-----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, BQCzrjXDWh1u5Erv5f2ohFO5watzaORt6kEzUJVq4cOMcCXscq1FsEMz4In4yme6 7d5Q25XzybODeasEPthVlA== 0000106535-95-000002.txt : 19950615 0000106535-95-000002.hdr.sgml : 19950615 ACCESSION NUMBER: 0000106535-95-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19941225 FILED AS OF DATE: 19950310 SROS: MSE SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEYERHAEUSER CO CENTRAL INDEX KEY: 0000106535 STANDARD INDUSTRIAL CLASSIFICATION: LUMBER & WOOD PRODUCTS (NO FURNITURE) [2400] IRS NUMBER: 910470860 STATE OF INCORPORATION: WA FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04825 FILM NUMBER: 95520009 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-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) X OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 25, 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___. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]. As of February 24, 1995, 205,637,877 shares of the registrant's common stock ($1.25 par value) were outstanding and the aggregate market value of the registrant's voting shares held by non-affiliates was approximately $8,713,905,038. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Shareholders for the fiscal year ended December 25, 1994 are incorporated by reference into Parts I, II and IV. Portions of the Notice of 1995 Annual Meeting of Shareholders and Proxy Statement are incorporated by reference into Part III. Weyerhaeuser Company and Subsidiaries TABLE OF CONTENTS
PART I Page ---- Item 1. Business 3 Item 2. Properties 7 Item 3. Legal Proceedings 10 Item 4. Submission of Matters to a Vote of Security Holders 11 PART II Item 5. Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters 12 Item 6. Selected Financial Data 12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 8. Financial Statements and Supplementary Information 12 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 12 PART III Item 10. Directors and Executive Officers of the Registrant 13 Item 11. Executive Compensation 13 Item 12. Security Ownership of Certain Beneficial Owners and Management 13 Item 13. Certain Relationships and Related Transactions 13 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 14 Signatures 15 Report of Independent Public Accountants on Financial Statement Schedules 16 Schedule II Valuation and Qualifying Accounts 17
2 Weyerhaeuser Company and Subsidiaries PART I Item 1. Business - ----------------- Weyerhaeuser Company (the company) was incorporated in the state of Washington in January 1900, as Weyerhaeuser Timber Company. It is principally engaged in growing and harvesting of timber and the manufacture, distribution and sale of forest products, real estate development and construction, and financial services. Its principal business segments include timberlands and wood products; pulp, paper and packaging; real estate; and financial services. Information with respect to the description and general development of the company's business, included on pages 35 through 40, Description of the Business of the Company, contained in the company's 1994 Annual Report to Shareholders, is incorporated herein by reference. Financial information with respect to industry segments, included in Note 21 of Notes to Financial Statements contained in the company's 1994 Annual Report to Shareholders, is incorporated herein by reference. Timberlands and Wood Products The company owns approximately 5.6 million acres of commercial forestland in the United States (51% in the South and 49% in the Pacific Northwest), most of it highly productive and located extremely well to serve both domestic and international markets. The company has, additionally, long-term license arrangements in Canada covering approximately 17.8 million acres (of which 14 million acres are considered to be productive forestland). The combined total timber inventory on these U.S. and Canadian lands is approximately 246 million cunits (a cunit is 100 cubic feet of solid wood), of which approximately 75% is softwood species. The relationship between cubic measurement and the quantity of end products that may be produced from timber varies according to the species, size and quality of timber, and will change through time as the mix of these variables changes. To sustain the timber supply from its fee timberlands, the company is engaged in extensive planting, suppression of nonmerchantable species, precommercial and commercial thinning and fertilization and operational pruning, all of which increase the yield from its fee timberland acreage.
Inventory Thousands of Acres at December 25, 1994 --------- ----------------------------------------------- Millions Fee Long-term License of Cunits Ownership Leases Arrangements Total --------- --------- --------- ------------ -------- Geographic Area Washington 44 1,522 - - 1,522 Oregon 17 1,210 - - 1,210 Southern 27 2,855 156 - 3,011 --------- --------- --------- ------------ -------- Total United States 88 5,587 156 - 5,743 Canada Alberta 91 - - 5,797 5,797 British Columbia 10 12 - 3,595 3,607 Saskatchewan 57 - - 8,457 8,457 --------- --------- --------- ------------ -------- Total Canada 158 12 - 17,849 17,861 --------- --------- --------- ------------ -------- TOTAL 246 5,599 156 17,849 23,604 ========= ========= ========= ============ ========
Thousand Acres Millions Thousand Acres ------------------ Seedlings ------------------------------- Harvested Planted Planted Stocking Control Fertilization --------- ------- ------- ---------------- ------------- 1994 Activity Washington 29.7 29.0 14.6 5.0 54.5 Oregon 15.5 14.1 6.2 6.1 44.5 Southern 43.0 40.8 20.8 14.1 195.2 --------- ------- ------- ---------------- ------------- Total United States 88.2 83.9 41.6 25.2 294.2 ========= ======= ======= ================ =============
3 Weyerhaeuser Company and Subsidiaries PART I Item 1. Business - Continued - ----------------------------- The company's wood products businesses produce and sell softwood lumber, plywood and veneer; composite panels; oriented strand board; hardboard; hardwood lumber and plywood; doors; treated products; logs; chips and timber. These products are sold primarily through the company's own sales organizations. Building materials are sold to wholesalers, retailers and industrial users. Sales by volumes by major product class are as follows (millions):
1994 1993 1992 1991 1990 ----- ----- ----- ----- ----- Raw materials - cubic ft. 564 547 545 538 540 Softwood lumber - board ft. 4,402 4,230 3,440 3,269 3,417 Softwood plywood and veneer - sq.ft. (3/8") 2,685 2,435 2,227 2,135 2,212 Composite panels - sq. ft. (3/4") 660 626 590 685 641 Oriented strand board - sq.ft. (3/8") 1,803 1,672 1,484 1,205 1,185 Hardboard - sq. ft. (7/16") 167 140 133 114 126 Hardwood lumber - board ft. 254 240 218 219 209 Hardwood doors (thousands) 617 556 514 525 697
Selected product prices:
1994 1993 1992 1991 1990 ------ ------ ------ ------ ------ Export logs (#2 sawlog-bark on) - $/MBF Cascade - Douglas fir $1,170 $1,224 $ 937 $ 686 $ 641 Coastal - Hemlock 804 831 565 530 558 Coastal - Douglas fir 1,087 1,104 858 633 588 Lumber (common) - $/MBF 2x4 Douglas fir (kiln dried) 408 418 295 250 241 2x4 Douglas fir (green) 364 383 261 224 223 2x4 southern yellow pine (kiln dried) 419 397 285 237 233 2x4 spruce-pine-fir (kiln dried) 343 334 231 187 186 Plywood (1/2" CDX) - $/MSF West 334 321 281 220 209 South 298 282 249 192 184 Oriented strand board (7/16"-24/16) North Central price - $/MSF 265 236 217 147 129
4 Weyerhaeuser Company and Subsidiaries PART I Item 1. Business - Continued - ----------------------------- Pulp, Paper and Packaging The company's pulp, paper and packaging businesses include: Pulp, which manufactures chemical wood pulp for world markets; Newsprint, which manufactures newsprint at the company's North Pacific Paper Corporation mill and markets it to West Coast and Japanese newspaper publishers; Paper, which manufactures and markets a range of both coated and uncoated fine papers through paper merchants and printers; Containerboard Packaging, which manufactures linerboard and corrugating medium, which is primarily used in the production of corrugated shipping containers, and manufactures and markets corrugated shipping containers for industrial and agricultural packaging; Paperboard, which manufactures bleached paperboard that is used for production of liquid containers and is marketed to West Coast and Pacific Rim customers; Recycling, which operates an extensive wastepaper collection system and markets it to company mills and worldwide customers; and Chemicals, which produces chlorine, caustic and tall oil, which are used principally by the company's pulp, paper and packaging operations. In February 1993, the Personal Care Products business, which manufactured disposable diapers marketed under the private-label brands of many of North America's largest retailers was sold through an initial public offering of stock. Sales volumes by major product class are as follows (thousands):
1994 1993 1992 1991 1990 ------ ------ ------ ------ ------ Pulp - air-dry metric tons 2,068 1,886 1,238 1,433 1,194 Newsprint - metric tons 638 609 575 450 453 Paper - tons 998 990 966 869 893 Paperboard - tons 201 222 238 234 220 Containerboard - tons 254 290 318 418 444 Packaging - MSF 34,483 31,386 29,414 26,525 25,022 Recycling - tons 985 851 778 735 648 Personal care products - standard cases - - 17,017 14,929 11,471
Selected product prices (per ton):
1994 1993 1992 1991 1990 ------ ------ ------ ------ ------ Pulp - NBKP-air-dry metric-U.S. $ 566 $ 445 $ 551 $ 568 $ 800 Paper - uncoated free sheet-U.S. 617 627 630 713 859 Linerboard - 42 lb.-Eastern U.S. 367 295 343 330 360 Newsprint - metric - West Coast U.S. 460 435 433 549 561
5 Weyerhaeuser Company and Subsidiaries PART I Item 1. Business - Continued - ----------------------------- Real Estate The company, through its real estate subsidiary, Weyerhaeuser Real Estate Company, is a builder/developer of for-sale housing and apartments, develops commercial and residential lots for sale to retail customers and other builders, builds commercial buildings for sale to institutional investors, and is an investor in joint ventures and limited partnerships. Volumes sold:
1994 1993 1992 1991 1990 ----- ----- ----- ----- ----- Single-family units1 3,934 3,879 3,917 4,410 5,113 Multi-family units1 475 1,141 60 317 358 Lots1 2,157 1,372 2,762 1,138 3,008 Commercial space (thousand sq. ft.) 389 88 142 269 235 1Includes one-half of joint venture sales.
Financial Services The company, through its financial services subsidiary, Weyerhaeuser Financial Services, Inc., is involved in a range of financial services. The principal operating unit is Weyerhaeuser Mortgage Company, which has origination offices in 14 states, with a servicing portfolio of $11.3 billion covering approximately 139,000 loans throughout the country. Mortgages are resold in the secondary market through mortgage-backed securities to financial institutions and investors. Through its insurance services organization, it also offers a broad line of property, life and disability insurance. GNA Corporation, a subsidiary that specialized in the sale of life insurance annuities and mutual funds to the customers of financial institutions, was sold in April 1993. Republic Federal Savings & Loan Association, a subsidiary that operated in Southern California through 1991, was dissolved in 1992. Volume information (millions):
1994 1993 1992 1991 1990 ------- ------ ------- ------- ------- Loan servicing portfolio $11,300 $ 8,400 $ 9,800 $10,600 $11,600 Single-family loan originations 2,763 4,405 3,380 2,496 2,131
6 Weyerhaeuser Company and Subsidiaries PART I Item 2. Properties - ------------------- Timberlands and Wood Products Facilities and annual production are summarized by major product class as follows (millions):
Number Production of Capacity Facilities 1994 1993 1992 1991 1990 --------- ---------- ----- ----- ----- ----- ----- Logs - cubic ft. - - 671 673 749 782 817 Softwood lumber - board ft. 3,353 27 3,249 3,135 2,782 2,687 2,719 Softwood plywood and veneer - sq. ft. (3/8") 1,278 8 1,249 1,188 1,125 966 1,076 Composite panels - sq. ft. (3/4") 609 6 594 564 540 493 505 Oriented strand board - sq. ft. (3/8") 1,570 5 1,568 1,443 1,234 1,208 1,156 Hardboard - sq. ft. (7/16") 130 1 122 120 118 90 119 Hardwood lumber - board ft. 270 8 229 221 210 196 202 Hardwood doors (thousands) 717 1 597 522 469 448 556
Principal manufacturing facilities are located as follows: Softwood lumber and plywood Hardwood lumber Alabama, Arkansas, Georgia, Idaho, Arkansas, Oklahoma, Pennsylvania, Mississippi, North Carolina, Washington, and Wisconsin Oklahoma, Oregon, Washington, and Alberta,British Columbia, and Hardwood doors Saskatchewan, Canada Wisconsin Composite panels Georgia, North Carolina, Oregon and Wisconsin Oriented strand board Michigan, North Carolina, and Alberta, Canada Hardboard Oregon 7 Weyerhaeuser Company and Subsidiaries PART I Item 2. Properties - Continued - ------------------------------- Pulp, Paper and Packaging Facilities and annual production are summarized by major product class as follows (thousands):
Number Production of Capacity Facilities 1994 1993 1992 1991 1990 --------- ---------- ------ ------ ------ ------ ------ Pulp - air-dry metric tons 2,130 8 2,041 2,096 1,506 1,527 1,386 Newsprint - metric tons 675 1 651 618 588 461 459 Paper - tons 1,047 5 982 1,007 971 889 900 Paperboard - tons 220 1 189 217 229 238 217 Containerboard - tons 2,380 5 2,357 2,269 2,240 2,224 2,171 Packaging - MSF 39,000 37 36,020 32,795 31,040 27,583 26,146 Recycling - tons - 27 2,042 1,847 1,692 1,415 1,204 Personal care products - standard cases - - - - 16,743 14,902 11,471
Principal manufacturing facilities are located as follows: Pulp Containerboard Georgia, Mississippi, North Carolina North Carolina, Oklahoma, Washington, and Alberta, British Columbia, Oregon, and Washington and Saskatchewan, Canada Packaging Arizona, California, Florida, Newsprint Georgia, Hawaii, Illinois, Washington Indiana, Iowa, Kentucky, Maine, Michigan, Minnesota, Paper Mississippi, Missouri, Nebraska, Mississippi, North Carolina, New Jersey, New York, North Washington, Wisconsin, and Carolina, Ohio, Oregon, Saskatchewan, Canada Tennessee, Texas, Virginia, Washington, and Wisconsin Paperboard Washington Recycling Arizona, California, Colorado, Indiana, Iowa, Kansas, Maryland, Minnesota, New Jersey, North Carolina, Oklahoma, Oregon, Pennsylvania, Tennessee, Texas, Virginia, Washington, and British Columbia, Canada Chemicals Georgia, Mississippi, North Carolina, Oklahoma, Washington, and Saskatchewan, Canada 8 Weyerhaeuser Company and Subsidiaries PART I Item 2. Properties - Continued - ------------------------------- Real Estate
Principal Operations Primary States of Operations Primary Activities - ---------------------------------------------------------------------------- Centennial Homes, Inc. Texas Single-family housing and residential land development Land Management Arkansas, North Residential and Carolina and commercial land Washington development and acreage management Pardee Construction California and Single-family and Company Nevada multi-family housing and land development The Quadrant Washington Single-family and Corporation multi-family housing, residential and commercial land development and commercial building Scarborough Florida Residential and Constructors, Inc. commercial land development Winchester Homes, Inc. Maryland and Single-family housing Virginia and residential land development Weyerhaeuser Venture Co. Arizona, Equity investments and California, participating loans in Colorado, Nevada, residential real Oregon and estate Washington Weyerhaeuser Real Estate Co. Washington Parent company
Financial Services Principal Operations Primary States of Operations Primary Activities - ---------------------------------------------------------------------------- Weyerhaeuser Mortgage Branches in 14 Mortgage lending and Company states with major servicing, insurance concentrations in and investment sales California, Hawaii and service and Nevada Mortgage Securities California Mortgage securities Corporations WFS (Republic) Inc. California Investment sales and service Weyerhaeuser Delaware Parent company Financial Services, Inc.
9 Weyerhaeuser Company and Subsidiaries PART I Item 3. Legal Proceedings - -------------------------- Trial began in May 1992 in a federal income tax refund case that the company filed in July 1989 in the United States Claims Court. The complaint seeks a refund of federal income taxes that the company contends it overpaid in 1977 through 1983. The alleged overpayments are the result of the disallowance of certain timber casualty losses and certain deductions claimed by the company arising from export transactions. The refund sought was approximately $29 million, plus statutory interest from the dates of the alleged overpayments. The company settled the portion of the case relating to export transactions and received a tax refund of approximately $10 million, plus statutory interest. In September 1994, the United States Court of Federal Claims issued an opinion on the casualty loss issues which will result in the allowance of additional tax refunds of approximately $2 million, plus statutory interest. The company currently intends to appeal the decision. On March 6, 1992, the company filed a complaint in the Superior Court for King County, Washington against a number of insurance companies. The complaint seeks a declaratory judgment that the insurance companies named as defendants are obligated under the terms and conditions of the policies sold by them to the company to defend the company and to pay, on the company's behalf, certain claims asserted against the company. The claims relate to alleged environmental damage to third-party sites and to some of the company's own property to which allegedly toxic material was delivered or on which allegedly toxic material was placed in the past. Since December 1992, the company has agreed to settlements with all but one of the defendants. In July 1993, the trial court dismissed 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 against the sole remaining defendant began in October 1994 and resulted in a jury verdict which awarded damages to the company with respect to one of the sites. The company has undertaken a review of all its wood products facilities for compliance with the Prevention of Significant Deterioration (PSD) regulations and has disclosed PSD compliance issues to certain state agencies and the Environmental Protection Agency (EPA). The company and the State of Mississippi Department of Environmental Quality have entered into a consent agreement concerning PSD regulations at company facilities in Philadelphia and Bruce, 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 concluded 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 facilities in Dierks and Mountain Pine, 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 has negotiated a settlement of those alleged permit violations and other PSD related issues with the Michigan Department of Natural Resources that involves penalties of approximately $499 thousand. The company has entered into negotiations with the Lane County, Oregon Regional Air Pollution Control Authority concerning a draft Notice of Violation which would seek penalties for alleged PSD violations at the company's Springfield, Oregon particleboard operations. 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 issued a notice of violation in August 1994 for nine company facilities (including the Plymouth, North Carolina and Adel, Georgia wood products facilities and all of the facilities mentioned above except the Grayling, Michigan, Springfield, Oregon and Bruce, Mississippi wood products facilities) as part of its national PSD enforcement action against the company and other forest product companies. The company has also undertaken a review of its ten major pulp and paper facilities to evaluate the facilities' compliance with PSD regulations and has disclosed the potential of PSD compliance issues to six state agencies and the EPA. The company is currently working with the states to negotiate settlements for the alleged violations. The Washington State Department of Ecology has investigated the accidental release of chlorine, chlorine dioxide and non-condensable gasses at the company's pulp mill in Longview, in July 1994 and has issued a $10 thousand penalty for the chlorine release and a $5 thousand penalty for the non-condensable gasses release. The EPA is also investigating the accidental chlorine release. 10 Weyerhaeuser Company and Subsidiaries PART I Item 3. Legal Proceedings - Continued - -------------------------------------- On April 9, 1993, the company entered into a Stipulated Final Order (SFO) with the Oregon Department of Environmental Quality for alleged air emissions in excess of permit levels and PSD noncompliance at the company's North Bend, Oregon containerboard facility. The SFO establishes a compliance schedule for installing control technology. A supplemental SFO assessed upfront penalties of $247 thousand and penalties of 500 dollars per day until compliance is demonstrated. The SFO required demonstrated compliance by December 1993 and a historical evaluation of the facility's PSD status. The company has submitted a plant site PSD review to the state and is awaiting its review. 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 (PCB) rules contained in the Toxic Substances Control Act. 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. On November 2, 1992, an action was filed against the company in the Circuit Court for the First Judicial District of Hinds County, Mississippi, on behalf of a purported class of riparian property owners in Mississippi and Alabama whose properties are located on the Tennessee Tombigbee Waterway, Aliceville Lake, Cedar Creek and the Magoway Creek. The complaint seeks $1 billion in compensatory and punitive damages for diminution in property value, personal injuries and mental anguish allegedly resulting from the discharge of purported hazardous substances, including dioxins and furans, by the company's pulp and paper mill in Columbus, Mississippi, and the alleged fraudulent concealments of such discharge. The complaint also seeks an injunction prohibiting future releases and the removal of hazardous substances allegedly released in the past. On August 20, 1993, a companion action was filed in Greene County, Alabama, on behalf of a similar purported class of riparian owners with essentially the same claims as the Mississippi case. On January 20, 1995, the court in the Alabama action certified a class of all persons who, as of the date the action commenced, were riparian owners, lessees and licensees of properties located on the Tennessee Tombigbee Waterway in Greene, Sumter, Pickens and Marengo counties, Alabama, and Lowndes and Noxubee counties, Mississippi, to determine whether the company is liable to the members of the class for compensatory and/or punitive damages and to determine the amount of punitive damages, if any, to be awarded to the class as a whole. The class is estimated to exceed 400 members and may range from 1,000 to 1,500 members. Neither the Mississippi action nor the Alabama 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 the company had entered into financing arrangements, a marketing agreement, and a technical assistance agreement. The plaintiffs claimed the company 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 EPA and/or various state agencies have notified the company that it may be a potentially responsible party with respect to other hazardous waste sites as to which no proceedings have been instituted against the company. The company is also a party to other legal proceedings generally incidental to its business. Although the final outcome of any legal proceeding is subject to a great many variables and cannot be predicted with any degree of certainty, the company presently believes that any ultimate outcome resulting from the legal proceedings discussed herein, or all of them combined, would not have a material effect on the company's current financial position, liquidity or results of operations; however, in any given future reporting period, such legal proceedings could have a material effect on results of operations. Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 25, 1994. 11 Weyerhaeuser Company and Subsidiaries PART II Item 5. Market Price of and Dividends on the Registrant's Common Equity - ----------------------------------------------------------------------- and Related Stockholder Matters - ------------------------------- Information with respect to market information, stockholders and dividends included in Notes 22 and 23 of Notes to Financial Statements in the company's 1994 Annual Report to Shareholders, is incorporated herein by reference. Item 6. Selected Financial Data - -------------------------------- Information with respect to selected financial data included in Note 23 of Notes to Financial Statements in the company's 1994 Annual Report to Shareholders, is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and - ----------------------------------------------------------------------- Results of Operations - --------------------- Information with respect to Management's Discussion and Analysis included on pages 25 through 32 and pages 35 through 45, contained in the company's 1994 Annual Report to Shareholders, is incorporated herein by reference. Item 8. Financial Statements and Supplementary Information - ---------------------------------------------------------- Financial statements and supplementary information, contained in the company's 1994 Annual Report to Shareholders are incorporated herein by reference:
Page(s) in Annual Report to Shareholders --------------- Report of Independent Public Accountants 46 Consolidated Statement of Earnings 47 Consolidated Balance Sheet 48-49 Consolidated Statement of Cash Flows 50-51 Consolidated Statement of Shareholders' Interest 52 Notes to Financial Statements 53-77 Selected Quarterly Financial Information 75
Item 9. Changes in and Disagreements with Accountants on Accounting and - ----------------------------------------------------------------------- Financial Disclosure - -------------------- Not applicable. 12 Weyerhaeuser Company and Subsidiaries PART III Item 10. Directors and Executive Officers of the Registrant - ----------------------------------------------------------- Information with respect to Directors of the company included on pages 1 through 4 of the Notice of 1995 Annual Meeting of Shareholders and Proxy Statement dated March 6, 1995 is incorporated herein by reference. The executive officers of the company are as follows:
Name Title Age ---- ----- --- Charles W. Bingham Executive Vice President 61 William R. Corbin Executive Vice President 53 John W. Creighton, Jr. President 62 Richard C. Gozon Executive Vice President 56 Steven R. Hill Senior Vice President 47 Norman E. Johnson Senior Vice President 61 William C. Stivers Senior Vice President 56
Item 11. Executive Compensation - -------------------------------- Information with respect to executive compensation included on pages 5 through 13 of the Notice of 1995 Annual Meeting of Shareholders and Proxy Statement dated March 6, 1995 is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management - ----------------------------------------------------------------------- Information with respect to security ownership of certain beneficial owners and management included on pages 4 and 5 of the Notice of 1995 Annual Meeting of Shareholders and Proxy Statement dated March 6, 1995 is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions - ------------------------------------------------------- Information with respect to certain relationships and related transactions included on pages 15 and 16 of the Notice of 1995 Annual Meeting of Shareholders and Proxy Statement dated March 6, 1995 is incorporated herein by reference. 13 Weyerhaeuser Company and Subsidiaries PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K - ------------------------------------------------------------------------ Financial Statements The consolidated financial statements of the company, together with the report of independent public accountants, contained in the company's 1994 Annual Report to Shareholders, are incorporated in Part II, Item 8 of this Form 10-K by reference.
Page Number(s) Financial Statement Schedules In Form 10-K - ----------------------------- -------------- Report of Independent Public Accountants on Financial 16 Statement Schedules Schedule II - Valuation and Qualifying Accounts 17-18
All other financial statement schedules have been omitted because they are not applicable or the required information is included in the consolidated financial statements, or the notes thereto, contained in the company's 1994 Annual Report to Shareholders and incorporated herein by reference. Exhibits: 3 - Articles of Incorporation and Bylaws 10 - Material Contracts (a) Agreement with N. E. Johnson (b) Agreement with W. R. Corbin 11 - Statement Re: Computation of Per Share Earnings (incorporated by reference to Note 1 of the 1994 Weyerhaeuser Company Annual Report to Shareholders) 13 - Portions of the 1994 Weyerhaeuser Company Annual Report to Shareholders specifically incorporated by reference herein 22 - Subsidiaries of the Registrant 23 - Consent of Independent Public Accountants 27 - Financial Data Schedules Reports on Form 8-K The registrant has not filed a report on Form 8-K during the last fiscal quarter of the period for which this Form 10-K is filed. 14 Weyerhaeuser Company and Subsidiaries SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 10, 1995. Weyerhaeuser Company /s/ John W. Creighton, Jr. -------------------------- John W. Creighton, Jr. President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities indicated on March 10, 1995. /s/ John W. Creighton, Jr. /s/ Don C. Frisbee - --------------------------------- --------------------------------- John W. Creighton, Jr. Don C. Frisbee President, Principal Executive Director Officer and Director /s/ P. M. Hawley --------------------------------- /s/ George H. Weyerhaeuser Philip M. Hawley - --------------------------------- Director George H. Weyerhaeuser Chairman of the Board and Director --------------------------------- E. Bronson Ingram Director /s/ William C. Stivers - --------------------------------- William C. Stivers Principal Financial /s/ John Kieckhefer Officer --------------------------------- John I. Kieckhefer Director /s/ Kenneth J. Stancato - --------------------------------- Kenneth J. Stancato /s/ William Ruckelshaus Principal Accounting --------------------------------- Officer William D. Ruckelshaus Director /s/ William Clapp /s/ Richard H. Sinkfield - --------------------------------- --------------------------------- William H. Clapp Richard H. Sinkfield Director Director /s/ W. John Driscoll - --------------------------------- W. John Driscoll Director 15 Weyerhaeuser Company and Subsidiaries FINANCIAL STATEMENT SCHEDULES Report of Independent Public Accountants on Financial Statement Schedules To Weyerhaeuser Company: We have audited in accordance with generally accepted auditing standards, the financial statements included in Weyerhaeuser Company's annual report to shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 7, 1995. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed on page 14 is the responsibility of the company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Seattle, Washington, February 7, 1995 16 Weyerhaeuser Company and Subsidiaries FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts For the three years ended December 25, 1994 Dollar amounts in millions Balance at Charged Deductions Balance Beginning to from at End Description of Period Income Reserve of Period - ----------- --------- ------- ---------- --------- Weyerhaeuser Reserve deducted from related asset accounts: Doubtful accounts - Accounts receivable 1994 $ 10 $ 4 $ 4 $ 10 ===== ===== ===== ===== 1993 $ 10 $ 7 $ 7 $ 10 ===== ===== ===== ===== 1992 $ 10 $ 7 $ 7 $ 10 ===== ===== ===== ===== Real Estate and Financial Services Reserve and allowances deducted from related asset accounts: Doubtful accounts - Receivables 1994 $ 3 $ - $ 2 $ 1 ===== ===== ===== ===== 1993 $ 4 $ 1 $ 2 $ 3 ===== ===== ===== ===== 1992 $ 11 $ 3 $ 10 $ 4 ===== ===== ===== ===== Unamortized discount - Receivables 1994 $ 4 $ 1 $ 2 $ 3 ===== ===== ===== ===== 1993 $ 2 $ - $ (2) 1 $ 4 ===== ===== ===== ===== 1992 $ 2 $ 1 $ 1 $ 2 ===== ===== ===== ===== Real estate in process of development 1994 $ 30 $ 4 $ 2 $ 32 ===== ===== ===== ===== 1993 $ 77 $ 4 $ 51 $ 30 ===== ===== ===== ===== 1992 $ 94 $ - $ 17 $ 77 ===== ===== ===== ===== Land being processed for development 1994 $ 19 $ 3 $ 3 $ 19 ===== ===== ===== ===== 1993 $ 28 $ - $ 9 $ 19 ===== ===== ===== ===== 1992 $ 58 $ - $ 30 $ 28 ===== ===== ===== ===== Investment in and advances to joint ventures and limited partnerships 1994 $ 57 $ 2 $ 10 $ 49 ===== ===== ===== ===== 1993 $ 66 $ 9 $ 18 $ 57 ===== ===== ===== ===== 1992 $ 90 $ 1 $ 25 $ 66 ===== ===== ===== ===== Note: 1Includes $2 million of discount on a partnership note consolidated by Weyerhaeuser Venture Company.
17 Weyerhaeuser Company and Subsidiaries FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts - Continued For the three years ended December 25, 1994 Dollar amounts in millions Balance at Charged Deductions Balance Beginning to from at End Description of Period Income Reserve of Period - ----------- ---------- ------- ---------- --------- Real Estate and Financial Services - Continued Allowance for loan losses - mortgage loans receivable 1994 $ 4 $ 4 $ - $ 8 ===== ===== ===== ===== 1993 $ 19 $ 9 $ 24 1 $ 4 ===== ===== ===== ===== 1992 $ 27 $ 6 $ 14 $ 19 ===== ===== ===== ===== Properties acquired from loan foreclosures - other assets 1994 $ 26 $ 3 $ 8 $ 21 ===== ===== ===== ===== 1993 $ - $ - $ (26) 1 $ 26 ===== ===== ===== ===== Note: 1 Includes reserves transferred from loans to properties acquired from loan foreclosures.
18 Weyerhaeuser Company and Subsidiaries Exhibit 22 Subsidiaries of the Registrant
Percentage State or Ownership of Country of Immediate Name Incorporation Parent ---- ------------- ------------- Columbia & Cowlitz Railway Company Washington 100% DeQueen and Eastern Railroad Company Arkansas 100 Fisher Lumber Company California 100 Golden Triangle Railroad Mississippi 100 Green Arrow Motor Express Company Delaware 100 J.H. Hamlen & Son, Inc. Arkansas 100 Mississippi & Skuna Valley Railroad Company Mississippi 100 Mountain Tree Farm Company Washington 50 North Pacific Paper Corporation Delaware 80 Norpac Sales Corporation Guam 100 Oregon, California & Eastern Railway Company Nevada 100 Pacific Veneer, Ltd. Washington 90 Shemin Nurseries, Inc. Delaware 100 Texas, Oklahoma & Eastern Railroad Company Oklahoma 100 United Structures, Inc. California 100 Westwood Shipping Lines, Inc. Washington 100 Weycomp Claims Management Service, Inc. Texas 100 Weyerhaeuser Construction Company Washington 100 Weyerhaeuser Financial Services, Inc. Delaware 100 CMO Finance Corp. Nevada 100 MJ Finance Corporation California 100 Mortgage Securities II Corporation Nevada 100 Mortgage Securities III Corporation Nevada 100 Mortgage Securities IV Corporation Nevada 100 R4 Participant Corporation Nevada 100 ver Bes' Insurance Company Vermont 100 de Bes' Insurance Ltd. Bermuda 100 Weyerhaeuser Mortgage Company California 100 Mason-McDuffie Mortgage Corporation Delaware 100 Mason-McDuffie Service Corporation California 100 Westwood Associates California 100 Westwood Insurance Agency California 100 Westwood Insurance Agency of Arizona, Inc. Arizona 100 WMC Mortgage Co. International California 100 WMC Finance Corp. I California 100
19 Weyerhaeuser Company and Subsidiaries Exhibit 22 Subsidiaries of the Registrant - Continued
Percentage State or Ownership of Country of Immediate Name Incorporation Parent ---- ------------- ------------ WFS (Republic), Inc. Nevada 100% Abfall Finance Corp. California 100 Brookview, Inc. Nevada 100 The Giddings Mortgage Investment Company California 100 Gudig Abfall, Inc. California 100 Kachura Finance Corp. California 100 Laurel Real Estate Development, Inc. California 100 McGNT Finance Corp. California 100 Pass-Through Finance Corp. California 100 RFS Development Corporation California 100 RFS Finance Corp. California 100 RFS Insurance Agency California 100 RFS Service Corporation California 100 R. J. Plaza II, Inc. Nevada 100 Trimark Development Company California 100 Trimark Realty Advisors, Inc. California 100 Woodland Hills Properties-W., Inc. Nevada 100 Monthill, Inc. California 100 Placer Business Center, Inc. California 100 Terman Properties, Inc. California 100 WVC II, Inc. Nevada 100 Weyerhaeuser International, Inc. Washington 100 Weyerhaeuser Canada Ltd. Canada 100 Saskatoon Chemicals Ltd. Canada 100 Weyerhaeuser China, Ltd. Washington 100 Weyerhaeuser GMBH Germany 100 Weyerhaeuser (Far East) Limited Hong Kong 100 Weyerhaeuser Italia, S.r.l. Italy 100 Weyerhaeuser Japan Ltd. Japan & Delaware 100 Weyerhaeuser Korea, Ltd. Korea 100 Weyerhaeuser, S.A. Panama 100 Weyerhaeuser International Sales Corp. Guam 100 Weyerhaeuser (Mexico) Inc. Washington 100 Weyerhaeuser Midwest, Inc. Washington 100 Weyerhaeuser Overseas Finance Co. Delaware 100 Weyerhaeuser Real Estate Company Washington 100 The Babcock Company Florida 100 Centennial Homes, Inc. Texas 100 Midway Properties, Inc. North Carolina 100
20 Weyerhaeuser Company and Subsidiaries Exhibit 22 Subsidiaries of the Registrant - Continued
Percentage State or Ownership of Country of Immediate Name Incorporation Parent ---- ------------- ----------- Pardee Construction Company California 100% Marmont Realty Company California 100 Pardee Construction Company of Nevada Nevada 100 Pardee Investment Company California 100 Parvada, Inc. Nevada 100 The Quadrant Corporation Washington 100 Quadrant Real Estate Services, Inc. Washington 100 South Jersey Assets, Inc. New Jersey 100 Scarborough Constructors, Inc. Florida 100 Trendmaker, Inc. Texas 100 Weyerhaeuser Real Estate Company of Nevada Nevada 100 Weyerhaeuser Venture Company Nevada 100 Las Positas Land Co. California 100 WAMCO, Inc. Nevada 100 Weyerhaeuser Realty Investors, Inc. Washington 100 Winchester Homes, Inc. Delaware 100 SC-WHI, Inc. Delaware 100 The Wray Company Arizona 100
21 Weyerhaeuser Company and Subsidiaries Exhibit 23 Consent of Independent Public Accountants As independent public accountants, we hereby consent to the incorporation of our reports included and incorporated by reference in this Form 10-K, into Weyerhaeuser Company's previously filed Registration Statement No. 33-52789 on Form S-3 and Nos. 2-61042, 2-81463, 33-25928, 33-24385, 33-24979, 33-31622, 33-32605, 33-34460, 33-41414, 33-47392 and 2-88109 on Form S-8. ARTHUR ANDERSEN LLP Seattle, Washington, March 10, 1995 22 EX-13 2 Timberlands and Wood Products The company's Timberlands and Wood Products businesses reported record operating earnings of $1,034 million in 1994 compared with $891 million in 1993 -- a 16 percent increase. These earnings were achieved through improvements made in our Timberlands and Wood Products businesses over the past five years while timber supplies were tight and markets strong. > Although U.S. single-family home construction is expected to slow, multi-family starts are expected to increase in 1995, keeping total housing starts near the 1994 level. Strong demand in repair, remodeling, industrial and export markets should also benefit our businesses in 1995. > In spite of a weak economy, housing starts in Japan were strong, increasing from 1.48 million in 1993 to 1.56 million units in 1994. > Timberlands Businesses. All of the Timberlands businesses' domestic and export log markets were strong in 1994 -- especially for Douglas fir. Timber harvest from public lands continued to decline in 1994, resulting in demand pressure on private lands, both West and South. Increased demand for timber in the Southern United States continues as builders and building materials dealers increasingly look to the South to compensate for the declines in the West. > Near the end of 1994, the company entered into a long-term cooperative alliance with SAFCOL, a South African forest products company, to market logs internationally and wood products in North America. > We began geographic planning in a portion of our Southern operations in 1994 in preparation for increasing future timber-harvest volumes from company lands. > Safety. The Timberlands businesses all kept a clear focus on safety improvement objectives in 1994. Oregon Timberlands passed a landmark -- 1 million work hours without a lost-time accident in October -- and Southern Timberlands' Mississippi/Alabama timberlands operations completed eight years without a lost-time accident during the year. Washington Timberlands also made substantial improvements in safety
NET SALES 1994 1993 1992 1991 1990 ----------------------------------------------- (Millions of dollars) Raw materials (logs, chips and timber) $ 1,091 $ 1,021 $ 872 $ 843 $ 834 Softwood lumber 1,950 1,669 1,097 938 1,016 Softwood plywood and veneer 635 567 498 412 411 Oriented strand board, composite and other panels 750 623 495 383 381 Hardwood lumber 175 154 127 118 117 Hardwood plywood and doors 159 141 116 117 135 Treated products 105 84 67 65 80 Miscellaneous products 127 209 145 72 99 ----------------------------------------------- $ 4,992 $ 4,468 $ 3,417 $ 2,948 $ 3,073 ===============================================
25 performance in 1994. > Environmental Stewardship. During 1994, Weyerhaeuser adopted a uniform set of goals for the productive management and enhancement of all forest resources on Weyerhaeuser lands across the United States. > These "Forestry Resource Goals" guide our efforts at protecting the wide range of natural resources found in our private forests while we continue to profitably grow, harvest and utilize trees. The new goals address water quality, wildlife habitat, soil productivity and scenic values. > The company's six regional forest councils are now developing implementation plans and measurable targets for each goal. Weyerhaeuser Canada Ltd. is also developing a goal-setting process for operations in public forests in Canada. > In line with the forestry goals, we initiated numerous projects during 1994 to address public concerns and continue to profitably manage our resource.
SALES VOLUMES 1994 1993 1992 1991 1990 -------------------------------------- (Millions) Raw materials -- cubic feet 564 547 545 538 540 Softwood lumber -- board feet 4,402 4,230 3,440 3,269 3,417 Softwood plywood and veneer -- square feet (3/8") 2,685 2,435 2,227 2,135 2,212 Composite panels -- square feet (3/4") 660 626 590 685 641 Oriented strand board -- square feet (3/8") 1,803 1,672 1,484 1,205 1,185 Hardboard -- square feet (7/16") 167 140 133 114 126 Hardwood lumber -- board feet 254 240 218 219 209 Hardwood doors (thousands) 617 556 514 525 697
We have reached agreement with the U.S. Fish and Wildlife Service on a permit for a long-term Habitat Conservation Plan for the protection of the northern spotted owl on the company's 209,000-acre Millicoma Tree Farm near Coos Bay, Ore. Authorized under the Endangered Species Act, habitat conservation plans are agreements between landowners and the federal government to minimize impacts on listed species in a specific area during normal land-use activities. > A pilot Habitat Management Plan for 107,000 acres in southwestern Washington was commenced by Washington Timberlands in 1994 to protect fish and wildlife on those lands. > Ten watershed analyses were completed on Weyerhaeuser's Washington and Oregon timberlands during the year. And our Oregon Timberlands operations implemented the state of Oregon's demanding new stream-protection rules in addition to participating in the development of the company's new resource goals. > In Arkansas, Weyerhaeuser is participating in the Ouachita Mountains Ecosystem Management Research Project in cooperation with 26 the U.S. Forest Service, area universities and others. This project involves landscape-scale research in four watersheds owned largely by the Ouachita National Forest and Weyerhaeuser and is planned to cover at least four years of fieldwork. Studies are designed to evaluate forestry-habitat-wildlife relationships and to develop models for managing wildlife at a landscape scale. Other topics of research include forest hydrology, aquatic ecology, vegetation and the human dimensions of forest management. > Wood Products Businesses. The Wood Products businesses' outstanding operating performance in 1994 was facilitated by improved alignment of resources with key customers in strategic geographies, better partnering with suppliers, and clarification of customer requirements through a structured value-determination process. In addition, numerous important gains were made in safety performance including the milestone -- 2 million hours without a lost-time accident - -- reached by the Millport, Ala., wood products facility. > The company's lumber businesses -- Western, Southern and Canadian -- made significant contributions to our 1994 performance. Western Lumber topped four straight years of operating performance improvements in 1994 as well as four years of safety performance improvements. > The Southern Lumber business posted record sales, earnings and productivity. The business was very successful in reducing converting costs in its manufacturing operations. The business will continue to focus on safety improvements, lower converting costs, and improved recovery in the coming year. > Canadian Lumber reported record profitability in 1994 while continuing to focus on manufacturing excellence. The business's improvement plan will focus on improving consistency and reducing variability in mill operations in 1995. > The Engineered Fiber Products business, producer of oriented strand board, particleboard and other panels, posted record profits in 1994. Expansion of the Elkin, N.C.,
ANNUAL PRODUCTION CAPACITY 1994 1993 1992 1991 1990 ------------------------------------------------ (Millions) Logs -- cubic feet - 671 673 749 782 817 Softwood lumber -- board feet 3,353 3,249 3,135 2,782 2,687 2,719 Softwood plywood and veneer -- square feet (3/8") 1,278 1,249 1,188 1,125 966 1,076 Composite panels -- square feet (3/4") 609 594 564 540 493 505 Oriented strand board -- square feet (3/8") 1,570 1,568 1,443 1,234 1,208 1,156 Hardboard -- square feet (7/16") 130 122 120 118 90 119 Hardwood lumber -- board feet 270 229 221 210 196 202 Hardwood doors (thousands) 717 597 522 469 448 556 27 OSB mill yielded process flow improvements and environmental benefits. The business received approval for its 500 million-square-foot/year OSB mill in Braxton County, W. Va., scheduled for start-up in late 1996. > Plywood reported record profits and production in 1994 and is currently finalizing installation of pollution-abatement equipment in compliance with air-quality regulations. > Building Materials Distribution (BMD) expanded into nine new markets in 1994 and increased sales by nearly 11 percent. Facility personnel worked with customers to develop specific customer plans and to add new customer services. Through the company's strategic alliance with Trus Joist MacMillan, sales of engineered wood products were expanded to all distribution centers, and volumes grew significantly. > The BMD business was one of the company's Wood Products businesses honored by Lowe's "Supplier of the Year" award in 1994. The business plans to strengthen its national
PRINCIPAL MANUFACTURING FACILITIES Softwood lumber, plywood and veneer 35 Composite panels 6 Oriented strand board 5 Hardboard 1 Hardwood lumber 8 Hardwood doors 1
dealer program in 1995 and will implement a major information systems upgrade. Enhanced communications technologies within the business will include a businesswide local access network (LAN), electronic invoicing, bar coding, and inventory-management software and training. > The Hardwoods business, producer of hardwood lumber and doors, shipped record volumes in all product lines, bolstered by strong demand for furniture in the U.S. market. The business sustained its industry leadership and expects excellent demand, both domestic and export, in 1995. > In 1995 the company's Timberlands and Wood Products businesses will continue efforts toward: - prudent management of the company's timber and capital resources to sustain top-quartile financial performance; - achieving an accident-free work environment; - empowering employees to achieve business goals; - relentless pursuit of customer satisfaction; - attaining industry leadership in manufacturing excellence; - ensuring that information, skills and reliable methods are in place to achieve full environmental compliance; and - alignment with public values to ensure continued ability to grow, harvest and utilize our timber resource. 28 Pulp, Paper and Packaging The long downturn for Pulp, Paper and Packaging businesses ended between the fourth quarter of 1993 and early 1994. The sector has been recovering rapidly since. For the year, sector operating earnings reached $211 million as compared with $61 million in 1993, with strong improvement each quarter. > Strong paper demand and economic recovery in Europe led to a strong turnaround in the Pulp business in 1994. Tight supply caused by little new capacity during the prolonged downturn led to significant price improvements through the year as markets strengthened. With the completion of major maintenance and modernization projects, the business is extremely well positioned for 1995. > The Containerboard Packaging business continued a robust recovery through 1994. The expanding U.S. economy resulted in strong corrugated box demand and pricing. In 1995 increased containerboard volume will allow the business to continue to grow with its strategic customer alliances as better understanding of customer product-quality and service needs are gained. Significant profit improvement in the business is expected through modernization and improved reliability of processes. > Fine Paper prices recovered strongly in the third quarter of 1994 and by year-end had approached late-1980s levels in both lightweight coated and uncoated freesheet. In 1995 the business will focus on maximizing paper output to meet the increasing demand for printing papers, upgrading paper mix, and making continued improvements in reliability of manufacturing processes. While producing higher volumes, the business
NET SALES 1994 1993 1992 1991 1990 ------------------------------------------ (Millions of dollars) Pulp $1,012 $ 823 $ 711 $ 803 $ 865 Newsprint 356 322 326 288 293 Paper 664 648 673 655 751 Paperboard and containerboard 240 255 321 361 366 Container and packaging products 1,495 1,302 1,323 1,175 1,183 Recycling 121 77 93 90 88 Chemicals 45 32 31 34 28 Personal care products - - 514 450 338 Miscellaneous products 133 120 117 147 140 ------------------------------------------ $4,066 $3,579 $4,109 $4,003 $4,052 ==========================================
29 will take steps to reduce waste and optimize costs. > The improving U.S. economy and the strong Japanese yen were the key factors affecting our Newsprint business in 1994. Tight newsprint supply and continued growth in demand from publishers led to price improvement in the second half of 1994. In conjunction with our joint-venture partner, the Newsprint business has reaffirmed its commitment to increasing newsprint volume flow to Japan while attaining a low-cost domestic supplier position in 1995. > Weyerhaeuser's Recycling business added six new facilities in 1994. The Recycling business's extensive paper collection system now has 27 facilities and annually handles more than 2 million tons of recycled fiber. The growth rate of the business is expected to increase as we continue to pursue our goal of building one of the largest, most efficient recycling systems in North America.
SALES VOLUMES 1994 1993 1992 1991 1990 ------------------------------------------ (Thousands) Pulp -- air-dry metric tons 2,068 1,886 1,238 1,433 1,194 Newsprint -- metric tons 638 609 575 450 453 Paper -- tons 998 990 966 869 893 Paperboard -- tons 201 222 238 234 220 Containerboard -- tons 254 290 318 418 444 Packaging -- MSF 34,483 31,386 29,414 26,525 25,022 Recycling -- tons 985 851 778 735 648 Personal care products -- standard cases - - 17,017 14,929 11,471
> Safety. All businesses gave specific attention to safety improvements across the system in 1994. The Columbus, Miss., pulp and paper complex achieved 2 million hours without a lost-time accident, and the Plymouth, N.C., pulp and paper complex passed 1 million hours without a lost-time accident early in the year. Numerous other milestones were reached at individual plants and mills. Still, there is much more to be done, and safety improvements will continue to be given the highest priority. > Modernizations. Pulp, Paper and Packaging's $1 billion multi-year facility modernization program will be completed in 1995. The program, which includes projects at Plymouth, N.C. ($500 million); Longview, Wash. ($400 million); and Kamloops, British Columbia ($80 million), constitutes one of the 30
ANNUAL PRODUCTION CAPACITY 1994 1993 1992 1991 1990 ----------------------------------------------------- (Thousands) Pulp -- air-dry metric tons 2,130 2,041 2,096 1,506 1,527 1,386 Newsprint -- metric tons 675 651 618 588 461 459 Paper -- tons 1,047 982 1,007 971 889 900 Paperboard -- tons 220 189 217 229 238 217 Containerboard -- tons 2,380 2,357 2,269 2,240 2,224 2,171 Packaging -- MSF 39,000 36,020 32,795 31,040 27,583 26,146 Recycling -- tons - 2,042 1,847 1,692 1,415 1,204 Personal care products -- standard cases - - - 16,743 14,902 11,471
company's largest modernization efforts in its history. Installation of state-of-the-art systems at all three facilities will allow for the elimination of elemental chlorine from the kraft pulp-manufacturing process, significant improvement of air quality, enhanced product quality to meet ever-increasing customer requirements, increased output, and reduced manufacturing costs. > Key Priorities. Key priorities leading to the attainment of the Pulp, Paper and Packaging sector business plans in 1995 include: - - continued commitment to Total Quality; - pursuit of customer service excellence; - achievement of superior, waste-free manufacturing through improved reliability of processes; - focusing management systems on continuous improvement, cost reductions and improved return on net assets; - intensified efforts to establish and maintain an accident-free work environment supporting a diverse, competent and involved work force; and - maintaining a leadership position in the production of environmentally responsible pulp, paper and packaging products.
PRINCIPAL MANUFACTURING FACILITIES Pulp 8 Newsprint 1 Paper 5 Paperboard 1 Containerboard 5 Packaging 37 Recycling 27 Chemicals 7
31 Real Estate and Financial Services Rising interest rates and an abrupt dropoff in mortgage refinancing activity were the chief factors affecting Weyerhaeuser's real estate and financial services businesses in 1994. The sector earnings were $18 million for the year compared with 1993 earnings of $94 million. Earnings in 1993 included four months of contributions from GNA Corporation and the $42 million gain on the sale of GNA. > WRECO home-building subsidiaries sold 4,409 units in 1994, down from 5,020 in 1993. Weyerhaeuser Real Estate Company was further downsized with the sale of three operations: Scarborough Corporation of New Jersey, Westminster Homes in North Carolina, and the utility contracting business of Scarborough Constructors of Florida. > For the mortgage business, the dramatic slowdown in refinancing activity in 1994, following three consecutive years of improvement, resulted in significant industry overcapacity and price competition. Higher interest rates in 1995 could further slow home sales and financing.
VOLUMES SOLD 1994 1993 1992 1991 1990 ------------------------------------- Single-family units(1) 3,934 3,879 3,917 4,410 5,113 Multi-family units(1) 475 1,141 60 317 358 Lots(1) 2,157 1,372 2,762 1,138 3,008 Commercial space (thousand square feet) 389 88 142 269 235 ------------------------------------- (1)Includes one-half of joint-venture sales.
NET SALES AND REVENUES -- WRECO 1994 1993 1992 1991 1990 ------------------------------------ (Millions of dollars) Single-family units $686 $615 $569 $591 $644 Multi-family units 26 30 4 16 15 Residential lots 65 43 39 25 35 Commercial lots 7 41 6 17 10 Commercial buildings 35 3 5 30 23 Acreage 20 27 20 16 31 Other 72 70 47 49 53 ------------------------------------ $911 $829 $690 $744 $811 ====================================
NET SALES AND REVENUES -- WFS 1994 1993 1992 1991 1990 ------------------------------------ (Millions of dollars) Interest $ 84 $110 $144 $209 $278 Investment income 2 116 452 454 369 Loan origination and servicing fees 88 127 103 98 89 Premiums 10 14 21 19 23 Other revenues 22 34 112 82 49 ------------------------------------ $206 $401 $832 $862 $808 ====================================
32 Description of the Business of the Company Weyerhaeuser Company (the company) was incorporated in the state of Washington in January 1900 as Weyerhaeuser Timber Company. It is principally engaged in the growing and harvesting of timber and the manufacture, distribution and sale of forest products, real estate development and construction, and financial services. The company has 37,000 employees, of whom 35,000 are employed in its timber-based businesses, and of this number, approximately 17,000 are covered by collective bargaining agreements, which generally are negotiated on a multi-year basis. Approximately 2,000 of the company's employees are involved in the activities of its real estate and financial services subsidiaries. The major markets, both domestic and foreign, in which the company sells its products are highly competitive, with numerous strong sellers competing in each. Many of the company's products also compete with substitutes for wood and wood fiber products. The real estate and financial services subsidiaries also operate in highly competitive markets, competing with numerous regional and national firms in real estate development and construction and in financial services. In 1994, the company's sales to customers outside the United States totaled $2.5 billion (including exports of $1.5 billion from the United States and $1 billion export from and domestic sales within Canada), or 24 percent of total consolidated sales and revenues. The company believes these sales contributed a higher proportion of aggregate operating profits (see Note 2 of Notes to Financial Statements). All sales to customers outside the United States are subject to risks related to international trade and to political, economic and other factors that vary from country to country. Principal Business Segments Timberlands and Wood Products The company owns approximately 5.6 million acres of commercial forestland in the United States (51 percent in the South and 49 percent in the Pacific Northwest), most of it highly productive and located extremely well to serve both domestic and international markets. The company has, additionally, long-term license arrangements in Canada covering approximately 17.8 million acres (of which 14 million acres are considered to be productive forestland). The combined total timber inventory on these U.S. and Canadian lands is approximately 246 million cunits (a cunit is 100 cubic feet of solid wood), of which approximately 75 percent is softwood species. The relationship between cubic measurement and the quantity of end products that may be produced from timber varies according to the species, size and quality of timber, and will change through time as the mix of these variables changes. To sustain the timber supply from its fee timberlands, the company is engaged in extensive planting, suppression of non-merchantable species, precommercial and commercial thinning, fertilization and operational pruning, all of which increase the yield from its fee timberland acreage. The company's wood products businesses pro- duce and sell softwood lumber, plywood and veneer; composite panels; oriented strand board; hardboard; hardwood lumber and plywood; doors; treated products; logs; chips and timber. These products are sold primarily through the company's own sales organizations. Building materials are sold to wholesalers, retailers and industrial users. 35
Dollar amounts in millions 1994 1993 1992 1991 1990 -------------------------------------- Net sales: Raw materials (logs, chips and timber) $1,091 $1,021 $ 872 $ 843 $ 834 Softwood lumber 1,950 1,669 1,097 938 1,016 Softwood plywood and veneer 635 567 498 412 411 Oriented strand board, composite and other panels 750 623 495 383 381 Hardwood lumber 175 154 127 118 117 Hardwood plywood and doors 159 141 116 117 135 Treated products 105 84 67 65 80 Miscellaneous products 127 209 145 72 99 -------------------------------------- $4,992 $4,468 $3,417 $2,948 $3,073 ====================================== Approximate contributions to earnings(1) $1,034 $ 891 $ 515 $ 155 $ 300 ====================================== (1)After net restructuring charges of $152 million in 1991.
Pulp, Paper and Packaging The company's pulp, paper and packaging businesses include: Pulp, which manufactures chemical wood pulp for world markets; Newsprint, which manufactures newsprint at the company's North Pacific Paper Corporation mill and markets it to West Coast and Japanese newspaper publishers; Paper, which manufactures and markets a range of both coated and uncoated fine papers through paper merchants and printers; Containerboard Packaging, which manufactures linerboard and corrugating medium, which is primarily used in the production of corrugated shipping containers, and manufactures and markets corrugated shipping containers for industrial and agricultural packaging; Paperboard, which manufactures bleached paperboard that is used for production of liquid containers and is marketed to West Coast and Pacific Rim customers; Recycling, which operates an extensive wastepaper collection system and markets it to company mills and worldwide customers; and Chemicals, which produces chlorine, caustic and tall oil, which are used principally by the company's pulp, paper and packaging operations. The Personal Care Products business, which manufactured disposable diapers sold under the private-label brands of many of North America's largest retailers, was sold in February 1993 through an initial public offering of stock.
Dollar amounts in millions 1994 1993 1992 1991 1990 -------------------------------------- Net sales: Pulp $1,012 $ 823 $ 711 $ 803 $ 865 Newsprint 356 322 326 288 293 Paper 664 648 673 655 751 Paperboard and containerboard 240 255 321 361 366 Container and packaging products 1,495 1,302 1,323 1,175 1,183 Recycling 121 77 93 90 88 Chemicals 45 32 31 34 28 Personal care products - - 514 450 338 Miscellaneous products 133 120 117 147 140 -------------------------------------- $4,066 $3,579 $4,109 $4,003 $4,052 ====================================== Approximate contributions to earnings(1) $ 211 $ 61 $ 251 $ 108 $ 484 ====================================== (1)After net restructuring charges of $129 million in 1991.
36 Real Estate The company, through its real estate subsidiary, Weyerhaeuser Real Estate Company, is a builder/developer of for-sale housing and apartments, de- velops commercial and residential lots for sale to retail customers and other builders, builds commercial buildings for sale to institutional investors, and is an investor in joint ventures and limited partnerships.
Dollar amounts in millions 1994 1993 1992 1991 1990 -------------------------------------- Net sales and revenues: Single-family units $ 686 $ 615 $ 569 $ 591 $ 644 Multi-family units 26 30 4 16 15 Residential lots 65 43 39 25 35 Commercial lots 7 41 6 17 10 Commercial buildings 35 3 5 30 23 Acreage 20 27 20 16 31 Other 72 70 47 49 53 -------------------------------------- $ 911 $ 829 $ 690 $ 744 $ 811 ====================================== Approximate contributions to earnings(1) $ 7 $ 18 $ 13 $ (175) $ 35 ====================================== (1)After restructuring charges of $155 million in 1991.
Financial Services The company, through its financial services subsidiary, Weyerhaeuser Financial Services, Inc., is involved in a range of financial services. The principal operating unit is Weyerhaeuser Mortgage Company, which has origination offices in 14 states, with a servicing portfolio of $11.3 billion covering approximately 139,000 loans throughout the country. Mortgages are resold in the secondary market through mortgage-backed securities to finan- cial institutions and investors. Through its insurance services organization, it also offers a broad line of property, life and disability insurances. GNA Corporation, a subsidiary that specialized in the sale of life insurance annuities and mutual funds to the customers of financial institutions, was sold in April 1993. Republic Federal Savings & Loan Association, a subsidiary that operated in Southern California through 1991, was dissolved in 1992.
Dollar amounts in millions 1994 1993 1992 1991 1990 -------------------------------------- Net sales and revenues: Interest $ 84 $ 110 $ 144 $ 209 $ 278 Investment income 2 116 452 454 369 Loan origination and servicing fees 88 127 103 98 89 Premiums 10 14 21 19 23 Other revenues 22 34 112 82 49 -------------------------------------- $ 206 $ 401 $ 832 $ 862 $ 808 ====================================== Approximate contributions to earnings(1) $ 11 $ 76 $ 68 $ 60 $ 47 ====================================== (1)After $42 million gain on sale of GNA Corporation in 1993.
37 Corporate and Other Corporate and other includes nursery and garden supply products, which are sold primarily to retailers and landscapers by the company's sales force; marine transportation; and miscellaneous corporate activities.
Dollar amounts in millions 1994 1993 1992 1991 1990 -------------------------------------- Net sales $ 223 $ 269 $ 220 $ 216 $ 323 ====================================== Approximate contributions to earnings(1) $ (142) $ (46) $ (107) $ (148) $ (115) ====================================== (1)After net restructuring charges of $9 million in 1991 and a $70 million gain on disposal of infant diaper business in 1993.
Environmental Matters In 1990 the northern spotted owl was listed as a threatened species under the Endangered Species Act (ESA). In 1992 the marbled murrelet was listed as a threatened species under the ESA. Certain Snake River salmon runs have been listed as threatened or endangered under the ESA. Petitions have been filed to list certain Pacific Northwest salmon runs and other fish populations as threatened or endangered under the ESA. A consequence of these listings has been, and a possible consequence of future listings may be, reductions in the sale and harvest of timber on federal timberlands in the Pacific Northwest. Requirements to protect habitat for threatened and endangered species on non-federal timberlands has resulted, and may in the future result, in restrictions on timber harvest on some non-federal timberlands in the Pacific Northwest, including some timberlands of the company. The listing of the red-cockaded woodpecker as an endangered species under the ESA has had some impact on the harvest of public and private timber in the southeastern United States, but has had little impact on the company's timberlands. Forest practice acts in some of the states in which the company has timber increasingly impact present or future harvests and forest management activities. In addition, the statutory requirements with respect to the preservation of wetlands and threatened or endangered species may affect future harvest and forest management activities on some of the company's Southern timberlands. In April 1994, the Clinton administration adopted its plan with respect to management of federal timberlands in the Pacific Northwest. This plan will reduce timber sales from certain federal lands in western Washington, western Oregon and northern California by more than 75 percent from harvest levels in the 1980s to approximately 1.1 billion board feet per year or less. This reduction in federal timber harvest will seriously reduce log supplies to many independent sawmills that have been important suppliers of wood chips to the company's pulp and paper mills in Washington and Oregon. The company anticipates that there will be alternate sources of wood chips or other fiber. The administration also has stated that reduced timber harvest on federal lands will allow modifications to the current federal requirements for protection of northern spotted owls on some private lands. On February 7, 1995, the administration announced that it is proposing a special rule to ease those harvest restrictions on some private lands in Washington and California. The company believes that the regulatory changes might ultimately allow it to harvest fee timber in some areas where it has not been operating because of uncertainties regarding regulations intended to protect the northern spotted owl. Whether those regulatory changes will be implemented is uncertain. If those regulatory changes are not implemented, the company may not harvest some timber that it otherwise might harvest in late 1995 and 1996. 38 Because those regulatory changes may not be implemented, and in order to avoid existing uncertainty under the ESA, the company, in February 1995, obtained from the United States Fish and Wildlife Service an Incidental Take Permit and associated Habitat Conservation Plan (HCP) with respect to northern spotted owls on a portion of its Oregon coastal timberlands. That HCP estab- lishes a protocol for the harvest of timber and the protection of the northern spotted owl on those timberlands and is expected to remain in effect for at least 50 years. The company believes the most effective way to manage its timberlands for the growth and harvest of timber and the protection of wildlife and fish habitat is to develop comprehensive plans for the management of all the resources on those timberlands. Accordingly, the company may develop HCPs or other arrangements with federal and state fish and wildlife agencies for other parts of its Pacific Northwest timberlands that would address the protection of wildlife and fish habitat for both listed and non-listed species. The combination of the forest management and harvest restrictions and impacts described in the preceding four paragraphs has increased operating costs, resulted in increases in the value of timber and logs from the company's Pacific Northwest timberlands, and contributed to increases in the prices paid for wood products and wood chips. The company does not know whether these effects will continue. If wood products prices remain at their present levels, there may be an increase in substitution of other products for lumber and plywood. The company does not believe that the restrictions and impacts described in the above paragraphs have had, or in 1995 or 1996 will have, a significant effect on the company's total harvest of timber, although they may have such an effect in the future. In addition to the foregoing, the company is subject to federal, state or provincial and local air, water and land pollution control, solid and hazardous waste management, disposal and remediation laws and regulations in all areas in which it has operations, and to market demands with respect to chemical content of some products and use of recycled fiber. Compliance with these laws, regulations and demands usually involves capital expenditures as well as operating costs. The company cannot easily quantify future amounts of capital expenditures required to comply with these laws, regulations and demands, or the impact on operating costs, because in some instances compliance standards have not been developed or have not become final or definitive. In addition, compliance with standards frequently serves other purposes such as exten- sion of facility life, increase in capacity, changes in raw material requirements, or increase in economic value of assets or products. While it is difficult to isolate the environmental component of most manufacturing capital projects, the company estimates that capital expenditures for environmental compliance were approximately 8 percent of total capital expenditures in 1992 and 1993 and 11 percent in 1994. Based on its understanding of current regulatory requirements, the company expects that this percentage will range from 9 to 11 percent of total capital expenditures in 1995 and 1996. The company is involved in the environmental remediation of numerous sites, including 36 Superfund sites where the company has been named as a potentially responsible party. Some of the sites are on property presently or formerly owned by the company where the company has the sole obligation to remediate the site or shares that obligation with one or more parties, and others are third-party sites involving several parties who have a joint and several obligation to remediate the site. The company's liability with respect to these sites ranges from insignificant at some sites to substantial at others, depending on the quantity, toxicity and nature of materials deposited by the company at the site and, with respect to some sites, the number and economic viability of the other responsible parties. 39 The company spent $57 million in 1993, $32 million in 1994, and expects to spend $43 million in 1995 on environmental remediation of these sites. It is the company's policy to accrue for environmental remediation costs when it is determined that it is probable that such an obligation exists and the amount of the obligation can be reasonably estimated. Based on currently available information and analysis, the company believes that it is reasonably possible that costs associated with all identified sites may exceed current accruals by amounts that may prove insignificant or that could range, in the aggregate, up to approximately $140 million over several years. This estimate of the upper end of the range of reasonably possible additional costs is much less certain than the estimates upon which accruals are currently based and utilizes assumptions less favorable to the company among the range of reasonably possible outcomes. The company has completed a review of all its wood products facilities for compliance with the Prevention of Significant Deterioration (PSD) regulations under the Clean Air Act, has disclosed PSD compliance issues to various appropriate state agencies and the Environmental Protection Agency (EPA), and is negotiating compliance settlements with those agencies. The company is currently in the process of completing a similar review of all of its pulp and paper facilities for PSD compliance in 1995. A new regulation under Title 5 of the Clean Air Act will require additional operating permits at many of the company's manufacturing operations. Although significant work is required to prepare the permit applications in 1995 and 1996, the company anticipates that it will be able to obtain the necessary permits. The company has continued to make substantial progress in reducing the minute amount of dioxin that had previously been detected in wastewater effluent, sludge and pulp from the company's bleached kraft pulp mills. The EPA has published proposed regulations, known as the "cluster rules," which would establish maximum achievable control technology standards for non-combustion sources under the Clean Air Act, and the development of revised wastewater effluent limitations under the Clean Water Act. The company's operations are well positioned to meet the proposed limits for dioxin. However, if the cluster rules are adopted as proposed, they will require the company to commit additional capital to further reduce air emissions and wastewater discharges by 1999. Preliminary estimates of that additional capital range as high as $400 million, which may further increase the annual percentage of the company's total capital expenditures devoted to environmental compliance, although that is not anticipated prior to 1996. 40 Financial Review Results of Operations 1994 Compared With 1993 The company's 1994 consolidated sales and revenues were $10.4 billion, a 9 percent increase over the $9.5 billion reported last year. Net earnings were $589 million, or $2.86 per common share, compared with 1993 net earnings of $579 million, or $2.83 per common share. 1994 earnings include the return of countervailing duty by the U.S. government against Canadian lumber imports and the expected cost of postretirement benefits for Canadian employees. The net effect of these two items contributed $.03 per common share. 1993 earnings included gains of $132 million, or $.65 per common share, from the sale of assets and extinguishment of debt, and a $15 million, or $.08 per common share, charge to earnings to reflect the revised 1993 federal corporate tax rate in the company's deferred tax accounts. The continuation in 1994 of the company's major modernization projects, started in 1993, accounted for the significant increase in capitalized interest from year to year. The significant changes from the prior year in other income for the company and real estate and financial services are attributable to the $70 mil- lion pretax gain on the disposal of the company's investment in the infant diaper business and the real estate and financial services pretax gain of $42 million on the sale of GNA Corporation, both in 1993. The timberlands and wood products segment posted operating earnings of $1 billion in 1994, which is a 16 percent increase over the $891 million reported in 1993. Sales for this segment were $5 bil- lion, up 12 percent over the $4.5 billion reported last year. This segment posted record performances during the year as the businesses continued to accomplish their business improvement plans, timber supplies remained tight and markets re- mained strong throughout the year. The pulp, paper and packaging segment's 1994 operating earnings were $211 million, up substantially from last year's $61 million. This segment reported sales of $4.1 billion for the year, an increase of 14 percent over the $3.6 billion in 1993. Strong demand coupled with continued price improvement over the prior year in both the domestic and export pulp, paper and packaging markets are the key factors in this recovery. The combined real estate and financial services segments earned $18 million in 1994 compared with last year's earnings of $94 million, which included a pretax gain of $42 million on the sale of GNA Corporation as well as one quarter of GNA operating results. 1993 Compared With 1992 Sales and revenues in 1993 were $9.5 billion, an increase of 3 percent over 1992. Net earnings were $579 million, or $2.83 per common share, up from 1992 net earnings of $372 million, or $1.83 per common share. Included in 1993 net earnings were after-tax gains of: - $52 million, or $.25 per common share, from the extinguishment of debt, which was reported as an extraordinary item. - $44 million, or $.22 per common share, from the sale of the infant diaper business. 41 - $36 million, or $.18 per common share, from the sale of GNA Corporation, a wholly owned subsidiary. And a charge of $20 million, or $.10 per common share, which reflected the revised 1993 federal corporate tax rate in the company's deferred and current tax accounts. This charge consisted of $.08 per common share due to the effect of the higher rate on the accumulated temporary differences at December 27, 1992, and $.02 per common share related to 1993. The net sales and revenues and related costs and expenses of real estate and financial services were substantially less in 1993 when compared with 1992 as a result of the sale of GNA Corporation. During 1993 the company refinanced a significant amount of debt, which resulted in a short-term increase in interest expense. The increase in capitalized interest over the prior year coincided with expanded activity in the company's major capital projects. The significant decrease in financial services interest expense was due to the liquidation of Republic Federal Savings & Loan Association during 1992 and the sale of GNA Corporation in early 1993. In addition, accelerated prepayments caused by mortgage refinancings significantly reduced collateralized mortgage obligation bonds. Significant items in relation to net earnings included in other income for 1993 were a $70 million pretax gain on the disposal of the company's investment in the infant diaper business through a public offering in a new company, Paragon Trade Brands, Inc., and the real estate and financial services pretax gain of $42 million on the sale of GNA Corporation. The timberlands and wood products operating earnings for 1993 were $891 million, an increase of 73 percent over the $515 million recorded in 1992. Prices for logs and lumber exceeded 1992 levels due to increasing demand for housing construction materials and raw material supply shortages resulting from reduced harvests in the Western public forests. The pulp, paper and packaging segment had a $61 million operating profit in 1993, significantly below the $251 million posted in 1992. Prices for most of the products in this segment were at levels well below the previous year. The personal care products business included in this segment was di- vested in the first quarter of 1993. The real estate and financial services segments had operating earnings of $94 million in 1993 compared with $81 million in 1992. As a part of the GNA Corporation sales transaction, the company assumed $225 million of GNA debt. 1992 Compared With 1991 Sales and revenues in 1992 were $9.3 billion, up 6 percent from 1991. Net earnings were $372 million, or $1.83 per common share, compared with a 1991 loss of $162 million, or $.80 per common share. 1991 results reflected an after-tax special-items charge to earnings of $344 million. 1992 research and development expenses decreased 24 percent from 1991 as a result of the implementation of certain of the company's restructuring and business improvement plans. Interest expense incurred for 1992 was down by $68 million, or 14 percent, primarily due to the dissolution of the company's savings and loan operations in Southern California during the year. Significant changes in other income in 1992, compared with 1991, included a $25 million partial settlement accrued in 1992 with respect to a lawsuit for the refund of federal income taxes, and earnings of $2 million in the company's real estate joint-venture and limited- partnership activities in 1992, after losses of $17 million in 1991, attributable to the restructuring or sale of a number of these investments. In 1992 the company purchased two pulp mills, three sawmills, timberlands in Georgia, and a forest management license in Alberta, Canada, from Procter & Gamble. 42 The 1992 timberlands and wood products operating earnings were $515 million, compared with $155 million in 1991, which included a restructuring charge of $152 million. This segment's improved earnings were driven, in part, by strong raw material and converted wood products prices. The curtailment of wood supply from public lands in the western United States, along with increased demand generated by the slowly improving U.S. economy, exerted upward pressure on the value of wood products in both the domestic and export markets. Pulp, paper and packaging operating earnings were $251 million for 1992, compared with $108 million in the previous year, which included a restructuring charge of $129 million. While pulp pricing showed some temporary strength due to the mid-year strike in the company's Canadian pulp mills, the overall trend from a year ago was down. Newsprint and paper suffered continued weak prices throughout 1992. Real estate posted operating earnings of $13 mil- lion in 1992 after recording a loss of $175 million in 1991, which included a $155 million restructuring charge. Financial services operating earnings were $68 million in 1992, up 13 percent from the 1991 results of $60 million. While this segment benefited from lower interest rates for most of the year, earnings were affected as a result of reduced investment returns. The dissolution of the company's wholly owned subsidiary Republic Federal Savings & Loan Association, which operated primarily in Southern California, was completed during 1992. 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 major financial markets. The important elements of the policy governing the company's capital structure are as follows: - To view separately the capital structures of Weyerhaeuser Company, Weyerhaeuser Real Estate Company and Weyerhaeuser Financial Services, Inc., given the very different nature of their assets and business activities. The amount of debt and equity associated with the capital structure of each will reflect the basic earnings capacity, real value and unique liquidity characteristics of the assets dedicated to that business. - The combination of maturing short-term debt and the structure of long-term debt will be managed judiciously to minimize liquidity risk. Long-term debt maturities are shown in Note 16 of Notes to Financial Statements. Operations The company's financial position in 1994 remained strong as it generated $1.3 billion of cash flow from operations before changes in working capital, compared with $982 million in 1993. 43 Cash flow from operations before changes in working capital by business segment was as follows:
Dollar amounts in millions 1994 1993 1992 ----------------------- Timberlands and wood products $1,226 $1,052 $ 668 Pulp, paper and packaging 530 326 513 Real estate 16 29 42 Financial services 33 12 80 Corporate and other (545) (437) (264) ----------------------- $1,260 $ 982 $1,039 =======================
Weyerhaeuser Company's working capital decreased $512 million from the prior year-end. Major factors affecting the decline were an increase in the current portion of long-term debt as the 9 1/4 percent and 9.36 percent notes totaling $300 million became due in 1995, increases in accounts payable and accrued liabilities amounting to $283 million, and an increase in accounts receivable of $126 million. In the real estate and financial services seg- ments, the mortgage operations built an inventory of mortgage loans receivable in 1993, which was reversed in 1994 as loan sales exceeded originations. Significant non-recurring items that impacted the cash flow from operations in 1993 were the $52 million gain on extinguishment of debt, net of income tax, which was recorded as an extraordinary item; the pretax gain of $70 million from the sale of the company's infant diaper business; and the pretax gain of $42 million from the sale of GNA Corporation. Investing Capital expenditures amounted to $1.1 billion in 1994 and $967 million in 1993. They are currently expected to approximate $1.2 billion in 1995; however, the expenditures could be increased or decreased as a consequence of future economic conditions. The company had approximately $306 million in capital expenditures committed on major projects at year-end 1994 representing construction activities at its Longview, Wash., and Plymouth, N.C., pulp and paper facilities and a new oriented strand board mill in West Virginia. Recent capital spending, including acquisitions, has been in the following areas:
Dollar amounts in millions 1994 1993 1992 ------------------------ Timberlands and wood products $ 257 $ 241 $ 246 Pulp, paper and packaging 794 652 932 Corporate and other 51 74 28 ------------------------ $1,102 $ 967 $1,206 ========================
Financial services had a decrease from 1993 to 1994 in mortgage and investment securities ac- quired and the related proceeds from the sale of mortgage and investment securities principally as a result of the sale of GNA Corporation. The company had proceeds of $616 million from the sale of its infant diaper business and the sale of GNA Corporation in 1993. 44 Financing The reductions in both the sales of debentures and the related payments on debentures, commercial paper and other debt by Weyerhaeuser in 1994 as compared with the prior year are a result of the debt restructuring activity in 1993. Cash dividends paid on common shares amounted to $247 million in 1994 and $246 million in 1993. Although common share dividends have exceeded our target payout ratio in recent years, it is the company's intent, over time, to pay dividends to its common shareholders in a range of 35 to 45 percent of common share earnings. To ensure its ability to meet future commitments, Weyerhaeuser Company, Weyerhaeuser Real Estate Company and Weyerhaeuser Mortgage Company, a subsidiary of Weyerhaeuser Financial Services, Inc., have established at year-end 1994 unused bank lines of credit in the maximum aggregate sum of approximately $2.5 billion. None of the entities is a guarantor of the borrowings of the others under any of these credit facilities. Contingencies The company is a party to legal proceedings and 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. Accounting Matters Pronouncements During the year, the company implemented: - Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," for its wholly owned subsidiary, Weyerhaeuser Canada Ltd. - SFAS No. 112, "Employers' Accounting for Postemployment Benefits," which requires accrual accounting to be used for the cost of benefits provided to former and inactive employees who have not yet retired. - SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which addresses accounting and reporting for invest- ments in equity securities that have readily determinable fair values and for all investments in debt securities. - SFAS No. 119, "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments," which requires more complete disclosures on derivative financial instruments. None of these implementations had a significant impact on the company's results of operations or its financial position. Accounting and Reporting Standards Committee During the year, the Accounting and Reporting Standards Committee, comprised of three outside directors, reviewed with the company's management and with its independent public accountants the scope and results of the company's internal and external audit activities and the adequacy of the company's internal accounting controls. The committee also reviewed current and emerging accounting and reporting requirements and practices affecting the company. 45 Report of Independent Public Accountants To the shareholders of Weyerhaeuser Company: We have audited the accompanying consolidated balance sheets of Weyerhaeuser Company (a Washington corporation) and subsidiaries as of December 25, 1994, and December 26, 1993, and the related consolidated statements of earnings, cash flows and shareholders' interest for each of the three years in the period ended December 25, 1994. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial state- ments are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Weyerhaeuser Company and subsidiaries as of December 25, 1994, and December 26, 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 25, 1994, in conformity with generally accepted accounting principles. Seattle, Washington, February 7, 1995. ARTHUR ANDERSEN LLP 46 Consolidated Statement of Earnings
For the three-year period ended December 25, 1994 Dollar amounts in millions except per-share figures 1994 1993 1992 ---------------------- Net sales and revenues: Weyerhaeuser $ 9,281 $ 8,315 $ 7,744 Real estate and financial services 1,117 1,230 1,522 ----------------------- Net sales and revenues 10,398 9,545 9,266 ----------------------- Costs and expenses: Weyerhaeuser: Costs of products sold 6,819 6,252 5,919 Depreciation, amortization and fee stumpage 504 444 447 Selling, general and administrative expenses 615 592 592 Research and development expenses 47 44 43 Taxes other than payroll and income taxes 151 137 122 ----------------------- 8,136 7,469 7,123 ----------------------- Real estate and financial services: Costs and operating expenses 851 836 979 Depreciation and amortization 30 43 56 Selling, general and administrative expenses 152 206 252 Taxes other than payroll and income taxes 9 9 12 ----------------------- 1,042 1,094 1,299 ----------------------- Total costs and expenses 9,178 8,563 8,422 ----------------------- Operating income 1,220 982 844 Interest expense and other: Weyerhaeuser: Interest expense incurred 237 215 190 Less interest capitalized 36 23 13 Other income (expense), net (Note 3) (42) 60 35 Real estate and financial services: Interest expense incurred 154 173 220 Less interest capitalized (Note 16) 78 77 72 Other income (expense), net (Note 3) 19 54 9 ----------------------- Earnings before income taxes and extraordinary item 920 808 563 Income taxes (Note 4) 331 281 191 ----------------------- Earnings before extraordinary item 589 527 372 Extraordinary item, net of applicable taxes of $34 - 52 - ----------------------- Net earnings $ 589 $ 579 $ 372 ======================= Per common share (Note 1): Earnings before extraordinary item $ 2.86 $ 2.58 $ 1.83 Extraordinary item - .25 - ----------------------- Net earnings $ 2.86 $ 2.83 $ 1.83 ======================= Dividends paid $ 1.20 $ 1.20 $ 1.20 ======================= See notes on pages 53 through 77.
47 Consolidated Balance Sheet
Dollar amounts in millions December 25, 1994 December 26, 1993 ------------------------------------ Assets Weyerhaeuser Current assets: Cash and short-term investments, including restricted deposits of $14 in 1993 $ 39 $ 73 Receivables, less allowances of $10 in 1994 and 1993 909 783 Inventories (Note 8) 746 762 Prepaid expenses 284 281 --------------------------- Total current assets 1,978 1,899 Property and equipment (Note 9) 6,196 5,606 Construction in progress 603 666 Timber and timberlands at cost, less fee stumpage charged to disposals 610 605 Other assets and deferred charges 212 192 --------------------------- Total assets 9,599 8,968 --------------------------- Real estate and financial services Cash and short-term investments, including restricted deposits of $28 and $34 73 87 Receivables, less discounts and allowances of $4 and $7 116 135 Mortgage and construction notes and mortgage loans receivable (Note 10) 472 847 Investments (Note 11) 247 60 Mortgage-backed certificates and other pledged financial instruments (Note 12) 211 350 Real estate in process of development, less reserves of $32 and $30 (Note 13) 668 738 Land being processed for development, less reserves of $19 in 1994 and 1993 738 700 Deferred acquisition costs 92 40 Investments in and advances to joint ventures and limited partnerships, less reserves of $49 and $57 430 327 Other assets 361 386 --------------------------- Total assets 3,408 3,670 --------------------------- $ 13,007 $ 12,638 =========================== See notes on pages 53 through 77.
48
Dollar amounts in millions December 25, 1994 December 26, 1993 ------------------------------------------------------------ Liabilities and shareholders' interest Weyerhaeuser Current liabilities: Notes payable $ 6 $ 5 Current maturities of long-term debt 321 14 Accounts payable 645 492 Accrued liabilities (Note 14) 695 565 --------------------------- Total current liabilities 1,667 1,076 Long-term debt (Note 16) 2,713 2,998 Deferred income taxes (Note 4) 986 905 Deferred pension and other liabilities (Notes 6 and 7) 525 535 Minority interest in subsidiaries 103 109 Commitments and contingencies (Note 18) --------------------------- Total liabilities 5,994 5,623 --------------------------- Real estate and financial services Notes and commercial paper (Note 15) 416 289 Collateralized mortgage obligation bonds (Note 12) 183 307 Long-term debt (Note 16) 1,770 1,997 Other liabilities 354 456 Commitments and contingencies (Note 18) --------------------------- Total liabilities 2,723 3,049 --------------------------- Shareholders' interest (Note 20): Common shares: authorized 400,000,000 shares, issued 206,072,890 shares, $1.25 par value 258 258 Other capital 416 411 Cumulative translation adjustment (107) (73) Retained earnings 3,733 3,391 Treasury common shares, at cost: 455,387 and 983,952 (10) (21) --------------------------- Total shareholders' interest 4,290 3,966 --------------------------- $ 13,007 $ 12,638 ===========================
49 Consolidated Statement of Cash Flows
Consolidated ------------------------------ For the three-year period ended December 25, 1994 Dollar amounts in millions 1994 1993 1992 ------------------------------ Cash flows provided by operations: Net earnings $ 589 $ 579 $ 372 Non-cash charges to income: Depreciation, amortization and fee stumpage 534 487 503 Deferred income taxes, net 127 94 125 Contributions to employee benefit plans - 2 32 Extraordinary item, including current tax benefit - (90) - Deferred income taxes on extraordinary item - 38 - Changes in working capital: Accounts receivable (125) (93) (191) Inventories, prepaid expenses, real estate and land 20 (246) (175) Mortgages held for sale 360 23 165 Other liabilities 166 177 289 (Gain) loss on disposition of assets 10 (16) 10 (Gain) on sales of businesses - (112) (3) Other (33) 18 (17) ----------------------------- Net cash provided by operations 1,648 861 1,110 ----------------------------- Cash flows from investing in the business: Property and equipment (1,061) (927) (575) Timber and timberlands (41) (40) (42) Mortgage and investment securities acquired (260) (776) (4,557) Acquisition of businesses - - (589) Proceeds from sale of: Property, equipment, timber and timberlands 44 54 56 Businesses 14 616 - Mortgage and investment securities 140 510 4,276 Other (102) (26) (18) --------------------------- Net cash flows from investing in the business (1,266) (589) (1,449) --------------------------- Cash flows from financing activities: Sale of debentures, notes and CMO bonds 174 1,291 782 Sale of industrial revenue bonds 134 135 152 Savings deposits, net - - (618) Notes and commercial paper borrowings, net (143) (660) 422 Proceeds from issuance of investment contracts - 60 430 Cash dividends on common shares (247) (246) (244) Intercompany cash dividends on common shares - - - Payments on debentures, notes, bank credit agreements, income debenture, capital leases and CMO bonds (362) (1,243) (693) Exercise of stock options 16 21 27 Other (2) 5 (10) ----------------------------- Net cash flows from financing activities (430) (637) 248 ----------------------------- Net increase (decrease) in cash and short-term investments (48) (365) (91) Cash and short-term investments at beginning of year 160 525 616 ----------------------------- Cash and short-term investments at end of year $ 112 $ 160 $ 525 ============================= Cash paid during the year for: Interest, net of amount capitalized $ 279 $ 305 $ 332 ============================= Income taxes $ 141 $ 158 $ (17) ============================= See notes on pages 53 through 77.
50
Weyerhaeuser Company Real Estate and Financial Services -------------------------------- ---------------------------------- 1994 1993 1992 1994 1993 1992 - ------------------------------------------------------------------------------ $ 576 $ 511 $ 331 $ 13 $ 68 $ 41 504 444 447 30 43 56 115 108 97 12 (14) 28 - 2 32 - - - - (90) - - - - - 38 - - - - (126) (55) (120) 1 (38) (71) (12) (164) (32) 32 (82) (143) - - - 360 23 165 240 62 (78) (74) 115 367 15 (3) 10 (5) (13) - - (70) - - (42) (3) (20) 34 8 (13) (16) (25) -------------------------------------------------------------------- 1,292 817 695 356 44 415 -------------------------------------------------------------------- (1,047) (907) (564) (14) (20) (11) (41) (40) (42) - - - - - - (260) (776) (4,557) - - (589) - - - 20 27 52 24 27 4 - 204 - 14 412 - - - - 140 510 4,276 (49) (6) 59 (53) (20) (77) -------------------------------------------------------------------- (1,117) (722) (1,084) (149) 133 (365) -------------------------------------------------------------------- 22 931 117 152 360 665 134 135 152 - - - - - - - - (618) (83) (520) 504 (60) (140) (82) - - - - 60 430 (247) (246) (244) - - - - 435 22 - (435) (22) (49) (824) (223) (313) (419) (470) 16 21 27 - - - (2) 5 (10) - - - -------------------------------------------------------------------- (209) (63) 345 (221) (574) (97) -------------------------------------------------------------------- (34) 32 (44) (14) (397) (47) 73 41 85 87 484 531 -------------------------------------------------------------------- $ 39 $ 73 $ 41 $ 73 $ 87 $ 484 ==================================================================== $ 201 $ 203 $ 182 $ 78 $ 102 $ 150 ==================================================================== $ 92 $ 161 $ (10) $ 49 $ (3) $ (7) ====================================================================
51 Consolidated Statement of Shareholders' Interest
For the three-year period ended December 25, 1994 Dollar amounts in millions 1994 1993 1992 ------------------------------ Common stock issued: Balance at end of year $ 258 $ 258 $ 258 ------------------------------ Other capital: Balance at beginning of year 411 404 387 Stock options exercised 5 5 5 Contributions to employee investment plans - 1 12 Other transactions (net) - 1 - ------------------------------ Balance at end of year 416 411 404 ------------------------------ Cumulative translation adjustment: Balance at beginning of year (73) (36) (6) Translation adjustment (34) (37) (30) ------------------------------ Balance at end of year (107) (73) (36) ------------------------------ Retained earnings: Balance at beginning of year 3,391 3,058 2,930 Net earnings 589 579 372 Cash dividends on common shares (247) (246) (244) ------------------------------ Balance at end of year 3,733 3,391 3,058 ------------------------------ Common stock held in treasury: Balance at beginning of year (21) (38) (79) Stock options exercised 11 16 22 Contributions to employee investment plans - 1 19 ------------------------------ Balance at end of year (10) (21) (38) ------------------------------ Total shareholders' interest: Balance at end of year $ 4,290 $ 3,966 $ 3,646 ============================== Shares of common stock (in thousands): Issued at end of year 206,073 206,073 206,073 ------------------------------ In treasury: Balance at beginning of year 984 1,796 3,814 Stock options exercised (529) (744) (1,096) Contributions to employee investment plans - (60) (919) Other transactions - (8) (3) ------------------------------ Balance at end of year 455 984 1,796 ------------------------------ Outstanding at end of year 205,618 205,089 204,277 ============================== See notes on pages 53 through 77.
52 Notes to Financial Statements For the three-year period ended December 25, 1994 NOTE 1: Summary of Significant Accounting Policies Consolidation The consolidated financial statements include the accounts of Weyerhaeuser Company and all of its majority-owned domestic and foreign subsidiaries. Significant intercompany transactions and accounts are eliminated. Certain of the consolidated financial state- ments and notes to financial statements are pre- sented in two groupings: (1) Weyerhaeuser Company (Weyerhaeuser, or the company), which is principally engaged in the growing and harvesting of timber and the manufacture, distribution and sale of forest products, and (2) real estate and financial services, which includes Weyerhaeuser Real Estate Company (WRECO), which is involved in real estate development and construction, and Weyerhaeuser Financial Services, Inc. (WFS), whose principal subsidiary is Weyerhaeuser Mortgage Company (WMC). Republic Federal Savings & Loan Association, a subsidiary of WFS, was dissolved in 1992, and GNA Corporation, a subsidiary of WFS, was sold in April 1993. Changes in Accounting Principles Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," was implemented for the company's wholly owned subsidiary, Weyerhaeuser Canada Ltd., in 1994 and did not have a significant impact on the company's results of operations or its financial position. In November 1992, the Financial Accounting Standards Board (FASB) issued SFAS No. 112, "Employers' Accounting for Postemployment Benefits," which requires accrual accounting to be used for the cost of benefits provided to former and inactive employees who have not yet retired. The company adopted this pronouncement in the first quarter of 1994 by recording a cumulative catch- up charge to earnings, which did not have a significant impact on results of operations or financial position. In May 1993, the FASB issued SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which addresses accounting and reporting for investments in equity securities that have readily determinable fair values, and for all investments in debt securities, and was effective for fiscal years beginning after December 15, 1993. The adoption of this pronouncement in 1994 did not have a significant effect on the company's results of operations or its financial position. In October 1994, the FASB issued SFAS No. 119, "Disclosure about Derivative Financial Instru- ments and Fair Value of Financial Instruments," which requires more complete disclosures on deriva- tive financial instruments. This pronouncement, which was effective for fiscal years ending after December 15, 1994, was implemented by the company in 1994. Prospective Accounting Changes In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," which requires creditors to measure impairment based on the present value of expected future cash flows discounted at the loan's effective interest rate. In October 1994, the FASB issued SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures," which amended SFAS No. 114 to allow creditors to use existing methods for recognizing interest on impaired loans and also requires creditors to disclose certain information about how interest income was recognized on impaired loans. Both of these pronouncements become effective for financial statements for fiscal years beginning after December 15, 1994. The company believes that the future adoption of these pronouncements will not have a significant impact on results of operations or financial position. 53 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) outstand- ing have not been included, as the computation would not be dilutive. Weighted average common shares outstanding were 205,543,000, 204,866,000 and 203,373,000 for the years ended December 25, 1994, December 26, 1993, and December 27, 1992, respectively. Fully diluted earnings-per-share amounts are not applicable because the effect of the conversion of the stock options is not dilutive. Fair Value of Financial Instruments The company has, where appropriate, estimated the fair value of financial instruments. These fair value amounts may be significantly affected by the assumptions used, including the discount rate and estimates of cash flow. Accordingly, the estimates presented are not necessarily indicative of the amounts that could be realized in a current market exchange. Where these estimates approximate carrying value, no separate disclosure of fair value is shown. Derivatives The company has only limited involvement with derivative financial instruments and does not use them for trading purposes. They are used to manage well-defined interest rate and foreign exchange risks. These include: - Foreign exchange contracts, which are hedges for foreign denominated accounts receivable and payable, have gains or losses recognized at settlement date. - Interest rate swaps entered into with major banks or financial institutions in which the company pays a fixed rate and receives a floating rate with the interest payments being calculated on a notional amount. The premiums received by the company on the sale of these swaps are treated as deferred income and amortized against interest expense over the term of the agreements. - Hedging transactions entered into by the company's mortgage banking subsidiary to protect both the completed loan inventory and loans in process against changes in interest rates. The financial instruments used to manage interest rate risk are forward sales commitments, interest rate futures and options. The company's use of derivatives does not have a significant effect on the company's results of opera- tions 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; either the first-in, first-out (FIFO) or average cost method is used to cost all other inventories. Had the FIFO method been used to cost all inventories, the amounts at which product inventories are stated would have been $237 million and $239 million greater at December 25, 1994, and December 26, 1993, 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. 54 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 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 10 years before retirement. Plans covering hourly employees generally provide benefits of stated amounts for each year of service. Contributions to U.S. plans are based on funding standards established by the Employee Retirement Income Security Act of 1974 (ERISA). Postretirement Benefits Other Than Pensions In addition to providing pension benefits, the company provides certain health care and life insurance benefits for some retired employees and accrues the expected future cost of these benefits for its current eligible retirees and some employees. All of the company's salaried employees and some hourly employees may become eligible for these benefits when they retire. Reclassifications Certain reclassifications have been made to conform prior years' data to the current format. Weyerhaeuser Real Estate Company WRECO recognizes income from the sales of single-family housing units when construction has been completed, required down payments have been received, and title has passed to the customer. Income from 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 Financial Services WMC 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 changes in interest rates. Hedge positions are also used to protect the pipeline of loan applications in process from changes 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. 55 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 lives. In March 1992, Republic Federal Savings & Loan Association, which was a federally chartered savings and loan institution that operated primarily in Southern California, sold the remainder of its branches, ceased accepting deposits as a federally chartered savings and loan institution, and filed an application with the Office of Thrift Supervision to undergo a voluntary dissolution, which was approved in the fourth quarter of 1992. During its operation: - Interest income was recorded on the accrual method; however, interest was not accrued on loans that were more than 90 days contractually delinquent and on certain other loans that management felt may not be recoverable. - Gains or losses on U.S. government and other securities were recognized upon realization. - Discounts on loans purchased were amortized into income over the expected average loan lives. 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 securi- ties 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. NOTE 2: Foreign Operations and Export Sales The following net assets, net sales and net earnings, related to operations outside the United States, principally Canada, are included in the company's consolidated financial statements:
Dollar amounts in millions December 25, 1994 December 26, 1993 December 27, 1992 ------------------------------------------------------- Net assets: Working capital $ 29 $ 100 $ 112 Timber-cutting rights 2 2 2 Property and equipment, net 826 853 870 Other assets 42 36 36 ---------------------------------------------- 899 991 1,020 Other liabilities (235) (232) (417) ---------------------------------------------- Net assets $ 664 $ 759 $ 603 ==============================================
Dollar amounts in millions 1994 1993 1992 -------------------------------- Net sales $ 1,263 $ 972 $ 875 Net earnings 186 116 17 --------------------------------
56 The company is engaged in the sale of products for export from the United States. These sales consist principally of pulp, newsprint, paperboard, containerboard, logs, lumber and wood chips to Japan; pulp, containerboard, lumber and plywood to Europe; and logs to China and Korea. The fol- lowing table compares the company's export sales from the United States to customers in Japan and elsewhere with its total net sales and revenues.
Dollar amounts in millions 1994 1993 1992 ------------------------------ Export sales from the United States: Customers in Japan $ 1,123 $ 952 $ 912 Customers outside Japan 417 493 589 ------------------------------ Total export sales 1,540 1,445 1,501 ------------------------------ Total net sales and revenues $ 10,398 $ 9,545 $ 9,266 ==============================
NOTE 3: Other Income (Expense), Net Other income (expense), net, is an aggregation of both recurring and occasional non-operating income and expense items and, as a result, fluctuates from period to period. No individual income or (expense) item is significant other than the $70 million gain on the disposal of the company's investment in the infant diaper business in 1993 and the real estate and financial services gain of $42 million on the sale of GNA Corporation in 1993. NOTE 4: Income Taxes Earnings before income taxes and extraordinary item are comprised of the following:
Dollar amounts in millions 1994 1993 1992 ------------------------------ Domestic earnings $ 650 $ 738 $ 537 Foreign earnings 270 70 26 ------------------------------ $ 920 $ 808 $ 563 ==============================
57 Provisions for income taxes include the following:
Dollar amounts in millions 1994 1993 1992 ----------------------------- Federal: Current $ 84 $ 145 $ 47 Deferred 114 82 105 ----------------------------- 198 227 152 ----------------------------- State: Current 17 16 15 Deferred 7 11 10 ----------------------------- 24 27 25 ----------------------------- Foreign: Current 103 26 4 Deferred 6 1 10 ----------------------------- 109 27 14 ----------------------------- Income taxes before extraordinary item 331 281 191 ----------------------------- Income taxes apportionable to extraordinary item: Current - (4) - Deferred - 38 - ----------------------------- - 34 - ----------------------------- $ 331 $ 315 $ 191 =============================
The corporate income tax rate was increased from 34 percent to 35 percent, retroactive to January 1, 1993, by legislation enacted during the third quarter of 1993. This change in tax law increased income taxes in 1993 by $15 million due to the effect of the higher tax rate on the accumulated temporary differences at December 27, 1992, and $5 million due to the effect of adjusting the annual effective tax rate used in prior quarters. A reconciliation between the federal statutory tax rate and the company's effective tax rate before the extraordinary item follows:
1994 1993 1992 --------------------- Statutory tax on income before extraordinary item 35% 35% 34% State income taxes, net of federal tax benefit 2 3 3 Foreign sales corporations (1) (2) (3) Partial settlement -- lawsuit - - (2) Effect of tax rate change - 2 - All other, net - (3) 2 --------------------- Effective income tax rate 36% 35% 34% =====================
58 The deferred tax (liabilities) assets are comprised of the following:
Dollar amounts in millions December 25, 1994 December 26, 1993 ------------------------------------- Depreciation $ (1,093) $ (998) Depletion (99) (86) Capitalized interest and taxes -- real estate development (79) (76) Other (138) (127) ---------------------------- Total deferred tax (liabilities) (1,409) (1,287) ---------------------------- Pension and retiree health care 121 118 Environmental, obsolescence and restructure reserves 85 80 Alternative minimum tax credit carryforward 64 70 Other 213 210 ---------------------------- Total deferred tax assets 483 478 ---------------------------- $ (926) $ (809) ============================
As of December 25,1994, the company has available approximately $64 million of alternative minimum tax credit carryover, which does not expire, and foreign tax credit carryovers of $1 million and $4 million expiring in 1998 and 1999, respectively. In addition, the company has entities that are not included in the consolidated federal income tax return which have a net operating loss carryover of $21 million expiring in 2009. The company intends to reinvest undistributed earnings of certain foreign subsidiaries; therefore, no U.S. taxes have been provided. These earnings totaled approximately $461 million at the end of 1994. While it is not practicable to determine the income tax liability that would result from repatriation, it is estimated that withholding taxes payable upon repatriation would approximate $46 million. NOTE 5: Extraordinary Item In 1993 the company realized a net gain of $52 million ($86 million less related tax effect of $34 million) as a result of extinguishing certain debt obligations. NOTE 6: Pension Plans Net annual pension cost includes the following components:
Dollar amounts in millions 1994 1993 1992 ----------------------------- Service cost-benefits earned during the period $ 43 $ 39 $ 34 Interest cost on projected benefit obligation 96 93 86 Actual return on plan assets (9) (280) (123) Net amortization and deferrals (121) 165 17 Pension expense due to sales, closures and other - (1) - ----------------------------- $ 9 $ 16 $ 14 =============================
59 The assumptions used were as follows:
1994 1993 1992 ----------------------- Discount rate 8.75% 7.5% 8.5% Rate of increase in compensation levels 4.5% 4.5% 6.0% Expected long-term rate of return on plan assets 11.5% 11.5% 11.5% -----------------------
The following table sets forth the plans' funded status and amounts recognized in the company's consolidated balance sheet for its U.S. and Canadian pension plans:
December 25, 1994 December 26, 1993 ------------------------------------------------------------------------------ Assets Accumulated Assets Accumulated Exceed Benefits Exceed Benefits Accumulated Exceed Accumulated Exceed Dollar amounts in millions Benefits Assets Total Benefits Assets Total ------------------------------------------------------------------------------ Accumulated benefit obligation: Vested $ 1,044 $ 15 $ 1,059 $ 1,122 $ 21 $ 1,143 Non-vested 23 - 23 25 - 25 --------------------------------------------------------------------------- $ 1,067 $ 15 $ 1,082 $ 1,147 $ 21 $ 1,168 =========================================================================== Projected benefit obligation $ 1,172 $ 15 $ 1,187 $ 1,270 $ 22 $ 1,292 Fair value of plan assets (1,238) (12) (1,250) (1,292) (18) (1,310) Unrecognized prior service cost (49) (3) (52) (39) (3) (42) Unrecognized net gain 168 2 170 105 3 108 Unrecognized net transition asset 37 (1) 36 42 (2) 40 --------------------------------------------------------------------------- Accrued pension cost $ 90 $ 1 $ 91 $ 86 $ 2 $ 88 ===========================================================================
The assets of the U.S. and Canadian pension plans, as of December 25, 1994, and December 26, 1993, consist of a highly diversified mix of equity, fixed income and real estate securities. Approximately 1,550 employees are covered by union- administered multi-employer pension plans to which the company makes negotiated contributions based generally on fixed amounts per hour per employee. Contributions to these plans were $7 million in 1994, $6 million in 1993 and $5 million in 1992. NOTE 7: Postretirement Benefits Other Than Pensions The company sponsors defined benefit post- retirement plans for its U.S. employees that provide medical and life insurance coverage as follows: - Two salaried retiree medical plans that cover substantially all salaried employees who retire under the company's retirement plan and their spouses. Plan I covers those retired or eligible to retire as of January 1, 1990, and provides full health coverage. Plan II includes those salaried employees not eligible for Plan I, under which the company provides a fixed dollar amount per year of service toward the premium, with the retiree paying the remainder. The company reserves the right to revise the fixed dollar amount. - An hourly retiree medical plan that covers approximately 3,750 active hourly employees and their spouses. For some, the coverage stops at age 65, while others have lifetime coverage. In some units the retiree must pay a portion of the premium, while in others the company pays the full cost. There are approximately 1,500 retired hourly employees and their spouses currently covered under these programs. - A salaried retiree life insurance plan that starts at 80 percent of salary at retirement and reduces to six thousand dollars in 20 percent increments. Approximately 5,200 persons who are retired or were eligible to retire as of December 31, 1991, are subject to a different schedule. 60 - An hourly retiree life insurance plan in which approximately 11,000 active hourly employees are eligible and approximately 2,000 hourly retirees have coverage. Most of these are covered by fixed dollar amount coverage that is graded down after retirement. Some units have pay-related insurance on which the company pays the full cost. The company sponsors three defined benefit and two defined contribution postretirement plans for its Canadian employees that provide medical and life insurance. Collectively, 320 retired employees are covered and 510 active employees are eligible for coverage in these five plans as of year-end 1994. The following table sets forth the U.S. and Canadian plans combined accrued postretirement benefit costs as of December 25, 1994, and December 26, 1993:
Dollar amounts in millions December 25, 1994 December 26, 1993 ------------------------------------- Accumulated postretirement benefit obligation: Retirees: Health $ 120 $ 128 Life 22 22 Fully eligible and other active plan participants: Health 77 96 Life 11 11 --------------------------- 230 257 Unrecognized actuarial gain/(loss) 13 (31) --------------------------- Accrued postretirement benefit cost $ 243 $ 226 ===========================
Net annual postretirement benefit costs included the following components:
Dollar amounts in millions 1994 1993 1992 ------------------------ Service cost benefits attributed to service during the period: Health $ 4 $ 3 $ 3 Life 1 1 1 Interest cost on accumulated postretirement benefit obligation: Health 16 16 18 Life 2 3 2 Amortization of loss -- health - - 1 ------------------------ Net postretirement benefit cost $ 23 $ 23 $ 25 ========================
For measurement purposes, an 11.5, 11.0 and 10.5 percent annual rate of increase in the per capita cost of covered health care benefits was assumed for 1992, 1993 and 1994, respectively; the rate is assumed to decrease by 0.5 percent annually to a level of 6.0 percent for the year 2003 and all years thereafter. The effect of a one percent increase in the assumed health care cost trend rates would increase the accumulated postretirement benefit obligation as of December 25, 1994, by 11.3 percent, and the aggregate of the service and interest cost components of net annual post- retirement benefit cost for 1994 by 13.2 percent. 61 Other assumptions used were as follows:
1994 1993 1992 ----------------------- Discount rate 8.5% 7.5% 8.5% Rate of increase in compensation levels: Salaried 4.5% 4.5% 6.0% Hourly 3.0% 3.0% 3.0% ----------------------
NOTE 8: Inventories Inventories consist of the following:
Dollar amounts in millions December 25, 1994 December 26, 1993 -------------------------------------- Logs and chips $ 108 $ 103 Lumber, plywood and panels 115 92 Pulp, newsprint and paper 88 124 Containerboard, paperboard and containers 56 71 Other products 112 122 Materials and supplies 267 250 --------------------------- $ 746 $ 762 ===========================
NOTE 9: Property and Equipment Property and equipment consist of the following:
Dollar amounts in millions December 25, 1994 December 26, 1993 ------------------------------------- Property and equipment, at cost: Land $ 159 $ 158 Buildings and improvements 1,509 1,417 Machinery and equipment 8,557 7,839 Rail and truck roads and other 628 620 ---------------------------- 10,853 10,034 Less allowance for depreciation and amortization 4,657 4,428 ---------------------------- $ 6,196 $ 5,606 ============================
62 NOTE 10: Mortgage and Construction Notes and Mortgage Loans Receivable Mortgage and construction notes and mortgage loans receivable are summarized as follows:
Dollar amounts in millions December 25, 1994 December 26, 1993 ------------------------------------- Mortgage notes held for sale $ 209 $ 521 Construction mortgage notes 14 44 Mortgage loans receivable 257 286 --------------------------- 480 851 Less allowance for loan losses 8 4 --------------------------- Carrying value $ 472 $ 847 =========================== Fair value $ 417 $ 819 ===========================
The fair value of mortgage notes held for sale is estimated using the quoted market prices for securi- ties backed by similar loans adjusted for differences in loan characteristics. The estimated fair value is net of related hedge instruments, which were estimated based upon quoted market prices for securities. The fair value of construction mortgage notes and mortgage loans receivable is based on the discounted value of estimated future cash flows using current rates for loans with similar terms and risks. NOTE 11: Investments Investments are as follows:
Dollar amounts in millions December 25, 1994 December 26, 1993 ------------------------------------- Mortgage loans $ 230 $ 42 Other 17 18 --------------------------- Carrying value $ 247 $ 60 =========================== Fair value $ 238 $ 56 ===========================
Fair value is estimated using quoted market prices for similar securities. The fair value of mort- gage loans held as investments is based on the discounted value of estimated future cash flows using current rates. 63 The company, through its financial services busi- ness, has investments in debt and equity securities that management intends to hold to maturity. These consist primarily of mortgage-backed securi- ties that were issued in prior years as collateral against the company's collateralized mortgage obligation bonds (Note 12). In accordance with SFAS No. 119, these securities are included in the balance sheet at amortized cost with gains and losses being recorded as realized. NOTE 12: Mortgage-Backed Certificates and Other Pledged Financial Instruments, and Collateralized Mortgage Obligation Bonds Mortgage-backed certificates and other financial instruments pledged as collateral for the collateralized mortgage obligation bonds are as follows:
Dollar amounts in millions December 25, 1994 December 26, 1993 ------------------------------------- Mortgage-backed certificates, net of unamortized discount or premium $ 192 $ 287 Other 19 63 --------------------------- Carrying value $ 211 $ 350 =========================== Fair value $ 208 $ 366 ===========================
These assets are held by banks as trustees. Principal and interest collections on the certificates are used to meet the interest payments and reduce the outstanding principal balance of the bonds. The fair value of mortgage-backed certificates is estimated using the quoted market prices for securities backed by similar loans; restricted deposits are held at cost, which is a reasonable estimate of fair value. Collateralized mortgage obligation bonds are as follows:
Dollar amounts in millions December 25, 1994 December 26, 1993 ------------------------------------- CMO bonds with maturities ranging from 2006 to 2019, weighted average interest rates are approximately 9.1% $ 191 $ 318 Unamortized discount (8) (11) --------------------------- Carrying value $ 183 $ 307 =========================== Fair value $ 189 $ 331 ===========================
64 Bond principal payments during the next five years are (millions): 1995 $ 22 1996 20 1997 17 1998 15 1999 13
The above maturities are calculated based on anticipated prepayments on the certificates. The bonds are the obligation of the issuer, and neither the company nor any affiliated company has guar- anteed or is otherwise obligated with respect to the bonds. The fair value of collateralized mortgage obligation bonds is estimated using analysis of projected cash flows discounted at market yields. NOTE 13: Real Estate in Process of Development Real estate in process of development includes the following:
Dollar amounts in millions December 25, 1994 December 26, 1993 ------------------------------------- Dwelling units $ 220 $ 259 Residential lots 253 256 Commercial lots 131 144 Commercial projects 12 17 Acreage listed for sale 83 89 Other inventories 1 3 --------------------------- 700 768 Less reserves 32 30 --------------------------- $ 668 $ 738 ===========================
65 NOTE 14: Accrued Liabilities Accrued liabilities are as follows:
Dollar amounts in millions December 25, 1994 December 26, 1993 ------------------------------------- Payroll -- wages and salaries, incentive awards, retirement and vacation pay $ 217 $ 239 Taxes -- Social Security and real and personal property 63 59 Interest 67 67 Accrued income taxes 105 12 Other 243 188 -------------------------- $ 695 $ 565 ==========================
NOTE 15: Short-Term Debt Borrowings Real estate and financial services short-term borrowings were $416 million with a weighted average interest rate of 6 percent at December 25, 1994, and $289 million with a weighted average interest rate of 1 percent at December 26, 1993. Lines of Credit The company has short-term bank credit lines that provide for borrowings of up to the total amount of $725 million, all of which can be availed of by the company, WRECO and WMC at December 25, 1994, and $200 million, all of which could be availed of by the company and WRECO, and $150 million, which could be availed of by WMC at December 26, 1993. No portion of these lines has been availed of by the company, WRECO or WMC at December 25, 1994, and December 26, 1993. None of the entities referred to herein is a guarantor of the borrowings of the others. WMC has short-term special credit lines that provide for borrowings of up to $235 million and $265 million at December 25, 1994, and December 26, 1993, respectively. Borrowings against these lines were $85 million and $254 million as of December 25, 1994, and December 26, 1993, respectively. 66 NOTE 16: Long-Term Debt Debt Weyerhaeuser long-term debt obligations, including the current portion, are as follows:
Dollar amounts in millions December 25, 1994 December 26, 1993 -------------------------------------- 8 3/8% debentures due 2007 $ 150 $ 150 7.50% debentures due 2013 250 250 7.25% debentures due 2013 250 250 7 1/8% debentures due 2023 250 250 9 3/8% notes due 1998 150 150 9 1/4% notes due 1995 200 200 9.05% notes due 2003 200 200 9.36% notes due 1995 100 100 7.28% note due 1996 40 40 Industrial revenue bonds, rates from 5.44% (variable) to 10.0% (fixed), due 1995-2028 571 467 Medium-term notes, rates from 6.43% to 8.98%, due 1996-2005 428 428 Commercial paper/credit agreements 411 378 Other 34 149 ---------------------------- Carrying value $ 3,034 $ 3,012 ============================ Fair value $ 3,015 $ 3,267 ============================ Portion due within one year $ 321 $ 14 ============================
Long-term debt maturities during the next five years are (millions): 1995 $ 321 1996 123 1997 71 1998 196 1999 493
Real estate and financial services long-term debt, including the current portion, is as follows:
Dollar amounts in millions December 25, 1994 December 26, 1993 ------------------------------------- Notes payable, unsecured; weighted average interest rates are approximately 7.4% $ 835 $ 957 Bank and other borrowings, unsecured; weighted average interest rates are approximately 5.5% and 3.3% 460 360 Notes payable, secured; weighted average interest rates are approximately 9.4% and 9.6% 46 63 Commercial paper/credit agreements 429 617 --------------------------- Carrying value $ 1,770 $ 1,997 =========================== Fair value $ 1,722 $ 2,043 =========================== Portion due within one year $ 58 $ 152 ============================
67 Long-term debt maturities during the next five years are (millions): 1995 $58 1996 160 1997 525 1998 136 1999 534
The fair value of the company's long-term debt is estimated based on quoted market prices for the same issues or on the discounted value of the future cash flows expected to be paid using incremental rates of borrowing for similar liabilities. Lines of Credit At December 25, 1994, the company's lines of credit include a five-year competitive advance and revolving credit facility agreement entered into in July 1994 with a group of banks that provides for borrowings of up to the total amount of $1.55 billion, all of which can be availed of by the company, and $1 billion, which can be availed of by WMC. Borrowings are at LIBOR or other such interest rates as mutually agreed to between the borrower and lending banks. This credit facility agreement replaces a similar agreement for $1.65 billion entered into 1990, which was in place at December 26, 1993. At December 25, 1994, and December 26, 1993, WMC had $35 million outstanding against a one-year evergreen credit commitment entered into in 1990. WMC has a revolving credit agreement with a bank to provide for: (1) borrowings of up to $35 mil- lion for two years at prime rate, LIBOR or such other rate as may be agreed upon by WMC and the banks, (2) a commitment fee based on the unused credit, and (3) conversion of the notes as of July 1, 1997, to a five-year term loan payable in equal quarterly installments. At December 25, 1994, and December 26, 1993, $20 million and $30 million, respectively, were outstanding under the revolving credit agreement. During 1992 WFS entered into a three-year term loan facility that was amended in May 1994 and provides for: (1) borrowings of up to $405 mil- lion at December 25, 1994, and $295 million at December 26, 1993, at LIBOR or other such rates as may be agreed upon by WFS and the banks, and (2) a commitment fee on the unused portion of the credit. $405 million and $295 million were outstanding under this facility at December 25, 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 com- mercial paper is classifiable as long-term debt. Amounts so classified are shown in the tables in this note. No portion of these lines has been availed of by the company, WRECO, WMC or WFS at December 25, 1994, or December 26, 1993, except as noted. In 1993 WFS completed the sale of GNA Corporation. As a part of this transaction, the com- pany assumed $225 million of outstanding GNA debt. Total interest costs incurred by WRECO during each of the three years ended December 25, 1994, have been capitalized and will be accounted for as an element of operating costs. The company's compensating balance agreements were not significant. 68 NOTE 17: Fair Value of Financial Instruments The carrying and fair values of significant financial instruments are:
December 25, 1994 December 26, 1993 ------------------------------------------- Carrying Fair Carrying Fair Dollar amounts in millions Value Value Value Value ------------------------------------------- Weyerhaeuser: Financial liabilities: Long-term debt (including current maturities) $ 3,034 $ 3,015 $ 3,012 $ 3,267 ------------------------------------------ Real estate and financial services: Financial assets: Mortgage and construction notes and mortgage loans receivable 472 417 847 819 Investments 247 238 60 56 Mortgage-backed certificates and other pledged financial instruments 211 208 350 366 Financial liabilities: Collateralized mortgage obligation bonds 183 189 307 331 Long-term debt (including current maturities) 1,770 1,722 1,997 2,043 ------------------------------------------
The carrying amounts shown in this table are included in the consolidated balance sheet under the indicated captions. The carrying and fair value amounts, along with the methods and assumptions used to estimate the fair value of each class of financial instruments, are included in the notes to financial statements under the indicated captions. NOTE 18: Legal Proceedings, Commitments and Contingencies Legal Proceedings On November 2, 1992, an action was filed against the company in the Circuit Court for the First Judicial District of Hinds County, Miss., 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 pur- ported hazardous substances, including dioxins and furans, by the company's pulp and paper mill in Columbus, Miss., 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, Ala., on behalf of a similar purported class of riparian owners with essentially the same claims as the Mississippi case. On January 20, 1995, the court in the Alabama action certified a class of all persons who, as of the date of the action commenced, were riparian owners, lessees and licensees of properties located on the Tennessee Tombigbee Waterway in Greene, Sumter, Pickens and Marengo counties, Alabama, and Lowndes and Noxubee counties, Mississippi, to determine whether the company is liable to the members of the class for compensa- tory and/or punitive damages and to determine the amount of punitive damages, if any, to be awarded to the class as a whole. The class is estimated to exceed 400 members and may range from 1,000 to 1,500 members. Neither the Mississippi action nor the Alabama action is presently scheduled for trial. 69 Environmental It is the company's policy to accrue for environmental remediation costs when it is determined that it is probable that such an obligation exists and the amount of the obligation can be reasonably estimated. Based on currently available information and analysis, the company believes that it is reasonably possible that costs associated with all identified sites may exceed current accruals by amounts that may prove insignificant or that could range, in the aggregate, up to approximately $140 million over several years. This estimate of the upper end of the range of reasonably possible additional costs is much less certain than the estimates upon which accruals are currently based, and utilizes assumptions less favor- able to the company among the range of reasonably possible outcomes. In estimating both its current accruals for environmental remediation and the pos- sible range of additional future costs, the company has assumed that it will not bear the entire cost of remediation of every site to the exclusion of other known potentially responsible parties who may be jointly and severally liable. The ability of other potentially responsible parties to participate has been taken into account, based generally on each party's financial condition and probable contribution on a per-site basis. No amounts have been recorded for potential recoveries from insurance carriers. The company is a party to legal proceedings and 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. Other Items The company's capital expenditures, excluding acquisitions, have averaged about $855 million in recent years but are expected to approximate $1.2 billion in 1995; however, the 1995 expenditure level could be increased or decreased as a consequence of future economic conditions. The company had approximately $306 million in capital expenditures committed on major projects at year-end 1994. During the normal course of business, the company's real estate and financial services subsidiaries have entered into certain financial commitments comprised primarily of agreements to fund up to $835 million in mortgage loans at fixed and floating prices, guarantees made on $137 million of partnership borrowings, and limited recourse obligations associated with $922 million of sold mortgage loans. The fair value of the recourse on these loans is estimated to be $8 million, which is based upon market spreads for sales of similar loans without recourse or estimates of the credit risk of the associated recourse obligation. 70 NOTE 19: Financial Instruments With Credit or Off-Balance Sheet Risk Receivables WRECO's accounts receivable and notes and contracts receivable by geographic region, less discounts and allowances, are as follows:
Dollar amounts in millions 1994 1993 ---------------- West $ 50 $ 53 South 20 21 East 10 32 --------------- $ 80 $ 106 ===============
WRECO's policy for requiring collateral is that a secured interest will be established on receivables generated from the sale of inventory and land and that the collateral will be subject to foreclosure in the event of the purchaser's default. Collateral is not required for short-term, general accounts receivable. WFS originates and holds loans in a number of states. The remaining gross principal balance of mortgage notes held for sale or investment, construction mortgage notes, mortgage loans receivable and other trust deeds receivable by geographic region are as follows:
Dollar amounts in millions 1994 1993 --------------- West $ 550 $ 757 South 63 47 East 86 94 Other 23 16 --------------- $ 722 $ 914 ===============
NOTE 20: Shareholders' Interest Preferred and Preference Shares The company is authorized to issue: - 7,000,000 preferred shares having a par value of $1.00 per share, of which none were issued and outstanding at December 25, 1994, and December 26, 1993; and - 40,000,000 preference shares having a par value of $1.00 per share, of which none were issued and outstanding at December 25, 1994, and December 26, 1993. The preferred and preference shares may be issued in one or more series with varying rights and preferences including dividend rates, redemption rights, conversion terms, sinking fund provisions, values in liquidation and voting rights. When issued, the outstanding preferred and preference shares rank senior to outstanding common shares as to dividends and assets available on liquidation. The company has reserved but not issued 2,000,000 shares of cumulative preference shares, fourth series, for the exercise of the rights described under Common Shares. 71 Common Shares Common shares reserved for stock option plans were 5,688,000 shares at December 25, 1994, and 5,177,000 shares at December 26, 1993. As to the company's various stock option plans, the following information is provided:
1994 1993 1992 ----------------------------------- At end of year: Options outstanding 5,687,934 5,177,401 4,999,874 Options exercisable 4,375,234 3,981,751 3,865,624 During the year: Options granted 1,312,700 1,195,650 1,134,250 Options exercised 623,258 878,755 1,261,212 Options forfeited 178,909 139,368 288,112 Average prices per share: Options outstanding $ 36.27 $ 32.32 $ 28.85 Options granted $ 47.53 $ 42.31 $ 36.18 Options exercised $ 28.06 $ 26.72 $ 24.06 ----------------------------------
In December 1986, the company adopted a Shareholder Rights Plan (the "Plan") and declared a dividend distribution of 0.6667 right on each outstanding common share. Each right entitles its holder to purchase after the distribution date and until December 1996 one one-hundredth of a share of the company's cumulative preference shares, fourth series, at a price of $70, subject to adjustment. The distribution date is the earlier of 20 business days after the announcement that a person or group has acquired 20 percent or more of Weyerhaeuser's outstanding common shares or 20 business days after a person or group commences a tender or exchange offer that could result in the person or group owning 30 percent or more of the company's outstanding common shares. Following the distribution date, if anyone owning 20 percent or more of the company's outstanding common shares merges with the company, with the company as the survivor, and the company's common shares are not changed or exchanged, or engages in certain self-dealing transactions with the company, or if an event occurs that results in such 20 percent owner's interest being increased by more than one percent (e.g., a reverse stock split), or if anyone acquires 40 percent or more of the company's outstanding common shares, each right holder, other than such person or group, will be able, upon payment of the right's exercise price, to acquire shares of the company's common stock or other securities or assets having an aggregate market value equal to twice the right's purchase price. If, after the company announces that someone owns 20 percent or more of the company's outstanding common shares, the company is acquired in a merger or other business combination, and the company is not the survivor, or the company engages in a merger or other business combination transaction in which the company is the surviving corporation but the company's common shares are changed or exchanged, or if 50 percent of the company's earning power or assets is sold in one or several related transactions, each right holder, other than any 20 percent shareholder, will receive shares of the acquiring company's common stock having a market value equal to twice the right's exercise price. Subject to certain time periods and conditions, the Plan may be amended and the rights may be redeemed at a price of $.05 per right, subject to adjustment. 72 NOTE 21: Business Segments The company is principally engaged in the growing and harvesting of timber and the manufacture, distribution and sale of forest products. The four principal business segments are timberlands and wood products (including softwood lumber, plywood and veneer; composite panels; oriented strand board; hardboard; logs; chips; timber; doors; hardwood lumber and plywood; and treated products); pulp, paper and packaging (including pulp, newsprint, paper, containerboard, paperboard and shipping containers, recycling and chemicals); real estate development and construction; and financial services. The timber-based businesses involve a high degree of integration among timber operations; building materials conversion facilities; and pulp, newsprint, paper, containerboard and paperboard primary manufacturing and secondary conversion facilities, including extensive transfers of raw materials, semi-finished materials and end products between and among these groups. Accounting for segment profitability involves allocations of joint raw materials and conversion costs and the use of transfer prices that attempt to approximate current market values. 73 The following table sets forth an analysis of the company's operations by the four principal business segments:
Dollar amounts in millions 1994 1993 1992 ----------------------------- Sales to and revenues from unaffiliated customers: Timberlands and wood products $ 4,992 $ 4,468 $ 3,417 Pulp, paper and packaging 4,066 3,579 4,109 Real estate 911 829 690 Financial services 206 401 832 Corporate and other 223 269 220 ----------------------------- 10,398 9,546 9,268 ----------------------------- Intersegment sales and revenues: Timberlands and wood products 357 352 340 Pulp, paper and packaging 82 6 29 Corporate and other 31 29 30 ----------------------------- 470 387 399 ----------------------------- Total sales and revenues 10,868 9,933 9,667 Eliminations (470) (388) (401) ----------------------------- $10,398 $ 9,545 $ 9,266 ============================= Approximate contribution to earnings: Timberlands and wood products $ 1,034 $ 891 $ 515 Pulp, paper and packaging 211 61 251 Real estate 7 18 13 Financial services 11 76 68 Corporate and other (142) (46) (107) ----------------------------- 1,121 1,000 740 Interest expense (315) (292) (262) Less capitalized interest 114 100 85 ----------------------------- Income before taxes and extraordinary item 920 808 563 Income taxes (331) (281) (191) Extraordinary item - 52 - ----------------------------- $ 589 $ 579 $ 372 ============================= Depreciation, amortization and fee stumpage: Timberlands and wood products $ 189 $ 162 $ 150 Pulp, paper and packaging 302 264 255 Real estate 7 9 7 Financial services 23 34 49 Corporate and other 13 18 42 ----------------------------- $ 534 $ 487 $ 503 ============================= Capital expenditures: Timberlands and wood products $ 257 $ 241 $ 246 Pulp, paper and packaging 794 652 932 Real estate 10 15 8 Financial services 4 5 3 Corporate and other 37 54 17 ----------------------------- $ 1,102 $ 967 $ 1,206 ============================= Assets: Timberlands and wood products $ 2,713 $ 2,585 $ 2,377 Pulp, paper and packaging 6,283 5,730 5,612 Real estate 1,716 1,863 1,694 Financial services 1,730 1,892 8,148 Corporate and other 1,288 1,274 1,201 ----------------------------- 13,730 13,344 19,032 Eliminations (723) (706) (874) ----------------------------- $13,007 $12,638 $18,158 ============================= Interest expense of $76 million and $96 million in 1994 and 1993, and $151 million before the elimination of intercompany interest of $3 million in 1992, is included in the determination of "approximate contribution to earnings" for financial services. Certain reclassifications have been made to conform prior years' data to the current format.
74 NOTE 22: Selected Quarterly Financial Information (unaudited)
Dollar amounts in millions except per-share figures First Quarter Second Quarter Third Quarter Fourth Quarter Year ------------------------------------------------------------------------------------- Net sales: 1994 $ 2,386 $ 2,598 $ 2,681 $ 2,733 $ 10,398 1993 2,341 2,388 2,225 2,591 9,545 Operating income: 1994 281 282 294 363 1,220 1993 280 292 183 226 981 Earnings before income taxes and extraordinary item: 1994 204 202 224 290 920 1993 265 272 130 141 808 Net earnings(1): 1994 127 129 144 189 589 1993 229 181 67 102 579 Net earnings per common share(1): 1994 .62 .62 .71 .91 2.86 1993 1.12 .89 .32 .50 2.83 Dividends per common share: 1994 .30 .30 .30 .30 1.20 1993 .30 .30 .30 .30 1.20 Market prices -- high/low: 1994 50 1/4 - 42 1/8 45 - 39 1/2 46 1/8 - 39 7/8 39 1/8 - 35 7/8 50 1/4 - 35 7/8 1993 45 1/2 - 36 1/4 46 1/2 - 38 3/4 44 - 38 1/4 45 5/8 - 36 7/8 46 1/2 - 36 1/4 --------------------------------------------------------------------------------------- (1)First quarter 1993 results reflect an extraordinary net gain as a result of extinguishing certain debt obligations of $52 million, or $.25 per common share.
75 NOTE 23: Historical Summary
Dollar amounts in millions except per-share figures 1994 1993 1992 1991 1990 -------------------------------------------- Per common share: Net earnings (loss) from continuing operations, before extraordinary item and effect of accounting changes: $ 2.86 2.58 1.83 (.50) 1.87 Extraordinary item(1) $ - .25 - - - Effect of accounting changes $ - - - (.30) - -------------------------------------------- Net earnings (loss) $ 2.86 2.83 1.83 (.80) 1.87 ============================================ Dividends paid $ 1.20 1.20 1.20 1.20 1.20 Shareholders' interest (end of year) $ 20.86 19.34 17.85 17.25 19.21 Financial position: Total assets: Weyerhaeuser $ 9,599 8,968 8,438 7,551 7,556 Real estate and financial services $ 3,408 3,670 9,720 9,435 8,800 -------------------------------------------- $ 13,007 12,638 18,158 16,986 16,356 ============================================ Long-term debt (net of current portion): Weyerhaeuser: Long-term debt $ 2,713 2,998 2,659 2,195 2,168 Capital lease obligations $ - - - - 7 Convertible subordinated debentures $ - - 193 193 193 Limited recourse income debenture $ - - 188 204 204 -------------------------------------------- $ 2,713 2,998 3,040 2,592 2,572 ============================================ Real estate and financial services: Collateralized mortgage obligation bonds $ 161 241 440 702 838 Long-term debt $ 1,712 1,845 1,971 1,719 1,799 -------------------------------------------- $ 1,873 2,086 2,411 2,421 2,637 ============================================ Redeemable preferred and preference shares (thousands): Weyerhaeuser $ - - - - - Real estate and financial services $ - - - - - Shareholders' interest $ 4,290 3,966 3,646 3,489 3,864 Percent earned on shareholders' interest 14.3% 15.2% 10.4% (4.4)% 9.8% Operating results: Net sales and revenues: Weyerhaeuser $ 9,281 8,315 7,744 7,167 7,447 Real estate and financial services $ 1,117 1,230 1,522 1,606 1,619 -------------------------------------------- $ 10,398 9,545 9,266 8,773 9,066 ============================================ Net earnings (loss) from continuing operations before extraordinary item and effect of accounting changes: Weyerhaeuser $ 576 459 332 (25) 340 Real estate and financial services $ 13 68 40 (76) 54 Less subsidiaries preferred share dividends $ - - - - - -------------------------------------------- $ 589 527 372 (101) (2) 394 Extraordinary item(1) $ - 52 - - - Effect of accounting changes $ - - - (61) - -------------------------------------------- Net earnings (loss) $ 589 579 372 (162) 394 ============================================ Statistics (unaudited): Number of employees 36,665 36,748 39,022 38,669 40,621 Salaries and wages $ 1,610 1,585 1,580 1,476 1,531 Employee benefits $ 357 347 323 321 318 Total taxes $ 618 577 443 173 446 Timberlands (thousands of acres): Fee ownership 5,599 5,524 5,604 5,517 5,621 Long-term license arrangements 17,849 17,845 18,828 13,491 13,491 Number of shareholder accounts at year-end: Common 24,131 25,282 26,334 26,937 28,187 Preferred - - - - - Preference - - - - - Average common and common equivalent shares outstanding (thousands) 205,543 204,866 203,373 201,578 203,673 ------------------------------------------- (1)1993 results reflect an extraordinary net gain as a result of extinguishing certain debt obligations of $86 million less related tax effect of $34 million, or $52 million. (2)1991 results reflect restructuring and other charges of $445 million less related tax effect of $162 million, or $283 million. (3)1989 results reflect net special items charges of $401 million less related tax effect of $141 million, or $260 million.
76
1989 1988 1987 1986 1985 1984 ---------------------------------------------------- 1.56 2.68 2.12 1.27 .88 1.01 - - - - - - - - - - - - ---------------------------------------------------- 1.56 2.68 2.12 1.27 .88 1.01 ==================================================== 1.20 1.15 .90 .87 .87 .87 18.55 18.14 16.54 14.82 14.42 14.50 7,371 6,983 6,418 5,889 5,496 5,641 8,605 8,401 6,499 5,083 3,869 2,504 ---------------------------------------------------- 15,976 15,384 12,917 10,972 9,365 8,145 ==================================================== 1,502 1,644 1,540 1,412 1,157 1,066 23 37 51 63 77 94 - - - - - - 204 198 181 172 - - ---------------------------------------------------- 1,729 1,879 1,772 1,647 1,234 1,160 ==================================================== 931 1,046 840 598 292 99 1,075 1,272 1,290 1,101 711 434 ---------------------------------------------------- 2,006 2,318 2,130 1,699 1,003 533 ==================================================== - - - 14,700 14,700 14,700 - - - - 72,000 223,000 4,148 4,044 3,714 3,251 3,324 3,188 8.3% 14.6% 12.8% 8.4% 6.1% 7.1% 8,355 7,861 6,988 5,650 5,206 5,550 1,826 1,467 1,397 1,241 1,070 892 ----------------------------------------------------- 10,181 9,328 8,385 6,891 6,276 6,442 ===================================================== 377 516 379 180 132 175 (36) 50 68 97 81 74 - - - - 13 23 ----------------------------------------------------- 341 (3) 566 447 277 200 226 - - - - - - - - - - - - ----------------------------------------------------- 341 566 447 277 200 226 ===================================================== 45,214 46,976 45,123 41,757 38,922 40,919 1,563 1,423 1,277 1,143 1,134 1,167 325 292 250 225 259 274 403 511 467 310 266 269 5,693 5,833 5,871 5,962 5,979 5,915 13,324 13,324 12,064 12,064 3,590 3,595 29,847 30,379 32,535 31,682 37,135 40,361 12 25 26 1,825 2,192 2,317 443 351 106 7 2,242 2,213 204,331 207,785 202,544 195,456 194,828 196,518 ----------------------------------------------------
77 EX-27 3
5 1000000 YEAR DEC-25-1994 DEC-25-1994 112 0 1,039 14 746 1,978 10,853 4,657 13,007 1,667 4,666 258 0 0 4,032 13,007 10,398 10,398 7,670 7,670 694 6 277 920 331 589 0 0 0 589 2.86 2.86 Receivables and PP&E are stated at gross.
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