-----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, DiLCh1zXZ0LG8Gtq+vq1L+PO/d7fEogin+KYRm0okOTacHsVWKGcszUqktmn9asW cKHbuggsoaQ4egXZJgDwbw== 0000106535-98-000016.txt : 19980810 0000106535-98-000016.hdr.sgml : 19980810 ACCESSION NUMBER: 0000106535-98-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980628 FILED AS OF DATE: 19980807 SROS: CSX SROS: NYSE SROS: PCX 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-Q SEC ACT: SEC FILE NUMBER: 001-04825 FILM NUMBER: 98679691 BUSINESS ADDRESS: STREET 1: 33663 WEYERHAEUSER WAY SOUTH CITY: FEDERAL WAY STATE: WA ZIP: 98003 BUSINESS PHONE: 2539242345 MAIL ADDRESS: STREET 1: 33663 WEYERHAEUSER WAY SOUTH CITY: FEDERAL WAY STATE: WA ZIP: 98003 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the twenty-six weeks ended June 28, 1998 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______ Commission File Number 1-4825 WEYERHAEUSER COMPANY A Washington Corporation (IRS Employer Identification No. 91-0470860) Tacoma, Washington 98477 Telephone (253) 924-2345 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange on Title of Each Class Which Registered - ------------------------------- ------------------------- Common Shares ($1.25 par value) Chicago Stock Exchange New York Stock Exchange Pacific Stock Exchange Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___. The number of shares outstanding of the registrant's class of common stock, as of July 31, 1998 was 198,992,921 common shares ($1.25 par value). Weyerhaeuser Company - -2- WEYERHAEUSER COMPANY AND SUBSIDIARIES Index to Form 10-Q Filing For the twenty-six weeks ended June 28, 1998
Page No. --------------- Part I. Financial Information Item 1. Financial Statements Consolidated Statement of Earnings 3 Consolidated Balance Sheet 4-5 Consolidated Statement of Cash Flows 6-7 Notes to Financial Statements 9-16 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 17-22 Part II. Other Information Item 1. Legal Proceedings 22-23 Item 2. Changes in Securities (not applicable) Item 3. Defaults upon Senior Securities (not applicable) Item 4. Submission of Matters to a Vote of Security Holders 23 Item 5. Other Information (not applicable) Item 6. Exhibits and Reports on Form 8-K 23
The financial information included in this report has been prepared in conformity with accounting practices and methods reflected in the financial statements included in the annual report (Form 10-K) filed with the Securities and Exchange Commission for the year ended December 28, 1997. Though not examined by independent public accountants, the financial information reflects, in the opinion of management, all adjustments necessary to present a fair statement of results for the interim periods indicated. The results of operations for the twenty-six week period ending June 28, 1998 should not be regarded as necessarily indicative of the results that may be expected for the full year. Signature Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized. WEYERHAEUSER COMPANY By /s/ K. J. Stancato ------------------- K. J. Stancato Duly Authorized Officer and Principal Accounting Officer August 7, 1998 Weyerhaeuser Company - -3-
WEYERHAEUSER COMPANY AND SUBSIDIARIES ------------ CONSOLIDATED EARNINGS For the periods ended June 28, 1998 and June 29, 1997 (Dollar amounts in millions except per share figures) (Unaudited) Thirteen weeks Twenty-six weeks ended ended ------------------- ------------------ June 28, June 29, June 28, June 29, 1998 1997 1998 1997 -------- -------- -------- -------- Net sales and revenues: Weyerhaeuser $ 2,429 $ 2,680 $ 4,767 $ 5,074 Real estate and related assets 247 229 512 443 -------- -------- -------- -------- Total net sales and revenues 2,676 2,909 5,279 5,517 -------- -------- -------- -------- Costs and expenses: Weyerhaeuser: Costs of products sold 1,939 2,061 3,753 3,949 Depreciation, amortization and fee stumpage 142 155 290 316 Selling, general and administrative expenses 154 195 318 347 Research and development expenses 15 15 29 28 Taxes other than payroll and income taxes 32 38 66 75 Charge for closure or disposition of facilities -- 15 -- 64 -------- -------- -------- -------- 2,282 2,479 4,456 4,779 -------- -------- -------- -------- Real estate and related assets: Costs and operating expenses 214 187 439 340 Depreciation and amortization 2 4 3 8 Selling, general and administrative expenses 14 25 27 70 Taxes other than payroll and income taxes 3 2 5 4 -------- -------- -------- -------- 233 218 474 422 -------- -------- -------- -------- Total costs and expenses 2,515 2,697 4,930 5,201 -------- -------- -------- -------- Operating income 161 212 349 316 Interest expense and other: Weyerhaeuser: Interest expense incurred 65 69 132 138 Less interest capitalized 1 4 2 8 Other income (expense), net 7 (14) 19 (16) Real estate and related assets: Interest expense incurred 17 28 38 61 Less interest capitalized 15 17 30 35 Other income, net 7 50 14 61 -------- -------- -------- -------- Earnings before income taxes 109 172 244 205 Income taxes (Note 4) 40 63 90 75 -------- -------- -------- -------- Net earnings $ 69 $ 109 $ 154 $ 130 ======== ======== ======== ======== Basic net earnings per share $ 0.34 $ 0.56 $ 0.77 $ 0.66 Diluted net earnings per share $ 0.34 $ 0.55 $ 0.77 $ 0.65 Average shares outstanding (thousands) 198,832 198,459 198,832 198,459 Dilutive effect of stock options 695 518 584 471 -------- -------- -------- -------- Average shares outstanding assuming dilution 199,527 198,977 199,416 198,930 ======== ======== ======== ======== Dividends paid per share $ .40 $ .40 $ .80 $ .80 ======== ======== ======== ========
See Accompanying Notes to Financial Statements Weyerhaeuser Company - -4-
WEYERHAEUSER COMPANY AND SUBSIDIARIES ------------ CONSOLIDATED BALANCE SHEET June 28, 1998 and December 28, 1997 (Dollar amounts in millions) June 28, Dec. 28, 1998 1997 ---------- --------- (Unaudited) Assets - ------ Weyerhaeuser Current assets: Cash and short-term investments (Note 1) $ 35 $ 100 Receivables, less allowances 946 913 Inventories (Note 5) 947 983 Prepaid expenses 336 298 ---------- --------- Total current assets 2,264 2,294 Property and equipment (Notes 6 and 10) 6,256 6,974 Construction in progress 282 313 Timber and timberlands at cost, less fee stumpage charged to disposals 1,020 996 Investments in and advances to equity affiliates (Notes 3 and 10) 429 249 Other assets and deferred charges 293 245 ---------- --------- 10,544 11,071 ---------- --------- Real estate and related assets Cash and short-term investments, including restricted deposits 6 22 Receivables, less discounts and allowances 58 62 Mortgage-related financial instruments, less discounts and allowances 168 173 Real estate in process of development and for sale 589 593 Land being processed for development 869 845 Investments in and advances to joint ventures and limited partnerships, less reserves (Note 3) 112 116 Other assets 151 193 ---------- --------- 1,953 2,004 ---------- --------- Total assets $ 12,497 $ 13,075 ========= ==========
See Accompanying Notes to Financial Statements Weyerhaeuser Company - -5-
June 28, Dec. 28, 1998 1997 ---------- --------- (Unaudited) Liabilities and shareholders' interest - -------------------------------------- Weyerhaeuser Current liabilities: Notes payable $ 9 $ 25 Current maturities of long-term debt 82 17 Accounts payable (Note 1) 671 694 Accrued liabilities (Note 7) 635 648 ---------- --------- Total current liabilities 1,397 1,384 Long-term debt (Note 9) 3,456 3,483 Deferred income taxes (Note 10) 1,321 1,418 Deferred pension and other liabilities 475 498 Minority interest in subsidiaries (Note 10) -- 121 Commitments and contingencies (Note 12) ---------- --------- 6,649 6,904 ---------- --------- Real estate and related assets Notes payable and commercial paper 340 228 Long-term debt (Note 9) 698 1,032 Other liabilities 216 262 Commitments and contingencies (Note 12) ---------- --------- 1,254 1,522 ---------- --------- Total liabilities 7,903 8,426 ---------- --------- Shareholders' interest (Note 11) Common shares: authorized 400,000,000 shares, issued 206,072,890 shares, $1.25 par value 258 258 Other capital 406 407 Retained earnings 4,391 4,397 Cumulative other comprehensive (expense) (Note 2): Foreign currency translation adjustment (148) (123) Treasury common shares, at cost: 7,080,594 and 6,586,939 (313) (290) ---------- --------- Total shareholders' interest 4,594 4,649 ---------- --------- Total liabilities and shareholders' interest $ 12,497 $ 13,075 ========== =========
Weyerhaeuser Company - -6-
WEYERHAEUSER COMPANY AND SUBSIDIARIES ------------ CONSOLIDATED STATEMENT OF CASH FLOWS For the twenty-six week periods ended June 28, 1998 and June 29, 1997 (Dollar amounts in millions) (Unaudited) Consolidated ------------------ June 28, June 29, 1998 1997 -------- -------- Cash provided by (used for) operations: Net earnings $ 154 $ 130 Non-cash charges (credits) to income: Depreciation, amortization and fee stumpage 293 324 Deferred income taxes, net 63 42 Pension credits (21) -- Charge for closure or disposition of facilities -- 64 Decrease (increase) in working capital: Accounts receivable (72) (100) Inventories, real estate and land (9) (59) Prepaid expenses (37) (12) Mortgage-related financial instruments 2 (74) Accounts payable and accrued liabilities (46) (108) (Gain) loss on disposition of assets 1 10 (Gain) loss on disposition of a business -- (37) Other (49) 15 -------- -------- Net cash provided by (used for) operations 279 195 -------- -------- Cash provided by (used for) investing activities: Property and equipment (214) (252) Timber and timberlands (41) (52) Investments in and advances to equity affiliates 16 14 Proceeds from sale of: Property and equipment 28 15 Businesses -- 204 Mortgage-related financial instruments 34 15 Restructuring the ownership of a subsidiary (Note 10) 218 -- Intercompany advances -- -- Other (3) 3 -------- -------- Net cash provided by (used for) investing activities 38 (53) -------- -------- Cash provided by (used for) financing activities: Issuances of debt 8 14 Sale of industrial revenue bonds 48 38 Notes and commercial paper borrowings, net 153 105 Cash dividends (160) (158) Payments on debt (416) (187) Purchase of treasury common shares (42) (16) Exercise of stock options 18 31 Other (7) (1) -------- -------- Net cash provided by (used for) financing activities (398) (174) -------- -------- Net increase (decrease) in cash and short-term investments (81) (32) Cash and short-term investments at beginning of year 122 71 -------- -------- Cash and short-term investments at end of period $ 41 $ 39 ======== ======== Cash paid (received) during the period for: Interest, net of amount capitalized $ 148 $ 162 ======== ======== Income taxes $ 61 $ 14 ======== ========
See Accompanying Notes to Financial Statements Weyerhaeuser Company - -7-
Real Estate and Weyerhaeuser Related Assets - ------------------ ----------------- June 28, June 29, June 28, June 29, 1998 1997 1998 1997 - -------- -------- -------- ------- $ 128 $ 94 $ 26 $ 36 290 316 3 8 55 28 8 14 (20) -- (1) -- -- 64 -- -- (64) (101) (8) 1 6 50 (15) (109) (37) (12) -- -- -- -- 2 (74) (11) (124) (35) 16 10 10 (9) -- -- 8 -- (45) (34) (15) (15) 30 - -------- -------- -------- -------- 323 318 (44) (123) - -------- -------- -------- -------- (213) (251) (1) (1) (41) (52) -- -- -- -- 16 14 9 14 19 1 -- 12 -- 192 -- -- 34 15 218 -- -- -- (190) 200 190 (200) (2) 5 (1) (2) - -------- -------- -------- -------- (219) (72) 257 19 - -------- -------- -------- -------- 4 5 4 9 48 38 -- -- 48 (83) 105 188 (160) (158) -- -- (78) (77) (338) (110) (42) (16) -- -- 18 31 -- -- (7) (1) -- -- - -------- -------- -------- -------- (169) (261) (229) 87 - -------- -------- -------- -------- (65) (15) (16) (17) 100 33 22 38 - -------- -------- -------- -------- $ 35 $ 18 $ 6 $ 21 ======== ======== ======== ======== $ 136 $ 134 $ 12 $ 28 ======== ======== ======== ======== $ 22 $ 52 $ 39 $ (38) ======== ======== ======== ========
Weyerhaeuser Company - -8- This page intentionally left blank. Weyerhaeuser Company - -9- WEYERHAEUSER COMPANY AND SUBSIDIARIES ---------------- NOTES TO FINANCIAL STATEMENTS For the twenty-six week periods ended June 28, 1998 and June 29, 1997 Note 1: Summary of Significant Accounting Policies Consolidation The consolidated financial statements include the accounts of Weyerhaeuser Company and all of its majority-owned domestic and foreign subsidiaries. Investments in and advances to equity affiliates which are not majority owned or controlled are accounted for using the equity method with taxes provided on undistributed earnings. Significant intercompany transactions and accounts are eliminated. Certain of the consolidated financial statements and notes to financial statements are presented in two groupings: (1) Weyerhaeuser (the company), principally engaged in the growing and harvesting of timber and the manufacture, distribution and sale of forest products, and (2) Real estate and related assets, principally engaged in real estate development and construction and other real estate related activities. Nature of Operations The company's principal business segments, which account for the majority of sales, earnings and the asset base, are: . Timberlands and wood products, which is engaged in the management of 5.1 million acres of company-owned and .2 million acres of leased forestland in the United States and 23.7 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, paper, paperboard and containerboard in North American, Pacific Rim and European markets, and packaging products for the domestic markets, and which operates an extensive wastepaper recycling system that serves company mills and worldwide markets. Accounting Pronouncements Implemented In the first quarter, the company has implemented Statement of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income, that establishes standards for reporting and display of comprehensive income and its components in a full set of financial statements. Comprehensive income describes the total of all components of comprehensive income, including net income. Other comprehensive income refers to revenues, expenses, gains and losses that under generally accepted accounting principles are included in comprehensive income, but excluded from net income. See Note 2. Prospective Accounting Pronouncements The Financial Accounting Standards Board (FASB) has issued the following pronouncements: . SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information, that will require companies to determine segments based on how management makes decisions about allocating resources to segments and measuring their performance. Disclosures for each segment are similar to those required under current standards, with the addition of certain quarterly requirements. This statement will also require require entity-wide disclosure about products and services, the countries in which the company holds material assets and reports material revenues, and its significant customers. This statement is effective for fiscal years beginning after December 15, 1997, with reclassification of prior periods' comparative financial statements required; however, no interim reporting is required in the initial year. Management is evaluating the effect of this statement on reported segment information. Weyerhaeuser Company - -10- . SFAS No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits, an amendment of FASB Statements No. 87, 88 and 106, that revises employers' disclosures about pensions and other postretirement benefit plans. It does not change the measurement or recognition of those plans. It standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable, requires additional information on changes in benefit obligations and fair values of plan assets that will facilitate financial analysis, and eliminates certain disclosures that are no longer as useful as they were when the original pronouncements were issued. This statement is effective for fiscal years beginning after December 15, 1997. . SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, that establishes accounting and reporting standards for derivative instruments, including certain derivatives embedded in other contracts, and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This statement is effective for all fiscal quarters of fiscal years beginning after June 15, 1999, which for the company is the fiscal year 2000. Assuming that the company's current minimal involvement in derivatives and hedging activities continues after the implementation date of this statement, there will be no material impact on its results of operations or statement of financial position. The American Institute of Certified Public Accountants (AICPA) Accounting Standards Executive Committee has issued the following Statements of Position (SOP): . SOP 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, that provides guidelines on the accounting for internally developed computer software. This SOP is effective for fiscal years beginning after December 15, 1998. The company believes that the future adoption of this SOP will not have a significant impact on its results of operations or financial position. . SOP 98-5, Reporting on the Costs of Start-up Activities, that requires the costs of start-up activities be expensed as incurred. This SOP must be adopted in fiscal years beginning after December 15, 1998. When this SOP is adopted, the company must record a cumulative effect of a change in accounting principle to write off any unamortized start-up costs that remain on the balance sheet at the date the new SOP is adopted. The company believes that the future adoption of this SOP will have a significant impact on its results of operations in the period in which it is implemented; however, it cannot quantify the impact at this time. Net Earnings Per Common Share Basic net earnings per common share are based on the weighted average number of common shares outstanding during the period. Diluted net earnings per common share are based on the weighted average number of common shares outstanding and stock options outstanding at the beginning of or granted during the period. Options to purchase 604,011 shares at $56.78 per share, 2,000 shares at $60.44 per share, and 150,000 shares at $53.06 per share were outstanding during the twenty-six weeks ending June 28, 1998. Options to purchase 1,087,811 shares at $48.13 per share were outstanding during the twenty-six weeks ending June 29, 1997. These options were not included in the computation of diluted earnings per share for the respective periods because the option exercise prices were greater than the average market prices of common shares during those periods. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Derivatives The company has only limited involvement with derivative financial instruments and does not use them for trading purposes. They are used to manage well-defined interest rate and foreign exchange risks. These include: . Foreign exchange contracts, which are hedges for foreign denominated accounts receivable, accounts payable and short-term debt, that have gains or losses recognized at settlement date. Weyerhaeuser Company - -11- . Interest rate swaps entered into with major banks or financial institutions in which the company pays a fixed rate and receives a floating rate with the interest payments being calculated on a notional amount. The premiums received by the company on the sale of these swaps are treated as deferred income and amortized against interest expense over the term of the agreements. The company is exposed to credit-related gains or losses in the event of nonperformance by counterparties to financial instruments but does not expect any counterparties to fail to meet their obligations. The company deals only with highly rated counterparties. The notional amounts of these derivative financial instruments are $102 million and $492 million at June 28, 1998, and December 28, 1997, respectively. These notional amounts do not represent amounts exchanged by the parties and, thus, are not a measure of exposure to the company through its use of derivatives. The exposure in a derivative contract is the net difference between what each party is required to pay based on the contractual terms against the notional amount of the contract, such as interest rates or exchange rates. The 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 inventories. LIFO inventories were $268 million and $246 million at June 28, 1998, and December 28, 1997, respectively. The balance of domestic raw material and product inventories, all materials and supplies inventories, and all foreign inventories is costed at either the first-in, first-out (FIFO) or moving average cost methods. Had the FIFO method been used to cost all inventories, the amounts at which product inventories are stated would have been $230 million and $234 million greater at June 28, 1998, and December 28, 1997, respectively. Property and Equipment The company's property accounts are maintained on an individual asset basis. Betterments and replacements of major units are capitalized. Maintenance, repairs and minor replacements are expensed. Depreciation is provided generally on the straight-line or unit-of production method at rates based on estimated service lives. Amortization of logging railroads and truck roads is provided generally as timber is harvested and is based upon rates determined with reference to the volume of timber estimated to be removed over such facilities. The cost and related depreciation of property sold or retired is removed from the property and allowance for depreciation accounts and the gain or loss is included in earnings. Timber and Timberlands Timber and timberlands are carried at cost less fee stumpage charged to disposals. Fee stumpage is the cost of standing timber and is charged to fee timber disposals as fee timber is harvested, lost as the result of casualty or sold. Depletion rates used to relieve timber inventory are determined with reference to the net carrying value of timber and the related volume of timber estimated to be available over the growth cycle. Timber carrying costs are expensed as incurred. The cost of timber harvested is included in the carrying values of raw material and product inventories, and in the costs of products sold as these inventories are disposed of. 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 $108 million and $185 million at June 28, 1998, and December 28, 1997, 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. Weyerhaeuser Company - -12- Income Taxes Deferred income taxes are provided to reflect temporary differences between the financial and tax bases of assets and liabilities using presently enacted tax rates and laws. Pension Plans The company has pension plans covering most of its employees. The U.S. plan covering salaried employees provides pension benefits based on the employee's highest monthly earnings for five consecutive years during the final ten years before retirement. Plans covering hourly employees generally provide benefits of stated amounts for each year of service. Contributions to U.S. plans are based on funding standards established by the Employee Retirement Income Security Act of 1974 (ERISA). Postretirement Benefits Other Than Pensions In addition to providing pension benefits, the company provides certain health care and life insurance benefits for some retired employees and accrues the expected future cost of these benefits for its current eligible retirees and some employees. All of the company's salaried employees and some hourly employees may become eligible for these benefits when they retire. Reclassifications Certain reclassifications have been made to conform prior years' data to the current format. Real Estate and Related Assets With the sale of the mortgage banking business in 1997, the financial services segment is no longer material to the results of the company. Therefore, the remaining activities in financial services that are principally real estate related have been combined with real estate into one segment entitled real estate and related assets. Real estate held for sale is stated at the lower of cost or fair value. The determination of fair value is based on appraisals and market pricing of comparable assets, when available, or the discounted value of estimated future cash flows from these assets. Real estate held for development is stated at cost to the extent it does not exceed the estimated undiscounted future net cash flows, in which case, it is carried at fair value. Mortgage-backed certificates are carried at par value, adjusted for any unamortized discount or premium. These certificates and other financial instruments are pledged as collateral for the collateralized mortgage obligation (CMO) bonds and are held by banks as trustees. Principal and interest collections are used to meet the interest payments and reduce the outstanding principal balance of the bonds. Related CMO bonds are the obligation of the issuer, and neither the company nor any affiliated company has guaranteed or is otherwise obligated with respect to the bonds. Note 2: Comprehensive Income The company's comprehensive income is as follows:
Thirteen weeks Twenty-six ended weeks ended ------------------ ------------------ June 28, June 29, June 28, June 29, Dollar amounts in millions 1998 1997 1998 1997 -------- -------- -------- -------- Net income $ 69 $ 109 $ 154 $ 130 -------- -------- -------- -------- Other comprehensive (expense) Foreign currency translation (44) -- (39) (13) Income tax benefit 16 -- 14 5 -------- -------- -------- -------- Other comprehensive (expense), net of income tax (28) -- (25) (8) -------- -------- -------- -------- Comprehensive income $ 41 $ 109 $ 129 $ 122 ======== ======== ======== ========
Weyerhaeuser Company - -13- Note 3: Equity Affiliates Weyerhaeuser The company's investments in affiliated companies that are not majority owned or controlled are accounted for using the equity method with taxes provided on undistributed earnings. Investments carried at equity and the percentage interest owned consist of Cedar River Paper Company (50%), SCA Weyerhaeuser Packaging Holding Company Asia Limited (50%), RII Weyerhaeuser World Timberfund, L. P. (50%), Nelson Forests Joint Venture (51%) and North Pacific Paper Corporation (50%). Unconsolidated financial information for affiliated companies which are accounted for by the equity method is as follows:
June 28, Dec. 28, Dollar amounts in millions 1998 1997 -------- -------- Current assets $ 164 $ 94 Non-current assets 1,311 678 Current liabilities 66 56 Non-current liabilities 736 420
Twenty-six weeks ended ------------------ June 28, June 29, 1998 1997 -------- -------- Net sales and revenues $ 353 $ 92 Operating income 60 3 Net income (loss) 31 (11)
The company provides goods and services to these affiliates, which vary by entity, in the form of raw materials, management and marketing fees, support services, shipping services and payroll. Additionally, the company purchases finished product from certain of these entities. The aggregate total of these transactions is not material to the results of operations of the company. Real Estate and Related Assets Investments in and advances to joint ventures and limited partnerships that are not majority owned or controlled are accounted for using the equity method with taxes provided on undistributed earnings. Unconsolidated financial information for joint ventures and limited partnerships which are accounted for by the equity method is as follows:
June 28, Dec. 28, Dollar amounts in millions 1998 1997 -------- -------- Current assets $ 1,757 $ 1,689 Non-current assets 254 284 Current liabilities 1,359 1,306 Non-current liabilities 124 145
Twenty-six weeks ended ------------------ June 28, June 29, 1998 1997 -------- -------- Net sales and revenues $ 94 $ 89 Operating income 45 44 Net income 29 27
Weyerhaeuser Company - -14- The company may charge management and/or development fees to the joint ventures or limited partnerships. The aggregate total of these transactions is not material to the results of operations of the company. Note 4: Income Taxes
Provisions for income taxes include the following: Twenty-six weeks ended ------------------ June 28, June 29, Dollar amounts in millions 1998 1997 -------- -------- Federal: Current $ 19 $ 17 Deferred 58 39 -------- -------- 77 56 -------- -------- State: Current 4 2 Deferred 2 2 -------- -------- 6 4 -------- -------- Foreign: Current 4 14 Deferred 3 1 -------- -------- 7 15 -------- -------- Total $ 90 $ 75 ======== ========
Income tax provisions for interim periods are based on the current best estimate of the effective tax rate expected to be applicable for the full year. The effective tax rate reflects anticipated tax credits, foreign taxes and other tax planning alternatives. For the periods ended June 28, 1998, and June 29, 1997, the company's provision for income taxes as a percent of earnings before income taxes is greater than the 35% federal statutory rate due principally to the effect of state income taxes. The effective tax rates for the twenty-six week periods ended June 28, 1998, and June 29, 1997, were 37% and 36.5%, respectively. Deferred taxes are provided for the temporary differences between the financial and tax bases of assets and liabilities, applying presently enacted tax rates and laws. The major sources of these temporary differences include depreciable and depletable assets, real estate, and pension and retiree health care liabilities. Note 5: Inventories
June 28, Dec. 28, Dollar amounts in millions 1998 1997 -------- -------- Logs and chips $ 96 $ 103 Lumber, plywood and panels 169 154 Pulp, newsprint and paper 149 185 Containerboard, paperboard and packaging 117 107 Other products 151 152 Materials and supplies 265 282 -------- -------- $ 947 $ 983 ======== ========
Weyerhaeuser Company - -15- Note 6: Property and Equipment
June 28, Dec. 28, Dollar amounts in millions 1998 1997 -------- -------- Property and equipment, at cost: Land $ 158 $ 158 Buildings and improvements 1,613 1,721 Machinery and equipment 9,270 9,954 Rail and truck roads and other 595 599 -------- -------- 11,636 12,432 Less allowance for depreciation and amortization 5,380 5,458 -------- -------- $ 6,256 $ 6,974 ======== ========
Note 7: Accrued Liabilities
June 28, Dec. 28, Dollar amounts in millions 1998 1997 -------- -------- Payroll - wages and salaries, incentive awards, retirement and vacation pay $ 255 $ 268 Taxes - social security and real and personal property 57 53 Interest 85 91 Income taxes 38 42 Other 200 194 -------- -------- $ 635 $ 648 ======== ========
Note 8: Short-Term Debt Lines of Credit The company has short-term bank credit lines that provide for borrowings of up to the total amount of $425 million, all of which could be availed of by the company and Weyerhaeuser Real Estate Company (WRECO) at June 28, 1998, and December 28, 1997. No portion of these lines has been availed of by the company or WRECO at June 28, 1998, or December 28, 1997. Neither of the entities referred to herein is a guarantor of the borrowings of the other. Note 9: Long-Term Debt Lines of Credit The company's lines of credit include a five-year revolving credit facility agreement entered into in 1997 with a group of banks that provides for borrowings of up to the total amount of $400 million, all of which is available to the company. Borrowings are at LIBOR plus a spread or other such interest rates mutually agreed to between the borrower and lending banks. Weyerhaeuser Financial Services, Inc. (WFS), a wholly owned subsidiary, paid down a revolving/term credit facility agreement effective June 1998. $75 million was outstanding under this facility at December 28, 1997. To the extent that these credit commitments expire more than one year after the balance sheet date and are unused, an equal amount of commercial paper is classifiable as long-term debt. Weyerhaeuser reclassified $242 million and $194 million as of June 28, 1998, and December 28, 1997, respectively. No portion of these lines has been availed of by the company, WRECO or WFS at June 28, 1998, and December 28, 1997, except as noted. The company's compensating balance agreements were not significant. Weyerhaeuser Company - -16- Note 10: Restructuring the Ownership of a Subsidiary In the 1998 first quarter, the company and Nippon Paper Industries Co., Ltd. (NPI) completed the restructuring of their North Pacific Paper Corporation (NORPAC) joint venture. Through this restructuring, the ownership of NORPAC changed from 80% company ownership and 20% NPI ownership to 50% for each shareholder. This transaction changed the reporting status of NORPAC from a fully consolidated subsidiary, with minority elimination, to a joint venture accounted for on the equity method of accounting. The change in accounting for this venture resulted in the following significant non-cash changes in the company's consolidated balance sheet: decreases of $621 million in property and equipment, $151 million in deferred taxes, and $121 million in minority interest in subsidiaries; and an increase of $168 million in investments in and advances to equity affiliates. The company received net funds of $218 million and recognized a gain of $5 million on this transaction. Note 11: Shareholders' Interest Common shares reserved for stock option plans were 7,316,448 shares at June 28, 1998, and 5,848,000 shares at December 28, 1997. Note 12: Commitments and Contingencies The company's capital expenditures, excluding acquisitions, were $255 million year-to-date in 1998 and $656 million for the year 1997. They are expected to be approximately $750 million in 1998; however, that expenditure level could be increased or decreased as a consequence of future economic conditions. The company is a party to legal proceedings and environmental matters generally incidental to its business. Although the final outcome of any legal proceeding or environmental matter is subject to a great many variables and cannot be predicted with any degree of certainty, the company presently believes that the ultimate outcome resulting from these proceedings and matters would not have a material effect on the company's current financial position, liquidity or results of operations; however, in any given future reporting period, such proceedings or matters could have a material effect on results of operations. Weyerhaeuser Company - -17- WEYERHAEUSER COMPANY AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Net sales and revenues and earnings before interest expense and income taxes by segment are:
Thirteen weeks Twenty-six weeks ended ended ----------------- ----------------- June 28, June 29, June 28, June 29, Dollar amounts in millions 1998 1997 1998 1997 -------- -------- -------- -------- Net sales and revenues: Timberlands and wood products $ 1,313 $ 1,505 $ 2,494 $ 2,756 Pulp, paper and packaging 1,081 1,144 2,201 2,250 Real estate and related assets 247 229 512 443 Corporate and other 35 31 72 68 -------- -------- -------- -------- $ 2,676 $ 2,909 $ 5,279 $ 5,517 ======== ======== ======== ======== Earnings before interest expense and income taxes: Timberlands and wood products (1) $ 172 $ 211 $ 345 $ 382 Pulp, paper and packaging (2) 39 22 91 (21) Real estate and related assets (3) (4) 16 50 41 56 Corporate and other (5) (54) (46) (103) (82) -------- -------- -------- -------- $ 173 $ 237 $ 374 $ 335 ======== ======== ======== ========
(1) 1997 second quarter and year-to-date results include a charge of $15 million associated with the closure of the Plymouth, North Carolina plywood facility. (2) 1997 year-to-date results include a charge of $49 million for the consolidation, closure or disposition of certain recycling facilities and the closure of the Longview, Washington corrugated medium machine. (3) 1997 second quarter and year-to-date results include a gain of $45 million from the sale of the company's wholly owned subsidiary, Weyerhaeuser Mortgage Company. (4) Includes net interest expense of $5 million and $11 million for thirteen weeks and $11 million and $26 million for twenty-six weeks related to the financial services businesses. (5) 1997 year-to-date results include pretax income of $10 million from the net effect of interest income from a favorable federal income tax decision and the loss incurred in the sale of Shemin Nurseries. Consolidated Results Consolidated net earnings for the second quarter were $69 million, or 34 cents basic and diluted earnings per common share, compared with 1997 second quarter earnings of $109 million, or 56 cents basic and 55 cents diluted earnings per common share. Second quarter results include 7 cents per common share income due to a credit from the performance of the company's pension fund. The 1997 quarterly results include a net after-tax special income item of $19 million, or 9 cents per common share. This includes the gain on the sale of the company's mortgage banking subsidiary, offset by the costs associated with the closure of the Plymouth, NC plywood mill. Consolidated net sales and revenues for the quarter were $2.7 billion, which is 8% lower than the $2.9 billion reported for the same quarter last year. Increased competition in domestic markets and weak Asian market demand resulted in lower quarterly sales. Year-to-date earnings were $154 million, or 77 cents basic and diluted earnings per common share, in contrast to the $130 million, or 66 cents basic and 65 cents diluted earnings per common share reported in 1997. 1997 results include a net charge of $6 million, or 3 cents per common share, for the effect of special items year-to-date. In addition to the special items recognized in the second quarter, the 1997 year-to-date results included losses from restructuring the recycling business, the permanent closure of a corrugated medium machine and the sale of the wholesale nursery business. These losses were offset, in part, by interest income from a favorable federal income tax decision. Weyerhaeuser Company - -18- Net sales and revenues to date are $5.3 billion, a 4% decrease from 1997 results. The weakening of the Asian markets plus increased competition from exports contributed to the decrease. Timberlands and Wood Products Operating earnings for the quarter were $172 million, which is down from the $211 million reported in 1997. Last year's earnings include a $15 million charge associated with closing the Plymouth, NC plywood mill. Net sales were $1.3 billion for the quarter, lower than 1997 second quarter sales of $1.5 billion and slightly higher than first quarter sales of $1.2 billion. Increased prices for oriented strand board and panel products, plus strong domestic log sales, offset lower export prices and volumes in lumber and logs. Third party sales and total production volumes for the major products in this segment are as follows:
Thirteen weeks Twenty-six weeks ended ended ------------------- ------------------ Third party sales volumes June 28, June 29, June 28, June 29, (millions) 1998 1997 1998 1997 - ------------------------- -------- -------- -------- -------- Raw materials--cubic feet 143 150 281 296 Softwood lumber--board feet 1,294 1,320 2,425 2,456 Softwood plywood and veneer--square feet (3/8") 478 556 914 1,045 Composite panels--square feet (3/4") 153 148 298 291 Oriented strand board--square feet (3/8") 706 632 1,346 1,194 Hardwood lumber--board feet 84 97 170 187 Engineered wood products-- lineal feet 44 39 76 66 Hardwood doors (thousands) 215 179 403 347 Total production volumes (millions) - ------------------------- Logs--cubic feet 218 217 493 492 Softwood lumber--board feet 1,045 1,031 2,025 2,018 Softwood plywood and veneer--square feet (3/8") 249 288 486 567 Composite panels--square feet (3/4") 131 126 258 249 Oriented strand board--square feet (3/8") 538 510 1,071 996 Hardwood lumber--board feet 87 90 174 175 Hardwood doors (thousands) 207 182 416 364
Pulp, Paper and Packaging Second quarter operating earnings of $39 million compare favorably to 1997 second quarter earnings of $22 million, but are lower than first quarter's earnings of $52 million. Unsettled market conditions, weak prices worldwide in paper and newsprint, and costs associated with maintenance and market-related downtime contributed to second quarter performance. Segment results are also impacted by the restructure of the North Pacific Paper Corporation (NORPAC) newsprint facility from a fully consolidated subsidiary to an equity affiliate in February 1998. Net sales for the quarter were $1.1 billion; virtually unchanged in comparison to 1997 second quarter and 1998 first quarter sales. Lower paper prices and the impact of the NORPAC restructure were offset by higher prices and volumes for corrugated boxes and market pulp. Third party sales and total production volumes for the major products in this segment are as follows: Weyerhaeuser Company - -19-
Thirteen weeks Twenty-six weeks ended ended ------------------- ------------------ Third party sales volumes June 28, June 29, June 28, June 29, (thousands) 1998 1997 1998 1997 - ------------------------- -------- -------- -------- -------- Pulp--air-dry metric tons 498 515 1,018 969 Paper--tons 263 278 529 582 Containerboard--tons 88 104 169 203 Packaging--MSF 11,519 11,640 22,446 22,593 Newsprint--metric tons -- 173 62 333 Paperboard--tons 57 56 116 115 Recycling--tons 661 580 1,277 1,130 Total production volumes (thousands) - ------------------------- Pulp--air-dry metric tons 413 479 908 999 Paper--tons 288 273 577 557 Containerboard--tons 579 588 1,191 1,190 Packaging--MSF 12,018 12,155 23,549 23,620 Newsprint--metric tons -- 173 69 346 Paperboard--tons 51 60 115 109 Recycling--tons 972 924 1,926 1,853
Real Estate and Related Assets Second quarter operating earnings for this segment were $16 million, compared to $50 million in second quarter 1997. Last year's earnings include a $45 million gain on the sale of Weyerhaeuser Mortgage Company. Strong demand in the U.S. housing market and increased home sales contributed to the current quarter's results. Costs and Expenses Weyerhaeuser's costs of products sold of $1.9 billion is down from 1997 second quarter costs of $2.1 billion, but is higher than first quarter 1998. Costs of products sold as a percentage of sales is 80% for the current quarter, compared to 77% in second quarter 1997 and 78% in the first quarter of this year. The increase from quarter to quarter relates to costs incurred as downtime was taken in some product lines. Lower costs in comparison to 1997 are due to lower sales volumes and the impact attributable to the restructure of the NORPAC subsidiary. Decreases in depreciation, amortization and fee stumpage result from the NORPAC restructure. Credits received from the performance of the company's pension fund also reduced 1998 quarterly costs of products sold and selling, general and administrative expenses. Non-cash charges of $15 million in the second quarter of 1997 relate to the closure of the Plymouth plywood mill. Costs and operating expenses for the real estate and related assets segment were higher than the 1997 second quarter due to increased sales activity. Selling, general and administrative expenses are down as a result of the sale of the company's mortgage banking subsidiary in May 1997. Other income (expense) is an aggregation of both recurring and occasional income or expense items and, as a result, fluctuates from period to period. No single item is significant in relation to operating earnings in 1998. In 1997, the following income items were significant in relation to operating earnings: . The gain of $45 million from the sale of the mortgage banking subsidiary, and . Net special items of $10 million income as a result of a favorable tax decision and the sale of Shemin Nurseries. Liquidity and Capital Resources General The company is committed to the maintenance of a sound, conservative capital structure. This commitment is based upon two considerations: the obligation to protect the underlying interests of its shareholders and lenders and the desire to have access, at all times, to all major financial markets. Weyerhaeuser Company - -20- The important elements of the policy governing the company's capital structure are as follows: . To view separately the capital structures of Weyerhaeuser Company, Weyerhaeuser Real Estate Company and related subsidiaries, given the very different nature of their assets and business activities. The amount of debt and equity associated with the capital structure of each will reflect the basic earnings capacity, real value and unique liquidity characteristics of the assets dedicated to that business. . The combination of maturing short-term debt and the structure of long- term debt will be managed judiciously to minimize liquidity risk. Operations Weyerhaeuser's net cash provided by operations was $323 million in the 1998 first half; comparable to the $318 million provided in the same period of 1997. Current year's funds, before net changes in working capital, were provided by net income of $128 million along with $290 million from depreciation, amortization and fee stumpage, $55 million from deferred income taxes, offset in part by a pension credit of $20 million. 1998 year-to-date working capital, net of the effects of the NORPAC equity restructuring, used funds of $106 million, primarily for increases of $64 million in accounts receivable and $37 million in prepaid expenses. For the quarter, the inventory turnover rate increased to 11.8 turns as inventories, principally logs and pulp, decreased by $106 million. The inventory turnover was down slightly from the 12.5 turns in the second quarter of 1997; but was an improvement over the 10.7 turns in the 1998 first quarter. For the same period of 1997, working capital funding requirements were $187 million, principally from increases of $101 million in accounts receivable, and a reduction of $124 million in accounts payable and accrued liabilities, offset in part by a decrease of $50 million in inventories. For the principal segments, earnings before interest expense and income taxes plus non-cash charges for the 1998 first half were: . $461 million, for timberlands and wood products compared to $515 million in 1997 as a result of lower operating earnings for this segment in 1998. The 1997 results included a non-cash charge of $15 million for a facility closure. . $256 million for pulp, paper and packaging compared to $218 million in the prior year. This difference is attributable to: (1) an operating profit of $91 million this year compared to an operating loss of $21 million last year, (2) a non-cash charge of $49 million in 1997 for facility closures, and (3) reduced depreciation expense in 1998 due to NORPAC being included in consolidated results for only one month. The net cash used by operations in the real estate and related assets segment year to date was $44 million. Cash of $56 million was used for working capital. An increase in real estate inventories and reductions in accounts payable and accrued liabilities, were offset in part with net earnings of $26 million. In the previous year, cash used for operations was $123 million with working capital requirements of $166 million, primarily for real estate and land purchases and development and a net increase in mortgages held for sale as originations exceeded sales. Investing Year-to-date consolidated capital expenditures were $255 million, down from the $304 million expended in the same period of 1997. The 1998 spending by segment was $127 million for timberlands and wood products, $121 million for the pulp, paper and packaging segment and $7 million for corporate and other. The company currently anticipates capital expenditures, excluding acquisitions, to approximate $750 million for the year. However this expenditure level could increase or decrease as a consequence of future economic conditions. The cash needed to meet these and other company needs is generated from internal cash flow and short-term borrowing. The company also received proceeds of $218 million from the restructuring of its equity position in NORPAC. Weyerhaeuser Company - -21- Financing The company's debt position at the end of the second quarter increased by $22 million from the end of 1997. Cash provided from the sale of industrial revenue bonds and additional commercial paper borrowings was essentially offset by payments on existing debt. The company's debt to total capital ratio was 40.5% at the end of the quarter, up from 38.6% a year earlier. The real estate and related assets segment applied cash inflows from intercompany and commercial paper borrowings to help in the $338 million long-term debt reduction. During the first half of 1998, the company paid $160 million in cash dividends; compared to $158 million paid in the 1997 first half. The company expended $42 million to purchase 924 thousand shares of its common stock during the 1998 first quarter to complete the 11 million-share repurchase program that commenced in 1995. Market Risk of Financial Instruments The company has exposure to market risk including changes in interest rates and currency exchange rates. To manage the volatility relating to these exposures, the company has entered into limited derivative transactions to manage well-defined interest rate and foreign exchange risks. The company does not hold or issue derivative financial instruments for trading. The majority of the company's derivative instruments are "pay fixed, receive variable" interest rate swaps with highly rated counterparties in which the interest payments are calculated on a notional amount. The notional amounts do not represent amounts exchanged by the parties and, thus, are not a measure of exposure to the company through its use of derivatives. The company is exposed to credit-related gains or losses in the event of non-performance by counterparties to these financial instruments; however, the company does not expect any counterparties to fail to meet their obligations. Interest rate swaps are described as follows:
- ------------------------------------------------------------------------- Variable Rate at Dollar amount in millions June 28, 1998 - ------------------------------------------------------------------------- Notional Maturity Fixed Fair Value Amount Date Rate % % Based On of Swap(1) - ------------------------------------------------------------------------- $ 27 5/1/99 6.70 8.50 11.95% - Kenny index $ .4 75 12/6/99 (2) 6.85 5.66 30 day LIBOR (2.2) - ------------------------------------------------------------------------- $ 102 $ (1.8) - -------------------------------------------------------------------------
(1) The amount of the obligation under each swap is based on the assumption that such swap had terminated at the end of the fiscal period, and provides for the netting of amounts payable by and to the counterparty. In each case, the amount of such obligation is the net amount so determined. (2) Includes the value of an option, by the counterparty, to extend for two years at maturity date. Environmental Matters Effective May 18, 1998, two populations of steelhead trout were listed as threatened species under the Endangered Species Act (ESA), one in the Lower Columbia River and one in the Central Valley of California. On August 3, 1998, the National Marine Fisheries Service announced that Coho salmon that spawn in Oregon coastal streams would be listed as a threatened species. Regulatory actions taken by the states of Washington, Oregon and California to protect habitat for these species may, in the future, result in restrictions on timber harvests and could affect forest management practices in such states, including company timberlands in Southwest Washington. Several additional species have been proposed to be listed as threatened or endangered under the ESA, including certain Chinook salmon, steelhead trout, chum salmon and sockeye salmon in parts of Washington, Oregon and California. A consequence of such future listings may be reductions in the sale and harvest of federal timberlands in the Pacific Northwest and California. Requirements to protect habitat for threatened and endangered species on non-federal timberlands have resulted, and may in the future result, in restrictions on timber harvests on some non-federal timberlands in the Pacific Northwest, including some timberlands of the company, could affect future harvest and forest management practices in some of the company's timberlands, could increase operating costs, and could affect timber supply and prices in some regions. The company does not believe that such restrictions and effects will have a significant effect on the company's total harvest of timber in 1998 or 1999, although they may have such an effect in the future. A ballot initiative has been certified for the November election in Oregon, that, if approved by the voters, would substantially limit harvesting and silvicultural practices on timberland in Oregon, including the company's approximately 600 thousand acres of timberland in that state. If the initiative passes and is upheld by the courts, it would have a material adverse affect on the company's Oregon timber operations and could effect timber product markets throughout the West. Weyerhaeuser Company - -22- Year 2000 Weyerhaeuser, like all other companies using computers and microprocessors, is faced with the task of addressing the Year 2000 problem before the end of 1999. The Year 2000 challenge arises from the nearly universal practice in the computer industry of using two digits rather than four digits to designate the calendar year (e.g., DD/MM/YY). This can lead to incorrect results when computer software performs arithmetic operations, comparisons or data field sorting involving years later than 1999. The company has embarked on a comprehensive approach to identify where this problem may occur in its information technology, manufacturing and facilities systems. The company plans to modify or replace its affected systems in a manner that will minimize any detrimental effects on operations, with a goal of correcting affected systems that will have a critical effect on its business operations by the end of 1998. While it is difficult, at present, to fully quantify the overall cost of this work, the company estimates that the overall cost of remediation could approach $100 million over the 1998- 1999 time frame. The company presently believes that it will not have a material effect on the company's current financial position or liquidity; however, in any given future reporting period such costs could have a material effect on results of operations. Through the second quarter of 1998, the company has incurred $9.3 million of remediation costs and expects substantial additional costs to be incurred in the third and fourth quarters of 1998. Subsequent Event On August 4, 1998, the company announced the signing of a definitive agreement to purchase the Dryden, Ontario, Canada uncoated freesheet mill and related assets from Bowater Inc. for approximately US$520 million. The company expects to complete the purchase on or before November 30, 1998. The Dryden facility has the capacity to produce 380,000 short tons of fine paper per year and a small amount of bleached softwood market pulp. Two lumber mills, with 200 million board feet of capacity, and timber licenses comprising 1.8 million hectares (4.35 million acres) are also part of the purchase. Contingencies The company is a party to legal proceedings and environmental matters generally incidental to its business. Although the final outcome of any legal proceeding or environmental matter is subject to a great many variables and cannot be predicted with any degree of certainty, the company presently believes that the ultimate outcome resulting from these proceedings and matters would not have a material effect on the company's current financial position, liquidity or results of operations; however, in any given future reporting period such proceedings or matters could have a material effect on results of operations. Part II. Other Information Item 1. Legal Proceedings The company conducted a review of its 10 major pulp and paper facilities to evaluate the facilities' compliance with federal Prevention of Significant Deterioration (PSD) regulations. The results of the reviews were disclosed to seven state agencies and the Environmental Protection Agency (EPA) during 1994 and 1995. A final decision is expected to be made by the Lane County Oregon Regional Air Pollution Control Authority concerning alleged PSD and permit violations at the company's Springfield, Oregon, containerboard manufacturing facility upon issuance of the facility's Title V permit in 1999. In November 1996, an action was filed against the company in Superior Court for King County, Washington, on behalf of a purported class of all individuals and entities that own property in the United States on which exterior hardboard siding manufactured by the company has been installed since 1980. The action alleges the company has manufactured and distributed defective hardboard siding and has breached express warranties and consumer protection statutes in its sale of hardboard siding. The action seeks compensatory damages, including prejudgment interest, and seeks damages for the cost of replacing siding that rots subsequent to the entry of any judgment. In January 1997, an action was filed, also in Superior Court for King County, Washington, on behalf of a purported class of all individuals, proprietorships, partnerships, corporations, and other business entities in the United States on whose homes, condominiums, apartment complexes or commercial buildings hardboard siding manufactured by the company has been installed. The action alleges the company has breached express and implied warranties in its sale of hardboard siding and also has violated the Consumer Protection Weyerhaeuser Company - -23- Part II - ----------------------------------------------------------------------------- Item 1. Legal Proceedings (continued) - -------------------------------------- Act of the State of Washington. The action seeks damages, prejudgment interest, costs and reasonable attorney fees. In December 1997, the two cases were consolidated for the purpose of discovery and resolution of the class certification issue. Also, in December 1997, the plaintiffs in the first of the two cases filed a motion to change the trial date and for leave to move for class certification. In January 1998, the court denied this motion. The first case was settled for approximately $11 thousand in March 1998. The second case was settled for approximately $4 thousand in April 1998. In June 1998, a lawsuit was filed against the company in San Francisco County Superior Court on behalf of a purported class of individuals and entities that own property in the United States on which exterior hardboard siding manufactured by the company has been installed since 1981. The action alleges the company has manufactured and distributed defective hardboard siding, breached express warranties and consumer protection statutes and failed to disclose to consumers the alleged defective nature of its hardboard siding. The action seeks compensatory and punitive damages, costs and reasonable attorney fees. The company is a defendant in approximately eighteen other hardboard siding cases, two of which purport to be state-wide class actions on behalf of purchasers of single- or multi-family residences that contain the company's hardboard siding, one in Iowa and one in Nebraska. Class certification was denied in the Nebraska case in May 1998. 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 or environmental matter is subject to a great many variables and cannot be predicted with any degree of certainty, the company presently believes that any ultimate outcome resulting from the proceedings or matters 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 proceedings or matters could have a material effect on results of operations. Item 4. Submission of Matters to a Vote of Security Holders Matters voted upon and votes cast at the annual meeting of shareholders of Weyerhaeuser Company held on Tuesday, April 21, 1998 were: . The reelection of William D. Ruckelshaus, Richard H. Sinkfield, and Philip M. Hawley and the election of Steven R. Rogel and James N. Sullivan to the board of directors.
For Withheld ----------- --------- Hawley 169,867,312 2,063,439 Rogel 169,947,838 1,982,913 Ruckelshaus 169,914,747 2,016,004 Sinkfield 169,920,373 2,010,378 Sullivan 169,942,001 1,988,750
For Against Abstain ----------- --------- --------- . Board of Directors proposal to approve the 1998 Long-Term 161,117,570 9,735,749 1,077,432 Incentive Compensation Plan
Item 6. Exhibits and Reports on Form 8-K (a) None. (b) The registrant filed reports on Form 8-K dated January 23, April 16, June 16, and July 14, 1998, reporting information under Item 5, Other Events. EX-27 2
5 1,000,000 6-MOS DEC-27-1998 JUN-28-1998 41 0 1,004 0 947 2,264 6,256 0 12,497 1,397 4,154 0 0 258 4,336 12,497 5,279 5,279 4,192 4,192 364 2 138 244 90 154 0 0 0 154 0.77 0.77 Receivables are stated net of allowances. Property, plant and equipment is stated net of accumulated depreciation.
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