-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VQaViaLtPzK16Yb0je8kFydhWZaEmJkfYTKgO7lmBHAkZvcvFlqzBmUgps6mqapR IhyfIvadD9YCsIABfvDS9g== 0000106535-96-000012.txt : 19960513 0000106535-96-000012.hdr.sgml : 19960513 ACCESSION NUMBER: 0000106535-96-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960510 SROS: CSX SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEYERHAEUSER CO CENTRAL INDEX KEY: 0000106535 STANDARD INDUSTRIAL CLASSIFICATION: LUMBER & WOOD PRODUCTS (NO FURNITURE) [2400] IRS NUMBER: 910470860 STATE OF INCORPORATION: WA FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04825 FILM NUMBER: 96559397 BUSINESS ADDRESS: STREET 1: 33663 WEYERHAEUSER WAY SOUTH CITY: FEDERAL WAY STATE: WA ZIP: 98003 BUSINESS PHONE: 2069242345 MAIL ADDRESS: STREET 1: 33663 WEYERHAEUSER WAY SOUTH CITY: FEDERAL WAY STATE: WA ZIP: 98003 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the thirteen weeks ended March 31, 1996 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to _______ Commission File Number 1-4825 WEYERHAEUSER COMPANY A Washington Corporation (IRS Employer Identification No. 91-0470860) Tacoma, Washington 98477 Telephone (206) 924-2345 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange on Title of Each Class Which Registered - ------------------------------------- -------------------------- Common Shares ($1.25 par value) Chicago Stock Exchange New York Stock Exchange Pacific Stock Exchange Tokyo Stock Exchange Rights to Purchase Cumulative New York Stock Exchange Preference Shares, Fourth Series Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___. The number of shares outstanding of the registrant's class of common stock, as of May 3, 1996 was 198,447,199 common shares ($1.25 par value). Weyerhaeuser Company - -2-
WEYERHAEUSER COMPANY AND SUBSIDIARIES Index to Form 10-Q Filing For the Thirteen Weeks Ended March 31, 1996 Page No. ---------------- Part I. Financial Information Item 1. Financial Statements Consolidated Statement of Earnings 3 Consolidated Balance Sheet 4-5 Consolidated Statement of Cash Flows 6-7 Notes to Financial Statements 8-13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14-17 Part II. Other Information Item 1. Legal Proceedings 18-19 Item 2. Changes in Securities (not applicable) Item 3. Defaults upon Senior Securities (not applicable) Item 4. Submission of Matters to a Vote of Security Holders (not applicable) Item 5. Other Information (not applicable) Item 6. Exhibits and Reports on Form 8-K 19
The financial information included in this report has been prepared in conformity with accounting practices and methods reflected in the financial statements included in the annual report (Form 10-K) filed with the Securities and Exchange Commission for the year ended December 31, 1995. Though not examined by independent public accountants, the financial information reflects, in the opinion of management, all adjustments necessary to present a fair statement of results for the interim periods indicated. The results of operations for the thirteen week period ending March 31, 1996 should not be regarded as necessarily indicative of the results that may be expected for the full year. Signature Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized. WEYERHAEUSER COMPANY By /s/ K. J. Stancato ---------------------------- K. J. Stancato Duly Authorized Officer and Principal Accounting Officer May 10, 1996 Weyerhaeuser Company - -3-
WEYERHAEUSER COMPANY AND SUBSIDIARIES ____________ CONSOLIDATED EARNINGS For the thirteen week periods ended March 31, 1996 and March 26, 1995 (Dollar amounts in millions except per share figures) (Unaudited) March 31, March 26, 1996 1995 --------- --------- Net sales and revenues: Weyerhaeuser $ 2,373 $ 2,504 Real estate and financial services 232 182 --------- --------- Net sales and revenues 2,605 2,686 --------- --------- Costs and expenses: Weyerhaeuser: Costs of products sold 1,739 1,752 Depreciation, amortization and fee stumpage 142 129 Selling, general and administrative expenses 178 160 Research and development expenses 14 11 Taxes other than payroll and income taxes 37 43 --------- --------- 2,110 2,095 --------- --------- Real estate and financial services: Costs and operating expenses 164 130 Depreciation and amortization 5 9 Selling, general and administrative expenses 37 31 Taxes other than payroll and income taxes 2 2 --------- --------- 208 172 --------- --------- Total costs and expenses 2,318 2,267 --------- --------- Operating income 287 419 Interest expense and other: Weyerhaeuser: Interest expense incurred 65 64 Less interest capitalized 6 6 Other income (expense), net 7 (22) Real estate and financial services: Interest expense incurred 34 33 Less interest capitalized 18 18 Other income (expense), net 3 4 --------- --------- Earnings before income taxes 222 328 Income taxes (Note 2) 80 121 --------- --------- Net earnings $ 142 $ 207 ========= ========= Per common share (Note 1): Net earnings $ .72 $ 1.00 ========= ========= Dividends paid $ .40 $ .30 ========= =========
See Accompanying Notes to Financial Statements Weyerhaeuser Company - -4-
WEYERHAEUSER COMPANY AND SUBSIDIARIES ____________ CONSOLIDATED BALANCE SHEET March 31, 1996 and December 31, 1995 (Dollar amounts in millions) March 31, Dec. 31, 1996 1995 ----------- ---------- (Unaudited) Assets - ------ Weyerhaeuser Current assets: Cash and short-term investments (Note 1) $ 28 $ 34 Receivables, less allowances 966 976 Inventories (Note 3) 1,092 960 Prepaid expenses 305 265 ----------- ---------- Total current assets 2,391 2,235 Property and equipment (Note 4) 6,677 6,717 Construction in progress 593 509 Timber and timberlands at cost, less fee stumpage charged to disposals 898 666 Other assets and deferred charges 233 232 ----------- ---------- 10,792 10,359 ----------- ---------- Real estate and financial services Cash and short-term investments, including restricted deposits 51 50 Receivables, less discounts and allowances 150 92 Mortgage notes held for sale 477 332 Mortgage loans receivable 154 155 Investments 61 70 Mortgage-backed certificates and other pledged financial instruments 179 185 Real estate in process of development and for sale, less reserves 766 776 Land being processed for development, less reserves 673 688 Deferred acquisition costs 14 84 Investments in and advances to joint ventures and limited partnerships, less reserves 90 113 Rental properties, less accumulated depreciation 172 184 Other assets 136 165 ----------- --------- 2,923 2,894 ----------- --------- Total assets $ 13,715 $ 13,253 =========== =========
See Accompanying Notes to Financial Statements Weyerhaeuser Company - -5-
March 31, Dec. 31, 1996 1995 ----------- ---------- (Unaudited) Liabilities and shareholders' interest - -------------------------------------- Weyerhaeuser Current liabilities: Notes payable $ 18 $ 24 Current maturities of long-term debt 106 125 Accounts payable (Note 1) 665 747 Accrued liabilities (Note 5) 580 707 ----------- ---------- Total current liabilities 1,369 1,603 Long-term debt (Note 7) 3,592 2,983 Deferred income taxes 1,223 1,196 Deferred pension and other liabilities 511 509 Minority interest in subsidiaries 112 111 Commitments and contingencies (Note 9) -- -- ----------- ---------- 6,807 6,402 ----------- ---------- Real estate and financial services Notes payable and commercial paper 257 338 Collateralized mortgage obligation bonds 154 159 Long-term debt (Note 7) 1,711 1,594 Other liabilities 262 274 Commitments and contingencies (Note 9) -- -- ----------- ---------- 2,384 2,365 ----------- ---------- Total liabilities 9,191 8,767 ----------- ---------- Shareholders' interest (Note 8) Common shares: authorized 400,000,000 shares, issued 206,072,890 shares, $1.25 par value 258 258 Other capital 411 415 Cumulative translation adjustment (89) (90) Retained earnings 4,289 4,226 Treasury common shares, at cost: 7,847,419 and 7,302,878 (345) (323) ----------- ---------- Total shareholders' interest 4,524 4,486 ----------- ---------- Total liabilities and shareholders' interest $ 13,715 $ 13,253 =========== ==========
Weyerhaeuser Company - -6-
WEYERHAEUSER COMPANY AND SUBSIDIARIES ____________ CONSOLIDATED STATEMENT OF CASH FLOWS For the thirteen week periods ended March 31, 1996 and March 26, 1995 (Dollar amounts in millions) (Unaudited) Consolidated ------------------- March 31, March 26, 1996 1995 --------- --------- Cash flows provided by operations: Net earnings $ 142 $ 207 Non-cash charges to income: Depreciation, amortization and fee stumpage 147 138 Deferred income taxes, net 50 51 Changes in working capital: Accounts receivable (51) (28) Inventories, prepaid expenses, real estate and land (134) (183) Mortgage notes held for sale and mortgage loans receivable (138) 38 Other liabilities (210) 7 (Gain) loss on disposition of assets 11 2 Other (11) 20 --------- --------- Net cash provided by operations (194) 252 --------- --------- Cash flows from investing in the business: Property and equipment (182) (172) Timber and timberlands (239) (11) Mortgage and investment securities acquired (2) (23) Proceeds from sale of: Property and equipment 2 9 Mortgage and investment securities 83 7 Other 14 1 --------- --------- Net cash flows from investing in the business (324) (189) --------- --------- Cash flows from financing activities: Sale of debentures, notes and CMO bonds 5 554 Notes and commercial paper borrowings, net 679 90 Cash dividends on common shares (79) (62) Payments on debentures, notes, bank credit agreements, income debenture, capital leases and CMO bonds (66) (378) Purchase of treasury common shares (34) -- Exercise of stock options 8 1 --------- --------- Net cash flows from financing activities 513 205 --------- --------- Net increase (decrease) in cash and short-term investments (5) 268 Cash and short-term investments at beginning of year 84 263 --------- --------- Cash and short-term investments at end of period $ 79 $ 531 ========= ========= Cash paid (received) during the period for: Interest, net of amount capitalized $ 116 $ 97 ========= ========= Income taxes $ 90 $ (2) ========= =========
See Accompanying Notes to Financial Statements Weyerhaeuser Company - -7-
Real Estate and Weyerhaeuser Financial Services - -------------------- -------------------- March 31, March 26, March 31, March 26, 1996 1995 1996 1995 - --------- --------- --------- --------- $ 137 $ 205 $ 5 $ 2 142 129 5 9 27 50 23 1 10 (55) (61) 27 (172) (154) 38 (29) -- -- (138) 38 (218) 11 8 (4) 11 2 -- -- -- 11 (11) 9 - --------- --------- --------- --------- (63) 199 (131) 53 - --------- --------- --------- --------- (181) (170) (1) (2) (239) (11) -- -- -- -- (2) (23) 2 9 -- -- -- -- 83 7 (4) 36 18 (35) - --------- --------- --------- --------- (422) (136) 98 (53) - --------- --------- --------- --------- 5 554 -- -- 625 (107) 54 197 (79) (62) -- -- (46) (167) (20) (211) (34) -- -- -- 8 1 -- -- - --------- --------- --------- --------- 479 219 34 (14) - --------- --------- --------- --------- (6) 282 1 (14) 34 190 50 73 - --------- --------- --------- --------- $ 28 $ 472 $ 51 $ 59 ========= ========= ========= ========= $ 100 $ 81 $ 16 $ 16 ========= ========= ========= ========= $ 107 $ 13 $ (17) $ (15) ========= ========= ========= =========
Weyerhaeuser Company - -8- WEYERHAEUSER COMPANY AND SUBSIDIARIES ____________ NOTES TO FINANCIAL STATEMENTS For the thirteen week periods ended March 31, 1996 and March 26, 1995 Note 1: Summary of Significant Accounting Policies Consolidation The consolidated financial statements include the accounts of Weyerhaeuser Company and all of its majority-owned domestic and foreign subsidiaries. Significant intercompany transactions and accounts are eliminated. Certain of the consolidated financial statements and notes to financial statements are presented in two groupings: (1) Weyerhaeuser Company (Weyerhaeuser, or the company), which is principally engaged in the growing and harvesting of timber and the manufacture, distribution and sale of forest products, and (2) real estate and financial services, which includes Weyerhaeuser Real Estate Company (WRECO), which is involved in real estate development and construction, and Weyerhaeuser Financial Services, Inc. (WFS), whose principal subsidiary is Weyerhaeuser Mortgage Company (WMC). Nature of Operations The company's principal business segments, which account for the majority of sales, earnings and the asset base, are: . Timberlands and wood products, which is engaged in the management of 5.4 million acres of company-owned forestland in the United States and 18.9 million acres of forestland in Canada under long- term licensing arrangements and the production of a full line of solid wood products that are sold primarily through the company's own sales organizations to wholesalers, retailers and industrial users in North America, the Pacific Rim and Europe. . Pulp, paper and packaging, which manufactures and sells pulp, newsprint, paper, paperboard and containerboard in North American, Pacific Rim and European markets, and packaging products for the domestic markets, and which operates an extensive wastepaper recycling system that serves company mills and worldwide markets. Changes in Accounting Principles In 1995 first quarter, the company implemented Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan," which requires creditors to measure impairment based on the present value of expected future cash flows discounted at the loan's effective interest rate, and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition and Disclosures," which amended SFAS No. 114 to allow creditors to use existing methods for recognizing interest on impaired loans and also requires creditors to disclose certain information about how interest income was recognized on impaired loans. The adoption of these pronouncements did not have a significant impact on results of operations or financial position. In 1995 third quarter, the company implemented SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires companies to change their method of valuing long-lived assets. The implementation of this pronouncement, along with the company's decision to accelerate the disposition of some of those real estate assets, resulted in a charge of $290 million to operations. The company currently plans to dispose of most of the impaired assets over the next two years. The carrying value of the affected assets at March 31, 1996 and December 31, 1995 was approximately $261 million and $291 million, respectively. In 1995 fourth quarter, the company implemented SFAS No. 122, "Accounting for Mortgage Servicing Rights -- an Amendment of FASB Statement No. 65," which modifies the treatment of the capitalization of servicing rights by mortgage banking enterprises. The change constitutes a simplification in procedures, eliminating the separate treatment of servicing rights acquired through loan origination and those acquired through purchasing transactions, as previously required under SFAS No. 65. The change also requires that the enterprise periodically evaluate servicing rights for impairment. The adoption of this pronouncement by WMC did not have a significant impact on results of operations or financial position. Weyerhaeuser Company - -9- Prospective Accounting Changes In October 1995, the Financial Accounting Standards Board (FASB) issued SFAS No. 123, "Accounting for Stock-Based Compensation," which requires companies to change what they disclose about their employee stock-based compensation plans, recommends that they change the accounting for these plans to a fair-value based method and requires those companies that do not change their accounting to disclose what their earnings and earnings per share would have been if they had changed. This disclosure is applicable for financial statements for fiscal years beginning after December 15, 1995. The company will continue to account for these plans using the method of accounting prescribed by Accounting Principles Board Opinion No. 25 and will conform to the disclosure requirements of SFAS No. 123 for the fiscal year 1996. Net Earnings Per Common Share Net earnings per common share are based on the weighted average number of common shares outstanding during the respective periods. Average common equivalent shares (stock options) outstanding have not been included, as the computation would not be dilutive. Weighted average common shares outstanding were 198,195,035 and 205,628,338 at March 31, 1996 and March 26, 1995, respectively. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Derivatives The company has only limited involvement with derivative financial instruments and does not use them for trading purposes. They are used to manage well-defined interest rate and foreign exchange risks. These include: . Foreign exchange contracts, which are hedges for foreign denominated accounts receivable and payable, have gains or losses recognized at settlement date. . Interest rate swaps entered into with major banks or financial institutions in which the company pays a fixed rate and receives a floating rate with the interest payments being calculated on a notional amount. The premiums received by the company on the sale of these swaps are treated as deferred income and amortized against interest expense over the term of the agreements. . Hedging transactions entered into by the company's mortgage banking subsidiary to protect both the completed loan inventory and loans in process against changes in interest rates. The financial instruments used to manage interest rate risk are forward sales commitments, interest rate futures and options. Hedging gains and losses realized during the commitment and warehousing period are deferred to the extent of unrealized gains on the related mortgage loans held for sale. The company is exposed to credit-related losses in the event of nonperformance by counterparties to financial instruments but does not expect any counterparties to fail to meet their obligations. The company deals only with highly rated counterparties. The notional amounts of these derivative financial instruments are $1.1 billion and $.9 billion at March 31, 1996 and December 31, 1995, respectively. The company's use of derivatives does not have a significant effect on the company's results of operations or its financial position. Cash and Short-Term Investments For purposes of cash flow and fair value reporting, short-term investments with original maturities of 90 days or less are considered as cash equivalents. Short-term investments are stated at cost, which approximates market. Weyerhaeuser Company - -10- Inventories Inventories are stated at the lower of cost or market. Cost includes labor, materials and production overhead. The last-in, first-out (LIFO) method is used to cost the majority of domestic raw materials, in process and finished goods inventories; either the first-in, first- out (FIFO) or average cost method is used to cost all other inventories. Property and Equipment The company's property accounts are maintained on an individual asset basis. Betterments and replacements of major units are capitalized. Maintenance, repairs and minor replacements are expensed. Depreciation is provided generally on the straight-line or unit-of- production method at rates based on estimated service lives. Amortization of logging railroads and truck roads is provided generally as timber is harvested and is based upon rates determined with reference to the volume of timber estimated to be removed over such facilities. The cost and related depreciation of property sold or retired is removed from the property and allowance for depreciation accounts and the gain or loss is included in earnings. Timber and Timberlands Timber and timberlands are carried at cost less fee stumpage charged to disposals. Fee stumpage is the cost of standing timber and is charged to fee timber disposals as fee timber is harvested, lost as the result of casualty or sold. Stumpage rates are determined with reference to the cost of timber and the related volume of timber estimated to be recoverable. Timber carrying costs are expensed as incurred. Accounts Payable The company's banking system provides for the daily replenishment of major bank accounts as checks are presented. Accordingly, there were negative book cash balances of $149 million at March 31, 1996 and December 31, 1995, respectively. Such balances result from outstanding checks that had not yet been paid by the bank and are reflected in accounts payable in the consolidated balance sheets. Income Taxes Deferred income taxes are provided to reflect temporary differences between the financial and tax bases of assets and liabilities using presently enacted tax rates and laws. Pension Plans The company has pension plans covering most of its employees. The U.S. plan covering salaried employees provides pension benefits based on the employee's highest monthly earnings for five consecutive years during the final ten years before retirement. Plans covering hourly employees generally provide benefits of stated amounts for each year of service. Contributions to U.S. plans are based on funding standards established by the Employee Retirement Income Security Act of 1974 (ERISA). Postretirement Benefits Other Than Pensions In addition to providing pension benefits, the company provides certain health care and life insurance benefits for some retired employees and accrues the expected future cost of these benefits for its current eligible retirees and some employees. All of the company's salaried employees and some hourly employees may become eligible for these benefits when they retire. Reclassifications Certain reclassifications have been made to conform prior years' data to the current format. Weyerhaeuser Company - -11- Weyerhaeuser Real Estate Company Real estate held for sale is stated at the lower of cost or fair value. The determination of fair value is based on market pricing of comparable assets when available, or the present value of expected future cash flows from these assets. Real estate held for development is stated at cost to the extent it does not exceed the future undiscounted net cash flows. Weyerhaeuser Financial Services The company's financial services businesses are engaged in the mortgage banking industry, hold mortgage-backed certificates and other financial instruments pledged as collateral for collateralized mortgage obligation (CMO) bonds, and also offer insurance services. Mortgage notes held for sale are stated at the lower of cost or market, which is computed by the aggregate method (unrealized losses are offset by unrealized gains). Mortgage-backed certificates are carried at par value adjusted for any unamortized discount or premium. CMO bonds are carried at unamortized cost. Discounts and premiums are amortized using a method that approximates the effective interest method over their estimated lives. Note 2: Income Taxes
Provisions for income taxes include the following: Thirteen Weeks Ended -------------------- March 31, March 26, Dollar amounts in millions 1996 1995 --------- --------- Federal: Current $ 19 $ 36 Deferred 50 47 --------- --------- 69 83 --------- --------- State: Current 3 6 Deferred 4 3 --------- --------- 7 9 --------- --------- Foreign: Current 8 28 Deferred (4) 1 --------- --------- 4 29 --------- --------- Total $ 80 $ 121 ========= =========
Income tax provisions for interim periods are based on the current best estimate of the effective tax rate expected to be applicable for the full year. The effective tax rate reflects anticipated tax credits, foreign taxes and other tax planning alternatives. For the periods ended March 31, 1996 and March 26, 1995, the company's provision for income taxes as a percent of earnings before income taxes is greater than the 35% federal statutory rate due principally to the effect of state income taxes. The effective tax rates for the thirteen week periods ended March 31, 1996 and March 26, 1995 are 36% and 37%, respectively. Weyerhaeuser Company - -12- Deferred taxes are provided for the temporary differences between the financial and tax bases of assets and liabilities, applying presently enacted tax rates and laws. The major sources of these temporary differences include depreciable and depletable assets, real estate, restructuring reserves, and pension and retiree health care liabilities. Note 3: Inventories
March 31, Dec. 31, Dollar amounts in millions 1996 1995 --------- --------- Logs and chips $ 182 $ 173 Lumber, plywood and panels 170 135 Pulp, newsprint and paper 222 158 Containerboard, paperboard and packaging 115 107 Other products 129 117 Materials and supplies 274 270 --------- --------- $ 1,092 $ 960 ========= =========
Note 4: Property and Equipment
March 31, Dec. 31, Dollar amounts in millions 1996 1995 --------- --------- Property and equipment, at cost: Land $ 167 $ 167 Buildings and improvements 1,588 1,582 Machinery and equipment 9,296 9,253 Rail and truck roads and other 614 615 --------- --------- 11,665 11,617 Less allowance for depreciation and amortization 4,988 4,900 --------- --------- $ 6,677 $ 6,717 ========= =========
Note 5: Accrued Liabilities
March 31, Dec. 31, Dollar amounts in millions 1996 1995 --------- --------- Payroll - wages and salaries, incentive awards, retirement and vacation pay $ 206 $ 265 Taxes - social security and real and personal property 66 50 Interest 41 82 Accrued income taxes 56 117 Other 211 193 --------- --------- $ 580 $ 707 ========= =========
Note 6: Short-Term Debt The company has short-term bank credit lines that provide for borrowings of up to the total amount of $375 million and $725 million, all of which could be availed of by the company, WRECO and WMC at March 31, 1996 and December 31, 1995, respectively. No portion of these lines has been availed of by the company, WRECO or WMC at March 31, 1996 and December 31, 1995. None of the entities referred to herein is a guarantor of the borrowings of the others. Weyerhaeuser Company - -13- WMC has short-term special credit lines that provide for borrowings of up to $230 million at March 31, 1996 and December 31, 1995. Borrowings against these lines were $121 million and $115 million as of March 31, 1996 and December 31, 1995, respectively. Note 7: Long-Term Debt At March 31, 1996 and December 31, 1995, the company's lines of credit include a five-year competitive advance and revolving credit facility agreement entered into in July 1994 with a group of banks that provides for borrowings of up to the total amount of $1.55 billion, all of which can be availed of by the company, and $1 billion, which can be availed of by WMC. Borrowings are at LIBOR or other such interest rates as mutually agreed to between the borrower and lending banks. No portion of this line has been availed of by the company or WMC at March 31, 1996 or December 31, 1995. At March 31, 1996 and December 31, 1995, WMC had $35 million outstanding against a one-year evergreen credit commitment entered into in 1990. WMC has a revolving credit agreement with a bank to provide for: (1) borrowings of up to $35 million for two years at prime rate, LIBOR or such other rate as may be agreed upon by WMC and the banks; (2) a commitment fee based on the unused credit; and (3) conversion of the note as of July 1, 1998, to a five-year term loan payable in equal quarterly installments. At March 31, 1996 and December 31, 1995, $10 million and $20 million, respectively, were outstanding under this agreement. During 1992 WFS entered into a credit facility agreement, which was subsequently amended in May 1994 and provides for: (1) borrowings of up to $525 million at March 31, 1996 and at December 31, 1995 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 facility. $450 million was outstanding under this facility at March 31, 1996 and December 31, 1995. To the extent that these credit commitments expire more than one year after the balance sheet date and are unused, an equal amount of commercial paper is classifiable as long-term debt. Amounts so classified are:
March 31, Dec. 31, Dollar amounts in millions 1996 1995 --------- --------- Weyerhaeuser $ 877 $ 252 Real estate and financial services 394 263
Total interest costs incurred by WRECO are capitalized and will ultimately be accounted for as an element of operating costs. The company's compensating balance agreements were not significant. Note 8: Shareholders' Interest Common shares reserved for stock option plans were 6,884,256 shares at March 31, 1996 and 5,972,195 shares at December 31, 1995. Note 9: Commitments and Contingencies The company's capital expenditures, excluding acquisitions, have averaged $869 million in recent years, but are expected to be approximately $900 million in 1996; however, the 1996 expenditure level could be increased or decreased as a consequence of future economic conditions. The company is a party to legal proceedings and environmental matters generally incidental to its business. Although the final outcome of any legal proceeding or environmental matter is subject to a great many variables and cannot be predicted with any degree of certainty, the company presently believes that the ultimate outcome resulting from these proceedings and matters would not have a material effect on the company's current financial position, liquidity or results of operations; however, in any given future reporting period, such proceedings or matters could have a material effect on results of operations. Weyerhaeuser Company - -14- WEYERHAEUSER COMPANY AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations Net sales and revenues and earnings before interest expense and income taxes by segment are:
Thirteen Weeks Ended -------------------- March 31, March 26, Dollar amounts in millions 1996 1995 --------- --------- Net sales and revenues: Timberlands and wood products $ 1,116 $ 1,187 Pulp, paper and packaging 1,217 1,269 Real estate 180 140 Financial services 52 42 Corporate and other 40 48 --------- --------- $ 2,605 $ 2,686 ========= ========= Earnings before interest expense and income taxes: Timberlands and wood products $ 152 $ 241 Pulp, paper and packaging 162 208 Real estate 7 1 Financial services (1) 3 3 Corporate and other (43) (67) --------- --------- $ 281 $ 386 ========= ========= (1) Includes net interest expense of $16 million and $15 million related to the financial services businesses.
Results of Operations Net sales in the first quarter of 1996 were $2.6 billion, down 3 percent from the $2.7 billion reported in the same quarter of 1995. Net earnings for the quarter were $142 million, or 72 cents per common share, as compared with $207 million, or $1.00 per common share. The 1996 first quarter results reflected rapidly declining prices for most pulp, paper and packaging products and significantly lower wood products prices compared to year ago levels. The timberlands and wood products segment's net sales for the quarter were $1.1 billion, slightly less than the $1.2 billion recorded in 1995 first quarter. The segment's operating earnings were $152 million for the quarter, compared to $241 million in the same quarter last year. The quarter's results were depressed by extreme weather conditions which disrupted operations and delayed the normal spring pickup in new home construction. Finished product prices were lower than 1995 same quarter levels; however, activity in the U.S. began improving in March and the quarter ended on a positive note. Third party sales and total production volumes for the major products in this segment for the thirteen weeks ended March 31, 1996 and March 26, 1995 are as follows: Weyerhaeuser Company - -15- Third Party Sales Total Production -------------------- -------------------- Thirteen Weeks Ended Thirteen Weeks Ended -------------------- -------------------- March 31, March 26, March 31, March 26, Products (in millions) 1996 1995 1996 1995 - ---------------------- ---------- --------- ---------- --------- Raw materials--cubic feet 132 135 -- -- Logs--cubic feet -- -- 230 238 Softwood lumber--board feet 1,010 1,035 842 841 Softwood plywood and veneer-- square feet (3/8") 484 546 318 313 Composite panels--square feet (3/4") 153 159 137 146 Oriented strand board-- square feet (3/8") 460 458 391 402 Hardboard--square feet (7/16") 56 39 33 29 Hardwood lumber--board feet 89 66 83 60 Engineered wood products--lineal feet 21 27 -- -- Hardwood doors (thousands) 146 154 146 156
The pulp, paper and packaging segment's net sales for the quarter were $1.2 billion for the current quarter, compared to $1.3 billion and $1.5 billion in the 1995 first and fourth quarters, respectively. Operating earnings were $162 million in the quarter, down 22 percent from the $208 million in 1995 first quarter and 47 percent from the $304 million in 1995 fourth quarter. The falling pulp and paper products prices are a result of customers choosing to work off their inventories rather than placing new orders. There are signs of improvements in pulp and paper shipments that indicate that customers are nearing the end of depleting these inventories. However, continued erosion in the segment's second quarter earnings is expected from both lower average prices and production curtailments. The acquisition of nine corrugated packaging plants in the fourth quarter of 1995 accounted for a 23 percent increase in sales and production volumes in the first quarter of 1996 over the same period in 1995. The recycling business added nine centers in 1995, which raised the current quarter's sales volumes by 67 percent and production volumes by 39 percent over the 1995 first quarter. These gains in volumes were more than offset by pricing declines that resulted from the oversupply of inventories of market pulp, paper and newsprint. Third party sales and total production volumes for the major products in this segment for the thirteen weeks ended March 31, 1996 and March 26, 1995 are as follows: Third Party Sales Total Production -------------------- -------------------- Thirteen Weeks Ended Thirteen Weeks Ended -------------------- -------------------- March 31, March 26, March 31, March 26, Products (in thousands) 1996 1995 1996 1995 - ----------------------- --------- --------- --------- --------- Pulp--air-dry metric tons 397 501 525 542 Newsprint--metric tons 135 160 134 167 Paper--tons 246 267 261 263 Paperboard--tons 46 56 48 57 Containerboard--tons 66 62 564 613 Packaging--MSF 10,016 8,188 10,627 8,650 Recycling--tons 443 265 801 577
The real estate and financial services segments earned a combined $10 million in the current quarter, compared to $4 million a year ago. The quarter's performance was favorably impacted by an increase in revenues of $50 million, or 27 percent, over the 1995 first quarter. This results from several major commercial project closings and an increase in single family closings in the real estate segment and an increase in loan servicing revenues in the company's mortgage banking business. Worldwide economic conditions are uncertain, making it difficult to determine when things will improve. In light of this uncertainty, the company anticipates lower earnings in the second quarter of 1996. There was no material change in the total consolidated costs and expenses and interest expense incurred from 1995 to 1996. Weyerhaeuser Company - -16- Other income (expense) 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 for the thirteen week periods ended March 31, 1996 and March 26, 1995 was significant in relation to net earnings. Liquidity and Capital Resources General Earnings before interest expense and income taxes plus non-cash charges for the thirteen week periods ended March 31, 1996 and March 26, 1995 were $198 million and $284 million, respectively, for the timberlands and wood products segment, and $252 million and $290 million, respectively, for the pulp, paper and packaging segment. The company is committed to the maintenance of a sound, conservative capital structure. This commitment is based upon two considerations: the obligation to protect the underlying interests of its shareholders and lenders and the desire to have access, at all times, to all major financial markets. The important elements of the policy governing the company's capital structure are as follows: . To view separately the capital structures of Weyerhaeuser Company, Weyerhaeuser Real Estate Company and Weyerhaeuser Financial Services, Inc. given the very different nature of their assets and business activities. The amount of debt and equity associated with the capital structure of each will reflect the basic earnings capacity, real value and unique liquidity characteristics of the assets dedicated to that business. . The combination of maturing short-term debt and the structure of long-term debt will be managed judiciously to minimize liquidity risk. Operations The company generated $350 million of cash flow from operations before working capital changes in 1996 first quarter. This is down from the $398 million in the same quarter a year ago, due primarily to reduced net earnings. Weyerhaeuser's net working capital increased $390 million during the first quarter 1996. This was caused by a $132 million growth in inventories across all product lines, which aligns with the reduction in sales, and a $209 million decrease in accounts payable and accrued liabilities. In the same period last year, working capital increased $491 million, with the majority due to the proceeds of a $250 million debenture issue being invested in marketable securities at month-end. The increase in the working capital of the real estate and financial services segments is attributed to an increase of $138 million in mortgages held for sale as originations exceeded sales. Investing Capital expenditures for the quarter were $421 million, compared to $183 million in the same period last year. The 1996 spending by segment was: $305 million for timberlands and wood products, of which $239 million was for timber and timberlands including the acquisition of southern private commercial forestland; $108 million for the pulp, paper and packaging segment; and $8 million for other segments. The company currently anticipates capital expenditures, excluding acquisitions, to approximate $900 million for the year. However, this expenditure level could increase or decrease as a consequence of future economic conditions. The cash needed to meet these and other company needs was generated from internal cash flow and short-term borrowing. Financing During the first quarter of 1996, the company paid $79 million in cash dividends, compared to $62 million in the first quarter of 1995. The quarterly dividend rate was raised from 30 cents to 40 cents effective with the second quarter of 1995, resulting in an annualized rate of $1.60 per common share. The company repurchased $34 million of common shares in the quarter as a part of the 10 million share repurchase program, which commenced in the second quarter of 1995, bringing the total acquired to 9.3 million shares at March 31, 1996. Weyerhaeuser Company - -17- Notes and commercial paper borrowings increased by $679 million from 1995 year-end. This increase is included in the balance of $1.3 billion reclassified to long-term debt at March 31, 1996. Other Items On February 28, 1996, the company signed an agreement to acquire ownership and long-term leases to 661,200 acres of private commercial forestland and two sawmills in southeastern Louisiana and southern Mississippi from Cavenham Forest Industries, a subsidiary of Hansen Plc, for $500 million. This acquisition is not expected to have a significant impact on the company's financial position or liquidity. 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. Weyerhaeuser Company - -18- Part II. Other Information Item 1. Legal Proceedings Trial began in May 1992 in a federal income tax refund case that the company filed in July 1989 in the United States Claims Court. The complaint seeks a refund of federal income taxes that the company contends it overpaid in 1977 through 1983. The alleged overpayments are the result of the disallowance of certain timber casualty losses and certain deductions claimed by the company arising from export transactions. The refund sought was approximately $29 million, plus statutory interest from the dates of the alleged overpayments. The company settled the portion of the case relating to export transactions 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. Both the company and the government have appealed the decision. On March 6, 1992, the company filed a complaint in the Superior Court for King County, Washington, against a number of insurance companies. The complaint seeks a declaratory judgment that the insurance companies named as defendants are obligated under the terms and conditions of the policies sold by them to the company to defend the company and to pay, on the company's behalf, certain claims asserted against the company. The claims relate to alleged environmental damage to third-party sites and to some of the company's own property to which allegedly toxic material was delivered or on which allegedly toxic material was placed in the past. Since December 1992, the company has agreed to settlements with all but one of the defendants. The remaining defendant provided first layer excess coverage during a three year period. That defendant's liability on groups of sites is being tried in phases. Two trials against the remaining defendant, affecting nine sites, began in October 1994 and February 1996 and resulted in verdicts assigning 100 percent clean-up responsibility to the defendant on three sites, partial responsibility on three others and a finding of no liability as to the remaining three. The trial court has ruled that the primary policy has been exhausted and imposed an obligation on the remaining defendant to provide a defense on one of the sites, a ruling that may be expanded to include other sites. No trial schedule has been set for the 16 sites remaining in the case. The company received from the Lane County, Oregon Regional Air Pollution Control Authority (LRAPA) a draft Notice of Violation which seeks penalties for alleged Prevention of Significant Deterioration (PSD) violations at the company's Springfield, Oregon, particleboard operations. LRAPA informed the company in July 1995 that it will withdraw its draft Notice of Violation (NOV) and will not seek fines or penalties. On September 15, 1995; however, LRAPA issued a revised draft NOV (the Revised Draft NOV), which alleged that the Springfield particleboard facility had violated a condition of its Air Contaminant Discharge Permit (ACDP). The allegations in the Revised Draft NOV are based upon the same facts and circumstances relied upon by LRAPA in the prior draft NOV. The company has contested LRAPA's issuance of the Revised Draft NOV. The company conducted a review of its 10 pulp and paper facilities to evaluate the facilities' compliance with federal PSD regulations. The results of the reviews were disclosed to seven state agencies and the Environmental Protection Agency (EPA) during 1994 and 1995. Agreements resolving the alleged PSD issues have been reached with the states of Washington, Oklahoma and North Carolina, as noted below. In April 1995, EPA Region X issued a NOV to the company and to North Pacific Paper Corporation (NORPAC), a joint venture in which the company has an 80 percent ownership interest. The NOV addresses alleged PSD violations at NORPAC's Longview, Washington, newsprint manufacturing facility. A settlement resolving alleged PSD issues at the Longview/NORPAC complex was reached with the State of Washington on January 26, 1996. On November 14, 1995, the company entered into a settlement with the State of Oklahoma to resolve alleged PSD violations at the company's Valliant, Oklahoma, containerboard manufacturing facility. The company also entered into Special Orders by Consent with the State of North Carolina to resolve alleged PSD issues at the New Bern, North Carolina, pulp mill and the Plymouth, North Carolina, pulp and paper complex. The company is currently negotiating with the LRAPA to resolve alleged PSD and permit violations at the company's Springfield, Oregon, containerboard manufacturing facility. The Washington State Department of Ecology investigated the accidental release of chlorine, chlorine dioxide and noncondensable gasses in July 1994 at the company's pulp mill in Longview, and issued a $10 thousand penalty for the chlorine release and a $5 thousand penalty for the noncondensable gasses release which have been paid by the company. In June 1995, EPA issued an Administrative Complaint against the company, seeking penalties of $225 thousand and alleging a failure to timely report the chlorine release. The company has appealed. Weyerhaeuser Company - -19- The Washington State Department of Ecology has issued a NOV to the company, advising the company that it may issue a penalty because of three accidental chlorine releases which occurred at the company's pulp mill in Longview on March 18, 1996. The EPA is also investigating. On April 9, 1993, the company entered into a Stipulated Final Order (SFO) with the Oregon Department of Environmental Quality (DEQ) for alleged air emissions in excess of permit levels and PSD noncompliance at the company's North Bend, Oregon, containerboard facility. The SFO established a compliance schedule for installing control technology. A Supplemental SFO assessed a $247 thousand initial penalty and a $500 per day stipulated penalty until compliance was demonstrated. On November 15, 1995, DEQ issued a letter, indicating that the company had satisfied the requirements of the SFO and Supplemental SFO. No further penalties were assessed against the company. DEQ will terminate the SFO upon issuance of the federal air operating permit to the North Bend containerboard facility in mid-1996. On November 2, 1992, an action was filed against the company in the Circuit Court for the First Judicial District of Hinds County, Mississippi, on behalf of a purported class of riparian property owners in Mississippi and Alabama whose properties are located on the Tennessee Tombigbee Waterway, Aliceville Lake, Cedar Creek and the Magoway Creek. The complaint seeks $1 billion in compensatory and punitive damages for diminution in property value, personal injuries and mental anguish allegedly resulting from the discharge of purported hazardous substances, including dioxins and furans, by the company's pulp and paper mill in Columbus, Mississippi, and the alleged fraudulent concealments of such discharge. The complaint also seeks an injunction prohibiting future releases and the removal of hazardous substances allegedly released in the past. On August 20, 1993, a companion action was filed in Greene County, Alabama, on behalf of a similar purported class of riparian owners with essentially the same claims as the Mississippi case. By order dated April 5, 1995, venue of the Alabama action was transferred to Sumter County, Alabama. On January 20, 1995, the court in the Alabama action certified a class of all persons who, as of the date the action commenced, were riparian owners, lessees and licensees of properties located on the Tennessee Tombigbee Waterway in Greene, Sumter, Pickens and Marengo counties, Alabama, and Lowndes and Noxubee counties, Mississippi, to determine whether the company is liable to the members of the class for compensatory and/or punitive damages and to determine the amount of punitive damages, if any, to be awarded to the class as a whole. By order dated April 12, 1995, as orally amended on February 1, 1996, the geographical boundaries of the class were amended to run from below the Columbus mill's wastewater discharge pipe to just above the confluence of the Black Warrior River and the Tennessee Tombigbee Waterway. The class is estimated to range from approximately 1,000 to 1,500 members. Neither the Mississippi action nor the Alabama action is presently scheduled for trial. 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 6. Exhibits and Reports on Form 8-K (a) Not applicable. (b) The registrant filed reports on Form 8-K dated February 14, 1996 and April 24, 1996, reporting information under Item 5, Other Events. EX-27 2
5 1000000 3-MOS DEC-29-1996 MAR-31-1996 79 0 1116 0 1092 2391 6677 0 13715 1369 5457 258 0 0 4266 13715 2605 2605 1903 1903 186 1 75 222 80 142 0 0 0 142 .72 .72 Receivables are stated net of allowances. Property, Plant and Equipment is stated net of accumulated depreciation.
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