-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, eC1X0DdfyxUVRNRdF96GgAmvTIm3yGMXeobn+3CnSLkd/n/2GLIO71be6qPmVWqw A8x48NuPkz913C1DyjyZ3Q== 0000106535-94-000026.txt : 19940808 0000106535-94-000026.hdr.sgml : 19940808 ACCESSION NUMBER: 0000106535-94-000026 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940626 FILED AS OF DATE: 19940805 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEYERHAEUSER CO CENTRAL INDEX KEY: 0000106535 STANDARD INDUSTRIAL CLASSIFICATION: 2600 IRS NUMBER: 910470860 STATE OF INCORPORATION: WA FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04825 FILM NUMBER: 94541953 BUSINESS ADDRESS: STREET 1: 33663 WEYERHAEUSER WAY SOUTH CITY: TACOMA STATE: WA ZIP: 98477 BUSINESS PHONE: 2069242345 MAIL ADDRESS: STREET 1: 33663 WEYERHAEUSER WAY SOUTH CITY: TACOMA STATE: WA ZIP: 98477 10-Q 1 10-Q 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 26, 1994 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) Midwest 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 ___. The number of shares outstanding of the registrant's class of common stock, as of July 29, 1994 was 205,584,969 common shares ($1.25 par value). Weyerhaeuser Company - -2- This page intentionally left blank. Weyerhaeuser Company - -3- WEYERHAEUSER COMPANY AND SUBSIDIARIES Index to Form 10-Q Filing For the Twenty-six Weeks Ended June 26, 1994
Page No. ---------- Part I. Financial Information Item 1. Financial Statements Consolidated Statement of Earnings 4-5 Consolidated Balance Sheet 6-7 Consolidated Statement of Cash Flows 8-9 Notes to Financial Statements 10-15 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16-17 Part II. Other Information Item 1. Legal Proceedings 18-19 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 19 Item 5. Other Information (not applicable) Item 6. Exhibits and Reports on Form 8-K 19
The financial information included in this report has been prepared in conformity with accounting practices and methods reflected in the financial statements included in the annual report (Form 10-K) filed with the Securities and Exchange Commission for the year ended December 26, 1993. 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 26, 1994 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 5, 1994 Weyerhaeuser Company - -4- WEYERHAEUSER COMPANY AND SUBSIDIARIES ____________ CONSOLIDATED EARNINGS For the thirteen and twenty-six week periods ended June 26, 1994 and June 27, 1993 (Dollar amounts in thousands except per share figures) (Unaudited)
Thirteen weeks ended: June 26, June 27, 1994 1993 ---------- ---------- Net sales and revenues: Weyerhaeuser $2,312,438 $2,123,990 Real estate and financial services 285,998 263,515 ---------- ---------- 2,598,436 2,387,505 ---------- ---------- Costs and expenses: Weyerhaeuser: Costs of products sold 1,726,970 1,563,105 Depreciation, amortization and fee stumpage 129,355 110,379 Selling, general and administrative expenses 144,895 144,462 Research and development expenses 11,924 10,902 Taxes other than payroll and income taxes 37,084 35,305 ---------- ---------- 2,050,228 1,864,153 ---------- ---------- Real estate and financial services: Costs and operating expenses 217,809 178,101 Depreciation and amortization 7,360 7,752 Selling, general and administrative expenses 39,409 43,270 Taxes other than payroll and income taxes 2,048 2,059 ---------- ---------- 266,626 231,182 ---------- ---------- 2,316,854 2,095,335 ---------- ---------- Operating income 281,582 292,170 Interest expense and other: Weyerhaeuser: Interest expense incurred 59,126 50,988 Less interest capitalized 9,644 4,821 Other income (expense), net (15,341) 4,930 Real estate and financial services: Interest expense incurred 39,033 42,962 Less interest capitalized 19,913 19,012 Other income (expense), net 3,720 45,353 ---------- ---------- Earnings before income taxes 201,359 272,336 Income taxes (Note 2) 72,500 90,800 ---------- ---------- Net earnings $ 128,859 $ 181,536 ========== ========== Per common share (Note 1): Net earnings $ .62 $ .89 ========== ========== Dividends paid $ .30 $ .30 ========== ========== See Accompanying Notes to Financial Statements
Weyerhaeuser Company - -5-
Twenty-six weeks ended: June 26, June 27, 1994 1993 ---------- ---------- Net sales and revenues: Weyerhaeuser $4,437,770 $4,124,522 Real estate and financial services 546,430 603,999 ---------- ---------- 4,984,200 4,728,521 ---------- ---------- Costs and expenses: Weyerhaeuser: Costs of products sold 3,278,490 3,016,742 Depreciation, amortization and fee stumpage 245,304 221,795 Selling, general and administrative expenses 291,655 297,403 Research and development expenses 23,352 20,072 Taxes other than payroll and income taxes 76,088 69,487 ---------- ---------- 3,914,889 3,625,499 ---------- ---------- Real estate and financial services: Costs and operating expenses 403,747 396,941 Depreciation and amortization 14,954 23,688 Selling, general and administrative expenses 83,632 104,894 Taxes other than payroll and income taxes 4,256 4,860 ---------- ---------- 506,589 530,383 ---------- ---------- 4,421,478 4,155,882 ---------- ---------- Operating income 562,722 572,639 Interest expense and other: Weyerhaeuser: Interest expense incurred 116,512 102,414 Less interest capitalized 17,662 8,052 Other income (expense), net (29,956) 63,694 Real estate and financial services: Interest expense incurred 77,585 89,363 Less interest capitalized 40,143 38,031 Other income (expense), net 8,946 46,276 ---------- ---------- Earnings before income taxes and extraordinary item 405,420 536,915 Income taxes before extraordinary item (Note 2) 150,000 177,968 ---------- ---------- Earnings before extraordinary item 255,420 358,947 Extraordinary item, net of applicable taxes of $33,732 (Note 9) - 52,052 ---------- ---------- Net earnings $ 255,420 $ 410,999 ========== ========== Per common share (Note 1): Earnings before extraordinary item $ 1.24 $ 1.76 Extraordinary item _ .25 ---------- ---------- Net earnings $ 1.24 $ 2.01 ========== ========== Dividends paid $ .60 $ .60 ========== ==========
Weyerhaeuser Company - -6- WEYERHAEUSER COMPANY AND SUBSIDIARIES ____________ CONSOLIDATED BALANCE SHEET June 26, 1994 and December 26, 1993 (Dollar amounts in thousands)
June 26, Dec. 26, 1994 1993 ------------ ----------- (Unaudited) Assets - ------- Weyerhaeuser Current assets: Cash and short-term investments, including restricted deposits $ 38,821 $ 73,257 Receivables, less allowances 912,623 782,507 Inventories (Note 3) 763,616 762,471 Prepaid expenses 301,457 280,511 ----------- ----------- Total current assets 2,016,517 1,898,746 Property and equipment (Note 4) 5,766,607 5,606,072 Construction in progress 789,227 666,177 Timber and timberlands at cost, less fee stumpage charged to disposals 608,900 604,773 Other assets and deferred charges 203,151 191,946 ----------- ----------- Total assets 9,384,402 8,967,714 ----------- ----------- Real estate and financial services Cash and short-term investments, including restricted deposits 59,543 86,598 Receivables, less discounts and allowances 112,296 135,347 Mortgage and construction notes and mortgage loans receivable 613,313 830,569 Investments 56,795 60,355 Mortgage-backed certificates and restricted deposits 262,637 349,757 Real estate in process of development, less reserves 761,306 738,597 Land being processed for development, less reserves 727,860 699,611 Deferred acquisition costs 37,474 39,751 Other assets 691,463 730,154 ----------- ----------- Total assets 3,322,687 3,670,739 ----------- ----------- $12,707,089 $12,638,453 ============ =========== See Accompanying Notes to Financial Statements
Weyerhaeuser Company - -7-
June 26, Dec. 26, 1994 1993 ----------- ----------- (Unaudited) Liabilities and shareholders' interest - -------------------------------------- Weyerhaeuser Current liabilities: Notes payable $ 1,946 $ 4,624 Current maturities of senior long-term debt 16,510 14,522 Accounts payable 563,320 492,040 Accrued liabilities (Note 5) 656,819 565,002 ----------- ----------- Total current liabilities 1,238,595 1,076,188 Senior long-term debt (Note 6) 3,106,816 2,997,890 Deferred income taxes 945,123 904,332 Deferred pension and other liabilities 556,747 535,162 Minority interest in subsidiaries 102,870 109,314 Commitments (Note 8) _ _ ----------- ----------- Total liabilities 5,950,151 5,622,886 ----------- ----------- Real estate and financial services Notes and commercial paper 148,121 289,038 Collateralized mortgage obligation bonds 228,149 307,416 Long-term debt (Note 6) 1,904,551 1,997,146 Other liabilities 397,575 455,871 ----------- ----------- Total liabilities 2,678,396 3,049,471 ----------- ----------- Shareholders' interest (Note 7) Common shares: authorized 400,000,000 shares, issued 206,072,890 shares, $1.25 par value 257,591 257,591 Other capital 416,234 411,096 Cumulative translation adjustment (108,343) (73,363) Retained earnings 3,523,315 3,391,217 Treasury common shares, at cost: 488,771 and 983,952 (10,255) (20,445) ----------- ----------- Total shareholders' interest 4,078,542 3,966,096 ----------- ----------- $12,707,089 $12,638,453 =========== ===========
Weyerhaeuser Company - -8- WEYERHAEUSER COMPANY AND SUBSIDIARIES ____________ CONSOLIDATED STATEMENT OF CASH FLOWS For the twenty-six week periods ended June 26, 1994 and June 27, 1993 Dollar amounts in thousands (Unaudited)
Consolidated --------------------- June 26, June 27, 1994 1993 --------- ---------- Cash flows provided by operations: Net earnings $ 255,420 $ 410,999 Non-cash charges to income: Depreciation, amortization and fee stumpage 260,258 245,483 Deferred income taxes, net 52,300 55,733 Contributions to employee investment plans _ 2,462 Extraordinary item, including current tax benefit _ (90,419) Deferred income taxes on extraordinary item _ 38,367 Changes in working capital: Receivables (125,492) (112,863) Inventories, prepaid expenses, real estate and land (44,142) (160,313) Mortgages held for sale 207,804 (161,692) Other liabilities 65,534 118,237 (Gain) loss on disposition of assets 2,685 (13,753) Gain on sale of a business _ (111,750) Other 212 1,000 --------- --------- Net cash provided by operations 674,579 221,491 --------- --------- Cash flows from investing in the business: Property and equipment (532,184) (371,017) Timber and timberlands (14,454) (37,528) Mortgage and investment securities acquired (3,528) (771,776) Proceeds from sale of: Property and equipment 27,687 30,546 Businesses 14,250 615,784 Mortgage and investment securities 86,754 386,138 Other (4,052) (48,985) --------- --------- Net cash flows from investing in the business (425,527) (196,838) --------- --------- Cash flows from financing activities: Sale of debentures, notes and CMO bonds 239,846 427,971 Sale of industrial revenue bonds 100,000 74,500 Notes and commercial paper borrowings, net (238,684) 65,217 Proceeds from issuance of investment contracts _ 60,943 Cash dividends on common shares (123,322) (122,816) Intercompany cash dividends on common shares _ _ Payments on debentures, notes, bank credit agreements, income debenture, capital leases, industrial revenue bonds and CMO bonds (304,899) (878,979) Exercise of stock options 14,857 17,571 Other 1,659 (32,330) --------- --------- Net cash flows from financing activities (310,543) (387,923) --------- --------- Net increase (decrease) in cash and short-term investments (61,491) (363,270) Cash and short-term investments at beginning of year 159,855 524,325 -------- ---------- Cash and short-term investments at end of period $ 98,364 $ 161,055 ========= ========== Cash paid (received) during the year for: Interest, net of amount capitalized $ 137,380 $ 178,460 ========= ========= Income taxes $ 92,455 $ 102,062 ========= ========= See Accompanying Notes to Financial Statements
Weyerhaeuser Company - -9-
Real Estate and Weyerhaeuser Financial Services -------------------- ---------------------- June 26, June 27, June 26, June 27, 1994 1993 1994 1993 -------- --------- -------- --------- $ 246,800 $ 359,116 $ 8,620 $ 51,883 245,304 221,795 14,954 23,688 40,791 77,697 11,509 (21,964) _ 2,462 _ _ _ (90,419) _ _ _ 38,367 _ _ (130,111) (82,835) 4,619 (30,028) (22,035) (116,478) (22,107) (43,835) _ _ 207,804 (161,692) 138,239 6,885 (72,705) 111,352 6,862 (13,801) (4,177) 48 _ (70,199) _ (41,551) (16,886) (12,460) 17,098 13,460 -------- -------- -------- -------- 508,964 320,130 165,615 (98,639) -------- -------- -------- -------- (522,581) (356,708) (9,603) (14,309) (14,454) (37,528) _ _ _ _ (3,528) (771,776) 5,740 29,897 21,947 649 _ 204,100 14,250 411,684 _ _ 86,754 386,138 (14,220) (4,723) 10,168 (44,262) -------- -------- -------- -------- (545,515) (164,962) 119,988 (31,876) -------- -------- -------- -------- 123,128 261,675 116,718 166,296 100,000 74,500 _ _ 15,450 (166,058) (254,134) 231,275 _ _ _ 60,943 (123,322) (122,816) _ _ _ 435,000 _ (435,000) (129,657) (615,489) (175,242) (263,490) 14,857 17,571 _ _ 1,659 (32,330) _ _ -------- -------- -------- -------- 2,115 (147,947) (312,658) (239,976) -------- -------- -------- -------- (34,436) 7,221 (27,055) (370,491) 73,257 40,985 86,598 483,340 -------- -------- -------- -------- $ 38,821 $ 48,206 $ 59,543 $112,849 ======== ======== ======== ======== $ 99,538 $122,875 $ 37,842 $ 55,585 ======== ======== ======== ======== $ 24,022 $104,371 $ 68,433 $ (2,309) ======== ======== ======== ========
Weyerhaeuser Company - -10- WEYERHAEUSER COMPANY AND SUBSIDIARIES ____________ NOTES TO FINANCIAL STATEMENTS For the twenty-six week periods ended June 26, 1994 and June 27, 1993 (Dollar amounts in thousands except per share figures) Note 1: Summary of Significant Accounting and Reporting 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 subsidiaries are Weyerhaeuser Mortgage Company (WMC) and Mortgage Securities Corporations. GNA Corporation, a subsidiary of WFS, was sold in April 1993. 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 205,491,304 and 204,724,122 at June 26, 1994 and June 27, 1993, respectively. Fully diluted earnings-per-share amounts are not applicable because the effect of the conversion of the stock options is not dilutive. Accounting Changes In November 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 112, Employers' Accounting for Postemployment Benefits (SFAS 112), which requires accrual accounting be used for the cost of benefits provided to former or inactive employees who have not yet retired. In the first quarter of 1994, the company adopted SFAS 112 by recording a cumulative catch- up charge to earnings. The adoption of this pronouncement did not have a significant impact on the company's results of operations or its financial position. 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; either the first-in, first- out (FIFO) or average cost method is used to cost all other inventories. 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 methods at rates based on estimated service lives. Amortization of logging rail 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 gain or loss is recorded. Weyerhaeuser Company - -11- 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. Income Taxes Under SFAS No. 109, Accounting for 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. 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. Foreign Exchange Contracts The company enters into foreign exchange contracts as a hedge for foreign accounts receivable. Market value gains and losses are recognized and offset against foreign exchange gains or losses on the foreign receivables. Reclassifications Certain reclassifications have been made to conform prior years' data to the current format. WRECO WRECO recognizes income from the sales of single family housing units when construction has been completed, required down payments received and title has passed to the customer. Income from the sales of multi- family, commercial properties, developed lots and undeveloped land is recognized when required down payments are received and other income recognition criteria are satisfied. Real estate is stated at the lower of cost or net realizable value. The determination of net realizable value is based on WRECO's plans for its property and its financial ability to carry out such plans. Changes in future market demand, interest rates and company plans may affect net realizable value. Land, land development and construction costs, including capitalized carrying costs, are accumulated and allocated to individual units in proportion to relative sales value. Weyerhaeuser Company - -12- Weyerhaeuser Financial Services Weyerhaeuser Mortgage Company and its subsidiaries are primarily engaged in the mortgage banking industry 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). Hedging transactions are entered into to protect the inventory value from increases in interest rates. Hedge positions are also used to protect the pipeline of loan applications in process from increases in interest rates. 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 costs associated with purchasing mortgage servicing rights are deferred. Excess service fees result from loan sales in which WMC retains the loan servicing rights and are based on the present value of future servicing revenue less a normal servicing fee, based upon the estimated remaining life of the loans sold. The Mortgage Securities Corporations were formed for the limited purpose of issuing collateralized mortgage obligation bonds (CMO bonds) secured by Government National Mortgage Association and Federal National Mortgage Association certificates. The CMO bonds are the sole obligation of the issuer, and neither the company nor any affiliated company has guaranteed or is otherwise obligated with respect to the CMO bonds. - - The mortgage-backed certificates are carried at par value adjusted for any unamortized discount or premium. These discounts or premiums are amortized using a method that approximates the effective interest method over the estimated life of the underlying mortgage loans. - - CMO bonds are carried at unamortized cost. Discounts and premiums are amortized using a method that approximates the effective interest method over their estimated life. In April 1993, WFS completed the sale of GNA Corporation. As a part of that transaction, Weyerhaeuser assumed $225 million of outstanding GNA debt. GNA Corporation and its life insurance subsidiaries provided annuities, insurance and securities marketed through financial institutions. During its operation: - - Payments received on investment and limited payment contracts were recorded directly as deposits. - - Investment income was recorded when earned. - - Investments in bonds were stated at amortized cost; mortgage loans and other investments were carried at cost. - - The liability for future annuity and contract reserves on single premium deferred annuities and single premium whole life policies was the contract holder's account value. The reserve for single premium immediate annuity benefits was the present value of such benefits. Weyerhaeuser Company - -13- Note 2: Income Taxes Provisions for income taxes include the following:
Twenty-six Weeks Ended ---------------------- June 26, June 27, 1994 1993 -------- -------- Federal: Current $ 54,800 $ 97,061 Deferred 41,400 64,900 -------- -------- 96,200 161,961 -------- -------- State: Current 10,900 15,874 Deferred 3,200 7,400 -------- -------- 14,100 23,274 -------- -------- Foreign: Current 32,000 9,300 Deferred 7,700 (16,567) -------- -------- 39,700 (7,267) -------- -------- Income taxes before apportionment to extraordinary item 150,000 177,968 -------- -------- Income taxes apportionable to extraordinary item: Current _ (4,635) Deferred _ 38,367 -------- -------- _ 33,732 -------- -------- $150,000 $211,700 ======== ========
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 period ended June 26, 1994, 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 26, 1994 and June 27, 1993 were 37% and 34%, respectively. Under the SFAS 109 liability method, 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, restructuring reserves, and pension and retiree health care liabilities. Weyerhaeuser Company - -14- Note 3: Inventories Inventories consist of the following:
June 26, Dec. 26, 1994 1993 -------- -------- Logs and chips $ 88,818 $103,195 Lumber, plywood and panels 136,260 92,488 Pulp, newsprint and paper 107,721 124,131 Containerboard, paperboard and containers 69,294 70,915 Other products 107,769 121,949 Materials and supplies 253,754 249,793 -------- -------- $763,616 $762,471 ======== ========
Note 4: Property and Equipment
June 26, Dec. 26, 1994 1993 ----------- ---------- Property and equipment, at cost: Land $ 156,924 $ 157,611 Buildings and improvements 1,439,389 1,416,740 Machinery and equipment 8,092,576 7,839,070 Rail and truck roads and other 622,240 620,136 ----------- ---------- 10,311,129 10,033,557 Less allowance for depreciation and amortization 4,544,522 4,427,485 ----------- ----------- $ 5,766,607 $ 5,606,072 =========== ===========
Note 5: Accrued Liabilities Accrued liabilities are as follows:
June 26, Dec.26, 1994 1993 --------- --------- Payroll - wages and salaries, incentive awards, retirement, vacation pay and severance pay $ 216,112 $ 239,434 Taxes - social security and real and personal property 69,195 58,952 Interest 66,278 66,967 Income taxes 73,853 12,166 Other 231,381 187,483 --------- --------- $ 656,819 $ 565,002 ========= =========
Note 6: Long-Term Debt The company's lines of credit include: (a) A four-year competitive advance and revolving credit facility agreement entered into in 1990 with a group of banks which provides for borrowings of up to the total amount of $1,650,000, all of which can be availed of by the company and $1,000,000 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. This credit facility agreement has been extended through November 1995. Weyerhaeuser Company - -15- (b) A one-year evergreen credit commitment entered into in 1990 with a group of banks which provides for borrowings of up to the amounts, and by the entities, as follows:
June 26, Dec. 26, 1994 1993 --------- -------- The company and: WMC and WRECO $165,000 $215,000 WMC 70,000 70,000 WRECO 20,000 20,000 WMC (only) _ 35,000
At December 26, 1993, WMC had $35,000 outstanding against this commitment. WMC has a revolving credit agreement with a bank to provide for: (1) borrowings up to $35,000 for three 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 notes as of July 1, 1995, to a five-year term loan payable in equal quarterly installments. At December 26, 1993, $30,000 was outstanding under the revolving credit agreement. During 1992, WFS entered into a three-year term loan facility which was amended in May 1994 and provides for (1) borrowings of up to $405,000 at June 26, 1994, and $295,000 at December 26, 1993, at LIBOR or such other rates as may be agreed upon by WFS and the banks; and (2) a commitment fee based on the unused credit. $405,000 and $295,000 were outstanding against this facility at June 26, 1994 and December 26, 1993, 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:
June 26, Dec. 26, 1994 1993 --------- -------- Weyerhaeuser $509,177 $378,727 Real estate and financial services 502,239 616,906
No portion of these lines has been availed of by the company, WRECO, WFS, or WMC at June 26, 1994 or December 26, 1993, except as noted. In 1993, WFS completed the sale of GNA Corporation. As a part of this transaction, the company assumed $225,000 of outstanding GNA debt. Total interest costs incurred by WRECO are capitalized and will ultimately be accounted for as an element of operating costs. The company's compensating balance agreements were not significant. Note 7: Shareholders' Interest Common shares reserved for stock option plans were 5,776,000 shares at June 26, 1994 and 5,178,000 shares at December 26, 1993. Note 8: Commitments The company's capital expenditures have averaged about $823,000 in recent years but are expected to be approximately $1,100,000 in 1994; however, the 1994 expenditure level could be increased or decreased as a consequence of future economic conditions. Note 9: Extraordinary Item During the 1993 first quarter, the company realized a net gain of $52,052 ($85,784 less related tax effect of $33,732) as a result of extinguishing certain debt obligations. Weyerhaeuser Company - -16- WEYERHAEUSER COMPANY AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations Net sales and revenues and earnings before interest expense, income taxes and extraordinary item by segment are:
Thirteen Weeks Ended Twenty-six Weeks Ended --------------------- ----------------------- June 26, June 27, June 26, June 27, 1994 1993 1994 1993 ---------- ----------- ---------- ---------- Net sales and revenues: Timberlands and wood products $1,249,150 $1,135,057 $2,430,864 $2,145,762 Pulp, paper and packaging 994,945 925,350 1,897,858 1,812,744 Real estate 238,437 192,992 438,924 344,259 Financial services 47,561 70,523 107,506 259,740 Corporate and other 68,343 63,583 109,048 166,016 ---------- ---------- ---------- ---------- $2,598,436 $2,387,505 $4,984,200 $4,728,521 ========== ========== ========== ========== Earnings before interest expense, income taxes and extraordinary item: Timberlands and wood products $ 243,272 $ 241,871 $ 526,205 $ 467,615 Pulp, paper and packaging 30,079 44,432 35,318 79,397 Real estate 2,945 4,110 3,965 5,172 Financial services(1) 1,027 49,626 7,380 63,388 Corporate and other (26,482) (21,536) (68,598) 15,705 ---------- ---------- ---------- --------- $ 250,841 $ 318,503 $ 504,270 $ 631,277 ========== ========== ========== ========= (1)Includes interest expense of $19,120 and $23,950 for thirteen weeks and $37,442 and $51,332 for twenty-six weeks related to the financial services businesses.
Net sales for the second quarter of 1994 were $2.6 billion up 9 percent from the $2.39 billion reported in the same quarter of a year ago. Net earnings were $128.9 million or 62 cents per common share, compared to $181.5 million or 89 cents per common share in the second quarter of 1994. The sale of GNA Corporation in the 1993 second quarter accounted for net earnings of $36 million, or 18 cents per common share. Second quarter results were mixed with benefit from higher prices in the pulp, paper and packaging segment at the same time the company was experiencing lower lumber, plywood and oriented strand board prices and reduced volume of domestic log sales. In addition to the gain from the sale of GNA, first half 1993 earnings included after-tax gains of (1) $44 million, or 22 cents per common share, on the sale of the company's infant diaper business, and (2) $52 million, or 25 cents per common share, from the extinguishment of debt. The latter item was reported as an extraordinary gain on the company's consolidated statement of earnings. Net earnings from operations were $255.4 million in the first half of 1994, down 8 percent from the $279 million reported in the first half of 1993. Operating earnings for the timberlands and wood products segment were $243.3 million for the second quarter of 1994, a slight increase over the $241.8 million in the 1993 second quarter. The pulp, paper and packaging segment's operating earnings were $30.1 million for the second quarter of 1994 compared with $44.4 million in the same quarter of 1993. Despite lower segment results year to year, recent price improvements, particularly in pulp and containerboard packaging, and to a lesser extent in newsprint and fine paper, indicate a strengthening recovery in the pulp, paper and packaging markets. The company's real estate and financial services segments had operating earnings of $4 million in the quarter compared with $12.2 million in the year ago quarter. In addition, the 1993 second quarter financial services' results included a $41.5 million pre-tax gain on the sale of GNA Corporation, its wholly owned subsidiary. The significant fall-off in mortgage refinancing activity due to the rapid increase in long-term interest rates resulted in lower earnings from financial services in the quarter. Weyerhaeuser Company - -17- The increases in the company's interest expense incurred and interest capitalized, both in the current quarter and year-to-date are related to the continuing major mill modernization projects underway at the Plymouth, North Carolina and Longview, Washington facilities. Other income 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 in relation to net earnings other than the $70.2 million gain on the disposal of the company's investment in the infant diaper business in the first quarter of 1993, and financial services' gain of $41.5 million on the sale of GNA Corporation in the second quarter of 1993. Working capital for Weyerhaeuser decreased $45 million from year end 1993, primarily due to a decrease in cash and short-term investments and an increase in accounts payable and accrued liabilities, partially offset by an increase in receivables and prepaid expenses. During the first half of 1994, the company paid $123 million in cash dividends and made capital expenditures of $547 million. The cash needed to meet these and other company needs was generated principally from internal cash flow. The company now anticipates total capital expenditures for 1994 to approximate $1.1 billion. As a result of advances in measurement technology, minute amounts of dioxin have been detected in waste water effluent, sludges and pulp from U.S. bleached kraft pulp mills, including certain of the company's mills. The company has allocated substantial capital to, and has made very significant progress in, reducing dioxin in the mills' sludge, pulp, effluent and ultimate product. The company does not believe that compliance with current environmental laws and regulations had a material adverse effect on its capital expenditures, earnings or competitive position in the second quarter or first half of 1994, nor is it expected to in the remainder of 1994 or 1995. The company is committed to the maintenance of a sound, conservative capital structure. This commitment is based upon two considerations: the obligation to protect the underlying interests of its shareholders and lenders and the desire to have access, at all times, to all major financial markets. The important elements of the policy governing the company's capital structure are as follows: - - To view separately the capital structures of Weyerhaeuser Company, Weyerhaeuser Real Estate Company and 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. For the twenty-six weeks ended June 26, 1994, earnings before interest expense and income taxes plus non-cash charges for the timberlands and wood products and the pulp, paper and packaging segments were $613 million and $178 million, respectively. Capital expenditures during this period were $98 million by timberlands and wood products, $424 million by pulp, paper and packaging and $25 million by other segments. Weyerhaeuser Company - -18- Part II. Other Information Item 1. 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. The tax refund remaining in dispute is approximately $10 million plus statutory interest from the dates of the alleged overpayments. The court has not entered a decision on the remaining issue. 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 seven of the defendants. In July 1993, the trial court dismissed fourteen of the thirty-five 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 is scheduled for October 1994. In April 1992, the Georgia Department of Natural Resources, Environmental Protection Division issued a Notice of Violation to the company's Adel, Georgia particleboard plant citing violations of particulate emission standards. A consent order was entered into on September 18, 1992 assessing a $35 thousand penalty and a stipulated penalty of 100 dollars per day until the facility is in full compliance with particulate emission requirements. The Consent Order set a compliance deadline of January 31, 1994. The Consent Order also requires that the company demonstrate that the facility is in compliance with regulations under the Prevention of Significant Deterioration (PSD) regulations under the Clean Air Act. The company has submitted compliance data and is awaiting the State's concurrence that it satisfies the consent order requirements. The company has undertaken a review of all its wood products facilities for compliance with the PSD regulations and has disclosed PSD compliance issues to certain state agencies and the EPA. The company and the State of Mississippi Department of Environmental Quality (DEQ) have entered into a consent agreement concerning PSD regulations at two company facilities in Mississippi involving penalties of $170 thousand. The State of Alabama has issued a compliance order with penalties totaling $100 thousand for noncompliance with PSD regulations at the company's Millport facility. The company and North Carolina's Division of Environmental Management have entered into a consent agreement for its Elkin, North Carolina facility involving penalties of $140 thousand and are currently negotiating a separate consent agreement for its Moncure, North Carolina facility involving penalties of $140 thousand. The company has signed a consent agreement including penalties of $140 thousand relating to PSD issues at the company's Wright City, Oklahoma facility with the State of Oklahoma Department of Environmental Quality. The company has signed consent agreements with the State of Arkansas concerning PSD related issues for two facilities in that state involving $375 thousand in total penalties for both facilities. Region V of the EPA has issued a Notice of Violation for permit violations at the company's Grayling, Michigan facility. The company is negotiating a settlement of those alleged permit violations and other PSD related issues with the Michigan Department of Natural Resources that is expected to involve penalties of approximately $464 thousand. In September 1992, the EPA issued a Section 114 Request for Information concerning PSD compliance at the company's oriented strand board and medium density fiberboard mills. In June 1993, the EPA issued a similar Section 114 request for the company's plywood and particleboard mills. The EPA has told the company that it plans to initiate a national PSD enforcement action against the company and other forest product companies in August 1994. The company is also undertaking a review of its pulp and paper facilities for PSD compliance. The Washington Department of Ecology has indicated that it will investigate the accidental release of chlorine, chlorine dioxide and non-condensable gasses at the company's pulp mill in Longview, Washington in July 1994. 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 dollars per day until compliance is demonstrated. The SFO requires demonstrated compliance by December 1993 and a historical evaluation of the facility's PSD status. The company has submitted a plant site PSD review to the state and is awaiting its review. Weyerhaeuser Company - -19- Part II. Other Information Item 1. Legal Proceedings - continued In August 1992, the EPA issued an administrative complaint for the assessment of $215 thousand in civil penalties against the company's Longview, Washington facility. The penalties are based upon alleged violations of the record keeping and storage provisions of the polychlorinated biphenyls rules contained in the TSCA. The company and the EPA settled the complaint for a maximum penalty of $118 thousand, 50% of which was paid when the settlement was signed. Payment of the remaining 50% was deferred and will be eliminated based on the expenditure of more than $118 thousand by the company to dispose of PCB contaminated transformers at Longview during 1993. 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 Green County, Alabama on behalf of a similar purported class of riparian owners with essentially the same claims as the Mississippi case. The action was removed to the Federal District Court for the Northern District of Alabama, which subsequently remanded the case to state court. Neither action is presently scheduled for trial. The company was sued in the United States District Court for the District of Alaska by two corporations with which Weyerhaeuser had entered into financing arrangements, a marketing agreement, and a technical assistance agreement. The plaintiffs claimed that Weyerhaeuser breached contractual and common law duties by allegedly failing to adequately market and ship the plaintiffs' products, misrepresenting its marketing and shipping capabilities, and acting to further its interests at the plaintiffs' expense. The plaintiffs in the First Amended Complaint, filed in May 1992, sought an unstated amount of damages described as more than $50 million in compensatory damages plus not less than $75 million in punitive damages. The claim for punitive damages was dismissed by the trial court. In March 1994, a jury returned a verdict against the company awarding damages of $1.2 million. Both the company and the plaintiffs have appealed. 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 Environmental Protection Agency 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 liability resulting from the legal proceedings discussed herein, or all of them combined, would not have a material effect on the company's financial position. Item 4. Submission of Matters to a Vote of Security Holders Reference is hereby made to the 1994 Weyerhaeuser Company First Quarter and Annual Meeting Report to Shareholders for information about the matters voted upon and the votes cast with respect thereto at the annual meeting of the Shareholders of Weyerhaeuser Company on April 21, 1994. Item 6. Exhibits and Reports on Form 8-K (a) Not applicable. (b) The registrant has not filed a report on Form 8-K during the fiscal quarter for which this report on Form 10-Q is filed. -----END PRIVACY-ENHANCED MESSAGE-----