitled
to receive interest thereon. At the expiration of such six- year
period, all right, title, interest and claim of such holders in
or to such unclaimed amounts shall be extinguished, terminated
and discharged, and such unclaimed amounts shall become part of
the general funds of the corporation free of any claim of such
holders.
(c) The amount referred to in paragraph 2(c) of this
Article III as payable in the event of voluntary or involuntary
liquidation of the corporation shall be $50 per Series A
Preference Share.
(d) The Series A Preference Shares shall not be
entitled to the benefit of any sinking fund for the redemption or
purchase of such shares.
(e) (1) Subject to the provisions for adjustment set
forth in subparagraph (2) below, each Series A Preference Share
shall be convertible at any time at the election of the holder
thereof into 1.1111 common shares (such rate, as adjusted from
time to time, is referred to as the "conversion rate").
Certificates representing shares that a holder thereof has
elected to convert shall be surrendered to any transfer agent of
such shares duly endorsed to the corporation or in blank, or
accompanied by proper instruments of transfer, together with
written notice of the election to convert setting forth the
denominations of common share certificates desired and the names
in which such certificates shall be issued. As soon as
practicable after such surrender of such certificates and the
receipt of such notice, the corporation shall issue and deliver
at the office of such transfer agent to the person who
surrendered such certificates a certificate or certificates for
the number of common shares issuable upon the conversion of such
shares, and a check or cash in respect of any fraction of a
share. Such conversion shall be deemed to have been effected on
the date on which such notice and such certificates shall have
been received, and each person in whose name any certificate for
common shares shall be issuable upon such conversion shall be
deemed to have become on such date the holder of record of the
common shares represented thereby. The right to convert shares
called for redemption shall terminate at the close of business on
the date fixed for such redemption, unless the corporation shall
default in making payment of the amount payable upon such
redemption. The corporation shall make no payment or allowance
for unpaid dividends, whether or not in arrears, on converted
shares or for dividends on the common shares issued upon such
conversion.
(2) The conversion rate for Series A Preference
Shares shall be subject to adjustment from time to time only as
follows:
(i) If the corporation shall (A) pay to
holders of common shares a dividend in shares of its capital
stock (including common shares), or (B) combine into a
smaller number or subdivide its common shares, or issue by
reclassification of its common shares any shares of the
corporation, the conversion rate for Series A Preference
15
<PAGE>
Shares in effect immediately prior thereto shall be adjusted
so that the holder of a Series A Preference Share
surrendered for conversion after the record date fixing
shareholders to be affected by such event shall be entitled
to receive the number of shares of the corporation which he
would have owned or have been entitled to receive after the
happening of any of the events described above, had such
share been converted immediately prior to such record date.
Such adjustment shall be made whenever any such events shall
happen, but shall also be effective retroactively as to any
such share converted between such record date and the date
of the happening of any such events.
(ii) If the corporation shall issue rights or
warrants to holders of common shares entitling them to
subscribe for or purchase common shares at a price per share
less than the current market price per common share (as
defined in part (iv) of this subparagraph (2)) as of the
record date specified below, the number of common shares
into which each Series A Preference Share shall thereafter
be convertible shall be determined by multiplying the number
of common shares into which such share was theretofore
convertible by a fraction, the numerator of which shall be
the number of common shares outstanding on the date of
issuance of such rights or warrants plus the number of
additional common shares offered for subscription or
purchase, and the denominator of which shall be the number
of common shares outstanding on the date of issuance of such
rights or warrants plus the number of common shares which
the aggregate offering price of the total number of common
shares so offered would purchase at such current market
price. Such adjustment shall be made whenever such rights
or warrants are issued, but shall also be effective
retroactively as to any share converted between the record
date for the determination of shareholders entitled to
receive such rights or warrants and the date such rights or
warrants are issued.
(iii) If the corporation shall distribute
to holders of common shares evidences of its indebtedness or
assets (excluding cash dividends or cash distributions) or
rights or warrants to subscribe other than as set forth in
part (ii) above, the number of common shares into which each
Series A Preference Share shall therafter be convertible
shall be determined by multiplying the number of common
shares into which such share was thertofore convertible by a
fraction, the numerator of which shall be the current market
price per common share (as defined in part (iv) of this
subparagraph (2)) as of the date of such distribution, and
the denominator of which shall be such current market price
per common share less the then fair market value (as
determined by the Board of Directors, whose determination
shall be conclusive) of the portion of the assets or
evidences of indebtedness so distributed or such
subscription rights or warrants applicable to one common
share. Such adjustment shall be made whenever any such
distribution is made, but shall also be effective
retroactively as to any share converted between the record
date for the determination of shareholders entitled to
receive such distribution and the date such distribution is
made.
(iv) For the purpose of any computation under
parts (ii) and (iii) of this subparagraph (2), the current
market price per common share as of any date shall be deemed
to be the average of the daily closing prices for the thirty
consecutive business days commencing on the forty-fifth
business day before the date in question. The closing price
for each business day shall be the last reported sales price
regular way or, if no such sale takes place on such business
day, the average of the reported closing bid and asked
prices regular way, in either case on the New York Stock
Exchange or, if the common shares are not listed or admitted
to trading on such exchange, the average of the closing bid
and asked prices as furnished by any member of the New York
Stock Exchange selected by the Board or Directors for that
purpose.
16
<PAGE>
(v) The conversion rate for Series A
Preference Shares shall always be calculated to the nearest
one one-hundredth of a share. No adjustment in the
conversion rate for Series A Preference Shares shall be made
unless the conversion rate for such shares after such
adjustment would differ from the conversion rate prior to
such adjustment by one one-hundredth of a common share or
more, provided that any adjustments for Series A Preference
Shares not made by reason of this part (v) of subparagraph
(2) shall be carried forward and taken into account in
calculating subsequent adjustments.
(vi) Whenever any adjustment in the
conversion rate for Series A Preference Shares is made,
the corporation shall forthwith (A) file with each transfer
agent for such shares a statement describing the
adjustment and the method of calculation used, together
with an opinion rendered by an independent firm of public
accountants of recognized standing, who may be the
corporation's regularly engaged auditors, that such
adjustment was properly calculated in accordance with the
provisions of this subparagraph (2), and (B) cause a copy
of such statement to be published in a daily newspaper
of general circulation in the Borough of Manhattan, the
City of New York, and to be mailed to the holders of record
of such shares.
(3) If the corporation shall consolidate with or
merge into another corporation, or if the corporation shall sell,
lease or transfer to any other person or persons all or
substantially all of the assets of the corporation, holders of
Series A Preference Shares shall have the right after such event
to convert each share held into the kind and amount of shares of
stock, other securities, cash and property receivable upon such
event by a holder of the number of common shares into which such
shares might have been converted immediately prior to such event.
In any such event, effective provisions shall be made in the
certificate or articles of incorporation of the resulting or
surviving corporation, in any contract of sale, conveyance, lease
or transfer, or otherwise so that the provisions set forth herein
for the protection of the conversion rights of Series A
Preference Shares shall thereafter continue to be applicable; and
any such resulting or surviving corporation shall expressly
assume the obligation to deliver, upon conversion, such shares of
stock, other securities, cash and property. The provisions of
this subparagraph (3) shall similarly apply to successive
consolidations, mergers, sales, leases or transfers.
(f) The holders of Series A Preference Shares shall
not be entitled to vote except as provided by Washington statutes
or by this Article III.
8. An additional series of preference shares shall be
designated Convertible Cumulative Preference Shares, Second
Series ("Second Series Preference Shares") and shall initially
consist of 32,000 shares. The relative rights and preferences of
Second Series Preference Shares shall be as follows:
(a) The dividend rate for the Second Series Preference
Shares shall be $2.80 per share per annum. Subject to the
provisions of paragraph 3 of this Article III, the first dividend
on the Second Series Preference Shares shall be paid on March 15,
1981 in respect of the period from the date of issuance to March
15, 1981, and thereafter dividends on Second Series Preference
Shares shall be paid quarterly on June 15, September 15, December
15 and March 15 in each instance to holders of record of Second
Series Preference Shares on such dates as may be fixed by the
Board of Directors from time to time. The dividend payment on
each payment date except the aforementioned first payment date
shall be in respect of the quarterly period ending with such
payment date. Dividends on the first issued Second Series
Preference Shares shall accrue on a daily basis from and after
the date of issuance thereof. Dividends on any reissued Second
Series Preference Shares shall accrue on a daily basis from and
after the payment date therefor to which dividends have been paid
in full next preceding the date of reissuance of such shares,
provided, however, that dividends on any subsequently reissued
Second Series Preference Shares reissued after the record date
17
<PAGE>
fixed for the payment of a current dividend on such shares but
before the date of payment of such dividend, shall accrue on a
daily basis from and after such payment date or, if such dividend
shall not be paid in full on such payment date, then from and
after the next preceding payment date on which dividends on such
shares have been paid in full. Dividends on Second Series
Preference Shares reissued on any dividend payment date for such
shares shall accrue on a daily basis from and after such payment
date.
(b) (1) Pursuant to resolution of the Board of
Directors and subject to the provisions of paragraph 3(a) of this
Article III, the corporation may redeem the whole or from time to
time any part of the Second Series Preference Shares at any time
at the following redemption prices per share for the respective
periods indicated:
<TABLE>
<CAPTION>
Date Fixed for
Redemption Within Price Per
The Period (Inclusive) Share
---------------------- ---------
<S> <C>
Date of first issue - December 14, 1980 $52.00
December 15, 1980 - December 14, 1982 51.00
December 15, 1982 - December 14, 1984 50.50
December 15, 1984 and thereafter 50.00
</TABLE>
plus, in each case, an amount equal to all accrued and unpaid
dividends on the shares being redeemed to and including the date
fixed for such redemption.
(2) Notice of redemption shall be mailed by the
corporation, not less than 30 or more than 60 days before the
date fixed for redemption, to each transfer agent for the shares
to be redeemed and to each holder of record of such shares
addressed to such holder at his address appearing on the books of
the corporation. Such notice of redemption shall set forth the
date fixed for redemption, the redemption price and the place or
places at which the shareholders may obtain payment of the
redemption price plus accrued dividends upon the surrender of the
certificates representing their shares, and shall set forth in
respect to such shares the then current conversion rate and date
on which conversion rights expire, all as determined in
accordance with paragraph 8(e) of this Article III.
(3) On or after the date fixed for redemption and
stated in such notice, each holder of shares that are called for
redemption shall, upon surrender of the certificates representing
such shares to the corporation at the place or places designated
in such notice, be entitled to receive payment of the redemption
price of such shares, plus an amount equal to all accrued and
unpaid dividends thereon to and including the date fixed for
redemption. In case less than all of the shares represented by
any such surrendered certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares.
(4) If less than all the outstanding shares are
to be redeemed, the number of shares of Second Series Preference
Shares to be redeemed and the method of effecting such
redemption, whether by lot or pro rata, shall be as determined by
the Board of Directors.
(5) At any time after a notice of redemption has
been given in the manner prescribed herein and prior to the date
fixed for redemption, the corporation may deposit in trust, with
a bank, trust company or other financial institution an aggregate
amount of funds sufficient for such redemption, for immediate
payment in the appropriate amounts upon surrender of certificates
for such shares. Upon the deposit of such funds, or if no such
deposit is made, upon the date fixed for redemption (unless the
corporation shall default in making payment of the appropriate
18
<PAGE>
amount), whether or not certificates for shares so called for
redemption have been surrendered for cancellation, the shares to
be redeemed shall be deemed to be no longer outstanding and the
holders thereof shall cease to be shareholders with respect to
such shares and shall have no rights with respect thereto, except
for the right to receive the amount payable upon redemption, but
without interest, and, up to the close of business on the date
fixed for such redemption, the right to convert such shares as
set forth in paragraph 8(e) of this Article III. Such deposit in
trust shall be irrevocable except that any funds deposited by the
corporation which shall not be required for the redemption for
which they were deposited because of the exercise of rights of
conversion subsequent to the date of deposit shall be returned to
the corporation forthwith; and any funds deposited by the
corporation which are unclaimed at the end of one year from the
date fixed for such redemption shall be paid over to the
corporation upon its request, and upon such repayment the holders
of the shares so called for redemption shall look only to the
corporation for payment of the appropriate amount. Any such
unclaimed amounts paid over to the corporation shall, for a
period of six years after the date fixed for such redemption, be
set apart and held by the corporation in trust for the benefit of
the holders of such shares, but no such holder shall be entitled
to receive interest thereon. At the expiration of such six-year
period, all right, title, interest and claim of such holders in
or to such unclaimed amounts shall be extinguished, terminated
and discharged, and such unclaimed amounts shall become part of
the general funds of the corporation free of any claim of such
holders.
(c) The amount referred to in paragraph 2(c) of this
Article III as payable in the event of voluntary or involuntary
liquidation of the corporation shall be $50 per Second Series
Preference Share.
(d) The Second Series Preference Shares shall not be
entitled to the benefit of any sinking fund for the redemption or
purchase of such shares.
(e) (1) Subject to the provisions for adjustment set
forth in subparagraph (2) below, each Second Series Preference
Share shall be convertible at any time at the election of the
holder thereof into 1.2121 common shares (such rate, as adjusted
from time to time, is referred to as the "conversion rate").
Certificates representing shares that a holder thereof has
elected to convert shall be surrendered to any transfer agent of
such shares duly endorsed to the corporation or in blank, or
accompanied by proper instruments of transfer, together with
written notice of the election to convert setting forth the
denominations of common share certificates desired and the names
in which such certificates shall be issued. As soon as
practicable after such surrender of such certificates and the
receipt of such notice, the corporation shall issue and deliver
at the office of such transfer agent to the person who
surrendered such certificates a certificate or certificates for
the number of common shares issuable upon the conversion of such
shares, and a check or cash in respect of any fraction of a
share. Such conversion shall be deemed to have been effected on
the date on which such notice and such certificates shall have
been received, and each person in whose name any certificate for
common shares shall be issuable upon such conversion shall be
deemed to have become on such date the holder of record of the
common shares represented thereby. The right to convert shares
called for redemption shall terminate at the close of business on
the date fixed for such redemption, unless the corporation shall
default in making payment of the amount payable upon such
redemption. The corporation shall make no payment or allowance
for unpaid dividends, whether or not in arrears, on converted
shares or for dividends on the common shares issued upon such
conversion.
(2) The conversion rate for Second Series
Preference Shares shall be subject to adjustment from time to
time only as follows:
(i) If the corporation shall (A) pay to
holders of common shares a dividend in shares of its capital
stock (including common shares), or (B) combine into a
19
<PAGE>
smaller number or subdivide its common shares, or issue by
reclassification of its common shares any shares of the
corporation, the conversion rate for Second Series
Preference Shares in effect immediately prior thereto shall
be adjusted so that the holder of a Second Series Preference
Share surrendered for conversion after the record date
fixing shareholders to be affected by such event shall be
entitled to receive the number of shares of the corporation
which he would have owned or have been entitled to receive
after the happening of any of the events described above,
had such share been converted immediately prior to such
record date. Such adjustment shall be made whenever any of
such events shall happen, but shall also be effective
retroactively as to any such share converted between such
record date and the date of the happening of any such
events.
(ii) If the corporation shall issue rights or
warrants to holders of common shares entitling them to
subscribe for or purchase common shares at a price per share
less than the current market price per common share (as
defined in part (iv) of this subparagraph (2)) as of the
record date specified below, the number of common shares
into which each Second Series Preference Share shall
thereafter be convertible shall be determined by multiplying
the number of common shares into which such share was
theretofore convertible by a fraction, the numerator of
which shall be the number of common shares outstanding on
the date of issuance of such rights or warrants plus the
number of additional common shares offered for subscription
or purchase, and the denominator of which shall be the
number of common shares outstanding on the date of issuance
of such rights or warrants plus the number of common shares
which the aggregate offering price of the total number of
common shares so offered would purchase at such current
market price. Such adjustment shall be made whenever such
rights or warrants are issued, but shall also be effective
retroactively as to any share converted between the record
date for the determination of shareholders entitled to
receive such rights or warrants and the date such rights or
warrants are issued.
(iii) If the corporation shall distribute
to holders of common shares evidences of its indebtedness or
assets (excluding cash dividends or cash distributions) or
rights or warrants to subscribe other than as set forth in
part (ii) above, the number of common shares into which each
Second Series Preference Share shall thereafter be
convertible shall be determined by multiplying the number of
common shares into which such share was theretofore
convertible by a fraction, the numerator of which shall be
the current market price per common share (as defined in
part (iv) of this subparagraph (2)) as of the date of such
distribution, and the denominator of which shall be such
current market price per common share less the then fair
market value (as determined by the Board of Directors, whose
determination shall be conclusive) of the portion of the
assets or evidences of indebtedness so distributed or such
subscription rights or warrants applicable to one common
share. Such adjustment shall be made whenever any such
distribution is made, but shall also be effective
retroactively as to any share converted between the record
date for the determination of shareholders entitled to
receive such distribution and the date such distribution is
made.
(iv) For the purpose of any computation under
parts (ii) and (iii) of this subparagraph (2), the current
market price per common share as of any date shall be deemed
to be the average of the daily closing prices for the thirty
consecutive business days commencing on the forty-fifth
business day before the date in question. The closing price
for each business day shall be the last reported sales price
regular way or, if no such sale takes place on such business
day, the average of the reported closing bid and asked
prices regular way, in either case on the New York Stock
Exchange or, if the common shares are not listed or admitted
20
<PAGE>
to trading on such exchange, the average of the closing bid
and asked prices as furnished by any member of the New York
Stock Exchange selected by the Board of Directors for that
purpose.
(v) The conversion rate for Second Series
Preference Shares shall always be calculated to the nearest
one one-hundredth of a share. No adjustment in the
conversion rate for Second Series Preference Shares shall be
made unless the conversion rate for such shares after such
adjustment would differ from the conversion rate prior to
such adjustment by one one-hundredth of a common share or
more, provided that any adjustments for Second Series
Preference Shares not made by reason of this part (v) of
subparagraph (2) shall be carried forward and taken into
account in calculating subsequent adjustments.
(vi) Whenever any adjustment in the
conversion rate for Second Series Preference Shares is made,
the corporation shall cause to mailed to each holder of
Second Series Preference Shares a statement describing the
adjustment and the method of calculation used and, at the
holder's request, shall furnish a copy of an opinion
rendered by an independent firm of public accountants of
recognized standing, who may be the corporation's regularly
engaged auditors, that such adjustment was properly
calculated in accordance with the provisions of this
subparagraph (2).
(3) If the corporation shall consolidate with or
merge into another corporation, or if the corporation shall sell,
lease or transfer to any other person or persons all or
substantially all of the assets of the corporation, holders of
Second Series Preference Shares shall have the right after such
event to convert each share held into the kind and amount of
shares of stock, other securities, cash and property receivable
upon such event by a holder of the number of common shares into
which such shares might have been converted immediately prior to
such event. In any such event, effective provisions shall be
made in the certificate or articles of incorporation of the
resulting or surviving corporation, in any contract of sale,
conveyance, lease or transfer, or otherwise so that the
provisions set forth herein for the protection of the conversion
rights of Second Series Preference Shares shall thereafter
continue to be applicable; and any such resulting or surviving
corporation shall expressly assume the obligation to deliver,
upon conversion, such shares of stock, other securities, cash and
property. The provisions of this subparagraph (3) shall
similarly apply to successive consolidations, mergers, sales,
leases or transfers.
(f) Each outstanding share of Second Series Preference
Shares shall be entitled to one vote, not as a class, on each
matter submitted to a vote at a meeting of shareholders.
9. The third series of preference shares shall be
designated "$11.00 Cumulative Preference Shares, Third Series"
(the "Third Series Preference Shares"), and the number of shares
constituting such series shall be 147,000. The relative rights
and preferences of the Third Series Preference Shares shall be as
follows:
(a) The holders of Third Series Preference Shares
shall be entitled to receive, when and as declared by the Board
of Directors, out of any funds lawfully available therefor, cash
dividends thereon at the annual rate of $11.00 per share, and no
more, payable quarterly, from the date of issuance thereof, upon
the 15th day of March, June, September and December in each year.
Dividends on the Third Series Preference Shares shall commence to
accrue from the date of issuance thereof and shall be cumulative.
(b) The amount referred to in paragraph 2(c) of this
Article III as payable in the event of voluntary or involuntary
liquidation of the corporation shall be $100 per share.
Accordingly, in the event of the voluntary or involuntary
liquidation of the corporation the "preferential amount" which
21
<PAGE>
the holders of the Third Series Preference Shares shall be
entitled to receive out of the assets of the corporation pursuant
to paragraph 3(c) of this Article III is $100 per share plus all
accrued and unpaid dividends thereon.
(c) (1) The corporation shall redeem 29,400 Third
Series Preference Shares on December 15, 1988 and on each
December 15 thereafter until the Third Series Preference Shares
originally issued shall have been fully redeemed. Third Series
Preference Shares redeemed pursuant to the provisions of this
subparagraph (1) shall be redeemed in the manner, upon the notice
and with the effect set forth in subparagraph (4) of this
paragraph (c) and at a redemption price equal to $100 per share
plus all dividends accrued and unpaid thereon to the date of
redemption.
(2) In addition to the redemption of Third Series
Preference Shares required to be made pursuant to the foregoing
subparagraph (1) of this paragraph (c), the corporation may
concurrently with any such mandatory redemption, redeem a number
of Third Series Preference Shares (in units of 1,000 shares or
integral multiples of 1,000 in excess thereof) not exceeding the
number of Third Series Preference Shares being redeemed on such
date pursuant to the foregoing subparagraph (1) hereof. Third
Series Preference Shares to be redeemed pursuant to the
provisions of this subparagraph (2) shall be redeemed in the
manner, upon the notice and with the effect provided in
subparagraph (4) of this paragraph (c) and at a redemption price
equal to $100 per share plus the amount of all dividends accrued
and unpaid thereon to the date of redemption.
The right of the corporation to redeem Third
Series Preference Shares pursuant to this subparagraph (2) is
subject to the following limitations: (i) such right shall be
noncumulative and the failure of the corporation to exercise such
right on any date shall not increase the number of Third Series
Preference Shares which it may redeem under this subparagraph (2)
on any other date; (ii) Third Series Preference Shares redeemed
pursuant to the provisions of this subparagraph (2) shall be
credited, pro tanto, against the obligation of the corporation to
redeem Third Series Preference Shares pursuant to the provisions
of the foregoing subparagraph (1) hereof in the inverse order of
the dates on which such redemptions are required to be made; and
(iii) the number of Third Series Preference Shares redeemed by
the corporation from time to time pursuant to the provisions of
this subparagraph (2) shall not exceed a cumulative total of
44,100 shares.
(3) In addition to redemption of Third Series
Preference Shares required to be made pursuant to the foregoing
subparagraph (1) of this paragraph (c) and permitted to be made
pursuant to the foregoing subparagraph (2) of this paragraph (c),
the Third Series Preference Shares shall be subject to redemption
at any time or from time to time on or after but not before
December 15, 1987, in whole or in part (but if in part then in
units of 1,000 shares or integral multiples of 1,000 shares in
excess thereof) at the option of the corporation upon payment of
a redemption price of $100 per share together with all dividends
accrued and unpaid thereon to the date of redemption and together
with a premium per share determined in accordance with the
applicable provisions of the following table:
<TABLE>
<CAPTION>
Date Fixed for
Redemption Within Price Per
The Period (Inclusive) Share
---------------------- ---------
<S> <C>
December 15, 1987 - December 14, 1988 $5.00
December 15, 1988 - December 14, 1989 3.00
December 15, 1989 - December 14, 1990 1.00
December 15, 1990 and thereafter None
</TABLE>
22
<PAGE>
Third Series Preference Shares redeemed
pursuant to the provisions of this subparagraph (3) shall be
credited pro tanto, against the obligation of the corporation to
---------
redeem Third Series Preference Shares pursuant to the provisions
of the foregoing subparagraph (1) hereof, in the inverse order of
the dates on which such redemptions are required to be made.
(4) (i) Notice of every redemption pursuant to
this paragraph (c) shall be mailed at least 30 but not more
than 90 days prior to the date fixed for redemption to the
holders of record of Third Series Preference Shares so to be
redeemed at their respective addresses as the same shall
appear on the books of the corporation. Each such notice of
redemption shall set forth the redemption price applicable
to the Third Series Preference Shares being redeemed, and
that the redemption is pursuant to subparagraph (1), (2) or
(3) of this paragraph (c). In case of the redemption of
less than all of the outstanding Third Series Preference
Shares, the number of shares to be redeemed shall in the
case of each holder of record on the date of such selection
of at least 100 Third Series Preference Shares be as nearly
as practicable in the same proportion as the number of such
shares held by such holder bears to the total number of such
shares then outstanding (except as above provided in this
paragraph (c)) and in the case of any other holder shall be
determined in such manner as the Board of Directors of the
corporation deems appropriate and fair.
(ii) If, on the redemption date specified in
the notice of redemption, the funds necessary for such
redemption shall have been set aside by the corporation
separate and apart from its other funds in trust for the pro
rata benefit of the holders of the shares so called for
redemption, then (unless the corporation shall default in
making payment of the appropriate amount), notwithstanding
that any certificates for Third Series Preference Shares so
called for redemption shall not have been surrendered for
cancellation, the shares represented thereby which are to be
redeemed shall no longer be deemed outstanding, the right to
receive dividends thereon shall cease to accrue from and
after the date of redemption so specified and all rights of
holders of Third Series Preference Shares so called for
redemption shall forthwith, after such redemption date,
cease and terminate excepting only the right of the holders
thereof to receive the redemption price therefor (but
without interest) and any other rights of the holders
thereof which by the express terms of the agreement or
instrument creating such rights survive the redemption of
any or all of the Third Series Preference Shares. At the
expiration of six years from the date fixed for redemption,
all right, title, interest and claim of the holders of the
Third Series Preference Shares called for redemption in or
to unclaimed moneys so set aside by the corporation shall be
extinguished, terminated and discharged, and such unclaimed
moneys shall become part of the general funds of the
corporation free of any claim of such holders.
(iii) At any time after notice of
redemption has been given in the manner prescribed herein
and prior to the date fixed for redemption, the corporation
may deposit in trust, with a bank or trust company having
capital, surplus and undistributed profits aggregating at
least $50,000,000, an aggregate amount of funds sufficient
for such redemption, for immediate payment in the
appropriate amounts upon surrender of certificates for the
Third Series Preference Shares so called for redemption.
Upon the deposit of such funds or, if no such deposit is
made, upon the date fixed for redemption (unless the
corporation shall default in making payment of the
appropriate amount), whether or not certificates for Third
Series Preference Shares so called for redemption have been
surrendered for cancellation, the Third Series Preference
Shares to be redeemed shall be deemed to be no longer
outstanding and the holders thereof shall cease to be
shareholders with respect to such Third Series Preference
Shares and shall have no rights with respect thereto, except
for the right to receive the amount payable upon redemption
(but without interest) and any other rights of the holders
thereof which by the express terms of the agreement or
23
<PAGE>
instrument creating such rights survive the redemption of
any or all of the Third Series Preference Shares. Any funds
deposited by the corporation which are unclaimed at the end
of one year from the date fixed for such redemption shall be
paid over to the corporation upon its request, and upon such
repayment the holders of the Third Series Preference Shares
so called for redemption shall look only to the corporation
for payment of the appropriate amount. Any such unclaimed
amounts paid over to the corporation shall, for a period of
six years after the date fixed for such redemption, be set
apart and held by the corporation in trust for the benefit
of the holders of such Third Series Preference Shares, but
no such holder shall be entitled to receive interest
thereon. At the expiration of such six-year period, all
right, title, interest and claim of such holders in or to
such unclaimed amounts shall be extinguished, terminated and
discharged, and such unclaimed amounts shall become part of
the general funds of the corporation free of any claim of
such holders.
(iv) All Third Series Preference Shares which
shall have been redeemed, purchased or otherwise acquired by
or surrendered to the corporation shall have the status
specified in paragraph 1 of this Article III and may be
reissued as specified in such paragraph 1 except that such
shares shall not be reissued as Third Series Preference
Shares.
(v) The corporation shall not declare or pay
any dividends upon, or set aside any sum or sums for the
purchase, redemption (including any sinking fund payment
therefor) or other acquisition for value of, any class or
series of shares ranking on a parity with or subordinate to
the Third Series Preference Shares with respect to either
the payment of dividends or rights upon dissolution,
liquidation or winding up of the affairs of the corporation
unless all redemptions of the Third Series Preference Shares
required to be made pursuant to subparagraph (1) of this
paragraph (c) shall have been made.
(d) (1) The holders of Third Series Preference Shares
shall have no voting rights except as provided by Washington
statutes or by this Article III.
(2) So long as any Third Series Preference Shares
shall be outstanding, and in addition to any other approvals or
consents required by law, without the consent of the holders of
66-2/3% of all preference shares outstanding as of a record date
fixed by the Board of Directors, given either by their
affirmative vote at a special meeting called for that purpose,
or, if permitted by law, in writing without a meeting:
(i) The corporation shall not sell, transfer
or lease all or substantially all the properties and assets
of the corporation provided, however, that nothing herein
shall require the consent of the holders of preference
shares for or in respect of the creation of any mortgage,
pledge, or other lien upon all or any part of the assets of
the corporation.
(ii) The corporation shall not effect a
merger or consolidation with any other corporation or
corporations unless as a result of such merger or
consolidation and after giving effect thereto (1) either (A)
the corporation shall be the surviving corporation or (B) if
the corporation is not the surviving corporation, the
successor corporation shall be a corporation duly organized
and existing under the laws of any state of the United
States of America or the District of Columbia, and all
obligations of the corporation with respect to the Third
Series Preference Shares shall be assumed by such successor
corporation, (2) the Third Series Preference Shares then
outstanding shall continue to be outstanding, and (3) there
shall be no alteration or change in the designation or the
preferences, relative rights or limitations applicable to
outstanding Third Series Preference Shares prejudicial to
the holders thereof.
24
<PAGE>
(iii) The corporation shall not amend,
alter or repeal any of the provisions of its Articles of
Incorporation in any manner which adversely affects the
relative rights, preferences or limitations of the Third
Series Preference Shares or the holders thereof; provided,
however, that the corporation shall not amend, alter or
repeal the provisions of paragraph (a), (b) or (c) of this
paragraph 9 of this Article III or the provisions of this
clause (iii), without the consent of the holders of all
preference shares outstanding as of a record date fixed by
the Board of Directors, given either by the affirmative vote
of such holders at a special meeting called for that purpose
or, if permitted by law, in writing without a meeting.
10.(A) The second series of preferred shares shall be
designated "Market Auction Preferred Shares, Series A"
(hereinafter referred to as "Series A MAPS"), and the number of
authorized shares constituting Series A MAPS is 750. The
relative rights and preferences of Series A MAPS shall be as
follows:
(a) The Holders (as defined in subparagraph (d) of
this paragraph 10(A)) shall be entitled to receive, when and as
declared by the Board of Directors out of funds legally available
therefor, cash dividends thereon at the Applicable Rate (as
defined in subparagraph (2)(i) of this paragraph 10(A)(a)) and no
more, determined as set forth below, payable on the respective
dates set forth below.
(1) (i) Dividends on Series A MAPS, at the
Applicable Rate, shall accrue from the Date of Original
Issue (as defined in subparagraph (d) of this paragraph
10(A)). The first and second dividend payment dates on the
Series A MAPS will be December 31, 1985 and February 20,
1986, respectively. Following such second dividend payment
date, dividends will be payable on each day thereafter which
is the seventh Thursday after Thursday, February 20, 1986
(each such date being herein referred to as the "Normal
Dividend Payment Date") except that (A) if such Normal
Dividend Payment Date is not a Business Day, then the
Dividend Payment Date (as hereinafter defined) shall be the
preceding Tuesday if both such Tuesday and the following
Wednesday are Business Days; (B) or if the Friday following
such Normal Dividend Payment Date is not a Business Day,
then the Dividend Payment Date shall be the Wednesday
preceding such Normal Dividend Payment Date if both such
Wednesday and such Normal Dividend Payment Date are Business
days; or (C) if such Normal Dividend Payment Date and either
such preceding Tuesday or Wednesday are not Business Days or
if such Friday and such Wednesday are not Business Days,
then the Dividend Payment Date shall be the first Business
Day preceding the Normal Dividend Payment Date that is next
succeeded by a day that is also a Business Day. Although
any particular Dividend Payment Date shall not occur on the
originally scheduled Normal Dividend Payment Date because of
the exceptions discussed above, the next succeeding Dividend
Payment Date shall be, subject to such exceptions, the
seventh Thursday following the originally designated Normal
Dividend Payment Date for the prior Dividend Period (as
defined in subparagraph (2)(i) of this paragraph 10(A));
provided that the Board of Directors, in the event of a
change in law lengthening the minimum holding period
(currently found in Section 246(c) of the Code (as defined
in subparagraph (d) of this paragraph 10(A)) required for
taxpayers to be entitled to the dividends received deduction
on preferred stock held by non-affiliated corporations
(currently found in Section 243(a) of the Code), shall
adjust the period of time between Dividend Payment Dates so
as, subject to clauses (A) through (C) of this subparagraph
(a)(1)(i), to adjust uniformly the number of days (such
number of days without giving effect to such clauses (A)
through (C) being hereinafter referred to as "dividend
period days") in Dividend Periods commencing after the date
of such change in law to equal or exceed the then current
minimum holding period; provided that the number of dividend
period days shall not exceed by more than nine days the
25
<PAGE>
length of such then current minimum holding period and shall
be evenly divisible by seven, and the maximum number of
dividend period days in no event shall exceed 98 days (each
date of payment of dividends being herein referred to as a
"Dividend Payment Date" and the first Dividend Payment Date
being herein referred to as the "Initial Dividend Payment
Date"). Upon any such change in the number of dividend
period days as a result of a change in law, the corporation
shall publish notice of such change in a newspaper of
general circulation in The City of New York, New York, which
carries financial news and shall mail notice of such change
by first class mail, postage prepaid, to each Holder at such
Holder's address as the same appears on the stock transfer
books of the corporation.
(ii) As long as the Applicable Rate is based
on the results of an Auction (as defined in subparagraph (d)
of this paragraph 10(A), the corporation shall pay to the
Auction Agent (as defined in subparagraph (d) of this
paragraph 10(A)) not later than 12:00 Noon, New York City
time, on the Business Day next preceding each Dividend
Payment Date, an aggregate amount of funds available on the
next Business Day in The City of New York, New York, equal
to the dividends to be paid to all Holders on such Dividend
Payment Date. All such moneys shall be held in trust for
the payment of dividends on shares of Series A MAPS for the
benefit of the Holders by the Auction Agent and paid as set
forth in subparagraph (1)(iii) of this paragraph 10(A)(a).
(iii) For purposes of determining to whom
dividends shall be paid, each dividend shall be payable to
the Holders as their names appear on the stock transfer
books of the corporation on the Business Day next preceding
the Dividend Payment Date thereof. Dividends in arrears for
any past Dividend Period may be declared and paid at any
time, without reference to any regular Dividend Payment
Date, to the Holders as their names appear on the stock
transfer books of this corporation on such date, not
exceeding 15 days preceding the payment date thereof, as may
be fixed by the Board of Directors.
(2) (i) The dividend rate on Series A MAPS shall
be 5.625% per annum during the period from and after the
Date of Original Issue to and including the Initial Dividend
Payment Date (the "Initial Dividend Period"). Commencing on
the Initial Dividend Payment Date, the dividend rate on
Series A MAPS for each subsequent dividend period (herein
referred to as a "Subsequent Dividend Period" and
collectively as "Subsequent Dividend Periods"; and the
Initial Dividend Period or any Subsequent Dividend Period
being herein referred to as a "Dividend Period" and
collectively as "Dividend Periods") thereafter, which
subsequent Dividend Periods shall commence on the day that
is the last day of the preceding Dividend Period and shall
end on and include the next succeeding Dividend Payment
Date, shall be equal to the rate per annum that results from
implementation of the Auction Procedures (as defined in
subparagraph (d) of this paragraph 10(A)); provided that if
an Auction Termination Event (as defined in subparagraph (d)
of this paragraph 10(A)) shall have occurred prior to the
first day of such Subsequent Dividend Period, the dividend
rate for each Subsequent Dividend Period shall be a rate per
annum (the "Alternate Rate") equal to 150% of the "AA"
Composite Commercial Paper Rate (as defined in subparagraph
(d) of this paragraph 10(A)) on the first day of such
Subsequent Dividend Period. The rate per annum at which
dividends are payable on shares of Series A MAPS for any
Dividend Period is herein referred to as the "Applicable
Rate".
(ii) The amount of dividends per share
payable on Series A MAPS for any Dividend Period or part
thereof shall be computed by multiplying the Applicable Rate
for such Dividend Period by a fraction the numerator of
which shall be the number of days in such Dividend Period or
26
<PAGE>
part thereof (calculated by counting the first day thereof
but excluding the last day thereof) such share was
outstanding and the denominator of which shall be 360 and
applying the rate obtained against $100,000 per share of
Series A MAPS. For purposes of this subparagraph (2)(ii),
shares of Series A MAPS shall be treated as outstanding from
the Date of Original Issue.
(iii) The Applicable Rate for each
Subsequent Dividend Period shall be published not later than
the fifth Business Day next succeeding the first day of such
Subsequent Dividend Period in a newspaper of general
circulation in The City of New York, New York, which carries
financial news.
(b) (1) (i) (A) Series A MAPS may be redeemed,
at the option of the corporation, as a whole or from time to
time in part, on the second Business Day preceding any
Dividend Payment Date at a redemption price of:
(I) $101,500 per share if
redeemed during the twelve months ending November 14, 1986;
(II) $101,000 per share if
redeemed during the twelve months ending November 14, 1987;
(III) $100,500 per share if
redeemed during the twelve months ending November 14, 1988;
and
(IV) $100,000 per share if
redeemed thereafter;
plus, in each case, an amount equal to accrued and unpaid
dividends thereon (whether or not earned or declared) to the
date fixed for redemption.
(B) If fewer than all of the
outstanding Series A MAPS are to be redeemed pursuant to
this subparagraph (b)(1)(i), the number of shares to be
redeemed shall be determined by the Board of Directors, and
such shares shall be redeemed pro rata from the Holders in
proportion to the number of such shares held by such Holders
(with adjustments to avoid redemption of fractional shares).
(ii) Series A MAPS may be redeemed, at the
option of the corporation, as a whole but not in part, on
any Dividend Payment Date at a redemption price of $100,000
per share, plus an amount equal to accrued and unpaid
dividends thereon (whether or not earned or declared) to the
date fixed for redemption, if the Applicable Rate fixed for
the Dividend Period ending on such Dividend Payment Date
shall equal or exceed the "AA" Composite Commercial Paper
Rate on the date of determination of such Applicable Rate.
(2) If the corporation shall redeem Series A MAPS
pursuant to this paragraph 10(A)(b), notice of such redemption
shall be mailed by first class mail, postage prepaid, to each
Holder of the shares to be redeemed, at such Holder's address as
the same appears on the stock transfer books of the corporation.
Such notice shall be so mailed not less than 30 or more than 45
days prior to the date fixed for redemption. Each such notice
shall state: (v) the redemption date, (w) the number of shares
of Series A MAPS to be redeemed, (x) the redemption price, (y)
the place or places where certificates for such shares of Series
A MAPS are to be surrendered for payment of the redemption price
and (z) that dividends on the shares to be redeemed will cease to
accrue on such redemption date. If fewer than all shares held by
27
<PAGE>
any Holder are to be redeemed, the notice mailed to such Holder
shall also specify the number of shares to be redeemed from such
Holder.
(3) If notice of redemption has been given under
subparagraph (2) of this paragraph 10(A)(b), from and after the
redemption date for the shares of Series A MAPS called for
redemption (unless default shall be made by the corporation in
providing money for the payment of the redemption price of the
shares so called for redemption) dividends on Series A MAPS so
called for redemption shall cease to accrue and said shares shall
no longer be deemed to be outstanding, and all rights of the
Holders thereof as shareholders of the corporation (except the
right to receive the redemption price) shall cease. Upon
surrender in accordance with said notice of the certificates for
any shares so redeemed (properly endorsed or assigned for
transfer, if the Board of Directors shall so require and the
notice shall so state), the redemption price set forth above
shall be payable by the Auction Agent to the Holders of shares of
Series A MAPS subject to redemption on the redemption date. In
case fewer than all of the shares represented by any such
certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares without cost to the Holder
thereof.
(4) On the Business Day next preceding a
redemption date, the corporation shall irrevocably deposit with
the Auction Agent for each share of Series A MAPS to be redeemed
on such date an amount equal to the applicable redemption price
plus an amount equal to accrued and unpaid dividends (whether or
not earned or declared) on such share to the date fixed for
redemption, in funds available on the redemption date in The City
of New York, New York. All such moneys shall be irrevocably
deposited for the payment of the redemption price of shares of
Series A MAPS to be so redeemed and shall be held in trust for
the benefit of the Holders whose shares are to be redeemed by the
Auction Agent and applied as set forth herein.
(5) Any monies held in trust for payment of the
appropriate redemption price to be paid to Holders of shares of
Series A MAPS subject to redemption on any redemption date
remaining unclaimed at the end of three years from such
redemption date shall be repaid to the corporation upon the
written request of the corporation, after which the Holders of
shares of Series A MAPS so called for redemption but for which
moneys remain unclaimed shall look only to the corporation for
the payment thereof.
(6) Shares of Series A MAPS redeemed, purchased
or otherwise reacquired, or surrendered to the corporation shall
be retired and not reissued as Series A MAPS, but shall have the
status of authorized and unissued preferred shares of the
corporation that may be reissued as part of a new or different
series of preferred shares.
(c) (1) The amount referred to in paragraph 2(c) of
this Article III as payable in the event of voluntary or
involuntary liquidation of the corporation shall be $100,000 per
share of Series A MAPS. Accordingly, in the event of the
voluntary or involuntary liquidation of the corporation the
"preferential amount" which the Holders of Series A MAPS shall be
entitled to receive out of the assets of the corporation pursuant
to paragraph 3(c) of this Article III is $100,000 per share plus
all accrued and unpaid dividends thereon.
(2) The Holders of Series A MAPS shall have no
voting rights except as provided by Washington statutes or by
this Article III.
(3) For so long as any shares of Series A MAPS
are outstanding, the Auction Agent, duly appointed by the
corporation to so act, shall be in each case a commercial bank,
28
<PAGE>
trust company or other financial institution independent of the
corporation and its affiliates (which, however, may engage or
have engaged in business transactions with the corporation or its
affiliates) and at no time shall the corporation or its
affiliates act as the Auction Agent in connection with the
Auction Procedures. If the Auction Agent resigns or for any
reason its appointment is terminated during any period that any
shares of Series A MAPS are outstanding, the Board of Directors
of the corporation shall promptly thereafter appoint another
qualified commercial bank, trust company or financial institution
to act as the Auction Agent.
(d) As used in this paragraph 10(A) of Article III,
the following terms shall have the following meanings (with terms
defined in the singular having comparable meanings when used in
the plural and vice versa), unless the context otherwise
requires:
(1) "`AA' Composite Commercial Paper Rate", on
any date, shall mean (i) the interest equivalent of the 60-day
rate on commercial paper placed on behalf of issuers whose
corporate bonds are rated "AA" by Standard & Poor's Corporation
or its successor, or the equivalent of such rating by another
rating agency, as made available on a discount basis or otherwise
by the Federal Reserve Bank of New York for the immediately
preceding Business Day prior to such date; or (ii) in the event
that the Federal Reserve Bank of New York does not make available
such a rate, then the arithmetic average of the interest
equivalent of the 60-day rate on commercial paper placed on
behalf of such issuers, as quoted on a discount basis or
otherwise by the Commercial Paper Dealers to the Auction Agent
for the close of business of the immediately preceding Business
Day prior to such date. If any Commercial Paper Dealer does not
quote a rate required to determine the "AA" Composite Commercial
Paper Rate, the "AA" Composite Commercial Paper Rate shall be
determined on the basis of the quotation or quotations furnished
by the remaining Commercial Paper Dealer and any Substitute
Commercial Paper Dealer or Substitute Commercial Paper Dealers
selected by the corporation to provide such rate or rates not
being supplied by any Commercial Paper Dealer or, if the
corporation does not select any such Substitute Commercial Paper
Dealer or Substitute Commercial Paper Dealers, by the remaining
Commercial Paper Dealer. If the Board of Directors shall make
the adjustment referred to in the proviso of the first sentence
of subparagraph (1)(i) of paragraph 10(A)(a), then (i) if the
dividend period days shall be 70 or more days but fewer than 85
days, such rate shall be the arithmetic average of the interest
equivalent of the 60-day and 90-day rates on such commercial
paper, and (ii) if the dividend period days shall be 85 or more
days but 98 or fewer days, such rate shall be the interest
equivalent of the 90-day rate on such commercial paper. For
purposes of this definition, the "interest equivalent" of a rate
stated on a discount basis (a "discount rate") for commercial
paper of a given days' maturity shall be equal to the quotient
(rounded upwards to the next higher one-thousandth (.001) of 1%)
of (A) the discount rate divided by (B) the difference between
(x) 1.00 and (y) a fraction the numerator of which shall be the
product of the discount rate times the number of days in which
such commercial paper matures and the denominator of which shall
be 360.
(2) "Alternate Rate" shall have the meaning
specified in subparagraph (a)(2)(i) of this paragraph 10(A).
(3) "Applicable Rate" shall have the meaning
specified in subparagraph (a)(2)(i) of this paragraph 10(A).
(4) "Auction" shall mean each periodic operation
of the Auction Procedures.
(5) "Auction Agent" shall mean a bank or trust
company appointed as such by the corporation.
29
<PAGE>
(6) "Auction Procedures" shall mean the
procedures for conducting Auctions set forth in paragraph 10(B)
hereof.
(7) "Auction Termination Event" shall mean the
first failure by the corporation to pay to the Auction Agent, not
later than 12:00 Noon, New York City time, (A) on the Business
Day next preceding any Dividend Payment Date, in funds available
on such Dividend Payment Date in The City of New York, New York,
the full amount of any dividend (whether or not earned or
declared) to be paid on such Dividend Payment Date on any Series
A MAPS or (B) on the Business Day next preceding any redemption
date in the case of a redemption pursuant to subparagraph (b) of
this paragraph 10(A), in funds available on such redemption date
in The City of New York, New York, the redemption price to be
paid on such redemption date of any Series A MAPS after notice of
redemption is given pursuant to subparagraph (b) of this
paragraph 10(A).
(8) "Business Day" shall mean a day on which the
New York Stock Exchange is open for trading and which is neither
a Saturday, Sunday or other day on which banks in The City of New
York, New York are authorized or required by law to close.
(9) "Code" shall mean the Internal Revenue Code
of 1954, as amended.
(10) "Commercial Paper Dealers" shall mean
Goldman, Sachs & Co. and Morgan Stanley & Co. Incorporated, or,
in lieu of any thereof, their respective affiliates or
successors.
(11) "Date of Original Issue" shall mean the date
on which the corporation initially issues the Series A MAPS.
(12) "Dividend Payment Date" shall have the
meaning specified in subparagraph (a)(1)(i) of this paragraph
10(A).
(13) "Dividend Period" and "Dividend Periods"
shall have the respective meanings specified in subparagraph
(a)(2)(i) of this paragraph 10(A).
(14) "Holder" shall mean the holder of shares of
Series A MAPS as the same appears on the stock transfer books of
the corporation.
(15) "Initial Dividend Payment Date" shall have
the meaning specified in subparagraph (a)(1)(i) of this paragraph
10(A).
(16) "Initial Dividend Period" shall have the
meaning specified in subparagraph (a)(2)(i) of this paragraph
10(A).
(17) "Normal Dividend Payment Date" shall have the
meaning specified in subparagraph (a)(1)(i) of this paragraph
10(A).
(18) "Series A MAPS" shall mean the series of the
Preferred Shares, liquidation preference $100,000 per share, of
the corporation designated as its "Market Auction Preferred
Shares, Series A."
(19) "Subsequent Dividend Period" and "Subsequent
Dividend Periods" shall have the respective meanings specified in
subparagraph (a)(2)(i) of this paragraph 10(A).
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<PAGE>
(20) "Substitute Commercial Paper Dealer" shall
mean any commercial paper dealer that is a leading dealer in the
commercial paper market provided that neither such dealer nor any
of its affiliates shall be a Commercial Paper Dealer.
(B) (a) Certain Definitions. Capitalized terms not
defined in this subparagraph (a) shall have the respective
meanings specified in paragraph 10(A) of this Article III. As
used in this paragraph 10(B), the following terms shall have the
following meanings, unless the context otherwise requires:
(1) "`AA' Rate Multiple", on any Auction Date,
shall mean the percentage determined as set forth below based on
the prevailing rating of Series A MAPS in effect at the close of
business on the Business Day immediately preceding such Auction
Date:
<TABLE>
<CAPTION>
Prevailing Rating Percentage
----------------- ----------
<S> <C>
AA/aa or above 110%
A/a 120%
BBB/baa 130%
Below BBB/baa (includes no rating) 150%
</TABLE>
For purposes of this definition, the
"prevailing rating" of Series A MAPS shall be (i) AA/aa or Above,
if Series A MAPS then have a rating of AA or better by Standard &
Poor's Corporation or its successor ("S&P") or aa3 or better by
Moody's Investors Service, Inc. or its successor ("Moody's"), or
the equivalent of either or both of such ratings by such agencies
or a substitute rating agency or substitute rating agencies
selected as provided below, (ii) if not AA/aa or Above, then A/a
if Series A MAPS then have a rating of A or better and lower than
AA by S&P or a3 or better and lower than aa3 by Moody's or the
equivalent of either or both of such ratings by such agencies or
a substitute rating agency or substitute rating agencies selected
as provided below, (iii) if not AA/aa or Above or A/a, then
BBB/baa if Series A MAPS then have a rating of BBB or better and
lower than A by S&P or baa3 or better and lower than a3 by
Moody's or the equivalent of either or both of such ratings by
such agencies or a substitute rating agency or substitute rating
agencies selected as provided below, and (iv) if not AA/aa or
Above, A/a or BBB/baa, then Below BBB/baa. The corporation shall
take all reasonable action necessary to enable S&P and Moody's to
provide a rating for Series A MAPS. If either or both S&P or
Moody's shall not make such a rating available, Morgan Stanley &
Co. Incorporated or its successor shall select a nationally
recognized statistical rating organization or two nationally
recognized statistical rating organizations (as that term is used
in the rules and regulations of the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended)
to act as substitute rating agency or substitute rating agencies,
as the case may be.
(2) "Affiliate" shall mean any Person known to
the Auction Agent to be controlled by, in control of or under
common control with the corporation.
(3) "Agent Member" shall mean the member of the
Securities Depository that will act on behalf of a Bidder and is
identified as such in such Bidder's Purchaser's Letter.
(4) "Auction" shall mean the periodic operation
of the procedures set forth in this paragraph 10(B).
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<PAGE>
(5) "Auction Date" shall mean the Business Day
next preceding a Dividend Payment Date.
(6) "Available Series A MAPS" shall have the
meaning specified in subparagraph (d)(1) of this paragraph 10(B).
(7) "Bid" and "Bids" shall have the respective
meanings specified in subparagraph (b)(1) of this paragraph
10(B).
(8) "Bidder" and "Bidders" shall have the
respective meanings specified in subparagraph (b)(1) of this
paragraph 10(B).
(9) "Broker-Dealer" shall mean any broker-dealer,
or other entity permitted by law to perform the functions
required of a Broker-Dealer in this paragraph 10(B), that is a
member of, or a participant in, the Securities Depository, has
been selected by the corporation and has entered into a Broker-
Dealer Agreement with the Auction Agent that remains effective.
(10) "Broker-Dealer Agreement" shall mean an
agreement between the Auction Agent and a Broker-Dealer pursuant
to which such Broker-Dealer agrees to follow the procedures
specified in this paragraph 10(B).
(11) "Existing Holder", when used with respect to
Series A MAPS, shall mean a Person who has signed a Purchaser's
Letter and is listed as the beneficial owner of such Series A
MAPS in the records of the Auction Agent.
(12) "Hold Order" and "Hold Orders" shall have the
respective meanings specified in subparagraph (b)(1) of this
paragraph 10(B).
(13) "Maximum Rate", on any Auction Date, shall
mean the product of the "AA" Composite Commercial Paper Rate and
the "AA" Rate Multiple.
(14) "Order" and "Orders" shall have the
respective meanings specified in subparagraph (b)(1) of this
paragraph 10(B).
(15) "Outstanding" shall mean, as of any date,
Series A MAPS theretofore issued by the corporation except,
without duplication, (i) any Series A MAPS theretofore cancelled
or delivered to the Auction Agent for cancellation or redeemed by
the corporation or as to which a notice of redemption shall have
been given by the corporation, (ii) any Series A MAPS as to which
the corporation or any Affiliate thereof shall be an Existing
Holder and (iii) any Series A MAPS represented by any certificate
in lieu of which a new certificate has been executed and
delivered by the corporation.
(16) "Person" shall mean and include an
individual, a partnership, a corporation, a trust, an
unincorporated association, a joint venture or other entity or a
government or any agency or political subdivision thereof.
(17) "Potential Holder" shall mean any Person,
including any Existing Holder, (i) who shall have executed a
Purchaser's Letter and (ii) who may be interested in acquiring
shares of Series A MAPS (or, in the case of an Existing Holder,
additional shares of Series A MAPS).
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<PAGE>
(18) "Purchaser's Letter" shall mean a letter
addressed to the corporation, the Auction Agent, a Broker-Dealer
and an Agent Member in which a Person agrees, among other things,
to offer to purchase, purchase, offer to sell and/or sell shares
of Series A MAPS as set forth in this paragraph 10(B).
(19) "Securities Depository" shall mean The
Depository Trust Company and its successors and assigns or any
other securities depository selected by the corporation which
agrees to follow the procedures required to be followed by such
securities depository in connection with Series A MAPS.
(20) "Sell Order" and "Sell Orders" shall have the
respective meanings specified in subparagraph (b)(1) of this
paragraph 10(B).
(21) "Submission Deadline" shall mean 12:30 P.M.,
New York City time, on any Auction Date or such other time on any
Auction Date by which Broker-Dealers are required to submit
Orders to the Auction Agent as specified by the Auction Agent
from time to time.
(22) "Submitted Bid" shall have the meaning
specified in subparagraph (d)(1) of this paragraph 10(B).
(23) "Submitted Hold Order" shall have the meaning
specified in subparagraph (d)(1) of this paragraph 10(B).
(24) "Submitted Order" shall have the meaning
specified in subparagraph (d)(1) of this paragraph 10(B).
(25) "Submitted Sell Order" shall have the meaning
specified in subparagraph (d)(1) of this paragraph 10(B).
(26) "Sufficient Clearing Bids" shall have the
meaning specified in subparagraph (d)(1) of this paragraph 10(B).
(27) "Winning Bid Rate" shall have the meaning
specified in subparagraph (d)(1) of this paragraph 10(B).
(b) Orders by Existing Holders and Potential Holders.
(1) On or prior to the Submission Deadline on each Auction Date:
(i) each Existing Holder may submit to a Broker-
Dealer information as to:
(A) the number of Outstanding Series A MAPS,
if any, held by such Existing Holder which such Existing
Holder desires to continue to hold without regard to the
Applicable Rate for the next succeeding Dividend Period;
(B) the number of Outstanding Series A MAPS,
if any, that such Existing Holder desires to continue to
hold if the Applicable Rate for the next succeeding Dividend
Period shall not be less than the rate per annum specified
by such Existing Holder; and/or
33
<PAGE>
(C) the number of Outstanding Series A MAPS,
if any, held by such Existing Holder which such Existing
Holder offers to sell without regard to the Applicable Rate
for the next succeeding Dividend Period; and
(ii) one or more Broker-Dealers, using lists of
Potential Holders, shall in good faith for the purpose of
conducting a competitive Auction in a commercially
reasonable manner, contact Potential Holders, including
Persons that are not Existing Holders, on such lists to
determine the number of shares, if any, of Series A MAPS
which each such Potential Holder offers to purchase if the
Applicable Rate for the next succeeding Dividend Period
shall not be less than the rate per annum specified by such
Potential Holder.
For the purposes hereof, the communication to a
Broker-Dealer of information referred to in clause (i)(A),
(i)(B), (i)(C) or (ii) of this subparagraph (1) is
hereinafter referred to as an "Order" and collectively as
"Orders" and each Existing Holder and each Potential Holder
placing an Order is hereinafter referred to as a "Bidder"
and collectively as "Bidders"; an Order containing the
information referred to in clause (i)(A) of this
subparagraph (1) is hereinafter referred to as a "Hold
Order" and collectively as "Hold Orders"; an Order
containing the information referred to in clause (i)(B) or
(ii) of this subparagraph (1) is hereinafter referred to as
a "Bid" and collectively as "Bids"; and an Order containing
the information referred to in clause (i)(C) of this
subparagraph (1) is hereinafter referred to as a "Sell
Order" and collectively as "Sell Orders".
(2) (i) A Bid by an Existing Holder shall
constitute an irrevocable offer to sell:
(A) the number of Outstanding Series A
MAPS specified in such Bid if the Applicable Rate determined
on such Auction Date shall be less than the rate specified
therein; or
(B) such number or a lesser number of
Outstanding Series A MAPS to be determined as set forth in
clause (iv) of subparagraph (e)(l) of this paragraph 10(B)
if the Applicable Rate determined on such Auction Date shall
be equal to the rate specified therein; or
(C) a lesser number of Outstanding
Series A MAPS to be determined as set forth in clause (iii)
of subparagraph (e)(2) of this paragraph 10(B) if the rate
specified therein shall be higher than the Maximum Rate and
Sufficient Clearing Bids do not exist.
(ii) a Sell Order by an Existing Holder shall
constitute an irrevocable offer to sell:
(A) the number of Outstanding Series A
MAPS specified in such Sell Order; or
(B) such number or a lesser number of
Outstanding Series A MAPS as set forth in clause (iii) of
subparagraph (2)(e) of this paragraph 10(B) if Sufficient
Clearing Bids do not exist.
(iii) A Bid by a Potential Holder shall
constitute an irrevocable offer to purchase:
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<PAGE>
(A) the number of Outstanding Series A
MAPS specified in such Bid if the Applicable Rate determined
on such Auction Date shall be higher than the rate specified
therein; or
(B) such number or a lesser number of
Outstanding Series A MAPS as set forth in clause (v) of
subparagraph (e)(1) of this paragraph 10(B) if the
Applicable Rate determined on such Auction Date shall be
equal to the rate specified therein.
(c) Submission of Orders by Broker-Dealers to Auction
Agent. (1) Each Broker-Dealer shall submit in writing to the
Auction Agent prior to the Submission Deadline on each Auction
Date all Orders obtained by such Broker-Dealer and specifying
with respect to each Order:
(i) the name of the Bidder placing such
Order;
(ii) the aggregate number of shares of Series
A MAPS that are the subject of such Order;
(iii) to the extent that such Bidder is
an Existing Holder:
(A) the number of shares, if any, of
Series A MAPS subject to any Hold Order placed by such
Existing Holder;
(B) the number of shares, if any, of
Series A MAPS subject to any Bid placed by such Existing
Holder and the rate specified in such Bid; and
(C) the number of shares, if any, of
Series A MAPS subject to any Sell Order placed by such
Existing Holder; and
(iv) to the extent such Bidder is a Potential
Holder, the rate and number of shares specified in such
Potential Holder's Bid.
(2) If any rate specified in any Bid contains
more than three figures to the right of the decimal point, the
Auction Agent shall round such rate up to the next highest one
thousandth (.001) of 1%.
(3) If an Order or Orders covering all of the
Outstanding Series A MAPS held by an Existing Holder is not
submitted to the Auction Agent prior to the Submission Deadline,
the Auction Agent shall deem a Hold Order to have been submitted
on behalf of such Existing Holder covering the number of
Outstanding Series A MAPS held by such Existing Holder and not
subject to Orders submitted to the Auction Agent.
(4) If one or more Orders covering in the
aggregate more than the number of Outstanding Series A MAPS held
by an Existing Holder are submitted to the Auction Agent, such
Orders shall be considered valid as follows and in the following
order of priority:
(i) all Hold Orders shall be considered
valid, but only up to and including in the aggregate the
number of Outstanding Series A MAPS held by such Existing
Holder, and, solely for purposes of allocating compensation
among the Broker-Dealers submitting Hold Orders, if the
35
<PAGE>
number of Series A MAPS subject to such Hold Orders exceeds
the number of Outstanding Series A MAPS held by such
Existing Holder, the number of shares subject to each such
Hold Order shall be reduced pro rata to cover the number of
Outstanding Series A MAPS held by such Existing Holder;
(ii) (A) any Bid shall be considered valid
up to and including the excess of the number of Outstanding
Series A MAPS held by such Existing Holder over the number
of Series A MAPS subject to any Hold Orders referred to in
clause (i) above;
(B) subject to subclause (A), if more
than one Bid with the same rate is submitted on behalf of
such Existing Holder and the number of Outstanding Series A
MAPS subject to such Bids is greater than such excess, such
Bids shall be considered valid up to and including the
amount of such excess, and, solely for purposes of
allocating compensation among the Broker-Dealers submitting
Bids with the same rate, the number of Series A MAPS subject
to each Bid with the same rate shall be reduced pro rata to
cover the number of Series A MAPS equal to such excess;
(C) subject to subclause (A), if more
than one Bid with different rates is submitted on behalf of
such Existing Holder, such Bids shall be considered valid in
the ascending order of their respective rates up to the
amount of such excess; and
(D) in any such event the number, if
any, of such Outstanding Series A MAPS subject to Bids not
valid under this clause (ii) shall be treated as the subject
of a Bid by a Potential Holder at the rate specified
therein; and
(iii) all Sell Orders shall be considered
valid up to and including the excess of the number of
Outstanding Series A MAPS held by such Existing Holder over
the sum of the shares of Series A MAPS subject to Hold
Orders referred to in clause (i) above and valid Bids by
such Existing Holder referred to in clause (ii) above.
(5) If more than one Bid is submitted on behalf
of any Potential Holder, each Bid submitted shall be a separate
Bid with the rate and number of shares therein specified.
(d) Determination of Sufficient Clearing Bids, Winning
Bid Rate and Applicable Rate. (1) Not earlier than the
Submission Deadline on each Auction Date, the Auction Agent shall
assemble all Orders submitted or deemed submitted to it by the
Broker-Dealers (each such Order as submitted or deemed submitted
by a Broker-Dealer being hereinafter referred to as a "Submitted
Hold Order", a "Submitted Bid" or a "Submitted Sell Order", as
the case may be, or as a "Submitted Order") and shall determine:
(i) the excess of the total number of
Outstanding Series A MAPS over the number of Outstanding
Series A MAPS that are the subject of Submitted Hold Orders
(such excess being hereinafter referred to as the "Available
Series A MAPS");
(ii) from the Submitted Orders whether:
(A) the number of Outstanding Series A
MAPS that are the subject of Submitted Bids by Potential
Holders specifying one or more rates equal to or lower than
the Maximum Rate;
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<PAGE>
exceeds or is equal to the sum of:
(B) the number of Outstanding Series A
MAPS that are the subject of Submitted Bids by Existing
Holders specifying one or more rates higher than the Maximum
Rate, and
(C) the number of Outstanding Series A
MAPS that are subject to Submitted Sell Orders
(in the event of such excess or such equality (other
than because the number of Series A MAPS in subclauses (B)
and (C) above is zero because all of the Outstanding Series
A MAPS are the subject of Submitted Hold Orders), such
Submitted Bids in clause (A) above being hereinafter
referred to collectively as "Sufficient Clearing Bids"); and
(iii) if Sufficient Clearing Bids exist,
the lowest rate specified in the Submitted Bids (the
"Winning Bid Rate") which if:
(A) (I) each Submitted Bid from
Existing Holders specifying such lowest rate and
(II) all other Submitted Bids from
Existing Holders specifying lower rates were rejected, thus
entitling such Existing Holders to continue to hold the
shares of Series A MAPS that are the subject of such
Submitted Bids; and
(B) (I) each Submitted Bid from
Potential Holders specifying such lowest rate and
(II) all other Submitted Bids from
Potential Holders specifying lower rates were accepted,
would result in such Existing Holders continuing to hold an
aggregate number of Outstanding Series A MAPS which, when
added to the number of Outstanding Series A MAPS to be
purchased by such Potential Holders, would equal not less
than the Available Series A MAPS.
(2) Promptly after the Auction Agent has made the
determinations pursuant to subparagraph (1) of this paragraph
10(B)(d), the Auction Agent shall advise the corporation of the
"AA" Composite Commercial Paper Rate and the Maximum Rate on the
Auction Date and, based on such determinations, the Applicable
Rate for the next succeeding Dividend Period as follows:
(i) if Sufficient Clearing Bids exist, that
the Applicable Rate for the next succeeding Dividend Period
shall be equal to the Winning Bid Rate so determined;
(ii) if Sufficient Clearing Bids do not exist
(other than because all of the Outstanding Series A MAPS are
the subject of Submitted Hold Orders), that the Applicable
Rate for the next succeeding Dividend Period shall be equal
to the Maximum Rate; or
(iii) if all of the Outstanding Series A
MAPS are the subject of Submitted Hold Orders, that the
Applicable Rate for the next succeeding Dividend Period
therefor shall be equal to 59% of the "AA" Composite
Commercial Paper Rate.
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<PAGE>
(e) Acceptance and Rejection of Submitted Bids and
Submitted Sell Orders and Allocation of Shares. Existing Holders
shall continue to hold Series A MAPS that are the subject of
Submitted Hold Orders, and, based on the determinations made
pursuant to subparagraph (d)(1) of this paragraph 10(B), the
Submitted Bids and Submitted Sell Orders shall be accepted or
rejected and the Auction Agent shall take such other action as
set forth below:
(1) If Sufficient Clearing Bids have been made,
all Submitted Sell Orders shall be accepted and, subject to the
provisions of subparagraphs (4) and (5) of this paragraph
10(B)(e), Submitted Bids shall be accepted or rejected as follows
in the following order of priority and all other Submitted Bids
shall be rejected:
(i) Existing Holders' Submitted Bids
specifying any rate that is higher than the Winning Bid Rate
shall be accepted, thus requiring each such Existing Holder
to sell the Series A MAPS that are the subject of such
Submitted Bids;
(ii) Existing Holders' Submitted Bids
specifying any rate that is lower than the Winning Bid Rate
shall be rejected, thus entitling each such Existing Holder
to continue to hold the shares of Series A MAPS that are the
subject of such Submitted Bids;
(iii) Potential Holders' Submitted Bids
specifying any rate that is lower than the Winning Bid Rate
shall be accepted;
(iv) Each Existing Holder's Submitted Bid
specifying a rate that is equal to the Winning Bid Rate
shall be rejected, thus entitling such Existing Holder to
continue to hold the Series A MAPS that are the subject of
such Submitted Bid, unless the number of Outstanding Series
A MAPS subject to all such Submitted Bids shall be greater
than the number of Series A MAPS ("remaining shares") equal
to the excess of the Available Series A MAPS over the number
of Series A MAPS subject to Submitted Bids described in
clauses (ii) and (iii) of this subparagraph (1), in which
event the Submitted Bid of such Existing Holder shall be
accepted in part, and such Existing Holder shall be required
to sell Series A MAPS subject to such Submitted Bid, but
only in an amount equal to the difference between (A) the
number of Outstanding Series A MAPS then held by such
Existing Holder subject to such Submitted Bid and (B) the
number of Series A MAPS obtained by multiplying the number
of remaining shares by a fraction the numerator of which
shall be the number of Outstanding Series A MAPS held by
such Existing Holder subject to such Submitted Bids and the
denominator of which shall be the aggregate number of
Outstanding Series A MAPS subject to such Submitted Bids
made by all such Existing Holders that specified a rate
equal to the Winning Bid Rate; and
(v) Each Potential Holder's Submitted Bid
specifying a rate that is equal to the Winning Bid Rate
shall be accepted but only in an amount equal to the number
of Series A MAPS obtained by multiplying the difference
between the Available Series A MAPS and the number of Series
A MAPS subject to Submitted Bids described in clauses (ii),
(iii) and (iv) of this subparagraph (1) by a fraction the
numerator of which shall be the number of Outstanding Series
A MAPS subject to such Submitted Bid and the denominator of
which shall be the sum of the number of Outstanding Series A
MAPS subject to such Submitted Bids made by all such
Potential Holders that specified rates equal to the Winning
Bid Rate.
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<PAGE>
(2) If Sufficient Clearing Bids have not been
made (other than because all of the Outstanding Series A MAPS are
the subject of Submitted Hold Orders), subject to the provisions
of subparagraphs (4) and (5) of this paragraph 10(B)(e),
Submitted Orders shall be accepted or rejected as follows in the
following order of priority and all other Submitted Bids shall be
rejected:
(i) Existing Holders' Submitted Bids
specifying any rate that is equal to or lower than the
Maximum Rate shall be rejected, thus entitling such Existing
Holder to continue to hold the Series A MAPS that are the
subject of such Submitted Bids;
(ii) Potential Holders' Submitted Bids
specifying any rate that is equal to or lower than the
Maximum Rate shall be accepted; and
(iii) Each Existing Holder's Submitted
Bid specifying any rate that is higher than the Maximum Rate
and the Submitted Sell Order of each Existing Holder shall
be accepted, but in both cases only in an amount equal to
the difference between (A) the number of Outstanding Series
A MAPS then held by such Existing Holder subject to such
Submitted Bid or Submitted Sell Order and (B) the number of
Series A MAPS obtained by multiplying the difference between
the Available Series A MAPS and the aggregate number of
Series A MAPS subject to Submitted Bids described in clauses
(i) and (ii) of this subparagraph (2) by a fraction the
numerator of which shall be the number of Outstanding Series
A MAPS held by such Existing Holder subject to such
Submitted Bid or Submitted Sell Order and the denominator of
which shall be the number of Outstanding Series A MAPS
subject to all such Submitted Bids and Submitted Sell
Orders.
(3) If all of the Outstanding Series A MAPS are
the subject of Submitted Hold Orders, all Submitted Bids shall be
rejected.
(4) If, as a result of the procedures described
in subparagraph (1) or (2) of this paragraph 10(B)(e), any
Existing Holder would be entitled or required to sell, or any
Potential Holder would be entitled or required to purchase, a
fraction of a Series A MAPS on any Auction Date, the Auction
Agent shall, in such manner as, in its sole discretion, it shall
determine, round up or down the number of Series A MAPS to be
purchased or sold by any Existing Holder or Potential Holder on
such Auction Date so that the number of shares purchased or sold
by each Existing Holder or Potential Holder on such Auction Date
shall be whole shares of Series A MAPS.
(5) If, as a result of the procedures described
in subparagraph (1) of this paragraph 10(B)(e), any Potential
Holder would be entitled or required to purchase less than a
whole share of Series A MAPS on any Auction Date, the Auction
Agent shall, in such manner as, in its sole discretion, it shall
determine, allocate shares for purchase among Potential Holders
so that only whole shares of Series A MAPS are purchased on such
Auction Date by any Potential Holder, even if such allocation
results in one or more of such Potential Holders not purchasing
shares of Series A MAPS on such Auction Date.
(6) Based on the results of each Auction, the
Auction Agent shall determine the aggregate number of Series A
MAPS to be purchased and the aggregate number of Series A MAPS to
be sold by Potential Holders and Existing Holders on whose behalf
each Broker-Dealer submitted Bids or Sell Orders and, with
respect to each Broker-Dealer, to the extent that such aggregate
number of shares to be purchased and such aggregate number of
shares to be sold differ, determine to which other Broker-Dealer
or Broker-Dealers acting for one or more purchasers such Broker-
Dealer shall deliver, or from which other Broker-Dealer or Broker-
Dealers acting for one or more sellers such Broker-Dealer shall
receive, as the case may be, shares of Series A MAPS.
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<PAGE>
(f) Miscellaneous.
(1) The Board of Directors may interpret the
provisions of this paragraph 10(B) to resolve any inconsistency
or ambiguity which may arise or be revealed in connection with
the Auction Procedures provided for herein.
(2) During the Initial Dividend Period and so
long as the Applicable Rate is based on the results of an
Auction, an Existing Holder (i) may sell, transfer or otherwise
dispose of shares of Series A MAPS only pursuant to a Bid or Sell
Order in accordance with the procedures described in this
paragraph 10(B) or to or through a Broker-Dealer (who shall only
sell Series A MAPS to a Person that has delivered a signed copy
of a Purchaser's Letter to the Auction Agent) or to a Person that
has delivered a signed copy of a Purchaser's Letter to the
Auction Agent, provided that in the case of all transfers other
than pursuant to Auctions such Existing Holder or its Broker-
Dealer advises the Auction Agent of such transfer, and (ii) shall
have the ownership of the Series A MAPS held by it maintained in
book entry form by the Securities Depository in the account of
its Agent Member, which in turn will maintain records of such
Existing Holder's beneficial ownership.
(3) Neither the corporation nor any affiliate
thereof may submit an Order in any Auction except as set forth in
the next sentence. Any Broker-Dealer that is an affiliate of the
corporation may submit Orders in Auctions but only if such Orders
are not for its own account, except that if such affiliated
Broker- Dealer holds Series A MAPS for its own account, it must
submit a Sell Order in the next Auction with respect to such
shares.
(4) Commencing with the first day of the first
Dividend Period after an Auction Termination Event has occurred,
the corporation, at its option, may perform any of the functions
to be performed by the Auction Agent set forth in paragraph 10(A)
of this Article III.
11.(A) The third series of preferred shares shall be
designated "Market Auction Preferred Shares, Series B"
(hereinafter referred to as "Series B MAPS"), and the number of
authorized shares constituting Series B MAPS is 750. The
relative rights and preferences of Series B MAPS shall be as
follows:
(a) The Holders (as defined in subparagraph (d) of
this paragraph 11(A)) shall be entitled to receive, when and as
declared by the Board of Directors out of funds legally available
therefor, cash dividends thereon at the Applicable Rate (as
defined in subparagraph (2)(i) of this paragraph 11(A)(a)) per
annum and no more, determined as set forth below, payable on the
respective dates set forth below.
(1) (i) Dividends on Series B MAPS, at the
Applicable Rate, shall accrue from the Date of Original
Issue (as defined in subparagraph (d) of this paragraph
11(A)), and shall be payable commencing on Thursday, January
9, 1986 and on each day thereafter which is the seventh
Thursday after Thursday, January 9, 1986 (each such date
being herein referred to as the "Normal Dividend Payment
Date") except that (A) if such Normal Dividend Payment Date
is not a Business Day, then the Dividend Payment Date (as
hereinafter defined) shall be the preceding Tuesday if both
such Tuesday and the following Wednesday are Business Days;
(B) or if the Friday following such Normal Dividend Payment
Date is not a Business Day, then the Dividend Payment Date
shall be the Wednesday preceding such Normal Dividend
Payment Date if both such Wednesday and such Normal Dividend
Payment Date are Business days; or (C) if such Normal
Dividend Payment Date and either such preceding Tuesday or
Wednesday are not Business Days or if such Friday and such
Wednesday are not Business Days, then the Dividend Payment
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Date shall be the first Business Day preceding the Normal
Dividend Payment Date that is next succeeded by a day that
is also a Business Day. Although any particular Dividend
Payment Date shall not occur on the originally scheduled
Normal Dividend Payment Date because of the exceptions
discussed above, the next succeeding Dividend Payment Date
shall be, subject to such exceptions, the seventh Thursday
following the originally designated Normal Dividend Payment
Date for the prior Dividend Period (as defined in
subparagraph (2)(i) of this paragraph 11(A)); provided that
the Board of Directors, in the event of a change in law
lengthening the minimum holding period (currently found in
Section 246(c) of the Code (as defined in subparagraph (d)
of this paragraph 11(A)) required for taxpayers to be
entitled to the dividends received deduction on preferred
stock held by non-affiliated corporations (currently found
in Section 243(a) of the Code), shall adjust the period of
time between Dividend Payment Dates so as, subject to
clauses (A) through (C) of this subparagraph (a)(1)(i), to
adjust uniformly the number of days (such number of days
without giving effect to such clauses (A) through (C) being
hereinafter referred to as "dividend period days") in
Dividend Periods commencing after the date of such change in
law to equal or exceed the then current minimum holding
period; provided that the number of dividend period days
shall not exceed by more than nine days the length of such
then current minimum holding period and shall be evenly
divisible by seven, and the maximum number of dividend
period days in no event shall exceed 98 days (each date of
payment of dividends being herein referred to as a "Dividend
Payment Date" and the first Dividend Payment Date being
herein referred to as the "Initial Dividend Payment Date").
Upon any such change in the number of dividend period days
as a result of a change in law, the corporation shall
publish notice of such change in a newspaper of general
circulation in The City of New York, New York, which carries
financial news and shall mail notice of such change by first
class mail, postage prepaid, to each Holder at such Holder's
address as the same appears on the stock transfer books of
the corporation.
(ii) As long as the Applicable Rate is based
on the results of an Auction (as defined in subparagraph (d)
of this paragraph 11(A), the corporation shall pay to the
Auction Agent (as defined in subparagraph (d) of this
paragraph 11(A)) not later than 12:00 Noon, New York City
time, on the Business Day next preceding each Dividend
Payment Date, an aggregate amount of funds available on the
next Business Day in The City of New York, New York, equal
to the dividends to be paid to all Holders on such Dividend
Payment Date. All such moneys shall be held in trust for
the payment of dividends on shares of Series B MAPS for the
benefit of the Holders by the Auction Agent and paid as set
forth in subparagraph (1)(iii) of this paragraph 11(A)(a).
(iii) For purposes of determining to whom
dividends shall be paid, each dividend shall be payable to
the Holders as their names appear on the stock transfer
books of the corporation on the Business Day next preceding
the Dividend Payment Date thereof. Dividends in arrears for
any past Dividend Period may be declared and paid at any
time, without reference to any regular Dividend Payment
Date, to the Holders as their names appear on the stock
transfer books of this corporation on such date, not
exceeding 15 days preceding the payment date thereof, as may
be fixed by the Board of Directors.
(2) (i) The dividend rate on Series B MAPS shall
be 5.625% per annum during the period from and after the
Date of Original Issue to and including the Initial Dividend
Payment Date (the "Initial Dividend Period"). Commencing on
the Initial Dividend Payment Date, the dividend rate on
Series B MAPS for each subsequent dividend period (herein
referred to as a "Subsequent Dividend Period" and
collectively as "Subsequent Dividend Periods"; and the
Initial Dividend Period or any Subsequent Dividend Period
being herein referred to as a "Dividend Period" and
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<PAGE>
collectively as "Dividend Periods") thereafter, which
subsequent Dividend Periods shall commence on the day that
is the last day of the preceding Dividend Period and shall
end on and include the next succeeding Dividend Payment
Date, shall be equal to the rate per annum that results from
implementation of the Auction Procedures (as defined in
subparagraph (d) of this paragraph 11(A)); provided that if
an Auction Termination Event (as defined in subparagraph (d)
of this paragraph 11(A)) shall have occurred prior to the
first day of each Subsequent Dividend Period, the dividend
rate for each Subsequent Dividend Period shall be a rate per
annum (the "Alternate Rate") equal to 150% of the "AA"
Composite Commercial Paper Rate (as defined in subparagraph
(d) of this paragraph 11(A)) on the first day of such
Subsequent Dividend Period. The rate per annum at which
dividends are payable on shares of Series B MAPS for any
Dividend Period is herein referred to as the "Applicable
Rate".
(ii) The amount of dividends per share
payable on Series B MAPS for any Dividend Period or part
thereof shall be computed by multiplying the Applicable Rate
for such Dividend Period by a fraction the numerator of
which shall be the number of days in such Dividend Period or
part thereof (calculated by counting the first day thereof
but excluding the last day thereof) such share was
outstanding and the denominator of which shall be 360 and
applying the rate obtained against $100,000 per share of
Series B MAPS. For purposes of this subparagraph (2)(ii),
shares of Series B MAPS shall be treated as outstanding from
the Date of Original Issue.
(iii) The Applicable Rate for each
Subsequent Dividend Period shall be published not later than
the fifth Business Day next succeeding the first day of such
Subsequent Dividend Period in a newspaper of general
circulation in The City of New York, New York, which carries
financial news.
(b) (1) (i) (A) Series B MAPS may be redeemed, at
the option of the corporation, as a whole or from time to
time in part, on the second Business Day preceding any
Dividend Payment Date at a redemption price of:
(I) $101,500 per share if
redeemed during the twelve months ending November 14, 1986;
(II) $101,000 per share if
redeemed during the twelve months ending November 14, 1987;
(III) $100,500 per share if
redeemed during the twelve months ending November 14, 1988;
and
(IV) $100,000 per share if
redeemed thereafter;
plus, in each case, an amount equal to accrued and unpaid
dividends thereon (whether or not earned or declared) to the
date fixed for redemption.
(B) If fewer than all of the
outstanding Series B MAPS are to be redeemed pursuant to
this subparagraph (b)(1)(i), the number of shares to be
redeemed shall be determined by the Board of Directors, and
such shares shall be redeemed pro rata from the Holders in
proportion to the number of such shares held by such Holders
(with adjustments to avoid redemption of fractional shares).
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<PAGE>
(ii) Series B MAPS may be redeemed, at the
option of the corporation, as a whole but not in part, on
any Dividend Payment Date at a redemption price of $100,000
per share, plus an amount equal to accrued and unpaid
dividends thereon (whether or not earned or declared) to the
date fixed for redemption, if the Applicable Rate fixed for
the Dividend Period ending on such Dividend Payment Date
shall equal or exceed the "AA" Composite Commercial Paper
Rate on the date of determination of such Applicable Rate.
(2) If the corporation shall redeem Series B MAPS
pursuant to this paragraph 11(A)(b), notice of such redemption
shall be mailed by first class mail, postage prepaid, to each
Holder of the shares to be redeemed, at such Holder's address as
the same appears on the stock transfer books of the corporation.
Such notice shall be so mailed not less than 30 or more than 45
days prior to the date fixed for redemption. Each such notice
shall state: (v) the redemption date, (w) the number of shares
of Series B MAPS to be redeemed, (x) the redemption price, (y)
the place or places where certificates for such shares of Series
B MAPS are to be surrendered for payment of the redemption price
and (z) that dividends on the shares to be redeemed will cease to
accrue on such redemption date. If fewer than all shares held by
any Holder are to be redeemed, the notice mailed to such Holder
shall also specify the number of shares to be redeemed from such
Holder.
(3) If notice of redemption has been given under
subparagraph (2) of this paragraph 11(A)(b), from and after the
redemption date for the shares of Series B MAPS called for
redemption (unless default shall be made by the corporation in
providing money for the payment of the redemption price of the
shares so called for redemption) dividends on Series B MAPS so
called for redemption shall cease to accrue and said shares shall
no longer be deemed to be outstanding, and all rights of the
Holders thereof as shareholders of the corporation (except the
right to receive the redemption price) shall cease. Upon
surrender in accordance with said notice of the certificates for
any shares so redeemed (properly endorsed or assigned for
transfer, if the Board of Directors shall so require and the
notice shall so state), the redemption price set forth above
shall be payable by the Auction Agent to the Holders of shares of
Series B MAPS subject to redemption on the redemption date. In
case fewer than all of the shares represented by any such
certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares without cost to the Holder
thereof.
(4) On the Business Day next preceding a
redemption date, the corporation shall irrevocably deposit with
the Auction Agent for each share of Series B MAPS to be redeemed
on such date an amount equal to the applicable redemption price
plus an amount equal to accrued and unpaid dividends (whether or
not earned or declared) on such share to the date fixed for
redemption, in funds available on the redemption date in The City
of New York, New York. All such moneys shall be irrevocably
deposited for the payment of the redemption price of shares of
Series B MAPS to be so redeemed and shall be held in trust for
the benefit of the Holders whose shares are to be redeemed by the
Auction Agent and applied as set forth herein.
(5) Any moneys held in trust for payment of the
appropriate redemption price to be paid to Holders of shares of
Series B MAPS subject to redemption on any redemption date
remaining unclaimed at the end of three years from such
redemption date shall be repaid to the corporation upon the
written request of the corporation, after which the Holders of
shares of Series B MAPS so called for redemption but for which
moneys remain unclaimed shall look only to the corporation for
the payment thereof.
(6) Shares of Series B MAPS redeemed, purchased
or otherwise reacquired, or surrendered to the corporation shall
be retired and not reissued as Series B MAPS, but shall have the
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<PAGE>
status of authorized and unissued preferred shares of the
corporation that may be reissued as part of a new or different
series of preferred shares.
(c) (1) The amount referred to in paragraph 2(c) of
this Article III as payable in the event of voluntary or
involuntary liquidation of the corporation shall be $100,000 per
share of Series B MAPS. Accordingly, in the event of the
voluntary or involuntary liquidation of the corporation the
"preferential amount" which the Holders of Series B MAPS shall be
entitled to receive out of the assets of the corporation pursuant
to paragraph 3(c) of this Article III is $100,000 per share plus
all accrued and unpaid dividends thereon.
(2) The Holders of Series B MAPS shall have no
voting rights except as provided by Washington statutes or by
this Article III.
(3) For so long as any shares of Series B MAPS
are outstanding, the Auction Agent, duly appointed by the
corporation to so act, shall be in each case a commercial bank,
trust company or other financial institution independent of the
corporation and its affiliates (which, however, may engage or
have engaged in business transactions with the corporation or its
affiliates) and at no time shall the corporation or its
affiliates act as the Auction Agent in connection with the
Auction Procedures. If the Auction Agent resigns or for any
reason its appointment is terminated during any period that any
shares of Series B MAPS are outstanding, the Board of Directors
of the corporation shall promptly thereafter appoint another
qualified commercial bank, trust company or financial institution
to act as the Auction Agent.
(d) As used in this paragraph 11(A) of Article III,
the following terms shall have the following meanings (with terms
defined in the singular having comparable meanings when used in
the plural and vice versa), unless the context otherwise
requires:
(1) "`AA' Composite Commercial Paper Rate", on
any date, shall mean (i) the interest equivalent of the 60-day
rate on commercial paper placed on behalf of issuers whose
corporate bonds are rated "AA" by Standard & Poor's Corporation
or its successor, or the equivalent of such rating by another
rating agency, as made available on a discount basis or otherwise
by the Federal Reserve Bank of New York for the immediately
preceding Business Day prior to such date; or (ii) in the event
that the Federal Reserve Bank of New York does not make available
such a rate, then the arithmetic average of the interest
equivalent of the 60-day rate on commercial paper placed on
behalf of such issuers, as quoted on a discount basis or
otherwise by the Commercial Paper Dealers to the Auction Agent
for the close of business of the immediately preceding Business
Day prior to such date. If any Commercial Paper Dealer does not
quote a rate required to determine the "AA" Composite Commercial
Paper Rate, the "AA" Composite Commercial Paper Rate shall be
determined on the basis of the quotation or quotations furnished
by the remaining Commercial Paper Dealer and any Substitute
Commercial Paper Dealer or Substitute Commercial Paper Dealers
selected by the corporation to provide such rate or rates not
being supplied by any Commercial Paper Dealer or, if the
corporation does not select any such Substitute Commercial Paper
Dealer or Substitute Commercial Paper Dealers, by the remaining
Commercial Paper Dealer. If the Board of Directors shall make
the adjustment referred to in the proviso of the first sentence
of subparagraph (1)(i) of paragraph 11(A)(a), then (i) if the
dividend period days shall be 70 or more days but fewer than 85
days, such rate shall be the arithmetic average of the interest
equivalent of the 60-day and 90-day rates on such commercial
paper, and (ii) if the dividend period days shall be 85 or more
days but 98 or fewer days, such rate shall be the interest
equivalent of the 90-day rate on such commercial paper. For
purposes of this definition, the "interest equivalent" of a rate
stated on a discount basis (a "discount rate") for commercial
paper of a given days' maturity shall be equal to the quotient
(rounded upwards to the next higher one-thousandth (.001) of 1%)
of (A) the discount rate divided by (B) the difference between
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<PAGE>
(x) 1.00 and (y) a fraction the numerator of which shall be the
product of the discount rate times the number of days in which
such commercial paper matures and the denominator of which shall
be 360.
(2) "Alternate Rate" shall have the meaning
specified in subparagraph (a)(2)(i) of this paragraph 11(A).
(3) "Applicable Rate" shall have the meaning
specified in subparagraph (a)(2)(i) of this paragraph 11(A).
(4) "Auction" shall mean each periodic operation
of the Auction Procedures.
(5) "Auction Agent" shall mean a bank or trust
company appointed as such by the corporation.
(6) "Auction Procedures" shall mean the
procedures for conducting Auctions set forth in paragraph 11(B)
hereof.
(7) "Auction Termination Event" shall mean the
first failure by the corporation to pay to the Auction Agent, not
later than 12:00 Noon, New York City time, (A) on the Business
Day next preceding any Dividend Payment Date, in funds available
on such Dividend Payment Date in The City of New York, New York,
the full amount of any dividend (whether or not earned or
declared) to be paid on such Dividend Payment Date on any Series
B MAPS or (B) on the Business Day next preceding any redemption
date in the case of a redemption pursuant to subparagraph (b) of
this paragraph 10(A), in funds available on such redemption date
in The City of New York, New York, the redemption price to be
paid on such redemption date of any Series B MAPS after notice of
redemption is given pursuant to subparagraph (b) of this
paragraph 11(A).
(8) "Business Day" shall mean a day on which the
New York Stock Exchange is open for trading and which is neither
a Saturday, Sunday or other day on which banks in The City of New
York, New York are authorized or required by law to close.
(9) "Code" shall mean the Internal Revenue Code
of 1954, as amended.
(10) "Commercial Paper Dealers" shall mean
Goldman, Sachs & Co. and Morgan Stanley & Co. Incorporated, or,
in lieu of any thereof, their respective affiliates or
successors.
(11) "Date of Original Issue" shall mean the date
on which the corporation initially issues the Series B MAPS.
(12) "Dividend Payment Date" shall have the
meaning specified in subparagraph (a)(1)(i) of this paragraph
11(A).
(13) "Dividend Period" and "Dividend Periods"
shall have the respective meanings specified in subparagraph
(a)(2)(i) of this paragraph 11(A).
(14) "Holder" shall mean the holder of shares of
Series B MAPS as the same appears on the stock transfer books of
the corporation.
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<PAGE>
(15) "Initial Dividend Payment Date" shall have
the meaning specified in subparagraph (a)(1)(i) of this paragraph
11(A).
(16) "Initial Dividend Period" shall have the
meaning specified in subparagraph (a)(2)(i) of this paragraph
11(A).
(17) "Normal Dividend Payment Date" shall have the
meaning specified in subparagraph (a)(1)(i) of this paragraph
11(A).
(18) "Series B MAPS" shall mean the series of the
Preferred Shares, liquidation preference $100,000 per share, of
the corporation designated as its "Market Auction Preferred
Shares, Series B."
(19) "Subsequent Dividend Period" and "Subsequent
Dividend Periods" shall have the respective meanings specified in
subparagraph (a)(2)(i) of this paragraph 11(A).
(20) "Substitute Commercial Paper Dealer" shall
mean any commercial paper dealer that is a leading dealer in the
commercial paper market; provided that neither such dealer nor
any of its affiliates shall be a Commercial Paper Dealer.
(B) (a) Certain Definitions. Capitalized terms not
defined in this subparagraph (a) shall have the respective
meanings specified in paragraph 11(A) of this Article III. As
used in this paragraph 11(B), the following terms shall have the
following meanings, unless the context otherwise requires:
(1) "Rate Multiple", on any Auction Date, shall
mean the percentage determined as set forth below based on the
prevailing rating of Series B MAPS in effect at the close of
business on the Business Day immediately preceding such Auction
Date:
<TABLE>
<CAPTION>
Prevailing Rating Percentage
----------------- ----------
<S> <C>
AA/aa or Above 110%
A/a 120%
BBB/baa 130%
Below BBB/baa (includes no rating) 150%
</TABLE>
For purposes of this definition, the "prevailing
rating" of Series B MAPS shall be (i) AA/aa or Above, if Series B
MAPS then have a rating of AA or better by Standard & Poor's
Corporation or its successor ("S&P") or aa3 or better by Moody's
Investors Service, Inc. or its successor ("Moody's"), or the
equivalent of either or both of such ratings by such agencies or
a substitute rating agency or substitute rating agencies selected
as provided below, (ii) if not AA/aa or Above, then A/a if Series
B MAPS then have a rating of A or better and lower than AA-by S&P
or a3 or better and lower than aa3 by Moody's or the equivalent
of either or both of such ratings by such agencies or a
substitute rating agency or substitute rating agencies selected
as provided below, (iii) if not AA/aa or Above or A/a, then
BBB/baa if Series B MAPS then have a rating of BBB or better and
lower than A- by S&P or baa3 or better and lower than a3 by
Moody's or the equivalent of either or both of such ratings by
such agencies or a substitute rating agency or substitute rating
agencies selected as provided below, and (iv) if not AA/aa or
Above, A/a or BBB/baa, then Below BBB/baa. The corporation shall
take all reasonable action necessary to enable S&P and Moody's to
provide a rating for Series B MAPS. If either or both S&P or
Moody's shall not make such a rating available, Morgan Stanley &
Co. Incorporated or its successor shall select a nationally
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<PAGE>
recognized statistical rating organization or two nationally
recognized statistical rating organizations (as that term is used
in the rules and regulations of the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended)
to act as substitute rating agency or substitute rating agencies,
as the case may be.
(2) "Affiliate" shall mean any Person known to
the Auction Agent to be controlled by, in control of or under
common control with the corporation.
(3) "Agent Member" shall mean the member of the
Securities Depository that will act on behalf of a Bidder and is
identified as such in such Bidder's Purchaser's Letter.
(4) "Auction" shall mean the periodic operation
of the procedures set forth in this paragraph 11(B).
(5) "Auction Date" shall mean the Business Day
next preceding a Dividend Payment Date.
(6) "Available Series B MAPS" shall have the
meaning specified in subparagraph (d)(1) of this paragraph 11(B).
(7) "Bid" and "Bids" shall have the respective
meanings specified in subparagraph (b)(1) of this paragraph
11(B).
(8) "Bidder" and "Bidders" shall have the
respective meanings specified in subparagraph (b)(1) of this
paragraph 11(B).
(9) "Broker-Dealer" shall mean any broker-dealer,
or other entity permitted by law to perform the functions
required of a Broker-Dealer in this paragraph 11(B), that is a
member of, or a participant in, the Securities Depository, has
been selected by the corporation and has entered into a Broker-
Dealer Agreement with the Auction Agent that remains effective.
(10) "Broker-Dealer Agreement" shall mean an
agreement between the Auction Agent and a Broker-Dealer pursuant
to which such Broker-Dealer agrees to follow the procedures
specified in this paragraph 11(B).
(11) "Existing Holder", when used with respect to
Series B MAPS, shall mean a Person who has signed a Purchaser's
Letter and is listed as the beneficial owner of such Series B
MAPS in the records of the Auction Agent.
(12) "Hold Order" and "Hold Orders" shall have the
respective meanings specified in subparagraph (b)(1) of this
paragraph 11(B).
(13) "Maximum Rate", on any Auction Date, shall
mean the product of the "AA" Composite Commercial Paper Rate and
the "AA" Rate Multiple.
(14) "Order" and "Orders" shall have the
respective meanings specified in subparagraph (b)(1) of this
paragraph 11(B).
(15) "Outstanding" shall mean, as of any date,
Series B MAPS theretofore issued by the corporation except,
without duplication, (i) any Series B MAPS theretofore cancelled
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<PAGE>
or delivered to the Auction Agent for cancellation or redeemed by
the corporation or as to which a notice of redemption shall have
been given by the corporation, (ii) any Series B MAPS as to which
the corporation or any Affiliate thereof shall be an Existing
Holder and (iii) any Series B MAPS represented by any certificate
in lieu of which a new certificate has been executed and
delivered by the corporation.
(16) "Person" shall mean and include an
individual, a partnership, a corporation, a trust, an
unincorporated association, a joint venture or other entity or a
government or any agency or political subdivision thereof.
(17) "Potential Holder" shall mean any Person,
including any Existing Holder, (i) who shall have executed a
Purchaser's Letter and (ii) who may be interested in acquiring
shares of Series B MAPS (or, in the case of an Existing Holder,
additional shares of Series B MAPS).
(18) "Purchaser's Letter" shall mean a letter
addressed to the corporation, the Auction Agent, a Broker-Dealer
and an Agent Member in which a Person agrees, among other things,
to offer to purchase, purchase, offer to sell and/or sell shares
of Series B MAPS as set forth in this paragraph 11(B).
(19) "Securities Depository" shall mean The
Depository Trust Company and its successors and assigns or any
other securities depository selected by the corporation which
agrees to follow the procedures required to be followed by such
securities depository in connection with Series B MAPS.
(20) "Sell Order" and "Sell Orders" shall have the
respective meanings specified in subparagraph (b)(1) of this
paragraph 11(B).
(21) "Submission Deadline" shall mean 12:30 P.M.,
New York City time, on any Auction Date or such other time on any
Auction Date by which Broker-Dealers are required to submit
Orders to the Auction Agent as specified by the Auction Agent
from time to time.
(22) "Submitted Bid" shall have the meaning
specified in subparagraph (d)(1) of this paragraph 11(B).
(23) "Submitted Hold Order" shall have the meaning
specified in subparagraph (d)(1) of this paragraph 11(B).
(24) "Submitted Order" shall have the meaning
specified in subparagraph (d)(1) of this paragraph 11(B).
(25) "Submitted Sell Order" shall have the meaning
specified in subparagraph (d)(1) of this paragraph 11(B).
(26) "Sufficient Clearing Bids" shall have the
meaning specified in subparagraph (d)(1) of this paragraph 11(B).
(27) "Winning Bid Rate" shall have the meaning
specified in subparagraph (d)(1) of this paragraph 11(B).
(b) Orders by Existing Holders and Potential Holders.
(1) On or prior to the Submission Deadline on each Auction Date:
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<PAGE>
(i) each Existing Holder may submit to a
Broker-Dealer information as to:
(A) the number of Outstanding Series B
MAPS, if any, held by such Existing Holder which such
Existing Holder desires to continue to hold without regard
to the Applicable Rate for the next succeeding Dividend
Period;
(B) the number of Outstanding Series B
MAPS, if any, that such Existing Holder desires to continue
to hold if the Applicable Rate for the next succeeding
Dividend Period shall not be less than the rate per annum
specified by such Existing Holder; and/or
(C) the number of Outstanding Series B
MAPS, if any, held by such Existing Holder which such
Existing Holder offers to sell without regard to the
Applicable Rate for the next succeeding Dividend Period; and
(ii) one or more Broker-Dealers, using lists
of Potential Holders, shall in good faith for the purpose of
conducting a competitive Auction in a commercially
reasonable manner, contact Potential Holders, including
Persons that are not Existing Holders, on such lists to
determine the number of shares, if any, of Series B MAPS
which each such Potential Holder offers to purchase if the
Applicable Rate for the next succeeding Dividend Period
shall not be less than the rate per annum specified by such
Potential Holder.
For the purposes hereof, the communication to a Broker-
Dealer of information referred to in clause (i)(A), (i)(B),
(i)(C) or (ii) of this subparagraph (1) is hereinafter referred
to as an "Order" and collectively as "Orders" and each Existing
Holder and each Potential Holder placing an Order is hereinafter
referred to as a "Bidder" and collectively as "Bidders"; an Order
containing the information referred to in clause (i)(A) of this
subparagraph (1) is hereinafter referred to as a "Hold Order" and
collectively as "Hold Orders"; an Order containing the
information referred to in clause (i)(B) or (ii) of this
subparagraph (1) is hereinafter referred to as a "Bid" and
collectively as "Bids"; and an Order containing the information
referred to in clause (i)(C) of this subparagraph (1) is
hereinafter referred to as a "Sell Order" and collectively as
"Sell Orders".
(2) (i) A Bid by an Existing Holder shall
constitute an irrevocable offer to sell:
(A) the number of Outstanding Series B
MAPS specified in such Bid if the Applicable Rate determined
on such Auction Date shall be less than the rate specified
therein; or
(B) such number or a lesser number of
Outstanding Series B MAPS to be determined as set forth in
clause (iv) of subparagraph (e)(1) of this paragraph 11(B)
if the Applicable Rate determined on such Auction Date shall
be equal to the rate specified therein; or
(C) a lesser number of Outstanding
Series B MAPS to be determined as set forth in clause (iii)
of subparagraph (e)(2) of this paragraph 11(B) if the rate
specified therein shall be higher than the Maximum Rate and
Sufficient Clearing Bids do not exist.
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(ii) a Sell Order by an Existing Holder shall
constitute an irrevocable offer to sell:
(A) the number of Outstanding Series B
MAPS specified in such Sell Order; or
(B) such number or a lesser number of
Outstanding Series B MAPS as set forth in clause (iii) of
subparagraph (e)(2) of paragraph (e) of this paragraph 11(B)
if Sufficient Clearing Bids do not exist.
(iii) A Bid by a Potential Holder shall
constitute an irrevocable offer to purchase:
(A) the number of Outstanding Series B
MAPS specified in such Bid if the Applicable Rate determined
on such Auction Date shall be higher than the rate specified
therein; or
(B) such number or a lesser number of
Outstanding Series B MAPS as set forth in clause (v) of
subparagraph (e)(1) of this paragraph 11(B) if the
Applicable Rate determined on such Auction Date shall be
equal to the rate specified therein.
(c) Submission of Orders by Broker-Dealers to Auction
Agent. (1) Each Broker-Dealer shall submit in writing to the
Auction Agent prior to the Submission Deadline on each Auction
Date all Orders obtained by such Broker-Dealer and specifying
with respect to each Order:
(i) the name of the Bidder placing such
Order;
(ii) the aggregate number of shares of Series
B MAPS that are the subject of such Order;
(iii) to the extent that such Bidder is
an Existing Holder:
(A) the number of shares, if any, of
Series B MAPS subject to any Hold Order placed by such
Existing Holder;
(B) the number of shares, if any, of
Series B MAPS subject to any Bid placed by such Existing
Holder and the rate specified in such Bid; and
(C) the number of shares, if any, of
Series B MAPS subject to any Sell Order placed by such
Existing Holder; and
(iv) to the extent such Bidder is a Potential
Holder, the rate and number of shares specified in such
Potential Holder's Bid.
(2) If any rate specified in any Bid contains
more than three figures to the right of the decimal point, the
Auction Agent shall round such rate up to the next highest one
thousandth (.001) of 1%.
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(3) If an Order or Orders covering all of the
Outstanding Series B MAPS held by an Existing Holder is not
submitted to the Auction Agent prior to the Submission Deadline,
the Auction Agent shall deem a Hold Order to have been submitted
on behalf of such Existing Holder covering the number of
Outstanding Series B MAPS held by such Existing Holder and not
subject to Orders submitted to the Auction Agent.
(4) If one or more Orders covering in the
aggregate more than the number of Outstanding Series B MAPS held
by an Existing Holder are submitted to the Auction Agent, such
Orders shall be considered valid as follows and in the following
order of priority:
(i) all Hold Orders shall be considered
valid, but only up to and including in the aggregate the
number of Outstanding Series B MAPS held by such Existing
Holder, and, solely for purposes of allocating compensation
among the Broker-Dealers submitting Hold Orders, if the
number of Series B MAPS subject to such Hold Orders exceeds
the number of Outstanding Series B MAPS held by such
Existing Holder, the number of shares subject to each such
Hold Order shall be reduced pro rata to cover the number of
Outstanding Series B MAPS held by such Existing Holder;
(ii) (A) any Bid shall be considered valid
up to and including the excess of the number of Outstanding
Series B MAPS held by such Existing Holder over the number
of Series B MAPS subject to any Hold Orders referred to in
clause (i) above;
(B) subject to subclause (A), if more
than one Bid with the same rate is submitted on behalf of
such Existing Holder and the number of Outstanding Series B
MAPS subject to such Bids is greater than such excess, such
Bids shall be considered valid up to and including the
amount of such excess, and, solely for purposes of
allocating compensation among the Broker-Dealers submitting
Bids with the same rate, the number of Series B MAPS subject
to each Bid with the same rate shall be reduced pro rata to
cover the number of Series B MAPS equal to such excess;
(C) subject to subclause (A), if more
than one Bid with different rates is submitted on behalf of
such Existing Holder, such Bids shall be considered valid in
the ascending order of their respective rates up to the
amount of such excess; and
(D) in any such event the number, if
any, of such Outstanding Series B MAPS subject to Bids not
valid under this clause (ii) shall be treated as the subject
of a Bid by a Potential Holder at the rate specified
therein; and
(iii) all Sell Orders shall be considered
valid up to and including the excess of the number of
Outstanding Series B MAPS held by such Existing Holder over
the sum of the shares of Series B MAPS subject to Hold
Orders referred to in clause (i) above and valid Bids by
such Existing Holder referred to in clause (ii) above.
(5) If more than one Bid is submitted on behalf
of any Potential Holder, each Bid submitted shall be a separate
Bid with the rate and number of shares therein specified.
(d) Determination of Sufficient Clearing Bids, Winning
Bid Rate and Applicable Rate. (1) Not earlier than the
Submission Deadline on each Auction Date, the Auction Agent shall
assemble all Orders submitted or deemed submitted to it by the
Broker-Dealers (each such Order as submitted or deemed submitted
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by a Broker-Dealer being hereinafter referred to as a "Submitted
Hold Order", a "Submitted Bid" or a "Submitted Sell Order", as
the case may be, or as a "Submitted Order") and shall determine:
(i) the excess of the total number of
Outstanding Series B MAPS over the number of Outstanding
Series B MAPS that are the subject of Submitted Hold Orders
(such excess being hereinafter referred to as the "Available
Series B MAPS");
(ii) from the Submitted Orders whether:
(A) the number of Outstanding Series B
MAPS that are the subject of Submitted Bids by Potential
Holders specifying one or more rates equal to or lower than
the Maximum Rate;
exceeds or is equal to the sum of:
(B) the number of Outstanding Series B
MAPS that are the subject of Submitted Bids by Existing
Holders specifying one or more rates higher than the Maximum
Rate, and
(C) the number of Outstanding Series B
MAPS that are subject to Submitted Sell Orders
(in the event of such excess or such equality (other than
because the number of Series B MAPS in subclauses (B) and
(C) above is zero because all of the Outstanding Series B
MAPS are the subject of Submitted Hold Orders), such
Submitted Bids in clause (A) above being hereinafter
referred to collectively as "Sufficient Clearing Bids"); and
(iii) if Sufficient Clearing Bids exist,
the lowest rate specified in the Submitted Bids (the
"Winning Bid Rate") which if:
(A) (I) each Submitted Bid from
Existing Holders specifying such lowest rate and
(II) all other Submitted Bids from
Existing Holders specifying lower rates were rejected, thus
entitling such Existing Holders to continue to hold the
shares of Series B MAPS that are the subject of such
Submitted Bids; and
(B) (I) each Submitted Bid from
Potential Holders specifying such lowest rate and
(II) all other Submitted Bids from
Potential Holders specifying lower rates were accepted,
would result in such Existing Holders continuing to hold an
aggregate number of Outstanding Series B MAPS which, when
added to the number of Outstanding Series B MAPS to be
purchased by such Potential Holders, would equal not less
than the Available Series B MAPS.
(2) Promptly after the Auction Agent has made the
determinations pursuant to subparagraph (i) of this paragraph
11(B)(d), the Auction Agent shall advise the corporation of the
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"AA" Composite Commercial Paper Rate and the Maximum Rate on the
Auction Date and, based on such determinations, the Applicable
Rate for the next succeeding Dividend Period as follows:
(i) if Sufficient Clearing Bids exist, that
the Applicable Rate for the next succeeding Dividend Period
shall be equal to the Winning Bid Rate so determined;
(ii) if Sufficient Clearing Bids do not exist
(other than because all of the Outstanding Series B MAPS are
the subject of Submitted Hold Orders), that the Applicable
Rate for the next succeeding Dividend Period shall be equal
to the Maximum Rate; or
(iii) if all of the Outstanding Series B
MAPS are the subject of Submitted Hold Orders, that the
Applicable Rate for the next succeeding Dividend Period
therefor shall be equal to 59% of the "AA" Composite
Commercial Paper Rate.
(e) Acceptance and Rejection of Submitted Bids and
Submitted Sell Orders and Allocation of Shares. Existing Holders
shall continue to hold Series B MAPS that are the subject of
Submitted Hold Orders, and, based on the determinations made
pursuant to subparagraph (d)(1) of this paragraph 11(B), the
Submitted Bids and Submitted Sell Orders shall be accepted or
rejected and the Auction Agent shall take such other action as
set forth below:
(1) If Sufficient Clearing Bids have been made,
all Submitted Sell Orders shall be accepted and, subject to the
provisions of subparagraphs (4) and (5) of this paragraph
11(B)(e), Submitted Bids shall be accepted or rejected as follows
in the following order of priority and all other Submitted Bids
shall be rejected:
(i) Existing Holders' Submitted Bids
specifying any rate that is higher than the Winning Bid Rate
shall be accepted, thus requiring each such Existing Holder
to sell the Series B MAPS that are the subject of such
Submitted Bids;
(ii) Existing Holders' Submitted Bids
specifying any rate that is lower than the Winning Bid Rate
shall be rejected, thus entitling each such Existing Holder
to continue to hold the shares of Series B MAPS that are the
subject of such Submitted Bids;
(iii) Potential Holders' Submitted Bids
specifying any rate that is lower than the Winning Bid Rate
shall be accepted;
(iv) Each Existing Holder's Submitted Bid
specifying a rate that is equal to the Winning Bid Rate
shall be rejected, thus entitling such Existing Holder to
continue to hold the Series B MAPS that are the subject of
such Submitted Bid, unless the number of Outstanding Series
B MAPS subject to all such Submitted Bids shall be greater
than the number of Series B MAPS ("remaining shares") equal
to the excess of the Available Series B MAPS over the number
of Series B MAPS subject to Submitted Bids described in
clauses (ii) and (iii) of this subparagraph (1), in which
event the Submitted Bid of such Existing Holder shall be
accepted in part, and such Existing Holder shall be required
to sell Series B MAPS subject to such Submitted Bid, but
only in an amount equal to the difference between (A) the
number of Outstanding Series B MAPS then held by such
Existing Holder subject to such Submitted Bid and (B) the
number of Series B MAPS obtained by multiplying the number
of remaining shares by a fraction the numerator of which
shall be the number of Outstanding Series B MAPS held by
such Existing Holder subject to such Submitted Bids and the
denominator of which shall be the aggregate number of
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Outstanding Series B MAPS subject to such Submitted Bids
made by all such Existing Holders that specified a rate
equal to the Winning Bid Rate; and
(v) Each Potential Holder's Submitted Bid
specifying a rate that is equal to the Winning Bid Rate
shall be accepted but only in an amount equal to the number
of Series B MAPS obtained by multiplying the difference
between the Available Series B MAPS and the number of Series
B MAPS subject to Submitted Bids described in clauses (ii),
(iii) and (iv) of this subparagraph (1) by a fraction the
numerator of which shall be the number of Outstanding Series
B MAPS subject to such Submitted Bid and the denominator of
which shall be the sum of the number of Outstanding Series B
MAPS subject to such Submitted Bids made by all such
Potential Holders that specified rates equal to the Winning
Bid Rate.
(2) If Sufficient Clearing Bids have not been
made (other than because all of the Outstanding Series B MAPS are
the subject of Submitted Hold Orders), subject to the provisions
of subparagraphs (4) and (5) of this paragraph 11(B)(e),
Submitted Orders shall be accepted or rejected as follows in the
following order of priority and all other Submitted Bids shall be
rejected:
(i) Existing Holders' Submitted Bids
specifying any rate that is equal to or lower than the
Maximum Rate shall be rejected, thus entitling such Existing
Holder to continue to hold the Series B MAPS that are the
subject of such Submitted Bids;
(ii) Potential Holders' Submitted Bids
specifying any rate that is equal to or lower than the
Maximum Rate shall be accepted; and
(iii) Each Existing Holder's Submitted
Bid specifying any rate that is higher than the Maximum Rate
and the Submitted Sell Order of each Existing Holder shall
be accepted, but in both cases only in an amount equal to
the difference between (A) the number of Outstanding Series
B MAPS then held by such Existing Holder subject to such
Submitted Bid or Submitted Sell Order and (B) the number of
Series B MAPS obtained by multiplying the difference between
the Available Series B MAPS and the aggregate number of
Series B MAPS subject to Submitted Bids described in clauses
(i) and (ii) of this subparagraph (2) by a fraction the
numerator of which shall be the number of Outstanding Series
B MAPS held by such Existing Holder subject to such
Submitted Bid or Submitted Sell Order and the denominator of
which shall be the number of Outstanding Series B MAPS
subject to all such Submitted Bids and Submitted Sell
Orders.
(3) If all of the Outstanding Series B MAPS are
the subject of Submitted Hold Orders, all Submitted Bids shall be
rejected.
(4) If, as a result of the procedures described
in subparagraph (1) or (2) of this paragraph 11(B)(e), any
Existing Holder would be entitled or required to sell, or any
Potential Holder would be entitled or required to purchase, a
fraction of a Series B MAPS on any Auction Date, the Auction
Agent shall, in such manner as, in its sole discretion, it shall
determine, round up or down the number of Series B MAPS to be
purchased or sold by any Existing Holder or Potential Holder on
such Auction Date so that the number of shares purchased or sold
by each Existing Holder or Potential Holder on such Auction Date
shall be whole shares of Series B MAPS.
(5) If, as a result of the procedures described
in subparagraph (1) of this paragraph 11(B)(e), any Potential
Holder would be entitled or required to purchase less than a
whole share of Series B MAPS on any Auction Date, the Auction
Agent shall, in such manner as, in its sole discretion, it shall
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determine, allocate shares for purchase among Potential Holders
so that only whole shares of Series B MAPS are purchased on such
Auction Date by any Potential Holder, even if such allocation
results in one or more of such Potential Holders not purchasing
shares of Series B MAPS on such Auction Date.
(6) Based on the results of each Auction, the
Auction Agent shall determine the aggregate number of Series B
MAPS to be purchased and the aggregate number of Series B MAPS to
be sold by Potential Holders and Existing Holders on whose behalf
each Broker-Dealer submitted Bids or Sell Orders and, with
respect to each Broker-Dealer, to the extent that such aggregate
number of shares to be purchased and such aggregate number of
shares to be sold differ, determine to which other Broker-Dealer
or Broker-Dealers acting for one or more purchasers such Broker-
Dealer shall deliver, or from which other Broker-Dealer or Broker-
Dealers acting for one or more sellers such Broker-Dealer shall
receive, as the case may be, shares of Series B MAPS.
(f) Miscellaneous.
(1) The Board of Directors may interpret the
provisions of this paragraph 11(B) to resolve any inconsistency
or ambiguity which may arise or be revealed in connection with
the Auction Procedures provided for herein.
(2) During the Initial Dividend Period and so
long as the Applicable Rate is based on the results of an
Auction, an Existing Holder (i) may sell, transfer or otherwise
dispose of shares of Series B MAPS only pursuant to a Bid or Sell
Order in accordance with the procedures described in this
paragraph 11(B) or to or through a Broker-Dealer (who shall only
sell Series B MAPS to a Person that has delivered a signed copy
of a Purchaser's Letter to the Auction Agent) or to a Person that
has delivered a signed copy of a Purchaser's Letter to the
Auction Agent, provided that in the case of all transfers other
than pursuant to Auctions such Existing Holder or its Broker-
Dealer advises the Auction Agent of such transfer, and (ii) shall
have the ownership of the Series B MAPS held by it maintained in
book entry form by the Securities Depository in the account of
its Agent Member, which in turn will maintain records of such
Existing Holder's beneficial ownership.
(3) Neither the corporation nor any affiliate
thereof may submit an Order in any Auction except as set forth in
the next sentence. Any Broker-Dealer that is an affiliate of the
corporation may submit Orders in Auctions but only if such Orders
are not for its own account, except that if such affiliated
Broker-Dealer holds Series B MAPS for its own account, it must
submit a Sell Order in the next Auction with respect to such
shares.
(4) Commencing with the first day of the first
Dividend Period after an Auction Termination Event has occurred,
the corporation, at its option, may perform any of the functions
to be performed by the Auction Agent set forth in paragraph 11(A)
of this Article III.
12. A series of preference shares shall be designated
Cumulative Preference Shares, Fourth Series ("Fourth Series
Preference Shares") and shall initially consist of 2,000,000
shares. The relative rights and preferences of the Fourth Series
Preference Shares shall be as follows:
(a) (1) Dividends on the Fourth Series Preference
Shares shall be payable quarterly in cash on the 15th day of
March, June, September and December (each date being referred to
herein as a "Quarterly Dividend Payment Date"), to holders of
record of Fourth Series Preference Shares on such record dates as
may be fixed by the Board of Directors from time to time, in an
amount per share (rounded to the nearest cent) equal to the
greater of (i) ten dollars and (ii) subject to the provision for
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adjustment hereinafter set forth, one hundred times the aggregate
per share amount of all cash dividends, and one hundred times the
aggregate per share amount (payable in kind) of all non-cash
dividends or other distributions, other than a dividend payable
in Common Shares or a subdivision of the outstanding Common
Shares (by reclassification or otherwise), declared on the Common
Shares, $1.875 par value, of this corporation (the "Common
Shares") since the immediately preceding Quarterly Dividend
Payment Date, or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of Fourth Series
Preference Shares, and no more. Subject to the provisions of
paragraph 3 of this Article III, the first dividend on the Fourth
Series Preference Shares shall be paid on the Quarterly Dividend
Payment Date next following the date of initial issuance of
Fourth Series Preference Shares in respect of the period from the
date of issuance to such Quarterly Dividend Payment Date, and
thereafter dividends on Fourth Series Preference Shares shall be
paid on each succeeding Quarterly Dividend Payment Date. The
dividend payment on each Quarterly Dividend Payment Date, except
the aforementioned first Quarterly Dividend Payment Date, shall
be in respect of the quarterly period ending with such payment
date. In the event this corporation shall at any time after
December 9, 1986 (the "Rights Declaration Date") (A) declare any
dividend on Common Shares payable in Common Shares, (B) subdivide
the outstanding Common Shares, or (C) combine the outstanding
Common Shares into a smaller number of shares, then in each case
the amount to which holders of Fourth Series Preference Shares
were entitled immediately prior to such event under clauses (i)
and (ii) of the preceding first sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is
the number of Common Shares outstanding immediately after such
event and the denominator of which is the number of Common Shares
that were outstanding immediately prior to such event. This
corporation shall declare a dividend or distribution on the
Fourth Series Preference Shares, as provided above, immediately
after it declares a dividend or distribution on Common Shares
(other than a dividend payable in Common Shares); provided that,
in the event no dividend or distribution shall have been declared
on the Common Shares during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend
Payment Date, a dividend of $10.00 per share on the Fourth Series
Preference Shares shall nevertheless be payable on such Quarterly
Dividend Date. Dividends on the first issued Fourth Series
Preference Shares shall accrue and be cumulative on a daily basis
from and after the date of issuance thereof. Dividends on any
reissued Fourth Series Preference Shares shall accrue on a daily
basis from and after the Quarterly Dividend Payment Date to which
dividends have been paid in full next preceding the date of
reissuance of such shares, provided, however, that dividends on
any subsequently reissued Fourth Series Preference Shares
reissued after the record date fixed for the payment of a current
dividend on such shares but before the date of payment of such
dividend, shall accrue and be cumulative on a daily basis from
and after such payment date or if such dividend shall not be paid
in full on such payment date then from and after the next
preceding payment date on which dividends on such shares have
been paid in full. Dividends on Fourth Series Preference Shares
reissued on any dividend payment date for such shares shall
accrue and be cumulative on a daily basis from and after such
payment date.
(b) (1) Pursuant to resolution of the Board of
Directors and subject to the provisions of paragraph 3(a) of this
Article III, this corporation may redeem the whole or from time
to time any part of the Fourth Series Preference Shares at any
time when Fourth Series Preference Shares are outstanding, at the
redemption price per share of one hundred times $105, plus an
amount equal to all accrued and unpaid dividends on the shares
being redeemed to and including the date fixed for redemption.
(2) Notice of redemption shall be mailed by the
corporation, not less than 30 or more than 60 days before the
date fixed for redemption, to each holder of record of the shares
to be redeemed addressed to such holder at his address appearing
on the books of the corporation. Such notice of redemption shall
set forth the date fixed for redemption, the redemption price and
the place at which the shareholders may obtain payment of the
redemption price plus accrued dividends upon the surrender of the
certificates representing their shares.
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(3) On or after the date fixed for redemption and
stated in such notice, each holder of shares that are called for
redemption shall, upon surrender of the certificates representing
such shares to the corporation at the place or places designated
in such notice, be entitled to receive payment of the redemption
price of such shares, plus an amount equal to all accrued and
unpaid dividends thereon to and including the date fixed for
redemption. In case less than all of the shares represented by
any such surrendered certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares.
(4) If less than all of the outstanding shares
are to be redeemed, the number of shares of Fourth Series
Preference Shares to be redeemed and the method of effecting such
redemption, whether by lot or pro rata, shall be as determined by
the Board of Directors.
(5) At any time after a notice of redemption has
been given in the manner prescribed herein and prior to the date
fixed for redemption, the corporation may deposit in trust, with
a bank, trust company, or other financial institution an
aggregate amount of funds sufficient for such redemption, for
immediate payment in the appropriate amounts upon surrender of
certificates for such shares. Upon the deposit of such funds or,
if no such deposit is made, upon the date fixed for redemption
(unless the corporation shall default in making payment of the
appropriate amount), whether or not certificates for shares so
called for redemption have been surrendered for cancellation, the
shares to be redeemed shall be deemed to be no longer outstanding
and the holders thereof shall cease to be shareholders with
respect to such shares and shall have no rights with respect
thereto, except for the right to receive the amount payable upon
redemption, but without interest. Such deposit in trust shall be
irrevocable except that any funds deposited by the corporation
which shall not be required for the redemption for which they
were deposited subsequent to the date of deposit shall be
returned to the corporation forthwith; and any funds deposited by
the corporation which are unclaimed at the end of one year from
the date fixed for such redemption shall be paid over to the
corporation upon its request, and upon such repayment the holders
of the shares so called for redemption shall look only to the
corporation for payment of the appropriate amount. Any such
unclaimed amounts paid over to the corporation shall, for a
period of six years after the date fixed for such redemption, be
set apart and held by the corporation in trust for the benefit of
the holders of such shares, but no such holder shall be entitled
to receive interest thereon. At the expiration of such six-year
period, all right, title, interest and claim of such holders in
or to such unclaimed amounts shall be extinguished, terminated
and discharged, and such unclaimed amounts shall become part of
the general funds of the corporation free of any claim of such
holders.
(c) The amount referred to in paragraph 2(c) of this
Article III as payable in the event of voluntary or involuntary
liquidation of the corporation shall be one hundred times $105
per Fourth Series Preference Share.
(d) In case this corporation shall enter into any
consolidation, merger, combination or other transaction in which
Common Shares are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case
the shares of Fourth Series Preference Shares shall at the same
time be similarly exchanged or changed in an amount per share
(subject to the provision for adjustment hereinafter set forth)
equal to 100 times the aggregate amount of stock, securities,
cash and/or any other property (payable in kind), as the case may
be, into which or for which each Common Share is changed or
exchanged. In the event the corporation shall at any time
declare or pay any dividend on Common Shares payable in Common
Shares, or effect a subdivision or combination or consolidation
of the outstanding Common Shares (by reclassification or
otherwise) into a greater or lesser number of Common Shares, then
in each such case the amount set forth in the preceding sentence
with respect to the exchange or change of shares of Fourth Series
Preference Shares shall be adjusted by multiplying such amount by
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a fraction, the numerator of which is the number of Common Shares
outstanding immediately after such event, and the denominator of
which is the number of Common Shares that were outstanding
immediately prior to such event.
(e) This corporation may issue fractions and
certificates representing fractions of a share of Fourth Series
Preference Shares in integral multiples of 1/100th of a share of
Fourth Series Preference Shares, or in lieu thereof, at the
election of the Board of Directors of this corporation at the
time of the first issue of any Fourth Series Preference Shares,
evidence such fractions by depositary receipts pursuant to an
appropriate agreement between the corporation and a depositary
selected by it, provided that such agreement shall provide that
the holders of such depositary receipts shall have all rights,
privileges and preferences to which they would be entitled as
beneficial owners of Fourth Series Preference Shares. In the
event that fractional shares of Fourth Series Preference Shares
are issued, the holders thereof shall have all the rights
provided herein for holders of full shares of Fourth Series
Preference Shares in the proportion which such fraction bears to
a full share.
(f) The holders of Fourth Series Preference Shares
shall not be entitled to vote except as provided by Washington
statutes or by this Article III.
13. The fifth series of preference shares shall be
designated $2.625 Convertible Exchangeable Preference Shares
("$2.625 Convertible Exchangeable Preference Shares"), and shall
initially consist of 5,000,000 shares. The relative rights and
preferences of the $2.625 Convertible Exchangeable Preference
Shares shall be as follows:
(a) The dividend rate for the $2.625 Convertible
Exchangeable Preference Shares shall be $2.625 per share per
annum. Subject to the provisions of Section 3 of this Article
III, the first dividend on the $2.625 Convertible Exchangeable
Preference Shares shall be paid on June 15, 1987 in respect of
the period from the date of issuance to June 15, 1987, and
thereafter dividends on $2.625 Convertible Exchangeable
Preference Shares shall be paid quarterly on September 15,
December 15, March 15 and June 15 in each instance to holders of
record of $2.625 Convertible Exchangeable Preference Shares on
such dates as may be fixed by the Board of Directors from time to
time. The dividend payment on each payment date except the
aforementioned first payment date shall be in respect of the
quarterly period ending with such payment date. Dividends on the
first issued $2.625 Convertible Exchangeable Preference Shares
shall accrue on a daily basis from and after the date of issuance
thereof.
(b) (1) Pursuant to resolution of the Board of
Directors and subject to the provisions of paragraph 3(a) of this
Article III, the corporation may at any time redeem the whole or
from time to time any part of the $2.625 Convertible Exchangeable
Preference Shares at the following redemption prices per share
for the respective periods indicated:
<TABLE>
<CAPTION>
Date Fixed for
Redemption Within Price Per
The Period (Inclusive) Share
---------------------- ---------
<S> <C>
Date of issuance - June 14, 1988 $52.6250
June 15, 1988 - June 14, 1989 $52.3625
June 15, 1989 - June 14, 1990 $52.1000
June 15, 1990 - June 14, 1991 $51.8375
June 15, 1991 - June 14, 1992 $51.5750
June 15, 1992 - June 14, 1993 $51.3125
June 15, 1993 - June 14, 1994 $51.0500
June 15, 1994 - June 14, 1995 $50.7875
June 15, 1995 - June 14, 1996 $50.5250
June 15, 1996 - June 14, 1997 $50.2625
June 15, 1997 and thereafter $50.0000
</TABLE>
58
<PAGE>
plus, in each case, an amount equal to all accrued and unpaid
dividends on the shares being redeemed to and including the date
fixed for such redemption provided, however, that $2.625
Convertible Exchangeable Preference Shares may not be redeemed on
or prior to June 15, 1989 unless the Closing Price (which term
shall mean with respect to the common shares of the corporation
on any day, (i) the closing price as reported on the New York
Stock Exchange Composite Tape, or (ii) if the common shares are
not listed or admitted for trading on such Exchange, the last
reported sales price regular way, or in case no such reported
sale takes place on such day, the average of the reported closing
bid and asked prices regular way, on the principal national
securities exchange on which the common shares are listed or
admitted for trading, or (iii) if clauses (i) and (ii) above are
not applicable, the last reported sales price on the National
Market System of the National Association of Securities Dealers,
Inc., Automated Quotation System, or any similar system of
automated dissemination of quotations of securities prices then
in common use, if so quoted, or (iv) if the common shares are not
listed or admitted for trading on any national securities
exchange or any such system, the average of the closing bid and
asked prices as furnished by any New York Stock Exchange member
firm selected from time to time by the corporation for that
purpose) of the common shares has equaled or exceeded 150 percent
of the then effective conversion price (determined as set forth
in subparagraph (e)(1)) per common share for at least 20 trading
days within 30 consecutive trading days ending not more than five
trading days prior to notice of redemption. For the purposes of
this subparagraph, the term "trading days" shall mean trading
days on such exchanges or systems as will determine the Closing
Price as defined above.
(2) Notice of redemption shall be mailed by the
corporation, not less than 30 or more than 60 days before the
date fixed for redemption, to each transfer agent for the shares
to be redeemed and to each holder of record of such shares
addressed to such holder at his address appearing on the books of
the corporation. Such notice of redemption shall set forth the
date fixed for redemption, the redemption price and the place or
places (including a place in the Borough of Manhattan, the City
of New York) at which the shareholders may obtain payment of the
redemption price plus accrued dividends upon the surrender of the
certificates representing their shares, and shall set forth in
respect to such shares the then current conversion rate and date
on which conversion rights expire, all as determined in
accordance with paragraph 13(e) of this Article III.
(3) On or after the date fixed for redemption and
stated in such notice, each holder of shares that are called for
redemption shall, upon surrender of the certificates representing
such shares to the corporation at the place or places designated
in such notice, be entitled to receive payment of the redemption
price of such shares, plus an amount equal to all accrued and
unpaid dividends thereon to and including the date fixed for
redemption. In case less than all of the shares represented by
any such surrendered certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares.
(4) If less than all the outstanding shares are
to be redeemed, the number of shares of $2.625 Convertible
Exchangeable Preference Shares to be redeemed and the method of
effecting such redemption, whether by lot or pro rata, shall be
as determined by the Board of Directors.
(5) At any time after a notice of redemption has
been given in the manner prescribed herein and prior to the date
fixed for redemption, the corporation may deposit in trust, with
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<PAGE>
a bank or trust company having capital, surplus and undistributed
profits aggregating at least $50,000,000 an aggregate amount of
funds sufficient for such redemption, for immediate payment in
the appropriate amounts upon surrender of certificates for such
shares. Upon the deposit of such funds or, if no such deposit is
made, upon the date fixed for redemption (unless the corporation
shall default in making payment of the appropriate amount),
whether or not certificates for shares so called for redemption
have been surrendered for cancellation, the shares to be redeemed
shall be deemed to be no longer outstanding and the holders
thereof shall cease to be shareholders with respect to such
shares and shall have no rights with respect thereto, except for
the right to receive the amount payable upon redemption, but
without interest, and, up to the close of business on the date
fixed for such redemption, the right to convert such shares as
set forth in paragraph 13(e) of this Article III. Such deposit
in trust shall be irrevocable except that any funds deposited by
the corporation which shall not be required for the redemption
for which they were deposited because of the exercise of rights
of conversion shall be returned to the corporation forthwith, and
any funds deposited by the corporation which are unclaimed at the
end of one year from the date fixed for such redemption shall be
paid over to the corporation upon its request, and upon such
repayment the holders of the shares so called for redemption
shall look only to the corporation for payment of the appropriate
amount. Any such unclaimed amounts paid over to the corporation
shall, for a period of six years after the date fixed for such
redemption, be set apart and held by the corporation in trust for
the benefit of the holders of such shares, but no such holder
shall be entitled to receive interest thereon. At the expiration
of such six-year period, all right, title, interest and claim of
such holders in or to such unclaimed amounts shall be
extinguished, terminated and discharged, and such unclaimed
amounts shall become part of the general funds of the corporation
free of any claim of such holders.
(6) (A) Pursuant to resolution of the Board of
Directors and subject to the provisions of paragraph 3 of
this Article III, the corporation may also redeem the $2.625
Convertible Exchangeable Preference Shares, as a whole but
not in part, on any March 15, June 15, September 15 or
December 15 commencing June 15, 1990 to and including March
15, 2017, through the issuance, in redemption of and in
exchange for the $2.625 Convertible Exchangeable Preference
Shares, of the corporation's 5 1/4% Convertible Subordinated
Debentures due 2017 (hereinafter referred to as the
"Debentures") described in the Company's Registration
Statement on Form S-3 (Registration No. 33-12744), as
amended, in the manner provided in this subparagraph (b)(6)
at the rate of $50.00 principal amount of Debentures for
each $2.625 Convertible Exchangeable Preference Share
outstanding on the Exchange Date (as defined below) plus an
amount equal to all accrued and unpaid dividends to and
including the Exchange Date.
(B) Notice of redemption shall be mailed by
the corporation, not less than 30 nor more than 60 days
before the date fixed for the issue of Debentures in
redemption of and in exchange for $2.625 Convertible
Exchangeable Preference Shares to each transfer agent for
the $2.625 Convertible Exchangeable Preference Shares and to
each holder of record of such shares addressed to such
holder at his address appearing on the books of the
corporation. Such notice of redemption shall set forth the
effective date of the exchange (the "Exchange Date") and the
place or places (including a place in the Borough of
Manhattan, the City of New York) at which certificates for
$2.625 Convertible Exchangeable Preference Shares are to be
surrendered for Debentures and stating that dividends on
$2.625 Convertible Exchangeable Preference Shares will cease
to accrue on the Exchange Date. On and after the Exchange
Date, each holder of shares to be redeemed and exchanged
shall, upon surrender of the certificates representing such
shares to the corporation at the place or places designated
in such notice, be entitled to receive (i) Debentures at the
rate of $50 principal amount of Debentures for each
Preference Share, provided that the Debentures will be
issuable only in denominations of $1,000 and integral
multiples thereof, and an amount in cash will be paid equal
to any excess principal amount otherwise issuable, and (ii)
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<PAGE>
an amount in cash equal to all accrued and unpaid dividends
to and including the Exchange Date. Upon the Exchange Date
(unless the corporation shall default in issuing the
Debentures in redemption of and in exchange for the $2.625
Convertible Exchangeable Preference Shares or shall fail to
pay such accrued and unpaid dividends on such shares),
whether or not certificates for shares so called for
redemption have been surrendered for cancellation, the
shares to be redeemed and exchanged shall be deemed to be no
longer outstanding and the holders thereof shall cease to be
shareholders with respect to such shares and shall have no
rights with respect thereto, except for the right to receive
Debentures and accrued and unpaid dividends in exchange
therefor, but without interest. Notwithstanding the
foregoing, if notice of redemption and exchange has been
given pursuant to this subparagraph (b)(6) and any holder of
$2.625 Convertible Exchangeable Preference Shares shall,
prior to the close of business on the Exchange Date, give
written notice to the corporation pursuant to paragraph
13(e) below of the conversion of any or all of the shares to
be redeemed and exchanged held by such holder (accompanied
by a certificate or certificates for such shares, duly
endorsed or assigned to the corporation), then such
redemption and exchange shall not become effective as to
such shares to be converted and such conversion shall become
effective as provided in paragraph 13(e) below.
(c) The amount referred to in paragraph 2(c) of this
Article III as payable in the event of voluntary or involuntary
liquidation of the corporation shall be $50 per $2.625
Convertible Exchangeable Preference Share.
(d) The $2.625 Convertible Exchangeable Preference
Shares shall not be entitled to the benefit of any sinking fund
for the redemption or purchase of such shares.
(e) (1) Subject to the provisions for adjustment set
forth in subparagraph (2)(A) below, each $2.625 Convertible
Exchangeable Preference Share shall be convertible at any time at
the election of the holder thereof into .6944 common shares (such
rate, as adjusted from time to time, is referred to as the
"conversion rate"). (The "conversion price" is equal to the
result of dividing liquidation value by the conversion rate.)
Certificates representing shares that a holder thereof has
elected to convert shall be surrendered to any transfer agent of
such shares duly endorsed to the corporation or in blank, or
accompanied by proper instruments of transfer, together with
written notice of the election to convert setting forth the
denominations of common share certificates desired and the names
in which such certificates shall be issued. As soon as
practicable after such surrender of such certificates and the
receipt of such notice, the corporation shall issue and deliver
at the office of such transfer agent to the person who
surrendered such certificates a certificate or certificates for
the number of common shares issuable upon the conversion of such
shares, and a check or cash in respect of any fraction of a
share. Such conversion shall be deemed to have been effected on
the date on which such notice and such certificates shall have
been received, and each person in whose name any certificate for
common shares shall be issuable upon such conversion shall be
deemed to have become on such date the holder of record of the
common shares represented thereby. The right to convert shares
called for redemption shall terminate at the close of business on
the date fixed for such redemption, unless the corporation shall
default in making payment of the amount payable upon such
redemption. The holders of $2.625 Convertible Exchangeable
Preference Shares at the close of business on a dividend payment
record date shall be entitled to receive the dividend payable on
such shares (except that holders of shares called for redemption
on a redemption date between such record date and the dividend
payment date shall not be entitled to receive such dividend on
such dividend payment date) on the corresponding dividend payment
date notwithstanding the conversion thereof or the corporation's
default on payment of the dividend due on such dividend payment
date. However, $2.625 Convertible Exchangeable Preference Shares
surrendered for conversion during the period between the close of
business on any record date for the payment of dividends on such
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<PAGE>
$2.625 Convertible Exchangeable Preference Shares and the opening
of business on the corresponding dividend payment date (except
shares called for redemption on a redemption date during such
period) must be accompanied by payment of an amount equal to the
dividend payable on such shares on such dividend payment date. A
holder of $2.625 Convertible Exchangeable Preference Shares on a
dividend payment record date who (or whose transferee) tenders
$2.625 Convertible Exchangeable Preference Shares for conversion
into common shares on a dividend payment date will receive the
dividend payable on such shares by the corporation on such date,
and the converting holder need not include payment in the amount
of such dividend upon surrender of $2.625 Convertible
Exchangeable Preference Shares for conversion. Except as
provided above, the corporation shall make no payment or
allowance for unpaid dividends whether or not in arrears, on
converted shares or for dividends on the common shares issued
upon such conversion.
(2) (A) The conversion rate for $2.625
Convertible Exchangeable Preference Shares shall be subject
to adjustment from time to time only as follows:
(i) If the corporation shall (A) pay to
holders of common shares a dividend in shares of its capital
stock (including common shares), or (B) combine into a
smaller number or subdivide its common shares, or issue by
reclassification of its common shares any shares of the
corporation, the conversion rate for $2.625 Convertible
Exchangeable Preference Shares in effect immediately prior
thereto shall be adjusted so that the holder of a $2.625
Convertible Exchangeable Preference Share surrendered for
conversion after the record date fixing shareholders to be
affected by such event shall be entitled to receive the
number of shares of the corporation which he would have
owned or have been entitled to receive after the happening
of any of the events described above, had such share been
converted immediately prior to such record date. Such
adjustment shall be made whenever any such events shall
happen, but shall also be effective retroactively as to any
such share converted between such record date and the date
of the happening of any such events.
(ii) If the corporation shall issue
rights or warrants to holders of common shares entitling
them to subscribe for or purchase common shares at a price
per share less than the current market price per common
share (as defined in part (iv) of this subparagraph (2)) as
of the record date specified below, the number of common
shares into which each $2.625 Convertible Exchangeable
Preference Share shall thereafter be convertible shall be
determined by multiplying the number of common shares into
which such share was theretofore convertible by a fraction,
the numerator of which shall be the number of common shares
outstanding on the date of issuance of such rights or
warrants plus the number of additional common shares offered
for subscription or purchase, and the denominator of which
shall be the number of common shares outstanding on the date
of issuance of such rights or warrants plus the number of
common shares which the aggregate offering price of the
total number of common shares so offered would purchase at
such current market price. Such adjustment shall be made
whenever such rights or warrants are issued, but shall also
be effective retroactively as to any share converted between
the record date for the determination of shareholders
entitled to receive such rights or warrants and the date
such rights or warrants are issued.
(iii) If the corporation shall
distribute to holders of common shares evidences of its
indebtedness or assets (excluding cash dividends or cash
distributions) or rights or warrants to subscribe other than
as set forth in part (ii) above, the number of common shares
into which each $2.625 Convertible Exchangeable Preference
Share shall thereafter be convertible shall be determined by
multiplying the number of common shares into which such
share was theretofore convertible by a fraction, the
numerator of which shall be the current market price per
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<PAGE>
common share (as defined in part (iv) of this subparagraph
(2)) as of the date of such distribution, and the
denominator of which shall be such current market price per
common share less the then fair market value (as determined
by the Board of Directors, whose determination shall be
conclusive) of the portion of the assets or evidences of
indebtedness so distributed or such subscription rights or
warrants applicable to one common share. Such adjustment
shall be made whenever any such distribution is made, but
shall also be effective retroactively as to any share
converted between the record date for the determination of
shareholders entitled to receive such distribution and the
date such distribution is made.
(iv) For the purpose of any computation
under parts (ii) and (iii) of this subparagraph (2), the
current market price per common share as of any date shall
be deemed to be the average of the daily closing prices for
the thirty consecutive business days commencing on the forty-
fifth business day before the date in question. The closing
price for each business day shall be the last reported sales
price regular way or, if no such sale takes place on such
business day, the average of the reported closing bid and
asked prices regular way, in either case on the New York
Stock Exchange or, if the common shares are not listed or
admitted to trading on such exchange, the average of the
closing bid and asked prices as furnished by any member of
the New York Stock Exchange selected by the Board of
Directors for that purpose.
(v) The conversion rate for $2.625
Convertible Exchangeable Preference Shares shall always be
calculated to the nearest one one-thousandth of a share. No
adjustment in the conversion rate for $2.625 Convertible
Exchangeable Preference Shares shall be made unless the
conversion rate for such shares after such adjustment would
differ from the conversion rate prior to such adjustment by
one one-hundredth of a common share or more, provided that
any adjustments for $2.625 Convertible Exchangeable
Preference Shares not made by reason of this part (v) of
subparagraph (2) shall be carried forward and taken into
account in calculating subsequent adjustments.
(vi) Whenever any adjustment in the
conversion rate for $2.625 Convertible Exchangeable
Preference Shares is made, the corporation shall forthwith
(A) file with each transfer agent for such shares a
statement describing the adjustment and the method of
calculation used, together with an opinion rendered by an
independent firm of public accountants of recognized
standing, who may be the corporation's regularly engaged
auditors, that such adjustment was properly calculated in
accordance with the provisions of this subparagraph (2), and
(B) cause a copy of such statement to be published in a
daily newspaper of general circulation in the Borough of
Manhattan, the City of New York, and to be mailed to the
holders of record of such shares.
(3) If the corporation shall consolidate with or
merge into another corporation, or if the corporation shall sell,
lease or transfer to any other person or persons all or
substantially all of the assets of the corporation, holders of
$2.625 Convertible Exchangeable Preference Shares shall have the
right after such event to convert each share held into the kind
and amount of shares of stock, other securities, cash and
property receivable upon such event by a holder of the number of
common shares into which such shares might have been converted
immediately prior to such event. In any such event, effective
provisions shall be made in the certificate or articles of
incorporation of the resulting or surviving corporation, in any
contract of sale, conveyance, lease or transfer, or otherwise so
that the provisions set forth herein for the protection of the
conversion rights of $2.625 Convertible Exchangeable Preference
Shares shall thereafter continue to be applicable; and any such
resulting or surviving corporation shall expressly assume the
obligation to deliver, upon conversion, such shares of stock,
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<PAGE>
other securities, cash and property. The provisions of this
subparagraph (3) shall similarly apply to successive
consolidations, mergers, sales, leases or transfers.
(f) The holders of $2.625 Convertible Exchangeable
Preference Shares shall not be entitled to vote except as
provided by Washington statutes or by this Article III.
14. A series of preference shares shall be designated
"Special Voting Shares (A Series of Preference Shares)" (the
"Special Voting Shares"). The number of shares and the
preferences, limitations and relative rights of the Special
Voting Shares shall be as follows:
(a) Number of Shares. There shall be one Special
-----------------
Voting Share.
(b) Dividends or Distributions. Neither the holder
---------------------------
nor, if different, the owner of the Special Voting Share shall be
entitled to receive Corporation dividends or distributions in its
capacity as holder or owner thereof.
(c) Voting Rights. Except as provided in
--------------
paragraph (d) below, the holder of the Special Voting Share shall
have the following voting rights:
(1) The holder of the Special Voting Share shall
be entitled to vote on each matter on which holders of the Common
Stock or stockholders generally are entitled to vote, and the
holder of the Special Voting Share shall be entitled to cast on
each such matter a number of votes equal to the number of
exchangeable shares of Weyerhaeuser Company Limited (the
"Exchangeable Shares") then outstanding (A) that are not owned by
the Corporation or its affiliates and (B) as to which the holder
of the Special Voting Share has timely received, as determined
pursuant to the Voting and Exchange Trust Agreement (the "Voting
Agreement") to be entered into among Weyerhaeuser Company
Limited, the Corporation and CIBC Mellon Trust Company, as
trustee, voting instructions from the holders of such
Exchangeable Shares in accordance with the Voting Agreement.
(2) Except as otherwise provided herein or by
applicable law, the holder of the Special Voting Share and the
holders of shares of Common Stock shall vote together as one
class for the election of directors of the Corporation and on all
other matters submitted to a vote of stockholders of the
Corporation.
(d) Liquidation Rights.
-------------------
(1) In the event of voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the
holder of the Special Voting Share shall be entitled to receive
out of the assets of the Corporation available for distribution
to the stockholders, an amount equal to $1.00 before any
distribution is made on the Common Stock of the Corporation or
any other stock ranking junior to the Special Voting Share as to
distribution of assets upon voluntary or involuntary liquidation.
After payment of the full amount of the liquidation preference of
the Special Voting Share, the holder of the Special Voting Share
shall not be entitled to any further participation in any
distribution of assets of the Corporation.
(2) For the purposes of this paragraph (d),
neither the sale, conveyance, exchange or transfer (for cash,
shares of stock, securities or other consideration) of all or
substantially all of the property or assets of the Corporation
nor the consolidation or merger of the Corporation with or into
one or more other entities shall be deemed to be a voluntary or
involuntary liquidation.
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(e) No Redemption; No Sinking Fund.
-------------------------------
(1) The Special Voting Share shall not be subject
to redemption by the Corporation or at the option of its holder,
except that at such time as no Exchangeable Shares (other than
Exchangeable Shares owned by the Corporation or its affiliates)
shall be outstanding, the Special Voting Share shall
automatically be redeemed and canceled, with an amount of $1.00
due and payable upon such redemption.
(2) The Special Voting Share shall not be subject
to or entitled to the operation of a retirement or sinking fund.
(f) Ranking. The Special Voting Share shall rank
--------
senior to all series of Common Stock of the Corporation and
junior to all series of Preferred Shares of the Corporation and
to all other series of Preference Shares of the Corporation.
(g) Restrictions. During the term of the Voting
-------------
Agreement, the Corporation may not, without the consent of the
holders of the Exchangeable Shares, issue any shares of its
Special Voting Shares in addition to the Special Voting Share and
no other term of the Special Voting Share shall be amended,
except upon approval of the holder of the Special Voting Share.
ARTICLE IV
The time of the existence of this corporation shall be
perpetual.
ARTICLE V
1. The business and affairs of the corporation shall be
managed under the direction of a Board of Directors consisting of
not fewer than nine (9) nor more than thirteen (13) directors,
the exact number to be fixed from time to time by resolution
adopted by the affirmative vote of a majority of the entire Board
of Directors. Whenever used in these Articles of Incorporation,
the phrase "entire Board of Directors" shall mean that number of
directors fixed by the most recent resolution adopted pursuant to
the preceding sentence prior to the date as of which a
determination of the number of directors then constituting the
entire Board of Directors shall be relevant for any purpose under
these Articles of Incorporation. The directors shall be
classified, with respect to the term for which they severally
hold office, into three classes, each class to be as nearly equal
in number as possible, one class to hold office initially for a
term expiring at the annual meeting of shareholders to be held in
1986, another class to hold office initially for a term expiring
at the annual meeting of shareholders to be held in 1987, and
another class to hold office initially for a term expiring at the
annual meeting of shareholders to be held in 1988, with the
members of each class to hold office until their successors are
elected and qualified. At each annual meeting of shareholders of
the corporation, the successors to the class of directors whose
term expires at that meeting shall be elected to hold office for
a term expiring at the annual meeting of shareholders held in the
third year following the year of their election.
2. Any vacancy occurring in the Board of Directors and any
newly created directorship resulting from any increase in the
number of directors shall be filled solely by the affirmative
vote of a majority of the remaining directors then in office,
even though less than a quorum of the Board of Directors. No
decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
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3. Any director may be removed from office with cause only
by the affirmative vote of the holders of a majority of the
voting capital stock and may be removed from office without cause
only by the affirmative vote of the holders of 67% of the voting
capital stock or, in either case, such other percentage as may be
required by applicable law; provided, however, that if applicable
law permits to be required a higher percentage of the votes of
the holders of the voting capital stock to approve any such
removal, then the directors may be removed, with or without
cause, as the case may be, only by the affirmative vote of the
holders of the lesser of (i) 80% of the voting capital stock and
(ii) the maximum percentage of such voting capital stock
permitted to be required for such approval.
4. Advance notice of nominations for the election of
directors, other than by the Board of Directors or a committee
thereof, shall be given within the time and in the manner
provided in the bylaws.
5. Notwithstanding the foregoing, whenever the holders of
any one or more classes or series of preferred or preference
shares or of any other class or series of shares issued by the
corporation shall have the right, voting separately by class or
series, to elect directors under specified circumstances, the
election, term of office, filling of vacancies and other features
of such directorships shall be governed by the terms of these
Articles of Incorporation applicable thereto, and such directors
so elected shall not be classified pursuant to this Article V
unless expressly provided by such terms.
ARTICLE VI
In all elections for directors, every shareholder shall have
the right to vote in person or by proxy the number of shares of
stock held by him for as many persons as there are directors to
be elected. No cumulative voting for directors shall be
permitted.
ARTICLE VII
1. Bylaws may be adopted, altered, amended or repealed or
new bylaws enacted by the affirmative vote of a majority of the
entire Board of Directors (if notice thereof is contained in the
notice of the meeting at which such vote is taken or if all
directors are present) or at any regular meeting of the
shareholders (or at any special meeting thereof duly called for
that purpose) by the affirmative vote of a majority of the shares
represented and entitled to vote at such meeting (if notice
thereof is contained in the notice of such meeting).
2. Notwithstanding anything contained in paragraph 1 of
this Article VII to the contrary, either (i) the affirmative vote
of the holders of at least 80% of the votes entitled to be cast
by the holders of all shares of the corporation entitled to vote
generally in the election of directors, voting together as a
single class, or (ii) the affirmative vote of a majority of the
entire Board of Directors with the concurring vote of a majority
of the Continuing Directors, voting separately and as a subclass
of directors, shall be required to alter, amend or repeal, or
adopt any provision inconsistent with, Sections 1 and 2 of
Article II, Section 1 of Article III, Article XII and Section 2
of Article XIII of the bylaws. For purposes of this Article VII
and Article VIII, the term "Continuing Director" shall mean any
member of the Board of Directors who was a member of the Board of
Directors on August 13, 1985 or who is elected to the Board of
Directors after August 13, 1985 upon the recommendation of a
majority of the Continuing Directors, voting separately and as a
subclass of directors on such recommendation.
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ARTICLE VIII
Notwithstanding any other provisions of law, these Articles
of Incorporation (except as hereinafter provided) or the bylaws
of the corporation, the affirmative vote of a majority of the
entire Board of Directors and the affirmative vote of the holders
of at least 80% of the votes entitled to be cast by the holders
of all shares of the corporation entitled to vote generally in
the election of directors, voting together as a single class,
shall be required to alter, amend or repeal, or adopt any
provision inconsistent with, Articles V, VI, VIII and IX and
paragraph 2 of Article VII of these Articles of Incorporation or
any provision of such Articles; provided, however, that the
affirmative vote of the holders of 66-2/3% of the votes entitled
to be cast by the holders of all shares entitled to vote
generally in the election of directors, voting together as a
single class, shall be sufficient to approve any alteration,
amendment or repeal of, or adoption of any provision inconsistent
with, Articles V, VI, VIII and IX and paragraph 2 of Article VII
of these Articles of Incorporation that is approved by the
affirmative vote of a majority of the entire Board of Directors
with the concurring vote of a majority of the Continuing
Directors, voting separately and as a subclass of directors.
ARTICLE IX
Except as otherwise required by law and subject to the
rights of the holders of any class of shares having a preference
over the common shares as to dividends or upon liquidation,
special meetings of shareholders of the corporation may be called
only by the Board of Directors pursuant to a resolution adopted
by the affirmative vote of a majority of the entire Board of
Directors.
ARTICLE X
1. (a) From and after the time that the corporation is
made aware of the existence of an Interested Shareholder (as
hereinafter defined) and so long as there continues to be an
Interested Shareholder, in addition to any affirmative vote
required by law or these Articles of Incorporation, and except as
otherwise expressly provided in paragraph 2 of this Article X:
(i) any merger or consolidation of the
corporation or any Subsidiary (as hereinafter defined) or
any exchange of shares of the corporation or any Subsidiary
pursuant to a plan of exchange;
(ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a
series of transactions) to or with the corporation or any
Subsidiary of any assets, securities or commitments of any
person having an aggregate Fair Market Value (as hereinafter
defined) of Fifty Million Dollars ($50,000,000) or more;
(iii) any reclassification of securities
(including any combination of shares or reverse stock
split), or recapitalization or reorganization of the
corporation, or any merger or consolidation of the
corporation with any of its Subsidiaries;
(iv) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of, or any security
arrangement, investment, loan, advance, guarantee, agreement
to purchase, agreement to pay, extension of credit, joint-
venture participation or other arrangement involving, any
assets, securities or commitments of the corporation or any
Subsidiary, or any issuance, transfer or sale of any
securities of the corporation or any Subsidiary, or any
combination of the foregoing (whether in one transaction or
a series of transactions), having an aggregate Fair Market
67
<PAGE>
Value of, and/or involving an aggregate amount of, Fifty
Million Dollars ($50,000,000) or more, and/or constituting
substantially all, or an integral part of, the assets or
business of an industry segment (as that term is commonly
used with reference to the business of publicly-owned
corporations) of the business of the corporation or any
Subsidiary, and/or involving aggregate commitments of Fifty
Million Dollars ($50,000,000) or more;
(v) the adoption of any plan or proposal for the
liquidation or dissolution (or revocation thereof) of the
corporation; or
(vi) any agreement, contract or other arrangement
providing for any one or more of the actions specified in
the foregoing clauses (i) to (v);
shall require the affirmative vote of the holders of at least 80%
of the votes entitled to be cast by the holders of all shares of
the corporation entitled to vote generally in the election of
directors (the "Voting Stock"), voting together as a single
class. Such affirmative vote shall be required notwithstanding
the fact that no vote may be required, or that a lesser
percentage may be specified, by law or in any agreement with any
national securities exchange or otherwise.
(b) The term "Business Transaction" used in this
Article X shall mean any transaction which is referred to in any
one or more of clauses (i) through (vi) of paragraph 1(a) of this
Article X.
(c) This paragraph 1 of this Article X shall not apply
with respect to purchases and/or sales of goods, services, and
products other than timber, made in the ordinary course of the
corporation's business, consistent with its past practice.
2. The provisions of paragraph 1 of this Article X shall
not be applicable to any Business Transaction, and such Business
Transaction shall require only such affirmative vote as is
required by law or any other provision of these Articles of
Incorporation, if the Business Transaction shall have been
approved by a majority of the Continuing Directors (as
hereinafter defined), voting separately and as a subclass of
directors.
3. For the purposes of this Article X:
(a) "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 of the
General Rules and Regulations under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), as in effect on July
22, 1985 (the term "registrant" in said Rule 12b-2 meaning, in
this case, the corporation).
(b) "beneficially owned" shall have the meaning
ascribed to such term in Rule 13d-3 of the General Rules and
Regulations under the Exchange Act, as in effect on July 22,
1985.
(c) "Continuing Director" means any member of the
Board of Directors who was a member of the Board of Directors on
August 13, 1985 or who is elected to the Board of Directors after
August 13, 1985 upon the recommendation of a majority of the
Continuing Directors, voting separately and as a subclass of
directors on such recommendation.
(d) "Fair Market Value" means: (x) in the case of
stock, the highest closing sale price during the 30-day period
immediately preceding the date in question of a share of such
stock on the Composite Tape for New York Stock Exchange-Listed
Stocks, or, if such stock is not quoted on the Composite Tape, on
68
<PAGE>
the New York Stock Exchange, or if such stock is not listed on
such exchange, on the principal United States securities exchange
registered under the Exchange Act on which such stock is listed,
or, if such stock is not listed on any such exchange, the highest
closing bid quotation with respect to a share of such stock
during the 30-day period preceding the date in question on the
National Association of Securities Dealers, Inc. Automated
Quotations System or any system then in use or if no such
quotations are available, the fair market value on the date in
question of a share of such stock as determined in good faith by
majority vote of the Continuing Directors; and (y) in the case of
property other than cash or stock, the fair market value of such
property on the date in question as determined in good faith by
majority vote of the Continuing Directors.
(e) "Interested Shareholder" at any particular time
means any person (other than the corporation or any Subsidiary
and other than any pension, profit-sharing, employee stock
ownership or other employee benefit plan of the corporation or
any Subsidiary or any trustee of or fiduciary with respect to any
such plan when acting in such capacity) who or which:
(i) is at such time the beneficial owner,
directly or indirectly, of shares of the corporation having
ten percent (10%) or more of the votes entitled to be cast
by the holders of all outstanding shares of Voting Stock;
(ii) at any time within the two-year period
immediately prior to such time was the beneficial owner,
directly or indirectly, of shares of the corporation having
ten percent (10%) or more of the votes entitled to be cast
by the holders of all outstanding shares of Voting Stock; or
(iii) is at such time an assignee of or has
otherwise succeeded to the beneficial ownership of any
shares of Voting Stock which were at any time within the two-
year period immediately prior to such time beneficially
owned by any Interested Shareholder, if such assignment or
succession shall have occurred in the course of a
transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933;
provided, however, that "Interested Shareholder" shall not mean
any person who or which, as of July 22, 1985, met any of the
conditions set forth in clauses (i), (ii) or (iii).
(f) "person" means an individual, a corporation, a
partnership, an association, a joint stock company, a trust, any
unincorporated organization, or a government or political
subdivision thereof.
(g) "Subsidiary" means any corporation of which a
majority of any class or series of equity security is owned,
directly or indirectly, by the corporation; provided, however,
that for the purposes of the definition of Interested Shareholder
set forth in paragraph 3(e) of this Article X, the term
"Subsidiary" shall mean only a corporation of which a majority of
each class or series of equity security is owned, directly or
indirectly, by the corporation.
(h) A person shall be a "beneficial owner" of any
shares of Voting Stock:
(i) which are beneficially owned, directly or
indirectly, by such person or any of its Affiliates or
Associates;
(ii) which such person or any of its Affiliates or
Associates has (x) the right to acquire (whether or not such
right is exercisable immediately) pursuant to any agreement,
arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or
69
<PAGE>
otherwise, or (y) the right to vote pursuant to any
agreement, arrangement or understanding; or
(iii) which are beneficially owned, directly
or indirectly, by any other person with which such person or
any of its Affiliates or Associates has any agreement,
arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of Voting Stock.
(i) For the purposes of determining whether a person
is an Interested Shareholder pursuant to paragraph 3 (e) of this
Article X, the number of shares of Voting Stock deemed to be
outstanding shall include shares deemed owned by an Interested
Shareholder through application of paragraph 3 (h) of this
Article X but shall not include any other shares of Voting Stock
which may be issuable pursuant to any agreement, arrangement or
understanding, or upon the exercise of conversion rights,
exchange rights, warrants or options, or otherwise.
4. For the purposes of this Article X, the Continuing
Directors shall have the power and duty to determine, by majority
vote, on the basis of information known to them after reasonable
inquiry, whether any transaction specified in paragraphs 1 (a)
(ii) and 1 (a) (iv) meets the monetary tests set forth therein.
5. The provisions of this Article X shall not be construed
to impose any fiduciary duty, obligation or responsibility on the
Board of Directors, or any member thereof, to approve such
Business Transaction or recommend its adoption or approval to the
shareholders, nor shall any provision of this Article X be
construed as limiting, prohibiting or otherwise restricting in
any manner the Board of Directors, or any member thereof, with
respect to evaluations of or actions and responses taken with
respect to such Business Transaction.
6. No action taken by, or omission of, a Continuing
Director in the exercise (or non-exercise) of the authority and
discharge of the responsibilities conferred or imposed upon
Continuing Directors by this Article X shall be deemed to be, or
involve, a breach of the fiduciary duty of such Continuing
Director to the shareholders of the corporation unless it can be
demonstrated by the person asserting such breach that the
Continuing Director acted (or failed to act) in bad faith and in
a manner inconsistent with the provisions and spirit of this
Article X.
7. Notwithstanding any other provisions of law, these
Articles of Incorporation (except as hereinafter provided) or the
bylaws of the corporation, the affirmative vote of a majority of
the entire Board of Directors and the affirmative vote of the
holders of at least 80% of the votes entitled to be cast by the
holders of all outstanding shares of Voting Stock, voting
together as a single class, shall be required to alter, amend or
repeal, or to adopt any provision inconsistent with, this Article
X or any provision hereof; provided, however, that the
affirmative vote of the holders of 66 2/3% of all outstanding
shares of Voting Stock, voting together as a single class, shall
be sufficient to approve any alteration, amendment or repeal of,
or adoption of any provision inconsistent with, this Article X or
any provision hereof that is approved by the affirmative vote of
a majority of the entire Board of Directors with the concurring
vote of a majority of the Continuing Directors, voting separately
and as a subclass of directors. The phrase "entire Board of
Directors" shall mean that number of directors fixed by the most
recent resolution adopted by the Board of Directors prior to the
date as of which a determination of the number of directors then
constituting the entire Board of Directors shall be relevant for
any purpose under this Article X.
8. All reasonable expenses (including, without limitation,
attorneys' fees and disbursements) incurred by the Continuing
Directors in the exercise of the authority, and discharge of the
70
<PAGE>
responsibilities, conferred or imposed upon them by this Article
X (or incurred by reason or as a consequence of the exercise of
such authority or the discharge of such responsibilities,
including, without limitation, all attorneys' fees and
disbursements incurred in asserting or defending any claim
arising out of such exercise) shall be paid by the corporation.
The provisions of this paragraph 8 of this Article X shall be
deemed to be a contract between the corporation and the
Continuing Directors, and it shall be the duty of the Chief
Financial Officer of the corporation to make prompt payment
thereof on the written request of a majority of the Continuing
Directors, accompanied by appropriate vouchers and invoices. The
rights conferred upon the Continuing Directors, and the
obligations imposed upon the corporation, by this paragraph 8 of
this Article X shall be in addition to the rights of the
Continuing Directors, as directors, to indemnification under the
bylaws of the corporation; provided, however, that the
corporation shall not, by reason of this sentence, be obliged to
make duplicate payments of any item of expense incurred by a
Continuing Director.
ARTICLE XI
To the full extent the Washington Business Corporation Act
permits the limitation or elimination of liability of directors,
a director of this corporation shall not be personally liable to
this corporation or its shareholders for monetary damages for
conduct as a director, provided that, except as provided in the
next succeeding sentence, this provision shall not eliminate or
limit liability of the director (i) for acts or omissions that
involve intentional misconduct by the director or a knowing
violation of law by the director, (ii) for conduct violating
Section 23A.08.450 of the Washington Business Corporation Act, or
(iii) for any transaction from which the director will personally
receive a benefit in money, property or service to which the
director is not legally entitled. If the Washington Business
Corporation Act is amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then
the liability of a director of this corporation shall be
eliminated or limited to the fullest extent permitted by the
Washington Business Corporation Act, as so amended. Any repeal
or modification of this Article by the shareholders of this
corporation shall not adversely affect any right or protection of
a director of this corporation, for or with respect to any action
or omission of such director occurring prior to such amendment or
repeal, existing at the time of such repeal or modification.
ARTICLE XII
This corporation may indemnify, including the making of
advances of expenses and the making of contracts with directors
with respect to indemnity, and may purchase and maintain
insurance for, its directors, officers, trustees, employees, and
other persons and agents, and (without limiting the generality of
the foregoing) shall indemnify its directors against all
liability, damage and expenses arising from or in connection with
service for, employment by, or other affiliation with this
corporation or other firms or entities to the maximum extent and
under all circumstances permitted by law as then in effect.
Dated at Federal Way, Washington, this 22nd day of October,
1999.
See attached
_______________________________________
Secretary of
Weyerhaeuser Company
71
<PAGE>
ARTICLES OF RESTATEMENT
OF
WEYERHAEUSER COMPANY
To the Secretary of State
State of Washington
Pursuant to the provisions of the Washington Business Corporate Act,
the corporation hereinafter named (the "corporation") does hereby
adopt these Articles of Restatement.
1. The name of the corporation is Weyerhaeuser Company.
2. The text of the Restated Articles of Incorporation is annexed
hereto and made a part hereof.
Executed on October 22, 1999.
/s/ Sandy D. McDade
---------------------------------
Name of Officer: Sandy D. McDade
Title of Officer: Secretary
CERTIFICATE
It is hereby certified that:
1. The name of the corporation is Weyerhaeuser Company
2. The restatement herein provided for does not contain an amendment
to the Articles of Incorporation requiring shareholder approval.
The Board of Directors of the corporation adopted the restatement
of the Articles of Incorporation herein provided for on June 20,
1999.
Executed on October 22, 1999.
/s/ Sandy D. McDade
---------------------------------
Name of Officer: Sandy D. McDade
Title of Officer: Secretary
1999 FINANCIAL HIGHLIGHTS
=========================================================================
<TABLE>
<CAPTION>
Dollar amounts in millions except per-share figures 1999 1998
- -------------------------------------------------------------------------
<S> <C> <C>
Net sales and revenues $ 12,262 $ 10,766
--------------------
Earnings before cumulative effect
of a change in an accounting principle 616 294
Cumulative effect of a change in an accounting
principle(1) (89) -
--------------------
Net earnings 527 294
--------------------
Cash flow from operations, before working
capital changes 1,396 1,018
Capital expenditures (excluding acquisitions) 566 615
Total assets 18,339 12,834
Shareholder interest 7,173 4,526
--------------------
</TABLE>
<TABLE>
<CAPTION>
BASIC EARNINGS PER SHARE(3)
- ------------------------------------------------------------------------------
1999 1998
------------------------------------------------------ -------
Before cumulative effect Cumulative effect
of a change in an of a change in an
accounting principle accounting principle Net(2) Net(2)
------------------------------------------------------ -------
<S> <C> <C> <C> <C>
First quarter $ .21 $ (.45) $ (.24) $ .43
Second quarter .82 - .82 .34
Third quarter 1.18 - 1.18 .56
Fourth quarter .79 - .79 .15
------------------------------------------------------ -------
$ 2.99 $ (.43) $ 2.56 $ 1.48
====================================================== =======
</TABLE>
(1) The cumulative effect of a change in an accounting
principle in 1999 reflects the after-tax effect of the first-
quarter write-off of the unamortized balance of capitalized
start-up costs at year-end 1998.
(2) Included in 1999 earnings were nonrecurring items
principally for MacMillan Bloedel acquisition costs incurred
in the fourth quarter and asset impairment charges primarily
associated with the decision to sell the company's Composite
Products business booked in the first quarter. The sale of
this business occurred in the second quarter. Net earnings
before these nonrecurring items and the cumulative effect of
a change in an accounting principle were $681 million, or
$3.31 per share.
(3) Diluted earnings per share by quarter for 1999 and 1998
were ($0.24), $0.81, $1.18 and $ 0.78; and $0.43, $0.34,
$0.55 and $0.15, respectively.
<TABLE>
<CAPTION>
MARKET PRICES HIGH/LOW 1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
First quarter $ 62 - 49 9/16 $ 57 15/16 - 44 15/16
Second quarter 73 15/16 - 55 9/16 61 7/16 - 44 9/16
Third quarter 69 3/4 - 54 13/16 47 7/16 - 36 3/4
Fourth quarter 72 15/16 - 54 9/16 51 9/16 - 41 3/4
Year $ 73 15/16 - 49 9/16 $ 61 7/16 - 36 3/4
- ------------------------------------------------------------------------------
</TABLE>
The consolidated financial statements include: (1)
Weyerhaeuser Company (Weyerhaeuser), principally engaged in
the growing and harvesting of timber and the manufacture,
distribution and sale of forest products, and (2) Real
estate and related assets, principally engaged in real
estate development and construction, and other real estate
related activities.
9
<PAGE>
PULP, PAPER AND PACKAGING
=========================================================================
<TABLE>
<CAPTION>
NET SALES 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------
In millions of dollars
<S> <C> <C> <C> <C> <C>
Pulp $ 1,060 $ 935 $ 986 $ 954 $ 1,616
Paper 1,010 869 842 803 1,001
Paperboard and containerboard 369 298 301 281 325
Packaging 2,005 1,894 1,781 1,921 1,863
Newsprint - 37 416 451 508
Recycling 239 191 189 140 266
Other products 149 88 94 98 103
--------------------------------------------
$ 4,832 $ 4,312 $ 4,609 $ 4,648 $ 5,682
============================================
</TABLE>
<TABLE>
<CAPTION>
SALES VOLUMES 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------
In thousands
<S> <C> <C> <C> <C> <C>
Pulp-air-dry metric tons 2,273 2,012 1,982 1,868 2,060
Paper-tons 1,460 1,181 1,146 1,007 1,006
Paperboard-tons 248 236 243 205 230
Containerboard-tons 576 323 389 346 259
Packaging-MSF 46,483 44,299 44,508 42,323 34,342
Newsprint-metric tons - 62 684 629 663
Recycling-tons 2,785 2,546 2,229 2,011 1,467
---------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL PRODUCTION CAPACITY 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------
In thousands
<S> <C> <C> <C> <C> <C> <C>
Pulp-air-dry metric tons 2,285 2,219 1,971 2,063 2,004 2,159
Paper-tons 1,595 1,511 1,235 1,128 1,034 1,060
Paperboard-tons 230 251 237 231 206 229
Containerboard-tons 3,694 2,622 2,291 2,381 2,331 2,329
Packaging-MSF 66,000 48,758 46,410 46,488 44,471 36,041
Newsprint-metric tons - - 69 704 631 687
Recycling-tons - 4,287 3,833 3,655 3,428 2,754
--------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MANUFACTURING FACILITIES
- --------------------------------------------------------------
<S> <C> <C> <C>
Pulp 9 Containerboard 7
Paper 6 Packaging 64
Paperboard 1 Recycling 24
- --------------------------------------------------------------
</TABLE>
1999 PULP MILL CAPACITIES 1999 total capacity 2.3 million metric tons
- --------------------------------------------------------------------------------
Metric tons in thousands (Shown as bar graph in document)
================================================================================
LOCATION
Columbus, MS 380
Cosmopolis, WA 140
Dryden, ONT 75
Flint River, GA 330
Grande Prairie, ALB 310
Kamloops, BC 470
New Bern, NC 315
Plymouth, NC 130
Prince Albert, SASK 135
Weyerhaeuser's Pulp business is the world leader in
producing softwood market pulp for global markets. We
manufacture three major product lines: softwood and hardwood
papergrade pulp, absorbent pulp, and dissolving and
specialty pulp. Customers from around the world buy this
pulp for use in products such as fine writing, office and
publication papers; diapers and absorbent personal care
products; pharmaceuticals; and a photographic-base paper. We
strive to produce these products in a way that reduces
unwanted byproducts and captures and reuses all available
resources during the pulp process.
24
<PAGE>
1999 PAPER MILL CAPACITIES 1999 total capacity 1.6 million tons
- --------------------------------------------------------------------------------
Tons in thousands (Shown as bar graph in document)
================================================================================
LOCATION
Columbus, MS 220
Dryden, ONT 395
Longview, WA 160
Plymouth, NC 430
Prince Albert, SASK 250
Rothschild, WI 140
Our Fine Paper business manufactures coated and uncoated
fine papers for printing, publishing, and business and
office use. Some of the most recognizable names are First
Choice premium electronic imaging paper and Cougar(R) Opaque
and Lynx Opaque(R) printing papers. Our Newsprint business is
a joint venture with Nippon Paper Industries of Japan that
makes high-quality newsprint for newspaper publishers and
commercial printers in the western United States and Japan.
The Bleached Paperboard business primarily makes paperboard
used to produce containers such as milk and juice cartons
and paper cups.
1999 MEDIUM CAPACITIES 1999 total capacity 1.1 million tons
- --------------------------------------------------------------------------------
Tons in thousands (Shown as bar graph in document)
================================================================================
LOCATION
North Bend, OR 252
Pine Hill, AL 287 (Location acquired from MacMillan Bloedel)
Plymouth, NC 176
Sturgeon Falls, ONT 99 (Location acquired from MacMillan Bloedel)
Valliant, OK 255
1999 LINERBOARD CAPACITIES 1999 total capacity 2.6 million tons
- --------------------------------------------------------------------------------
Tons in thousands (Shown as bar graph in document)
================================================================================
LOCATION
Henderson, KY 173 (Location acquired from MacMillan Bloedel)
Pine Hill, AL 566 (Location acquired from MacMillan Bloedel)
Plymouth, NC 297
Springfield, OR 723
Valliant, OK 866
Weyerhaeuser manufactures package-strength medium and
linerboard. The medium is used in forming the fluted (or
wavy) portion of corrugated packaging that provides package
strength and extra cushioning to the products in the box.
The linerboard is the flat, outer sheets of paper used to
create the inside and outside facings of a corrugated box.
The liners provide extra stacking strength and a smooth
graphics surface for the finished box. Containerboard and
corrugated packaging are made from renewable and recyclable
resources with an average recycled content of 57 percent.
- --------------------------------------------------------------------------------
MANUFACTURING FACILITIES
================================================================================
PACKAGING PLANTS
Arizona, Arkansas, California, Colorado, Connecticut,
Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Kentucky,
Louisiana, Maryland, Michigan, Minnesota, Mississippi,
Missouri, Nebraska, New Jersey, New York, North Carolina,
Ohio, Oregon, Tennessee, Texas, Virginia, Washington,
Wisconsin; Guanajuato, Mexico
PAPER AND CONTAINERBOARD RECYCLING
Arizona, California, Colorado, Illinois, Iowa, Kansas,
Maryland, Minnesota, Nebraska, North Carolina, Oklahoma,
Oregon, Tennessee, Texas, Utah, Virginia, Washington
25
<PAGE>
TIMBERLANDS
==========================================================================
<TABLE>
<CAPTION>
NET SALES 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------
In millions of dollars
<S> <C> <C> <C> <C> <C>
To unaffiliated customers:
Raw materials (logs,
chips and timber) $ 626 $ 599 $ 760 $ 830 $ 850
Other products 30 37 37 37 32
--------------------------------------------
$ 656 $ 636 $ 797 $ 867 $ 882
============================================
Intersegment sales $ 537 $ 488 $ 520 $ 513 $ 574
============================================
</TABLE>
<TABLE>
<CAPTION>
SALES VOLUMES 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------
In millions
<S> <C> <C> <C> <C> <C>
Raw materials-cubic feet 287 259 235 254 254
---------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL PRODUCTION 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------
In millions
<S> <C> <C> <C> <C> <C>
Logs-cubic feet 521 495 476 412 420
Fee harvest-cubic feet 634 585 541 496 518
--------------------------------------------
</TABLE>
26
<PAGE>
U.S. OWNED AND LEASED TIMBERLANDS Total acres owned or leased 5.7 million
- --------------------------------------------------------------------------------
Acres in thousands (Shown as bar graph in document)
================================================================================
LOCATION
Alabama 625
Arkansas 737
Georgia 334
Louisiana 358
Mississippi 646
North Carolina 575
Oklahoma/Texas 510
Oregon 579
Washington 1,381
In the United States, Weyerhaeuser owns and operates 5.7
million acres of privately managed forests in 10 states for
sustainable wood production. We manage our forests to
increase the quality and volume of wood produced, as well as
to protect important natural resources. Such forest
practices include planting 300 to 600 seedlings on each
acre, thinning forest stands to give remaining trees more
room to grow, pruning selected trees to produce knot-free
wood, fertilizing stands to supplement natural nutrient
levels, and harvesting at sustainable rates-approximately 2
percent of our forestlands each year in the West and 3
percent in the South where the growing cycle is faster.
CANADIAN OWNED AND Total acres owned or licensed
LICENSED TIMBERLANDS 33.5 million (13.6 million hectares)
- --------------------------------------------------------------------------------
Acres in thousands (Shown as bar graph in document)
================================================================================
LOCATION
Alberta 7,515
British Columbia 6,412
New Brunswick 177
Ontario 6,539
Saskatchewan 12,807
Forests in Canada generally are publicly owned and
administered by provincial governments. Weyerhaeuser Canada
holds renewable, long-term licenses on 32.8 million acres
(13.3 million hectares) of productive forestlands in five
provinces and owns 663,000 acres (268,000 hectares) in
British Columbia. Weyerhaeuser works closely with various
stakeholder groups to achieve business improvement
opportunities. This includes working with various major
universities in the area of forestry research and
development; strengthening relationships with Aboriginal
peoples; and helping establish sustainable forest management
standards.
27
<PAGE>
WOOD PRODUCTS
==========================================================================
<TABLE>
<CAPTION>
NET SALES 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------
In millions of dollars
<S> <C> <C> <C> <C> <C>
Softwood lumber $ 2,318 $ 1,793 $ 2,094 $ 1,988 $ 1,648
Softwood plywood and veneer 539 452 502 519 591
Oriented strand board,
composite and other panel
products 825 765 594 667 752
Hardwood lumber 280 240 272 235 193
Engineered wood products 409 330 284 233 207
Raw materials (logs, chips
& timber) 194 228 232 220 228
Other products 791 667 599 511 430
--------------------------------------------
$ 5,356 $ 4,475 $ 4,577 $ 4,373 $ 4,049
============================================
</TABLE>
<TABLE>
<CAPTION>
SALES VOLUMES 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------
In millions
<S> <C> <C> <C> <C> <C>
Softwood lumber-board feet 5,734 4,995 4,869 4,745 4,515
Softwood plywood and veneer
-square feet (3/8) 1,902 1,842 2,042 2,172 2,324
Composite panels
-square feet (3/4) 410 586 551 604 648
Oriented strand board
-square feet (3/8) 2,716 2,697 2,462 2,083 1,931
Hardwood lumber-board feet 397 339 362 349 293
Doors (thousands) 720 789 730 652 648
Raw materials-cubic feet 305 315 325 304 260
---------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL PRODUCTION CAPACITY 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------
In millions
<S> <C> <C> <C> <C> <C> <C>
Softwood lumber-board feet 5,452 4,532 4,025 3,968 3,701 3,419
Softwood plywood and veneer
-square feet (3/8) 1,371 1,065 960 1,092 1,243 1,292
Composite panels
-square feet (3/4) 228 281 510 478 535 583
Oriented strand board
-square feet (3/8) 3,365 2,452 2,179 2,041 1,687 1,654
Hardwood lumber-board feet 386 376 342 345 333 278
Doors (thousands) 850 732 788 740 646 643
Logs-cubic feet - 572 526 519 500 494
--------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MANUFACTURING FACILITIES
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Softwood lumber, plywood and veneer 45 Hardwood lumber 12
Composite panels 3 Doors 1
Oriented strand board 9
- ----------------------------------------------------------------------------
</TABLE>
BUILDING MATERIALS DISTRIBUTION sells a broad range of building materials from a
network of in-market customer service centers, satellites and reload operations
located throughout North America.
================================================================================
U.S. LOCATIONS
Alabama, Arizona, California, Colorado, Florida,
Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky,
Louisiana, Maryland, Massachusetts, Michigan, Minnesota,
Mississippi, Missouri, Montana, Nevada,
New Jersey, New York, North Carolina, Ohio, Oklahoma,
Oregon, Pennsylvania, Tennessee, Texas, Utah, Virginia,
Washington, Wisconsin
CANADIAN LOCATIONS
Alberta, British Columbia, Manitoba, Nova Scotia, Ontario,
Quebec, Saskatchewan
28
<PAGE>
SOFTWOOD LUMBER 1999 total capacity 5.5 billion board feet
- --------------------------------------------------------------------------------
Board feet in millions (Shown as bar graphs in document)
- --------------------------------------------------------------------------------
WESTERN U.S. 1999 total capacity 1.1 billion board feet
================================================================================
LOCATION
Aberdeen, WA 200
Cottage Grove, OR 315
Enumclaw, WA 230
Green Mountain, WA 230
Raymond, WA 170
- --------------------------------------------------------------------------------
SOUTHERN U.S. 1999 total capacity 2.1 billion board feet
================================================================================
LOCATION
Barnesville, GA 136
Bruce, MS 214
Dierks, AR 195
Greenville, NC 219
Holden, LA 121
McComb, MS 195
Millport, AL 95
Mt. Pine, AR 115
New Bern, NC 94
Philadelphia, MS 211
Pine Hill, AL 103 (acquired from MacMillan Bloedel)
Plymouth, NC 174
Wright City, OK 225
Durango, MEXICO 24 (acquired from MacMillan Bloedel)
- --------------------------------------------------------------------------------
CANADA 1999 total capacity 2.2 billion board feet
================================================================================
LOCATION
Big River, SASK 99
Carrot River, SASK 68 (acquired from MacMillan Bloedel)
Chapleau, ONT 130 (acquired from MacMillan Bloedel)
Chemainus, BC 101 (acquired from MacMillan Bloedel)
Drayton Valley, ALB 134
Dryden, ONT 73
Ear Falls, ONT 134
Grande Cache, ALB 114
Grande Prairie, ALB 207
Kamloops, BC 116
Nanaimo, BC 71 (acquired from MacMillan Bloedel)
New Westminster, BC 136 (acquired from MacMillan Bloedel)
Okanagan Falls, BC 136
Port Alberni (ADP), BC 177 (acquired from MacMillan Bloedel)
Port Alberni (SOMASS), BC 82 (acquired from MacMillan Bloedel)
Princeton, BC 135
Vancouver, BC 122 (acquired from MacMillan Bloedel)
Vavenby, BC 151
Weyerhaeuser lumber in North America is produced from a
variety of species. The lumber business works closely with
our Timberlands group and other suppliers to ensure raw
materials that meet specifications for log quality,
including species, length, bucking and cleanliness.
Technological advances, such as curve sawing that follows
the natural curve of the tree, help Weyerhaeuser lumber
operations minimize waste and obtain the maximum value from
each log.
29
<PAGE>
OSB MILL CAPACITIES 1999 total capacity 3.4 billion square feet
- --------------------------------------------------------------------------------
Square feet 3/8" in millions (Shown as bar graph in document)
================================================================================
LOCATION
Drayton Valley, ALB 400
Edson, ALB 400
Elkin, NC 340
Grayling, MI 445
Hudson Bay, SASK 210 (acquired from MacMillan Bloedel)
Miramichi, NB 400 (acquired from MacMillan Bloedel)
Slave Lake, ALB 220
Sutton, WV 520
Wawa, ONT 430 (acquired from MacMillan Bloedel)
Weyerhaeuser is the world's second-largest producer of
oriented strand board (OSB). OSB is a construction panel
made with layers of precision-manufactured wood "strands"
that are aligned, formed into panels and pressed with an
exterior grade adhesive resin. The resulting engineered
product is a high-quality, cost-effective panel for
structural sheathing, subflooring, underlayments, webstock
for I-beam floor joists, furniture stock and other building
components. We market OSB as Sturdi-Wood(TM) in the western
United States, Canada and Asia, and as Structurwood(R) in the
eastern and midwestern United States.
SOFTWOOD PLYWOOD AND VENEER CAPACITY 1999 total capacity
1.4 billion square feet
- --------------------------------------------------------------------------------
Square feet 3/8" in millions (Shown as bar graph in document)
================================================================================
LOCATION
Aberdeen, WA (veneer) 150
Dierks, AR 215
Hudson Bay, SASK 86 (acquired from MacMillan Bloedel)
Millport, AL 227
Mt. Pine, AR 252
Nipigon, ONT (hardwood) 41 (acquired from MacMillan Bloedel)
Pine Hill, AL 153 (acquired from MacMillan Bloedel)
Wright City, OK 247
Plywood is a panel made with multiple layers of softwood
veneer and is used as a construction material and
"appearance" panel by builders and home remodelers both in
North America and overseas. It also has industrial
applications such as truck-trailer linings and upholstered
furniture frame-stock. Weyerhaeuser is a major producer of
plywood panels.
HARDWOOD LUMBER 1999 total capacity 386 million board feet
- --------------------------------------------------------------------------------
Board feet in millions (Shown as bar graph in document)
================================================================================
LOCATION
Arlington, WA 60
Centralia, WA 60
Dorchester, WI 24
Eugene, OR 60
Garibaldi, OR 25
Lewiston, MI 7
Little Rock, AR 20
Longview, WA 60
Onalaska, WI 12
Sedro Woolley, WA 25
Titusville, PA 21
Wright City, OK 12
Weyerhaeuser is one of the leading producers of hardwood
lumber and components in the world. Major furniture, cabinet
and architectural millwork manufacturers domestically and
worldwide purchase the lumber and component products
produced by our Hardwood Lumber business. Choicewood(TM)
boards, mouldings, panels and other specialty items are sold
to retailers throughout North America. Other products
include hardwood lumber, components, pallet cants, ties and
a unique clear dimension lumber product for the Japanese
fine furniture industry.
30
<PAGE>
TRUS JOIST Trus Joist manufactures a variety of engineered
wood products for structural framing and industrial
applications. It is the world's largest manufacturer of
engineered wood products. Weyerhaeuser acquired Trus Joist
in January 2000 following a successful tender offer to
shareholders of TJ International, the holding company that
owned Trus Joist.
================================================================================
U.S. LOCATIONS
Alabama, California, Georgia, Kentucky, Louisiana,
Minnesota, Ohio, Oregon, Washington, West Virginia
CANADIAN LOCATIONS
Alberta, British Columbia
<TABLE>
<CAPTION>
REAL ESTATE AND RELATED ASSETS
- --------------------------------------------------------------------------------
OPERATIONS PRINCIPAL LOCATIONS
================================================================================
<S> <C>
Land Management Arkansas, Georgia, North Carolina, Washington
Pardee Construction Company Nevada, Southern California
Quadrant Corporation Washington
Trendmaker Homes Texas
Winchester Homes Maryland, Virginia
Weyerhaeuser Realty Investors California, Washington
31
<PAGE>
- ------------------------------------------------------------
DESCRIPTION OF THE BUSINESS OF THE COMPANY
- ------------------------------------------------------------
Weyerhaeuser Company (the company) was incorporated in the
state of Washington in January 1900 as Weyerhaeuser Timber
Company. It is principally engaged in the growing and
harvesting of timber and the manufacture, distribution and
sale of forest products, real estate development and
construction, and other real estate related activities.
The company has 44,800 employees, of whom 43,800 are
employed in its timber-based businesses, and of this number,
approximately 23,000 are covered by collective bargaining
agreements, which generally are negotiated on a multi-year
basis.
Approximately 1,000 of the company's employees are
involved in the activities of its real estate and related
assets segment.
The major markets, both domestic and foreign, in which the
company sells its products are highly competitive, with
numerous strong sellers competing in each. Many of the
company's products also compete with substitutes for wood
and wood fiber products. The company's subsidiaries in the
real estate and related assets segment operate in highly
competitive markets, competing with numerous regional and
national firms in real estate development and construction
and other real estate related activities.
On November 1, 1999, the company completed the acquisition
of MacMillan Bloedel Limited (MB).
This acquisition included:
. 428,000 acres of fee timberlands in the United States
and 554,000 acres in Canada and 6 million acres of
timberlands under long-term licensing arrangements in
Canada.
. 11 softwood lumber mills, three oriented strand board
mills, three plywood mills, a particleboard mill, an
integrated operation in Mexico and 31 Building Materials
Distribution centers to the wood products segment.
. A 49 percent interest in Trus Joist MacMillan, a joint
venture based in Boise, Idaho, with 16 facilities in the
United States and Canada that manufacture and market
engineered wood products for structural framing and
industrial applications.
. Three containerboard mills and 19 corrugated packaging
facilities to the Containerboard Packaging business in the
pulp, paper and packaging segment.
In 1999, the company's sales to customers outside the
United States totaled $2.3 billion (including exports of
$1.2 billion from the United States and $1.1 billion of
Canadian export and domestic sales), or 19 percent of total
consolidated sales and revenues, compared with 17 percent in
1998. All sales to customers outside the United States are
subject to risks related to international trade and to
political, economic and other factors that vary from country
to country.
- ------------------------------------------------------------
BUSINESS SEGMENTS
============================================================
TIMBERLANDS
The company is engaged in the management of 5.2 million
acres of company-owned and .5 million acres of leased
commercial forestland in the United States (3.8 million
acres in the South and 1.9 million acres in the Pacific
Northwest), most of it highly productive and located
extremely well to serve both domestic and international
markets. The standing timber inventory on these lands is
approximately 96 million cunits (a cunit is 100 cubic feet
of solid wood). The relationship between cubic measurement
and the quantity of end products that may be produced from
timber varies according to the species, size and quality of
timber, and will change through time as the mix of these
variables changes. To sustain the timber supply from its fee
timberlands, the company is engaged in extensive planting,
suppression of nonmerchantable species, precommercial and
commercial thinning, fertilization and operational pruning,
all of which increase the yield from its fee timberland
acreage.
The company, through its wholly owned subsidiary,
Weyerhaeuser New Zealand Inc., is responsible for the
management and marketing activities of a New Zealand joint
venture located on the northern end of the South Island
consisting of 151,000 acres of Crown Forest License cutting
rights and approximately 42,000 acres of freehold land.
The company, through its wholly owned subsidiary,
Weyerhaeuser Forestlands International, is a 50 percent
owner in RII Weyerhaeuser World Timberfund, L.P. (WTF), a
joint-venture partnership, which makes investments outside
the United States. During the second quarter of 1999, WTF
paid approximately U.S. $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
work in these operations. This joint venture also owns 97
percent of a Uruguayan venture, Colonvade, S.A., which has
acquired over 237,000 acres of private grazing land that is
currently being converted into plantation forests.
42
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Dollar amounts in millions 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers:
Raw materials (logs, chips
and timber) $ 626 $ 599 $ 760 $ 830 $ 850
Other products 30 37 37 37 32
- -----------------------------------------------------------------------
$ 656 $ 636 $ 797 $ 867 $ 882
=======================================================================
Intersegment sales $ 537 $ 488 $ 520 $ 513 $ 574
=======================================================================
Approximate contributions
to earnings $ 535 $ 487 $ 535 $ 503 $ 560
=======================================================================
</TABLE>
WOOD PRODUCTS
The company's wood products businesses produce and sell
softwood lumber, plywood and veneer; oriented strand board,
composite and other panels; hardwood lumber; doors and
treated products. These products are sold primarily through
the company's own sales organizations. Building materials
are sold to wholesalers, retailers and industrial users. The
raw materials required to produce these products are
purchased from third parties, transferred at market price
from the company's timberlands, or obtained from long-term
licensing arrangements.
During the second quarter of 1999, the company sold its
composite products businesses facilities located at Adel,
Georgia; Moncure, North Carolina; and Springfield, Oregon,
and a ply-veneer plant at Springfield.
<TABLE>
<CAPTION>
Dollar amounts in millions 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers:
Softwood lumber $ 2,318 $ 1,793 $ 2,094 $ 1,988 $ 1,648
Softwood plywood and veneer 539 452 502 519 591
Oriented strand board,
composite and other panels 825 765 594 667 752
Hardwood lumber 280 240 272 235 193
Engineered wood products 409 330 284 233 207
Raw materials (logs, chips
and timber) 194 228 232 220 228
Other products 791 667 599 511 430
- -------------------------------------------------------------------------
$ 5,356 $ 4,475 $ 4,577 $ 4,373 $ 4,049
=========================================================================
Approximate contributions to
earnings(1)(2)(3) $ 470 $ 183 $ 172 $ 302 $ 248
=========================================================================
</TABLE>
(1) After nonrecurring charges totaling $99 million for
facility closure costs associated with the acquisition of
MacMillan Bloedel and the disposition of the company's
Composite Products business in 1999.
(2) After nonrecurring charges totaling $25 million for
changes to the British Columbia lumber operations in 1998.
(3) After nonrecurring charges totaling $40 million
associated with the closure of a lumber mill and two plywood
facilities in 1997.
PULP, PAPER AND PACKAGING
The company's pulp, paper and packaging businesses include:
Pulp, which manufactures chemical wood pulp for world
markets; Paper, which manufactures and markets a range of
both coated and uncoated fine papers through paper merchants
and printers; Containerboard Packaging, which manufactures
linerboard and corrugating medium, primarily used in the
production of corrugated packaging, and manufactures and
markets industrial and agricultural packaging; Paperboard,
which manufactures and markets bleached paperboard, used for
production of liquid containers, to West Coast and Pacific
Rim customers; and Recycling, which operates an extensive
wastepaper collection system and markets it to company mills
and worldwide customers.
<TABLE>
<CAPTION>
Dollar amounts in millions 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers:
Pulp $ 1,060 $ 935 $ 986 $ 954 $ 1,616
Paper 1,010 869 842 803 1,001
Paperboard and containerboard 369 298 301 281 325
Packaging 2,005 1,894 1,781 1,921 1,863
Newsprint(1) - 37 416 451 508
Recycling 239 191 189 140 266
Other products 149 88 94 98 103
- -----------------------------------------------------------------------------
$ 4,832 $ 4,312 $ 4,609 $ 4,648 $ 5,682
=============================================================================
Approximate contributions to
earnings(2)(3) $ 310 $ 150 $ 164 $ 307 $ 1,181
=============================================================================
</TABLE>
(1) As of February 1998, the company's ownership in its
newsprint subsidiary changed from 80 percent to 50 percent;
therefore, 1998 results reflect one month's sales.
(2) After nonrecurring charges of $42 million associated
with the closure of the Longview, Washington, chlor-alkali
facility and streamlining pulp and paper operations in 1998.
(3) After the gain of $21 million on the sale of Saskatoon
Chemicals, Ltd., and charges totaling $49 million for the
closure of a corrugated medium machine and the restructuring
of the recycling business in 1997.
43
<PAGE>
REAL ESTATE AND RELATED ASSETS
The company, through its subsidiary, Weyerhaeuser Real
Estate Company (WRECO), is engaged in developing single-
family housing and residential lots for sale, including
development of master-planned communities. Operations are
concentrated mainly in selected metropolitan areas in
Southern California, Nevada, Washington, Texas, Maryland and
Virginia.
<TABLE>
<CAPTION>
Dollar amounts in millions 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales to and revenues from
unaffiliated customers:
Single-family units $ 960 $ 834 $ 688 $ 573 $ 563
Multi-family units 3 36 29 12 -
Residential lots 99 103 91 76 60
Commercial lots 58 23 57 50 29
Commercial buildings 48 100 68 43 4
Acreage 33 36 41 25 36
Interest(1) 10 18 35 70 76
Loan origination and
servicing fees(1) - - 35 100 84
Other 25 42 49 60 67
- ----------------------------------------------------------------------------
$ 1,236 $ 1,192 $ 1,093 $ 1,009 $ 919
============================================================================
Approximate contributions to
earnings(2) $ 190 $ 124 $ 111 $ 43 $ (277)
============================================================================
</TABLE>
(1) Interest and loan origination and servicing fees relate
principally to the company's operations in financial
services through its subsidiary, Weyerhaeuser Mortgage
Company, which was sold in the second quarter of 1997.
(2) After a $45 million gain on the sale of Weyerhaeuser
Mortgage Company in 1997 and a charge of $290 million to
dispose of certain real estate assets in 1995.
CORPORATE AND OTHER
Corporate and other includes marine transportation and
general corporate expense.
<TABLE>
<CAPTION>
Dollar amounts in millions 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers $ 182 $ 151 $ 134 $ 217 $ 256
========================================================================
Approximate contributions to
earnings(1)(2)(3) $ (272) $ (225) $ (186) $ (183) $ (217)
========================================================================
</TABLE>
(1) After nonrecurring charges of $3 million for costs
associated with the acquisition of MacMillan Bloedel in
1999.
(2) After nonrecurring charges of $4 million for streamlining
corporate operations in 1998.
(3) After a $10 million gain, which is the net effect of
interest income from a favorable federal income tax decision
and the loss incurred in the sale of Shemin Nurseries in
1997.
- ------------------------------------------------------------------------
ENVIRONMENTAL MATTERS
========================================================================
Since 1990, a number of fish and wildlife species that occur
in streams and timberlands in the Pacific Northwest
(Washington, Oregon, Idaho and northern California) have
been listed as threatened or endangered in at least some
portions of their ranges under the Endangered Species Act
(ESA). These include the northern spotted owl, marbled
murrelet, Umpqua River cutthroat trout, and a number of
salmon species, bull trout and steelhead trout. Petitions
have been filed to list other species and additional
populations of some of those species as threatened or
endangered under the ESA. A consequence of these listings
has been, and a consequence of future listings may be,
reductions in the sale and harvest of timber on federal
timberlands in the Pacific Northwest. Federal and state
requirements to protect habitat for threatened and
endangered species have resulted in restrictions on timber
harvest on some nonfederal timberlands in the Pacific
Northwest, including some timberlands of the company.
Additional regulatory actions taken by federal or state
agencies to protect habitat for these species may, in the
future, result in restrictions on timber harvests and other
forest management practices in such states, including
company timberlands in western Washington and western
Oregon, could increase operating costs, and could affect
timber supply and prices. The company believes that such
restrictions will not have a significant effect on the
company's total harvest of timber or production of forest
products in the year 2000, although they may have such an
effect in the future.
The listing of the red-cockaded woodpecker as an
endangered species under the ESA had some effect on the
harvest of public and private timber in the southeastern
United States, but has had little effect on the company's
operations. Other ESA-listed species (e.g., American burying
beetle and gopher tortoise) occur on or near some of the
company's southern timberlands, but have had little effect
on the company's operations.
Other federal ESA listings, or designations of fish and
wildlife species as endangered, threatened or otherwise
sensitive under various state laws, could affect future
timber harvests on some of the company's timberlands and
could affect timber supply and prices in some regions. In
addition, regulations protecting wetlands may affect future
harvest
44
<PAGE>
and forest management practices on some of the company's
timberlands, particularly in southeastern states.
In February 1995, the company obtained U.S. Fish and
Wildlife Service approval of a Habitat Conservation Plan
(HCP) and Incidental Take Permit with respect to northern
spotted owls on approximately 209,000 acres of its Oregon
coastal timberlands, which is expected to remain in effect
for at least 50 years. In December 1996, the company applied
to the U.S. Fish and Wildlife Service and the National
Marine Fisheries Service for a multi-species HCP covering
approximately 400,000 acres of company timberlands in
western Oregon. If that HCP is approved and the related
Incidental Take Permit is issued, the company would be
authorized to "take" members of species currently listed or
proposed for listing under the ESA and members of all or
most species that may become listed in the future, in the
course of conducting forest management and other activities
on those lands. Under both HCPs, there are limits on the
amounts of covered lands that can be sold or exchanged
unless the new owner agrees to be bound by the HCP and
related documents or the agencies approve the change in
ownership. The company also has obtained from the U.S. Fish
and Wildlife Service an Incidental Take Permit for the
American burying beetle covering approximately 25,000 acres
of lands in Oklahoma and has entered into agreements with
the U.S. Fish and Wildlife Service to reduce uncertainties
under the ESA with respect to red-cockaded woodpeckers on
some of its timberlands in North Carolina and northern
spotted owls on some of its timberlands in Washington.
Forest practice acts in some of the states in which the
company has timber increasingly affect present or future
harvest and forest management activities. For example,
forest practice acts in Washington and Oregon limit the size
of clearcuts, require that some timber be left unharvested
in riparian areas and sometimes in other areas to protect
water quality and fish and wildlife habitat, regulate
construction of forest roads and conduct of other forest
management activities, require reforestation following
timber harvest, and contain procedures for state agencies to
review and approve proposed forest practice activities.
Other states and some local governments regulate certain
forest practices through various permit programs. Each state
in which the company owns timberlands has developed "best
management practices" (BMPs) to reduce the effects of forest
practices on water quality and aquatic habitats. Additional
and more stringent regulations and regulatory programs may
be adopted by various state and local governments to achieve
water quality standards under the Clean Water Act or to
preserve aquatic habitats. These current or future forest
practice acts, BMPs and other programs may reduce the
volumes of timber that can be harvested, increase operating
and administrative costs, and make it more difficult to
respond to rapid changes in markets, extreme weather or
other unexpected circumstances. However, the company does
not anticipate that it will be disproportionately affected
by these programs as compared with typical owners of
comparable timberlands or that these programs will
significantly disrupt its planned operations over large
areas or for extended periods.
In addition, the company participates in the Sustainable
Forestry Initiative(SM) sponsored by the American Forest &
Paper Association, a code of conduct designed to supplement
government regulatory programs with voluntary landowner
initiatives to further protect certain public resources and
values. Compliance with the Sustainable Forestry
Initiative(SM) may require some increases in operating
costs.
The combination of the forest management and harvest
restrictions and effects described in the preceding
paragraphs has increased operating costs, resulted in
changes in the value of timber and logs from the company's
Pacific Northwest timberlands, and contributed to increases
in the prices paid for wood products and wood chips during
periods of high demand. One additional effect may be the
continuation of some reduced usage of, and some substitution
of other products for, lumber and plywood. The company does
not believe that the restrictions and effects described in
the above paragraphs have had, or in 2000 or 2001 will have,
a significant effect on the company's total harvest of
timber, although they may have such an effect in the future.
Weyerhaeuser's Canadian forest operations are primarily
carried out on public forestlands under forest licenses.
Many of these lands are subject to the constitutionally
protected treaty or common law rights of the First Nations
people of Canada. For historical reasons, most of the lands
in British Columbia (B.C.) are not covered by treaties and,
as a result, the claims of B.C.'s First Nations people
relating to these forest resources are largely unresolved.
Such claims may, in the future, result in some decrease in
the lands available for forest operations under B.C.
licenses, including under the company's licenses and
contracts, could result in additional restrictions on the
sale and
45
<PAGE>
harvest of timber on B.C. timberlands, could increase
operating costs, and could affect timber supply and prices.
The company believes that such claims will not have a
significant effect on the company's total harvest of timber
or production of forest products in year 2000, although they
may have such an effect in the future.
In addition to the foregoing, the company is subject to
federal, state or provincial and local air, water and land
pollution control, solid and hazardous waste management,
disposal and remediation laws and regulations in all areas
in which it has operations, and to market demands with
respect to chemical content of some products and use of
recycled fiber. Compliance with these laws, regulations and
demands usually involves capital expenditures as well as
operating costs. The company cannot easily quantify future
amounts of capital expenditures required to comply with
these laws, regulations and demands, or the effects on
operating costs, because in some instances compliance
standards have not been developed or have not become final
or definitive. In addition, compliance with standards
frequently serves other purposes such as extension of
facility life, increase in capacity, changes in raw material
requirements, or increase in economic value of assets or
products. While it is difficult to isolate the environmental
component of most manufacturing capital projects, the
company estimates that capital expenditures for
environmental compliance were approximately $107 million (19
percent of total capital expenditures excluding
acquisitions) in 1999. Based on its understanding of current
regulatory requirements, the company expects that
expenditures will range from $80 million to $100 million (9
to 11 percent of total capital expenditures) in 2000 and
2001.
The company is involved in the environmental investigation
or remediation of numerous sites. Some of the sites are on
property presently or formerly owned by the company where
the company has the sole obligation to remediate the site or
shares that obligation with one or more parties, others are
third-party sites involving several parties who have a joint
and several obligation to remediate the site, and some are
superfund sites where the company has been named as a
potentially responsible party. The company's liability with
respect to these sites ranges from insignificant at some
sites to substantial at others, depending on the quantity,
toxicity and nature of materials deposited by the company at
the site and, with respect to some sites, the number and
economic viability of the other responsible parties.
The company spent approximately $14 million in 1999 and
expects to spend $15 million in 2000 on environmental
remediation of these sites. It is the company's policy to
accrue for environmental remediation costs when it is
determined that it is probable that such an obligation
exists and the amount of the obligation can be reasonably
estimated. Based on currently available information and
analysis, the company believes that it is reasonably
possible that costs associated with all identified sites may
exceed current accruals by amounts that may prove
insignificant or that could range, in the aggregate, up to
approximately $110 million over several years. This estimate
of the upper end of the range of reasonably possible
additional costs is much less certain than the estimates
upon which accruals are currently based and utilizes
assumptions less favorable to the company among the range of
reasonably possible outcomes.
An Environmental Protection Agency (EPA) regulation under
Title 5 of the Clean Air Act requires updated comprehensive
operating permits at many of the company's manufacturing
operations. The company will update the permit applications
on file with the states as needed during 2000 and
anticipates that it will be able to obtain the necessary
permits.
The EPA published proposed regulations on December 17,
1993, known as the "cluster rules," which would establish
maximum achievable control technology standards for
noncombustion sources under the Clean Air Act, and revised
wastewater effluent limitations under the Clean Water Act.
The original proposal has been modified on two occasions.
The final rule was approved by the administrator of the EPA
in November 1997 and went into effect in early 1998. The
cluster rules will require the company to commit over the
next several years approximately $87 million of additional
capital to further reduce air emissions and wastewater
discharges.
46
<PAGE>
- ------------------------------------------------------------------------
FINANCIAL REVIEW
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RESULTS OF OPERATIONS
========================================================================
1999 COMPARED WITH 1998
Consolidated net sales and revenues for 1999 were a record
$12.3 billion, an increase of 14 percent when compared with
$10.8 billion in 1998. Increased volumes and higher prices
over 1998 in essentially all product lines accounted for
this increase. 1999 included two months' results from
operations acquired in the MacMillan Bloedel business
combination.
1999 net earnings were $527 million, or $2.56 basic
earnings per share, an increase of 79 percent over 1998
results of $294 million, or $1.48 basic earnings per share.
The company's fourth quarter results were negatively
impacted by unanticipated effects of the lockout at some
British Columbia ports, continued cleanup in North Carolina
after Hurricane Floyd and higher than normal maintenance
expenses.
1999 results were impacted by the following nonrecurring
after-tax charges:
. $89 million, or 43 cents per share, incurred in the
first quarter for the cumulative effect of a change in an
accounting principle that required the company to write off
the unamortized balance of capitalized start-up costs at
year-end 1998. This charge included $9 million for the
company's interest in the write-off of unamortized start-up
costs in three of its 50 percent-owned equity affiliates.
. A charge of $65 million, or 32 cents per share, for
closure or disposition of facilities. This included charges
in the first quarter associated with the recognition of
impairment of long-lived assets to be disposed of in four of
the company's composite products facilities, a ply-veneer
facility and a chip export dock, and in the fourth quarter
for facility closure costs related to the MacMillan Bloedel
acquisition.
The year's results before these charges were $681 million,
or $3.31 per share.
The 1998 results reflected an after-tax charge of $45
million, or 23 cents per share, primarily associated with
streamlining pulp and paper operations, the closure of a
chemical facility and changes in the British Columbia
operations. Before these charges, the company earned $339
million, or $1.71 per share, in 1998.
During 1999, the company also incurred pretax charges of
$32 million for Year 2000 remediation work compared with $42
million in the previous year.
Diluted earnings per share, which are based on the
inclusion of outstanding stock options and convertible
debentures in the weighted average number of shares
outstanding, were $2.55 and $1.47 for 1999 and 1998,
respectively.
The timberlands segment's operating earnings for 1999 were
$535 million, a 10 percent increase over $487 million
reported in 1998. Net sales for the year were $656 million,
slightly higher than the $636 reported in the previous year.
This increase was due to improvements in the Japanese
economy, increased harvest levels in the U.S. South and
overall demand for wood. The year ended with volumes and
prices for both domestic and foreign log markets at levels
higher than 1998.
The wood products segment produced record operating
earnings of $569 million in 1999 before nonrecurring charges
of $94 million incurred in the disposition of the Composite
Products business and $5 million for the acquisition of
MacMillan Bloedel facilities. This compares favorably with
earnings of $208 million before nonrecurring pretax charges
of $25 million in 1998. Sales were $5.4 billion, an increase
of 20 percent over the $4.5 billion reported in the prior
year. New home construction and remodeling created a very
strong demand for lumber and panels in 1999. The demand
reached its height in the second and third quarters,
achieving record earnings for both periods. The market
cooled in the fourth quarter as a result of the traditional
seasonal slowdown; however, prices remained above 1998
fourth-quarter levels.
The year's operating earnings for the pulp, paper and
packaging segment were $310 million compared with $192
million before nonrecurring pretax charges of $42 million in
1998, an increase of 61 percent. 1999 sales were $4.8
billion, up 12 percent over $4.3 billion recorded in 1998.
Market conditions for pulp, containerboard and paper began
improving during the second quarter due to the recovery of
the global market for these products. This trend continued
into the third and fourth quarters, which allowed the
company to implement several price increases for pulp,
containerboard and paper. At year-end, prices for all major
product lines in this segment were at their highest levels
of the year.
The real estate and related assets segment produced record
earnings of $190 million for the year compared with $124
million in 1998. Sales and revenues were $1.2 billion,
comparable to 1998. The strength of the
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housing markets in which the company operates - especially
California - contributed to this 53 percent increase in
earnings over the prior year. As the year ended, the real
estate market was weakening; however, the segment's
performance was helped by improved margins.
Total costs and expenses for the year increased by $1
billion, or 10 percent, over the prior year. When
considering the 14 percent increase in sales, operating
margin is 9 percent for the year compared with 6 percent in
1998. Nonrecurring charges for the year, which included
charges for acquisition and closure or disposition of
facilities, impairment of long-lived assets to be disposed
of, and Year 2000 remediation costs, were $134 million
compared with $113 million in 1998. Selling, general and
administrative expenses increased by $142 million over the
prior year, primarily from an increase in accruals for
employee performance incentives related to higher earnings.
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. Significant items in 1999
were interest income of $33 million for Weyerhaeuser and $10
million for real estate and related assets. There were no
significant items in 1998.
1998 COMPARED WITH 1997
Consolidated net sales and revenues for 1998 were $10.8
billion, a decrease of 4 percent over the prior year's $11.2
billion. Lower average prices in the major products were the
principal factor in this unfavorable variance compared with
1997. In total, revenue changes as a result of volume
variances were unchanged from the prior year.
1998 net earnings were $294 million, or $1.48 basic
earnings per common share, a 14 percent decrease from $342
million, or $1.72 basic earnings per common share in 1997.
The 1998 results reflect an after-tax charge of $45 million,
or 23 cents per common share, primarily associated with
streamlining pulp and paper operations, the closure of the
Longview chlor-alkali facility and changes to the British
Columbia lumber operations. During the year, the company
also incurred pretax charges of $42 million on Year 2000
remediation work. 1997 earnings included an after-tax net
charge of $9 million, or 4 cents per common share, related
to the closure of operating facilities, offset in part by
the gain on sale of businesses. Diluted earnings per common
share, which are based upon the inclusion of outstanding
stock options in the weighted average number of shares
outstanding, were $1.47 and $1.72 for 1998 and 1997,
respectively.
The timberlands segment's operating earnings for 1998 were
$487 million compared with $535 million in 1997. The 1998
results were hurt by a soft export market early in the year
that weakened prices for both domestic and export logs. Net
sales for the year were $636 million compared with $797
million in 1997. Export log prices did improve throughout
the year and were above 1997 fourth-quarter levels at year-
end.
Operating earnings for the wood products segment were $208
million before the $25 million nonrecurring pretax charge
associated with changes in the British Columbia lumber
operations. This compares with the $212 million earned
before nonrecurring pretax charges of $40 million for the
closure of two plywood facilities and an export sawmill in
1997. This segment posted net sales of $4.5 billion for
1998, comparable to $4.6 billion in the prior year. Oriented
strand board enjoyed a strong year with both volumes and
prices above 1997 levels. Lower prices for lumber, however,
offset the effects of higher volume driven by domestic
housing starts.
The pulp, paper and packaging segment had operating
earnings of $192 million in 1998 before the nonrecurring
pretax $42 million charge associated with streamlining pulp
and paper operations and the closure of the Longview,
Washington, chlor-alkali facility. This is comparable to the
$192 million earned in 1997 before a pretax nonrecurring
charge of $28 million, which is the net of a $49 million
charge for facility closures, offset in part by a $21
million gain on the sale of the Saskatoon, Saskatchewan,
Canada, chemical business. Sales for the segment were $4.3
billion for the year compared with $4.6 billion in the prior
year. Prices for most grades of pulp and paper were below
1997 levels. The ownership restructuring of the North
Pacific Paper Corporation newsprint facility from a fully
consolidated subsidiary to a 50 percent owned equity
affiliate in February 1998 also unfavorably impacted segment
sales for the year.
The real estate and related assets segment posted
operating earnings of $124 million in 1998, compared with
1997 earnings of $66 million, before the gain of $45 million
on the sale of Weyerhaeuser Mortgage Company. Improved
operating performance and the strong housing market
contributed to stronger earnings. Net sales and revenues
were $1.2 billion in 1998 compared with $1.1 billion in
1997. This increase was primarily from the sale of single-
family units, offset in part by the elimination of loan
origination and service fees generated in previous years by
the mortgage banking business. The sale of commercial
properties was essentially unchanged from year to year.
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Weyerhaeuser's costs of products sold were $398 million or
5 percent less in 1998 than 1997. This is consistent with
the reduction in Weyerhaeuser net sales and maintains the
costs of products sold as a percentage of sales at 78
percent, the same as 1997. Charges of $71 million in 1998
and $89 million in 1997 for the closure or disposition of
facilities were included in costs and expenses. The product
inventory turnover rate was 11.8 turns for the year,
slightly less than the 12.1 turns in 1997.
The real estate and related assets segment costs and
operating expenses rose in 1998 on par with the increase in
sales and revenues. Selling, general and administrative
expenses decreased by $43 million for 1998 due principally
to the sale of the mortgage banking business.
Other income (expense) is an aggregation of both recurring
and occasional income and expense items and, as a result,
can fluctuate from year to year. There were no significant
individual items in 1998. Significant items in 1997 for
Weyerhaeuser were interest income of $18 million from a
favorable federal income tax decision, a loss of $8 million
from the sale of the wholesale nursery business and a gain
of $21 million from the sale of the Saskatoon chemical
facility. The real estate and related assets segment had a
gain of $45 million from the sale of the mortgage banking
business in 1997.
CHARGES FOR CLOSURE OR DISPOSITION OF FACILITIES
In 1999, 1998, and 1997, the company took pretax charges of
$102 million, $71 million and $89 million, respectively, for
the closure or disposition of facilities. These costs were
based on plans that identified each of the facilities that
would be closed or disposed of and the number of employees
to be involuntarily terminated, their functions and their
locations. These charges were related to the following
facilities or activities:
1999:
. $91 million for the impairment of long-lived assets to
be disposed of 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. The chip export
facility was closed in the fourth quarter.
. $3 million for costs incurred in the disposition of the
composite products facilities and ply-veneer facility and
closure of the chip export facility.
. $4 million for exit activities related to the planned
closure of existing Building Materials Distribution centers
that will become duplicative in the same geographical area
as a result of the acquisition of MacMillan Bloedel. $2
million of this amount is for the termination of 64
employees, and another $2 million is for property-related
items, primarily the termination of operating leases. The
company is expected to complete these closures during 2000.
. $4 million for integration costs related to the
MacMillan Bloedel business combination.
1998:
. $25 million for changes in the British Columbia lumber
operations - Due to increased costs, the market impact of
U.S. lumber quotas and the effect of the size and location
of the mills on the business' competitiveness, the company
consolidated its British Columbia lumber operations. This
included permanently closing a sawmill in Lumby, converting
the Merritt mill to a planer-only operation, and
reconfiguring the company's remaining four sawmills in the
province to achieve improved production capacity. Two
hundred jobs were affected by these changes.
. $22 million for closure of the Longview, Washington,
chlor-alkali facility - The company closed this facility in
1999 because of market conditions and the need to invest
significant capital to ensure continued safe operation of
the plant. This closure completed the company's exit from
chemical manufacturing. One hundred jobs were affected by
this closure.
. $20 million for pulp and paper operations reorganization
- - Streamlining efforts in these businesses affected 460
employees.
. $4 million for corporate operations streamlining - The
company outsourced its employee benefits administration and
closed its urban waste recovery business, which affected 80
positions.
These costs are categorized in the aggregate as follows:
<TABLE>
<CAPTION>
Dollar amounts in millions 1998
- ------------------------------------------------------------------------
<S> <C>
Termination and other employee-related costs $ 39
Dispositions of property and equipment 16
Write-off of inventories 1
Environmental cleanup 8
Other exit activities 7
- ------------------------------------------------------------------------
$ 71
========================================================================
</TABLE>
1997:
. $34 million for the closure, consolidation or
disposition of recycling facilities - The company made
adjustments to its nationwide system to meet the needs of
internal and external customers in an increasingly
competitive marketplace. Three hundred thirty jobs were
affected by these changes.
49
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. $15 million for the closure of the corrugated medium
machine and administrative reorganization at the Longview,
Washington, plant site - The company determined that the
machine was not large enough to be a cost-competitive
operation and after examining the limited options available
decided to permanently close the operation. No employees
were affected in 1997 by the machine closure; however, the
administrative reorganization affected 29 employees.
. $25 million for the closures of the Plymouth, North
Carolina, and Philadelphia, Mississippi, plywood facilities
- - These closures were a part of the company's long-term
strategy to modify its wood products manufacturing
facilities to match the changing future sources of raw
materials.
The company closed the Plymouth facility rather than
modernize it in order to expand lumber production and reduce
energy costs. This facility lacked an independent energy
source, a problem that would have required a substantial
investment. Two hundred forty jobs were affected by this
closure.
The closure of the Philadelphia facility allowed the
company to strengthen the production capability of a sawmill
that operates on the same site. The closure affected 165
jobs.
. $15 million for the closure of the Coos Bay, Oregon,
export sawmill and scaling back of related logging
operations - Changing customer requirements, including
declining demand for post-and-beam style housing and
increased customer acceptance of substitute products in the
Japanese market, eroded demand for products from this mill.
Japanese homebuilders are using more dimension lumber,
laminated beams and prefabricated panels, a trend that will
further erode demand for post-and-beam lumber. This closure
affected 200 positions at the mill.
These costs are categorized in the aggregate as follows:
<TABLE>
<CAPTION>
Dollar amounts in millions 1997
- ------------------------------------------------------------------------
<S> <C>
Termination and other employee-related costs $ 17
Dispositions of property and equipment 42
Write-off of goodwill 14
Write-off of inventories 4
Environmental cleanup 2
Leasehold termination costs 1
Other exit activities 9
- ------------------------------------------------------------------------
$ 89
========================================================================
</TABLE>
Of the $262 million charges taken during these periods,
approximately 64 percent of the total charges will not
require cash outflows, while the remaining 36 percent
requires cash outflows. The operating results of these
facilities prior to our exit activities were not material to
the company's results of operations. At year-end 1999, the
company had $36 million reserved to complete these exit
activities in 2000. Once fully implemented, the company
expects these activities to improve annual operating costs
by approximately $70 million by:
. Lowering our labor costs due to downsizing our work
force in the facilities and businesses affected.
. Lowering depreciation and amortization costs for the net
book value of property and equipment disposed of or closed
and goodwill written off.
. Productivity in our mill systems through a revised
configuration of operating facilities with improved
manufacturing logistics and costs.
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LIQUIDITY AND CAPITAL RESOURCES
========================================================================
GENERAL
The company is committed to the maintenance of a sound,
conservative capital structure. This commitment is based
upon two considerations: the obligation to protect the
underlying interests of its shareholders and lenders, and
the desire to have access, at all times, to major financial
markets.
The important elements of the policy governing the
company's capital structure are as follows:
. To view separately the capital structures of
Weyerhaeuser Company, Weyerhaeuser Real Estate Company and
related assets, given the very different nature of their
assets and business activities. The amount of debt and
equity associated with the capital structure of each will
reflect the basic earnings capacity, real value and unique
liquidity characteristics of the assets dedicated to that
business.
. The combination of maturing short-term debt and the
structure of long-term debt will be managed judiciously to
minimize liquidity risk. Long-term debt maturities are shown
in Note 12 of Notes to Financial Statements.
OPERATIONS
Consolidated net cash provided by operations was $1.5
billion, an increase of 34 percent over $1.1 billion
provided in 1998. $1.4 billion of the 1999 amount was
provided by cash flow from operations before changes in
working capital, while decreases in working capital
accounted for $105 million. In 1998, cash flow from
operations before working capital provided $1 billion with
decreases in working capital providing $104 million.
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Cash flow from operations before changes in working
capital by segment was as follows:
<TABLE>
<CAPTION>
Dollar amounts in millions 1999 1998 1997
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Timberlands $ 577 $ 533 $ 606
Wood products 705 373 384
Pulp, paper and packaging 611 528 566
Real estate and related assets 91 22 9
Corporate and other (588) (438) (473)
- ------------------------------------------------------------------------
$ 1,396 $ 1,018 $ 1,092
========================================================================
</TABLE>
The increase of $378 million in cash flow from operations
before changes in working capital is reflected primarily in
increases of $233 million in net earnings and $120 million
in noncash nonrecurring charges. In 1999, the company
incurred a total of $191 million in nonrecurring charges for
the write-off of capitalized start-up costs, impairment of
long-lived assets to be disposed of, and closure or
disposition of facilities. In 1998, the company had
nonrecurring charges of $71 million for closure or
disposition of facilities. These sources were partially
offset by an increase of $48 million in the credit for
noncash pension and other postretirement benefits due to
favorable investment returns.
Weyerhaeuser's 1999 working capital, net of the effects of
the acquisition of MacMillan Bloedel and the disposition of
the Composite Products business, decreased by $63 million.
An increase in accounts payable and accrued liabilities and
a decrease in prepaid expenses offset, in part, by increased
receivables and inventories provided cash. The product
inventory turnover rate was 12.5 times in 1999 compared with
11.8 times in 1998.
In 1998, working capital, net of the effects of the NORPAC
equity restructuring from a fully consolidated subsidiary to
an equity affiliate and the purchase of the Dryden paper
mill and sawmills, decreased by $86 million. This was
reflected in decreases of receivables, inventories and
prepaid expenses.
Net working capital in the real estate and related assets
segment provided $42 million in 1999 compared with $18
million in 1998. Increases in accounts payable and current
year's income tax accrual were offset, in part, by
acquisition of land and residential lots.
INVESTING
Capital expenditures in 1999, excluding acquisitions, were
$566 million, down 8 percent from the $615 million spent in
1998. They are currently expected to approximate $900
million, excluding acquisitions, in 2000; however, these
expenditures could be increased or decreased as a
consequence of future economic conditions.
Capital spending by segment, excluding acquisitions, over
the past three years was as follows:
<TABLE>
<CAPTION>
Dollar amounts in millions 1999 1998 1997
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Timberlands $ 104 $ 87 $ 75
Wood products 143 169 239
Pulp, paper and packaging 279 325 315
Corporate and other 40 34 27
- ------------------------------------------------------------------------
$ 566 $ 615 $ 656
========================================================================
</TABLE>
Cash in the amount of $247 million was acquired in the
MacMillan Bloedel business combination in 1999. Also, in
1999, the company increased its investment in equity
affiliates by $52 million, primarily in the RII Weyerhaeuser
World Timberfund, L.P., joint venture that acquired timber,
sawmills and other facilities in Southeast Australia.
In 1998, the company acquired the Dryden, Ontario, Canada,
paper mill and sawmills at a cost of $494 million for
property and equipment and $49 million for working capital.
Acquisitions of property in 1997 amounted to $13 million,
with an additional $2 million for working capital. Also in
1997, the company expended $190 million to acquire a 51
percent interest in a forestry joint venture in New Zealand.
The cash required to meet 1999 capital and other needs was
provided by internal cash flow, the sale of the Composite
Products business, cash in the MacMillan Bloedel
acquisition, new debt issuances and dividends from
subsidiaries, which are eliminated upon consolidation. The
real estate and related assets segment met its cash needs
through internal cash flow and the sale of mortgage-related
financial instruments.
The cash needed to meet capital and other Weyerhaeuser
needs in 1998 was generated by internal cash flow, proceeds
from the NORPAC equity restructuring and dividends from
subsidiaries, which are eliminated upon consolidation. In
the real estate and related assets segment, proceeds from
the sale of mortgage-related financial instruments,
reduction of holdings in equity affiliates and sale of
property accounted for the cash provided by investing
activities.
FINANCING
Weyerhaeuser increased its interest-bearing debt by $661
million during the year, net of $703 million of debt assumed
in the MacMillan Bloedel business combination. New
borrowings, including a net increase in commercial paper,
were $807 million. Debt payments, including approximately
$101 million for the redemption of convertible subordinated
debentures assumed in the MacMillan Bloedel business
combination, were $383 million. In 1998, the company
decreased its interest-bearing debt by
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$35 million, with payments of $87 million being offset,
in part, by the sales of $48 million of industrial revenue
bonds. The company's debt to total capital ratio was
36 percent at the end of 1999 compared with 39 percent
at the prior year-end.
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 $720 million
tender offer for the shares of TJ International and redeem
$750 million in notes payable.
During the year, the real estate and related assets
segment reduced its long-term debt by $224 million, while
increasing notes and commercial paper by $111 million. In
1998, issuances of debt and increases in commercial paper
offset payments on debt for a nil change in overall debt.
In 1999, the company received $97 million from the sale of
treasury shares used in the exercise of employee stock
options compared with $19 million in 1998. This increased
activity reflects the rise in the market price of the
company's common stock.
Cash dividends of $321 million were paid during the year;
comparable to the $319 million paid in 1998. Although common
share dividends have exceeded the company's target ratio in
recent years, the intent, over time, is to pay dividends to
common shareholders in the range of 35 to 45 percent of
common share earnings. Weyerhaeuser also received
intercompany dividends of $100 million and $190 million from
Weyerhaeuser Real Estate Company and Weyerhaeuser Financial
Services, Inc., in 1999 and 1998, respectively. These
dividends are eliminated on a consolidated basis.
During the 1998 first quarter, the company expended $42
million to purchase 925,000 shares of its common stock. This
completed the 11 million-share repurchase program that
commenced in 1995.
To ensure its ability to meet future commitments,
Weyerhaeuser Company and Weyerhaeuser Real Estate Company
have established unused bank lines of credit in the maximum
aggregate sum of $1.66 billion. Neither of the entities is a
guarantor of the borrowings of the other under any of these
credit facilities.
MARKET RISK OF FINANCIAL INSTRUMENTS
As part of the company's financing activity, derivative
securities are sometimes used to achieve the desired mix of
fixed versus floating rate debt and to manage the timing of
finance opportunities. The company does not hold or issue
derivative financial instruments for trading. 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 December 26,
1999, the net open position of foreign exchange hedges in
Canadian dollars, German DMs and Japanese yen was $310
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 December 26, 1999, 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 value rate at December 26, 1999, based on
the 30-day LIBOR, was 6.32 percent, with the fair value of
the swap being a loss of $100,000. 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.
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HARDBOARD SIDING CASES
========================================================================
The company is a defendant in hardboard siding cases that
can be divided into two types:
. Purported class actions. Of the nine class action cases
that have been filed against the company since November
1996:
- Four have been resolved without a class being
certified. In one of those cases, the plaintiffs have
filed an appeal of a summary judgment in favor of the
company.
- Four statewide cases are pending in Iowa, Oregon, South
Carolina and Texas.
- A class of plaintiffs has been certified in one case in
California.
. Primarily multi-family and residential development
cases.
- Two cases have gone to trial. One resulted in a jury
verdict in favor of the company, and the other in a
judgment for the plaintiffs of approximately $3.5 million,
representing a jury verdict that the company was
responsible for 20 percent of the plaintiff's losses and
80 percent were caused by construction defects
attributable to the general contractor and certain
subcontractors. The company has appealed this decision and
has established a reserve in the amount of the judgment.
- Twenty-five cases of this type are pending. No pattern
was developed that would allow the company to establish a
reserve beyond what the company has already established
for the existing jury verdict.
The company also has hardboard siding product claims that
have not been, nor are they anticipated to be, significant
in relation to the company's results of operations.
- ------------------------------------------------------------------------
ENVIRONMENTAL MATTERS
========================================================================
The company has established reserves for remediation costs
on all of the approximately 115 active sites across our
operations as of the end of 1999 in the aggregate amount of
$46 million, up from $32 million at the end of 1998. This
increase reflects the acquisition of MacMillan Bloedel, 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 into this reserve
as follows: $9 million, $28 million and $20 million in 1999,
1998 and 1997, respectively. The company incurred
remediation costs as follows: $14 million, $14 million and
$18 million in 1999, 1998 and 1997, respectively, and
charged these costs against the reserve.
- ------------------------------------------------------------------------
CONTINGENCIES
========================================================================
The company is a party to legal proceedings and
environmental matters generally incidental to its business.
Although the final outcome of any legal proceeding or
environmental matter is subject to a great many variables
and cannot be predicted with any degree of certainty, the
company presently believes that the ultimate outcome
resulting from these proceedings and matters would not have
a material effect on the company's current financial
position, liquidity or results of operations; however, in
any given future reporting period, such proceedings or
matters could have a material effect on results of
operations. (See Note 14 of Notes to Financial Statements.)
- ------------------------------------------------------------------------
SUPPORT ALIGNMENT
========================================================================
In October, 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 expects implementation of
these plans to begin 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.
53
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- ------------------------------------------------------------------------
YEAR 2000
========================================================================
Weyerhaeuser, like all other companies using computers and
microprocessors, was faced with the task of addressing the
Year 2000 problem. The company completed its goal of
correcting and testing all affected systems across the
company before the end of 1999 and during the transition to
the year 2000 experienced only a few minor problems that
were quickly fixed and did not significantly affect company
operations. Through the end of 1999, the company incurred
$92 million of remediation costs, of which $37 million was
incurred in 1999. $15 million of the cumulative amount has
been capitalized for new hardware and software.
- ------------------------------------------------------------------------
ACCOUNTING MATTERS
========================================================================
PROSPECTIVE PRONOUNCEMENTS
In 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging
Activities. 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.
This statement is described in "Note 1. Summary of
Significant Accounting Policies" of Notes to Financial
Statements.
ACCOUNTING AND REPORTING STANDARDS COMMITTEE
During the year, the Accounting and Reporting Standards
Committee, comprised of four outside directors, reviewed
with the company's management and with its independent
public accountants the scope and results of the company's
internal and external audit activities and the adequacy of
the company's internal accounting controls. The committee
also reviewed current and emerging accounting and reporting
requirements and practices affecting the company.
- ------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- ------------------------------------------------------------------------
To the shareholders of Weyerhaeuser Company:
We have audited the accompanying consolidated balance sheets
of Weyerhaeuser Company (a Washington corporation) and
subsidiaries as of December 26, 1999, and December 27, 1998,
and the related consolidated statements of earnings, cash
flows and shareholders' interest for each of the three years
in the period ended December 26, 1999. These financial
statements are the responsibility of the company's
management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of Weyerhaeuser Company and subsidiaries as of
December 26, 1999, and December 27, 1998, and the results of
their operations and their cash flows for each of the three
years in the period ended December 26, 1999, in conformity
with generally accepted accounting principles.
As explained in Note 1 of Notes to Financial Statements,
effective December 28, 1998, the company changed its method
of accounting for start-up activities.
Seattle, Washington,
February 9, 2000 ARTHUR ANDERSEN LLP
54
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF EARNINGS
For the three-year period ended December 26, 1999
Dollar amounts in millions except per-share figures
========================================================================
1999 1998 1997
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales and revenues:
Weyerhaeuser $ 11,026 $ 9,574 $ 10,117
Real estate and related assets 1,236 1,192 1,093
- ------------------------------------------------------------------------
Total net sales and revenues 12,262 10,766 11,210
- ------------------------------------------------------------------------
Costs and expenses:
Weyerhaeuser:
Costs of products sold 8,304 7,468 7,866
Depreciation, amortization and
fee stumpage 634 611 616
Selling, general and administrative
expenses 791 649 646
Research and development expenses 55 57 56
Taxes other than payroll and income
taxes 131 130 142
Charges for closure or disposition of
facilities (Note 15) 102 71 89
Charge for Year 2000 remediation 32 42 1
- ------------------------------------------------------------------------
10,049 9,028 9,416
- ------------------------------------------------------------------------
Real estate and related assets:
Costs and operating expenses 1,017 1,016 909
Depreciation and amortization 6 5 12
Selling, general and administrative
expenses 54 53 96
Taxes other than payroll and income
taxes 8 8 8
- ------------------------------------------------------------------------
1,085 1,082 1,025
- ------------------------------------------------------------------------
Total costs and expenses 11,134 10,110 10,441
- ------------------------------------------------------------------------
Operating income 1,128 656 769
Interest expense and other:
Weyerhaeuser:
Interest expense incurred 279 264 271
Less interest capitalized 16 7 15
Equity in income (loss) of
affiliates (Note 3) 26 28 (7)
Other income (expense), net (Note 4) 38 15 (10)
Real estate and related assets:
Interest expense incurred 72 77 110
Less interest capitalized 58 61 69
Equity in income of joint ventures and
limited partnerships (Note 3) 39 30 26
Other income, net (Note 4) 16 7 58
- ------------------------------------------------------------------------
Earnings before income taxes and
cumulative effect of a change in
an accounting principle 970 463 539
Income taxes (Note 5) 354 169 197
- ------------------------------------------------------------------------
Earnings before cumulative effect of
a change in an accounting principle 616 294 342
Cumulative effect of a change in an
accounting principle (Note 1) 89 - -
- ------------------------------------------------------------------------
Net earnings $ 527 $ 294 $ 342
========================================================================
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Per share (Note 2):
Basic net earnings before cumulative
effect of a change in an accounting
principle $ 2.99 $ 1.48 $ 1.72
Cumulative effect of a change in an
accounting principle (.43) - -
- ------------------------------------------------------------------------
$ 2.56 $ 1.48 $ 1.72
========================================================================
Diluted net earnings before cumulative
effect of a change in an accounting
principle $ 2.98 $ 1.47 $ 1.72
Cumulative effect of a change in an
accounting principle (.43) - -
- ------------------------------------------------------------------------
$ 2.55 $ 1.47 $ 1.72
========================================================================
Dividends paid per share $ 1.60 $ 1.60 $ 1.60
========================================================================
</TABLE>
See notes on pages 61 through 81.
55
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
Dollar amounts in millions
========================================================================
December 26, December 27,
1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Weyerhaeuser
Current assets:
Cash and short-term investments (Note 1) $ 1,640 $ 28
Receivables, less allowances of $10 and $5 1,296 886
Inventories (Note 7) 1,329 962
Prepaid expenses 278 294
- ------------------------------------------------------------------------
Total current assets 4,543 2,170
Property and equipment (Note 8) 7,560 6,692
Construction in progress 355 315
Timber and timberlands at cost, less fee
stumpage charged to disposals 1,667 1,013
Investments in and advances to equity
affiliates (Note 3) 950 482
Goodwill, net of accumulated amortization
of $3 792 -
Other assets and deferred charges 533 262
- ------------------------------------------------------------------------
16,400 10,934
- ------------------------------------------------------------------------
Real estate and related assets
Cash and short-term investments 3 7
Receivables, less discounts and allowances
of $7 and $6 94 81
Mortgage-related financial instruments,
less discounts and allowances of $3 and $9
(Notes 1 and 13) 84 119
Real estate in process of development and
for sale (Note 9) 556 584
Land being processed for development 956 854
Investments in and advances to joint
ventures and limited partnerships,
less reserves of $3 and $4 (Note 3) 124 120
Other assets 122 135
- ------------------------------------------------------------------------
1,939 1,900
- ------------------------------------------------------------------------
Total assets $ 18,339 $ 12,834
========================================================================
</TABLE>
See notes on pages 61 through 81.
56
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
Dollar amounts in millions (continued)
========================================================================
December 26, December 27,
1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' INTEREST
Weyerhaeuser
Current liabilities:
Notes payable (Note 11) $ 25 $ 5
Current maturities of long-term
debt (Note 12) 855 88
Accounts payable (Note 1) 961 699
Accrued liabilities (Note 10) 1,093 707
- ------------------------------------------------------------------------
Total current liabilities 2,934 1,499
Long-term debt (Notes 12 and 13) 3,974 3,397
Deferred income taxes (Note 5) 1,985 1,404
Deferred pension, other postretirement
benefits and other liabilities (Note 6) 773 488
Commitments and contingencies (Note 14)
- ------------------------------------------------------------------------
9,666 6,788
- ------------------------------------------------------------------------
Real estate and related assets
Notes payable and commercial paper (Note 11) 676 564
Long-term debt (Notes 12 and 13) 479 701
Other liabilities 345 255
Commitments and contingencies (Note 14)
- ------------------------------------------------------------------------
1,500 1,520
- ------------------------------------------------------------------------
Total liabilities 11,166 8,308
- ------------------------------------------------------------------------
Shareholders' interest (Note 16):
Common shares: authorized 400,000,000 shares,
issued 230,797,536 and 206,072,890 shares,
$1.25 par value 288 258
Exchangeable shares: no par value; unlimited
shares authorized; 8,809,994 issued and
held by nonaffiliates 598 -
Other capital 2,086 416
Retained earnings 4,578 4,372
Cumulative other comprehensive (expense) (167) (208)
Treasury common shares, at cost: 4,758,348
and 7,063,917 (210) (312)
- ------------------------------------------------------------------------
Total shareholders' interest 7,173 4,526
- ------------------------------------------------------------------------
Total liabilities and shareholders'
interest $ 18,339 $ 12,834
========================================================================
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
For the three-year period ended December 26, 1999
Dollar amounts in millions
========================================================================
Consolidated
- ------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Cash provided by (used for) operations:
Net earnings $ 527 $ 294 $ 342
Noncash charges (credits) to income:
Depreciation, amortization and fee stumpage 640 616 628
Deferred income taxes, net 185 160 81
Pension and other postretirement benefits (85) (37) 23
Equity in (income) loss of affiliates, joint
ventures and limited partnerships (65) (58) (19)
Effect of a change in accounting principle -
net of taxes (Note 1) 89 - -
Charges for closure or disposition of
facilities (Note 15) 102 71 89
Decrease (increase) in working capital:
Receivables (113) 1 (9)
Inventories, real estate and land (68) 56 (13)
Prepaid expenses 65 16 (10)
Mortgage-related financial instruments 21 28 (64)
Accounts payable and accrued liabilities 200 3 42
(Gain) loss on disposition of a business - - (58)
Other 3 (28) 6
- ------------------------------------------------------------------------
Cash provided by (used for) operations 1,501 1,122 1,038
- ------------------------------------------------------------------------
Cash provided by (used for) investing
activities:
Property and equipment (487) (562) (610)
Timber and timberlands (79) (53) (46)
Cash and short-term investments acquired in
a business combination (Note 18) 247 - -
Property and equipment and timber and
timberlands from acquisitions - (494) (13)
Working capital from acquisitions - (49) (2)
Investments in and advances to equity
affiliates (20) 6 (182)
Proceeds from sale of:
Property and equipment 16 66 85
Businesses 81 - 268
Mortgage-related financial instruments 18 66 55
Restructuring the ownership of a subsidiary - 218 -
Intercompany advances - - -
Other 18 (15) (21)
- ------------------------------------------------------------------------
Cash provided by (used for) investing
activities (206) (817) (466)
- ------------------------------------------------------------------------
Cash provided by (used for) financing
activities:
Issuances of debt 809 165 632
Sale of industrial revenue bonds - 48 38
Notes and commercial paper borrowings, net 348 328 (577)
Cash dividends (321) (319) (317)
Intercompany cash dividends - - -
Payments on debt (607) (577) (359)
Purchase of treasury common shares - (42) (22)
Exercise of stock options 97 19 61
Other (13) (14) 23
- ------------------------------------------------------------------------
Cash provided by (used for) financing
activities 313 (392) (521)
- ------------------------------------------------------------------------
Net increase (decrease) in cash and short-term
investments 1,608 (87) 51
Cash and short-term investments at beginning
of year 35 122 71
- ------------------------------------------------------------------------
Cash and short-term investments at end of
year $ 1,643 $ 35 $ 122
========================================================================
Cash paid (received) during the year for:
Interest, net of amount capitalized $ 264 $ 282 $ 287
========================================================================
Income taxes $ 81 $ 66 $ 21
========================================================================
</TABLE>
See notes on pages 61 through 81.
58
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
(continued)
========================================================================
Real Estate and
Weyerhaeuser Company Related Assets
- ------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 406 $ 214 $ 271 $ 121 $ 80 $ 71
634 611 616 6 5 12
175 149 94 10 11 (13)
(84) (37) 22 (1) - 1
(26) (28) 7 (39) (30) (26)
89 - - - - -
102 71 89 - - -
(101) 30 (17) (12) (29) 8
(20) 40 15 (48) 16 (28)
65 16 (10) - - -
- - - 21 28 (64)
119 - (32) 81 3 74
- - (13) - - (45)
9 16 (3) (6) (44) 9
- ------------------------------------------------------------------------
1,368 1,082 1,039 133 40 (1)
- ------------------------------------------------------------------------
(476) (560) (607) (11) (2) (3)
(79) (53) (46) - - -
247 - - - - -
- (494) (13) - - -
- (49) (2) - - -
(52) (41) (221) 32 47 39
15 42 39 1 24 46
81 - 76 - - 192
- - - 18 66 55
- 218 - - - -
(33) (3) 42 33 3 (42)
17 (13) (18) 1 (2) (3)
- ------------------------------------------------------------------------
(280) (953) (750) 74 136 284
- ------------------------------------------------------------------------
807 6 618 2 159 14
- 48 38 - - -
237 (2) (695) 111 330 118
(321) (319) (317) - - -
100 190 150 (100) (190) (150)
(383) (87) (78) (224) (490) (281)
- (42) (22) - - -
97 19 61 - - -
(13) (14) 23 - - -
- ------------------------------------------------------------------------
524 (201) (222) (211) (191) (299)
- ------------------------------------------------------------------------
1,612 (72) 67 (4) (15) (16)
28 100 33 7 22 38
- ------------------------------------------------------------------------
$ 1,640 $ 28 $ 100 $ 3 $ 7 $ 22
========================================================================
$ 246 $ 261 $ 244 $ 18 $ 21 $ 43
========================================================================
$ 77 $ (4) $ 54 $ 4 $ 70 $ (33)
========================================================================
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' INTEREST
For the three-year period ended December 26, 1999
Dollar amounts in millions
========================================================================
1999 1998 1997
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Common stock:
Balance at beginning of year $ 258 $ 258 $ 258
New issuance 25 - -
Issued in retraction of exchangeable shares 5 - -
- ------------------------------------------------------------------------
Balance at end of year $ 288 $ 258 $ 258
- ------------------------------------------------------------------------
Exchangeable shares:
New issuance $ 909 $ - $ -
Retraction (311) - -
- ------------------------------------------------------------------------
Balance at end of year $ 598 $ - $ -
- ------------------------------------------------------------------------
Other capital - common and exchangeable:
Balance at beginning of year $ 416 $ 407 $ 407
Stock options exercised (3) (1) (11)
New issuance 1,343 - -
Retraction of exchangeable shares 306 - -
Other transactions, net 24 10 11
- ------------------------------------------------------------------------
Balance at end of year $ 2,086 $ 416 $ 407
- ------------------------------------------------------------------------
Retained earnings:
Balance at beginning of year $ 4,372 $ 4,397 $ 4,372
Net earnings 527 294 342
Cash dividends on common shares (321) (319) (317)
- ------------------------------------------------------------------------
Balance at end of year $ 4,578 $ 4,372 $ 4,397
- ------------------------------------------------------------------------
Cumulative other comprehensive (expense):
Balance at beginning of year $ (208) $ (123) $ (93)
Current year's changes - net of tax:
Foreign currency translation adjustments 41 (77) (30)
Additional minimum pension liability
adjustments - (8) -
- ------------------------------------------------------------------------
Balance at end of year $ (167) $ (208) $ (123)
- ------------------------------------------------------------------------
Common stock held in treasury:
Balance at beginning of year $ (312) $ (290) $ (340)
Purchase of treasury common shares - (42) (22)
Stock options exercised 102 20 72
- ------------------------------------------------------------------------
Balance at end of year $ (210) $ (312) $ (290)
- ------------------------------------------------------------------------
Total shareholders' interest:
Balance at end of year $ 7,173 $ 4,526 $ 4,649
========================================================================
Comprehensive income:
Net income $ 527 $ 294 $ 342
Foreign currency translation adjustments 60 (90) (44)
Income tax (expense) benefit on foreign
currency translation adjustments (19) 13 14
Additional minimum pension liability
adjustments - (13) -
Income tax benefits on minimum pension
liability adjustments - 5 -
- ------------------------------------------------------------------------
$ 568 $ 209 $ 312
========================================================================
</TABLE>
See notes on pages 61 through 81.
60
<PAGE>
- ------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
For the three-year period ended December 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. Significant intercompany
transactions and accounts are eliminated. Investments in and
advances to equity affiliates that are not majority owned or
controlled are accounted for using the equity method.
Certain of the consolidated financial statements and notes
to financial statements are presented in two groupings: (1)
Weyerhaeuser (the company), principally engaged in the
growing and harvesting of timber and the manufacture,
distribution and sale of forest products, and (2) Real
estate and related assets, principally engaged in real
estate development and construction and other real estate
related activities.
NATURE OF OPERATIONS
The company's principal business segments, which account for
the majority of sales, earnings and the asset base, are:
. Timberlands, which is engaged in the management of 5.2
million acres of company-owned and .5 million acres of leased
commercial forestland in the United States (3.8 million
acres in the South and 1.9 million acres in the Pacific
Northwest).
. Wood products, which produces a full line of solid wood
products that are sold primarily through the company's own
sales organizations to wholesalers, retailers and industrial
users in North America, the Pacific Rim and Europe. It is
also engaged in the management of forestland in Canada 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.
FISCAL YEAR-END
The company's fiscal year ends on the last Sunday of the
year. Fiscal years 1997 through 1999 each had 52 weeks.
ACCOUNTING PRONOUNCEMENTS IMPLEMENTED
In the 1999 first quarter, the company implemented the
following Statements of Position (SOP) issued by the
American Institute of Certified Public Accountants
Accounting Standards Executive Committee:
. SOP 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use, which provided
guidelines on the accounting for internally developed
computer software. The adoption of this SOP did not have a
significant impact on the company's results of operations or
financial position.
. SOP 98-5, Reporting on the Costs of Start-up Activities,
which 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
43 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. 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 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.
61
<PAGE>
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
FINANCIAL INSTRUMENTS
The company has, where appropriate, estimated the fair value
of financial instruments. These fair value amounts may be
significantly affected by the assumptions used, including
the discount rate and estimates of cash flow. Accordingly,
the estimates presented are not necessarily indicative of
the amounts that could be realized in a current market
exchange. Where these estimates approximate carrying value,
no separate disclosure of fair value is shown.
Financial instruments that potentially subject the company
to concentrations of credit risk consist of real estate and
related assets receivables and mortgage-related financial
instruments, of which $46 million and $68 million are in the
western geographical region of the United States at December
26, 1999, and December 27, 1998, respectively.
DERIVATIVES
The company has only limited involvement with derivative
financial instruments and does not use them for trading
purposes. They are used to manage well-defined interest rate
and foreign exchange risks. These include:
. Foreign exchange contracts, which are hedges for foreign
denominated accounts receivable and accounts payable. These
contracts generate gains or losses that are recognized at
the contracts' respective settlement dates.
. Interest rate swaps entered into with major banks or
financial institutions in which the company pays a fixed
rate and receives a floating rate with the interest payments
being calculated on a notional amount. The premiums received
by the company on the sale of these swaps are treated as
deferred income and amortized against interest expense over
the term of the agreements.
The company is exposed to credit-related gains or losses
in the event of nonperformance by counterparties to
financial instruments but does not expect any counterparties
to fail to meet their obligations. The company deals only
with highly rated counterparties.
The notional amounts of these derivative financial
instruments are $385 million and $102 million at December
26, 1999, and December 27, 1998, respectively. These
notional amounts do not represent amounts exchanged by the
parties and, thus, are not a measure of exposure to the
company through its use of derivatives. The exposure in a
derivative contract is the net difference between what each
party is required to pay based on the contractual terms
against the notional amount of the contract, such as
interest rates or exchange rates. The 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 $720 million
tender offer for the shares of TJ International and redeem
$750 million in notes payable.
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 $358 million and
$253 million at December 26, 1999, and December 27, 1998,
respectively. The balance of domestic raw material and
product inventories, all materials and supplies inventories,
and all foreign inventories is costed at either the first-
in, first-out (FIFO) or moving average cost methods. Had the
FIFO method been used to cost all inventories, the amounts
at which product inventories are stated would have been $227
million and $228 million greater at December 26, 1999, and
December 27, 1998, 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
62
<PAGE>
logging railroads and truck roads is provided generally as
timber is harvested and is based upon rates determined with
reference to the volume of timber estimated to be removed
over such facilities.
The cost and related depreciation of property sold or
retired is removed from the property and allowance for
depreciation accounts and the gain or loss is included in
earnings.
TIMBER AND TIMBERLANDS
Timber and timberlands are carried at cost less fee stumpage
charged to disposals. Fee stumpage is the cost of standing
timber and is charged to fee timber disposals as fee timber
is harvested, lost as the result of casualty or sold.
Depletion rates used to relieve timber inventory are
determined with reference to the net carrying value of
timber and the related volume of timber estimated to be
available over the growth cycle. Timber carrying costs are
expensed as incurred. The cost of timber harvested is
included in the carrying values of raw material and product
inventories, and in the cost of products sold as these
inventories are disposed of.
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 $185 million and $139 million at December 26,
1999, and December 27, 1998, respectively. Such balances
result from outstanding checks that had not yet been paid by
the bank and are reflected in accounts payable in the
consolidated balance sheets.
INCOME TAXES
Deferred income taxes are provided to reflect temporary
differences between the financial and tax bases of assets
and liabilities using presently enacted tax rates and laws.
PENSION PLANS
The company has pension plans covering most of its
employees. The U.S. plan covering salaried employees
provides pension benefits based on the employee's highest
monthly earnings for five consecutive years during the final
10 years before retirement. Plans covering hourly employees
generally provide benefits of stated amounts for each year
of service. Contributions to U.S. plans are based on funding
standards established by the Employee Retirement Income
Security Act of 1974 (ERISA).
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In addition to providing pension benefits, the company
provides certain health care and life insurance benefits for
some retired employees and accrues the expected future cost
of these benefits for its current eligible retirees and some
employees. All of the company's salaried employees and some
hourly employees may become eligible for these benefits when
they retire.
REVENUE RECOGNITION
The company's forest products-based operations recognize
revenue from product sales upon shipment to their customers
or when the customer assumes risk of ownership.
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. It is presented in the
Consolidated Statement of Shareholders' Interest.
RECLASSIFICATIONS
Certain reclassifications have been made to conform prior
years' data to the current format.
63
<PAGE>
REAL ESTATE AND RELATED ASSETS
With the sale of the mortgage banking business in 1997, the
financial services segment was no longer material to the
results of the company. Therefore, the remaining activities
in financial services that are principally real estate
related were combined with real estate into one segment
entitled real estate and related assets in 1997.
Real estate held for sale is stated at the lower of cost
or fair value, less costs to sell. The determination of fair
value is based on appraisals and market pricing of
comparable assets, when available, or the discounted value
of estimated future cash flows from these assets. Real
estate held for development is stated at cost to the extent
it does not exceed the estimated undiscounted future net
cash flows, in which case, it is carried at fair value.
Mortgage-related financial instruments include mortgage
loans receivable, mortgage-backed certificates and other
financial instruments. Mortgage-backed certificates (see
Note 13) are carried at par value, adjusted for any
unamortized discount or premium. These certificates and
other financial instruments are pledged as collateral for
the collateralized mortgage obligation (CMO) bonds and are
held by banks as trustees. Principal and interest
collections are used to meet the interest payments and
reduce the outstanding principal balance of the bonds.
Related CMO bonds are the obligation of the issuer, and
neither the company nor any affiliated company has
guaranteed or is otherwise obligated with respect to the
bonds.
- ------------------------------------------------------------------------
NOTE 2. NET EARNINGS PER SHARE
========================================================================
Basic net earnings per share are based on the weighted
average number of common and exchangeable shares outstanding
during the respective periods. Diluted net earnings per
share are based on the weighted average number of common and
exchangeable shares, convertible debentures and stock
options outstanding at the beginning of or granted during
the respective periods.
<TABLE>
<CAPTION>
Weighted
Dollar amounts in millions Net Average Earnings
except per-share figures Earnings Shares (000) Per Share
- ------------------------------------------------------------------------
<S> <C> <C> <C>
1999:
Basic $ 527 205,599 $ 2.56
==========
Convertible debentures - 141
Stock options granted - 886
-------------------------
Diluted $ 527 206,626 $ 2.55
=======================================
1998:
Basic $ 294 198,914 $ 1.48
==========
Stock options granted - 336
-------------------------
Diluted $ 294 199,250 $ 1.47
=======================================
1997:
Basic $ 342 198,967 $ 1.72
==========
Stock options granted - 573
-------------------------
Diluted $ 342 199,540 $ 1.72
=======================================
</TABLE>
Options for which the exercise price was greater than the
average market price of common shares for the period were
not included in the computation of diluted earnings per
share. These options to purchase shares were as follows:
<TABLE>
<CAPTION>
Year Options to Purchase Exercise Price
- ------------------------------------------------------------------------
<S> <C> <C>
1999 2,500 $ 68.41
212,150 $ 65.56
- ------------------------------------------------------------------------
1998 1,332,080 $ 51.09
586,539 $ 56.78
150,000 $ 53.06
- ------------------------------------------------------------------------
1997 150,000 $ 53.06
- ------------------------------------------------------------------------
</TABLE>
- ------------------------------------------------------------------------
NOTE 3. EQUITY AFFILIATES
========================================================================
WEYERHAEUSER
The company's investments in affiliated companies that are
not majority owned or controlled are accounted for using the
equity method. 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
64
<PAGE>
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. This venture was formed in February
1998 through a restructuring of the company's 80 percent
ownership, which was fully consolidated, to 50-50 ownership
with Nippon Paper Industries Co., Ltd.
. Wilton Connor LLC - A 50 percent owned joint venture in
Charlotte, North Carolina, formed in October 1998. This
venture supplies full-service, value-added turnkey packaging
solutions that assist product manufacturers in the areas of
retail marketing and distribution.
. Wapawekka Lumber LP - A 51 percent owned limited
partnership in Saskatchewan, Canada, that commenced the
operation of a sawmill during the year. Substantive
participating rights by the minority partner preclude the
consolidation of this partnership by the company.
. Trus Joist MacMillan (TJM) - A 49 percent owned joint
venture based in Boise, Idaho, with 16 manufacturing
facilities in the United States and Canada. TJM is a
manufacturer and marketer of engineered lumber products for
structural framing and industrial applications. This 49
percent interest was acquired as a part of the MacMillan
Bloedel business combination (see Note 18). In January 2000,
the company acquired TJ International, the 51 percent owner
and managing partner of TJM (see Note 19).
Unconsolidated financial information for affiliated
companies that are accounted for by the equity method is as
follows:
<TABLE>
<CAPTION>
Dollar amounts in millions December 26, 1999 December 27, 1998
- ------------------------------------------------------------------------
<S> <C> <C>
Current assets $ 525 $ 166
Noncurrent assets 1,885 1,334
Current liabilities 275 80
Noncurrent liabilities 816 703
-------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales and revenues $ 898 $ 696 $ 214
Operating income 109 110 14
Net income (loss) 47 52 (14)
------------------------------------------------
</TABLE>
The company provides goods and services to these
affiliates, which vary by entity, in the form of raw
materials, management and marketing 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 and advances to joint ventures and limited
partnerships that are not majority owned or controlled are
accounted for using the equity method with taxes provided on
undistributed earnings as appropriate. These investments
include minor holdings in non-real estate partnerships that
have significant assets and income.
Unconsolidated financial information for joint ventures and
limited partnerships that are accounted for by the equity
method is as follows:
<TABLE>
<CAPTION>
Dollar amounts in millions December 26, 1999 December 27, 1998
- ------------------------------------------------------------------------
<S> <C> <C>
Current assets $ 11,457 $ 1,755
Noncurrent assets 159 230
Current liabilities 10,577 1,241
Noncurrent liabilities 115 136
-------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales and revenues $ 663 $ 244 $ 242
Operating income 313 133 136
Net income 253 103 108
------------------------------------------------
</TABLE>
65
<PAGE>
The company may charge management and/or development fees
to the joint ventures or limited partnerships. The aggregate
total of these transactions is not material to the results
of operations of the company.
- ------------------------------------------------------------------------
NOTE 4. OTHER INCOME (EXPENSE), NET
========================================================================
Other income (expense) is an aggregation of both recurring
and occasional income and expense items and, as a result,
can fluctuate from year to year. Significant items in 1999
were interest income of $33 million for Weyerhaeuser and $10
million for real estate and related assets. There were no
significant individual items in 1998. Individual income
(expense) items significant in 1997 were:
Weyerhaeuser:
. The interest income of $18 million from the favorable
federal income tax decision related to timber casualty
losses incurred in the eruption of Mount St. Helens in 1980.
. The loss of $8 million from the sale of the wholesale
nursery business.
. The gain of $21 million from the sale of the Saskatoon
chemical facility.
Real estate and related assets:
. The gain of $45 million from the sale of the mortgage
banking business.
- ------------------------------------------------------------------------
NOTE 5. INCOME TAXES
========================================================================
Earnings before income taxes and cumulative effect of a
change in an accounting principle are comprised of the
following:
<TABLE>
<CAPTION>
Dollar amounts in millions 1999 1998 1997
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic earnings $ 778 $ 413 $ 432
Foreign earnings 192 50 107
--------------------------------
$ 970 $ 463 $ 539
================================
</TABLE>
Provisions for income taxes include the following:
<TABLE>
<CAPTION>
Dollar amounts in millions 1999 1998 1997
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Federal:
Current $ 103 $ (7) $ 65
Deferred 150 138 86
--------------------------------
253 131 151
--------------------------------
State:
Current 13 8 6
Deferred 7 10 3
--------------------------------
20 18 9
--------------------------------
Foreign:
Current 53 8 45
Deferred 28 12 (8)
--------------------------------
81 20 37
--------------------------------
Income taxes before cumulative effect
of a change in an accounting principle 354 169 197
Deferred taxes applicable to cumulative
effect of a change in an accounting
principle (52) - -
--------------------------------
$ 302 $ 169 $ 197
================================
</TABLE>
A reconciliation between the federal statutory tax rate and
the company's effective tax rate before cumulative effect of
a change in an accounting principle is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax on income 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit 1.7 2.8 1.3
All other, net (.2) (1.3) .2
-----------------------
Effective income tax rate 36.5% 36.5% 36.5%
=======================
</TABLE>
The net deferred income tax (liabilities) assets include the
following components:
<TABLE>
<CAPTION>
December 26, December 27,
Dollar amounts in millions 1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
Current (included in prepaid expenses) $ 138 $ 98
Noncurrent (1,985) (1,404)
Real estate and related assets (included
in other assets) 7 16
---------------------------
Total $ (1,840) $ (1,290)
===========================
</TABLE>
66
<PAGE>
The deferred tax (liabilities) assets are comprised of the
following:
<TABLE>
<CAPTION>
December 26, December 27,
Dollar amounts in millions 1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
Depreciation $ (1,557) $ (1,260)
Depletion (406) (207)
Other (520) (308)
---------------------------
Total deferred tax (liabilities) (2,483) (1,775)
---------------------------
Postretirement benefits 130 91
Net operating loss carryforwards 67 -
Alternative minimum tax credit carryforward 18 69
Other 428 325
---------------------------
Total deferred tax assets 643 485
---------------------------
$ (1,840) $ (1,290)
===========================
</TABLE>
As of December 26, 1999, the company and its subsidiaries
have $23 million of Canadian net operating loss
carryforwards, which expire from 2002 through 2006; $161
million of U.S. net operating loss carryforwards, which
expire from 2011 through 2018; $27 million of Canadian
investment tax credits, which expire from 2000 through 2007;
and $8 million of U.S. foreign tax credits, which expire
from 2001 through 2004. In addition, the subsidiaries of the
company have $18 million of alternative minimum tax credit
carryforwards which do not expire.
The company intends to reinvest undistributed earnings of
certain foreign subsidiaries; therefore, no U.S. taxes have
been provided. These earnings totaled approximately $993
million at the end of 1999. Determination of the income tax
liability that would result from repatriation is not
practicable.
- ------------------------------------------------------------------------
NOTE 6. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
========================================================================
The company sponsors several qualified and nonqualified
pension and other postretirement benefit plans for its
employees. The following table provides a reconciliation of
the changes in the plans' benefit obligations and fair value
of plan assets over the two-year period ending December 26,
1999:
<TABLE>
<CAPTION>
Other
Postretirement
Pension Benefits
- ------------------------------------------------------------------------
Dollar amounts in millions 1999 1998 1999 1998
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Reconciliation of benefit obligation:
Benefit obligation as of prior
year-end $ 2,022 $ 1,736 $ 277 $ 213
Service cost 61 54 7 4
Interest cost 149 134 21 19
Plan participants' contributions 2 - 3 3
Actuarial (gain)/loss (123) 97 (22) 53
Foreign currency exchange rate
changes 10 (15) 1 (1)
Benefits paid (184) (143) (27) (15)
Plan curtailments, settlements and
special termination benefits - 3 - -
Plan amendments 12 62 5 (2)
Acquisitions 495 - 96 -
Business combinations and
divestitures - 94 - 3
-----------------------------------
Benefit obligation at end of year $ 2,444 $ 2,022 $ 361 $ 277
===================================
Reconciliation of fair value of
plan assets:
Fair value of plan assets at
beginning of year (actual) $ 2,893 $ 2,420 $ 2 $ 2
Actual return on plan assets 831 481 - -
Foreign currency exchange rate
changes 10 (13) - -
Employer contributions 6 7 1 -
Plan participants' contributions 1 - - -
Benefits paid (178) (138) (1) -
Acquisitions 525 - - -
Business combinations and
divestitures - 92 - -
-----------------------------------
Fair value of plan assets at end of
year (estimated) $ 4,088 $ 2,849 $ 2 $ 2
===================================
</TABLE>
67
<PAGE>
The company funds its qualified pension plans and accrues
for nonqualified pension benefits and health and life
postretirement benefits. The funded status of these plans at
December 26, 1999, and December 27, 1998, is as follows:
<TABLE>
<CAPTION>
Other
Postretirement
Pension Benefits
- ------------------------------------------------------------------------
December December December December
26, 27, 26, 27,
Dollar amounts in millions 1999 1998 1999 1998
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Funded status $ 1,645 $ 827 $ (360) $ (260)
Unrecognized prior service cost 140 142 5 (2)
Unrecognized net (gain)/loss (1,666) (991) (22) (2)
Unrecognized net transition
(asset)/obligation (10) (14) - -
-----------------------------------
Prepaid/(accrued) benefit cost $ 109 $ (36) $ (377) $ (264)
===================================
Amounts recognized in balance sheet
consist of:
Prepaid benefit cost $ 22 $ 21
Accrued benefit liability (76) (75)
Intangible asset 4 10
Cumulative other comprehensive
expense - 8
------------------
Net amount recognized $ (50) $ (36)
==================
</TABLE>
The assets of the U.S. and Canadian pension plans, as of
December 26, 1999, and December 27, 1998, consist of a
highly diversified mix of equity, fixed income and real
estate securities.
Approximately 6,300 employees are covered by union-
administered multi-employer pension plans to which the
company makes negotiated contributions based generally on
fixed amounts per hour per employee. Contributions to these
plans were $10 million in 1999, $5 million in 1998 and $7
million in 1997.
The company sponsors multiple defined benefit
postretirement plans for its U.S. employees. Medical plans
have various levels of coverage and plan participant
contributions. Life insurance plans are noncontributory.
Canadian employees are covered under multiple defined
benefit postretirement plans that provide medical and life
insurance benefits.
Weyerhaeuser sponsors various defined contribution plans
for U.S. salaried and hourly employees. The basis for
determining plan contribution varies by plan. The amounts
charged to operations and contributed to the plans for
participating employees were $36 million, $37 million and
$34 million in 1999, 1998 and 1997, respectively.
The assumptions used in the measurement of the company's
benefit obligations are as follows:
<TABLE>
<CAPTION>
Other
Postretirement
Pension Benefits
- --------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Discount rate 7.75% 7.25% 7.75% 7.75% 7.25% 7.75%
Expected return on plan assets 11.50% 11.50% 11.50% 5.75% 5.75% 5.75%
Rate of compensation increase:
Salaried 3.50% 4.50% 4.50% 3.50% 4.50% 4.50%
Hourly 3.00% 3.00% 3.00% 3.00% 3.00% 3.00%
-----------------------------------------
</TABLE>
For measurement purposes, a 7.0 percent annual rate of
increase in the per capita cost of covered health care
benefits was assumed for 1999. Beginning in 2000, the rate
is assumed to decrease by .5 percent annually to a level of
4.5 percent for the year 2004 and all years thereafter.
The components of net periodic benefit costs are:
<TABLE>
<CAPTION>
Other
Postretirement
Pension Benefits
- -------------------------------------------------------------------------
Dollars amounts in millions 1999 1998 1997 1999 1998 1997
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 61 $ 54 $ 56 $ 7 $ 4 $ 5
Interest cost 149 134 128 21 18 15
Expected return on plan assets (297) (236) (194) - - -
Amortization of (gain)/loss (22) (23) 8 (1) (1) (2)
Amortization of prior service
cost 12 14 10 - - -
Amortization of unrecognized
transition (asset)/obligation (5) (4) (4) - - -
(Gain)/loss due to closure,
sale and other - 1 1 - - -
-----------------------------------------
$(102) $ (60) $ 5 $ 27 $ 21 $ 18
=========================================
</TABLE>
68
<PAGE>
The accrued (prepaid) pension costs for the projected
benefit obligation, accumulated benefit obligation and fair
value of plan assets for pension plan(s) with accumulated
benefit obligations in excess of plan assets were $87
million, $82 million and $8 million, respectively, as of
December 26, 1999, and $203 million, $178 million and $102
million, respectively, as of December 27, 1998.
Assumed health care cost trend rates have a significant
effect on the amounts reported for the health care plans. A
one percent change in assumed health care cost trend rates
would have the following effects:
<TABLE>
<CAPTION>
As of December 26, 1999
Dollar amounts in millions 1% Increase 1% Decrease
- ----------------------------------------------------------------------
<S> <C> <C>
Effect on total of service and interest
cost components $ 2 $ (2)
Effect on accumulated postretirement
benefit obligation 30 (26)
-------------------------
</TABLE>
- ------------------------------------------------------------------------
NOTE 7. INVENTORIES
========================================================================
<TABLE>
<CAPTION>
December 26, December 27,
Dollar amounts in millions 1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
Logs and chips $ 197 $ 108
Lumber, plywood and panels 297 143
Pulp and paper 161 190
Containerboard, paperboard and packaging 160 96
Other products 207 150
Materials and supplies 307 275
---------------------------
$ 1,329 $ 962
===========================
</TABLE>
- ------------------------------------------------------------------------
NOTE 8. PROPERTY AND EQUIPMENT
========================================================================
<TABLE>
<CAPTION>
December 26, December 27,
Dollar amounts in millions 1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
Property and equipment, at cost:
Land $ 219 $ 157
Buildings and improvements 1,933 1,667
Machinery and equipment 10,499 9,732
Rail and truck roads 577 555
Other 149 111
----------------------------
13,377 12,222
Less allowance for depreciation and
amortization 5,817 5,530
----------------------------
$ 7,560 $ 6,692
============================
</TABLE>
- ------------------------------------------------------------------------
NOTE 9. REAL ESTATE IN PROCESS OF DEVELOPMENT AND FOR SALE
========================================================================
Properties held by the company's real estate and related
assets segment include:
<TABLE>
<CAPTION>
December 26, December 27,
Dollar amounts in millions 1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
Dwelling units $ 198 $ 180
Residential lots 232 237
Commercial lots 84 120
Commercial projects 15 27
Acreage 25 19
Other inventories 2 1
---------------------------
$ 556 $ 584
===========================
</TABLE>
- ------------------------------------------------------------------------
NOTE 10. ACCRUED LIABILITIES
========================================================================
<TABLE>
<CAPTION>
December 26, December 27,
Dollar amounts in millions 1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
Payroll - wages and salaries, incentive
awards, retirement and vacation pay $ 413 $ 305
Taxes - Social Security and real and
personal property 48 46
Product warranties 83 -
Interest 105 87
Income taxes 58 16
Other 386 253
---------------------------
$ 1,093 $ 707
===========================
</TABLE>
69
<PAGE>
- ------------------------------------------------------------------------
NOTE 11. SHORT-TERM DEBT
========================================================================
BORROWINGS
The company had short-term borrowings of $18 million with a
weighted average interest rate of 1.27 percent at December
26, 1999. These borrowings are denominated in Japanese yen.
The real estate and related assets segment short-term
borrowings were $676 million with a weighted average
interest rate of 6.2 percent at December 26, 1999, and $564
million with a weighted average interest rate of 5.5 percent
at December 27, 1998.
LINES OF CREDIT
The company has short-term bank credit lines that provide
for the borrowings of up to the total amount of $745 million
as of December 26, 1999. In addition, the company has other
short-term bank credit lines of $515 million and $650
million, all of which could be availed by the company and
Weyerhaeuser Real Estate Company (WRECO) at December 26,
1999, and December 27, 1998, respectively. No portions of
these lines have been availed by the company or WRECO at
December 26, 1999, or December 27, 1998. None of the
entities referred to herein is a guarantor of the borrowings
of the other.
- ------------------------------------------------------------------------
NOTE 12. LONG-TERM DEBT
========================================================================
DEBT
Weyerhaeuser long-term debt, including the current portion,
is as follows:
<TABLE>
<CAPTION>
December 26, December 27,
Dollar amounts in millions 1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
9.05% notes due 2003 $ 200 $ 200
8.50% debentures due 2004 55 -
Floating rate senior notes due 2004 750 -
6.75% notes due 2006 150 -
8.375% debentures due 2007 150 150
7.50% debentures due 2013 250 250
7.25% debentures due 2013 250 250
6.95% debentures due 2017 300 300
7.125% debentures due 2023 250 250
8.50% debentures due 2025 300 300
7.95% debentures due 2025 250 250
7.70% debentures due 2026 150 -
6.95% debentures due 2027 300 300
Industrial revenue bonds, rates from
2.5% (variable) to 9.85% (fixed),
due 2000-2028 838 779
Medium-term notes, rates from 6.43%
to 8.91%, due 2000-2005 184 246
Commercial paper/credit agreements 429 192
Other 23 18
---------------------------
$ 4,829 $ 3,485
===========================
Portion due within one year $ 855 $ 88
===========================
</TABLE>
<TABLE>
<CAPTION>
Long-term debt maturities are (millions):
<S> <C>
2000 $ 855
2001 85
2002 21
2003 625
2004 69
Thereafter 3,174
</TABLE>
In December 1999, the company redeemed approximately $101
million in outstanding adjustable rate convertible
subordinated debentures due May 1, 2007, originally issued
by MacMillan Bloedel. Holders received the principal amount
plus unpaid interest up to December 5.
70
<PAGE>
Real estate and related assets segment long-term debt,
including the current portion, is as follows:
<TABLE>
<CAPTION>
December 26, December 27,
Dollar amounts in millions 1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
Notes payable, unsecured; weighted average
interest rates are approximately 6.5%
and 6.9% $ 430 $ 531
Bank and other borrowings, unsecured;
weighted average interest rates are
approximately 5.5% - 100
Notes payable, secured; weighted average
interest rates are approximately 8.0%
and 8.4% 10 13
Collateralized mortgage obligation bonds 39 57
---------------------------
$ 479 $ 701
===========================
Portion due within one year $ 122 $ 121
===========================
</TABLE>
<TABLE>
<CAPTION>
Long-term debt maturities are (millions):
<S> <C>
2000 $ 122
2001 159
2002 79
2003 78
2004 4
Thereafter 37
</TABLE>
LINES OF CREDIT
The company's lines of credit include a five-year revolving
credit facility agreement entered into in 1997 with a group
of banks that provides for borrowings of up to the total
amount of $400 million, all of which is available to the
company. Borrowings are at LIBOR plus a spread or other such
interest rates mutually agreed to between the borrower and
lending banks.
Weyerhaeuser Financial Services, Inc. (WFS), a wholly
owned subsidiary, had a set of term credit facility
agreements with a group of banks that provided for
borrowings of up to $175 million as of December 27, 1998.
$100 million was outstanding under these agreements at
December 27, 1998. During the third quarter of 1999, the
last of these agreements was repaid and subsequently
canceled.
To the extent that these credit commitments expire more
than one year after the balance sheet date and are unused,
an equal amount of commercial paper is classifiable as long-
term debt. Amounts so classified are shown in the tables in
this note.
No portion of these lines has been availed of by the
company, WRECO or WFS at December 26, 1999, or December 27,
1998, except as noted above.
The company's compensating balance agreements were not
significant.
- ------------------------------------------------------------------------
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS
========================================================================
<TABLE>
<CAPTION>
December 26, December 27,
1999 1998
--------------- ---------------
Carrying Fair Carrying Fair
Dollar amounts in millions Value Value Value Value
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weyerhaeuser:
Financial liabilities:
Long-term debt (including
current maturities) $ 4,829 $ 4,845 $ 3,485 $ 3,820
-----------------------------------
Real estate and related assets:
Financial assets:
Mortgage loans receivable 37 33 53 58
Mortgage-backed certificates and
other pledged financial
instruments 47 48 66 69
-----------------------------------
Total financial assets 84 81 119 127
-----------------------------------
Financial liabilities:
Long-term debt (including
current maturities) 479 477 701 718
-----------------------------------
</TABLE>
71
<PAGE>
The methods and assumptions used to estimate fair value of
each class of financial instruments for which it is
practicable to estimate that value are as follows:
. Long-term debt, including the real estate and related
assets segment, is estimated based on quoted market prices
for the same issues or on the discounted value of the future
cash flows expected to be paid using incremental rates of
borrowing for similar liabilities.
. Mortgage loans receivable are estimated based on the
discounted value of estimated future cash flows using
current rates for loans with similar terms and risks.
. Mortgage-backed certificates and other pledged financial
instruments (pledged to secure collateralized mortgage
obligations) are estimated using the quoted market prices
for securities backed by similar loans and restricted
deposits held at cost.
- ------------------------------------------------------------------------
NOTE 14. LEGAL PROCEEDINGS, COMMITMENTS AND CONTINGENCIES
========================================================================
LEGAL PROCEEDINGS
In June 1998, a lawsuit was filed against the company in
Superior Court, San Francisco County, California, on behalf
of a purported class of individuals and entities that own
property in the United States on which exterior hardboard
siding manufactured by the company has been installed since
1981. The action alleges the company manufactured and
distributed defective hardboard siding, breached express
warranties and consumer protection statutes and failed to
disclose to consumers the alleged defective nature of its
hardboard siding. The action seeks compensatory and punitive
damages, costs and reasonable attorney fees. In December
1998, the complaint was amended, narrowing the purported
class to individuals and entities in the state of
California. 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 manufactured homes 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. The
company is a defendant in approximately 25 other 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.
In May 1999, the Equity Committee ("the Committee") in the
Paragon
72
<PAGE>
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 Equity
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 is subject to 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.
ENVIRONMENTAL
It is the company's policy to accrue for environmental
remediation costs when it is determined that it is probable
that such an obligation exists and the amount of the
obligation can be reasonably estimated. Based on currently
available information and analysis, the company believes
that it is reasonably possible that costs associated with
all identified sites may exceed current accruals by amounts
that may prove insignificant or that could range, in the
aggregate, up to approximately $110 million over several
years. This estimate of the upper end of the range of
reasonably possible additional costs is much less certain
than the estimates upon which accruals are currently based,
and utilizes assumptions less favorable to the company among
the range of reasonably possible outcomes. In estimating
both its current accruals for environmental remediation and
the possible range of additional future costs, the company
has assumed that it will not bear the entire cost of
remediation of every site to the exclusion of other known
potentially responsible parties who may be jointly and
severally liable. The ability of other potentially
responsible parties to participate has been taken into
account, based generally on each party's financial condition
and probable contribution on a per-site basis. No amounts
have been recorded for potential recoveries from insurance
carriers.
The company is a party to legal proceedings and
environmental matters generally incidental to its business.
Although the final outcome of any legal proceeding or
environmental matter is subject to a great many variables
and cannot be predicted with any degree of certainty, the
company presently believes that the ultimate outcome
resulting from these proceedings and matters, including
those described in this note, would not have a material
effect on the company's current financial position,
liquidity or results of operations; however, in any given
future reporting period, such proceedings or matters could
have a material effect on results of operations.
OTHER ITEMS
The company's 1999 capital expenditures, excluding
acquisitions, were $566 million and are expected to approxi-
mate $900 million in 2000; however, the 2000 expenditure
level could be increased or decreased as a consequence of
future economic conditions.
During the normal course of business, the company's
subsidiaries included in its real estate and related assets
segment have entered into certain financial commitments
comprised primarily of guarantees made on $37 million of
partnership borrowings and limited recourse obligations
associated with $93 million of sold mortgage loans. The fair
value of the recourse on these loans is estimated to be $16
million, which is based upon market spreads for sales of
similar loans without recourse or estimates of the credit
risk of the associated recourse obligation.
- ------------------------------------------------------------------------
NOTE 15. CHARGES FOR CLOSURE OR DISPOSITION OF FACILITIES
========================================================================
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;
73
<PAGE>
and Coos Bay, Oregon. The composite products business and
ply-veneer facility were sold in the second quarter. The
export chip facility was closed in the fourth quarter.
Also in the 1999 first quarter, the company incurred $3
million related to the disposition of impaired assets. In
the fourth quarter, the company incurred $8 million for
integration costs and the planned closure of Building
Materials Distribution facilities related to the MacMillan
Bloedel acquisition.
In 1998, the company took a pretax charge of $71 million
for streamlining pulp and paper operations, the closure of
the Longview chlor-alkali facility and changes to the
British Columbia Lumber operations.
In 1997, the company took a pretax charge of $89 million
for the closure, consolidation or disposition of recycling
facilities, the closure of a corrugated medium machine and
administrative reorganization at Longview, Washington, and
the closure of two plywood facilities and an export sawmill.
(See "Charge for Closure or Disposition of Facilities" in
the company's Financial Review, page 49.)
- ------------------------------------------------------------------------
NOTE 16. SHAREHOLDERS' INTEREST
========================================================================
PREFERRED AND PREFERENCE SHARES
The company is authorized to issue:
. 7,000,000 preferred shares having a par value of $1.00
per share, of which none were issued and outstanding at
December 26, 1999, and December 27, 1998; and
. 40,000,000 preference shares having a par value of $1.00
per share, of which none were issued and outstanding at
December 26, 1999, and December 27, 1998.
The preferred and preference shares may be issued in one
or more series with varying rights and preferences including
dividend rates, redemption rights, conversion terms, sinking
fund provisions, values in liquidation and voting rights.
When issued, the outstanding preferred and preference shares
rank senior to outstanding common shares as to dividends and
assets available on liquidation.
COMMON SHARES
On November 1, 1999, the company issued 20,156,809 common
shares to common shareholders of MacMillan Bloedel as part
of the purchase price of that company. During the months of
November and December, the company issued an additional
4,567,837 common shares to the holders of Exchangeable
Shares (described in the next paragraph) who exercised their
right to exchange the shares.
A reconciliation of common share activity for the three
years ended December 26, 1999, is as follows:
<TABLE>
<CAPTION>
In thousands 1999 1998 1997
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year 206,073 206,073 206,073
New issuance 20,157 - -
Retraction of exchangeable shares 4,568 - -
---------------------------------
Balance at end of year 230,798 206,073 206,073
=================================
In treasury:
Balance at beginning of year 7,064 6,587 7,737
Purchase of treasury common shares - 925 496
Stock options exercised (2,306) (448) (1,646)
---------------------------------
Balance at end of year 4,758 7,064 6,587
=================================
</TABLE>
EXCHANGEABLE SHARES
On November 1, 1999, Weyerhaeuser Company Ltd., a wholly
owned Canadian subsidiary of the company, issued 13,372,580
Exchangeable Shares to common shareholders of MacMillan
Bloedel as part of the purchase price of that company. These
Exchangeable Shares 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.
74
<PAGE>
. 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
year ended December 26, 1999, is as follows:
<TABLE>
<CAPTION>
In thousands 1999
- ------------------------------------------------------
<S> <C>
New issuance 13,373
Debentures converted to exchangeable shares 5
Retraction (4,568)
-------
Balance at end of year 8,810
=======
</TABLE>
CUMULATIVE OTHER COMPREHENSIVE (EXPENSE)
The company's cumulative other comprehensive (expense)
includes:
<TABLE>
<CAPTION>
December 26, December 27,
Dollar amounts in millions 1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
Foreign currency translation adjustments $ (159) $ (200)
Additional minimum pension liability
adjustments (8) (8)
---------------------------
$ (167) $ (208)
===========================
</TABLE>
- ------------------------------------------------------------------------
NOTE 17. STOCK-BASED COMPENSATION PLAN
========================================================================
The company's Long-Term Incentive Compensation Plan (the
"Plan") was approved at the 1992 Annual Meeting of
Shareholders. The Plan provides for the purchase of the
company's common stock at its market price on the date of
grant by certain key officers and other employees of the
company and its subsidiaries who are selected from time to
time by the Compensation Committee of the Board of
Directors. No more than 10 million shares may be issued
under the Plan. The term of options granted under the Plan
may not exceed 10 years from the grant date. Grantees are 25
percent vested after one year, 50 percent after two years,
75 percent after three years, and 100 percent after four
years.
The company accounts for all options under APB Opinion No.
25 and related interpretations, under which no compensation
has been recognized. Had compensation costs for the Plan
been determined consistent with SFAS No. 123, Accounting for
Stock-Based Compensation, net income and earnings per share
would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Net income (in millions):
As reported $ 527 $ 294 $ 342
Pro forma 511 279 332
Basic earnings per share:
As reported $ 2.56 $ 1.48 $ 1.72
Pro forma 2.48 1.40 1.67
Diluted earnings per share:
As reported $ 2.55 $ 1.47 $ 1.72
Pro forma 2.47 1.40 1.66
----------------------------------
</TABLE>
Because the SFAS No. 123 method of accounting has not been
applied to options granted prior to fiscal year 1995, the
resulting pro forma compensation cost may not be
representative of that to be expected in future years.
The fair value of each option grant is estimated on the
date of the grant using the Black-Scholes option pricing
model with the following weighted average assumptions used
for grants:
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate 5.00% 5.60% 6.42%
Expected life 4.5 years 4.3 years 4.9 years
Expected volatility 28.19% 27.08% 26.21%
Expected dividend yield 2.90% 3.03% 3.44%
---------------------------------
</TABLE>
Changes in the number of shares subject to option are
summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Shares (in thousands):
Outstanding, beginning of year 7,230 5,848 6,243
Granted 1,787 1,981 1,563
Exercised 2,620 512 1,864
Forfeited 104 87 91
Expired - - 3
Acquired 972 - -
---------------------------------
Outstanding, end of year 7,265 7,230 5,848
---------------------------------
Exercisable, end of year 5,509 5,312 4,309
---------------------------------
Weighted average exercise price:
Outstanding, beginning of year $ 46.15 $ 43.32 $ 40.56
Granted 55.13 52.85 46.54
Exercised 41.96 38.98 36.70
Forfeited 50.20 50.85 44.68
Expired - 50.85 37.75
Outstanding, end of year 49.56 46.15 43.32
Weighted average grant date
fair value of options 13.13 12.34 11.26
---------------------------------
</TABLE>
75
<PAGE>
The following table summarizes information about stock
options outstanding at December 26, 1999:
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Options Options Exercise Remaining
Price Range Outstanding Exercisable Price Contractual Life
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
$20-$35 20 20 $ 26.75 1.42 years
$36-$49 3,576 3,564 $ 45.17 5.85 years
$50-$69 3,669 1,925 $ 53.98 8.66 years
------------------------
7,265 5,509
========================
</TABLE>
- ------------------------------------------------------------------------
NOTE 18. ACQUISITION OF 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, including assumed
debt of $703 million, totaled $3,006 million. The company
issued 20 million common shares, and its wholly owned
Canadian subsidiary, Weyerhaeuser Company Ltd., issued 13
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 at December 26, 1999. In
addition, the operating results of MB for the period
November 1, 1999, through December 26, 1999, were included
in the company's Consolidated Statement of Earnings for the
period ended December 26, 1999.
The purchase price to MB shareholders of $2,303 million
was calculated as follows:
<TABLE>
<S> <C>
Total MB Common Shares and MB Warrants exchanged 119,753,415
Multiplied by the Exchange Ratio .28
-------------
Equivalent Weyerhaeuser Common Shares 33,530,956
Less fractional shares (1,567)
-------------
33,529,389
Multiplied by the average market price (U.S.) $ 67.953
-------------
Value of common and exchangeable shares issued $ 2,278
Value of replacement options issued for
MB stock options 25
-------------
Total purchase price $ 2,303
=============
</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 June 30, 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 $ 2,303
Direct transaction costs and expenses 18
Additional accrued liabilities 70
Deferred tax effect of applying purchase accounting 386
Less: historical net assets (952)
-------------
$ 1,825
=============
</TABLE>
The above calculation of excess purchase price is
preliminary. The company will finalize this allocation by
November 1, 2000. As of December 26, 1999, 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 795
-------------
$ 1,825
=============
</TABLE>
76
<PAGE>
Property, plant and equipment are being depreciated over
an average of 20 years, and timber and timberlands are being
amortized over 25 to 40 years. Goodwill is being amortized
on a straight-line basis over 40 years. Additional
depreciation on the increase to fair market value of
property, plant and equipment, timber and timberlands, and
investment in equity affiliates; the amortization of
goodwill; and the amortization of the deferred tax benefit
relating to these charges totaled $9 million through
December 26, 1999.
The following summarized unaudited pro forma information,
assuming this acquisition occurred at the beginning of the
respective fiscal years, is as follows:
<TABLE>
<CAPTION>
Pro Forma Information
(unaudited)
Dollar amounts in millions 1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
Net sales and revenues $ 14,616 $ 13,456
Net earnings before the cumulative effect
of a change in an accounting principle
and extraordinary items 691 271
Net earnings 599 254
Earnings per share:
Basic 2.56 1.09
Diluted 2.55 1.08
----------------------------
</TABLE>
- ------------------------------------------------------------------------
NOTE 19. SUBSEQUENT EVENTS
========================================================================
. 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. 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, or $720 million, in cash.
The company had acquired a 49 percent interest in TJM
through its acquisition of MacMillan Bloedel, completed in
November 1999.
. On February 7, 2000, the company announced that it had
signed a letter of intent to sell its door business in
Marshfield, Wisconsin, to Saunders, Karp and Megrue (SKM), a
private merchant-banking firm based in Stamford,
Connecticut. The transaction, which will have a positive
effect on earnings in the quarter in which it is completed,
is expected to close within 60 days.
In 1999, the business manufactured and sold 720,000
customized architectural doors and 54 million square feet of
particleboard door core to third parties. The business
employs approximately 870 people.
SKM stated that the facility's current management and work
force would remain in place following the sale and will
continue operating the business as currently managed.
This is the latest in a series of moves that the company
has made since 1990 to divest non-core businesses. In 1999,
the company closed its chlor-alkali facility and sold its
Composite Products business and a ply-veneer facility.
- ------------------------------------------------------------------------
NOTE 20. BUSINESS SEGMENTS
========================================================================
The company is principally engaged in the growing and
harvesting of timber and the manufacture, distribution and
sale of forest products. The business segments are
timberlands (including logs, chips and timber); wood
products (including softwood lumber, plywood and veneer;
oriented strand board; hardwood lumber; treated products;
doors; raw materials; and building materials distribution);
pulp, paper and packaging (including pulp, paper, container
board, 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.
77
<PAGE>
An analysis and reconciliation of the company's business
segment information to the respective information in the
consolidated financial statements is as follows:
<TABLE>
<CAPTION>
For the three-year period ended
December 26, 1999
Dollar amounts in millions 1999 1998 1997
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Sales to and revenues from unaffiliated
customers:
Timberlands $ 656 $ 636 $ 797
Wood products 5,356 4,475 4,577
Pulp, paper and packaging 4,832 4,312 4,609
Real estate and related assets 1,236 1,192 1,093
Corporate and other 182 151 134
-------------------------------
$ 12,262 $ 10,766 $ 11,210
===============================
Intersegment sales:
Timberlands $ 537 $ 488 $ 520
Wood products 231 184 190
Pulp, paper and packaging 119 74 95
Corporate and other 11 13 35
-------------------------------
898 759 840
-------------------------------
Total sales and revenues 13,160 11,525 12,050
Intersegment eliminations (898) (759) (840)
-------------------------------
$ 12,262 $ 10,766 $ 11,210
===============================
Approximate contribution (charge) to
earnings:(1)
Timberlands $ 535 $ 487 $ 535
Wood products 470 183 172
Pulp, paper and packaging 310 150 164
Real estate and related assets 190 124 111
Corporate and other (272) (225) (186)
-------------------------------
1,233 719 796
Interest expense(1) (337) (324) (341)
Less capitalized interest 74 68 84
-------------------------------
Earnings before income taxes and the
cumulative effect of a change in an
accounting principle 970 463 539
Income taxes (354) (169) (197)
-------------------------------
Earnings before the cumulative effect
of a change in an accounting principle 616 294 342
Cumulative effect of a change in an
accounting principle (89) - -
-------------------------------
$ 527 $ 294 $ 342
===============================
Depreciation, amortization and fee
stumpage:
Timberlands $ 51 $ 55 $ 72
Wood products 181 188 171
Pulp, paper and packaging 373 348 353
Real estate and related assets 6 5 12
Corporate and other 29 20 20
-------------------------------
$ 640 $ 616 $ 628
===============================
Noncash charges for closure or
disposition of facilities:
Wood products $ 99 $ 25 $ 40
Pulp, paper and packaging - 42 49
Corporate and other 3 4 -
-------------------------------
$ 102 $ 71 $ 89
===============================
Equity in income/(loss) from equity
affiliates, joint ventures and
limited partnerships:
Timberlands $ 3 $ 1 $ 3
Wood products 4 - -
Pulp, paper and packaging 19 27 (10)
Real estate and related assets 39 30 26
-------------------------------
$ 65 $ 58 $ 19
===============================
Capital expenditures (including
acquisitions):
Timberlands $ 104 $ 87 $ 75
Wood products 143 212 240
Pulp, paper and packaging 279 776 327
Real estate and related assets 11 2 3
Corporate and other 29 32 24
-------------------------------
$ 566 $ 1,109 $ 669
===============================
Investments in and advances to equity
affiliates, joint ventures and
limited partnerships:
Timberlands $ 270 $ 218 $ 216
Wood products 406 - -
Pulp, paper and packaging 274 264 33
Real estate and related assets
(less reserves) 124 120 116
-------------------------------
$ 1,074 $ 602 $ 365
===============================
Assets:
Timberlands $ 2,212 $ 1,675 $ 1,676
Wood products 3,788 2,129 2,128
Pulp, paper and packaging 7,198 6,346 6,589
Real estate and related assets 1,939 1,900 2,004
Corporate and other 3,641 1,164 1,160
-------------------------------
18,778 13,214 13,557
Less: Intersegment eliminations (439) (380) (482)
-------------------------------
$ 18,339 $ 12,834 $ 13,075
===============================
</TABLE>
Certain reclassifications have been made to conform prior
years' data to the current format.
(1) Interest expense of $14 million, $17 million and $40
million in 1999, 1998 and 1997, respectively, is included in
the determination of "approximate contribution to earnings"
and excluded from "interest expense" for financial services
businesses.
78
<PAGE>
- ------------------------------------------------------------------------
NOTE 21. GEOGRAPHICAL AREAS
========================================================================
The company attributes sales to and revenues from
unaffiliated customers in different geographical areas on
the basis of the location of the customer.
Export sales from the United States consist principally of
pulp, paperboard, logs, lumber and wood chips to Japan;
containerboard, pulp, lumber and recycling material to other
Pacific Rim countries; and pulp and hardwood lumber to
Europe.
Long-lived assets consist of timber and timberlands and
property and equipment used in the generation of revenues in
the different geographical areas.
Selected information related to the company's operations by
geographical area is as follows:
<TABLE>
<CAPTION>
For the three-year period ended
December 26, 1999
Dollar amounts in millions 1999 1998 1997
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Sales to and revenues from
unaffiliated customers:
United States $ 10,004 $ 8,999 $ 8,985
Japan(1) 652 610 1,032
Canada 802 514 510
Europe 380 338 354
Other foreign countries 424 305 329
-------------------------------
$ 12,262 $ 10,766 $ 11,210
===============================
Export sales from the United States:
Japan(1) $ 521 $ 507 $ 893
Other 667 582 634
-------------------------------
$ 1,188 $ 1,089 $ 1,527
===============================
Earnings before income taxes and
cumulative effect of a change
in an accounting principle:
United States $ 778 $ 413 $ 432
Foreign entities 192 50 107
-------------------------------
$ 970 $ 463 $ 539
===============================
Long-lived assets:
United States $ 7,070 $ 6,649 $ 7,426
Canada 2,447 1,345 903
Other foreign countries 65 26 12
-------------------------------
$ 9,582 $ 8,020 $ 8,341
===============================
</TABLE>
(1) 1998 export sales to Japan include only one month's
sales of newsprint due to the company's change in ownership
of its newsprint subsidiary from 80 percent to 50 percent in
February.
- ------------------------------------------------------------------------
NOTE 22. SELECTED QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
========================================================================
<TABLE>
<CAPTION>
Dollar amounts in millions First Second Third Fourth
except per-share figures Quarter Quarter Quarter Quarter Year
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales:
1999 $ 2,665 $ 3,044 $ 3,120 $ 3,433 $12,262
1998 2,603 2,676 2,736 2,751 10,766
Operating income:
1999 117 308 410 293 1,128
1998 181 161 225 89 656
Earnings before income
taxes and cumulative
effect of a change in an
accounting principle:
1999 65 258 373 274 970
1998 135 109 175 44 463
Net earnings:
1999 (48) 164 237 174 527
1998 85 69 110 30 294
Net earnings per share:
Basic
1999 (.24) .82 1.18 .79 2.56
1998 .43 .34 .56 .15 1.48
Diluted
1999 (.24) .81 1.18 .78 2.55
1998 .43 .34 .55 .15 1.47
Dividends per share:
1999 .40 .40 .40 .40 1.60
1998 .40 .40 .40 .40 1.60
Market prices - high/low:
1999 62-49 9/16
73 15/16-55 9/16
69 3/4-54 13/16
72 15/16-54 9/16
73 15/16-49 9/16
1998 57 15/16-44 15/16
61 7/16-44 9/16
47 7/16-36 3/4
51 9/16-41 3/4
61 7/16-36 3/4
----------------------------------------------------
</TABLE>
- ------------------------------------------------------------------------
NOTE 23. HISTORICAL SUMMARY
========================================================================
<TABLE>
<CAPTION>
Dollar amounts in
millions except
per-share figures 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE:
Basic net earnings
(loss) from
continuing
operations, before
extraordinary item
and effect of
accounting
changes $ 2.99 1.48 1.72 2.34 3.93
Extraordinary
item(5) $ - - - - -
Effect of
accounting
changes(1) $ (.43) - - - -
----------------------------------------------------
Basic net earnings
(loss) $ 2.56 1.48 1.72 2.34 3.93
====================================================
Diluted net
earnings (loss)
from continuing
operations,
before
extraordinary
item and effect
of accounting
changes $ 2.98 1.47 1.72 2.33 3.92
Extraordinary
item(5) $ - - - - -
Effect of
accounting
changes(1) $ (.43) - - - -
----------------------------------------------------
Diluted net
earnings (loss) $ 2.55 1.47 1.72 2.33 3.92
====================================================
Dividends paid $ 1.60 1.60 1.60 1.60 1.50
Shareholders'
interest (end
of year) $ 30.54 22.74 23.30 23.21 22.57
FINANCIAL POSITION:
Total assets:
Weyerhaeuser $ 16,400 10,934 11,071 10,968 10,359
Real estate and
related assets $ 1,939 1,900 2,004 2,628 2,894
----------------------------------------------------
$ 18,339 12,834 13,075 13,596 13,253
====================================================
Long-term debt
(net of current
portion):
Weyerhaeuser:
Long-term debt $ 3,974 3,397 3,483 3,546 2,983
Capital lease
obligations $ 1 2 2 2 2
Convertible
subordinated
debentures $ - - - - -
Limited
recourse
income
debenture $ - - - - -
----------------------------------------------------
$ 3,975 3,399 3,485 3,548 2,985
====================================================
Real estate and
related assets:
Long-term debt $ 357 580 682 814 1,608
====================================================
Shareholders'
interest $ 7,173 4,526 4,649 4,604 4,486
Percent earned on
shareholders'
interest 9.0% 6.4% 7.4% 10.2% 18.2%
OPERATING RESULTS:
Net sales and
revenues:
Weyerhaeuser $ 11,026 9,574 10,117 10,105 10,869
Real estate and
related assets $ 1,236 1,192 1,093 1,009 919
----------------------------------------------------
$ 12,262 10,766 11,210 11,114 11,788
====================================================
Net earnings (loss)
from continuing
operations before
extraordinary item
and effect of
accounting
changes:
Weyerhaeuser $ 495 214 271 434 981
Real estate and
related assets $ 121 80 71 29 (182)(4)
----------------------------------------------------
$ 616 294(2) 342 463 799
Extraordinary
item(5) $ - - - - -
Effect of
accounting
changes(1) $ (89) - - - -
----------------------------------------------------
Net earnings
(loss) $ 527 294 342(3) 463 799
====================================================
STATISTICS
(UNAUDITED):
Number of
employees 44,770 36,309 35,778 39,020 39,558
Salaries and wages $ 1,895 1,695 1,706 1,781 1,779
Employee benefits $ 392 351 355 370 408
Total taxes $ 579 437 478 557 736
Timberlands
(thousands
of acres):
U.S. and Canadian
fee ownership 5,914 5,099 5,171 5,326 5,302
Long-term license
arrangements 32,786 27,002 23,715 22,863 22,866
Number of
shareholder
accounts at
year-end:
Common 18,732 19,559 20,981 22,528 23,446
Exchangeable 1,590 - - - -
Preferred - - - - -
Preference - - - - -
Weighted average
shares
outstanding
(thousands) 205,599 198,914 198,967 198,318 203,525
----------------------------------------------------
</TABLE>
80
<PAGE>
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989
- ------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2.86 2.58 1.83 (.50) 1.87 1.56
- .25 - - - -
- - - (.30) - -
- ------------------------------------------------------------------
2.86 2.83 1.83 (.80) 1.87 1.56
==================================================================
2.86 2.56 1.82 (.50) 1.87 1.56
- .25 - - - -
- - - (.30) - -
- ------------------------------------------------------------------
2.86 2.81 1.82 (.80) 1.87 1.56
==================================================================
1.20 1.20 1.20 1.20 1.20 1.20
20.86 19.34 17.85 17.25 19.21 18.55
9,750 9,087 8,566 7,551 7,556 7,371
3,408 3,670 9,720 9,435 8,800 8,605
- ------------------------------------------------------------------
13,158 12,757 18,286 16,986 16,356 15,976
==================================================================
2,713 2,998 2,659 2,195 2,168 1,502
- - - - 7 23
- - 193 193 193 -
- - 188 204 204 204
- ------------------------------------------------------------------
2,713 2,998 3,040 2,592 2,572 1,729
==================================================================
1,873 2,086 2,411 2,421 2,637 2,006
==================================================================
4,290 3,966 3,646 3,489 3,864 4,148
14.3% 15.2% 10.4% (4.4)% 9.8% 8.3%
9,281 8,315 7,744 7,167 7,447 8,355
1,117 1,230 1,522 1,606 1,619 1,826
- ------------------------------------------------------------------
10,398 9,545 9,266 8,773 9,066 10,181
==================================================================
576 459 332 (25) 340 377
13 68 40 (76) 54 (36)
- ------------------------------------------------------------------
589 527 372 (101)(6) 394 341(7)
- 52 - - - -
- - - (61) - -
- ------------------------------------------------------------------
589 579 372 (162) 394 341
==================================================================
36,665 36,748 39,022 38,669 40,621 45,214
1,610 1,585 1,580 1,476 1,531 1,563
357 347 323 321 318 325
618 577 443 173 446 403
5,587 5,512 5,592 5,488 5,592 5,664
17,849 17,845 18,828 13,491 13,491 13,324
24,131 25,282 26,334 26,937 28,187 29,847
- - - - - -
- - - - - 12
- - - - - 443
205,543 204,866 203,373 201,578 203,673 204,331
- ------------------------------------------------------------------
</TABLE>
(1) 1999 results reflect charges of $244 million less
related tax effect of $90 million, or $154 million, for the
cumulative effect of a change in an accounting principle,
impairment of long-lived assets to be disposed of and
closure costs related to the MB acquisition.
(2) 1998 results reflect nonrecurring charges of $71 million
less related tax effect of $26 million, or $45 million.
(3) 1997 results reflect net nonrecurring charges of $13
million less related tax effect of $4 million, or $9
million.
(4) 1995 results reflect a charge for disposal of certain
real estate assets of $290 million less related tax effect
of $106 million, or $184 million.
(5) 1993 results reflect an extraordinary net gain as a
result of extinguishing certain debt obligations of $86
million less related tax effect of $34 million, or $52
million.
(6) 1991 results reflect restructuring and other charges of
$445 million less related tax effect of $162 million, or
$283 million.
(7) 1989 results reflect net nonrecurring items of $401
million less related tax effect of $141 million, or $260
million.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-26-1999
<PERIOD-END> DEC-26-1999
<CASH> 39
<SECURITIES> 1,604
<RECEIVABLES> 1,407
<ALLOWANCES> 17
<INVENTORY> 1,329
<CURRENT-ASSETS> 4,543
<PP&E> 13,377
<DEPRECIATION> 5,817
<TOTAL-ASSETS> 18,339
<CURRENT-LIABILITIES> 2,934
<BONDS> 4,453
0
0
<COMMON> 288
<OTHER-SE> 6,885
<TOTAL-LIABILITY-AND-EQUITY> 18,339
<SALES> 12,262
<TOTAL-REVENUES> 12,262
<CGS> 9,321
<TOTAL-COSTS> 9,321
<OTHER-EXPENSES> 881
<LOSS-PROVISION> 9
<INTEREST-EXPENSE> 277
<INCOME-PRETAX> 970
<INCOME-TAX> 354
<INCOME-CONTINUING> 616
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 89
<NET-INCOME> 527
<EPS-BASIC> 2.56
<EPS-DILUTED> 2.55
</TABLE>
