LEGAL PROCEEDINGS, COMMITMENTS AND CONTINGENCIES

This note provides details about our:


•	legal proceedings,


•	environmental matters and


•	commitments and other contingencies.

LEGAL PROCEEDINGS

We are party to legal matters generally incidental to our business. The ultimate outcome of any legal proceeding:


•	is subject to a great many variables and


•	cannot be predicted with any degree of certainty.

However, whenever probable losses from litigation could reasonably be determined — we believe that we have established adequate reserves. In addition, we believe the ultimate outcome of the legal proceedings:


•	could have a material adverse effect on our results of operations, cash flows or financial position in any given quarter or year; but


•	will not have a material adverse effect on our long-term results of operations, cash flows or financial position.

2011 Claim

On April 25, 2011, a complaint was filed in the United States District Court for the Western District of Washington on behalf of a person alleged to be a participant in the company’s U.S. Retirement Plan for salaried employees. The complaint alleges violations of the Employee Retirement Security Act (ERISA) with respect to the management of the plan’s assets and seeks certification as a class action. The company believes that its pension plans have been consistently managed in full compliance with established fiduciary standards and is vigorously contesting the claim. The company is seeking to have the case dismissed.

ENVIRONMENTAL MATTERS

Our environmental matters include:


•	site remediation and


•	asset retirement obligations.

Site Remediation

Under the Comprehensive Environmental Response, Compensation and Liability Act — commonly known as the Superfund — and similar state laws, we:


•	are a party to various proceedings related to the cleanup of hazardous waste sites and


•	have been notified that we may be a potentially responsible party related to the cleanup of other hazardous waste sites for which proceedings have not yet been initiated.

Our established reserves. We have established reserves for estimated remediation costs on the active Superfund sites and other sites for which we are responsible. These reserves are recorded in "Accrued liabilities" and "Other liabilities" in our Consolidated Balance Sheet.

Changes in the Reserve for Environmental Remediation



DOLLAR AMOUNTS IN MILLIONS
Reserve balance as of December 31, 2011	$	34
Reserve charges and adjustments, net	4
Payments	(6		)
Reserve balance as of December 31, 2012	$	32
Total active sites as of December 31, 2012	53

We change our accrual to reflect:


•	new information on any site concerning implementation of remediation alternatives,


•	updates on prior cost estimates and new sites and


•	costs incurred to remediate sites.

Estimates. We believe it is reasonably possible — based on currently available information and analysis — that remediation costs for all identified sites may exceed our reserves by up to $95 million.

That estimate — in which those additional costs may be incurred over several years — is the upper end of the range of reasonably possible additional costs. The estimate:


•	is much less certain than the estimates on which our accruals currently are based and


•	uses assumptions that are less favorable to us among the range of reasonably possible outcomes.

In estimating our current accruals and the possible range of additional future costs, we:


•	assumed we will not bear the entire cost of remediation of every site,


•	took into account the ability of other potentially responsible parties to participate and


•	considered each party’s financial condition and probable contribution on a per-site basis.

We have not recorded any amounts for potential recoveries from insurance carriers.

Asset Retirement Obligations

We have obligations associated with the retirement of tangible long-lived assets consisting primarily of reforestation obligations related to forest management licenses in Canada and obligations to close and cap landfills. Some of our sites have asbestos containing materials. We have met our current legal obligation to identify and manage these materials. In situations where we cannot reasonably determine when asbestos containing materials might be removed from the sites, we have not recorded an accrual because the fair value of the obligation cannot be reasonably estimated. These obligations are recorded in "Accrued liabilities" and "Other liabilities" in our Consolidated Balance Sheet.

Changes in the Reserve for Asset Retirement Obligations



DOLLAR AMOUNTS IN MILLIONS
Reserve balance as of December 31, 2011	$	65
Reserve charges and adjustments, net	8
Payments	(10		)
Reserve balance as of December 31, 2012	$	63

COMMITMENTS AND OTHER CONTINGENCIES

Our commitments and contingencies include:


•	guarantees of debt and performance,


•	purchase obligations for goods and services and


•	operating leases.

Guarantees

We have guaranteed the performance of the buyer/lessee of a timberlands lease we sold in 2005. Future payments on the lease — which expires in 2023 — are $18 million.

Our Real Estate segment has guaranteed buyer/lessee performance on ground leases that we sold. Future payments on the leases — which expire in 2041 — are $12 million.

Purchase Obligations

Our purchase obligations as of December 31, 2012 were:



DOLLAR AMOUNTS IN MILLIONS
	DECEMBER 31, 2012
2013	$	105
2014	$	7
2015	$	5
2016	$	2
2017	$	2
Thereafter	$	9

Purchase obligations for goods or services are agreements that:


•	are enforceable and legally binding,


•	specify all significant terms and


•	cannot be canceled without penalty.

The terms include:


•	fixed or minimum quantities to be purchased;


•	fixed, minimum or variable price provisions; and


•	an approximate timing for the transaction.

Our purchase obligations include items such as:


•	stumpage and log purchases,


•	energy and


•	other service and supply contracts.

Operating Leases

Our rent expense was:



DOLLAR AMOUNTS IN MILLIONS
	2012		2011		2010
Rent expense	$	42	$	47	$	55

We have operating leases for:


•	various equipment — including logging equipment, lift trucks, automobiles and office equipment;


•	office and wholesale space;


•	model homes; and


•	real estate ground lease.

Commitments

Our operating lease commitments as of December 31, 2012 were:



DOLLAR AMOUNTS IN MILLIONS
	DECEMBER 31, 2012
2013	$	35
2014	$	27
2015	$	18
2016	$	15
2017	$	11
Thereafter	$	108

Operating lease commitments have not been reduced by minimum sublease rental income of $62 million that is due in future periods under noncancellable sublease agreements. These commitments include a lease that has commitment increases based on a consumer price index built into the agreement. These lease commitment increases are not included in the figures above.