-----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, HbjR2uDlIzqMr4oDsf54gRfmfV0OzXHy6tt+niRg9ftbTo37iCRV8cx7IHc/c4Oo f8EmIbnrQXhZmSSp5dLs+w== 0000106535-97-000031.txt : 19971110 0000106535-97-000031.hdr.sgml : 19971110 ACCESSION NUMBER: 0000106535-97-000031 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970928 FILED AS OF DATE: 19971107 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: SEC FILE NUMBER: 001-04825 FILM NUMBER: 97709904 BUSINESS ADDRESS: STREET 1: 33663 WEYERHAEUSER WAY SOUTH CITY: FEDERAL WAY STATE: WA ZIP: 98003 BUSINESS PHONE: 2539242345 MAIL ADDRESS: STREET 1: 33663 WEYERHAEUSER WAY SOUTH CITY: FEDERAL WAY STATE: WA ZIP: 98003 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the thirty-nine weeks ended September 28, 1997 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______ Commission File Number 1-4825 WEYERHAEUSER COMPANY A Washington Corporation (IRS Employer Identification No. 91-0470860) Tacoma, Washington 98477 Telephone (253) 924-2345 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange on Title of Each Class Which Registered - ------------------------------- --------------------------- Common Shares ($1.25 par value) Chicago Stock Exchange New York Stock Exchange Pacific Stock Exchange Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___. The number of shares outstanding of the registrant's class of common stock, as of October 31, 1997 was 199,622,301 common shares ($1.25 par value). Weyerhaeuser Company - -2-
WEYERHAEUSER COMPANY AND SUBSIDIARIES Index to Form 10-Q Filing For the Thirty-nine weeks ended September 28, 1997 Page No. ---------------- Part I. Financial Information Item 1. Financial Statements Consolidated Statement of Earnings 3 Consolidated Balance Sheet 4-5 Consolidated Statement of Cash Flows 6-7 Notes to Financial Statements 9-15 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16-21 Part II. Other Information Item 1. Legal Proceedings 21-23 Item 2. Changes in Securities (not applicable) Item 3. Defaults upon Senior Securities (not applicable) Item 4. Submission of Matters to a Vote of Security Holders (not applicable) Item 5. Other Information (not applicable) Item 6. Exhibits and Reports on Form 8-K 23
The financial information included in this report has been prepared in conformity with accounting practices and methods reflected in the financial statements included in the annual report (Form 10-K) filed with the Securities and Exchange Commission for the year ended December 29, 1996. 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 thirty-nine week period ending September 28, 1997 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 November 7, 1997 Weyerhaeuser Company - -3-
WEYERHAEUSER COMPANY AND SUBSIDIARIES ____________ CONSOLIDATED EARNINGS For the periods ended September 28, 1997 and September 29, 1996 (Dollar amounts in millions except per share figures) (Unaudited) Thirteen weeks Thirty-nine ended weeks ended ------------------- ------------------- Sept. 28, Sept. 29, Sept. 28, Sept. 29, 1997 1996 1997 1996 --------- --------- --------- --------- Net sales and revenues: Weyerhaeuser $ 2,582 $ 2,619 $ 7,656 $ 7,635 Real estate and related assets 241 233 684 708 --------- --------- --------- --------- Net sales and revenues 2,823 2,852 8,340 8,343 --------- --------- --------- --------- Costs and expenses: Weyerhaeuser: Costs of products sold 2,018 1,982 5,967 5,745 Depreciation, amortization and fee stumpage 144 149 460 437 Selling, general and administrative expenses 152 175 499 522 Research and development expenses 13 12 41 39 Taxes other than payroll and income taxes 34 36 109 113 Charge for closure or disposition of facilities 10 -- 74 -- --------- --------- --------- --------- 2,371 2,354 7,150 6,856 --------- --------- --------- --------- Real estate and related assets: Costs and operating expenses 202 161 542 509 Depreciation and amortization 2 3 10 12 Selling, general and administrative expenses 13 45 83 121 Taxes other than payroll and income taxes 2 3 6 7 --------- --------- --------- --------- 219 212 641 649 --------- --------- --------- --------- Total costs and expenses 2,590 2,566 7,791 7,505 --------- --------- --------- --------- Operating income 233 286 549 838 Interest expense and other: Weyerhaeuser: Interest expense incurred 66 69 204 206 Less interest capitalized 4 3 12 17 Other income (expense), net 6 (17) (10) (41) Real estate and related assets: Interest expense incurred 25 32 86 101 Less interest capitalized 18 15 53 49 Other income (expense), net 10 1 71 14 --------- --------- --------- --------- Earnings before income taxes 180 187 385 570 Income taxes (Note 2) 66 67 141 205 --------- --------- --------- --------- Net earnings $ 114 $ 120 $ 244 $ 365 ========= ========= ========= ========= Per common share (Note 1): Net earnings $ .57 $ .60 $ 1.23 $ 1.84 ========= ========= ========= ========= Dividends paid $ .40 $ .40 $ 1.20 $ 1.20 ========= ========= ========= =========
See Accompanying Notes to Financial Statements Weyerhaeuser Company - -4-
WEYERHAEUSER COMPANY AND SUBSIDIARIES ____________ CONSOLIDATED BALANCE SHEET September 28, 1997 and December 29, 1996 (Dollar amounts in millions) Sept. 28, Dec. 29, 1997 1996 ----------- --------- (Unaudited) Assets - ------ Weyerhaeuser Current assets: Cash and short-term investments (Note 1) $ 23 $ 33 Receivables, less allowances 973 902 Inventories (Note 3) 938 1,001 Prepaid expenses 274 289 --------- --------- Total current assets 2,208 2,225 Property and equipment (Note 4) 6,738 7,007 Construction in progress 528 417 Timber and timberlands at cost, less fee stumpage charged to disposals 1,005 1,073 Other assets and deferred charges 438 246 --------- --------- 10,917 10,968 --------- --------- Real estate and related assets Cash and short-term investments, including restricted deposits 20 38 Receivables, less discounts and allowances 71 99 Mortgage notes held for sale -- 334 Mortgage loans receivable 67 133 Mortgage-backed certificates and other pledged financial instruments 153 154 Real estate in process of development and for sale 711 680 Land being processed for development 841 719 Investments in and advances to joint ventures and limited partnerships, less reserves 114 115 Rental properties, less accumulated depreciation 134 150 Other assets 90 206 --------- --------- 2,201 2,628 --------- --------- Total assets $ 13,118 $ 13,596 ========= =========
See Accompanying Notes to Financial Statements Weyerhaeuser Company - -5-
Sept. 28, Dec. 29, 1997 1996 ----------- -------- (Unaudited) Liabilities and shareholders' interest - -------------------------------------- Weyerhaeuser Current liabilities: Notes payable (Note 6) $ 202 $ 16 Current maturities of long-term debt 12 80 Accounts payable (Note 1) 654 725 Accrued liabilities (Note 5) 591 662 ---------- --------- Total current liabilities 1,459 1,483 Long-term debt (Note 7) 3,275 3,546 Deferred income taxes 1,366 1,324 Deferred pension and other liabilities 505 493 Minority interest in subsidiaries 119 113 Commitments and contingencies (Note 9) -- -- ---------- --------- 6,724 6,959 ---------- --------- Real estate and related assets Notes payable and commercial paper 332 245 Long-term debt (Note 7) 1,152 1,537 Other liabilities 267 251 Commitments and contingencies (Note 9) -- -- ---------- --------- 1,751 2,033 ---------- --------- Total liabilities 8,475 8,992 ---------- --------- Shareholders' interest (Note 8) Common shares: authorized 400,000,000 shares, issued 206,072,890 shares, $1.25 par value 258 258 Other capital 398 407 Cumulative translation adjustment (105) (93) Retained earnings 4,378 4,372 Treasury common shares, at cost: 6,517,032 and 7,736,601 (286) (340) ---------- --------- Total shareholders' interest 4,643 4,604 ---------- --------- Total liabilities and shareholders' interest $ 13,118 $ 13,596 ========== =========
Weyerhaeuser Company - -6-
WEYERHAEUSER COMPANY AND SUBSIDIARIES ____________ CONSOLIDATED STATEMENT OF CASH FLOWS For the thirty-nine week periods ended September 28, 1997 and September 29, 1996 (Dollar amounts in millions) (Unaudited) Consolidated ------------------- Sept. 28, Sept. 29, 1997 1996 --------- --------- Cash provided by (used for) operations: Net earnings $ 244 $ 365 Non-cash charges to income: Depreciation, amortization and fee stumpage 470 449 Deferred income taxes, net 70 125 Charge for closure or disposition of facilities 74 -- Decrease (increase) in working capital: Accounts receivable (72) (6) Inventories, prepaid expenses, real estate and land (90) 95 Mortgage notes held for sale and mortgage loans receivable (67) (107) Accounts payable and accrued liabilities (89) (206) Loss on disposition of assets 7 7 (Gain) on disposition of businesses (58) -- Other 54 (21) --------- --------- Cash provided by (used for) operations 543 701 --------- --------- Cash provided by (used for) investing activities: Property and equipment (417) (548) Timber and timberlands (34) (34) Interest in a joint venture (190) -- Property and equipment and timber and timberlands from acquisitions -- (448) Proceeds from sale of: Property and equipment 33 64 Mortgage and investment securities 29 111 Businesses 269 -- Intercompany advances -- -- Other 13 (39) --------- --------- Cash provided by (used for) investing activities (297) (894) --------- --------- Cash provided by (used for) financing activities: Issuances of debt 508 8 Sale of industrial revenue bonds 38 33 Notes and commercial paper borrowings, net (384) 765 Cash dividends on common shares (238) (238) Payments on debt (240) (350) Purchase of treasury common shares (16) (45) Exercise of stock options 61 19 Other (3) -- --------- --------- Cash provided by (used for) financing activities (274) 192 --------- --------- Net increase (decrease) in cash and short-term investments (28) (1) Cash and short-term investments at beginning of year 71 84 --------- --------- Cash and short-term investments at end of period $ 43 $ 83 ========= ========= Cash paid (received) during the period for: Interest, net of amount capitalized $ 259 $ 279 ========= ========= Income taxes $ 30 $ 137 ========= ========= See Accompanying Notes to Financial Statements
Weyerhaeuser Company - -7-
Real Estate and Weyerhaeuser Related Assets ------------------- ------------------- Sept. 28, Sept. 29, Sept. 28, Sept. 29, 1997 1996 1997 1996 --------- --------- --------- --------- $ 192 $ 353 $ 52 $ 12 460 437 10 12 51 89 19 36 74 -- -- -- (77) (4) 5 (2) 63 14 (153) 81 -- -- (67) (107) (135) (209) 46 3 13 10 (6) (3) (13) -- (45) -- 58 (8) (4) (13) --------- --------- --------- --------- 686 682 (143) 19 --------- --------- --------- --------- (415) (541) (2) (7) (34) (34) -- -- (190) -- -- -- -- (448) -- -- 19 53 14 11 -- -- 29 111 77 -- 192 -- 198 (24) (198) 24 (2) (29) 15 (10) --------- --------- --------- --------- (347) (1,023) 50 129 --------- --------- --------- --------- 495 8 13 -- 38 33 -- -- (605) 753 221 12 (238) (238) -- -- (81) (178) (159) (172) (16) (45) -- -- 61 19 -- -- (3) -- -- -- --------- --------- --------- --------- (349) 352 75 (160) --------- --------- --------- --------- (10) 11 (18) (12) 33 34 38 50 --------- --------- --------- --------- $ 23 $ 45 $ 20 $ 38 ========= ========= ========= ========= $ 225 $ 229 $ 34 $ 50 ========= ========= ========= ========= $ 68 $ 154 $ (38) $ (17) ========= ========= ========= =========
Weyerhaeuser Company - -8- This page intentionally left blank. Weyerhaeuser Company - -9- WEYERHAEUSER COMPANY AND SUBSIDIARIES ____________ NOTES TO FINANCIAL STATEMENTS For the thirty-nine week periods ended September 28, 1997 and September 29, 1996 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 (or the company), principally engaged in the growing and harvesting of timber and the manufacture, distribution and sale of forest products, and (2) Real estate and related assets, principally engaged in real estate development and construction and other real estate related activities. Nature of Operations The company's principal business segments, which account for the majority of sales, earnings and the asset base, are: . Timberlands and wood products, which is engaged in the management of 5.3 million acres of company-owned and .2 million acres of leased forestland in the United States and 23.7 million acres of forestland in Canada under long-term licensing arrangements and the production of a full line of solid wood products that are sold primarily through the company's own sales organizations to wholesalers, retailers and industrial users in North America, the Pacific Rim and Europe. . Pulp, paper and packaging, which manufactures and sells pulp, 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. Accounting Pronouncements Implemented In 1996, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," to provide accounting and reporting guidance for transfers and servicing of financial assets and extinguishments of liabilities and SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125 -- an amendment of FASB Statement No. 125," which deferred for one year the effective date of certain provisions. The company's adoption of SFAS No. 125 in 1997 did not, and the subsequent adoption of SFAS No. 127 will not, have a significant impact on results of operations or financial position. In 1996, the American Institute of Certified Public Accountants issued Statement of Position 96-1, "Environmental Remediation Liabilities." This statement, which provides guidance on the recognition and disclosure of environmental liabilities, is effective for fiscal years beginning after December 15, 1996. The adoption of this statement in 1997 did not have a significant impact on the company's results of operations or financial position. Prospective Accounting Pronouncements In 1997 first quarter, the FASB issued the following statements: . SFAS No. 128, "Earnings per Share," which supersedes APB Opinion No. 15, "Earnings per Share," and is effective for financial statements issued after December 15, 1997. This statement replaces the presentation of primary earnings per share (EPS) with a presentation of basic EPS, which excludes dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS, which is computed similarly to fully diluted EPS pursuant to APB Opinion No. 15, reflects the potential Weyerhaeuser Company - -10- dilution that would occur if securities or other contracts to issue common stock were exercised or converted to common stock or resulted in the issuance of common stock that would then share in the earnings of the entity. If SFAS No. 128 were implemented for the current year, the reported EPS would be as follows:
Thirteen weeks Thirty-nine weeks ended ended ------------------- ------------------- Sept. 28, Sept. 29, Sept. 28, Sept. 29, 1997 1996 1997 1996 --------- --------- --------- --------- Basic earnings per share $ .57 $ .60 $ 1.23 $ 1.84 Diluted earnings per share $ .57 $ .60 $ 1.22 $ 1.83
Options to purchase 1,216,400 shares at $45.94 per share, 4,700 shares at $47.13 per share, and 1,178,400 at $48.13 per share were outstanding during the thirty-nine week period ended September 29, 1996. These options were not included in the computation of diluted EPS for that period because the option exercise prices were greater than the average market price of common shares during the period. . SFAS No. 129, "Disclosure of Information about Capital Structure," which is effective for financial statements for periods ending after December 15, 1997, continues the existing requirements to disclose the pertinent rights and privileges of all securities other than common stock, but expands the number of companies subject to portions of its requirements. The company's current capital structure will not require any additional disclosures as a result of this pronouncement. 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 198,755,580 and 198,319,551 at September 28, 1997, and September 29, 1996, 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. Weyerhaeuser Company - -11- 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 $492 million and $807 million at September 28, 1997, and December 29, 1996, respectively. These notional amounts do not represent amounts exchanged by the parties and, thus, are not a measure of exposure to the company through its use of derivatives. The exposure in a derivative contract is the net difference between what each party is required to pay based on the contractual terms against the notional amount of the contract, such as interest rates or exchange rates. The use of derivatives does not have a significant effect on the company's results of operations or its financial position. Cash and Short-Term Investments For purposes of cash flow and fair value reporting, short-term investments with original maturities of 90 days or less are considered as cash equivalents. Short-term investments are stated at cost, which approximates market. Inventories Inventories are stated at the lower of cost or market. Cost includes labor, materials and production overhead. The last-in, first-out (LIFO) method is used to cost the majority of domestic raw materials, in process and finished goods inventories. LIFO inventories were $231 million and $296 million at September 28, 1997, and December 29, 1996, respectively. The balance of domestic raw material and product inventories, all materials and supplies inventories, and all foreign inventories is costed at either the first-in, first-out (FIFO) or moving average cost methods. Had the FIFO method been used to cost all inventories, the amounts at which product inventories are stated would have been $231 million and $239 million greater at September 28, 1997, and December 29, 1996, respectively. Property and Equipment The company's property accounts are maintained on an individual asset basis. Betterments and replacements of major units are capitalized. Maintenance, repairs and minor replacements are expensed. Depreciation is provided generally on the straight-line or unit-of- production method at rates based on estimated service lives. Amortization of logging railroads and truck roads is provided generally as timber is harvested and is based upon rates determined with reference to the volume of timber estimated to be removed over such facilities. The cost and related depreciation of property sold or retired is removed from the property and allowance for depreciation accounts and the gain or loss is included in earnings. Timber and Timberlands Timber and timberlands are carried at cost less fee stumpage charged to disposals. Fee stumpage is the cost of standing timber and is charged to fee timber disposals as fee timber is harvested, lost as the result of casualty or sold. Depletion rates used to relieve timber inventory are determined with reference to the net carrying value of timber and the related volume of timber estimated to be recoverable. Timber carrying costs are expensed as incurred. The cost of timber harvested is included in the carrying values of raw material and product inventories, and in the costs of products sold as these inventories are disposed of. Accounts Payable The company's banking system provides for the daily replenishment of major bank accounts as checks are presented. Accordingly, there were negative book cash balances of $116 million and $164 million at September 28, 1997, and December 29, 1996, 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. Weyerhaeuser Company - -12- Pension Plans The company has pension plans covering most of its employees. The U.S. plan covering salaried employees provides pension benefits based on the employee's highest monthly earnings for five consecutive years during the final ten years before retirement. Plans covering hourly employees generally provide benefits of stated amounts for each year of service. Contributions to U.S. plans are based on funding standards established by the Employee Retirement Income Security Act of 1974 (ERISA). Postretirement Benefits Other Than Pensions In addition to providing pension benefits, the company provides certain health care and life insurance benefits for some retired employees and accrues the expected future cost of these benefits for its current eligible retirees and some employees. All of the company's salaried employees and some hourly employees may become eligible for these benefits when they retire. Reclassifications Certain reclassifications have been made to conform prior years' data to the current format. Real Estate and Related Assets With the sale of the mortgage banking business in the 1997 second quarter, the financial services segment is no longer material to the results of the company. Beginning with the 1997 third quarter, the remaining real estate activities in financial services have been combined with real estate into one segment entitled real estate and related assets. Real estate held for sale is stated at the lower of cost or fair value. The determination of fair value is based on appraisals and market pricing of comparable assets, when available, or the discounted value of estimated future cash flows from these assets. Real estate held for development is stated at cost to the extent it does not exceed the estimated undiscounted future net cash flows, in which case, it is carried at fair value. Mortgage notes held for sale that were outstanding at December 29, 1996 were stated at the lower of cost or market, which was computed by the aggregate method (unrealized losses were offset by unrealized gains). As a result of the sale of the company's mortgage banking business during the year, there were no mortgage notes held for sale outstanding at September 28, 1997. Mortgage-backed certificates are carried at par value, adjusted for any unamortized discount or premium. These certificates and other financial instruments are pledged as collateral for the collateralized mortgage obligation (CMO) bonds and are held by banks as trustees. Principal and interest collections are used to meet the interest payments and reduce the outstanding principal balance of the bonds. Related CMO bonds are the obligation of the issuer, and neither the company nor any affiliated company has guaranteed or is otherwise obligated with respect to the bonds. Weyerhaeuser Company - -13-
Note 2: Income Taxes Provisions for income taxes include the following: Thirty-nine weeks ended ----------------------- Sept. 28, Sept. 29, Dollar amounts in millions 1997 1996 ----------- ---------- Federal: Current $ 39 $ 42 Deferred 71 124 ----------- ---------- 110 166 ----------- ---------- State: Current 3 6 Deferred 3 7 ----------- ---------- 6 13 ----------- ---------- Foreign: Current 29 32 Deferred (4) (6) ----------- ---------- 25 26 ----------- ---------- Total $ 141 $ 205 =========== ==========
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 September 28, 1997, and September 29, 1996, the company's provision for income taxes as a percent of earnings before income taxes is greater than the 35 percent federal statutory rate due principally to the effect of state income taxes. The effective tax rates for the thirty-nine week periods ended September 28, 1997, and September 29, 1996, were 36.5 percent and 36 percent, respectively. Deferred taxes are provided for the temporary differences between the financial and tax bases of assets and liabilities, applying presently enacted tax rates and laws. The major sources of these temporary differences include depreciable and depletable assets, real estate, restructuring reserves, and pension and retiree health care liabilities. Note 3: Inventories
Sept. 28, Dec. 29, Dollar amounts in millions 1997 1996 --------- -------- Logs and chips $ 75 $ 120 Lumber, plywood and panels 154 148 Pulp, newsprint and paper 181 202 Containerboard, paperboard and packaging 98 108 Other products 150 146 Materials and supplies 280 277 --------- --------- $ 938 $ 1,001 ========= =========
Weyerhaeuser Company - -14- Note 4: Property and Equipment
Sept. 28, Dec. 29, Dollar amounts in millions 1997 1996 --------- -------- Property and equipment, at cost: Land $ 160 $ 158 Buildings and improvements 1,677 1,686 Machinery and equipment 9,711 9,713 Rail and truck roads and other 597 596 --------- -------- 12,145 12,153 Less allowance for depreciation and amortization 5,407 5,146 --------- -------- $ 6,738 $ 7,007 ========= ========
Note 5: Accrued Liabilities
Sept. 28, Dec. 29, Dollar amounts in millions 1997 1996 --------- -------- Payroll - wages and salaries, incentive awards, retirement and vacation pay $ 256 $ 279 Taxes - social security and real and personal property 63 57 Interest 46 79 Income taxes 47 51 Other 179 196 --------- -------- $ 591 $ 662 ========= ========
Note 6: Short-Term Debt Debt The company's short-term debt at September 28, 1997 was $202 million which included a $190 million bank loan. Lines of Credit The company has short-term bank credit lines that provide for borrowings of up to the total amount of $352.5 million, all of which could be availed of by the company and Weyerhaeuser Real Estate Company (WRECO) at September 28, 1997, and borrowings of up to the total amount of $375 million, all of which could be availed of by the company, WRECO and Weyerhaeuser Mortgage Company (WMC) at December 29, 1996. No portion of these lines has been availed of by the company or WRECO at September 28, 1997, and none were availed of by the company, WRECO or WMC at December 29, 1996. None of the entities referred to herein is a guarantor of the borrowings of the others. At December 29, 1996, WMC had $54 million outstanding against short- term special credit lines that provided for borrowings of up to $230 million. Note 7: Long-Term Debt Debt Included in the company's long-term debt is a $300 million 6.95 percent debenture issued during the current quarter and due in the year 2017. Lines of Credit The company's lines of credit include a five-year competitive advance and revolving credit facility agreement entered into in 1994 with a group of banks that provides for borrowings of up to the total amount of $1.1 billion, all of which is available to the company. Borrowings Weyerhaeuser Company - -15- are at LIBOR or other such interest rates as mutually agreed to between the borrower and lending banks. At December 29, 1996, WMC had $25 million outstanding against a one- year evergreen credit commitment of $35 million entered into in 1990. Weyerhaeuser Financial Services, Inc. (WFS), a wholly owned subsidiary, has a revolving/term credit facility agreement that provides for: (1) borrowings of up to $350 million and $450 million at September 28, 1997, and December 29, 1996, respectively, 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. $330 million and $355 million were outstanding under this facility at September 28, 1997, and December 29, 1996, respectively. At December 29, 1996, WMC had 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. 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:
Sept. 28, Dec. 29, Dollar amounts in millions 1997 1996 --------- -------- Weyerhaeuser $ 284 $ 889 Real estate and related assets -- 248
No portion of these lines has been availed of by the company, WRECO or WFS at September 28, 1997, and none was availed of by the company, WRECO, WMC or WFS at December 29, 1996, except as noted. 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 5,689,082 shares at September 28, 1997, and 6,243,102 shares at December 29, 1996. Note 9: Commitments and Contingencies The company's capital expenditures, excluding acquisitions, have averaged about $912 million in recent years, but are expected to be approximately $750 million in 1997; however, that expenditure level could be increased or decreased as a consequence of future economic conditions. The company is a party to legal proceedings and environmental matters generally incidental to its business. Although the final outcome of any legal proceeding or environmental matter is subject to a great many variables and cannot be predicted with any degree of certainty, the company presently believes that the ultimate outcome resulting from these proceedings and matters would not have a material effect on the company's current financial position, liquidity or results of operations; however, in any given future reporting period, such proceedings or matters could have a material effect on results of operations. Weyerhaeuser Company - -16- WEYERHAEUSER COMPANY AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Net sales and revenues and earnings before interest expense and income taxes by segment are:
Thirteen weeks Thirty-nine ended weeks ended ------------------- ------------------- Sept. 28, Sept. 29, Sept. 28, Sept. 29, Dollar amounts in millions 1997 1996 1997 1996 --------- --------- --------- --------- Net sales and revenues: Timberlands and wood products $ 1,389 $ 1,437 $ 4,145 $ 3,921 Pulp, paper and packaging 1,160 1,130 3,410 3,548 Real estate and related assets (5) 241 233 684 708 Corporate and other 33 52 101 166 --------- --------- --------- --------- $ 2,823 $ 2,852 $ 8,340 $ 8,343 ========= ========= ========= ========= Earnings before interest expense and income taxes: Timberlands and wood products (1) $ 172 $ 210 $ 554 $ 579 Pulp, paper and packaging (2) 97 79 76 276 Real estate and related assets (3) (4) (5) 24 5 80 21 Corporate and other (6) (52) (41) (134) (117) --------- --------- --------- --------- $ 241 $ 253 $ 576 $ 759 ========= ========= ========= =========
(1) 1997 third quarter and year-to-date results include charges of $10 million and $25 million, respectively, associated with the closures of the Philadelphia, MS and Plymouth, NC, plywood facilities. (2) 1997 year-to-date results include special items of $28 million which is the net of a $49 million charge for the consolidation, closure or disposition of certain recycling facilities and the closure of the Longview, WA corrugated medium machine in prior quarters and a gain of $21 million on the sale of Saskatoon Chemicals, Ltd. during the current quarter. (3) 1997 year-to-date results include a gain of $45 million from the sale of the company's wholly owned subsidiary, Weyerhaeuser Mortgage Company. (4) Includes net interest expense of $7 million and $17 million for thirteen weeks and $33 million and $52 million for thirty-nine weeks related to the financial services businesses. (5) With the sale of the mortgage banking business in the 1997 second quarter, the financial services segment is no longer material to the results of the company. Beginning with the third quarter of 1997, financial services, consisting principally of real estate related assets, has been combined with real estate into one segment. (6) 1997 year-to-date results include pretax income of $10 million which is the net effect of interest income from a favorable federal income tax decision and the loss incurred in the sale of Shemin Nurseries. Consolidated Results Consolidated net earnings for the third quarter were $114 million, or 57 cents per common share, compared with $120 million or 60 cents per common share, in the same quarter last year. Included in the 1997 quarterly results was a net after-tax gain of $7 million, or 4 cents per common share, from the gain on the sale of the company's chemical business in Saskatoon, SK, Canada, offset in part by the costs associated with the planned closure of the Philadelphia, MS plywood facility. These transactions are a part of the company's ongoing effort to narrow its focus and upgrade the quality of the assets of its core businesses. Net sales and revenues for the quarter were $2.8 billion, equivalent to the $2.9 billion reported in the comparable quarter a year ago. Global economic growth continues to drive increasing demand for pulp and paper products and improved market prices for most pulp, paper and packaging products. The performance of the timberland and wood products businesses, however, has been hurt by a weak Japanese housing market. This slowdown in the Japanese market could continue to affect results into next year. Year-to-date earnings were $244 million, or $1.23 per common share, compared to the $365 million and $1.84 per common share reported a year earlier. 1997 results include a net gain of $1 million, or 1 cent per common share for the effect of special items year-to-date. In addition to the special items recognized in the current quarter, 1997 results included losses from restructuring in the recycling business, the closure of a corrugated medium machine, the closure of Weyerhaeuser Company - -17- another plywood mill and the sale of the wholesale nursery business, offset by a gain on the sale of the company's mortgage banking business and interest income from a favorable federal income tax decision. Net sales for the first nine months were $8.3 billion, unchanged from the same period last year. Timberlands and Wood Products Operating earnings in the timberlands and wood products segment for the quarter, including a $10 million charge associated with the plywood mill closure, were $172 million. Excluding the charge, the segment reported operating earnings of $182 million compared with $210 million in the 1996 third quarter. The segment had net sales of $1.4 billion in the quarter, equaling the same period a year earlier and down slightly from the $1.5 billion reported in the current year's second quarter. In addition to weaker lumber and log sales to Japan as a result of slower housing starts, lower domestic structural panel prices affected the segment's performance. During the quarter, the company completed the purchase of a 51 percent interest in an existing New Zealand joint venture. The company paid $190 million for timber, land and related assets and net working capital at closing. The forested area of the joint venture consists of 148,000 acres of Crown Forest License cutting rights and approximately 45,000 acres of freehold land. The company will be responsible for the management and marketing activities of the joint venture. RII New Zealand Forests I Inc. continues to hold the remaining 49 percent interest in the joint venture. Third party sales and total production volumes for the major products in this segment for the thirteen weeks and thirty-nine weeks ended September 28, 1997, and September 29, 1996, respectively, are as follows:
Thirteen weeks Thirty-nine weeks ended ended ------------------- ------------------- Third party sales volumes Sept. 28, Sept. 29, Sept. 28, Sept. 29, (millions) 1997 1996 1997 1996 - --------------------------- --------- --------- --------- --------- Raw materials--cubic feet 148 145 444 423 Softwood lumber--board feet 1,249 1,327 3,705 3,574 Softwood plywood and veneer--square feet (3/8") 536 590 1,581 1,664 Composite panels--square feet (3/4") 135 147 426 471 Oriented strand board--square feet (3/8") 650 549 1,844 1,544 Hardwood lumber--board feet 90 83 277 264 Engineered wood products-- lineal feet 39 34 105 88 Hardwood doors (thousands) 197 179 544 493 Total production volumes (millions) - --------------------------- Logs--cubic feet 241 221 733 664 Softwood lumber--board feet 1,016 955 3,039 2,770 Softwood plywood and veneer--square feet (3/8") 291 318 858 964 Composite panels--square feet (3/4") 120 123 369 415 Oriented strand board--square feet (3/8") 523 426 1,519 1,231 Hardwood lumber--board feet 92 78 267 251 Hardwood doors (thousands) 191 173 555 485
Pulp, Paper and Packaging The quarter's operating earnings in the pulp, paper and packaging segment were $97 million, including the $21 million gain on the sale of Saskatoon Chemicals, Ltd. Excluding the gain, the segment reported operating earnings of $76 million, 4 percent off the $79 million reported in the third quarter of 1996, but up significantly from the $22 million reported in the 1997 second quarter. The improvement that began late in the second quarter following implementation of price increases in pulp, paper and newsprint has continued during the third quarter. Net sales for the quarter were $1.2 billion, up slightly from the $1.1 billion reported both in the same quarter last year and the 1997 second quarter. Weyerhaeuser Company - -18- Third party sales and total production volumes for the major products in this segment for the thirteen weeks and thirty-nine weeks ended September 28, 1997, and September 29, 1996, respectively, are as follows:
Thirteen weeks Thirty-nine weeks ended ended ------------------- ------------------- Third party sales volumes Sept. 28, Sept. 29, Sept. 28, Sept. 29, (thousands) 1997 1996 1997 1996 - -------------------------- --------- --------- --------- --------- Pulp--air-dry metric tons 494 479 1,463 1,404 Newsprint--metric tons 166 150 499 454 Paper--tons 291 248 873 740 Paperboard--tons 62 58 177 160 Containerboard--tons 86 108 289 255 Packaging--MSF 11,180 10,905 33,773 31,793 Recycling--tons 538 514 1,668 1,473 Total production volumes (thousands) - -------------------------- Pulp--air-dry metric tons 520 549 1,519 1,510 Newsprint--metric tons 180 165 526 460 Paper--tons 283 262 840 763 Paperboard--tons 64 55 173 156 Containerboard--tons 595 597 1,785 1,759 Packaging--MSF 11,666 11,498 35,286 33,444 Recycling--tons 864 884 2,717 2,567
Real Estate and Related Assets With the sale of the mortgage banking business in the 1997 second quarter, the financial services segment is no longer material to the results of the company. Beginning with the 1997 third quarter, the remaining real estate activities in financial services have been combined with real estate into one segment entitled real estate and related assets. This segment's operating earnings for the current quarter were $24 million compared to $5 million for the same period last year. This increase reflects the strong housing markets in the area served by the company's real estate businesses. Costs and Expenses Weyerhaeuser's cost of products sold for the quarter as a percent of net sales was 78 percent in the current quarter, up from the 1996 third quarter and the 77 percent reported in the 1997 second quarter. Depreciation, amortization and fee stumpage were down marginally for the quarter and up 5 percent year-to-date over 1996 as new or acquired facilities were added and optimization, expansion, modernization or upgrade projects were completed at existing facilities. Non-cash charges to income related to closure or disposition of facilities were $10 million for the quarter and $74 million year-to-date. Total costs and expenses for the real estate and related assets segment were relatively even from period to period. An increase in costs and operating expenses corresponds with the increase in revenues from the sale of a large commercial real estate project in the quarter. Reduced selling, general and administrative costs in the quarter, when compared to the prior year, are due to the sale of the mortgage banking business. Other income (expense) is an aggregation of both recurring and occasional income or expense items and, as a result, fluctuates from period to period. An individual income item significant in relation to net earnings in the third quarter was the gain of $21 million on the sale of Saskatoon Chemicals, Ltd. In addition, year-to-date items of significance were the gain of $45 million from the sale of the mortgage banking business in the real estate and related assets segment and the $10 million net income effect of interest income from a favorable federal income tax decision and the loss incurred in the sale of the wholesale nursery business. There were no significant individual items in the comparable periods of 1996. Weyerhaeuser Company - -19- Liquidity and Capital Resources General The company is committed to the maintenance of a sound, conservative capital structure. This commitment is based upon two considerations: the obligation to protect the underlying interests of its shareholders and lenders and the desire to have access, at all times, to all major financial markets. 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 Weyerhaeuser's net cash provided by operations was $686 million in the first nine months of 1997 compared to $682 million provided in the same period of 1996. For the current year, funds were provided from net income of $192 million along with $460 million from depreciation, amortization and fee stumpage and $74 million of non-cash charges for the closure or disposition of facilities. Working capital, net of the effects of the sale of businesses, increased by $149 million year-to-date; however, there was a reduction of $38 million for the quarter. Material uses of funds year-to-date were an increase of $77 million in accounts receivable, primarily trade receivables, and a net decrease of $135 million in accounts payable, primarily trade payables, and accrued liabilities. Funds were sourced, in part, by a $63 million decrease in inventories as logs and chips and all pulp, paper, and packaging inventories were down from year-end levels, while wood products inventories were up. The annualized product inventory turnover rate was 12.6 turns in the quarter, up slightly from 12.5 turns in the second quarter of 1997 and up significantly from 10.8 turns in the third quarter of 1996. For the same period of 1996, the majority of the net $199 million working capital increase was attributable to a reduction of $209 million in accounts payable and accrued liabilities. Year-to-date earnings before interest expense and income taxes plus non-cash charges for the timberlands and wood products segment were $733 million, relatively unchanged from $741 million in 1996. The pulp, paper and packaging segment had $344 million, down from $535 million a year earlier as a result of lower earnings. The net cash used by operations in the real estate and related assets segment year-to-date was $143 million. Cash was provided by net income of $52 million, including a $45 million gain on the sale of the mortgage banking business. Increased working capital needs used cash of $169 million including outlays of $153 million for real estate purchases and development and a net $67 million for mortgages held for sale, as originations exceeded sales. This was offset in part from cash provided by a $46 million increase in accounts payable and accrued liabilities. Investing Capital expenditures, excluding acquisitions, for the first nine months were $451 million compared to $582 million in the same period of 1996. Acquisition of southern U.S. timber and timberlands and two sawmills accounted for spending of $448 million in 1996. The 1997 year-to-date spending by segment was $202 million for timberlands and wood products, $235 million for the pulp, paper and packaging segment and $14 million for other segments. The company currently anticipates capital expenditures, excluding acquisitions, to approximate $750 million for the year. However, this expenditure level could increase or decrease as a consequence of future economic conditions. During the third quarter, the company expended $190 million to acquire 51 percent of a forestry joint venture in New Zealand. Weyerhaeuser Company - -20- The cash needed to meet these and other company needs was generated from internal cash flow, issuance of debt, sale of businesses and short-term borrowing. Proceeds from sale of businesses totaled $269 million in the first nine months of 1997, with $65 million in the current quarter from the sale of the Saskatoon chemical business. $192 million was received from the sale of the mortgage banking business and $12 million from the sale of the wholesale nursery business in prior quarters. Financing During the first nine months of 1997, Weyerhaeuser decreased total debt by $153 million. This was the net of debt repayments of $81 million and reduction in commercial paper of $605 million offset by $533 million in new borrowings. During the quarter, the company issued $300 million of 6.95 percent 20 year debentures for general corporate purposes, entered into a $190 million short-term note to finance the New Zealand acquisition and paid down $522 million of its commercial debt. The company's total debt to equity ratio at the end of the current quarter was 36.7 percent, down from the second quarter's 37.3 percent and 37.9 percent at December 1996. The net increase in debt for the comparable period of 1996 was due, primarily, to issuances of $761 million in debt and commercial paper, offset, in part, by debt payments of $178 million. In the real estate and related assets segment, financing activities provided a net $75 million made up of increases in commercial paper of $221 million and other debt of $13 million to support property purchases and construction activity offset, in part, by debt paydown of $159 million. In the first nine months of both 1997 and 1996, the company paid $238 million in cash dividends. Year-to-date 1997, the company repurchased $16 million of common shares as a part of the 11 million share repurchase program. No shares were repurchased in the current quarter. In the first nine months of 1996, $45 million was used to repurchase shares. Subsequent Events In October 1997, the company issued additional 6.95 percent debentures in the amount of $300 million which will be due August 1, 2027. The net proceeds to be received by the company from the sale of these debentures will be added to the company's general funds and will be used for general corporate purposes, including working capital, capital expenditures and reduction of the company's commercial paper backed by a long-term credit agreement. In November 1997, the company entered into a new revolving credit facility agreement and a 364-day lines of credit agreement. The $400 million five-year revolving credit facility agreement, available to the company, replaces the existing $1.1 billion five-year competitive advance and revolving credit facility agreement entered into in 1994. The 364-day lines of credit agreement, available to the company and WRECO, provides for borrowings of up to $400 million. It replaces existing short-term bank lines of credit that provided for borrowings up to the amount of $327.5 million at September 28, 1997. Other Items During the quarter, the company and Nippon Paper Industries Co., Ltd. announced the signing of a memorandum of understanding restructuring their North Pacific Paper Corporation (NORPAC) joint venture. Under the agreement, the company and Nippon Paper each will own 50 percent of NORPAC. The company currently owns 80 percent of the joint venture with Nippon Paper holding the remaining 20 percent interest. Marketing responsibilities are unchanged. The agreement is subject to several contingencies, including approvals by the respective boards. The company expects this transaction to have a material effect on its cash flow in the quarter in which it closes. Weyerhaeuser Company - -21- Weyerhaeuser, like all other companies using computers and microprocessors, is faced with the task of addressing the Year 2000 problem over the next two years. The Year 2000 challenge arises from the nearly universal practice in the computer industry of using two digits rather than four digits to designate the calendar year (e.g., DD/MM/YY). This can lead to incorrect results when computer software performs arithmetic operations, comparisons or data field sorting involving years later than 1999. The company has embarked on a comprehensive approach to identify where this problem may occur in its information technology, manufacturing and facilities systems. The company plans to modify or replace its affected systems in a manner that will minimize any detrimental effects on operations. While it is not possible, at present, to quantify the overall cost of this work, the company presently believes that the ultimate outcome resulting from this work will 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 costs could have a material effect on results of operations. Contingencies The company is a party to legal proceedings and environmental matters generally incidental to its business. Although the final outcome of any legal proceeding or environmental matter is subject to a great many variables and cannot be predicted with any degree of certainty, the company presently believes that the ultimate outcome resulting from these proceedings and matters would not have a material effect on the company's current financial position, liquidity or results of operations; however, in any given future reporting period such proceedings or matters could have a material effect on results of operations. Part II. Other Information Item 1. Legal Proceedings 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 contended that the company overpaid federal income taxes in 1977 through 1983. The alleged overpayments resulted from 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 (successor to the United States Claims Court) issued an opinion on the casualty loss issues which resulted in the allowance of additional tax refunds of approximately $2 million, plus statutory interest. Both the company and the government appealed the decision. On August 2, 1996, the Court of Appeals for the Federal Circuit issued its opinion on the remaining timber casualty loss issues, ruling in favor of the company on both the company's appeal and the government's appeal. The United States Supreme Court denied the government's request for certiorari on January 21, 1997. On October 23, 1997, the United States Court of Federal Claims entered a judgment in favor of the company for refund of taxes in the amount of $9 million plus statutory interest. The company has received a partial refund of $7 million in tax plus statutory interest. 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 sought a declaratory judgment that the insurance companies were obligated to defend the company and to pay, on the company's behalf, certain claims relating to alleged environmental damage from toxic substances to sites owned by third parties and the company. The company subsequently 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 three phases. Two trials against the remaining defendant, affecting nine sites, began in October 1994 and February 1996, respectively, 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 remaining issue to be determined by the trial court is what, if any, credit will be given for settlement payments received by the other defendants. With respect to the remaining sites, a voluntary dismissal was taken on 6 sites, and the defendant's offer of judgment on the final 10 sites was accepted in June 1997. The company conducted a review of its 10 major pulp and paper facilities to evaluate the facilities' compliance with federal Prevention of Significant Deterioration (PSD) regulations. The results of the reviews were disclosed to seven state agencies and the Environmental Protection Agency (EPA) during 1994 and 1995. At the Cosmopolis, Washington, Columbus, Mississippi, and Flint River, Georgia, facilities, the state regulatory agencies agreed with the company's conclusions regarding the status of each facility. For the Cosmopolis facility, the Washington Department of Ecology agreed the changes made at the facility did not require PSD review. For the Columbus and Flint River facilities, the states concluded the original PSD permits issued to the facilities require updating. The company will update emissions data for the Columbus and Flint River facilities as part of the Title V permitting process. No penalties were assessed for the issues identified at Columbus and Flint River. Agreements resolving the alleged PSD issues have been reached with the states of Washington, Oklahoma and North Carolina, as noted below. No issues were identified at the company's Rothschild, Wisconsin, facility. In April 1995, EPA Region X issued a Notice of Violation (NOV) to the company and to North Pacific Paper Corporation Weyerhaeuser Company - -22- PART II Item 1. Legal Proceedings - Continued - -------------------------------------- (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. No decision has been made by the Lane County Oregon Regional Air Pollution Control Authority concerning alleged PSD and permit violations at the company's Springfield, Oregon, containerboard manufacturing facility. The Washington Department of Ecology issued a $10 thousand penalty to the company because of three accidental chlorine releases which occurred at the company's pulp mill in Longview on March 18, 1996, which has been paid. The EPA is also investigating. The Washington Department of Ecology has issued a NOV and a $40 thousand penalty because of an accidental spill of an estimated 8,700 gallons of crude sulfate turpentine on January 27, 1997, at the company's pulp and paper operations in Longview. The EPA is also investigating. On June 20, 1996, the Wisconsin Department of Natural Resources (WDNR) issued a NOV for alleged air violations at the Marshfield, Wisconsin, wood products manufacturing facility. No penalty was assessed in the NOV. The NOV was referred to the Wisconsin Department of Justice (WDOJ) for enforcement action on July 2, 1996. Settlement negotiations with WDNR and WDOJ are ongoing. The company expects a stipulated judgment and order resolving all issues will be executed on or before August 31, 1997. On October 2, 1996, the WDNR conducted an inspection of a building demolition project at the company's Marshfield, Wisconsin facility. The WDNR noted several potential non-compliance issues in the work performed by the asbestos abatement subcontractor retained for the project. Upon learning of the issues observed by WDNR, the company removed the asbestos abatement subcontractor from the plantsite. The WDNR and EPA Region V are reviewing the work performed to evaluate whether an enforcement action should be brought against the asbestos abatement subcontractor, the general contractor, and/or the company. 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 sought $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 sought 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. In late July, 1996, the company reached an agreement to settle both the Mississippi action and the Alabama action for $2.5 million. On May 8, 1997, after a fairness hearing, the Alabama court entered an order approving the settlement of the class action. In November 1996, an action was filed against the company in Superior Court for King County, Washington, on behalf of a purported class of all individuals and entities that own property in the United States on which exterior hardboard siding manufactured by the company has been installed since 1980. The action alleges the company has manufactured and distributed defective hardboard siding and has breached express warranties and consumer protection statutes in its sale of hardboard siding. The action seeks compensatory damages, including prejudgment interest, and seeks damages for the cost of replacing siding that rots subsequent to the entry of any judgment. In January 1997, an action was filed, also in Superior Weyerhaeuser Company - -23- PART II Item 1. Legal Proceedings - Continued - -------------------------------------- Court for King County, Washington, on behalf of a purported class of all individuals, proprietorships, partnerships, corporations, and other business entities in the United States on whose homes, condominiums, apartment complexes or commercial buildings hardboard siding manufactured by the company has been installed. The action alleges the company has breached express and implied warranties in its sale of hardboard siding and also has violated the Consumer Protection Act of the State of Washington. The action seeks damages, prejudgment interest, costs and reasonable attorney fees. The company is a defendant in approximately twenty-one other hardboard siding cases, two of which purport to be class actions on behalf of purchasers of single- or multi-family residences that contain the company's hardboard siding, one in Nebraska and one in Iowa. On August 7, 1997, the company entered a plea of guilty to a misdemeanor violation of the Migratory Bird Treaty Act in the U.S. District Court, Western District of Washington, at Tacoma. The misdemeanor violation involved the accidental poisoning of a hawk and an owl in the course of starling pest control at the company's Longview, Washington pulp mill. The company and the Department of Justice agreed to a disposition of the misdemeanor which involved an undertaking by the company to conduct a starling control research project at its Longview mill. 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 January 22, February 24, April 15, May 23, June 19, July 1, July 9, July 11, July 17, September 4, and October 15, 1997, reporting information under Item 5, Other Events. EX-27 2
5 1,000,000 9-MOS DEC-28-1997 SEP-28-1997 43 0 1,044 0 938 2,208 6,738 0 13,118 1,459 4,427 258 0 0 4,385 13,118 8,340 8,340 6,509 6,509 659 5 225 385 141 244 0 0 0 244 1.23 1.23 Receivables are stated net of allowances. Property, Plant and Equipment is stated net of accumulated depreciation.
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