SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
X OF THE SECURITIES EXCHANGE ACT OF 1934
For the thirteen weeks ended March 26, 2000 or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 1-4825
WEYERHAEUSER COMPANY
A Washington Corporation (IRS Employer Identification
No. 91-0470860)
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 ___.
The number of shares outstanding of the registrant's class of common stock,
as of April 28, 2000, was 232,953,031 common shares ($1.25 par value).
<PAGE>
Weyerhaeuser Company
- -2-
WEYERHAEUSER COMPANY AND SUBSIDIARIES
Index to Form 10-Q Filing
For the thirteen weeks ended March 26, 2000
<TABLE>
<CAPTION>
Page No.
---------------
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statement of Earnings 3
Consolidated Balance Sheet 4-5
Consolidated Statement of Cash Flows 6-7
Notes to Financial Statements 8-19
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 20-25
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 24-25
Part II. Other Information
Item 1. Legal Proceedings 26-27
Item 2. Changes in Securities (not applicable)
Item 3. Defaults upon Senior Securities (not applicable)
Item 4. Submission of Matters to a Vote of
Security Holders (not applicable)
Item 5. Other Information (not applicable)
Item 6. Exhibits and Reports on Form 8-K 27
</TABLE>
The financial information included in this report has been prepared in
conformity with accounting practices and methods reflected in the financial
statements included in the annual report (Form 10-K) filed with the
Securities and Exchange Commission for the year ended December 26, 1999.
Though not examined by independent public accountants, the financial
information reflects, in the opinion of management, all adjustments
necessary to present a fair statement of results for the interim periods
indicated. The results of operations for the thirteen-week period ending
March 26, 2000, should not be regarded as necessarily indicative of the
results that may be expected for the full year.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
WEYERHAEUSER COMPANY
By /s/ K. J. Stancato
------------------------
K. J. Stancato
Duly Authorized Officer and
Principal Accounting Officer
May 5, 2000
<PAGE>
Weyerhaeuser Company
- -3-
WEYERHAEUSER COMPANY AND SUBSIDIARIES
____________
CONSOLIDATED EARNINGS
For the periods ended
March 26, 2000 and March 28, 1999
(Dollar amounts in millions except as noted and per share figures)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen weeks ended:
March March
26, 28,
2000 1999
-------- --------
<S> <C> <C>
Net sales and revenues:
Weyerhaeuser $ 3,633 $ 2,389
Real estate and related assets 278 276
-------- --------
Total net sales and revenues 3,911 2,665
-------- --------
Costs and expenses:
Weyerhaeuser:
Costs of products sold 2,693 1,835
Depreciation, amortization and fee stumpage 200 155
Selling, general and administrative expenses 259 164
Research and development expenses 12 13
Taxes other than payroll and income taxes 37 32
Charges for integration and closure of
facilities (Note 12) 13 94
Charge for Year 2000 remediation -- 17
-------- --------
3,214 2,310
-------- --------
Real estate and related assets:
Costs and operating expenses 229 220
Depreciation and amortization 1 1
General and administrative expenses 13 15
Taxes other than payroll and income taxes 2 2
-------- --------
245 238
-------- --------
Total costs and expenses 3,459 2,548
-------- --------
Operating income 452 117
Interest expense and other:
Weyerhaeuser:
Interest expense incurred 91 68
Less interest capitalized 4 2
Equity in income of affiliates (Note 4) 10 2
Other income (expense), net (2) 5
Real estate and related assets:
Interest expense incurred 19 20
Less interest capitalized 15 15
Equity in income of unconsolidated
entities (Note 4) 14 7
Other income, net 4 5
-------- --------
Earnings before income taxes and cumulative effect
of a change in an accounting principle 387 65
Income taxes (Note 5) 143 24
-------- --------
Earnings before cumulative effect of a change in
an accounting principle 244 41
Cumulative effect of a change in an accounting
principle (Note 1) -- 89
-------- --------
Net earnings (loss) $ 244 $ (48)
======== ========
Basic and diluted net earnings (loss) per
share (Note 2):
Before cumulative effect of a change in an
accounting principle $ 1.04 $ 0.21
Cumulative effect of a change in an accounting
principle -- (0.45)
-------- --------
$ 1.04 $ (0.24)
======== ========
Weighted average shares outstanding (thousands):
Basic 234,213 199,160
Dilutive effect of stock options 721 675
-------- --------
Diluted 234,934 199,835
======== ========
Dividends paid per share $ .40 $ .40
======== ========
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
Weyerhaeuser Company
- -4-
WEYERHAEUSER COMPANY AND SUBSIDIARIES
____________
CONSOLIDATED BALANCE SHEET
March 26, 2000 and December 26, 1999
(Dollar amounts in millions)
<TABLE>
<CAPTION>
March Dec.
26, 26,
2000 1999
--------- ---------
(Unaudited)
<S> <C> <C>
Assets
- ------
Weyerhaeuser
Current assets:
Cash and short-term investments (Note 1) $ 92 $ 1,640
Receivables, less allowances 1,468 1,296
Inventories (Note 6) 1,564 1,329
Prepaid expenses 243 278
--------- ---------
Total current assets 3,367 4,543
Property and equipment (Note 7) 8,243 7,560
Construction in progress 482 355
Timber and timberlands at cost, less fee stumpage
charged to disposals 1,623 1,667
Investments in and advances to equity affiliates
(Note 4) 560 950
Goodwill, net of accumulated amortization 1,174 792
Other assets and deferred charges 514 533
--------- ---------
15,963 16,400
--------- ---------
Real estate and related assets
Cash and short-term investments 4 3
Receivables, less discounts and allowances 82 94
Mortgage-related financial instruments, less
discounts and allowances 81 84
Real estate in process of development and for sale 585 556
Land being processed for development 969 956
Investments in unconsolidated entities, less
reserves (Note 4) 135 124
Other assets 132 122
--------- ---------
1,988 1,939
--------- ---------
Total assets $ 17,951 $ 18,339
========= =========
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
Weyerhaeuser Company
- -5-
<TABLE>
<CAPTION>
March Dec.
26, 26,
2000 1999
--------- ---------
(Unaudited)
<S> <C> <C>
Liabilities and shareholders' interest
- --------------------------------------
Weyerhaeuser
Current liabilities:
Notes payable and commercial paper $ 243 $ 54
Current maturities of long-term debt 101 855
Accounts payable (Note 1) 911 961
Accrued liabilities (Note 8) 1,121 1,093
--------- ---------
Total current liabilities 2,376 2,963
Long-term debt (Note 10) 4,039 3,945
Deferred income taxes (Note 5) 2,154 1,985
Deferred pension, other postretirement benefits
and other liabilities 676 773
Commitments and contingencies (Note 13)
--------- ---------
9,245 9,666
--------- ---------
Real estate and related assets
Notes payable and commercial paper 749 676
Long-term debt (Note 10) 429 479
Other liabilities 339 345
Commitments and contingencies (Note 13)
--------- ---------
1,517 1,500
--------- ---------
Total liabilities 10,762 11,166
--------- ---------
Shareholders' interest (Note 11)
Common shares: authorized 400,000,000 shares,
issued: 232,665,265 and 230,797,536,
$1.25 par value 291 288
Exchangeable shares; no par value; unlimited
shares authorized; issued and held by
nonaffiliates: 7,149,312 and 8,809,994 486 598
Other capital 2,210 2,086
Retained earnings 4,731 4,578
Cumulative other comprehensive (expense) (116) (167)
Treasury common shares, at cost: 8,702,101
and 4,758,348 (413) (210)
--------- ---------
Total shareholders' interest 7,189 7,173
--------- ---------
Total liabilities and shareholders' interest $ 17,951 $ 18,339
========= =========
</TABLE>
<PAGE>
Weyerhaeuser Company
- -6-
WEYERHAEUSER COMPANY AND SUBSIDIARIES
____________
CONSOLIDATED STATEMENT OF CASH FLOWS
For the thirteen-week periods ended March 26, 2000 and March 28, 1999
(Dollar amounts in millions)
(Unaudited)
<TABLE>
<CAPTION>
Consolidated
------------------
March March
26, 28,
2000 1999
-------- --------
<S> <C> <C>
Cash provided by (used for) operations:
Net earnings (loss) $ 244 $ (48)
Noncash charges (credits) to income:
Depreciation, amortization and fee stumpage 201 156
Deferred income taxes, net 35 16
Pension and other postretirement benefits (36) (17)
Equity in (income) of affiliates and
unconsolidated entities (24) (9)
Effect of a change in an accounting principle - net
of taxes (Note 1) -- 89
Charges for integration and closure of
facilities (Note 12) 13 91
Decrease (increase) in working capital:
Receivables (66) (104)
Inventories, real estate and land (191) (143)
Prepaid expenses 26 (1)
Mortgage-related financial instruments 2 7
Accounts payable and accrued liabilities (176) (21)
Other (23) (10)
-------- --------
Net cash provided by (used for) operations 5 6
-------- --------
Cash provided by (used for) investing activities:
Property and equipment (135) (90)
Timber and timberlands (17) (16)
Acquisition of a business - net of cash
acquired (Note 14) (594) --
Investments in and advances to equity affiliates 5 5
Proceeds from sale of:
Property and equipment -- 4
Mortgage-related financial instruments 1 6
Intercompany advances -- --
Other 34 --
-------- --------
Net cash provided by (used for) investing activities (706) (91)
-------- --------
Cash provided by (used for) financing activities:
Issuances of debt 5 22
Notes and commercial paper borrowings, net 279 168
Cash dividends (91) (79)
Payments on debt (875) (39)
Purchase of treasury common shares (211) --
Exercise of stock options 8 23
Other 39 (8)
-------- --------
Net cash provided by (used for) financing activities (846) 87
-------- --------
Net increase (decrease) in cash and
short-term investments (1,547) 2
Cash and short-term investments at beginning of year 1,643 35
-------- --------
Cash and short-term investments at end of period $ 96 $ 37
======== ========
Cash paid (received) during the period for:
Interest, net of amount capitalized $ 93 $ 107
======== ========
Income taxes $ 68 $ (6)
======== ========
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
Weyerhaeuser Company
- -7-
<TABLE>
<CAPTION>
Real Estate and
Weyerhaeuser Related Assets
- ------------------- ---------------------
March March March March
26, 28, 26, 28,
2000 1999 2000 1999
-------- -------- --------- ---------
<S> <C> <C> <C>
$ 215 $ (77) $ 29 $ 29
200 155 1 1
34 12 1 4
(35) (17) (1) --
(10) (2) (14) (7)
-- 89 -- --
13 91 -- --
(79) (105) 13 1
(151) (96) (40) (47)
26 (1) -- --
-- -- 2 7
(171) (37) (5) 16
(18) 5 (5) (15)
-------- -------- --------- ---------
24 17 (19) (11)
-------- -------- --------- ---------
(126) (90) (9) --
(17) (16) -- --
(594) -- -- --
2 -- 3 5
-- 4 -- --
-- -- 1 6
(3) (24) 3 24
35 -- (1) --
-------- -------- --------- ---------
(703) (126) (3) 35
-------- -------- --------- ---------
5 22 -- --
206 189 73 (21)
(91) (79) -- --
(825) (35) (50) (4)
(211) -- -- --
8 23 -- --
39 (8) -- --
-------- -------- --------- ---------
(869) 112 23 (25)
-------- -------- --------- ---------
(1,548) 3 1 (1)
1,640 28 3 7
-------- -------- --------- ---------
$ 92 $ 31 $ 4 $ 6
======== ======== ========== =========
$ 88 $ 102 $ 5 $ 5
======== ======== ========== =========
$ 68 $ (6) $ -- $ --
======== ======== ========== =========
<PAGE>
Weyerhaeuser Company
- -8-
WEYERHAEUSER COMPANY AND SUBSIDIARIES
____________
NOTES TO FINANCIAL STATEMENTS
For the thirteen-week periods ended March 26, 2000 and March 28, 1999
Note 1: Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements include the accounts of Weyerhaeuser
Company and all of its majority-owned domestic and foreign subsidiaries.
Investments in and advances to equity affiliates which are not majority
owned or controlled are accounted for using the equity method with taxes
provided on undistributed earnings. Significant intercompany transactions
and accounts are eliminated.
Certain of the consolidated financial statements and notes to financial
statements are presented in two groupings: (1) Weyerhaeuser (the company),
principally engaged in the growing and harvesting of timber and the
manufacture, distribution and sale of forest products, and (2) Real estate
and related assets, principally engaged in real estate development and
construction and other real estate related activities.
Nature of Operations
The company's principal business segments, which account for the majority
of sales, earnings and the asset base, are:
. Timberlands, which is engaged in the management of 5.9 million acres
of company-owned and .5 million acres of leased commercial forestland in
North America.
. Wood products, which produces a full line of solid wood products that are
sold primarily through the company's own sales organizations to
wholesalers, retailers and industrial users in North America, the Pacific
Rim and Europe. It is also engaged in the management of forestland in
North America under long-term licensing arrangements.
. Pulp, paper and packaging, which manufactures and sells pulp, paper,
paperboard and containerboard in North American, Pacific Rim and European
markets and packaging products for the domestic markets, and which
operates an extensive wastepaper recycling system that serves company
mills and worldwide markets.
Accounting Pronouncement Implemented
In the 1999 first quarter, the company implemented the Statement of
Position (SOP), 98-5, Reporting on the Costs of Start-up Activities, issued
by the American Institute of Certified Public Accountants Accounting
Standards Executive Committee, which required that the costs of start-up
activities be expensed as incurred. In addition, this pronouncement
required that all unamortized start-up costs on the balance sheet at the
implementation date be written off as a cumulative effect of a change in an
accounting principle. The company recorded an after-tax charge of $89
million, or 45 cents per share, in the first quarter to reflect this write-
off. This charge included $9 million for the company's interest in the
write-off of unamortized start-up costs in three of its 50 percent-owned equity
affiliates.
Prospective Accounting Pronouncements
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and
reporting standards for derivative instruments, including certain
derivatives embedded in other contracts, and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. The effective date of this pronouncement,
originally fiscal years beginning after June 15, 1999, has been delayed to
fiscal years beginning after June 15, 2000, with the issuance of SFAS No.
137 in June 1999. 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.
<PAGE>
Weyerhaeuser Company
- -9-
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Derivatives
The company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to
manage well-defined interest rate and foreign exchange risks.
These include:
. Foreign exchange contracts, which are hedges for foreign denominated
accounts receivable and accounts payable. These contracts generate gains
or losses that are recognized at the contracts' respective settlement
dates.
. Interest rate swaps entered into with major banks or financial
institutions in which the company pays a fixed rate and receives a
floating rate with the interest payments being calculated on a notional
amount. The premiums received by the company on the sale of these swaps
are treated as deferred income and amortized against interest expense
over the term of the agreements.
The company is exposed to credit-related gains or losses in the event
of nonperformance by counterparties to financial instruments, but does not
expect its counterparties to fail to meet their obligations. The company
deals only with highly rated counterparties.
The notional amounts of these derivative financial instruments are $140
million and $385 million at March 26, 2000, and December 26, 1999,
respectively. These notional amounts do not represent amounts exchanged by
the parties and, thus, are not a measure of exposure to the company through
its use of derivatives. The exposure in a derivative contract is the net
difference between what each party is required to pay based on the
contractual terms against the notional amount of the contract, such as
interest rates or exchange rates. The company's use of derivatives does
not have a significant effect on the company's results of operations or its
financial position.
Cash and Short-Term Investments
For purposes of cash flow and fair value reporting, short-term investments
with original maturities of 90 days or less are considered as cash
equivalents. Short-term investments are stated at cost, which approximates
market.
At the end of 1999, the company's cash and short-term investments reflected
$1.6 billion in marketable securities. These liquid investments were being
held to meet cash requirements in early January to complete the $735
million acquisition of TJ International and redeem $750 million in notes
payable.
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 $399 million
and $358 million at March 26, 2000, and December 26, 1999, respectively.
The balance of domestic raw material and product inventories, all materials
and supplies inventories, and all foreign inventories is costed at either
the first-in, first-out (FIFO) or moving average cost methods. Had the
FIFO method been used to cost all inventories, the amounts at which product
inventories are stated would have been $227 million greater at both March
26, 2000, and December 26, 1999.
Property and Equipment
The company's property accounts are maintained on an individual asset
basis. Betterments and replacements of major units are capitalized.
Maintenance, repairs and minor replacements are expensed.
Depreciation is provided generally on the straight-line or unit-of-
production method at rates based on estimated service lives. Amortization
of logging railroads and truck roads is provided generally as timber is
harvested and is based upon rates determined with reference to the volume
of timber estimated to be removed over such facilities.
<PAGE>
Weyerhaeuser Company
- -10-
The cost and related depreciation of property sold or retired is removed
from the property and allowance for depreciation accounts and the gain or
loss is included in earnings.
Timber and Timberlands
Timber and timberlands are carried at cost less fee stumpage charged to
disposals. Fee stumpage is the cost of standing timber and is charged to
fee timber disposals as fee timber is harvested, lost as the result of
casualty or sold. Depletion rates used to relieve timber inventory are
determined with reference to the net carrying value of timber and the
related volume of timber estimated to be available over the growth
cycle. Timber carrying costs are expensed as incurred. The cost of
timber harvested is included in the carrying values of raw
material and product inventories, and in the costs of products sold as
these inventories are disposed of.
Goodwill
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over 40 years,
which is the expected period to be benefited.
Accounts Payable
The company's banking system provides for the daily replenishment of major
bank accounts as checks are presented for payment. Accordingly, there were
negative book cash balances of $165 million and $185 million at March 26, 2000,
and December 26, 1999, respectively. Such balances result from outstanding
checks that had not yet been paid by the bank and are reflected in accounts
payable in the consolidated balance sheets.
Income Taxes
Deferred income taxes are provided to reflect temporary differences between
the financial and tax bases of assets and liabilities using presently
enacted tax rates and laws.
Pension Plans
The company has pension plans covering most of its employees. The U.S.
plan covering salaried employees provides pension benefits based on the
employee's highest monthly earnings for five consecutive years during the
final ten years before retirement. Plans covering hourly employees
generally provide benefits of stated amounts for each year of service.
Contributions to U.S. plans are based on funding standards established by
the Employee Retirement Income Security Act of 1974 (ERISA).
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
<PAGE>
Weyerhaeuser Company
- -11-
amount of the assets may not be recoverable. Assets to be disposed of are
reported at the lower of the carrying value or fair value less cost to
sell.
Comprehensive Income
Comprehensive income consists of net income, foreign currency translation
adjustments and additional minimum pension liability adjustments. See Note
3: Comprehensive Income (Expense).
Reclassifications
Certain reclassifications have been made to conform prior years' data to
the current format.
Real Estate and Related Assets
Real estate held for sale is stated at the lower of cost or fair value less
costs to sell. The determination of fair value is based on appraisals and
market pricing of comparable assets, when available, or the discounted
value of estimated future cash flows from these assets. Real estate held
for development is stated at cost to the extent it does not exceed the
estimated undiscounted future net cash flows, in which case, it is carried
at fair value.
Mortgage-related financial instruments include mortgage loans receivable,
mortgage-backed certificates and other financial instruments.
Note 2: Net Earnings Per Share
Basic net earnings per share are based on the weighted average number of
common and exchangeable shares outstanding during the period. Diluted net
earnings per share are based on the weighted average number of common and
exchangeable shares outstanding and stock options outstanding at the
beginning of or granted during the period.
Options to purchase 210,650 shares at $65.56 per share and 2,500 shares at
$68.41 per share were outstanding during the thirteen weeks ending March
26, 2000. Options to purchase 576,732 shares at $56.78 per share were
outstanding during the thirteen weeks ending March 28, 1999. These options
were not included in the computation of diluted earnings per share for the
respective periods because the option exercise prices were greater than the
average market prices of common shares during those periods.
Note 3: Comprehensive Income (Expense)
The company's comprehensive income (expense) is as follows:
</TABLE>
<TABLE>
<CAPTION>
Thirteen weeks
ended
----------------
March March
26, 28,
Dollar amounts in millions 2000 1999
------- -------
<S> <C> <C>
Net earnings (loss) $ 244 $ (48)
Other comprehensive income (expense):
Foreign currency translation adjustments 60 39
Income tax (expense) on foreign currency
translation adjustments (9) (6)
------- -------
$ 295 $ (15)
======= =======
</TABLE>
Note 4: Equity Affiliates
Weyerhaeuser
The company's investments in affiliated companies that are not majority
owned or controlled are accounted for using the equity method. The
company's significant equity affiliates are:
. Cedar River Paper Company - A 50 percent owned joint venture in Cedar
Rapids, Iowa, that manufactures liner and medium containerboard from
recycled fiber.
<PAGE>
Weyerhaeuser Company
- -12-
. Nelson Forests Joint Venture - An investment in which the company owns a
51 percent financial interest and has a 50 percent voting
interest, which holds Crown Forest License cutting rights and freehold land
on the South Island of New Zealand.
. SCA Weyerhaeuser Packaging Holding Company Asia Ltd. - A 50 percent owned
joint venture formed to build or buy containerboard packaging facilities
to serve manufacturers of consumer and industrial products in Asia. Two
facilities are in operation in China.
. RII Weyerhaeuser World Timberfund, L.P. - A 50 percent owned joint venture
with institutional investors to make investments in timberlands and
related assets outside the United States. The primary focus of this
partnership is in pine forests in the Southern Hemisphere.
During the 1999 second quarter, this joint venture paid approximately $142
million to acquire 62,500 acres of radiata pine plantations,
two softwood lumber mills with a capacity of 115 million board
feet, a lumber treating operation, a pine molding remanufacturing plant,
a chip export business, and a 30 percent interest in a sales and
distribution business in Australia. Approximately 500 people currently
work in these operations.
Weyerhaeuser Company, through a subsidiary, has the responsibility for all
management and marketing activities of this acquisition.
. North Pacific Paper Corporation - A 50 percent owned joint venture that
has a newsprint manufacturing facility in Longview, Washington.
. Wapawekka Lumber LP - A 51 percent owned limited partnership in
Saskatchewan, Canada, that commenced the operation of a sawmill during
1999. Substantive participating rights by the minority partner preclude
the consolidation of this partnership by the company.
. Wilton Connor LLC - A 50 percent owned joint venture in Charlotte, North
Carolina, which supplies full-service, value-added turnkey packaging
solutions to assist product manufacturers in the areas of retail
marketing and distribution.
Unconsolidated financial information for affiliated companies, which
are accounted for by the equity method, is as follows:
<TABLE>
<CAPTION>
March Dec.
26, 26,
Dollar amounts in millions 2000 1999
-------- --------
<S> <C> <C>
Current assets $ 248 $ 525
Noncurrent assets 1,433 1,885
Current liabilities 176 275
Noncurrent liabilities 653 816
</TABLE>
<TABLE>
<CAPTION>
Thirteen weeks ended
--------------------
March March
26, 28,
2000 1999
-------- --------
<S> <C> <C>
Net sales and revenues $ 212 $ 164
Operating income 25 20
Net income (loss) 16 (4)
</TABLE>
The company provides goods and services to these affiliates, which
vary by entity, in the form of raw materials, management and marketing
services, support services and shipping services. Additionally, the
company purchases finished product from certain of these entities.
The aggregate total of these transactions is not material to the results of
operations of the company.
Real Estate and Related Assets
Investments in unconsolidated entities that are not majority owned or
controlled are accounted for using the equity method with taxes provided on
undistributed earnings as appropriate. These investments include minor
holdings in non-real estate partnerships that have significant assets and
income.
<PAGE>
Weyerhaeuser Company
- -13-
Unconsolidated financial information for unconsolidated entities, which are
accounted for by the equity method, is as follows:
<TABLE>
<CAPTION>
March Dec.
26, 26,
Dollar amounts in millions 2000 1999
-------- --------
<S> <C> <C>
Current assets $14,217 $11,457
Noncurrent assets 155 159
Current liabilities 13,211 10,577
Noncurrent liabilities 115 115
</TABLE>
<TABLE>
<CAPTION>
Thirteen weeks ended
--------------------
March March
26, 28,
2000 1999
-------- --------
<S> <C> <C>
Net sales and revenues $ 259 $ 69
Operating income 123 47
Net income 99 40
</TABLE>
The company may charge management and/or development fees to these
unconsolidated entities. The aggregate total of these transactions is not
material to the results of operations of the company.
Note 5: Income Taxes
<TABLE>
<CAPTION>
Provisions for income taxes include the following: Thirteen weeks
ended
------------------
March March
26, 28,
Dollar amounts in millions 2000 1999
-------- --------
<S> <C> <C>
Federal:
Current $ 56 $ 3
Deferred 21 13
-------- --------
77 16
-------- --------
State:
Current 6 1
Deferred 2 --
-------- --------
8 1
-------- --------
Foreign:
Current 46 4
Deferred 12 3
-------- --------
58 7
-------- --------
Income taxes before cumulative effect of a change in
an accounting principle 143 24
Deferred taxes applicable to the cumulative effect
of a change in an accounting principle -- (52)
-------- --------
$ 143 $ (28)
======== ========
</TABLE>
Income tax provisions for interim periods are based on the current best
estimate of the effective tax rate expected to be applicable for the full
year. The effective tax rate reflects anticipated tax credits, foreign
taxes and other tax planning alternatives.
For the periods ended March 26, 2000, and March 28, 1999, the company's
provision for income taxes as a percent of earnings before income taxes and
cumulative effect of a change in an accounting principle is greater than
the 35% federal statutory rate due principally to the effect of state
income taxes. The effective tax rates for the thirteen-week periods ended
March 26, 2000, and March 28, 1999, were 37% and 36.5%, respectively.
<PAGE>
Weyerhaeuser Company
- -14-
Deferred taxes are provided for the temporary differences between the
financial and tax bases of assets and liabilities, applying presently
enacted tax rates and laws. The major sources of these temporary
differences include depreciable and depletable assets, real estate, and
pension and retiree health care liabilities.
Note 6: Inventories
<TABLE>
<CAPTION>
March Dec.
26, 26,
Dollar amounts in millions 2000 1999
-------- --------
<S> <C> <C>
Logs and chips $ 243 $ 197
Lumber, plywood and panels 439 297
Pulp and paper 182 161
Containerboard, paperboard and packaging 179 160
Other products 207 207
Materials and supplies 314 307
-------- --------
$ 1,564 $ 1,329
======== ========
</TABLE>
Note 7: Property and Equipment
<TABLE>
<CAPTION>
March Dec.
26, 26,
Dollar amounts in millions 2000 1999
-------- --------
<S> <C> <C>
Property and equipment, at cost:
Land $ 224 $ 219
Buildings and improvements 2,141 1,933
Machinery and equipment 11,403 10,499
Rail and truck roads 697 577
Other 161 149
-------- --------
14,626 13,377
Less allowance for depreciation and amortization 6,383 5,817
-------- --------
$ 8,243 $ 7,560
======== ========
</TABLE>
Note 8: Accrued Liabilities
<TABLE>
<CAPTION>
March Dec.
26, 26,
Dollar amounts in millions 2000 1999
-------- --------
<S> <C> <C>
Payroll - wages and salaries, incentive awards,
retirement and vacation pay $ 359 $ 413
Taxes - Social Security and real and personal
property 63 48
Product warranties 82 83
Interest 104 105
Income taxes 60 58
Other 453 386
-------- --------
$ 1,121 $ 1,093
======== ========
</TABLE>
Note 9: Short-Term Debt
Lines of Credit
The company had short-term bank credit lines of $865 million and
$515 million, all of which could be availed of by the company and
Weyerhaeuser Real Estate Company (WRECO) at March 26, 2000, and December
26, 1999, respectively. No portions of these lines have been availed of by
the company or WRECO at March 26, 2000, or December 26, 1999. None of the
entities referred to above is a guarantor of the borrowing of the other.
In addition, the company's wholly owned Canadian subsidiary has short-term
bank credit lines that provide for the borrowings of up to $710 million and
$745 million at March 26, 2000, and December 26, 1999, respectively. No
portions of these lines have been availed of by the company's subsidiary.
<PAGE>
Weyerhaeuser Company
- -15-
Note 10: Long-Term Debt
Lines of Credit
The company's lines of credit include a five-year revolving credit facility
agreement entered into in 1997 with a group of banks that provides for
borrowings of up to the total amount of $400 million, all of which is
available to the company. Borrowings are at LIBOR plus a spread or other
such interest rates mutually agreed to between the borrower and lending
banks.
To the extent that these credit commitments expire more than one year after
the balance sheet date and are unused, an equal amount of commercial paper
is classifiable as long-term debt. Weyerhaeuser reclassified $400 million
at March 26, 2000, and December 26, 1999.
No portion of these lines has been availed of by the company or WRECO at
March 26, 2000, and December 26, 1999, except as noted.
The company's compensating balance agreements were not significant.
Note 11: Shareholders' Interest
Common Shares
A reconciliation of common share activity for the periods ending
March 26, 2000, and December 26, 1999, is as follows:
<TABLE>
<CAPTION>
March Dec.
26, 26,
In thousands 2000 1999
-------- --------
<S> <C> <C>
Balance at beginning of year 230,798 206,073
New issuance 13 20,157
Retraction of exchangeable shares 1,854 4,568
-------- --------
Balance at end of period 232,665 230,798
======== ========
In treasury:
Balance at beginning of year 4,758 7,064
Purchase of treasury common shares 4,128 --
Stock options exercised (184) (2,306)
-------- --------
Balance at end of period 8,702 4,758
======== ========
</TABLE>
Exchangeable Shares
Exchangeable Shares issued by Weyerhaeuser Company Ltd., a wholly owned
Canadian subsidiary of the company, are, as nearly as practicable, the
economic equivalent of the company's common shares; i.e., they have the
following rights:
. The right to exchange such shares for Weyerhaeuser common shares on a one-
to-one basis.
. The right to receive dividends, on a per-share basis, in amounts that are
the same as, and are payable at the same time as, dividends declared on
Weyerhaeuser common shares.
. The right to vote at all shareholder meetings at which Weyerhaeuser
shareholders are entitled to vote on the basis of one vote per
Exchangeable Share.
. The right to participate upon a Weyerhaeuser liquidation event on a pro-
rata basis with the holders of Weyerhaeuser common shares in the
distribution of assets of Weyerhaeuser.
<PAGE>
Weyerhaeuser Company
- -16-
A reconciliation of Exchangeable Share activity for the periods ending
March 26, 2000, and December 26, 1999, is as follows:
<TABLE>
<CAPTION>
March Dec.
26, 26,
In thousands 2000 1999
-------- --------
<S> <C> <C>
Balance at beginning of year 8,810 --
New issuance 193 13,373
Debentures converted to exchangeable shares -- 5
Retraction (1,854) (4,568)
-------- --------
Balance at end of period 7,149 8,810
======== ========
</TABLE>
Cumulative Other Comprehensive (Expense)
The company's cumulative other comprehensive (expense) includes:
<TABLE>
<CAPTION>
March Dec.
26, 26,
Dollar amounts in millions 2000 1999
-------- --------
<S> <C> <C>
Foreign currency translation adjustments $ (108) $ (159)
Minimum pension liability adjustment (8) (8)
-------- --------
$ (116) $ (167)
======== ========
</TABLE>
Note 12: Charges for Integration and Closure of Facilities
In the 2000 first quarter, the company incurred $13 million of pretax
charges related to the MacMillan Bloedel acquisition. These
expenditures included a $7.3 million accrual for the closure of a
Weyerhaeuser containerboard packaging plant and $5.7 million of costs
incurred for the transition and integration of activities.
During the 1999 first quarter, the company recorded a pretax charge of $91
million for the impairment of long-lived assets to be disposed of. This
charge was related to the company's decision to sell its composite
products business and ply-veneer facility and close a chip export
facility. These facilities, with a net book value of $160 million,
are located in Springfield, Oregon; Moncure, North Carolina; Adel,
Georgia; and Coos Bay, Oregon. The composite products business and ply-
veneer facility were sold in the second quarter of 1999. The export chip
facility was closed in the fourth quarter of 1999.
Also in the 1999 first quarter, the company incurred $3 million
related to the disposition of impaired assets.
Note 13: Commitments and Contingencies
The company's capital expenditures, excluding acquisitions, were
$566 million in 1999, and are expected to be approximately
$800 million in 2000; however, that expenditure level could be increased or
decreased as a consequence of future economic conditions.
The company is a party to legal proceedings and environmental matters
generally incidental to its business. Although the final outcome of any
legal proceeding or environmental matter is subject to a great many
variables and cannot be predicted with any degree of certainty, the company
presently believes that the ultimate outcome resulting from these
proceedings and matters would not have a material effect on the company's
current financial position, liquidity or results of operations; however, in
any given future reporting period, such proceedings or matters could have a
material effect on results of operations.
Note 14: Acquisitions
MacMillan Bloedel Limited
On November 1, 1999, the company completed its acquisition of MacMillan
Bloedel Limited (MB) following the approval of the transaction by the
shareholders of MB and securing all regulatory approvals in the United
States, Canada and other jurisdictions. The total purchase price updated
through March 26, 2000, including assumed debt of $703 million, totaled
$3,021 million. Through March 26, 2000, the company issued 20 million
common shares, and its wholly owned Canadian subsidiary, Weyerhaeuser
Company Ltd., issued 14 million Exchangeable Shares to fund the
<PAGE>
Weyerhaeuser Company
- -17-
transaction. At the option of the holder, the Exchangeable Shares may be
exchanged for Weyerhaeuser common shares on a one-for-one basis. In
addition, the company issued replacement options in exchange for
outstanding MB options with the number of shares and the exercise price
appropriately adjusted by the exchange ratio.
With the exception of $247 million of cash and short-term investments
acquired, this transaction was a noncash investing activity in which the
company acquired assets and assumed liabilities in exchange for common and
exchangeable shares as described above.
The company accounted for the transaction using the purchase method of
accounting. Accordingly, the assets and liabilities of the acquired
company were included in the Consolidated Balance Sheet and the operating
results were included in the Consolidated Statement of Earnings beginning
November 1, 1999.
The purchase price to MB shareholders of $2,318 million was calculated as
follows:
<TABLE>
<S> <C>
Weyerhaeuser common and exchangeable shares issued through
March 26, 2000 33,736, 436
Multiplied by the average market price (U.S.) $ 67.953
--------------
Value of common and exchangeable shares issued $ 2,293
Value of replacement options issued for MB stock options 25
--------------
Total purchase price $ 2,318
==============
</TABLE>
The purchase price to MB shareholders, plus estimated direct
transaction costs and expenses, additional accrued liabilities and the
deferred tax effect of applying purchase accounting at November 1, 1999,
over the historical net assets of MB, was calculated as follows:
<TABLE>
Dollar amounts in millions
<S> <C>
Purchase price to MB shareholders $ 2,318
Direct transaction costs and expenses 18
Additional accrued liabilities 87
Deferred tax effect of applying purchase accounting 379
Less: historical net assets (952)
--------------
Total excess costs $ 1,850
==============
</TABLE>
The above calculation of excess purchase price is preliminary. The company
will finalize this allocation by November 1, 2000. As of March 26, 2000,
the excess purchase price was allocated as follows:
<TABLE>
Dollar amounts in millions
<S> <C>
Plant, property and equipment, timber and timberlands,
and investment in equity affiliates $ 1,030
Goodwill 820
--------------
Total excess costs $ 1,850
==============
</TABLE>
Property, plant and equipment are being depreciated over an average of 20
years. The cost of timber and timberlands is charged to expense as the
related timber is harvested, estimated to be 25 to 40 years. Goodwill is
being amortized on a straight-line basis over 40 years.
The following summarized unaudited pro forma information, assuming this
acquisition occurred at the beginning of fiscal year 1999, is as follows:
<TABLE>
Pro Forma Information (unaudited)
Thirteen weeks ended
Dollar amounts in millions March 28, 1999
--------------------
<S> <C>
Net sales and revenues $ 3,278
Net earnings before the cumulative effect of a
change in an accounting principle 52
Net earnings (loss) (40)
Earnings (loss) per share:
Basic and diluted (.17)
</TABLE>
<PAGE>
Weyerhaeuser Company
- -18-
TJ International
On January 6, 2000, the company acquired a controlling interest in TJ
International (TJI), a 51 percent owner and managing partner of Trus Joist
MacMillan (TJM), through a successful tender offer that represented more
than 90 percent of the total number of outstanding shares. The company had
acquired a 49 percent interest in TJM through its acquisition of MacMillan
Bloedel, completed in November 1999. On January 21, 2000, the company
completed the acquisition through the filing of a short-term merger
document. This acquisition was completed under the terms of an offer by
the company to purchase all outstanding shares of TJ International for $42
per share and stock option cash-outs of certain TJI management personnel.
The total purchase price, including assumed debt of $142 million, was
$877 million.
The company accounted for the transaction using the purchase method of
accounting. Accordingly, the assets and liabilities of the acquired
company were included in the Consolidated Balance Sheet and the operating
results were included in the Consolidated Statement of Earnings beginning
January 6, 2000.
The purchase price, plus estimated direct transaction costs and expenses,
and the deferred tax effect of applying purchase accounting at January 6,
2000, was calculated as follows:
<TABLE>
Dollar amounts in millions
<S> <C>
Purchase price of tender offer and stock option cash-out $ 735
Direct transaction costs and expenses 49
Deferred tax effect of applying purchase accounting 116
Less: historical net assets (242)
--------
Total excess costs $ 658
========
</TABLE>
The above calculation of excess purchase price is preliminary. The company
will finalize this allocation by January 6, 2001. As of March 26, 2000,
the excess purchase price was allocated as follows:
<TABLE>
Dollar amounts in millions
<S> <C>
Property, plant and equipment $ 288
Goodwill 370
--------
Total excess costs $ 658
========
</TABLE>
Property, plant and equipment are being depreciated over an average of 20
years. Goodwill is being amortized on a straight-line basis over 40 years.
Note 15: Business Segments
The company is principally engaged in the growing and harvesting of timber
and the manufacture, distribution and sale of forest products. The
company's principal business segments are timberlands (including logs,
chips and timber); wood products (including softwood lumber, plywood and
veneer; composite panels; oriented strand board; hardwood lumber; treated
products; engineered wood; doors; raw materials; and building materials
distribution); pulp, paper and packaging (including pulp, paper,
containerboard, packaging, paperboard and recycling); and real estate and
related assets.
The timber-based businesses involve a high degree of integration among
timber operations; building materials conversion facilities; and pulp,
paper, containerboard and paperboard primary manufacturing and secondary
conversion facilities. This integration includes extensive transfers of
raw materials, semi-finished materials and end products between and among
these groups. The company's accounting policies for segments are the same
as those described in Note 1: Summary of Significant Accounting Policies.
Management evaluates segment performance based on the contributions to
earnings of the respective segments. Accounting for segment profitability
in integrated manufacturing sites involves allocation of joint conversion
and common facility costs based upon the extent of usage by the respective
product lines at that facility. Transfer of products between segments is
accounted for at current market values.
<PAGE>
Weyerhaeuser Company
- -19-
An analysis and reconciliation of the company's business segment
information to the respective information in the consolidated financial
statements is as follows:
<TABLE>
<CAPTION>
Thirteen weeks ended
--------------------
March March
26, 28,
2000 1999
-------- --------
<S> <C> <C>
Sales to and revenues from unaffiliated customers:
Timberlands $ 280 $ 153
Wood products 1,832 1,116
Pulp, paper and packaging 1,476 1,082
Real estate and related assets 278 276
Corporate and other 45 38
-------- --------
3,911 2,665
-------- --------
Intersegment sales:
Timberlands 119 125
Wood products 74 48
Pulp, paper and packaging 44 32
Corporate and other 3 2
-------- --------
240 207
-------- --------
Total sales and revenues 4,151 2,872
Intersegment eliminations (240) (207)
-------- --------
$ 3,911 $ 2,665
======== ========
Approximate contribution (charge) to earnings (1):
Timberlands $ 167 $ 119
Wood products 137 (13)
Pulp, paper and packaging 186 41
Real estate and related assets (1) 47 46
Corporate and other (63) (62)
-------- --------
474 131
Interest expense (91) (68)
Less capitalized interest 4 2
-------- --------
Earnings before income taxes and the cumulative
effect of a change in an accounting principle 387 65
Income taxes (143) (24)
-------- --------
Earnings before the cumulative effect of a change in
an accounting principle 244 41
Cumulative effect of a change in an accounting
principle -- (89)
-------- --------
$ 244 $ (48)
======== ========
</TABLE>
There were no material changes from year-end 1999 in total assets, basis of
segmentation or basis for measuring segment profit or loss.
Certain reclassifications have been made to conform prior year's data to
the current format.
(1) Interest expense of $4 million and $5 million in the thirteen weeks
ended March 26, 2000, and March 28, 1999, respectively, is
included in the determination of approximate contributions to
earnings and excluded from interest expense for financial services
businesses.
<PAGE>
Weyerhaeuser Company
- -20-
WEYERHAEUSER COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Consolidated Results
The company reported profit of $244 million, or $1.04 basic and diluted
earnings per share, compared to a net loss of $48 million, or 24 cents
basic and diluted loss per share in the same quarter last year. The 1999
first quarter results were impacted by two material nonrecurring charges:
. An after-tax charge of $89 million, or 45 cents per common share, from the
cumulative effect of a change in an accounting policy which required the
company to write off the unamortized balance of capitalized start-up
costs at year-end 1998. This charge included $9 million for the company's
interest in the write-off of unamortized start-up costs in three of its
50 percent-owned equity affiliates.
. An after-tax charge of $60 million, or 30 cents per common share,
associated with the recognition of impairment of long-lived assets in
four of the company's composite products facilities, a ply-veneer
facility and a chip export dock. The composite products and ply-veneer
facilities were sold in the second quarter of 1999 while the chip export
dock was closed in the fourth quarter of 1999.
Earnings for the first quarter of 1999 before these charges were
$101 million, or 51 cents per share.
Consolidated net sales and revenues were $3.9 billion in the quarter, up 47
percent from $2.7 billion for the same period last year. This increase
results from the additions of MacMillan Bloedel and Trus Joist, plus price
improvements in most of the company's major markets.
Timberlands
First quarter operating earnings were $167 million, an increase of
40 percent from the $119 million earned in 1999. Sales to
unaffiliated customers were $280 million compared to $153 million a year
ago. Intersegment sales were $119 million for the quarter, down from $125
million reported a year ago. Volumes in both the domestic and foreign log
markets were higher due to increased demand and the addition of MacMillan
Bloedel timberlands. Domestic prices and volumes increased over last
year's first quarter levels, but prices remained comparable to the 1999
fourth quarter. Export prices, while higher in comparison to the same
period a year ago, experienced a slight decline at the end of the quarter.
Log production for this segment was 183 million cubic feet in the quarter
compared to 129 million cubic feet in the 1999 first quarter. Raw material
sales for this segment were 145 million cubic feet, up from last year's
volume of 68 million cubic feet.
Wood Products
Operating earnings increased to $137 million, a 69 percent increase,
compared to $81 million, before a $94 million charge for impairment of long-
lived assets ($91 million) and related closure costs ($3 million), reported
in the same period last year. Including the charge, the segment had a loss
of $13 million for the 1999 first quarter. Sales were $1.8 billion, up
64 percent from the 1999 first quarter. The strong earnings are the result
of demand for lumber and panel products due to the continued strength of the
U.S. construction and remodel markets and improvement in export markets during
the quarter, along with the addition of MacMillan Bloedel and Trus Joist
operations. Lumber volumes and prices were up compared to the same period
last year along with stronger prices for oriented strand board.
<PAGE>
Weyerhaeuser Company
- -21-
Third party sales and total production volumes for the major products in
this segment for the thirteen weeks ended March 26, 2000, and
March 28, 1999, are as follows:
<TABLE>
<CAPTION>
Third Party Sales Total Production
------------------ -----------------
Thirteen weeks Thirteen weeks
ended ended
------------------ -----------------
March March March March
26, 28, 26, 28,
Products (in millions) 2000 1999 2000 1999
- ------------------------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
Softwood lumber-board feet 1,528 1,220 1,378 1,019
Softwood plywood and
veneer-square feet (3/8") 468 415 359 251
Composite panels-square feet (3/4") 122 152 40 134
Oriented strand board-square
feet (3/8") 727 679 781 573
Hardwood lumber-board feet 97 99 95 91
Hardwood doors (thousands) 165 180 170 178
Raw materials-cubic feet 95 68 -- --
Logs-cubic feet -- -- 184 154
</TABLE>
Pulp, Paper and Packaging
The segment reported operating earnings of $186 million, up
significantly from the 1999 first quarter results of $41 million, and 43
percent higher than the fourth quarter 1999 results. Sales for the quarter
were $1.5 billion, an increase of 36 percent compared to sales of $1.1
billion reported for the same period last year. Higher prices for all of
the company's major product lines, along with improved volumes for
corrugated boxes, contributed to the segment's strong performance. The
2000 first quarter results also reflect the addition of MacMillan Bloedel
containerboard and packaging operations.
Third party sales and total production volumes for the major products in
this segment for the thirteen weeks ended March 26, 2000, and March
28, 1999, are as follows:
<TABLE>
<CAPTION>
Third Party Sales Total Production
------------------ -----------------
Thirteen weeks Thirteen weeks
ended ended
------------------ -----------------
March March March March
26, 28, 26, 28,
Products (in thousands) 2000 1999 2000 1999
- ------------------------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
Pulp-air-dry metric tons 541 583 587 579
Paper-tons 387 371 395 403
Paperboard-tons 62 61 57 61
Containerboard-tons 294 115 942 597
Packaging-MSF 13,359 11,110 14,117 11,725
Recycling-tons 760 671 1,112 1,027
Real Estate and Related Assets
First quarter operating earnings were $47 million compared to
$46 million in 1999. Sales and revenues were $278 million, comparable to
the $276 million reported for the prior year. Continued strength of the
housing markets in which the company operates contributed to the strong
performance.
Costs and Expenses
Excluding the noncash charges of $13 million for integration and closure of
facilities, total costs and expenses for the quarter were $3.2 billion in
comparison to the $2.2 billion, after total noncash charges of $111
million, incurred last year. The 46 percent increase is in direct
proportion with the company's improved sales performance this quarter.
Weyerhaeuser's costs of products sold, as a percentage of sales, was 74
percent for the current quarter compared to 77 percent in the 1999 first
quarter. Cost reduction efforts, primarily in support services, and
acquisition synergies of $22 million contributed to the lower percentage
as compared to the 1999 first quarter.
Other income (expense) is an aggregation of both recurring and
nonrecurring items and, as a result, can fluctuate from year to year.
There were no significant individual items in the first quarters of
either 2000 or 1999.
<PAGE>
Weyerhaeuser Company
- -22-
Liquidity and Capital Resources
General
The company is committed to the maintenance of a sound, conservative
capital structure. This commitment is based upon two considerations:
the obligation to protect the underlying interests of its shareholders and
lenders and the desire to have access, at all times, to all major financial
markets.
The important elements of the policy governing the company's capital
structure are as follows:
. To view separately the capital structures of Weyerhaeuser Company,
Weyerhaeuser Real Estate Company and related subsidiaries, given the very
different nature of their assets and business activities. The amount of
debt and equity associated with the capital structure of each will
reflect the basic earnings capacity, real value and unique liquidity
characteristics of the assets dedicated to that business.
. The combination of maturing short-term debt and the structure of long-term
debt will be managed judiciously to minimize liquidity risk.
Operations
Consolidated net cash provided by operations in the first quarter was $5
million. Net cash from operations, before net changes in working capital,
of $410 million was offset by an increased use of funds for working
capital. Cash was provided by net income of $244 million and $201 million
from depreciation, amortization, fee stumpage and goodwill amortization.
These were offset in part by noncash credits of $36 million for pension and
other postretirement benefits and $24 million from equity on income of
affiliates and unconsolidated entities.
Working capital cash requirements for Weyerhaeuser, net of the effects of
the acquisition of TJ International, included increases of
$79 million in accounts receivable and $151 million in inventories along
with a decrease of $171 million in accounts payable and accrued
liabilities. The increase in receivables reflects the seasonal increase in
sales in late first quarter versus late fourth quarter of 1999. The
inventory increase was across all product lines with the inventory turnover
rate dropping from 10.9 turns in the 1999 first quarter to 10.3 turns in
the current quarter. Real estate and related assets cash outflows included
$40 million for the acquisition and development of land and residential
lots for construction.
Earnings before interest expense and income taxes plus noncash charges for
the principal business segments were:
. $184 million for the timberlands segment for the current quarter
compared to $131 million in 1999. Operating earnings for this segment were
$48 million higher than last year.
. $203 million for the wood products segment in 2000 first quarter compared
to $124 million in the same period last year. The 1999 first quarter
includes a noncash charge of $91 million for impairment of long-lived
assets. Operating earnings increased $56 million in comparison to the
1999 first quarter prior to the noncash charges.
. $291 million for the pulp, paper and packaging segment in the current
quarter compared to $133 million in 1999. Operating earnings increased
$145 million from last year.
Investing
Capital expenditures for the quarter were $152 million. The capital
spending by segment was $26 million for timberlands, $59 million for wood
products, $53 million for pulp, paper and packaging and $14
million for corporate and other. The company currently anticipates capital
expenditures, excluding acquisitions, to approximate $800 million for
the year; however, this expenditure level could increase or decrease as a
consequence of future economic conditions.
During the quarter, the company completed its tender offer for the stock of
TJ International. Cash of $594 million, net of cash acquired, was used to
complete the transaction. The cash needed to meet capital and other needs
during the quarter was generated principally from the redemption of short-
term securities held at year-end.
<PAGE>
Weyerhaeuser Company
- -23-
Financing
During the first quarter, Weyerhaeuser decreased its interest bearing debt
by $614 million. This was primarily from commercial paper borrowings of
$206 million offset in part by debt payments of $825 million. The real estate
and related assets segment increased third party debt by $23 million through
commercial paper borrowings to finance real estate purchases.
The company's debt to total capital ratio was 33 percent at the end of the
quarter. This is comparable to the 36 percent ratio at the end of 1999.
During the first quarter, the company paid $91 million in cash dividends.
The company expended $211 million to purchase 4.1 million shares of its
common stock as part of the 12 million share repurchase plan announced in
February 2000. The company expects to complete the repurchase plan within
one year.
Environmental Matters
Over the past several years, the National Marine Fisheries Service (NMFS)
has listed as threatened or endangered under the Endangered Species Act
(ESA) various species of salmon and sea-going trout that spawn in the
Pacific Northwest (Washington, Oregon, Idaho and northern California) and
some additional populations have been proposed to be listed. The U.S. Fish
and Wildlife Service also has listed a number of species as threatened or
endangered under the ESA, including the northern spotted owl, marbled
murrelet, bull trout and lynx.
The ESA automatically prohibits the "take" of species listed as endangered
and gives NMFS authority to prohibit the "take" of species it lists as
threatened. NMFS proposed rules to prohibit "take" of the species it has
listed as threatened, except "incidental take" that may result from
activities regulated under state or local programs approved by NMFS. State
agencies and local governments are reviewing their environmental
regulations regarding forestry and other land use activities and are
considering adoption of stronger regulations to help protect habitat for
such species and obtain such approvals from NMFS. Requirements to protect
habitat for threatened and endangered species have resulted in restrictions
in timber harvests on nonfederal timberlands, including some timberlands of
the company.
For example, during the second quarter of 1999, the Washington State
Legislature amended that state's Forest Practices Act to implement a salmon
recovery agreement negotiated among state and federal agencies, Indian
tribes and forest landowner organizations and in the first quarter of 2000
the Washington Forest Practices Board adopted interim rules to implement
that agreement. These rules require additional timber to be left
unharvested in riparian zones along streams and impose added road
construction and maintenance costs, partially offset by reductions in state
timber harvest taxes. The company expects the new rules to require some
reductions in timber harvest from its lands and other private and public
lands in Washington, but does not expect these reductions to significantly
impair its ability to operate its facilities or supply products to its
customers. In the future, requirements to protect habitat could result in
restrictions on timber harvest and other forest management practices on
some of the company's timberlands, could increase operating costs, and
could affect timber supply and prices in some regions. The company does not
believe that such restrictions will have a significant effect on the company's
total harvest of timber in 2000 or 2001, although they may have such an effect
in the future.
The company has established reserves for remediation costs on all of the
approximately 115 active sites across our operations as of the end of March
2000 in the aggregate amount of $51 million, up from $46 million at the end
of 1999. This increase reflects the incorporation of new information on all
sites concerning remediation alternatives, updates on prior cost estimates
and new sites (none of which were significant) less the costs incurred to
remediate these sites during this period. The company has accrued remediation
costs into this reserve as follows: $7 million and $4 million in the first
three months of 2000 and 1999, respectively. The company incurred remediation
costs of $2 million in both 2000 and 1999, respectively, and charged these costs
against the reserve.
Legal Proceedings
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.
<PAGE>
Weyerhaeuser Company
- -24-
. 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-four 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.
Acquisition of TJ International
On January 6, 2000, the company acquired a controlling interest in TJ
International, a 51 percent owner and managing partner of Trus Joist
MacMillan (TJM) through a successful tender offer that represented more
than 90 percent of the total number of outstanding shares. On January 21,
2000, the company completed the acquisition through the filing of a short-
term merger document. See Note 14: Acquisitions in Notes to Financial
Statements.
Subsequent Event
On March 31, 2000, the company completed the acquisition of two sawmills,
with a combined capacity of 171 million board feet of lumber, and related
assets, including a 70 percent stake in Pine Solutions, Australia's largest
softwood distributor, from CSR Ltd. Of Australia for approximately
$55 million in cash.
Other
. In October 1999, the company announced a new initiative to streamline and
improve delivery of internal support services that is expected to result
in $150 million to $200 million in annual savings. The company began
implementation of these plans during the first quarter of 2000, a process
that may take up to three years to complete. Because implementation
plans are still under review, the specific number of employees affected,
exact timing of the implementation and associated costs have not been
finalized.
. On March 21, 2000, the company announced that it could not agree on terms
regarding the potential sale of the door business in Marshfield,
Wisconsin, to Sanders, Karp and Megrue.
Contingencies
The company is a party to legal proceedings and environmental matters
generally incidental to its business. Although the final outcome of
any legal proceeding or environmental matter is subject to a great many
variables and cannot be predicted with any degree of certainty, the company
presently believes that the ultimate outcome resulting from these
proceedings and matters would not have a material effect on the company's
current financial position, liquidity or results of operations; however, in
any given future reporting period such proceedings or matters could have a
material effect on results of operations.
Quantitative and Qualitative Disclosures About Market Risk
As part of the company's financing activity, derivative securities are
sometimes used to achieve the desired mix of fixed versus floating rate
debt and to manage the timing of finance opportunities. The company does
not hold or issue derivative financial instruments for trading. They are
used to manage well-defined interest rate and foreign exchange risks.
These include:
. Foreign exchange contracts, which are hedges for foreign denominated
accounts receivable and accounts payable. These contracts generate gains
or losses that are recognized at the contracts' respective
settlement dates. At March 26, 2000, the net open position of foreign
exchange hedges in Canadian dollars, Australian dollars, German DMs and
Japanese yen was $65 million.
<PAGE>
Weyerhaeuser Company
- -25-
. 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 March 26, 2000, the company had one interest rate swap with a maturity
date of November 6, 2001, and a notional amount of $75 million with a fixed
interest rate of 6.85 percent. The variable rate at March 26, 2000, based on
the 30-day LIBOR, was 6.13 percent, with the fair value of the swap being a
loss of $1.1 million. The amount of the obligation under this swap is based
on the assumption that it had terminated at the end of the fiscal period and
provides for the netting of amounts payable by and to the counterparty.
In each case, the amount of such obligation is the net amount so determined.
The company is exposed to credit-related gains or losses in the event of
nonperformance by counterparties to these financial instruments; however,
the company does not expect its counterparties to fail to meet their
obligations.
<PAGE>
Weyerhaeuser Company
- -26-
Part II. Other Information
Item 1. Legal Proceedings
The company conducted a review of its 10 major pulp and paper facilities to
evaluate the facilities' compliance with federal Prevention of Significant
Deterioration (PSD) regulations. The results of the reviews were disclosed
to seven state agencies and the Environmental Protection Agency (EPA)
during 1994 and 1995. All PSD compliance issues identified in the review
have been resolved, except for PSD issues at the company's Springfield,
Oregon, containerboard facility. A final decision is expected to be made
by the Lane Regional Air Pollution Control Authority (Lane County, Oregon)
concerning alleged PSD and permit violations at the company's Springfield,
Oregon, containerboard manufacturing facility upon issuance of the
facility's Title V permit in 2000. In addition, the company is conducting
a review of one pulp and paper facility and two wood products facilities
that were recently acquired to evaluate their compliance with PSD and new
source review regulations.
In June 1998, a lawsuit was filed against the company in Superior Court,
San Francisco County, California, on behalf of a purported class of
individuals and entities that own property in the United States on which
exterior hardboard siding manufactured by the company has been installed
since 1981. The action alleges the company manufactured and distributed
defective hardboard siding, breached express warranties and consumer
protection statutes and failed to disclose to consumers the alleged
defective nature of its hardboard siding. The action seeks compensatory
and punitive damages, costs and reasonable attorney fees. In December
1998, the complaint was amended narrowing the purported class to
individuals and entities in the state of California. In February 1999, the
court entered an order certifying the class. The company has been unable
thus far to obtain a reversal of the certification. In September 1998, a
lawsuit purporting to be a class action involving hardboard siding was
filed against the company in Superior Court, King County, Washington. The
complaint was amended, in January 1999, to allege a class consisting of
individuals and entities that own homes or other structures in the United
States on which exterior hardboard siding manufactured by the company at
its former Klamath Falls, Oregon, facility has been installed since January
1981. The amended complaint alleges the company manufactured defective
hardboard siding, engaged in unfair trade practices and failed to disclose
to customers the alleged defective nature of its hardboard siding. The
amended complaint seeks compensatory damages, punitive or treble damages,
restitution, attorney fees, costs of the suit and such other relief as may
be appropriate. In July 1999, the company's motion for summary judgment
was granted in this case. The plaintiffs filed a petition for
reconsideration, which was denied in January 2000. The plaintiffs have
appealed this decision. A lawsuit was filed against the company in
District Court, Johnson County, Texas, in June 1999. The case purports to
be a class action on behalf of persons who own structures in the state of
Texas with exterior hardboard siding manufactured by the company. The
complaint alleges defective design, misrepresentation, negligence, breach
of express warranty and fraudulent concealment. The complaint seeks
unspecified compensatory damages. In July 1999, a lawsuit was filed
against the company in the Court of Common Pleas, Beaufort County, South
Carolina. The suit purports to be filed on behalf of all owners of
residential structures or other buildings with hardboard siding
manufactured by the company. The complaint alleges breach of express and
implied warranties, defective design and manufacture, fraud and violation
of South Carolina's unfair trade practices act. The plaintiffs seek
compensatory damages, treble damages and attorneys' fees. The company is
a defendant in two other cases, one in Iowa and the other in Oregon, that
purport to be statewide class actions with similar allegations. The
company is a defendant in approximately 24 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.
<PAGE>
Weyerhaeuser Company
- -27-
Part II
Item 1. Legal Proceedings - Continued
In May 1999, the Equity Committee ("the Committee") in the Paragon Trade
Brands, Inc. bankruptcy proceeding filed a motion in U.S. Bankruptcy Court
for the Northern District of Georgia for authority to prosecute claims
against the company in the name of the debtor's estate. Specifically, the
Committee seeks to assert that the company breached certain warranties in
agreements entered into between Paragon and the company in connection with
Paragon's public offering of common stock in January 1993. The Committee
seeks to recover damages sustained by Paragon as a result of two patent
infringement cases, one brought by Procter & Gamble and the other by
Kimberly-Clark. In September 1999, the court authorized the Committee to
commence an adversary proceeding against the company. The Committee
commenced this proceeding in October 1999, seeking damages in excess of
$420 million against the company.
Subsidiaries of the company, formerly known as MacMillan Bloedel Limited
and MacMillan Bloedel (USA) Inc., have agreed to settle a class action suit
involving claims in the United States (excluding Colorado) alleging the
failure of cement fiber roofing products previously manufactured by
American Cemwood Corporation, a company owned by MacMillan Bloedel (USA)
Inc. The proposed settlement would create a fund of $105 million,
consisting of $65 million in cash and $40 million guaranteed recovery by
the class from certain insurance carriers. The settlement 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 6. Exhibits and Reports on Form 8-K
Exhibits
27 Financial Data Schedules
Reports on Form 8-K
The registrant filed reports on Form 8-K dated January 24 and
April 20, 2000, reporting information under Item 5, Other Events.
The registrant filed a Form 8-K on January 10, 2000, which amended a Form
8-K dated November 9, 1999, reporting information under Item 2,
Acquisition or Disposition of Assets, and Item 7, Financial Statements and
Exhibits.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-26-2000
<CASH> 96
<SECURITIES> 0
<RECEIVABLES> 1,550<F1>
<ALLOWANCES> 0
<INVENTORY> 1,564
<CURRENT-ASSETS> 3,367
<PP&E> 8,243<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 17,951
<CURRENT-LIABILITIES> 2,376
<BONDS> 4,468
0
0
<COMMON> 291
<OTHER-SE> 6,898
<TOTAL-LIABILITY-AND-EQUITY> 17,951
<SALES> 3,911
<TOTAL-REVENUES> 3,911
<CGS> 2,922
<TOTAL-COSTS> 2,922
<OTHER-EXPENSES> 253
<LOSS-PROVISION> 2
<INTEREST-EXPENSE> 91
<INCOME-PRETAX> 387
<INCOME-TAX> 143
<INCOME-CONTINUING> 244
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 244
<EPS-BASIC> 1.04
<EPS-DILUTED> 1.04
<FN>
<F1>Receivables are stated net of allowances.
<F2>Property, plant and equipment is stated net of accumulated depreciation.
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