-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FIvXEHl7HQOIVqRtJxZK79UV5O3bgs69qY9lYjPxvSbHP5zqWdO6+658QTo0UhsJ wt/h/vMDI9cYDnEidzROyQ== 0000106535-96-000008.txt : 19960318 0000106535-96-000008.hdr.sgml : 19960318 ACCESSION NUMBER: 0000106535-96-000008 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960315 SROS: CSX SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEYERHAEUSER CO CENTRAL INDEX KEY: 0000106535 STANDARD INDUSTRIAL CLASSIFICATION: LUMBER & WOOD PRODUCTS (NO FURNITURE) [2400] IRS NUMBER: 910470860 STATE OF INCORPORATION: WA FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04825 FILM NUMBER: 96535244 BUSINESS ADDRESS: STREET 1: 33663 WEYERHAEUSER WAY SOUTH CITY: FEDERAL WAY STATE: WA ZIP: 98003 BUSINESS PHONE: 2069242345 MAIL ADDRESS: STREET 1: 33663 WEYERHAEUSER WAY SOUTH CITY: FEDERAL WAY STATE: WA ZIP: 98003 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) X OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1995 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 (206) 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 Tokyo Stock Exchange Rights to Purchase Cumulative New York Stock Exchange Preference Shares, Fourth Series 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. [ ]. As of February 23, 1996, 198,070,891 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 $8,913,190,095. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Shareholders for the fiscal year ended December 31, 1995 are incorporated by reference into Parts I, II and IV. Portions of the Notice of 1996 Annual Meeting of Shareholders and Proxy Statement are incorporated by reference into Part III. 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 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 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 growing and harvesting of timber and the manufacture, distribution and sale of forest products, real estate development and construction, and financial services. Its principal business segments include timberlands and wood products; pulp, paper and packaging; real estate; and financial services. Information with respect to the description and general development of the company's business, included on pages 35 through 39, Description of the Business of the Company, contained in the company's 1995 Annual Report to Shareholders, is incorporated herein by reference. Financial information with respect to industry segments, included in Note 19 of Notes to Financial Statements contained in the company's 1995 Annual Report to Shareholders, is incorporated herein by reference. Timberlands and Wood Products The company owns approximately 5.3 million acres of commercial forestland in the United States (49% in the South and 51% in the Pacific Northwest), most of it highly productive and located extremely well to serve both domestic and international markets. The company has, additionally, long-term license arrangements in Canada covering approximately 18.9 million acres (of which 14 million acres are considered to be productive forestland). The combined total timber inventory on these U.S. and Canadian lands is approximately 244 million cunits (a cunit is 100 cubic feet of solid wood), of which approximately 75% is softwood species. 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.
Inventory Thousands of Acres at December 31, 1995 --------- ------------------------------------------ Millions Fee Long-term License of Cunits Ownership Leases Arrangements Total --------- --------- ---------- ------------ ------ Geographic Area Washington 44 1,492 - - 1,492 Oregon 18 1,217 - - 1,217 Southern 28 2,593 171 - 2,764 --------- --------- ---------- ------------ ------ Total United States 90 5,302 171 - 5,473 --------- --------- ---------- ------------ ------ Canada Alberta 91 - - 6,846 6,846 British Columbia 10 35 - 3,572 3,607 Saskatchewan 53 - - 8,457 8,457 --------- --------- ---------- ------------ ------ Total Canada 154 35 - 18,875 18,910 --------- --------- ---------- ------------ ------ TOTAL 244 5,337 171 18,875 24,383 ========= ========= ========== ============ ======
Thousands of Acres Thousands of Acres Millions of ------------------------ ------------------ Seedlings Stocking Harvested Planted Planted Control Fertilization --------- ------- --------- --------- ------------- 1995 Activity Washington 27.5 28.4 15.8 1.5 55.9 Oregon 12.8 11.9 5.2 1.7 33.5 Southern 49.0 45.5 20.5 3.8 189.8 --------- ------- --------- --------- ------------- Total United States 89.3 85.8 41.5 7.0 279.2 ========= ======= ========= ========= =============
3 Weyerhaeuser Company and Subsidiaries PART I Item 1. Business - Continued - ----------------------------- On February 28, 1996, the company signed an agreement to acquire ownership and long-term leases to 661,200 acres of private commercial forestland and two sawmills in southeastern Louisiana and southern Mississippi from Cavenham Forest Industries, a subsidiary of Hansen Plc, for $500 million. The company's wood products businesses produce and sell softwood lumber, plywood and veneer; composite panels; oriented strand board; hardboard; hardwood lumber and plywood; doors; treated products; logs; chips and timber. These products are sold primarily through the company's own sales organizations. Building materials are sold to wholesalers, retailers and industrial users. Sales volumes by major product class are as follows (millions):
1995 1994 1993 1992 1991 ------ ------ ------ ------ ------ Raw materials - cubic ft. 535 564 547 545 538 Softwood lumber - board ft. 4,515 4,402 4,230 3,440 3,269 Softwood plywood and veneer - sq. ft. (3/8") 2,324 2,685 2,435 2,227 2,135 Composite panels - sq. ft. (3/4") 648 660 626 590 685 Oriented strand board - sq. ft. (3/8") 1,931 1,803 1,672 1,484 1,205 Hardboard - sq. ft. (7/16") 201 167 140 133 114 Hardwood lumber - board ft. 293 254 240 218 219 Engineered wood products - lineal ft. 128 71 47 - - Hardwood doors (thousands) 648 617 556 514 525
Selected product prices:
1995 1994 1993 1992 1991 ------ ------ ------ ------ ------ Export logs (#2 sawlog-bark on) - $/MBF Cascade - Douglas fir $1,365 $1,168 $1,224 $ 930 $ 686 Coastal - Hemlock 750 804 831 562 530 Coastal - Douglas fir 1,217 1,085 1,104 858 633 Lumber (common) - $/MBF 2x4 Douglas fir (kiln dried) 332 408 418 295 250 2x4 Douglas fir (green) 308 364 383 261 224 2x4 Southern yellow pine (kiln dried) 364 419 397 285 237 2x4 Spruce-pine-fir (kiln dried) 251 343 334 231 187 Plywood (1/2" CDX) - $/MSF West 331 334 321 281 220 South 301 298 282 249 192 Oriented strand board (7/16"-24/16) North Central price - $/MSF 245 265 236 217 147
4 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; Newsprint, which manufactures newsprint at the company's North Pacific Paper Corporation mill and markets it to West Coast and Japanese newspaper publishers; 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, which is 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; Recycling, which operates an extensive wastepaper collection system and markets it to company mills and worldwide customers; and Chemicals, which produces chlorine, caustic and tall oil, which are used principally by the company's pulp, paper and packaging operations. In 1993, the Personal Care Products business, which manufactured disposable diapers marketed under the private-label brands of many of North America's largest retailers was sold through an initial public offering of stock. Sales volumes by major product class are as follows (thousands):
1995 1994 1993 1992 1991 ------- ------- ------- ------- ------- Pulp - air-dry metric tons 2,060 2,068 1,886 1,238 1,433 Newsprint - metric tons 663 638 609 575 450 Paper - tons 1,006 998 990 966 869 Paperboard - tons 230 201 222 238 234 Containerboard - tons 259 254 290 318 418 Packaging - MSF 34,342 34,483 31,386 29,414 26,525 Recycling - tons 1,467 985 851 778 735 Personal care products - standard cases - - - 17,017 14,929
Selected product prices (per ton):
1995 1994 1993 1992 1991 ------ ------ ------ ------ ------ Pulp - NBKP-air-dry metric-U.S. $883 $566 $445 $551 $568 Paper - uncoated free sheet-U.S. 946 617 627 630 713 Linerboard - 42 lb.-Eastern U.S. 505 367 295 343 330 Newsprint - metric - West Coast U.S. 662 460 435 433 549 OCC 128 78 27 30 39 ONP 99 46 16 13 16
5 Weyerhaeuser Company and Subsidiaries PART I Item 1. Business - Continued - ----------------------------- Real Estate The company, through its real estate subsidiary, Weyerhaeuser Real Estate Company, is engaged primarily in developing single-family housing and residential lots for sale, including the development of master-planned communities. Operations are mainly concentrated in selected metropolitan areas in Southern California, Nevada, Washington, Texas, Maryland and Virginia. Volumes sold:
1995 1994 1993 1992 1991 ----- ----- ----- ----- ----- Single-family units (1) 3,114 3,934 3,879 3,917 4,410 Multi-family units (1) 117 475 1,141 60 317 Lots (1) 1,628 2,157 1,372 2,762 1,138 Commercial space (thousand sq. ft.) - 389 88 142 269
(1) Includes one-half of joint venture sales. Financial Services The company, through its financial services subsidiary, Weyerhaeuser Financial Services, Inc., is involved in a range of financial services. The principal operating unit is Weyerhaeuser Mortgage Company, which has origination offices in 14 states, with a servicing portfolio of $11 billion involving approximately 136,000 loans throughout the country. Mortgages are resold in the secondary market through mortgage-backed securities to financial institutions and investors. Through its insurance services organization, it also offers a broad line of property, life and disability insurances. GNA Corporation, a subsidiary that specialized in the sale of life insurance annuities and mutual funds to the customers of financial institutions, was sold in April 1993. Republic Federal Savings & Loan Association, a subsidiary that operated in Southern California, was dissolved in 1992. Volume information (millions):
1995 1994 1993 1992 1991 ------- ------- ------- ------- ------- Loan servicing portfolio $10,952 $11,300 $ 8,400 $ 9,800 $10,600 Single-family loan originations 2,196 2,763 4,405 3,380 2,496
6 Weyerhaeuser Company and Subsidiaries PART I Item 2. Properties - ------------------- Timberlands and Wood Products Facilities and annual production are summarized by major product class as follows (millions):
Number Production of Capacity Facilities 1995 1994 1993 1992 1991 ---------- ---------- ----- ----- ----- ----- ----- Logs - cubic ft. - - 914 671 673 749 782 Softwood lumber - board ft. 3,483 27 3,419 3,249 3,135 2,782 2,687 Softwood plywood and veneer - sq. ft. (3/8") 1,337 8 1,292 1,249 1,188 1,125 966 Composite panels - sq. ft. (3/4") 607 6 583 594 564 540 493 Oriented strand board - sq. ft. (3/8") 1,670 5 1,654 1,568 1,443 1,234 1,208 Hardboard - sq. ft. (7/16") 130 1 124 122 120 118 90 Hardwood lumber - board ft. 409 11 278 229 221 210 196 Hardwood doors (thousands) 717 1 643 597 522 469 448
Principal manufacturing facilities are located as follows: Softwood lumber and plywood Hardwood lumber Alabama, Arkansas, Georgia, Idaho, Arkansas, Oklahoma, Oregon, Mississippi, North Carolina, Pennsylvania, Washington and Oklahoma, Oregon, Washington and Wisconsin Alberta, British Columbia and Saskatchewan, Canada Hardwood doors Wisconsin Composite panels Georgia, North Carolina, Oregon and Wisconsin Oriented strand board Michigan, North Carolina and Alberta, Canada Hardboard Oregon 7 Weyerhaeuser Company and Subsidiaries PART I Item 2. Properties - Continued - ------------------------------- Pulp, Paper and Packaging Facilities and annual production are summarized by major product class as follows (thousands):
Number of Production Facil- Capacity ilities 1995 1994 1993 1992 1991 ---------- -------- ------ ------ ------ ------ ------ Pulp - air-dry metric tons 2,130 8 2,159 2,041 2,096 1,506 1,527 Newsprint - metric tons 690 1 687 651 618 588 461 Paper - tons 1,075 5 1,060 982 1,007 971 889 Paperboard - tons 220 1 229 189 217 229 238 Containerboard - tons 2,540 5 2,329 2,357 2,269 2,240 2,224 Packaging - MSF 48,000 45 36,041 36,020 32,795 31,040 27,583 Recycling - tons - 36 2,754 2,042 1,847 1,692 1,415 Personal care products - standard cases - - - - - 16,743 14,902
Principal manufacturing facilities are located as follows: Pulp Containerboard Georgia, Mississippi, North Carolina, North Carolina, Oklahoma, Oregon Washington and Alberta, British and Washington Columbia and Saskatchewan, Canada Packaging Newsprint Arizona, California, Connecticut, Washington Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Kentucky, Maryland, Paper Michigan, Minnesota, Mississippi, Mississippi, North Carolina, Missouri, Nebraska, New Jersey, Washington, Wisconsin and New York, North Carolina, Ohio, Saskatchewan, Canada Oregon, Tennessee, Texas, Virginia, Washington and Wisconsin Paperboard Washington Recycling Arizona, California, Colorado, Georgia, Illinois, Indiana, Iowa, Kansas, Maryland, Minnesota, Nebraska, New Jersey, North Carolina, Oklahoma, Oregon, Pennsylvania, Tennessee, Texas, Utah, Virginia, Washington and British Columbia, Canada Chemicals Georgia, Mississippi, North Carolina, Oklahoma, Washington and Saskatchewan, Canada 8 Weyerhaeuser Company and Subsidiaries PART I Item 2. Properties - Continued - ------------------------------- Real Estate
Principal Operations Primary States of Operations Primary Activities - ----------------------------------------------------------------------------- Land Management Arkansas, North Carolina Residential and and Washington commercial land development Pardee Construction California and Nevada Single-family and Company multi-family housing and land development The Quadrant Washington Single-family housing, Corporation residential and commercial land development, commercial building and commercial property management Scarborough Florida Residential and Constructors, Inc. commercial land development Trendmaker Homes, Inc. Texas Single-family housing and residential land development Winchester Homes, Inc. Maryland and Virginia Single-family housing and residential land development Weyerhaeuser Real Washington Parent company Estate Co.
Financial Services
Principal Operations Primary States of Operations Primary Activities - ------------------------------------------------------------------------------ Weyerhaeuser Mortgage Branches in 14 states with Mortgage lending and Company major concentrations in servicing, insurance California, Hawaii, Nevada and investment sales and Texas and service Mortgage Securities California Mortgage securities Corporations Weyerhaeuser California Real estate investment Financial sales and service Investments, Inc. Weyerhaeuser Venture Arizona, California, Equity investments and Co. Nevada, Oregon and participating loans in Washington residential real estate Weyerhaeuser Delaware Parent company Financial Services, Inc.
9 Weyerhaeuser Company and Subsidiaries PART I Item 3. Legal Proceedings - -------------------------- Trial began in May 1992 in a federal income tax refund case that the company filed in July 1989 in the United States Claims Court. The complaint seeks a refund of federal income taxes that the company contends it overpaid in 1977 through 1983. The alleged overpayments are the result of the disallowance of certain timber casualty losses and certain deductions claimed by the company arising from export transactions. The refund sought was approximately $29 million, plus statutory interest from the dates of the alleged overpayments. The company settled the portion of the case relating to export transactions and received a tax refund of approximately $10 million, plus statutory interest. In September 1994, the United States Court of Federal Claims issued an opinion on the casualty loss issues which will result in the allowance of additional tax refunds of approximately $2 million, plus statutory interest. The company has appealed the decision. On March 6, 1992, the company filed a complaint in the Superior Court for King County, Washington, against a number of insurance companies. The complaint seeks a declaratory judgment that the insurance companies named as defendants are obligated under the terms and conditions of the policies sold by them to the company to defend the company and to pay, on the company's behalf, certain claims asserted against the company. The claims relate to alleged environmental damage to third-party sites and to some of the company's own property to which allegedly toxic material was delivered or on which allegedly toxic material was placed in the past. Since December 1992, the company has agreed to settlements with all but one of the defendants. In July 1993, the trial court dismissed 14 of the 35 sites named in the complaint. In May 1994, the Washington State Supreme Court reversed the trial court's dismissal of those sites. Trial on two sites against the sole remaining defendant began in October 1994 and resulted in a jury verdict which awarded damages to the company with respect to one of the sites. Trial on several additional sites began in February 1996 and is continuing. The company received from the Lane County, Oregon Regional Air Pollution Control Authority (LRAPA) a draft Notice of Violation which seeks penalties for alleged Prevention of Significant Deterioration (PSD) violations at the company's Springfield, Oregon, particleboard operations. LRAPA informed the company in July 1995 that it will withdraw its draft Notice of Violation (NOV) and will not seek fines or penalties. On September 15, 1995, however, LRAPA issued a revised draft NOV (the Revised Draft NOV), which alleged that the Springfield particleboard facility had violated a condition of its Air Contaminant Discharge Permit (ACDP). The allegations in the Revised Draft NOV are based upon the same facts and circumstances relied upon by LRAPA in the prior draft NOV. The company has contested LRAPA's issuance of the Revised Draft NOV. The company has undertaken a review of its 10 major pulp and paper facilities to evaluate the facilities' compliance with PSD regulations, and has disclosed the potential of PSD compliance issues to seven state agencies and the Environmental Protection Agency (EPA). The company is currently working with the states to negotiate settlements for the alleged violations. In April 1995, EPA Region X issued a Notice of Violation to the company and to North Pacific Paper Corporation (NORPAC), a joint venture in which the company has an 80 percent ownership interest. The Notice of Violation addresses alleged PSD violations at NORPAC's Longview, Washington, newsprint manufacturing facility. A settlement with the State of Washington that resolves all PSD issues at the Longview/NORPAC complex was entered on January 26, 1996. The company also entered into a settlement with the State of Oklahoma regarding the resolution of alleged PSD violations at the company's Valliant, Oklahoma, containerboard manufacturing facility on November 14, 1995. The company has entered into Special Orders by Consent (SOCs) with the State of North Carolina to resolve alleged PSD issues at its New Bern, North Carolina, pulp mill and its Plymouth, North Carolina, pulp and paper complex. The Washington State Department of Ecology investigated the accidental release of chorine, chlorine dioxide and non-condensable gasses in July 1994 at the company's pulp mill in Longview, and issued a $10 thousand penalty for the chlorine release and a $5 thousand penalty for the non-condensable gasses release which have been paid by the company. In June 1995, EPA issued an Administrative Complaint against the company, seeking penalties of $225 thousand and alleging a failure to timely report the chlorine release. The company has appealed. 10 Weyerhaeuser Company and Subsidiaries PART I Item 3. Legal Proceedings - Continued - -------------------------------------- On April 9, 1993, the company entered into a Stipulated Final Order (SFO) with the Oregon Department of Environmental Quality for alleged air emissions in excess of permit levels and PSD noncompliance at the company's North Bend, Oregon, containerboard facility. The SFO establishes a compliance schedule for installing control technology. A supplemental SFO assessed upfront penalties of $247 thousand and penalties of $500 per day until compliance is demonstrated. The SFO required demonstrated compliance by December 1993 and a historical evaluation of the facility's PSD status. The company submitted an initial PSD review to the state in December 1993. A revised report was delivered to the state in March 1995. On November 2, 1992, an action was filed against the company in the Circuit Court for the First Judicial District of Hinds County, Mississippi, on behalf of a purported class of riparian property owners in Mississippi and Alabama whose properties are located on the Tennessee Tombigbee Waterway, Aliceville Lake, Cedar Creek and the Magoway Creek. The complaint seeks $1 billion in compensatory and punitive damages for diminution in property value, personal injuries and mental anguish allegedly resulting from the discharge of purported hazardous substances, including dioxins and furans, by the company's pulp and paper mill in Columbus, Mississippi, and the alleged fraudulent concealments of such discharge. The complaint also seeks an injunction prohibiting future releases and the removal of hazardous substances allegedly released in the past. On August 20, 1993, a companion action was filed in Greene County, Alabama, on behalf of a similar purported class of riparian owners with essentially the same claims as the Mississippi case. By order dated April 5, 1995, venue of the Alabama action was transferred to Sumter County, Alabama. On January 20, 1995, the court in the Alabama action certified a class of all persons who, as of the date the action commenced, were riparian owners, lessees and licensees of properties located on the Tennessee Tombigbee Waterway in Greene, Sumter, Pickens and Marengo counties, Alabama, and Lowndes and Noxubee counties, Mississippi, to determine whether the company is liable to the members of the class for compensatory and/or punitive damages and to determine the amount of punitive damages, if any, to be awarded to the class as a whole. By order dated April 12, 1995, as orally amended on February 1, 1996, the geographical boundaries of the class were amended to run from below the Columbus mill's wastewater discharge pipe just above the confluence of the Black Warrior River and the Tennessee Tombigbee Waterway. The class is estimated to range from approximately 1,000 to 1,500 members. Neither the Mississippi action nor the Alabama action is presently scheduled for trial. The company is also a party to various proceedings relating to the clean-up 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 generally incidental to its business. Although the final outcome of any legal proceeding 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 the legal proceedings discussed herein, 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 legal proceedings 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 31, 1995. 11 Weyerhaeuser Company and Subsidiaries PART II Item 5. Market Price of and Dividends on the Registrant's Common - ---------------------------------------------------------------------- Equity and Related Stockholder Matters - -------------------------------------- Information with respect to market information, stockholders and dividends included in Notes 20 and 21 of Notes to Financial Statements in the company's 1995 Annual Report to Shareholders, is incorporated herein by reference. Item 6. Selected Financial Data - -------------------------------- Information with respect to selected financial data included in Note 21 of Notes to Financial Statements in the company's 1995 Annual Report to Shareholders, is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition - --------------------------------------------------------------------- and Results of Operations - ------------------------- On February 28, 1996, the company signed an agreement to acquire ownership and long-term leases to 661,200 acres of private commercial forestland and two sawmills in southeastern Louisiana and southern Mississippi from Cavenham Forest Industries, a subsidiary of Hansen Plc, for $500 million. This acquisition is not expected to have a significant impact on the company's financial position or liquidity. In the fourth quarter of 1995, pulp and paper prices began to weaken dramatically as customers reduced purchases in order to reduce excess inventories. These prices continued to decline in the first quarter of 1996. This will result in significantly lower operating earnings in the company's pulp, paper and packaging segment. This price weakness is expected to continue until the excess inventory situation corrects itself. Additional information with respect to Management's Discussion and Analysis included on pages 7, 14-17, 19, 24-27 and 32-44; contained in the company's 1995 Annual Report to Shareholders, is incorporated herein by reference. Item 8. Financial Statements and Supplementary Information - ----------------------------------------------------------- Financial statements and supplementary information, contained in the company's 1995 Annual Report to Shareholders are incorporated herein by reference:
Page(s) in Annual Report to Shareholders ---------------- Report of Independent Public Accountants 44 Consolidated Statement of Earnings 45 Consolidated Balance Sheet 46-47 Consolidated Statement of Cash Flows 48-49 Consolidated Statement of Shareholders' Interest 50 Notes to Financial Statements 51-69 Selected Quarterly Financial Information 67
Item 9. Changes in and Disagreements with Accountants on Accounting - --------------------------------------------------------------------- and Financial Disclosure - ------------------------ Not applicable. 12 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 1 through 4 of the Notice of 1996 Annual Meeting of Shareholders and Proxy Statement dated March 4, 1996 is incorporated herein by reference. The executive officers of the company are as follows:
Name Title Age - ---------------------- ------------------------- ----- William R. Corbin Executive Vice President 54 John W. Creighton, Jr. President 63 Richard C. Gozon Executive Vice President 57 Steven R. Hill Senior Vice President 48 Mack L. Hogans Senior Vice President 47 Norman E. Johnson Senior Vice President 62 Thomas M. Luthy Senior Vice President 58 William C. Stivers Senior Vice President 57
Item 11. Executive Compensation - -------------------------------- Information with respect to executive compensation included on pages 5 through 13 of the Notice of 1996 Annual Meeting of Shareholders and Proxy Statement dated March 4, 1996 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 4 and 5 of the Notice of 1996 Annual Meeting of Shareholders and Proxy Statement dated March 4, 1996 is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions - -------------------------------------------------------- Information with respect to certain relationships and related transactions included on page 22 of the Notice of 1996 Annual Meeting of Shareholders and Proxy Statement dated March 4, 1996 is incorporated herein by reference. 13 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, contained in the company's 1995 Annual Report to Shareholders, are incorporated in Part II, Item 8 of this Form 10-K by reference.
Page Number(s) Financial Statement Schedules In Form 10-K - ----------------------------- -------------- Report of Independent Public Accountants on Financial Statement Schedules 16 Schedule II - Valuation and Qualifying Accounts 17
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, contained in the company's 1995 Annual Report to Shareholders and incorporated herein by reference. Exhibits: 3 - Articles of Incorporation and Bylaws 10 - Material Contracts (a) Agreement with N. E. Johnson (b) Agreement with W. R. Corbin (c) Agreement with R. C. Gozon 11 - Statement Re: Computation of Per Share Earnings (incorporated by reference to Note 1 of the 1995 Weyerhaeuser Company Annual Report to Shareholders) 13 - Portions of the 1995 Weyerhaeuser Company 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 November 28, 1995, and February 14, 1996, respectively, reporting information under Item 5, Other Events. 14 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 15, 1996. Weyerhaeuser Company /s/ John W. Creighton, Jr. -------------------------- John W. Creighton, Jr. President 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 15, 1996. /s/ John W. Creighton, Jr. /s/ Don C. Frisbee - -------------------------- ------------------ John W. Creighton, Jr. Don C. Frisbee President, Principal Executive Director Officer and Director /s/ P. M. Hawley /s/ George H. Weyerhaeuser ------------------ - -------------------------- Philip M. Hawley George H. Weyerhaeuser Director Chairman of the Board and Director /s/ Martha R. Ingram /s/ William C. Stivers -------------------- - ---------------------- Martha R. Ingram William C. Stivers Director Principal Financial Officer /s/ John Kieckhefer /s/ Kenneth J. Stancato ------------------- - ----------------------- John I. Kieckhefer Kenneth J. Stancato Director Principal Accounting Officer /s/ William D. Ruckelshaus /s/ William Clapp -------------------------- - ----------------- William D. Ruckelshaus William Clapp Director Diretor /s/ Richard H. Sinkfield /s/ W. John Driscoll ------------------------ - -------------------- Richard H. Sinkfield W. John Driscoll Director Director 15 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 12, 1996. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed on page 14 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 12, 1996 16 Weyerhaeuser Company and Subsidiaries FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts For the three years ended December 31, 1995 Dollar amounts in millions Balance at Charged Deductions Balance Beginning to from at End Description of Period Income Reserve of Period - ----------- ---------- ------- --------- --------- Weyerhaeuser Reserve deducted from related asset accounts: Doubtful accounts - Accounts receivable 1995 $ 10 $ 2 $ 3 $ 9 ======== ======== ========= ======== 1994 $ 10 $ 4 $ 4 $ 10 ======== ======== ========= ======== 1993 $ 10 $ 7 $ 7 $ 10 ======== ======== ========= ======== Real Estate and Financial Services Reserves and allowances deducted from related asset accounts: Receivables 1995 $ 4 $ 1 $ (2)(1) $ 7 ======== ======== ========= ======== 1994 $ 7 $ 1 $ 4 $ 4 ======== ======== ========= ======== 1993 $ 6 $ 1 $ - $ 7 ======== ======== ========= ======== Mortgage loans receivable 1995 $ 8 $ - $ 6 $ 2 ======== ======== ========= ======== 1994 $ 4 $ 4 $ - $ 8 ======== ======== ========= ======== 1993 $ 19 $ 9 $ 24(2) $ 4 ======== ======== ========= ======== Real estate in process of development and for sale 1995 $ 53 $ - $ 32 $ 21 ======== ======== ========= ======== 1994 $ 56 $ 7 $ 10 $ 53 ======== ======== ========= ======== 1993 $ 77 $ 4 $ 25 $ 56 ======== ======== ========= ======== Land being processed for development 1995 $ 19 $ - $ 1 $ 18 ======== ======== ========= ======== 1994 $ 19 $ 3 $ 3 $ 19 ======== ======== ========= ======== 1993 $ 28 $ - $ 9 $ 19 ======== ======== ========= ======== Investment in and advances to joint ventures and limited partnerships 1995 $ 49 $ - $ 11 $ 38 ======== ======== ========= ======== 1994 $ 57 $ 2 $ 10 $ 49 ======== ======== ========= ======== 1993 $ 66 $ 9 $ 18 $ 57 ======== ======== ========= ========
(1) Includes allowances transferred in on partnership notes that were consolidated. (2) Includes reserves transferred from loans to real estate. 17 Weyerhaeuser Company and Subsidiaries Exhibit 22 Subsidiaries of the Registrant
Percentage State or Ownership of Country of Immediate Name Incorporation Parent - -------------------------------------------- -------------- ------------ Columbia & Cowlitz Railway Company Washington 100% DeQueen and Eastern Railroad Company Arkansas 100 Fisher Lumber Company California 100 Golden Triangle Railroad Mississippi 100 Green Arrow Motor Express Company Delaware 100 J.H. Hamlen & Son, Inc. Arkansas 100 Mississippi & Skuna Valley Railroad Company Mississippi 100 Mountain Tree Farm Company Washington 50 North Pacific Paper Corporation Delaware 80 NORPAC Sales Corporation Guam 100 Oregon, California & Eastern Railway Company Nevada 100 Pacific Veneer, Ltd. Washington 90 Shemin Nurseries, Inc. Delaware 100 Texas, Oklahoma & Eastern Railroad Company Oklahoma 100 United Structures, Inc. California 100 Westwood Shipping Lines, Inc. Washington 100 Weycomp Claims Management Service, Inc. Texas 100 Weyerhaeuser Construction Company Washington 100 Weyerhaeuser Financial Services, Inc. Delaware 100 CMO Finance Corp. Nevada 100 MJ Finance Corporation California 100 Mortgage Securities II Corporation Nevada 100 Mortgage Securities III Corporation Nevada 100 Mortgage Securities IV Corporation Nevada 100 R4 Participant Corporation Nevada 100 ver Bes' Insurance Company Vermont 100 de Bes' Insurance Ltd. Bermuda 100 Weyerhaeuser Mortgage Company California 100 Mason-McDuffie Mortgage Corporation Delaware 100 Mason-McDuffie Service Corporation California 100 Westwood Associates California 100 Westwood Insurance Agency California 100 Westwood Insurance Agency of Arizona, Inc. Arizona 100 WMC Mortgage Co. International California 100 WMC Finance Corp. I California 100
18 Weyerhaeuser Company and Subsidiaries Exhibit 22 Subsidiaries of the Registrant - Continued
Percentage State or Ownership of Country of Immediate Name Incorporation Parent - -------------------------------------------- -------------- ------------ Weyerhaeuser Financial Investments, Inc. Nevada 100% Abfall Finance Corp. California 100 Brookview, Inc. Nevada 100 The Giddings Mortgage Investment Company California 100 Gudig Abfall, Inc. California 100 Kachura Finance Corp. California 100 Laurel Real Estate Development, Inc. California 100 McGNT Finance Corp. California 100 Pass-Through Finance Corp. California 100 RFS Development Corporation California 100 RFS Finance Corp. California 100 RFS Insurance Agency California 100 RFS Service Corporation California 100 R. J. Plaza II, Inc. Nevada 100 Trimark Development Company California 100 Trimark Realty Advisors, Inc. California 100 Woodland Hills Properties-W., Inc. Nevada 100 Monthill, Inc. California 100 Placer Business Center, Inc. California 100 Terman Properties, Inc. California 100 WVC II, Inc. Nevada 100 Weyerhaeuser Venture Company Nevada 100 Las Positas Land Co. California 100 WAMCO, Inc. Nevada 100 Weyerhaeuser Realty Investors, Inc. Washington 100 Weyerhaeuser Forestlands International, Inc. Washington 100 Weyerhaeuser International, Inc. Washington 100 Weyerhaeuser Canada Ltd. Canada 100 Saskatoon Chemicals Ltd. Canada 100 Weyerhaeuser Saskatchewan Ltd. Canada 100 Weyerhaeuser China, Ltd. Washington 100 Weyerhaeuser GMBH Germany 100 Weyerhaeuser (Far East) Limited Hong Kong 100 Weyerhaeuser Italia, S.r.l. Italy 100 Weyerhaeuser Japan Ltd. Japan & Delaware 100 Weyerhaeuser Korea, Ltd. Korea 100 Weyerhaeuser Taiwan Ltd. Delaware 100 Weyerhaeuser, S.A. Panama 100
19 Weyerhaeuser Company and Subsidiaries Exhibit 22 Subsidiaries of the Registrant - Continued
Percentage State or Ownership of Country of Immediate Name Incorporation Parent - ------------------------------------------- ------------- ------------ Weyerhaeuser International Sales Corp. Guam 100% Weyerhaeuser (Mexico) Inc. Washington 100 Weyerhaeuser Midwest, Inc. Washington 100 Weyerhaeuser Overseas Finance Co. 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 The Quadrant Corporation Washington 100 Quadrant Real Estate Services, Inc. Washington 100 South Jersey Assets, Inc. New Jersey 100 Scarborough Constructors, Inc. Florida 100 TMI, Inc. Texas 100 Weyerhaeuser Real Estate Company of Nevada Nevada 100 Winchester Homes, Inc. Delaware 100 SC-WHI, Inc. Delaware 100 The Wray Company Arizona 100
20 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 No. 33-52789 on Form S-3 and Nos. 33-60527, 33- 60531, 33-60529, 33-60521, 33-60525, 33-60519, 33-25928, 33-24385, 33-24979, 33-31622, 33-34460, 33-47392, 2-88109 and 333-01565 on Form S-8. ARTHUR ANDERSEN LLP Seattle, Washington, March 15, 1996 21 EX-13 2 Pulp, Paper and Packaging Statistical Data
Net Sales 1995 1994 1993 1992 1991 - --------------------- ------- ------ ------ ------ ------ (Millions of dollars) Pulp $ 1,616 $ 1,012 $ 823 $ 711 $ 803 Newsprint 508 356 322 326 288 Paper 1,001 664 648 673 655 Paperboard and containerboard 325 240 255 321 361 Packaging 1,863 1,495 1,302 1,323 1,175 Recycling 266 121 77 93 90 Chemicals 63 45 32 31 34 Personal care products _ _ _ 514 450 Miscellaneous products 40 133 120 117 147 ------- ------ ------ ------ ------- $ 5,682 $ 4,066 $ 3,579 $ 4,109 $ 4,003 ======= ======= ======= ======= =======
Sales Volumes 1995 1994 1993 1992 1991 - ------------------------ ------- ------- ------- ------- ------- (Thousands) Pulp -- air-dry metric tons 2,060 2,068 1,886 1,238 1,433 Newsprint -- metric tons 663 638 609 575 450 Paper -- tons 1,006 998 990 966 869 Paperboard -- tons 230 201 222 238 234 Containerboard -- tons 259 254 290 318 418 Packaging -- MSF 34,342 34,483 31,386 29,414 26,525 Recycling -- tons 1,467 985 851 778 735 Personal care products -- standard cases - - - 17,017 14,929
Annual Production Capacity 1995 1994 1993 1992 1991 - --------------------------- -------- ------ ------- ------- ------- ------- (Thousands) Pulp -- air-dry metric tons 2,130 2,159 2,041 2,096 1,506 1,527 Newsprint -- metric tons 690 687 651 618 588 461 Paper -- tons 1,075 1,060 982 1,007 971 889 Paperboard -- tons 220 229 189 217 229 238 Containerboard -- tons 2,540 2,329 2,357 2,269 2,240 2,224 Packaging -- MSF 48,000 36,041 36,020 32,795 31,040 27,583 Recycling -- tons - 2,754 2,042 1,847 1,692 1,415 Personal care products -- standard cases - - - - 16,743 14,902
Principal Manufacturing Facilities - ---------------------------------- Pulp 8 Newsprint 1 Paper 5 Paperboard 1 Containerboard 5 Packaging 45 Recycling 36 Chemicals 7
7 The Weyerhaeuser Pulp, Paper and Packaging sector reported record earnings in 1995. This accomplishment reflects the strength of the rebound in pulp and paper markets and implementation of business improvement plans. Sector operating earnings for the year reached $1.2 billion as compared with $211 million in 1994. As one of the world's largest producers of pulp, paper and packaging products, Weyerhaeuser benefited from the dramatic rise in prices during 1995. As the cycle matures, only those companies that efficiently execute a strategy focused on maximizing return on invested capital will achieve improvements in profitability that create continued, sustained growth in shareholder value. Weyerhaeuser, including its Pulp, Paper and Packaging sector, is taking the essential steps to be such a company. The sector's highest priority is to increase the return earned on invested capital across the cycle by improving operating performance of in-place capital and exercising disciplined allocation of new capital. The sector has committed to business improvement plans designed to produce $300 million in additional sustainable pretax operating earnings by the end of 1997 based on 1994 prices and costs. In 1995, significant progress was made on these plans that have positively impacted bottom-line results. The plans encompass increasing volume, reducing waste, improving quality and product mix and reducing cost through improved operational efficiency. Progress in high performance work systems is driving these improvements. Changes in the way we do our work are creating an environment of empowerment and teamwork in which employees take ownership of their performance and the performance of the business process. Through increased training, we will improve work processes and alignment to truly empower people to help maximize performance of mills and machines. An efficient, up-to-date asset base is key to achieving excellence 14 in manufacturing. Modernization projects were completed in 1995 at three major pulp and paper complexes that enable core businesses - pulp, containerboard and fine paper - to improve product quality to meet customer demands, to increase volume and productivity and to substantially reduce costs. These state-of-the-art upgrades also ensure responsible environmental performance. An important part of sector growth will continue to come through strategic acquisitions to enhance core businesses. The purchase of nine box plants from Westvaco in 1995 fits well with the company's fully integrated paper and packaging system, increases internal utilization of Weyerhaeuser containerboard production and adds new markets and customer-service capability while boosting packaging capacity. Satisfying customer requirements remains a cornerstone for success. Sector businesses serve customers around the world. Our presence in select international markets brings distinct competitive advantages to the company. Expansion will continue in markets where product specifications are more demanding and market prices less volatile. All sector businesses are developing closer partnerships with customers that are based upon a shared quest for world-class quality. Thorough understanding of customers' markets, goals and internal systems creates the framework for such partnerships. Experience shows that this kind of partnership leads to higher levels of innovation and differentiation from the competition. Most importantly, the partnership can generate signficant savings for both companies, enabling Weyerhaeuser to emerge as a preferred partner as customers narrow their number of suppliers. All major businesses realized outstanding achievements in 1995: - The Pulp business, the world's largest producer of market pulp, attained record financial performance as a result of strong market demand, signficantly improved prices, effective control of operating costs and intense 15 focus by employees upon business improvement plans. - Containerboard Packaging, one of North America's largest fully integrated producers of corrugated boxes, continued to grow and deliver solid financial performance and returns on capital during a year of increasingly difficult market conditions and fierce competition. A new containerboard machine at a joint venture, the Cedar River Paper Company, started up three months early, 12 percent below budget and cost, and reached design production level in five months. This facility also won the Occupational Safety and Health Administration's STAR Worksite Award for safety. Nine box plants were acquired from Westvaco. A linerboard machine at Plymouth, North Carolina, was rebuilt to produce 100 percent recycled board. The Valliant, Oklahoma, containerboard mill was honored by the company for surpassing two million work hours without a single lost workday. - The Fine Paper business nearly tripled its previous record profits and registered solid returns on capital through a combination of higher prices, record performance on all operating measures, product-mix enhancements and implementation of business improvement plans. Product quality measures and on-time delivery performance also reached record highs. - The Recycling business, one of the largest recyclers in North America, increased its volume of paper collected and processed by 35 percent, to 2.8 million tons. This business consistently ensures a steady stream of recycled fiber to Weyerhaeuser mills and strategic third-party customers. During the peak of 1995's volatile recycled fiber market, Weyerhaeuser's Recycling business contributed greatly to the fiber security of company mills while helping the paper industry progress toward its goal of 50 percent paper recovery by the year 2000. Nine new facilities were added in 1995, bringing the number of recycling collection centers to 36. The business plans to improve upon capital returns while doubling volume by 1998. 16 - The Newsprint business also benefited from the upswing in prices, further growth with its key customers and operating improvements that helped deliver strong increases in earnings and returns in 1995. Through our newsprint joint venture, the North Pacific Paper Corporation (NORPAC), this business is the leading foreign supplier to markets in Japan. The U.S. Department of Commerce awarded NORPAC its prestigious E-Award for excellence in export sales. An independent survey of domestic customers also recognized NORPAC as the leader in quality, service and overall customer satisfaction. Located in Longview, Washington, NORPAC also achieved record levels of safety performance, recording a year without a lost-time accident. - The Bleached Paperboard business successfully grew its market share throughout the Pacific Rim by increasing focus on customer requirements and new product introductions. It is a leading supplier to liquid packaging markets in Japan. A machine rebuild and the fiberline modernization at the Longview site were completed and will further strengthen Weyerhaeuser's competitive position. The sector's goals are to be valued by its customers as a source of world-class quality and distinctive customer service and to be recognized by shareholders as a source of superior returns and the creation of sustained value. These goals will be achieved by leading the industry in product quality through a better understanding of customer needs, cost efficiency through manufacturing excellence, and innovation in marketing, sales and product development. 17 Timberlands and Wood Products Statistical Data
Net Sales 1995 1994 1993 1992 1991 - -------------------------------- ------- ------- ------- ------- ------- (Millions of dollars) Raw materials (logs, chips and timber) $ 1,102 $ 1,091 $ 1,021 $ 872 $ 843 Softwood lumber 1,648 1,880 1,704 1,138 978 Softwood plywood and veneer 591 636 567 498 412 Oriented strand board, composite and other panel products 752 750 623 495 383 Hardwood lumber 193 175 154 127 118 Engineered wood products 207 157 100 - - Miscellaneous products 438 303 299 287 214 ------- ------- ------- ------- ------- $ 4,931 $ 4,992 $ 4,468 $ 3,417 $ 2,948 ======= ======= ======= ======= =======
Sales Volumes 1995 1994 1993 1992 1991 - --------------------------------- ----- ----- ----- ----- ----- (Millions) Raw materials -- cubic feet 535 564 547 545 538 Softwood lumber -- board feet 4,515 4,402 4,230 3,440 3,269 Softwood plywood and veneer -- square feet (3/8") 2,324 2,685 2,435 2,227 2,135 Composite panels -- square feet (3/4") 648 660 626 590 685 Oriented strand board -- square feet (3/8") 1,931 1,803 1,672 1,484 1,205 Hardboard -- square feet (7/16") 201 167 140 133 114 Hardwood lumber -- board feet 293 254 240 218 219 Engineered wood products -- lineal feet 128 71 47 - - Hardwood doors (thousands) 648 617 556 514 525
Annual Production Capacity 1995 1994 1993 1992 1991 - -------------------- -------- ------ ------ ------ ------ ------ (Millions) Logs -- cubic feet - 914 671 673 749 782 Softwood lumber -- board feet 3,483 3,419 3,249 3,135 2,782 2,687 Softwood plywood and veneer -- square feet (3/8") 1,337 1,292 1,249 1,188 1,125 966 Composite panels -- square feet (3/4") 607 583 594 564 540 493 Oriented strand board -- square feet (3/8") 1,670 1,654 1,568 1,443 1,234 1,208 Hardboard -- square feet (7/16") 130 124 122 120 118 90 Hardwood lumber -- board feet 409 278 229 221 210 196 Hardwood doors (thousands) 717 643 597 522 469 448
Principal Manufacturing Facilities - ------------------------------------ Softwood lumber, plywood and veneer 35 Composite panels 6 Oriented strand board 5 Hardboard 1 Hardwood lumber 11 Hardwood doors 1
19 The company's Timberlands and Wood Products sector reported operating earnings of $808 million in 1995. While below the record earnings of $1.034 billion achieved in 1994, these results were, by historical standards, very good. The decrease from last year's record performance was caused by a drop in domestic housing starts resulting from higher mortgage interest rates in the first half of the year. Lower demand for wood products for North American new home construction was somewhat offset by remodeling and commercial building. The continued decline in western timber harvests coincided with the lower demand for wood products and maintained log and timber prices. The strong 1995 performance can be attributed to maintaining business focus and attaining the 1995 targets defined in the sector's 1990 improvement plans. Timberlands and Wood Products will continue this focus by relentlessly pursuing superior understanding of customer requirements and continuous improvements in operating performance. This strategy will also drive the $300 million in new pretax operating profit improvements that the Timberlands and Wood Products sector plans to put in place by the end of 1997. In 1995, Wood Products concentrated on reducing its operating costs, improving the recovery of products from raw materials and increasing overall product value. This focus on cost, productivity and value forms the cornerstone of the sector's improvement plans and encompasses thousands of opportunities. For example, improving saw design and the saw-filing process in a single mill eliminated over 700 truckloads of sawdust generated each year while producing higher value lumber and chips and, as a result, improved revenues. Replication of such practices throughout the system will make a major impact on Weyerhaeuser's bottom line. To improve productivity at mills, teams are concentrating on preventive maintenance by identifying potential failures before they can occur. To achieve this, Wood Products is installing 24 advanced computer systems. As part of a systematic approach to maintenance, networked personal computers are used to place all vital data at employee fingertips - including safety procedures, work plans, preventive maintenance, scheduling information and parts inventories. The benefits are improved machine reliability, less unscheduled downtime, lower maintenance costs and increased worker safety. Markets for lumber softened from 1994 levels. However, by continuing to focus on customers, target segments and improving recovery, Wood Products was able to produce and market higher lumber volumes in all of its product regions. Weyerhaeuser's Wood Products businesses continue to benefit from the company's geographic diversification. Structural-panel demand and prices were strong in 1995. This was largely caused by the continued growth of engineered wood products and healthy demand in the repair and remodel market and in nonresidential construction. The Hardwood Lumber business delivered excellent returns in 1995, and the company acquired new hardwood facilities. Weyerhaeuser purchased two sawmills and 9,000 acres of forestlands from Diamond Wood Products in Oregon, as well as a mill in Sedro Woolley, Washington. The Building Materials Distribution business continues to maximize Weyerhaeuser's strength as an integrated supplier of wood products to North American markets. This business enables the company to meet a wide range of customer requirements and allows Weyerhaeuser-made products to reach their highest-value markets. The distribution business continued to expand its geographic reach by adding five new centers in 1995. Success in achieving profit improvements in all our businesses depends heavily on success in achieving work systems improvements. These improvements begin at the executive level, and for that reason, senior managers are modeling desired teaming behaviors and becoming "champions for change." 25 This is part of a larger strategy that includes benchmarking, training and implementing best work practices to contain cost and improve efficiency. Such training and benchmarking provide Weyerhaeuser people with a greater understanding of what it takes to excel in customer satisfaction, which, in turn, allows decision making at the level closest to the work process. The systems that emerge from such strong employee involvement benefit both customers and shareholders by giving all employees a greater role in meeting customer requirements. Weyerhaeuser's Timberlands operations, the world's largest private owner of merchantable softwood timber, provides a substantial portion of the wood fiber used in the company's manufacturing operations - from traditional solid-wood products and engineered fiber products to a variety of paper, pulp and packaging products. Since its founding in 1900, Weyerhaeuser has managed its forestlands by the principle of long-term stewardship. Forest-management practices have evolved dramatically in the last 95 years, driven by advances in scientific knowledge and shifts in public expectations. In 1966, for example, Weyerhaeuser began to systematically apply science to its timberlands to encourage the sustainable, vigorous growth of healthy, high-quality trees. The productivity and quality produced by 30 years of intensive forest management will begin to impact Weyerhaeuser's harvests within the next five years. By the year 2020, the company will have a 25 percent increase in yields on its land in the Pacific Northwest and a 70 percent increase in yields on its land base in the South. These high-quality forests should generate tremendous shareholder value in the future as they have done in the past. Today the company's vision of stewardship is even broader. Weyerhaeuser is aware of the need to address public expectations for managed industrial forests and the need to do so in a way that protects shareholder value. As a result, Weyerhaeuser is working with 26 regulatory agencies to protect habitat for threatened and endangered species living in Weyerhaeuser forests while protecting the economic value of the land. In 1995, the company passed a major milestone when it obtained approval from the U.S. Fish & Wildlife Service for a Habitat Conservation Plan on 210,000 acres of the company's Millicoma Tree Farm near Coos Bay, Oregon. Under this plan, the company can both continue its harvesting operations and complement federal efforts for the recovery of the northern spotted owl. Also in 1995, the company further illustrated its leadership in habitat conservation by conducting the research needed to develop multi-species habitat management plans on 500,000 acres in Washington and Oregon. Working with adjacent landowners and other interested stakeholders, the company continues to conduct watershed analyses in major watersheds where it owns property in Washington and Oregon. These efforts comprise a key part of the solution to address concern over salmon habitat in Northwest forests, and many will eventually be part of the company's multi-species habitat management plans. In 1994, Timberlands further strengthened its stewardship commitment with the adoption of the Weyerhaeuser Forestry Resource Strategies. The Resource Strategies provide broad operating guidelines for producing a sustainable supply of wood while protecting the full range of natural resources found in the company's forests, including soil, water and wildlife. In 1995, Timberlands made substantial progress toward establishing specific stewardship goals and measurement standards in each of its operating regions. Intensive management of industrial forests has become a global industry. To increase its competitive position, Weyerhaeuser is forming a joint-venture partnership with institutional investors to acquire timberlands and related assets around the world. 27 Real Estate and Financial Services. Sector earnings before the special charge were $13 million for the year compared with 1994 earnings of $18 million. High home mortgage interest rates in the early months of the year affected Weyerhaeuser's Real Estate and Financial Services businesses in 1995. The sector's business improvement plans are based on a dual strategy. That strategy consists of liquidating assets that are impaired or poorly performing and increasing the focus on primary businesses and markets. Weyerhaeuser Real Estate Company is concentrating on home building and land development in Southern California, Las Vegas, Houston, Washington, D.C. and Puget Sound. Weyerhaeuser Financial Services is increasing loan production by using existing locations and expanded strategic alliances. Loan quality, customer satisfaction and cost-effectiveness are being improved by applying state-of-the-art technology to originating, processing and servicing loans. In 1995, the company announced that it was taking a charge to earnings to reflect revaluation of certain real estate assets within Weyerhaeuser Real Estate Company and Weyerhaeuser Financial Services. The after-tax amount of the charge was $184 million. The charge was recorded to comply with a Financial Accounting Standards Board statement, which changes the method of valuing long-lived assets and assets to be disposed of, and by the company's decision to accelerate the disposition of some of the affected real estate assets. The company plans to dispose of most of the impaired assets over the next two years. 32 1995 Events and Accomplishments People Safety remains the highest priority for Weyerhaeuser people. Lost-time accidents decreased 30 percent - from a rate of 1.17 per 100 employees in 1994 to 0.86 per 100 employees in 1995. Over the past five years, the lost-time accident rate has improved 70 percent, a tribute to the efforts and vigilance of Weyerhaeuser employees everywhere. Many Weyerhaeuser units achieved outstanding safety milestones in 1995. The Valliant, Okla., containerboard mill surpassed two million work hours without a single lost workday. The Mississippi/Alabama Timberlands team completed nine years, more than 1.3 million workhours without a lost-time accident or injury. North Carolina Timberlands surpassed five years, or 1.5 million workhours without a lost-time accident. A Weyerhaeuser joint venture, the Cedar River Paper Company, won the U.S. Occupational Safety and Health Administration's STAR Worksite Award for safety, and another joint venture, the North Pacific Paper Corporation, achieved a new record for safety performance and recorded a year without a lost-time accident. In May, Weyerhaeuser President John W. Creighton, Jr., formed a task force to help foster diversity in the workplace - a corporate area of emphasis outlined in 1995. Two pioneers of High Yield Forestry passed away: George R. Staebler, former director of forestry research, and Royce O. Cornelius, former chief forest engineer. Both were retired. Norton Clapp, former Weyerhaeuser president and chairman of the board, died in April. During his 36 years of service to Weyerhaeuser Company, Clapp served as company secretary, vice president, president, director and chairman of the board. Clapp served as president during a pivotal period in its growth - from 1960 to 1966 - and made significant civic contributions both locally and nationally. Customers Pulp, Paper and Packaging's box plant in Cedar Rapids, Iowa, achieved a major quality milestone by registering under ISO 9000 standards. ISO, the only internationally recognized quality standard, defines a model for quality systems. The registration process requires extensive documentation of quality processes, direct evidence of quality system effectiveness and periodic audits to ensure conformance with registration requirements. Wood Products carried its Manufacturing Excellence Award program into its second year. The award encourages all manufacturing units to attain top-quartile performance in their respective businesses and to raise standards of manufacturing to world-class levels. Winners were the Elkin, N.C., oriented strand board (OSB) mill, which also won the award in 1994; the Grayling, Mich., OSB mill, and the Marshfield, Wis., Steam-Thru particleboard facility, which was a finalist last year. Weyerhaeuser Canada's Edson, Alta., OSB mill was awarded the Structural Board Association's Ron Baker Memorial Award for Manufacturing Excellence. The international award recognizes superior quality, productivity, environmental sensitivity and safety. Weyerhaeuser's Drayton Valley, Alta., OSB mill finished second. Secretary of Commerce Ron Brown presented the NORPAC newsprint mill in Longview, Wash., with a Presidential "E" Award for Excellence in Exporting. The company was recognized for its success in international markets. President John W. Creighton, Jr., was named the 1995 recipient of the prestigious Prime Minister's Trade Award by the Japanese government. The award is given annually to an individual whose contributions have helped improve the balance of trade and promote mutual understanding on trade issues. Citizenship Fortune magazine ranked Weyerhaeuser number one among forest products companies for "responsibility to the community and environment" in its 1994 Corporate Reputation Survey. Weyerhaeuser demonstrated its environmental leadership in 1995 by: - Completing ten watershed analyses in Washington and Oregon. Weyerhaeuser has completed 21 assessments in the Northwest covering 446,000 acres of its forestland since 1993. - Achieving capability to manufacture elemental chlorine-free pulp products at all of its bleached kraft mills. - Converting its containerboard machines in Plymouth, N.C., and North Bend, Ore., to use 100 percent recycled wastepaper. - Signing a Memorandum of Understanding with the U.S. Forest Service and USFWS to protect the red-cockaded woodpecker by managing habitat on Weyerhaeuser lands near the Croatan National Forest in eastern North Carolina. - Receiving the American Forest & Paper Association's Environmental and Energy Achievement Award for air-pollution control at the company's Grayling, Mich., OSB mill. - Signing a partnership agreement with the National Wild Turkey Federation to promote conservation of the wild turkey on 2.6 million acres of Weyerhaeuser forestlands in the South. The agreement formalizes a cooperative relationship that Weyerhaeuser has had with the Federation for many years. - Reaching agreement with five environmental groups to develop management criteria for protecting wildlife habitat, water quality, unique wetlands sites and rare plants on the company's lands on the Albemarle-Pamlico Peninsula in North Carolina. The agreement with the Environmental Defense Fund, National Audubon Society, Sierra Club, North Carolina Wildlife Federation and North Carolina Coastal Federation brings to a close the groups' legal challenge of the company's forestry practices on those lands. The Washington State Department of Transportation, the Rocky Mountain Elk Foundation and Weyerhaeuser Company jointly opened the Charles W. Bingham Forest Learning Center. Located near the Mount St. Helens National Volcanic Monument, the Forest Learning Center was dedicated on May 18, the fifteenth anniversary of the volcano's eruption. The Weyerhaeuser Company Foundation, the company's principal vehicle for philanthropy, was recognized by the Professional Educators of North Carolina, Inc., for outstanding service to education. In 1995, the Foundation surpassed the $100 million mark for contributions made since 1948. 33 1995 Financial Report Highlights
Dollar amounts in millions except per-share figures 1995 1994 - --------------------------------------------------- --------- -------- Net sales and revenues $11,788 $10,398 Net earnings before special charge 983 589 Less: special charge(1) 184 - -------- -------- Net earnings 799 589 -------- -------- Cash flow from operations, before working capital changes 1,856 1,260 Capital expenditures (including acquisitions in 1995) 1,119 1,102 Total assets 13,253 13,158 Shareholders' interest 4,486 4,290
1995 ------------------------------------- Before (1) Special Special Charge Charge Net 1994 -------------- ------------ ------- ------- Net earnings per common share: First quarter $ 1.00 $ 1.00 .62 Second quarter 1.21 1.21 .62 Third quarter 1.37 (.90) .47 .71 Fourth quarter 1.25 1.25 .91 ------------- ------------ ------- ------- $ 4.83 $ (.90) $ 3.93 $ 2.86 ------------- ------------ ------- -------
(1) The after-tax charge of $184 million ($290 million less income taxes of $106 million) results from two related actions: (1) the implementation of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which required the company to change its method of valuing long-lived assets, and (2) the company's decision to accelerate the disposition of some of the affected assets. The consolidated financial statements include: (1) Weyerhaeuser Company (Weyerhaeuser), which is principally engaged in the growing and harvesting of timber and the manufacture, distribution and sale of forest products, and (2) real estate and financial services including Weyerhaeuser Real Estate Company, which is involved in real estate development and construction, and Weyerhaeuser Financial Services, Inc., whose principal subsidiary is Weyerhaeuser Mortgage Company. Description of the Business of the Company, page 35. Financial Review, page 40. Report of Independent Public Accountants, page 44. Consolidated Statement of Earnings, page 45. Consolidated Balance Sheet, page 46. Consolidated Statement of Cash Flows, page 48. Consolidated Statement of Shareholders' Interest, page 50. Notes to Financial Statements, page 51. Historical Summary, page 68. 34 EX-13 3 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 financial services. The company has 39,400 employees, of whom 37,500 are employed in its timber-based businesses, and of this number, approximately 17,000 are covered by collective bargaining agreements, which generally are negotiated on a multi-year basis. Approximately 1,900 of the company's employees are involved in the activities of its real estate and financial services subsidiaries. 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 real estate and financial ser- vices subsidiaries also operate in highly competitive mar- kets, competing with numerous regional and national firms in real estate development and construction and in financial services. In 1995, the company's sales to customers outside the United States totaled $2.9 billion (including exports of $1.9 bil- lion from the United States and $1 billion of Canadian export and domestic sales), or 25 percent of total consolidated sales and revenues. The company believes these sales contributed a higher proportion of aggregate operating profits (see Note 2 of Notes to Financial Statements). 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. Principal Business Segments Timberlands and Wood Products The company owns approximately 5.3 million acres of com- mercial forestland in the United States (49 percent in the South and 51 percent in the Pacific Northwest), most of it highly productive and located extremely well to serve both domestic and international markets. The company has, addi- tionally, long-term license arrangements in Canada covering approximately 18.9 million acres (of which 14 million acres are considered to be productive forestland). The combined total timber inventory on these U.S. and Canadian lands is approximately 244 million cunits (a cunit is 100 cubic feet of solid wood), of which approximately 75 percent is soft- wood species. 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's wood products businesses produce and sell softwood lumber, plywood and veneer; composite panels; oriented strand board; hardboard; hardwood lumber and plywood; doors; treated products; logs; chips and timber. These products are sold primarily through the company's own sales organizations. Building materials are sold to whole- salers, retailers and industrial users.
Dollar amounts in millions 1995 1994 1993 1992 1991 - -------------------------- ------ ------ ------ ------ ------ Net sales: Raw materials (logs, chips and timber) $1,102 $1,091 $1,021 $ 872 $ 843 Softwood lumber 1,648 1,880 1,704 1,138 978 Softwood plywood and veneer 591 636 567 498 412 Oriented strand board, composite and other panels 752 750 623 495 383 Hardwood lumber 193 175 154 127 118 Engineered wood products 207 157 100 - - Miscellaneous products 438 303 299 287 214 ------ ------ ------ ------ ------ $4,931 $4,992 $4,468 $3,417 $2,948 ====== ====== ====== ====== ====== Approximate contributions to earnings (1) $ 808 $1,034 $ 891 $ 515 $ 155 ====== ====== ====== ====== ======
(1) After net restructuring charges of $152 million in 1991. 35 Pulp, Paper and Packaging The company's pulp, paper and packaging businesses include: Pulp, which manufactures chemical wood pulp for world markets; Newsprint, which manufactures newsprint at the company's North Pacific Paper Corporation mill and markets it to West Coast and Japanese newspaper publishers; 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, which is 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; Recycling, which operates an extensive wastepaper collection system and markets it to company mills and worldwide customers; and Chemicals, which produces chlorine, caustic and tall oil, which are used principally by the company's pulp, paper and packaging operations. In 1993, the Personal Care Products business, which manufac- tured disposable diapers sold under the private-label brands of many of North America's largest retailers, was sold through an initial public offering of stock.
Dollar amounts in millions 1995 1994 1993 1992 1991 - -------------------------- ------ ------ ------ ------ ------ Net sales: Pulp $1,616 $1,012 $ 823 $ 711 $ 803 Newsprint 508 356 322 326 288 Paper 1,001 664 648 673 655 Paperboard and containerboard 325 240 255 321 361 Packaging 1,863 1,495 1,302 1,323 1,175 Recycling 266 121 77 93 90 Chemicals 63 45 32 31 34 Personal care products - - - 514 450 Miscellaneous products 40 133 120 117 147 ------ ------ ------ ------ ------ $5,682 $4,066 $3,579 $4,109 $4,003 ====== ====== ====== ====== ====== Approximate contributions to earnings (1) $1,181 $ 211 $ 61 $ 251 $ 108 ====== ====== ====== ====== ======
(1) After net restructuring charges of $129 million in 1991. Real Estate The company, through its real estate subsidiary, Weyerhaeuser Real Estate Company, is engaged in developing single-family housing and residential lots for sale, including the development of master-planned communities. Operations are mainly concentrated in selected metropolitan areas in Southern California, Nevada, Washington, Texas, Maryland and Virginia.
Dollar amounts in millions 1995 1994 1993 1992 1991 - -------------------------- ------- ------- ------- ------- ------- Net sales and revenues: Single-family units $ 563 $ 686 $ 615 $ 569 $ 591 Multi-family units - 26 30 4 16 Residential lots 60 65 43 39 25 Commercial lots 29 7 41 6 17 Commercial buildings 4 35 3 5 30 Acreage 36 20 27 20 16 Other 31 72 70 47 49 ------- ------- ------- ------- ------- $ 723 $ 911 $ 829 $ 690 $ 744 ======= ======= ======= ======= ======= Approximate contributions to earnings (1) $ (231) $ 7 $ 18 $ 13 $ (175) ======= ======= ======= ======= =======
(1) After a special charge of $232 million to dispose of certain real estate assets in 1995 and restructuring charges of $155 million in 1991. 36 Financial Services The company, through its financial services subsidiary, Weyerhaeuser Financial Services, Inc., is involved in a range of financial services. The principal operating unit is Weyerhaeuser Mortgage Company, which has origination offices in 14 states, with a servicing portfolio of $11 billion covering approximately 136,000 loans throughout the country. Mortgages are resold in the secondary market through mortgage-backed securities to financial institutions and investors. Through its insurance services organization, it also offers a broad line of property, life and disability insurances. GNA Corporation, a subsidiary that specialized in the sale of life insurance annuities and mutual funds to the cus- tomers of financial institutions, was sold in April 1993. Republic Federal Savings & Loan Association, a subsidiary that operated in Southern California through 1991, was dissolved in 1992.
Dollar amounts in millions 1995 1994 1993 1992 1991 - -------------------------- ------- ------- ------- ------- ------- Net sales and revenues: Interest $ 76 $ 84 $ 110 $ 144 $ 209 Investment income 3 2 116 452 454 Loan origination and servicing fees 84 88 127 103 98 Premiums 9 10 14 21 19 Other revenues 24 22 34 112 82 ------- ------- ------- ------- ------- $ 196 $ 206 $ 401 $ 832 $ 862 ======= ======= ======= ======= ======= Approximate contributions to earnings (1) $ (46) $ 11 $ 76 $ 68 $ 60 ======= ======= ======= ======= =======
(1) After a special charge of $58 million to dispose of certain real estate assets in 1995 and a $42 million gain on sale of GNA Corporation in 1993. Corporate and Other Corporate and other includes nursery and garden supply prod- ucts, which are sold primarily to retailers and landscapers by the company's sales force; marine transportation; and miscellaneous corporate activities.
Dollar amounts in millions 1995 1994 1993 1992 1991 - -------------------------- ------- ------- ------- ------- ------- Net sales $ 256 $ 223 $ 269 $ 220 $ 216 ======= ======= ======= ======= ======= Approximate contributions to earnings (1) $ (217) $ (142) $ (46) $ (107) $ (148) ======= ======= ======= ======= =======
(1) After net restructuring charges of $9 million in 1991 and a $70 million gain on disposal of infant diaper business in 1993. Environmental Matters In 1990 the northern spotted owl was listed as a threatened species under the Endangered Species Act (ESA). In 1992 the marbled murrelet was listed as a threatened species under the ESA. Certain Snake River salmon runs have been listed as threatened or endangered under the ESA. The National Marine Fisheries Service has proposed listing coho salmon that spawn in Oregon coastal rivers and some cutthroat trout as a threatened species. Petitions have been filed to list certain Pacific Northwest salmon runs and other fish populations as threatened or endangered under the ESA. A consequence of these listings has been, and a possible consequence of future listings may be, reductions in the sale and harvest of timber on federal timberlands in the Pacific Northwest. Requirements to protect habitat for threatened and endangered species on non-federal timberlands has resulted, and may in the future result, in restrictions on timber harvest on some non-federal timberlands in the Pacific Northwest, including some timberlands of the company. The listing of the red-cockaded woodpecker as an endangered species under the ESA has had some impact on the harvest of public and private timber in the southeastern United States, but has had little impact on the company's timberlands. Forest practice acts in some of the states in which the company has timber increasingly impact present or future harvests and forest management activities. In addition, the statutory requirements with respect to the protection of wetlands and threatened or endangered species may affect future harvest and forest management practices on some of the company's southern timberlands. In April 1994, the Clinton administration adopted its plan with respect to management of federal timberlands in the Pacific Northwest. This plan has reduced timber sales from certain federal lands in western Washington, western Oregon and northern California by more than 75 percent 37 from harvest levels in the 1980s. This reduction in federal timber sales will seriously reduce log supplies to many independent sawmills that have been important suppliers of wood chips to the company's pulp and paper mills in Washington and Oregon. The company anticipates that there will be alternate sources of wood chips or other fiber. The administration also has stated that reduced timber harvest on federal lands will provide the opportunity to clarify the uncertainty surrounding federal policies for protection of northern spotted owls on some private lands. On February 7, 1995, the administration proposed a special rule to clarify federal harvest restrictions on some private lands in Washington and California. The company believes that the regulatory changes might ultimately allow it to harvest fee timber in some areas where it has not been operating because of uncertainties regarding regulations intended to protect the northern spotted owl. Whether those regulatory changes will be implemented is uncertain. If those regulatory changes are not implemented, the company may not harvest some timber that it otherwise might harvest in late 1996 and 1997. Because those regulatory changes may not be implemented, and in order to avoid existing uncertainty under the ESA, the company, in February 1995, developed a Habitat Conservation Plan (HCP) and obtained from the United States Fish and Wildlife Service an Incidental Take Permit with respect to northern spotted owls on most of its Oregon coastal timber lands. That HCP establishes a protocol for the harvest of timber and the protection of the northern spotted owl on those timberlands and is expected to remain in effect for at least 50 years. The company believes the most effective way to manage its timberlands for the growth and harvest of timber and the protection of wildlife and fish habitat is to develop comprehensive plans for the management of all the resources on those timberlands. Accordingly, the company is seeking to develop HCPs or other arrangements with federal and state fish and wildlife agencies for some other parts of its Pacific Northwest timberlands that would address the protection of wildlife and fish habitat for both listed and non-listed species. The combination of the forest management and harvest restrictions and impacts described in the preceding four paragraphs has increased operating costs, resulted in in- creases 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. The company does not know whether these effects will continue. 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 impacts described in the above paragraphs have had, or in 1996 or 1997 will have, a significant effect on the com- pany's total harvest of timber, 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 re- cycled 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 impact 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 5 percent of total capital expenditures in 1995. Based on its understanding of current regulatory requirements, the company expects that this percentage will range from 10 to 11 percent of total capital expenditures in 1996 and 1997. The company is involved in the environmental remediation of numerous sites, including 41 superfund sites where the company has been named as a potentially responsible party. 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, and others are third-party sites involving several parties who have a joint and several obligation to remediate the site. 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 $39 million in 1995 and expects to spend $29 million in 1996 on environmental remediation of these sites. It is the company's policy to accrue for environ- mental remediation costs when it is determined that it is probable that such an obligation exists and the amount of 38 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 $120 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 additional operating permits at many of the company's manufacturing operations. Although significant work is required to prepare the permit applications in 1996 and 1997, the company anticipates that it will be able to obtain the necessary permits. The company has continued to make substantial progress in reducing the minute amount of dioxin that had previously been detected in wastewater effluent, sludge and pulp from the company's bleached kraft pulp mills. Using EPA quantitation limits, the company's analysis of its effluent discharge reveals no detectable levels of dioxin at any of the company's pulp mills. The EPA published proposed regulations on December 17, 1993, known as the "cluster rules," which would establish maximum achievable control technology standards for non- combustion sources under the Clean Air Act, and the development of revised wastewater effluent limitations under the Clean Water Act. The company's operations are well positioned to meet the proposed limits for dioxin. However, if the cluster rules are adopted as proposed, they will require the company to commit additional capital to further reduce air emissions and wastewater discharges by 1999. Preliminary estimates of that additional capital range as high as $400 million, which may further increase the annual percentage of the company's total capital expenditures devoted to environmental compliance. The EPA has indicated that it is considering reproposing the cluster rules. If the cluster rules are reproposed, the company's understanding of the potential effect is that it will significantly reduce the amount and timing of capital expenditures to comply with the rules. 39 Financial Review Results of Operations 1995 Compared With 1994 The company's consolidated net sales and revenues increased 13 percent to a record $11.8 billion in 1995 compared with $10.4 billion in 1994. The pulp, paper and packaging segment accounted for $5.7 billion of this record performance, 40 percent over its sales of $4.1 billion in 1994, with strong year-to-year improvement in all product lines. These markets have weakened in the fourth quarter, and this weakness may persist in 1996 as customers continue to reduce inventories. The timberlands and wood products segment sales of $4.9 billion approximated last year's. The real estate and financial services segments had combined sales of $919 million, down from last year's $1.1 billion, largely attributable to declines in single-family home sales. The company also achieved record earnings of $799 million, or $3.93 per common share, in 1995, which was 36 percent over the $589 million, or $2.86 per common share, recorded in 1994. The 1995 earnings were net of an after-tax charge of $184 million ($290 million pretax), or 90 cents per common share, within the real estate and financial services segments. The 1994 earnings included a net contribution of $.03 per common share for the return of countervailing duty by the U.S. government against Canadian lumber imports and the expected cost of postretirement benefits for Canadian employees. Operating earnings in the timberlands and wood products segment were $808 million, down from the record $1 billion for the previous year. This was attributable to price declines primarily in softwood lumber, caused by a drop in domestic housing starts. The pulp, paper and packaging segment posted record operat- ing earnings of $1.2 billion in 1995 compared with $211 million earned in 1994. Significant price improvement over the prior year and ongoing improvements in operations were the key factors in recovery in this segment. The company's real estate and financial services segments recorded a combined operating loss of $277 million for the year after reflecting the $290 million special charge that came from two related actions: (1) the implementation of Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which required the company to change its method of valuing long- lived assets, and (2) the company's decision to accelerate the disposition of some of the affected assets. Before these actions, the combined segments earned $13 million compared with $18 million in 1994. Weyerhaeuser's cost of products sold as a percentage of net sales decreased to 69 percent in 1995 compared with 73 percent in 1994. The company continued to benefit from its mill modernization program and implementation of its business improvement plans, offset in part by the costs associated with higher sales activity, principally in the pulp, paper and packaging segment. Depreciation expense increased over the prior year as a result of the completion and start-up of several mill modernization projects in late 1994 in the pulp, paper and packaging segment. The expansion of the company's Performance Share Plan to include all employees was the major contributor to the $109 million increase in selling, general and administrative expenses. Contributions made by the company into this plan are invested in company stock on behalf of each employee. The size of the contribution, if any, is decided by the board of directors each year on the basis of that year's profits and the company's performance relative to its competition. Excluding the revaluation charge, the decrease in costs and operating expenses of the real estate and financial services segments are in line with the reduced sales activity. Other income (expense) is an aggregation of both recurring and occasional income and expense items and, as a result, fluctuates from period to period. No individual income (expense) item in 1995 was significant in relation to net earnings. Weyerhaeuser's interest expense incurred was up $34 million over the prior year as a result of prefunding 1995 debt maturities that were due late in the year as well as an increase in the company's combined long- and short-term debt levels. Capitalized interest was $16 million less than the prior year as mill modernization projects at Longview, Washington, and Plymouth, North Carolina, were completed. 1994 Compared With 1993 The company's 1994 consolidated sales and revenues were $10.4 billion, a 9 percent increase over the $9.5 billion reported last year. Net earnings were $589 million, or $2.86 per common share, compared with 1993 net earnings of $579 million, or $2.83 per common share. 1994 earnings included the return of countervailing duty by the U.S. government against Canadian lumber imports and the expected cost of postretirement benefits for Canadian employees. The net effect of these two items contributed $.03 per common share. 1993 earnings included gains of 40 $132 million, or $.65 per common share, from the sale of assets and extinguishment of debt, and a $15 million, or $.08 per common share, charge to earnings to reflect the revised 1993 federal corporate tax rate in the company's deferred tax accounts. The continuation in 1994 of the company's major mod- ernization projects, started in 1993, accounted for the significant increase in capitalized interest from year to year. The significant changes from 1993 in other income were attributable to the $70 million pretax gain on the disposal of the company's investment in the infant diaper business and the real estate and financial services pretax gain of $42 million on the sale of GNA Corporation, both in 1993. The timberlands and wood products segment posted record operating earnings of $1 billion in 1994, which was a 16 percent increase over the $891 million reported in 1993. Sales for this segment were $5 billion, up 12 percent over the $4.5 billion reported in 1993. This segment posted record performances during 1994 as the businesses continued to accomplish their business improvement plans, timber supplies remained tight and markets remained strong throughout the year. The pulp, paper and packaging segment's 1994 operating earnings were $211 million, up substantially from 1993's $61 million. This segment reported sales of $4.1 billion for the year, an increase of 14 percent over the $3.6 billion in 1993. Strong demand coupled with continued price improvement over the prior year in both the domestic and export pulp, paper and packaging markets were the key factors in this recovery. The combined real estate and financial services segments earned $18 million in 1994 compared with 1993 earnings of $94 million, which included a pretax gain of $42 million on the sale of GNA Corporation as well as one quarter of GNA operating results. 1993 Compared With 1992 Consolidated sales and revenues in 1993 were $9.5 billion, an increase of 3 percent over 1992. Net earnings were $579 million, or $2.83 per common share, up from 1992 net earnings of $372 million, or $1.83 per common share. Included in 1993 net earnings were after-tax gains of: . $52 million, or $.25 per common share, from the extinguishment of debt, which was reported as an extraordinary item. . $44 million, or $.22 per common share, from the sale of the infant diaper business. . $36 million, or $.18 per common share, from the sale of GNA Corporation, a wholly owned subsidiary. And a charge of $20 million, or $.10 per common share, which reflected the revised 1993 federal corporate tax rate in the company's deferred and current tax accounts. This charge consisted of $.08 per common share due to the effect of the higher rate on the accumulated temporary differences at December 27, 1992, and $.02 per common share related to 1993. The net sales and revenues and related costs and expenses of real estate and financial services were substantially less in 1993 when compared with 1992 as a result of the sale of GNA Corporation. During 1993 the company refinanced a significant amount of debt, which resulted in a short-term increase in interest expense. The increase in capitalized interest over the prior year coincided with expanded activity in the company's major capital projects. The significant decrease in financial services interest expense was due to the liquidation of Republic Federal Savings & Loan Association during 1992 and the sale of GNA Corporation in early 1993. In addition, accelerated prepay- ments caused by mortgage refinancings significantly reduced collateralized mortgage obligation bonds. Significant items in relation to net earnings included in other income for 1993 were a $70 million pretax gain on the disposal of the company's investment in the infant diaper business through a public offering in a new company, Paragon Trade Brands, Inc., and the real estate and financial services pretax gain of $42 million on the sale of GNA Corporation. The timberlands and wood products operating earnings for 1993 were $891 million, an increase of 73 percent over the $515 million recorded in 1992. Prices for logs and lumber exceeded 1992 levels due to increasing demand for housing construction materials and raw material supply shortages resulting from reduced harvests in the Western public forests. The pulp, paper and packaging segment had a $61 million operating profit in 1993, significantly below the $251 million posted in 1992. Prices for most of the products in this segment were at levels well below the previous year. The personal care products business included in this segment was divested in the first quarter of 1993. The real estate and financial services segments had oper- ating earnings of $94 million in 1993 compared with $81 million in 1992. As a part of the GNA Corporation sales transaction, the company assumed $225 million of GNA debt. 41 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 under lying 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 Weyerhaeuser Financial Services, Inc., 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 14 of Notes to Financial Statements. Operations The company's consolidated financial position was very strong in 1995 as it generated $1.9 billion of cash flow from operations before working capital changes compared with $1.3 billion in 1994. Cash flow from operations before changes in working capital by business segment was as follows:
Dollar amounts in millions 1995 1994 1993 - ----------------------------- --------- --------- --------- Timberlands and wood products $ 1,026 $ 1,226 $ 1,052 Pulp, paper and packaging 1,567 530 326 Real estate 23 16 29 Financial services 46 33 12 Corporate and other (806) (545) (437) --------- --------- --------- $ 1,856 $ 1,260 $ 982 ========= ========= =========
Weyerhaeuser's net working capital at December 31, 1995, increased $321 million from the previous year-end. Signifi- cant factors were an increase of $148 million in inventories and prepaid expenses, excluding acquisitions, and a net reduction of $196 million in current portion of long-term debt, as the 9 1/4 percent and 9.36 percent notes totaling $300 million, due in 1995, were paid. Real estate and financial services segments cash flow from operations was down in 1995. Loan origination activity exceeded loan sales in the mortgage banking operations compared with the previous year when sales exceeded origination activity, creating a net change of $378 million from year to year. Significant non-recurring items that impacted the cash flow from operations in 1993 were the $52 million gain on extinguishment of debt, net of income tax, which was re- corded as an extraordinary item; the pretax gain of $70 million from the sale of the company's infant diaper business; and the pretax gain of $42 million from the sale of GNA Corporation. Investing Capital expenditures amounted to $1.1 billion in 1995, including acquisitions, and $1.1 billion in 1994. They are currently expected to approximate $900 million in 1996; however, the expenditures could be increased or decreased as a consequence of future economic conditions. The company had approximately $269 million in capital expenditures committed on major projects at year-end 1995 including construction of its new oriented strand board mill in West Virginia as well as environmental and productivity improvement projects at the New Bern, North Carolina, and Kamloops, British Columbia, pulp and paper complexes. In addition, near year-end, the company announced that it had signed an agreement to acquire 241,000 acres of southern private commercial forestland. The ultimate purchase price could range up to $275 million. 42 Recent capital spending, including acquisitions, has been in the following areas:
Dollar amounts in millions 1995 1994 1993 - ----------------------------- ------- ------- ------- Timberlands and wood products $ 508 $ 257 $ 241 Pulp, paper and packaging 562 794 652 Corporate and other 49 51 74 ------- ------- ------- $1,119 $1,102 $ 967 ======= ======= =======
Capital assets acquired in 1995, using $77 million of cash and $46 million of the company's treasury shares, were three hardwood lumber mills, timber and timberlands, nine corrugated packaging plants and five recycling collection facilities. The change from 1994 to 1995 in the financial services segment was the result of the sale of adjustable-rate mort- gages and partnership distributions in 1995 compared with partnership investments made and the sale of mortgage- backed certificates in 1994. Financing The increases in sales of debentures and industrial revenue bonds and related payments on debentures, commercial paper and other debt by Weyerhaeuser in 1995 compared with the prior year are a result of replacing maturing and higher cost debt with lower-priced instruments. Real estate and financial services segments used the proceeds from the sale of adjustable-rate mortgages and mortgage loans to reduce total debt from the 1994 ending balance. Cash dividends paid on common shares amounted to $306 million in 1995 and $247 million in 1994. The increase in 1995, compared with 1994, is a result of increasing the quarterly dividend on common shares from 30 cents to 40 cents in the second quarter. Although common share dividends have exceeded the company's target payout ratio in recent years, it is our intent, over time, to pay dividends to our common shareholders in a range of 35 to 45 percent of common share earnings. As a part of its 10 million share repurchase program an- nounced in the second quarter of 1995, the company had ac- quired 8.5 million common shares by year-end at a cost of $379 million. To ensure its ability to meet future commitments, Weyerhaeuser Company, Weyerhaeuser Real Estate Company and Weyerhaeuser Mortgage Company, a subsidiary of Weyerhaeuser Financial Services, Inc., have established at year-end 1995 unused bank lines of credit in the maximum aggregate sum of approximately $2.5 billion. None of the entities is a guarantor of the borrowings of the others under any of these credit facilities. Contingencies The company is a party to legal proceedings and environmen- tal 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. Accounting Matters Pronouncements During the year, the company implemented the following pronouncements of the Financial Accounting Standards Board (FASB): . Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan." . SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition and Disclosures," which amended SFAS No. 114. . SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." . SFAS No. 122, "Accounting for Mortgage Servicing Rights -- an Amendment of FASB Statement No. 65." These statements are described in Note 1, Summary of Significant Accounting Policies, of Notes to Financial Statements. 43 In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation," which requires companies to change what they disclose about their employee stock-based compensation plans, recommends that they change the accounting for these plans to a fair-value based method and requires those companies that do not change their accounting to disclose what their earnings and earnings per share would have been if they had changed. This disclosure is applicable for financial statements for fiscal years beginning after December 15, 1995. The company will continue to account for these plans using the method of accounting prescribed by Accounting Principles Board Opinion No. 25 and will conform to the disclosure requirements of SFAS No. 123 for the fiscal year 1996. 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. Other The company has embarked on a new series of business improvement plans which targets $600 million in pretax operating improvements measured in 1994 prices and costs by year-end 1997. In 1995, the company announced that it is in private discussions with potential financial investors about the possibility of forming a joint-venture partnership that would make investments in timberlands and related assets around the world. The size of the venture, of which the company would be a 50 percent owner, would depend upon the specific investments made, but could ultimately reach $1.5 billion over time. The company's contribution to the joint venture would be U.S. timberlands (with a market value of approximately $260 million) and cash, while the investors' group would provide cash contributions of an equal amount. 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 31, 1995, and December 25, 1994, and the related consolidated statements of earnings, cash flows and shareholders' interest for each of the three years in the period ended December 31, 1995. 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 31, 1995, and December 25, 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Seattle, Washington, February 12, 1996 ARTHUR ANDERSEN LLP 44 Consolidated Statement of Earnings
For the three-year period ended December 31, 1995 Dollar amounts in millions except per-share figures 1995 1994 1993 - --------------------------------------------------- ------- ------- ------- Net sales and revenues: Weyerhaeuser $10,869 $ 9,281 $ 8,315 Real estate and financial services 919 1,117 1,230 ------- ------- ------- Net sales and revenues 11,788 10,398 9,545 ------- ------- ------- Costs and expenses: Weyerhaeuser: Costs of products sold 7,516 6,819 6,252 Depreciation, amortization and fee stumpage 580 504 444 Selling, general and administrative expenses 724 615 592 Research and development expenses 51 47 44 Taxes other than payroll and income taxes 155 151 137 ------- ------- ------- 9,026 8,136 7,469 ------- ------- ------- Real estate and financial services: Costs and operating expenses 681 851 836 Depreciation and amortization 41 30 43 Selling, general and administrative expenses 139 152 206 Taxes other than payroll and income taxes 8 9 9 Charge for impairment of long-lived assets (Note 1) 290 - - ------- ------- ------- 1,159 1,042 1,094 ------- ------- ------- Total costs and expenses 10,185 9,178 8,563 ------- ------- ------- Operating income 1,603 1,220 982 Interest expense and other: Weyerhaeuser: Interest expense incurred 271 237 215 Less interest capitalized 20 36 23 Other income (expense), net (Note 3) (71) (42) 60 Real estate and financial services: Interest expense incurred 140 154 173 Less interest capitalized 76 78 77 Other income (expense), net (Note 3) 27 19 54 ------- ------- ------- Earnings before income taxes and extraordinary item 1,244 920 808 Income taxes (Note 4) 445 331 281 ------- ------- ------- Earnings before extraordinary item 799 589 527 Extraordinary item, net of applicable taxes of $34 (Note 5) - - 52 ------- ------- ------- Net earnings $ 799 $ 589 $ 579 ======= ======= ======= Per common share (Note 1): Earnings before extraordinary item $ 3.93 $ 2.86 $ 2.58 Extraordinary item - - .25 ------- ------- ------- Net earnings $ 3.93 $ 2.86 $ 2.83 ======= ======= ======= Dividends paid $ 1.50 $ 1.20 $ 1.20 ======= ======= =======
See notes on pages 51 through 69. 45 Consolidated Balance Sheet
Dollar amounts in millions December 31, 1995 December 25, 1994 - -------------------------- ----------------- ----------------- Assets Weyerhaeuser Current assets: Cash and short-term investments (Note 1) $ 34 $ 190 Receivables, less allowances of $9 and $10 976 909 Inventories (Note 8) 960 746 Prepaid expenses 265 284 ----------- ------------ Total current assets 2,235 2,129 Property and equipment (Note 9) 6,717 6,196 Construction in progress 509 603 Timber and timberlands at cost, less fee stumpage charged to disposals 666 610 Other assets and deferred charges 232 212 ----------- ------------ 10,359 9,750 ----------- ------------ Real estate and financial services Cash and short-term investments, including restricted deposits of $22 and $28 50 73 Receivables, less discounts and allowances of $7 and $4 92 116 Mortgage notes held for sale (Note 15) 332 209 Mortgage loans receivable (Note 15) 155 263 Investments (Note 15) 70 247 Mortgage-backed certificates and other pledged financial instruments (Notes 10 and 15) 185 211 Real estate in process of development and for sale, less reserves of $21 and $54 (Note 11) 776 989 Land being processed for development, less reserves of $18 and $19 688 738 Deferred acquisition costs 84 92 Investments in and advances to joint ventures and limited partnerships, less reserves of $38 and $49 113 237 Other assets 349 233 ----------- ------------ 2,894 3,408 ----------- ------------ Total assets $ 13,253 $ 13,158 =========== ============
See notes on pages 51 through 69. 46
Dollar amounts in millions December 31, 1995 December 25, 1994 - -------------------------- ----------------- ----------------- Liabilities and shareholders' interest Weyerhaeuser Current liabilities: Notes payable $ 24 $ 6 Current maturities of long-term debt 125 321 Accounts payable (Note 1) 747 796 Accrued liabilities (Note 12) 707 695 ----------- ----------- Total current liabilities 1,603 1,818 Long-term debt (Notes 14 and 15) 2,983 2,713 Deferred income taxes (Note 4) 1,196 986 Deferred pension and other liabilities (Notes 6 and 7) 509 525 Minority interest in subsidiaries 111 103 Commitments and contingencies (Note 16) ----------- ----------- 6,402 6,145 ----------- ----------- Real estate and financial services Notes payable and commercial paper (Note 13) 338 416 Collateralized mortgage obligation bonds (Notes 10 and 15) 159 183 Long-term debt (Note 14) 1,594 1,770 Other liabilities 274 354 Commitments and contingencies (Note 16) ----------- ----------- 2,365 2,723 ----------- ----------- Total liabilities 8,767 8,868 ----------- ----------- Shareholders' interest (Note 18): Common shares: authorized 400,000,000 shares, issued 206,072,890 shares, $1.25 par value 258 258 Other capital 415 416 Cumulative translation adjustment (90) (107) Retained earnings 4,226 3,733 Treasury common shares, at cost: 7,302,878 and 455,387 (323) (10) ----------- ----------- Total shareholders' interest 4,486 4,290 ----------- ----------- Total liabilities and shareholders' interest $ 13,253 $ 13,158 =========== ===========
47 Consolidated Statement of Cash Flows
Consolidated For the three-year period ended December 31, 1995 ----------------------- Dollar amounts in millions 1995 1994 1993 - --------------------------------- ------- ------- ------- Cash flows provided by operations: Net earnings (loss) $ 799 $ 589 $ 579 Non-cash charges to income: Depreciation, amortization and fee stumpage 621 534 487 Deferred income taxes, net 103 127 94 Contributions to employee benefit plans - - 2 Extraordinary item, including current tax benefit - - (90) Deferred income taxes on extraordinary item - - 38 Charge for impairment of long-lived assets 290 - - Changes in working capital: Accounts receivable (33) (125) (93) Inventories, prepaid expenses, real estate and land (159) (6) (272) Mortgage notes held for sale and mortgage loans receivable (18) 360 23 Other liabilities (102) 198 168 (Gain) loss on disposition of assets 43 10 (16) (Gain) on sales of businesses - - (112) Other 12 (7) 44 ------- ------- ------- Net cash provided by operations 1,556 1,680 852 ------- ------- ------- Cash flows from investing in the business: Property and equipment (928) (1,061) (927) Timber and timberlands (68) (41) (40) Property and equipment and timber and timberlands from acquisitions (77) - - Mortgage and investment securities acquired (28) (260) (776) Proceeds from sale of: Property, equipment, timber and timberlands 19 44 54 Businesses - 14 616 Mortgage and investment securities 214 140 510 Other 30 (102) (26) ------- ------- ------- Net cash flows from investing in the business (838) (1,266) (589) ------- ------- ------- Cash flows from financing activities: Sale of debentures, notes and CMO bonds 723 174 1,291 Sale of industrial revenue bonds 150 134 135 Notes and commercial paper borrowings, net (439) (143) (660) Proceeds from issuance of investment contracts - - 60 Cash dividends on common shares (306) (247) (246) Intercompany cash dividends on common shares - - - Payments on debentures, notes, bank credit agreements, income debenture, capital leases and CMO bonds (661) (362) (1,243) Purchase of treasury common shares (379) - - Exercise of stock options 19 16 21 Other (4) (2) 5 ------- ------- ------- Net cash flows from financing activities (897) (430) (637) ------- ------- ------- Net increase (decrease) in cash and short-term investments (179) (16) (374) Cash and short-term investments at beginning of year 263 279 653 ------- ------- ------- Cash and short-term investments at end of year $ 84 $ 263 $ 279 ======= ======= ======= Cash paid during the year for: Interest, net of amount capitalized $ 302 $ 279 $ 305 ======= ======= ======= Income taxes $ 332 $ 141 $ 158 ======= ======= =======
See notes on pages 51 through 69. 48
Weyerhaeuser Company Real Estate and Financial Services ----------------------- ---------------------------------- 1995 1994 1993 1995 1994 1993 ------- ------- ------- ------- ------- ------- $ 981 $ 576 $ 511 $ (182) $ 13 $ 68 580 504 444 41 30 43 183 115 108 (80) 12 (14) - - 2 - - - - - (90) - - - - - 38 - - - - - - 290 - - (60) (126) (55) 27 1 (38) (148) (12) (164) (11) 6 (108) - - - (18) 360 23 (82) 272 53 (20) (74) 115 43 15 (3) - (5) (13) - - (70) - - (42) 14 (20) 34 (2) 13 10 ------- ------- ------- ------- ------- ------- 1,511 1,324 808 45 356 44 ------- ------- ------- ------- ------- ------- (915) (1,047) (907) (13) (14) (20) (68) (41) (40) - - - (77) - - - - - - - - (28) (260) (776) 19 20 27 - 24 27 - - 204 - 14 412 - - - 214 140 510 (50) (49) (6) 80 (53) (20) ------- ------- ------- ------- ------- ------- (1,091) (1,117) (722) 253 (149) 133 ------- ------- ------- ------- ------- ------- 583 22 931 140 152 360 150 134 135 - - - (159) (83) (520) (280) (60) (140) - - - - - 60 (306) (247) (246) - - - - - 435 - - (435) (480) (49) (824) (181) (313) (419) (379) - - - - - 19 16 21 - - - (4) (2) 5 - - - ------- ------- ------- ------- ------- ------- (576) (209) (63) (321) (221) (574) ------- ------- ------- ------- ------- ------- (156) (2) 23 (23) (14) (397) 190 192 169 73 87 484 ------- ------- ------- ------- ------- ------- $ 34 $ 190 $ 192 $ 50 $ 73 $ 87 ======= ======= ======= ======= ======= ======= $ 236 $ 201 $ 203 $ 66 $ 78 $ 102 ======= ======= ======= ======= ======= ======= $ 346 $ 92 $ 161 $ (14) $ 49 $ (3) ======= ======= ======= ======= ======= =======
49 Consolidated Statement of Shareholders' Interest
For the three-year period ended December 31, 1995 Dollar amounts in millions 1995 1994 1993 - ------------------------------------------------- ------- ------- ------- Common stock issued: Balance at end of year $ 258 $ 258 $ 258 ------- ------- ------- Other capital: Balance at beginning of year 416 411 404 Stock options exercised (3) 5 5 Contributions to employee investment plans - - 1 Other transactions (net) 2 - 1 ------- ------- ------- Balance at end of year 415 416 411 ------- ------- ------- Cumulative translation adjustment: Balance at beginning of year (107) (73) (36) Translation adjustment 17 (34) (37) ------- ------- ------- Balance at end of year (90) (107) (73) ------- ------- ------- Retained earnings: Balance at beginning of year 3,733 3,391 3,058 Net earnings 799 589 579 Cash dividends on common shares (306) (247) (246) ------- ------- ------- Balance at end of year 4,226 3,733 3,391 ------- ------- ------- Common stock held in treasury: Balance at beginning of year (10) (21) (38) Purchases of treasury common shares (379) - - Stock options exercised 22 11 16 Contributions to employee investment plans - - 1 Used in acquisition of capital assets 44 - - ------- ------- ------- Balance at end of year (323) (10) (21) ------- ------- ------- Total shareholders' interest: Balance at end of year $4,486 $4,290 $3,966 ======= ======= ======= Shares of common stock (in thousands): Issued at end of year 206,073 206,073 206,073 ------- ------- ------- In treasury: Balance at beginning of year 455 984 1,796 Purchases of treasury common shares 8,494 - - Stock options exercised (648) (529) (744) Contributions to employee investment plans - - (60) Used in acquisition of capital assets (998) - - Other transactions - - (8) ------- ------- ------- Balance at end of year 7,303 455 984 ------- ------- ------- Outstanding at end of year 198,770 205,618 205,089 ======= ======= =======
See notes on pages 51 through 69. 50 Notes to Financial Statements For the three-year period ended December 31, 1995 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. Certain of the consolidated financial statements and notes to financial statements are presented in two groupings: (1) Weyerhaeuser Company (Weyerhaeuser, or the company), which is principally engaged in the growing and harvesting of timber and the manufacture, distribution and sale of forest products, and (2) real estate and financial services, which includes Weyerhaeuser Real Estate Company (WRECO), which is involved in real estate development and construction, and Weyerhaeuser Financial Services, Inc. (WFS), whose principal subsidiary is Weyerhaeuser Mortgage Company (WMC). GNA Corporation, a subsidiary of WFS, was sold in April 1993. Nature of Operations The company's principal business segments, which account for the majority of sales and earnings and 70 percent of the asset base, are: . Timberlands and wood products, which is engaged in the management of 5.3 million acres of company-owned forestland in the United States and 18.9 million acres of forestland in Canada under long-term licensing arrangements and the production of 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. . Pulp, paper and packaging, which manufactures and sells pulp, newsprint, 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 year 1995 had 53 weeks, and fiscal years 1994 and 1993 had 52 weeks. Changes in Accounting Principles In 1994, the company implemented the following pronounce- ments by the Financial Accounting Standards Board (FASB): . Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," for its wholly owned subsidiary, Weyerhaeuser Canada Ltd. The adoption of this pronouncement did not have a significant impact on the company's results of operations or its financial position. . SFAS No. 112, "Employers' Accounting for Postemployment Benefits," which requires accrual accounting to be used for the cost of benefits provided to former or inactive employees who have not yet retired. The adoption of this pronouncement, which required a cumulative catch-up charge to earnings, did not have a significant impact on the company's results of operations or its financial position. . SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which addresses accounting and reporting for investments in equity securities that have readily determinable fair values, and for all investments in debt securities. The adoption of this pronouncement did not have a significant impact on the company's results of operations or its financial position. In 1995, the company also implemented: . SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," which requires creditors to measure impairment based on the present value of expected future cash flows discounted at the loan's effective interest rate, and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - - Income Recognition and Disclosures," which amended SFAS No. 114 to allow creditors to use existing methods for recognizing interest on impaired loans and also requires creditors to disclose certain information about how interest income was recognized on impaired loans. The adoption of these pronouncements did not have a significant impact on results of operations or financial position. . SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires companies to change their method of valuing long- lived assets. The implementation of this pronouncement, along with the company's decision to accelerate the dispo- sition of some of those real estate assets, resulted in a charge of $290 million to operations. The company currently plans to dispose of most of the impaired assets over the next two years. The carrying value of the affected assets at December 31, 1995, is approximately $291 million. . SFAS No. 122, "Accounting for Mortgage Servicing Rights -- an Amendment of FASB Statement No. 65," which modifies the treatment of the capitalization of servicing rights by mortgage banking enterprises. The change constitutes a simplification in procedures, eliminating the separate treatment of servicing rights acquired through loan origina- tion and those acquired through purchasing transactions, as previously required under SFAS No. 65. The change also requires that the enterprise periodically evaluate servicing rights for impairment. The adoption of this pronouncement by WMC did not have a significant impact on results of operations or financial position. 51 Prospective Accounting Changes In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation," which requires companies to change what they disclose about their employee stock-based compensation plans, recommends that they change the accounting for these plans to a fair-value based method and requires those companies that do not change their accounting to disclose what their earnings and earnings per share would have been if they had changed. This disclosure is applicable for financial statements for fiscal years beginning after December 15, 1995. The company will continue to account for these plans using the method of accounting prescribed by Accounting Principles Board Opinion No. 25 and will conform to the disclosure requirements of SFAS No. 123 for the fiscal year 1996. Net Earnings Per Common Share Net earnings per common share are based on the weighted average number of common shares outstanding during the respective periods. Average common equivalent shares (stock options) outstanding have not been included, as the computation would not be dilutive. Weighted average common shares outstanding were 203,525,000, 205,543,000 and 204,866,000 for the years ended December 31, 1995, December 25, 1994, and December 26, 1993, respectively. 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. Fair Value of 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. 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 payable, have gains or losses recognized at settlement date. . 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. . Hedging transactions entered into by the company's mortgage banking subsidiary to protect both the completed loan inventory and loans in process against changes in interest rates. The financial instruments used to manage interest rate risk are forward sales commitments, interest rate futures and options. Hedging gains and losses realized during the commitment and warehousing period are deferred to the extent of unrealized gains on the related mortgage loans held for sale. The company is exposed to credit-related 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 amount of these derivative financial in- struments is $891 million at December 31, 1995. 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. Inventories Inventories are stated at the lower of cost or market. Cost includes labor, materials and production overhead. The last- in, first-out (LIFO) method is used to cost the majority of domestic raw materials, in process and finished goods inven- tories; either the first-in, first-out (FIFO) or average cost method is used to cost all other inventories. Had the FIFO method been used to cost all inventories, the amounts at which product inventories are stated would have been $267 million and $237 million greater at December 31, 1995, and December 25, 1994, respectively. Property and Equipment The company's property accounts are maintained on an individual asset basis. Betterments and replacements of major units are capitalized. Maintenance, repairs and minor replacements are expensed. Depreciation is provided generally on the straight-line or unit-of-production method at rates based on estimated service lives. Amortization of logging railroads and truck roads is provided generally as timber is harvested and is based upon rates determined with reference to the volume of timber estimated to be removed over such facilities. 52 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. Stumpage rates are determined with reference to the cost of timber and the related volume of timber estimated to be recoverable. Timber carrying costs are expensed as incurred. Accounts Payable The company's banking system provides for the daily replenishment of major bank accounts as checks are presented. Accordingly, there were negative book cash balances of $149 million and $151 million at December 31, 1995, and December 25, 1994, 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 em- ployees. 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. Reclassifications Certain reclassifications have been made to conform prior years' data to the current format. Weyerhaeuser Real Estate Company Real estate held for sale is stated at the lower of cost or fair value. The determination of fair value is based on market pricing of comparable assets when available, or the present value of expected future cash flows from these assets. Real estate held for development is stated at cost to the extent it does not exceed the future undiscounted net cash flows. Weyerhaeuser Financial Services The company's financial services businesses are engaged in the mortgage banking industry, hold mortgage-backed certificates and other financial instruments pledged as collateral for collateralized mortgage obligation (CMO) bonds, and also offer insurance services. Mortgage notes held for sale are stated at the lower of cost or market, which is computed by the aggregate method (unrealized losses are offset by unrealized gains). Mortgage-backed certificates are carried at par value adjusted for any unamortized discount or premium. CMO bonds are carried at unamortized cost. Discounts and premiums are amortized using a method that approximates the effective interest method over their estimated lives. 53 Note 2. Foreign Operations and Export Sales The following net assets, net sales and net earnings, related to operations outside the United States, principally Canada, are included in the company's consolidated financial statements:
December 31, December 25, December 26, Dollar amounts in millions 1995 1994 1993 - -------------------------- ------------ ------------ ------------ Net assets: Working capital $ 72 $ 29 $ 100 Timber-cutting rights 2 2 2 Property and equipment, net 894 826 853 Other assets 40 42 36 ------------ ------------ ------------ 1,008 899 991 Other liabilities (253) (235) (232) ------------ ------------ ------------ Net assets $ 755 $ 664 $ 759 ============ ============ ============
Dollar amounts in millions 1995 1994 1993 - -------------------------- --------- --------- -------- Net sales $ 1,582 $ 1,390 $ 972 Net earnings 282 186 116
The company is engaged in the sale of products for export from the United States. These sales consist principally of pulp, newsprint, paperboard, containerboard, logs, lumber and wood chips to Japan; pulp, containerboard, lumber and plywood to Europe; and logs to China and Korea. The following table compares the company's export sales from the United States to customers in Japan and elsewhere with its total net sales and revenues.
Dollar amounts in millions 1995 1994 1993 - -------------------------- --------- --------- --------- Export sales from the United States: Customers in Japan $ 1,173 $ 1,034 $ 952 Customers outside Japan 763 506 493 --------- --------- --------- Total export sales 1,936 1,540 1,445 --------- --------- --------- Total net sales and revenues $ 11,788 $ 10,398 $ 9,545 ========= ========= =========
Note 3. Other Income (Expense), Net Other income (expense), net, is an aggregation of both recurring and occasional non-operating income and expense items and, as a result, fluctuates from period to period. No individual income or (expense) item is significant other than the $70 million gain on the disposal of the company's investment in the infant diaper business in 1993 and the real estate and financial services gain of $42 million on the sale of GNA Corporation in 1993. 54 Note 4. Income Taxes Earnings before income taxes and extraordinary item are comprised of the following:
Dollar amounts in millions 1995 1994 1993 - -------------------------- -------- -------- -------- Domestic earnings $ 845 $ 650 $ 738 Foreign earnings 399 270 70 -------- -------- -------- $ 1,244 $ 920 $ 808 ======== ======== ========
Provisions for income taxes include the following:
Dollar amounts in millions 1995 1994 1993 - --------------------------- --------- --------- --------- Federal: Current $ 177 $ 84 $ 145 Deferred 92 114 82 --------- --------- --------- 269 198 227 --------- --------- --------- State: Current 31 17 16 Deferred 4 7 11 --------- --------- --------- 35 24 27 --------- --------- --------- Foreign: Current 134 103 26 Deferred 7 6 1 --------- --------- --------- 141 109 27 --------- --------- --------- Income taxes before extraordinary item 445 331 281 --------- --------- --------- Income taxes apportionable to extraordinary item: Current - - (4) Deferred - - 38 --------- --------- --------- - - 34 --------- --------- --------- $ 445 $ 331 $ 315 ========= ========= =========
The corporate income tax rate was increased from 34 percent to 35 percent, retroactive to January 1, 1993, by legislation enacted during the third quarter of 1993. This change in tax law increased income taxes in 1993 by $15 million due to the effect of the higher tax rate on the accumulated temporary differences at December 27, 1992, and $5 million due to the effect of adjusting the annual effective tax rate used in prior quarters. A reconciliation between the federal statutory tax rate and the company's effective tax rate before the extraordinary item follows:
1995 1994 1993 ------ ------ ------ Statutory tax on income before extraordinary item 35% 35% 35% State income taxes, net of federal tax benefit 2 2 3 Foreign sales corporations (1) (1) (2) Effect of tax rate change - - 2 All other, net - - (3) ------ ------ ------ Effective income tax rate 36% 36% 35% ====== ====== ======
55 The net deferred income tax (liabilities) assets include the following components:
Dollar amounts in millions December 31, 1995 December 25, 1994 - -------------------------- ----------------- ----------------- Current (included in prepaid expenses) $ 75 $ 68 Noncurrent (1,196) (986) Real estate and financial services 72 (8) ----------------- ----------------- Total $ (1,049) $ (926) ================= =================
The deferred tax (liabilities) assets are comprised of the following:
Dollar amounts in millions December 31, 1995 December 25, 1994 - -------------------------- ----------------- ----------------- Depreciation $ (1,220) $ (1,093) Depletion (115) (99) Capitalized interest and taxes - real estate development (77) (79) Other (140) (138) ------------- ------------- Total deferred tax (liabilities) (1,552) (1,409) ------------- ------------- Pension and retiree health care 121 121 Charges for impairment of long-lived assets 93 - Environmental, obsolescence and restructure reserves 78 85 Alternative minimum tax credit carryforward 20 64 Other 191 213 ------------- ------------- Total deferred tax assets 503 483 ------------- ------------- $ (1,049) $ (926) ============= =============
As of December 31, 1995, the company has available approximately $20 million of alternative minimum tax credit carryforward, which does not expire, and foreign tax credit carryforwards of $1 million, $4 million and $1 million expiring in 1998, 1999 and 2000, respectively. The company intends to reinvest undistributed earnings of certain foreign subsidiaries; therefore, no U.S. taxes have been provided. These earnings totaled approximately $734 million at the end of 1995. While it is not practicable to determine the income tax liability that would result from repatriation, it is estimated that withholding taxes payable upon repatriation would approximate $73 million. Note 5. Extraordinary Item In 1993 the company realized a net gain of $52 million ($86 million less related tax effect of $34 million) as a result of extinguishing certain debt obligations. Note 6. Pension Plans Net annual pension cost (income) includes the following components:
Dollar amounts in millions 1995 1994 1993 - -------------------------- -------- -------- -------- Service cost-benefits earned during the period $ 37 $ 43 $ 39 Interest cost on projected benefit obligation 104 96 93 Actual return on plan assets (466) (9) (280) Net amortization and deferrals 323 (121) 165 Pension expense due to sales, closures and other - - (1) -------- -------- -------- $ (2) $ 9 $ 16 ======== ======== ========
The assumptions used were as follows:
1995 1994 1993 -------- -------- -------- Discount rate 7.75% 8.75% 7.5% Rate of increase in compensation levels 4.5% 4.5% 4.5% Expected long-term rate of return on plan assets 11.5% 11.5% 11.5%
56 The following table sets forth the plans' funded status and amounts recognized in the company's consolidated balance sheet for its U.S. and Canadian pension plans:
December 31, 1995 December 25, 1994 ------------------------ ----------------------- Assets Accumu- Assets Accumu- Exceed lated Exceed lated Accumu- Benefits Accumu- Benefits lated Exceed lated Exceed Dollar amounts in millions Benefits Assets Total Benefits Assets Total - ------------------------------------------------------------------------------ Accumulated benefit obligation: Vested $ 1,254 $ 28 $ 1,282 $ 1,044 $ 15 $ 1,059 Non-vested 27 - 27 23 - 23 ------- ------- ------- ------- ------- -------- $ 1,281 $ 28 $ 1,309 $ 1,067 $ 15 $ 1,082 ======= ======= ======= ======= ======= ======== Projected benefit obligation $ 1,413 $ 34 $ 1,447 $ 1,172 $ 15 $ 1,187 Fair value of plan assets (1,627) (24) (1,651) (1,238) (12) (1,250) Unrecognized prior service cost (57) (12) (69) (49) (3) (52) Unrecognized net gain 316 5 321 168 2 170 Unrecognized net transition asset 32 (2) 30 37 (1) 36 ------- ------- ------- ------- ------- -------- Accrued pension cost $ 77 $ 1 $ 78 $ 90 $ 1 $ 91 ======= ======= ======= ======= ======= ========
The assets of the U.S. and Canadian pension plans, as of December 31, 1995, and December 25, 1994, consist of a highly diversified mix of equity, fixed income and real estate securities. Approximately 1,750 employees are covered by union- administered multi-employer pension plans to which the com- pany makes negotiated contributions based generally on fixed amounts per hour per employee. Contributions to these plans were $7 million in 1995, $7 million in 1994 and $6 million in 1993. Note 7. Postretirement Benefits Other Than Pensions The company sponsors defined benefit postretirement plans for its U.S. employees that provide medical and life insur- ance coverage as follows: . Two salaried retiree medical plans that cover substantially all salaried employees who retire under the company's retirement plan and their spouses. Plan I covers those retired or eligible to retire as of January 1, 1990, and provides full health coverage. Plan II includes those salaried employees not eligible for Plan I, under which the company provides a fixed dollar amount per year of service toward the premium, with the retiree paying the remainder. The company reserves the right to revise the fixed dollar amount. . An hourly retiree medical plan that covers approximately 3,700 active hourly employees and their spouses. For some, the coverage stops at age 65, while others have lifetime coverage. In some units the retiree must pay a portion of the premium, while in others the company pays the full cost. There are approximately 1,800 retired hourly employees and their spouses currently covered under these programs. . A salaried retiree life insurance plan that starts at 80 percent of salary at retirement and reduces to six thousand dollars in 20 percent increments. Approximately 4,700 persons who are retired or were eligible to retire as of December 31, 1991, are subject to a different schedule. . An hourly retiree life insurance plan in which approxi- mately 11,000 active hourly employees are eligible and approximately 2,000 hourly retirees have coverage. Most of these are covered by fixed dollar amount coverage that is graded down after retirement. Some units have pay-related insurance on which the company pays the full cost. The company sponsors three defined benefit and two defined contribution postretirement plans for its Canadian employees that provide medical and life insurance. Collectively, 320 retired employees are covered and 510 active employees are eligible for coverage in these five plans as of year-end 1995. 57 The following table sets forth the U.S. and Canadian plans' combined accrued postretirement benefit obligation as of December 31, 1995, and December 25, 1994:
December 31, December 25, Dollar amounts in millions 1995 1994 - -------------------------- ------------ ------------ Accumulated postretirement benefit obligation: Retirees: Health $ 119 $ 120 Life 22 22 Fully eligible and other active plan participants: Health 87 77 Life 12 11 ------------ ------------ 240 230 Unrecognized actuarial gain/(loss) 9 13 ------------ ------------ Accrued postretirement benefit obligation $ 249 $ 243 ============ ============
Net annual postretirement benefit costs included the following components:
Dollar amounts in millions 1995 1994 1993 - -------------------------- ------- ------- ------- Service cost benefits attributed to service during the period: Health $ 3 $ 4 $ 3 Life - 1 1 Interest cost on accumulated postretirement benefit obligation: Health 16 16 16 Life 3 2 3 Amortization of loss - health (1) - - ------- ------- ------- Net postretirement benefit cost $ 21 $ 23 $ 23 ======= ======= =======
For measurement purposes, an 11.0, 10.5 and 8.5 percent annual rate of increase in the per capita cost of covered health care benefits was assumed for 1993, 1994 and 1995, respectively. Beginning in 1996, the rate is assumed to decrease by 0.5 percent annually to a level of 5.5 percent for the year 2001 and all years thereafter. The effect of a one percent increase in the assumed health care cost trend rates would increase the accumulated postretirement benefit obligation as of December 31, 1995, by 10.3 percent, and the aggregate of the service and interest cost components of net annual postretirement benefit cost for 1995 by 11.9 percent. Other assumptions used were as follows:
1995 1994 1993 ------ ------ ------ Discount rate 7.75% 8.5% 7.5% Rate of increase in compensation levels: Salaried 4.5% 4.5% 4.5% Hourly 3.0% 3.0% 3.0%
58 Note 8. Inventories
Dollar amounts in millions December 31, 1995 December 25, 1994 - -------------------------- ----------------- ----------------- Logs and chips $ 173 $ 108 Lumber, plywood and panels 135 115 Pulp, newsprint and paper 158 88 Containerboard, paperboard and packaging 107 56 Other products 117 112 Materials and supplies 270 267 ----------------- ----------------- $ 960 $ 746 ================= =================
Note 9. Property and Equipment
Dollar amounts in millions December 31, 1995 December 25, 1994 - -------------------------- ----------------- ----------------- Property and equipment, at cost: Land $ 167 $ 159 Buildings and improvements 1,582 1,509 Machinery and equipment 9,253 8,557 Rail and truck roads and other 615 628 ----------------- ----------------- 11,617 10,853 Less allowance for depreciation and amortization 4,900 4,657 ----------------- ----------------- $ 6,717 $ 6,196 ================= =================
Note 10. Mortgage-Backed Certificates and Other Pledged Financial Instruments, and Collateralized Mortgage Obligation Bonds The company's financial services businesses hold mortgage- backed certificates and other financial instruments pledged as collateral for the collateralized mortgage obligation (CMO) bonds. These assets are held by banks as trustees. Principal and interest collections on the certificates are used to meet the interest payments and reduce the outstanding principal balance of the bonds. The 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 11. Real Estate in Process of Development and for Sale Properties held by the company's real estate and financial services businesses include:
Dollar amounts in millions December 31, 1995 December 25, 1994 - -------------------------- ----------------- ----------------- Dwelling units $ 236 $ 282 Residential lots 222 265 Commercial lots 136 131 Commercial projects 125 281 Acreage 77 83 Other inventories 1 1 ----------------- ----------------- 797 1,043 Less reserves 21 54 ----------------- ----------------- $ 776 $ 989 ================= =================
59 Note 12. Accrued Liabilities
December 31, December 25, Dollar amounts in millions 1995 1994 - -------------------------- ------------ ------------ Payroll -- wages and salaries, incentive awards, retirement and vacation pay $ 265 $ 217 Taxes -- Social Security and real and personal property 50 63 Interest 82 67 Accrued income taxes 117 105 Other 193 243 ------------ ------------ $ 707 $ 695 ============ ============
Note 13. Short-Term Debt Borrowings Real estate and financial services short-term borrowings were $338 million with a weighted average interest rate of 4.3 percent at December 31, 1995, and $416 million with a weighted average interest rate of 6 percent at December 25, 1994. Lines of Credit The company has short-term bank credit lines that provide for borrowings of up to the total amount of $725 million, all of which was available to the company, WRECO and WMC at December 31, 1995, and December 25, 1994. No portion of these lines has been availed of by the company, WRECO or WMC at December 31, 1995, or December 25, 1994. None of the entities referred to herein is a guarantor of the borrowings of the others. WMC has short-term special credit lines that provide for borrowings of up to $230 million and $235 million at December 31, 1995, and December 25, 1994, respectively. Borrowings against these lines were $115 million and $85 million as of December 31, 1995, and December 25, 1994, re- spectively. Note 14. Long-Term Debt Debt Weyerhaeuser long-term debt, including the current portion, is as follows:
December 31, December 25, Dollar amounts in millions 1995 1994 - -------------------------- ------------ ------------ 8 3/8% debentures due 2007 $ 150 $ 150 7.50% debentures due 2013 250 250 7.25% debentures due 2013 250 250 7 1/8% debentures due 2023 250 250 9 3/8% notes - 150 9 1/4% notes - 200 9.05% notes due 2003 200 200 9.36% notes - 100 7.28% note due 1996 40 40 8 1/2% debentures due 2025 300 - 7.95% debentures due 2025 250 - Industrial revenue bonds, rates from 2.8% (variable) to 10.0% (fixed), due 1996-2028 717 571 Medium-term notes, rates from 6.43% to 8.98%, due 1996-2005 428 428 Commercial paper/credit agreements 252 411 Other 21 34 ------------ ------------ $ 3,108 $ 3,034 ============ ============
Portion due within one year $ 125 $ 321 ========= =========
60 Long-term debt maturities during the next five years are (millions): 1996 $ 125 1997 74 1998 47 1999 335 2000 98
Real estate and financial services long-term debt, including the current portion, is as follows:
December 31, December 25, Dollar amounts in millions 1995 1994 - -------------------------- ------------ ------------ Notes payable, unsecured; weighted average interest rates are approximately 7.3% and 7.4% $ 780 $ 835 Bank and other borrowings, unsecured; weighted average interest rates are approximately 5.7% and 5.5% 505 460 Notes payable, secured; weighted average interest rates are approximately 8.5% and 9.4% 46 46 Commercial paper/credit agreements 263 429 ------------ ------------ $ 1,594 $ 1,770 ============ ============
Portion due within one year $ 125 $ 58 ========= =========
Long-term debt maturities during the next five years are (millions): 1996 $ 125 1997 585 1998 156 1999 375 2000 128
Lines of Credit At December 31, 1995, the company's lines of credit include a five-year competitive advance and revolving credit facility agreement entered into in July 1994 with a group of banks that provides for borrowings of up to the total amount of $1.55 billion, all of which can be availed of by the company, and $1 billion, which can be availed of by WMC. Borrowings are at LIBOR or other such interest rates as mutually agreed to between the borrower and lending banks. At December 31, 1995, and December 25, 1994, WMC had $35 million outstanding against a one-year evergreen credit commitment entered into in 1990. WMC has a revolving credit agreement with a bank to provide for: (1) borrowings of up to $35 million for two years at prime rate, LIBOR or such other rate as may be agreed upon by WMC and the banks, (2) a commitment fee based on the unused credit, and (3) conversion of the note as of July 1, 1998, to a five-year term loan payable in equal quarterly installments. At December 31, 1995, and December 25, 1994, $20 million was outstanding under this revolving credit agreement. During 1992 WFS entered into a credit facility agreement, which was subsequently amended in May 1994 and provides for: (1) borrowings of up to $525 million at December 31, 1995, and $405 million at December 25, 1994, at LIBOR or other such rates as may be agreed upon by WFS and the banks, and (2) a commitment fee on the unused portion of the credit. $450 million and $405 million were outstanding under this facility at December 31, 1995, and December 25, 1994, respectively. 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, WMC or WFS at December 31, 1995, or December 25, 1994, except as noted. The company's compensating balance agreements were not significant. 61 Note 15. Fair Value of Financial Instruments
December 31, 1995 December 25, 1994 ----------------- ----------------- Carrying Fair Carrying Fair Dollar amounts in millions Value Value Value Value - -------------------------- -------- ------- -------- ------- Weyerhaeuser: Financial liabilities: Long-term debt (including current maturities) $ 3,108 $ 3,469 $ 3,034 $ 3,015 -------- ------- -------- ------- Real estate and financial services: Financial assets: Mortgage notes held for sale 332 332 209 207 Mortgage loans receivable 155 138 263 210 Investments 70 68 247 238 Mortgage-backed certificates and other pledged financial instruments 185 193 211 208 Financial liabilities: Collateralized mortgage obligation bonds 159 169 183 189 Long-term debt (including current maturities) 1,594 1,623 1,770 1,722
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 real estate and financial services, 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 notes held for sale are estimated using the quoted market prices for securities backed by similar loans adjusted for differences in loan characteristics. The esti- mated fair value is net of related hedge instruments, which were estimated based upon quoted market prices for securities. . Mortgage loans receivable are estimated based on the discounted value of estimated future cash flows using cur- rent rates for loans with similar terms and risks. . Investments are estimated using quoted market prices for similar securities. Fair value for mortgage loans held as investments is based on the discounted value of estimated future cash flows using current rates. . Mortgage-backed certificates and other pledged financial instruments are estimated using the quoted market prices for securities backed by similar loans and restricted deposits held at cost, which is a reasonable estimate. . Collateralized mortgage obligation bonds are estimated using analysis of projected cash flows discounted at market yields. Note 16. Legal Proceedings, Commitments and Contingencies Legal Proceedings On November 2, 1992, an action was filed against the company in the Circuit Court for the First Judicial District of Hinds County, Mississippi, on behalf of a purported class of riparian property owners in Mississippi and Alabama whose properties are located on the Tennessee Tombigbee Waterway, Aliceville Lake, Cedar Creek and the Magoway Creek. The complaint seeks $1 billion in compensatory and punitive damages for diminution in property value, personal injuries and mental anguish allegedly resulting from the discharge of purported hazardous substances, including dioxins and furans, by the company's pulp and paper mill in Columbus, Mississippi, and the alleged fraudulent concealments of such discharge. The complaint also seeks an injunction prohibiting future releases and the removal of hazardous substances allegedly released in the past. On August 20, 1993, a companion action was filed in Greene County, Alabama, on behalf of a similar purported class of riparian owners with essentially the same claims as the Mississippi case. By order dated April 5, 1995, venue of the Alabama action was transferred to Sumter County, Alabama. On January 20, 1995, the court in the Alabama action certified a class of all persons who, as of the date the action commenced, were riparian owners, lessees and licensees of properties located on the Tennessee Tombigbee Waterway in Greene, Sumter, Pickens and Marengo counties, Alabama, and Lowndes and Noxubee counties, Mississippi, to determine whether the company is liable to the members of the class for compensatory and/or punitive damages and to determine the amount of punitive damages, if any, to be awarded to the class as a whole. By order dated April 12, 1995, as orally amended on February 1, 1996, the geographical boundaries of the class were amended to run from below the Columbus mill's wastewater discharge pipe to just above the confluence of the Black Warrior River and the Tennessee Tombigbee Waterway. The class is estimated to range from approximately 1,000 to 1,500 members. Neither the Mississippi action nor the Alabama action is presently scheduled for trial. 62 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 $120 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 envi- ronmental 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. Other Items The company's capital expenditures, excluding acquisitions, have averaged about $869 million in recent years but are expected to approximate $900 million in 1996; however, the 1996 expenditure level could be increased or decreased as a consequence of future economic conditions. The company had approximately $269 million in capital expenditures committed on major projects at year- end 1995. In addition, near year-end, the company announced that it had signed an agreement to acquire 241,000 acres of southern private commercial forestland. The ultimate purchase price could range up to $275 million. During the normal course of business, the company's real estate and financial services subsidiaries have entered into certain financial commitments comprised primarily of agreements to fund up to $146 million in mortgage loans at fixed and floating prices, guarantees made on $69 million of partnership borrowings, and limited recourse obligations associated with $1.6 billion of sold mortgage loans. The fair value of the recourse on these loans is estimated to be $9 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. 63 Note 17. Financial Instruments With Credit or Off-Balance Sheet Risk Receivables WFS originates and holds loans in a number of states. The remaining gross principal balance of mortgage notes held for sale or investment and mortgage loans receivable by geographic region are as follows:
Dollar amounts in millions 1995 1994 - -------------------------- -------- -------- West $ 457 $ 550 South 45 63 East 45 86 Other 21 23 -------- -------- $ 568 $ 722 ======== ========
Note 18. 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 31, 1995, and December 25, 1994; and . 40,000,000 preference shares having a par value of $1.00 per share, of which none were issued and outstanding at December 31, 1995, and December 25, 1994. 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. The company has reserved but not issued 2,000,000 shares of cumulative preference shares, fourth series, for the exercise of the rights described under Common Shares. Common Shares Common shares reserved for stock option plans were 5,972,195 shares at December 31, 1995, and 5,687,934 shares at December 25, 1994. As to the company's various stock option plans, the following information is provided:
1995 1994 1993 --------- --------- --------- At end of year: Options outstanding 5,972,195 5,687,934 5,177,401 Options exercisable 4,817,145 4,375,234 3,981,751 During the year: Options granted 1,155,050 1,312,700 1,195,650 Options exercised 859,373 623,258 878,755 Options forfeited 11,416 178,909 139,368 Average prices per share: Options outstanding $38.17 $36.27 $32.32 Options granted $39.47 $47.53 $42.31 Options exercised $27.34 $28.06 $26.72
In December 1986, the company adopted, and in February 1989 amended, a Shareholder Rights Plan (the "Plan") and declared a dividend distribution of 0.6667 right on each outstanding common share. Each right entitles its holder to purchase after the distribution date and until December 1996 one one-hundredth of a share of the company's cumulative preference shares, fourth series, at a price of $70, subject to adjustment. The distribution date is the earlier of 20 business days after the announcement that a person or group has acquired 20 percent or more of Weyerhaeuser's outstanding common shares or 20 business days after a person or group commences a tender or exchange offer that could result in the person or group owning 20 percent or more of the company's outstanding common shares. Following the distribution date, if anyone owning 20 percent or more of the company's outstanding common shares merges with the company, with the company as the survivor, and the company's common shares are not changed or exchanged, or engages in certain self-dealing transactions with the company, or if an event occurs that results in such 20 percent owner's interest being increased by more than one percent (e.g., a reverse stock split), or if anyone acquires 30 percent or more of the company's out- standing common shares, each right holder, other than such person or group, will be able, upon payment of the right's exercise price, to acquire shares of the company's common stock or other securities or assets having an aggregate market value equal to twice the right's purchase price. If, after the company announces that someone owns 20 percent or more of the company's outstanding common shares, the company is acquired in a merger or other business combination, and the company is not the survivor, or the company engages in a merger or other business combination transaction in which the company is the surviving corporation but the company's common shares are changed or exchanged, or if 50 percent of the company's earning power or assets is sold in one or several related transactions, each right holder, other than any 20 percent shareholder, will receive shares of the acquiring company's common stock having a market value equal to twice the right's exercise price. Subject to certain time periods and conditions, the Plan may be amended and the rights may be redeemed at a price of $.05 per right, subject to adjustment. 64 Note 19. Business Segments The company is principally engaged in the growing and harvesting of timber and the manufacture, distribution and sale of forest products. The four principal business seg- ments are timberlands and wood products (including softwood lumber, plywood and veneer; composite panels; oriented strand board; hardboard; logs; chips; timber; doors; hardwood lumber and plywood; and treated products); pulp, paper and packaging (including pulp, newsprint, paper, containerboard, paperboard, packaging, recycling and chemicals); real estate development and construction; and financial services. The timber-based businesses involve a high degree of integration among timber operations; building materials conversion facilities; and pulp, newsprint, paper, container board and paperboard primary manufacturing and secondary conversion facilities, including extensive transfers of raw materials, semi-finished materials and end products between and among these groups. Accounting for segment profitability involves allocations of joint raw materials and conversion costs and the use of transfer prices that attempt to approximate current market values. 65 The following table sets forth an analysis of the company's operations by the four principal business segments:
Dollar amounts in millions 1995 1994 1993 - -------------------------- -------- -------- -------- Sales to and revenues from unaffiliated customers: Timberlands and wood products $ 4,931 $ 4,992 $ 4,468 Pulp, paper and packaging 5,682 4,066 3,579 Real estate 723 911 829 Financial services 196 206 401 Corporate and other 256 223 269 -------- -------- -------- 11,788 10,398 9,546 -------- -------- -------- Intersegment sales and revenues: Timberlands and wood products 558 357 352 Pulp, paper and packaging 168 82 6 Corporate and other 33 31 29 -------- -------- -------- 759 470 387 -------- -------- -------- Total sales and revenues 12,547 10,868 9,933 Eliminations (759) (470) (388) -------- -------- -------- $ 11,788 $ 10,398 $ 9,545 ======== ======== ======== Approximate contribution (charge) to earnings (1)(2): Timberlands and wood products $ 808 $ 1,034 $ 891 Pulp, paper and packaging 1,181 211 61 Real estate (231) 7 18 Financial services (46) 11 76 Corporate and other (217) (142) (46) -------- -------- -------- 1,495 1,121 1,000 Interest expense (347) (315) (292) Less capitalized interest 96 114 100 -------- -------- -------- Income before taxes and extraordinary item 1,244 920 808 Income taxes (445) (331) (281) Extraordinary item - - 52 -------- -------- -------- $ 799 $ 589 $ 579 ======== ======== ======== Depreciation, amortization and fee stumpage: Timberlands and wood products $ 211 $ 189 $ 162 Pulp, paper and packaging 350 302 264 Real estate 5 7 9 Financial services 36 23 34 Corporate and other 19 13 18 -------- -------- -------- $ 621 $ 534 $ 487 ======== ======== ======== Capital expenditures: Timberlands and wood products $ 508 $ 257 $ 241 Pulp, paper and packaging 562 794 652 Real estate 10 10 15 Financial services 3 4 5 Corporate and other 36 37 54 -------- -------- -------- $ 1,119 $ 1,102 $ 967 ======== ======== ======== Assets: Timberlands and wood products $ 2,940 $ 2,713 $ 2,585 Pulp, paper and packaging 6,797 6,283 5,730 Real estate 1,543 1,716 1,863 Financial services 1,362 1,730 1,892 Corporate and other 1,151 1,439 1,393 -------- -------- -------- 13,793 13,881 13,463 Eliminations (540) (723) (706) -------- -------- -------- $ 13,253 $ 13,158 $ 12,757 ======== ======== ========
(1) 1995 "approximate contribution to earnings" includes special charges of $232 million and $58 million for real estate and financial services, respectively, to dispose of certain real estate assets. (2) Interest expense of $64 million, $76 million and $96 million in 1995, 1994 and 1993, respectively, is included in the determination of "approximate contribution to earnings" for financial services. 66 Note 20. Selected Quarterly Financial Information (unaudited)
Dollar amounts in millions except per-share First Second Third Fourth figures Quarter Quarter Quarter Quarter Year - --------- ------------- ------------- ------------- ------------- ------------- Net sales: 1995 (1) $ 2,686 $ 3,009 $ 3,037 $ 3,056 $11,788 1994 2,386 2,598 2,681 2,733 10,398 Operating income: 1995 (2) 419 472 243 469 1,603 1994 281 282 294 363 1,220 Earnings before income taxes: 1995 (2) 328 386 149 381 1,244 1994 204 202 224 290 920 Net earnings: 1995 (2) 207 246 95 251 799 1994 127 129 144 189 589 Net earnings per common share: 1995 (2) 1.00 1.21 .47 1.25 3.93 1994 .62 .62 .71 .91 2.86 Dividends per common share: 1995 .30 .40 .40 .40 1.50 1994 .30 .30 .30 .30 1.20 Market prices -- high/low: 1995 42 5/8-36 7/8 47 3/8-37 1/2 50 3/8-44 3/4 48-40 7/8 50 3/8-36 7/8 1994 50 1/4-42 1/8 45-39 1/2 46 1/8-39 7/8 39 1/8-35 7/8 50 1/4-35 7/8
(1) 1995 net sales of $2,745, $3,074 and $3,112 as previously reported in Form 10-Q for the first, second and third quarters, respectively, have been revised to properly reflect the recording of intercompany sales and related cost of sales. (2) 1995 third quarter results include a special pretax charge of $290 million, or $184 million after-tax ($.90 per common share), to dispose of certain real estate assets. 67 Note 21. Historical Summary
Dollar amounts in millions except per-share figures 1995 1994 1993 1992 1991 - ------------------------- -------- ------- ------- ------- -------- Per common share: Net earnings (loss) from continuing operations, before extraordinary item and effect of accounting changes: $ 3.93 2.86 2.58 1.83 (.50) Extraordinary item (2) $ - - .25 - - Effect of accounting changes $ - - - - (.30) -------- -------- ------- ------- ------- Net earnings (loss) $ 3.93 2.86 2.83 1.83 (.80) ======== ======== ======= ======= ======= Dividends paid $ 1.50 1.20 1.20 1.20 1.20 Shareholders' interest (end of year)$ 22.57 20.86 19.34 17.85 17.25 Financial position: Total assets: Weyerhaeuser $10,359 9,750 9,087 8,566 7,551 Real estate and financial services $ 2,894 3,408 3,670 9,720 9,435 -------- ------- -------- ------- ------- $13,253 13,158 12,757 18,286 16,986 ======== ======= ======== ======= ======= Long-term debt (net of current portion): Weyerhaeuser: Long-term debt $ 2,983 2,713 2,998 2,659 2,195 Capital lease obligations $ 2 - - - - Convertible subordinated debentures $ - - - 193 193 Limited recourse income debenture $ - - - 188 204 -------- -------- ------- ------- ------- $ 2,985 2,713 2,998 3,040 2,592 ======== ======== ======= ======= ======= Real estate and financial services: Collateralized mortgage obligation bonds $ 139 161 241 440 702 Long-term debt $ 1,469 1,712 1,845 1,971 1,719 -------- -------- ------- ------- ------- $ 1,608 1,873 2,086 2,411 2,421 ======== ======== ======= ======= ======= Redeemable preferred and preference shares (thousands): Weyerhaeuser $ - - - - - Real estate and financial services $ - - - - - Shareholders' interest $ 4,486 4,290 3,966 3,646 3,489 Percent earned on shareholders' interest 18.2% 14.3% 15.2% 10.4% (4.4)% Operating results: Net sales and revenues: Weyerhaeuser $10,869 9,281 8,315 7,744 7,167 Real estate and financial services $ 919 1,117 1,230 1,522 1,606 --------- ------- ------- ------- ------- $11,788 10,398 9,545 9,266 8,773 ========= ======= ======= ======= ======= Net earnings (loss) from continuing operations before extraordinary item and effect of accounting changes: Weyerhaeuser $ 981 576 459 332 (25) Real estate and financial services $ (182)(1) 13 68 40 (76) Less subsidiaries preferred share dividends $ - - - - - --------- ------- ------- ------- ------- $ 799 589 527 372 (101)(3) Extraordinary item (2) $ - - 52 - - Effect of accounting changes $ - - - - (61) --------- ------- ------- ------- ------- Net earnings (loss) $ 799 589 579 372 (162) ========= ======= ======= ======= ======= Statistics (unaudited): Number of employees 39,431 36,665 36,748 39,022 38,669 Salaries and wages $ 1,779 1,610 1,585 1,580 1,476 Employee benefits $ 408 357 347 323 321 Total taxes $ 736 618 577 443 173 Timberlands (thousands of acres): Fee ownership 5,337 5,599 5,524 5,604 5,517 Long-term license arrangements 18,875 17,849 17,845 18,828 13,491 Number of shareholder accounts at year-end: Common 23,446 24,131 25,282 26,334 26,937 Preferred - - - - - Preference - - - - - Average common and common equivalent shares outstanding (thousands) 203,525 205,543 204,866 203,373 201,578
(1) 1995 results reflect a special charge for disposal of certain real estate assets of $290 million less related tax effect of $106 million, or $184 million. (2) 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. (3) 1991 results reflect restructuring and other charges of $445 million less related tax effect of $162 million, or $283 million. (4)1989 results reflect net special items charges of $401 million less related tax effect of $141 million, or $260 million. 68
1990 1989 1988 1987 1986 1985 ------- ------- ------- ------- ------- ------- 1.87 1.56 2.68 2.12 1.27 .88 - - - - - - - - - - - - ------- ------- ------- ------- ------- ------- 1.87 1.56 2.68 2.12 1.27 .88 ======= ======= ======= ======= ======= ======= 1.20 1.20 1.15 .90 .87 .87 19.21 18.55 18.14 16.54 14.82 14.42 7,556 7,371 6,983 6,418 5,889 5,496 8,800 8,605 8,401 6,499 5,083 3,869 ------- ------- ------- ------- ------- ------- 16,356 15,976 15,384 12,917 10,972 9,365 ======= ======= ======= ======= ======= ======= 2,168 1,502 1,644 1,540 1,412 1,157 7 23 37 51 63 77 193 - - - - - 204 204 198 181 172 - ------- ------- ------- ------- ------- ------- 2,572 1,729 1,879 1,772 1,647 1,234 ======= ======= ======= ======= ======= ======= 838 931 1,046 840 598 292 1,799 1,075 1,272 1,290 1,101 711 ------- ------- ------- ------- ------- ------- 2,637 2,006 2,318 2,130 1,699 1,003 ======= ======= ======= ======= ======= ======= - - - - 14,700 14,700 - - - - - 72,000 3,864 4,148 4,044 3,714 3,251 3,324 9.8% 8.3% 14.6% 12.8% 8.4% 6.1% 7,447 8,355 7,861 6,988 5,650 5,206 1,619 1,826 1,467 1,397 1,241 1,070 ------- ------- ------- ------- ------- ------- 9,066 10,181 9,328 8,385 6,891 6,276 ======= ======= ======= ======= ======= ======= 340 377 516 379 180 132 54 (36) 50 68 97 81 - - - - - 13 ------- ------- ------- ------- ------- ------- 394 341(4) 566 447 277 200 - - - - - - - - - - - - ------- ------- ------- ------- ------- ------- 394 341 566 447 277 200 ======= ======= ======= ======= ======= ======= 40,621 45,214 46,976 45,123 41,757 38,922 1,531 1,563 1,423 1,277 1,143 1,134 318 325 292 250 225 259 446 403 511 467 310 266 5,621 5,693 5,833 5,871 5,962 5,979 13,491 13,324 13,324 12,064 12,064 3,590 28,187 29,847 30,379 32,535 31,682 37,135 - 12 25 26 1,825 2,192 - 443 351 106 7 2,242 203,673 204,331 207,785 202,544 195,456 194,828
69 EX-10 4 Item 14., Exhibit 10(c) Weyerhaeuser Corporate Headquarters Tacoma WA 98477 Tel (206) 924 2345 May 9, 1994 Mr. Richard C. Gozon 533 Waterloo Road Devon PA 19333 Dear Dick: This summarizes our agreement concerning the terms of your employment with Weyerhaeuser Company. Weyerhaeuser Company (the "Company") will employ you as Executive Vice President, Pulp, Paper & Packaging at an annual salary of $340,000 commencing on your hire date. Salary reviews are currently done on a 12-month cycle. You will be a participant in the incentive compensation plan for Weyerhaeuser senior executives. In this plan your target bonus will be 50 percent of your base salary. For 1994 you will receive at least a prorata target bonus for the portion of the year you are employed by Weyerhaeuser. You will be a participant in the Company's long-term incentive compensation plan. The Board of Directors has approved a 30,000 share stock option grant to you under that plan, conditioned on your coming to work for the Company. This stock option will be granted to you on your first day of employment with Weyerhaeuser. I will also recommend a grant of at least 20,000 shares at the time of regular management grants in early 1995. Thereafter your grants will be determined by our regular granting process. You will be eligible for the regular salaried benefits outlined in the employee handbook provided to you under separate cover. You also will be a member of Weyerhaeuser's key group and eligible for the benefits accorded this group. The enclosed summarizes the current program. If you leave Weyerhaeuser after you reach age 65, your Company pension and post-retirement health benefits will be calculated based on at least ten years of service. The difference between your target pension benefit (based on ten years' credited service) and your actual pension benefit under the Company's salaried retirement plan will be paid as a non-qualified retirement Mr. Richard C. Gozon May 9, 1994 Page 2 benefit from general Company assets. You may elect that this difference be paid in any form allowable under the plan. The Company's contribution to any post-retirement health plan in effect at that time will be based on at least 10 years of service. The additional service provided under this arrangement is not available if you leave the Company before age 65. The Company will reimburse your relocation expenses in accordance with the "Relocation Policy Procedure Guide for Salaried Employees," and a separate letter you have received from Steve Hill. The Company reserves the right to terminate your employment at any time with or without cause. In the event the Company does terminate your employment, you will be entitled to a special severance benefit which will decrease based on the number of months you are employed by the Company. This benefit will be equal to your monthly base pay times the number of months of base pay shown on the following schedule:
Months Employed Months of by Weyerhaeuser Base Pay ----------------------- ------------- 0-24 24 25 23 26 22 27 21 28 20 29 19 30 18 31 17 32 16 33 15 34 14 35 13 36-time of severance 12
The severance benefit described above will not be paid if you resign, retire, die or are terminated for reasons of willful violation of Company rules or for gross negligence in job performance. The severance benefit will commence upon notification of termination and will be paid on a monthly basis. This benefit will be in lieu of any other notice policy or severance plan offered by the Company. Mr. Richard C. Gozon May 9, 1994 Page 3 You have provided us copies of your October 1993 agreement with Alco Standard that included a "Non-Competition Covenant" where you agreed to not by employed by a competitor of theirs in the "paper distribution" business. Your understanding is that they would not consider Weyerhaeuser to be in the "paper distribution" business. We agree that Weyerhaeuser's General Counsel, Bob Lane, can make contact with Alco Standard's legal department to verify that they do not see your employment with us as a breach of this agreement. If they raise concerns, you and I agree that you would not start employment with Weyerhaeuser until Also Standard provides written consent that your employment is not a breach of this agreement. You have also disclosed to me that you hold options to purchase Alco Standard stock and that under the terms of your agreement with Alco Standard, you have 3 years to exercise those shares. I have asked our General Counsel to advise you and me on steps we should take to avoid actual or perceived conflict of interest. You and I agree that you will start your Weyerhaeuser employment sometime next month. If the arrangement described herein reflects your understanding of our agreement, please indicate by signing and returning the enclosed copy of this letter. Sincerely, WEYERHAEUSER COMPANY /s/ John Creighton - ----------------------- John W. Creighton, Jr. President jp422_2 Enclosures The above terms and conditions are agreed to this 16th day of May, 1994. /s/ Richard C. Gozon --------------------------- EX-27 5
5 1000000 YEAR DEC-31-1995 DEC-31-1995 84 0 1084 16 960 2235 11617 4900 13253 1603 4736 258 0 0 4228 13253 11788 11788 8197 8197 1074 4 315 1244 445 799 0 0 0 799 3.93 3.93 Receivables and PP&E are stated at gross.
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