Download - weyerhaeuser annual reports 1997
“ My job now is to build upon this foundation of
success. This may re q u i re that the Senior Ma n a g e m e n t
Team and I adapt to changes in our industry and find
ways to accelerate our efforts to improve. But, as we
do, we will always steer tow a rds our vision of becoming
the best forest products company in the world.”
“When we set a course in 1991 to become the best
f o rest products company in the world, we said that
one measure of our pro g ress would be our ability to
d e l i ver superior returns to shareholders. I’m proud of
the significant improvements that we have made – and
continue to make – in this important are a . ”
President & Chief Exe c u t i ve Of f i c e rDecember 1, 1997 —
President & Chief Exe c u t i ve Of f i c e rAugust 1, 1991 — November 30, 1997
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Dollar amounts in millions except per-share figure s
Net sales and re ve n u e s $ 1 1 , 2 1 0 $ 1 1 , 1 1 4
Net earnings before special items 3 5 1 4 6 3
Effect of special items ( 1 ) ( 9 ) –
Net earnings 3 4 2 4 6 3
Cash flow from operations, before working capital changes 1 , 0 9 9 1 , 2 5 7Capital expenditures (excluding acquisitions) 6 5 6 8 7 9Total assets 1 3 , 0 7 5 1 3 , 5 9 6Sh a re h o l d e r s’ intere s t 4 , 6 4 9 4 , 6 0 4
( 1 )
Basic earnings per common share ( 2) :First quart e r $ . 2 2 $ ( 0 . 1 2 ) $ . 1 0 $ . 7 2Second quart e r . 4 7 . 0 9) . 5 6 . 5 2T h i rd quart e r . 5 3 . 0 4) . 5 7 . 6 0Fo u rth quart e r . 5 4 ( . 0 5 ) . 4 9 . 5 0
$ 1 . 7 6 $ ( 0 . 0 4 ) $ 1 . 7 2 $ 2 . 3 4
(1) The 1997 special items are the net of gains on the sale of We ye rhaeuser Mo rtgage Company and Saskatoon Chemicals, Ltd., and intere s tincome from a favo rable federal income tax decision offset by the loss on the sale of Shemin Nurseries; the consolidation, closure or dispositionof certain recycling facilities; and closure of two plywood facilities, an export lumber mill and a corrugated medium machine. (2) Diluted earningsper common share by quarter for 1997 and 1996 we re $0.10, $0.55, $0.57 and $0.49; and $0.71, $0.52, $0.60 and $0.49, re s p e c t i ve l y.
Ma rket prices – high/low
First quart e r $ 50 5⁄8 - 4 41 ⁄2 $ 49 1 ⁄2 - 39 1 5⁄1 6
Second quart e r 5 51⁄4 - 4 25 ⁄8 49 7 ⁄8 - 41 3 ⁄4T h i rd quart e r 6 31 5⁄1 6 - 5 15⁄8 48 1 ⁄4 - 39 1 ⁄2Fo u rth quart e r 6 03⁄4 - 4 61 ⁄1 6 48 1⁄ 8 - 43 7 ⁄8
Ye a r $ 6 31 5 ⁄1 6 - 4 25⁄8 $ 49 7 ⁄8 - 39 1 ⁄2
The consolidated financial statements include: (1) We yerhaeuser Company (We yerhaeuser), principally engaged in theg rowing and harvesting of timber and the manufacture, distribution and sale of forest products, and (2) Real estate andrelated assets, principally engaged in real estate development and construction, and other real estate related activities.
On December 1, 1997, St e ven R. Rogel became president, chief
e xe c u t i ve officer and a director of We ye r h a e u s e r, following the re t i re-
ment of John W. Creighton, Jr. Rogel, 55, had served as pre s i d e n t
and chief exe c u t i ve officer of Willamette Industries since 1995. He is
a 32-year veteran of the forest products industry.
December 1, 1997 — August 1, 1991 — November 30, 1997
Under the leadership of Jack Creighton and the strategies he put in
place, We yerhaeuser has consistently produced results in the top
q u a rtile of the forest products industry.
My job now is to build upon this foundation of success.
Reaching the next level, howe ve r, will re q u i re hard work from all
of us at We ye r h a e u s e r. First, our industry is changing. It is becoming
m o re global and more consolidated. Our strategies going forw a rd
must reflect this fact and position We yerhaeuser to be a leader in this
change. Second, even though the company has come a long way, I
b e l i e ve there always are opportunities to improve .
Achieving these goals may re q u i re that the Senior Ma n a g e m e n t
Team and I adapt to changes in our industry and find ways to accel-
e r a t e our efforts to improve. But, as we do, we will always steer tow a rd s
our vision of becoming the best forest products company in the world.
In the coming years, I look forw a rd to re p o rting to you on our
p ro g ress tow a rds this important goal.
Si n c e re l y,
President & Chief Exe c u t i ve Of f i c e r
When we set a course in 1991 to
become the best forest pro d u c t s
company in the world, we said
that one measure of our pro g re s s
would be our ability to delive r
superior returns to share h o l d e r s .
As I write to you for the last
time, I’m proud of the significant
i m p rovements that we have made
– and continue to make – in this
i m p o rtant area. Since 1991,
we’ve gone from a position where
our return on net assets for our
c o re businesses ranked in the
bottom quartile of the industry
to a point in 1997 where we
led our industry peer gro u p.
Meanwhile, our total return to
s h a reholders since 1991 ranks
second in our peer gro u p.
These improvements are a dire c t
result of the discipline to narrow
our focus, upgrade our port f o l i o ,
enhance our operating perf o r-
mance and improve our capital
management. We started those
e f f o rts in 1991 and we continued
w o rking on them in 1997.
During
the ye a r, we completed the
sale of our mortgage banking
company and sold our chemical
business in Canada. We also
negotiated the re s t ructuring of our
No rth Pacific Paper Corporation
( N O R PAC) joint ve n t u re with
Nippon Paper Industries Co.,
Ltd., to more closely reflect our
operating re l a t i o n s h i p.
Du r i n g
1997, we announced plans to
i m p rove the lumber-pro d u c i n g
capabilities of our Plymouth
and New Bern, No rth Caro l i n a ,
and Philadelphia, Mississippi,
locations. These announcements
a re part of our overall plan to
i n c rease our lumber pro d u c t i o n
capacity by 15 percent over the next
three years. Although we have closed
our plywood facilities at two of
these locations, our overall plywood-
manufacturing capacity over time
will be unchanged as we continue
implementing productivity improve-
ments at our remaining facilities.
To expand into areas capable of
p roducing high returns, we began
i n vesting in fast-growing timber-
lands in the Southern He m i s p h e re .
In New Zealand, we now hold a
51 percent interest in the Ne l s o n
Fo rests Joint Ve n t u re, one of the
w o r l d’s first fore s t ry operations
to achieve ISO 14001 enviro n-
mental management cert i f i c a t i o n .
T h rough our investment in the
World Ti m b e rfund, we began pur-
chasing private agricultural land in
Uruguay to establish fast-grow i n g
managed forests. Because the soils
and climates of the So u t h e r n
He m i s p h e re produce the world’s
fastest rates for tree growth, we
expect to make additional inve s t-
ments in this area of the world.
Our 1997 results include a charge
against earnings associated with
the difficult decision to close our
lumber mill in Coos Ba y, Ore g o n ,
that had been producing gre e n
m e t r i c - s i zed posts and beams for
Japan. Although Japan has been,
and will continue to be, a key mar-
ket for We ye r h a e u s e r, the demand
for metric posts and beams has
declined over the past seve r a l
years. After re v i ewing all options,
we announced early in 1998 that
closing the facility was the best
decision in the long term.
T h ree years ago, we initiated our
second Business Im p rove m e n t
Plan with a goal of realizing
$600 million in annual pre t a x
operating improvements as mea-
s u red in 1994 prices and costs.
We achieved that goal this ye a r
due to the efforts of our employe e s .
Their ideas helped us reduce our
costs, enhance our manufacturing
re l i a b i l i t y, increase pro d u c t i o n
capabilities, improve the quality
of our products and achieve
g reater customer satisfaction.
Equally important, most of these
i m p rovements re q u i red little or
no capital to achieve .
A s
a company we continue to become
m o re disciplined re g a rding where
and how we invest capital. T h i s
year we held capital spending,
e xcluding acquisitions, to $656
million, the lowest in five ye a r s .
But we also know we can be more
e f f e c t i ve in how we invest capital.
T h a t’s why this year we began a
n ew capital effectiveness initiative
designed to attain a savings of up
to 30 cents on eve ry dollar we
spend. Our analysis of world-class
companies – inside and outside of
the forest products industry –
indicates this is an achievable goal.
As 1997 demonstrated, such
i m p rovements are necessary to
reduce our vulnerability to bro a d
economic conditions. Due to the
weakness of several international
economies and the slow re c ove ry
of worldwide pulp prices, net
earnings for 1997 before special
items we re $351 million, or $1.76
per common share, down fro m
$463 million, or $2.34 per com-
mon share, in 1996. In pre v i o u s
years, we would have fared far
worse in an industry downturn
of this magnitude. But we still
h a ve a way to go.
It is now up to St e ve Rogel –
who succeeds me as president and
chief exe c u t i ve officer – and the
Senior Management Team to lead
us in achieving further improve-
ments. I firmly believe they will
succeed because of the stro n g
management team in place and
the position of our company to
p roduce even better re t u r n s .
We own or manage an enormous
expanse of highly pro d u c t i ve fore s t -
land in No rth America. T h i rty ye a r s
ago, we had the foresight to pioneer
the High Yield Fo re s t ry pro g r a m s .
As a result, we will see a dramatic
i n c rease in our timber harvest ove r
the next 20 years. By the year 2020,
the timber harvest from the land
we own and manage in the Un i t e d
States will increase by approx i-
mately 70 percent from 1995 lev-
els and significantly enhance cash
f l ow from this re s o u rce. Me a n w h i l e ,
our manufacturing facilities are
operating more efficiently and
p roducing higher quality pro d u c t s
than ever before .
Mo re important, we are a com-
pany with a superior work forc e .
T h rough our Pe rformance Sh a re
Plan, most of our employees also are
s h a reholders of this company. As
s h a reholders, they demand that we
a c h i e ve the high standards of per-
formance we have set for ourselve s .
These are the tools and
re s o u rces St e ve Rogel will use as
he leads We yerhaeuser on its next
steps of improving shareholder
returns. He also will lead us
t ow a rds better performance in
other areas we feel befit the best
f o rest products company in the
world. This includes making our
w o rk environment and pro c e s s e s
e ven safer for employees, improv-
ing the quality of our pro d u c t s ,
listening more closely to our
customers, developing global
p roduction and marketing capa-
bilities, and continuing to incre a s e
our productivity and re l i a b i l i t y
t h rough empowe red employe e s .
I have enjoyed my years at
We yerhaeuser and I’m proud of
the pro g ress we’ve made. I’m
h o n o red to have played a leader-
ship role during an exciting and
i m p o rtant period in our compa-
n y’s h i s t o ry. Most of all, I am
deeply grateful to eve ryone who
helped, advised and supported
me along the way.
Si n c e re l y,
President & Chief Exe c u t i ve Of f i c e r
August 1, 1991 — November 30, 1997
S EN IO R V I C E P R E S I D E N T
Chief Fi n a n c i a lOf f i c e r
P R ES I D E N T A N DCH I E F E X E C U T I V EO F F I C E R
S EN I O R V I C EP R E S I D E N T
Wood Pro d u c t s
S EN I O R V I C E P R E S I D E N T
Human Re s o u rc e sand In f o rm a t i o nTe c h n o l o gy
S E N I O R V I C E P R E S I D E N T
C o r p o rate Affairs
E X E C UT I V E V I C E P R E S I D E N T
Pulp, Paper andPa c k a g i n g
S E N I O R V I C E P R E S I D E N T
Re s e a rch andDe ve l o p m e n t
E X E C UT I V E V I C E P R E S I D E N T
Ti m b e rlands andD i s t r i b u t i o n
Our v i s i o n i s s t r a i gh t fo r w a rd: To be t he be s t f o r e s t p ro d u c t s
com pa ny in t he wo r ld . A s w i th a ny v a l id v i s i o n st a t ement , i t i s
intended to endure and remain cons tant through changing business
cond it ions. We wi l l know we are the best when a l l o f our s t a k e-
holde rs t el l u s and when we have evidence support ing the ir v iew.
Ou r va lue s ho ld u s to the h igh e st s t anda rd o f e th ic a l conduc t
and env iro nmen ta l r e spons ib i l i t y in ou r r e l a t i on s w i th cu s tomer s ,
e m p l oye e s , s ha r e ho ld e r s , su pp l i e r s a n d com m u n i t i e s .
by m a ki ng to tal qua l i t y t he way we do bu s i n e s s , we ’re do ing more th an
ju st mak i ng b e t t e r p rod uc t s . > We’re s a f e r a nd more p ro d u c t i ve . > Si n c e
19 91 , w e’v e de c r e a s ed t he numbe r o f r e p o r t ab l e a c c iden t s by 55 p e r c e n t . >
Meanwhile , ou r f a ci l i t i es re p o r t le ss downtime and improved product ion le ve l s .
> Bec aus e o f the s e su cce s s e s , we ’r e cha l l eng i ng o ur s e l v e s t o i de nt i f y f u r t h e r
i m p roveme nt s in o u r work s y s t ems .
meet in g cus tom er needs sta rts by l i s ten ing and then tak ing a ct ion. >
Maybe i t ’s bui lding a box plant in China to se r ve e xis t ing customer s e xpand ing
i n t o inte rna t ional mark e t s . > Or develop ing a s ys tem to l et cus tomers cus tom
o rde r architec tural doors e lect ronical ly f rom two mil l i on poss ibl e combinat ion s .
> Be caus e ou r new Do o r Bu i l d e r™ wi l l a l l ow or de r s t o go d i re c t ly f ro m t he
c u s t o m e r ’s computer to our shop f l oo r, we’ ll achieve adminis tra t ive ef f ic i encies
whi le reducing wa ste and inve n t o r y cos ts . > It ’s th is approach to customer ser v i c e
that a l l ow s u s to del iv er v ir tua l l y a l l cus tom door o rder s on t ime and c omple te .
ma ki ng emp loyees owner s of weye r h a e u s e r t h r ou gh o ur Pe r f ormanc e Sh a re
P lan does more than rew a rd them for outstanding f inancia l pe r f o r m a n c e . > It
chal lenges them to think l i ke ow n e r s . > To work together to make the mos t o f
e ve ry do l l a r we inve s t . > To f ind way s of improv ing per forma nc e w ithou t
spend ing add it i onal c api ta l. > T h e y’re doing that . > S ince 1994, we’ve s tead i l y
r educed our l evel of capita l expend itu res wh i le increas ing p ro d u c t i v i t y.
to make our pro d u c ts, we use – and re g e n e r ate – the world’s only re n ew a b l e
re s o u rce . > Creat ing a sus t a inabl e supply of qual i ty wood takes many forms. >
It means growing more than 250 mil li on seedl ings a year a t e ight nur ser i es.
> Repl anting thousands o f acre s each ye a r. > Ha r vest ing a t sus ta inabl e r ates . >
Em p l oying some of the world’s largest s ilvicultural and environmental re s e a rc h
s t a f f s . > We’re proud of our leadersh ip in indust ria l for est management. > It’s one
reason our g rowth rates today are nearly 70 percent greate r than they we re in 1991.
c re at in g s u pe r i or r e tu r ns f o r s h a re h o l d e r s d o e s n’t h appe n overn igh t .
> T h a t’s why our goal i s to produce super io r ea rn ings over ou r bu siness cycl e . >
It re q u i re s the pa t ience of a long- term v iew. > It ’s an appro a c h t h a t ’s p rodu ce d a
tot a l sha reho l de r re tu rn tha t has o u t p e r formed the St a n d a rd & Po o r’s Paper and
Fo rest Products Group s ince 1991. > But we know we ’re capable o f producing eve n
be tter retu rns. > We won’t be s at i s fi ed until we re ach that goal.
( Millions of dollars)
Pu l p $ 9 8 6 $ 9 5 4 $ 1 , 6 1 6 $1 , 0 1 2 $ 8 2 3
New s p r i n t 4 1 6 4 5 1 5 0 8 3 5 6 3 2 2
Pa p e r 8 4 2 8 0 3 1 , 0 0 1 6 6 4 6 4 8
Pa p e r b o a rd and containerboard 3 0 1 2 8 1 3 2 5 2 4 0 2 5 5
Packaging 1 , 7 8 1 1 , 9 2 1 1 , 8 6 3 1 , 4 9 5 1 , 3 0 2
Re c yc l i n g 1 8 9 1 4 0 2 6 6 1 2 1 7 7
C h e m i c a l s 5 7 6 3 6 3 4 5 3 2
Miscellaneous pro d u c t s 3 7 3 5 4 0 1 3 3 1 2 0
$4 , 6 0 9 $4 , 6 4 8 $5 , 6 8 2 $4 , 0 6 6 $3 , 5 7 9
( T h o u s a n d s )
Pulp — air-dry metric tons 1 , 9 8 2 1 , 8 6 8 2 , 0 6 0 2 , 0 6 8 1 , 8 8 6
Newsprint — metric tons 6 8 4 6 2 9 6 6 3 6 3 8 6 0 9
Paper — tons 1 , 1 4 6 1 , 0 0 7 1 , 0 0 6 9 9 8 9 9 0
Pa p e r b o a rd — tons 2 4 3 2 0 5 2 3 0 2 0 1 2 2 2
C o n t a i n e r b o a rd — tons 3 8 9 3 4 6 2 5 9 2 5 4 2 9 0
Packaging — MSF 4 4 , 5 0 8 4 2 , 3 2 3 3 4 , 3 4 2 3 4 , 4 8 3 3 1 , 3 8 6
Re c ycling — tons 2 , 2 2 9 2 , 0 1 1 1 , 4 6 7 9 8 5 8 5 1
( T h o u s a n d s )
Pulp — air-dry metric tons 2 , 1 8 0 2 , 0 6 3 2 , 0 0 4 2 , 1 5 9 2 , 0 4 1 2 , 0 9 6
Newsprint — metric tons 7 1 5 7 0 4 6 3 1 6 8 7 6 5 1 6 1 8
Paper — tons 1 , 1 2 6 1 , 1 2 8 1 , 0 3 4 1 , 0 6 0 9 8 2 1 , 0 0 7
Pa p e r b o a rd — tons 2 3 0 2 3 1 2 0 6 2 2 9 1 8 9 2 1 7
C o n t a i n e r b o a rd — tons 2 , 4 8 0 2 , 3 8 1 2 , 3 3 1 2 , 3 2 9 2 , 3 5 7 2 , 2 6 9
Packaging — MSF 5 0 , 0 0 0 4 6 , 4 8 8 4 4 , 4 7 1 3 6 , 0 4 1 3 6 , 0 2 0 3 2 , 7 9 5
Re c ycling — tons — 3 , 6 5 5 3 , 4 2 8 2 , 7 5 4 2 , 0 4 2 1 , 8 4 7
Pu l p 8
New s p r i n t 1
Pa p e r 5
Pa p e r b o a rd 1
C o n t a i n e r b o a rd 4
Pa c k a g i n g 4 5
Re c yc l i n g 4 0
C h e m i c a l s 7
Pu l p 8
New s p r i n t 1
Pa p e r 5
Pa p e r b o a rd 1
C o n t a i n e r b o a rd 4
Pa c k a g i n g 4 6
Re c yc l i n g 2 8
C h e m i c a l s 7
Over the past seven years, we’ve
followed a course to improve our
operations and apply discipline to
our capital spending. This has
involved making sure that we focus
on what we do best, continually
improving the performance of our
business, and investing prudently to
upgrade the quality of our assets.
T h rough these efforts, we’ve stre n g t h -
ened the ability of this sector to
meet increased global competition
and grow shareholder returns.
The market conditions we experi-
enced during 1997 demonstrate the
i m p o rtance of continuing to improve
our operations. The slow recovery
in pulp and paper prices resulted
in operating earnings of $192 mil-
lion compared with $307 million in
1996. Operating earnings for 1997
exclude special items associated with
closures and disposition of certain
facilities that were offset, in part, by
the gain on the sale of the Canadian
chemical business. Net sales were
$4.6 billion, unchanged from the
prior year. While this performance
did not meet our expectations, we
saw indications that our efforts are
producing results.
For example, we’ve reduced our
capital spending to depre c i a t i o n
l e ve l s . We did this by aligning our
capital spending to the levels we need
to sustain our current operations
a n d achieve our long-range strategic
goals. We also implemented a sys-
tematic capital investment process
to better foster accountability for
major capital projects. As a result,
this year we spent $315 million on
capital projects, excluding acquisi-
tions, the lowest in 10 years. It also
allowed our sector to generate its
third consecutive year of positive
cash flows despite the general indus-
try downturn. And because we’ve
completed our major modernization
projects, we believe we can maintain,
or even lower, our levels of capital
spending in the future.
We’ve made significant progress
in improving the efficiency of our
operations by engaging our employ-
ees in the design and implementa-
tion of better work systems. These
improvements have reduced
reportable accidents by 65 percent
since 1991 and significantly
increased production capability at
our existing pulp and paper facilities.
In 1997 alone, this helped increase
our production by 300,000 tons.
We’re improving operations by
continually evaluating our businesses
and operating units to ensure they
fit our core competencies and serve
attractive markets. Through this dis-
cipline, we channel our energies and
resources on areas capable of pro-
ducing the returns we seek over the
business cycle. During 1997, we:
> Negotiated the re s t ructuring of
our NORPAC joint venture that
produces high-quality newsprint for
publishers and printers in the west-
ern United States and Japan. Under
the new structure that takes effect in
1998, Weyerhaeuser and Nippon
Paper Industries Co., Ltd., each will
own 50 percent of NORPAC. The
new arrangement more closely
reflects the operating relationship
of this joint venture.
> Closed the sale of our Saskatoon
chemical facility to a subsidiary of
Sterling Chemicals Holdings, Inc.
> Realigned our Recycling business
to meet the key raw material needs
of our mill customers. Through this
effort, we improved efficiencies and
reduced costs by focusing on those
locations most important to our cus-
tomers. During 1997, our Recycling
business collected and processed 7
percent more recycled paper with 30
percent fewer facilities than we had
in 1996.
During the year, we also
improved the quality of our asset
base to serve the needs of customers
in growth markets. Domestically,
our strategy involves expanding
through acquisitions rather than
building new capacity. For example,
in 1997 we acquired Union Camp
Corporation’s Denver box plant to
expand market coverage into the
Rocky Mountain Region.
To serve the international needs
of existing customers, we develop
strategic alliances to limit risk, con-
serve capital and gain access to
local market information and distri-
bution channels. In 1996, we formed
a joint venture with SCA Packaging
Europe BV to meet corrugated pack-
aging needs in the People’s Republic
of China. During 1997, this venture
– SCA Weyerhaeuser Packaging
Holding Company Asia Limited –
began construction of plants in
Shanghai and Wuhan. We expect
both to begin operation in 1998.
During 1997, we also continued
to focus on differentiating our prod-
ucts and services in ways that our
customers recognize and value.
This includes expanding our entire
line of high-quality uncoated free
sheet paper to capture higher returns
generated by these products. We’ve
already seen the contribution of fine
papers to our earnings more than
double over the past five years. One
reason for such growth – created by
the growth in home offices – is the
increased use of high-quality busi -
ness papers. During 1997, we intro-
duced our SOHO (Small Office/
Home Office) retail program. In
addition to developing higher quali-
ty papers for small and home office
needs, we made it easier for cus-
tomers to select the right paper for
their specific requirements by devel-
oping easy-to-use product guides.
We’re also differentiating other
parts of our product line. Our
Containerboard Packaging business
began exploring new packaging solu-
tions for customers, while our Pulp
operation is working on new
absorbency fibers. Both efforts will
help us develop higher value prod-
ucts capable of producing new
growth opportunities and higher
margins. New absorbency fibers, for
example, improve product function
and provide manufacturers with
greater flexibility and speed in com-
mercializing their product upgrades.
We believe this will allow providers
to develop a greater range of pro d u c t s
and increase demand for our pro d u c t .
As we’ve upgraded our mills to ru n
m o re efficiently, we’ve also seen signif-
icant environmental improvements.
( Milli ons of dol lar s)
$ 1 9 2
$ 3 0 7
$ 1 , 1 8 1
$ 2 1 1
$ 6 1
( Mil li ons of dol lar s)
$ 3 1 5
$ 4 1 5
$ 5 0 1
$ 7 9 4
$ 6 5 2
These improvements include:
> Shifting our entire bleached-kraft
pulp mill system to the use of ele-
mental chlorine-free (ECF) bleaching
processes, a major step to improving
the quality of our water discharges.
> Recycling 98 percent of pulping
chemicals used to manufacture pulp.
> Supplying two-thirds of the
energy needed at our pulp mills to
reduce the use of fossil fuels.
> Reducing water consumption by
65 percent.
These efforts have not gone
unnoticed. During 1997, the
Environmental Protection Agency
and McGraw-Hill honored our Flint
River, Georgia, facility for meeting
or exceeding voluntary waste-elimi-
nation or pollution-prevention pro-
grams in conjunction with the EPA’s
Project XL. An initiative of the
Clinton Administration, Project XL
– eXellence and Leadership – seeks
to provide regulatory flexibility in
exchange for superior environmental
performance. And because our mills
already substantially meet the water
quality standards outlined in the
EPA’s new Cluster Rules, we’ve
reduced the need for future capital
investments in this area.
These are some of the actions
we’ve taken to build the foundation
for future growth. Looking ahead,
we will build on this progress by
continuing to reduce costs, narrow-
ing our focus, and differentiating
our products in ways customers
recognize and value. The improve-
ments we’ve made and the results
they’ve produced demonstrate we
are on the right course.
manufactures wood pulp for global markets. Georgia, Mississippi, North Carolina, Washington, Alberta, British Columbia, Saskatchewan
manufactures a range of both coated and uncoated Mississippi, North Carolina, fine papers and markets its products through paper merchants. Washington, Wisconsin,
Saskatchewan
manufactured at the North Pacific Paper Corporation Washington(NORPAC) mill is marketed to customers in the western United States and Japan.
produces and markets bleached Washingtonpaperboard to West Coast and Pacific Rim customers forproduction of liquid containers such as milk and juicecartons.
manufactures linerboard corrugating Arizona, California, Colorado,medium and produces industrial and agricultural Connecticut, Florida, Georgia, packaging (boxes). Hawaii, Illinois, Indiana, Iowa,
Ke n t u c k y, Ma ryland, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Jersey, New York, North C a rolina, Ohio, Oklahoma, Ore g o n, Tennessee, Texas, Virginia,Washington, Wisconsin
operates an extensive wastepaper collection system Arizona, California, Colorado, to supply company mills and national and international Georgia, Illinois, Iowa, Kansas, customers. Maryland, Minnesota, Nebraska,
North Carolina, Oklahoma, Oregon, Tennessee, Texas, Utah, Virginia, Washington, West Vi r g i n i a
produces chemicals used in pulp and paper Georgia, Mississippi, Northmanufacturing processes and other products like tall oil Carolina, Oklahoma, Oregon,and turpentine. Washington
provides ocean transportation for WashingtonWeyerhaeuser and other selected markets.
( Millions of dollars)
Raw materials (logs, chips and timber) $ 1 , 0 0 8 $ 1 , 0 6 6 $1 , 1 0 2 $1 , 0 9 1 $1 , 0 2 1
Softwood lumber 2 , 0 9 4 1 , 9 8 8 1 , 6 4 8 1 , 8 8 0 1 , 7 0 4
Softwood plywood and ve n e e r 5 0 2 5 1 9 5 9 1 6 3 6 5 6 7
Oriented strand board, composite and other panel pro d u c t s 5 9 4 6 6 7 7 5 2 7 5 0 6 2 3
Ha rdwood lumber 2 7 2 2 3 5 1 9 3 1 7 5 1 5 4
En g i n e e red wood pro d u c t s 2 8 4 2 3 3 2 0 7 1 5 7 1 0 0
Miscellaneous pro d u c t s 6 2 0 5 3 2 4 3 8 3 0 3 2 9 9
$ 5 , 3 7 4 $5 , 2 4 0 $4 , 9 3 1 $4 , 9 9 2 $4 , 4 6 8
( Mi l l i o n s )
Raw materials — cubic feet 5 8 4 5 7 7 5 3 5 5 6 4 5 4 7
Softwood lumber — board feet 4 , 8 6 9 4 , 7 4 5 4 , 5 1 5 4 , 4 0 2 4 , 2 3 0
Softwood plywood and veneer — square feet (3 ⁄8" ) 2 , 0 4 2 2 , 1 7 2 2 , 3 2 4 2 , 6 8 5 2 , 4 3 5
Composite panels — square feet (3 ⁄4" ) 5 5 1 6 0 4 6 4 8 6 6 0 6 2 6
Oriented strand board — square feet (3 ⁄8" ) 2 , 4 6 2 2 , 0 8 3 1 , 9 3 1 1 , 8 0 3 1 , 6 7 2
Ha rd b o a rd — square feet ( 7⁄1 6" ) — 1 9 3 2 0 1 1 6 7 1 4 0
Ha rdwood lumber — board feet 3 6 2 3 4 9 2 9 3 2 5 4 2 4 0
En g i n e e red wood products — lineal feet 1 3 7 1 1 6 1 2 8 7 1 4 7
Ha rdwood doors (thousands) 7 3 0 6 5 2 6 4 8 6 1 7 5 5 6
( Mi l l i o n s )
Logs — cubic feet — 9 9 5 9 1 2 9 1 4 6 7 1 6 7 3
Softwood lumber — board feet 3 , 7 9 0 3 , 9 9 2 3 , 7 0 1 3 , 4 1 9 3 , 2 4 9 3 , 1 3 5
Softwood plywood and veneer — square feet (3⁄8" ) 1 , 0 0 8 1 , 0 9 2 1 , 2 4 3 1 , 2 9 2 1 , 2 4 9 1 , 1 8 8
Composite panels — square feet (3 ⁄4" ) 6 0 0 4 7 8 5 3 5 5 8 3 5 9 4 5 6 4
Oriented strand board — square feet (3 ⁄8" ) 2 , 1 9 5 2 , 0 4 1 1 , 6 8 7 1 , 6 5 4 1 , 5 6 8 1 , 4 4 3
Ha rd b o a rd — square feet ( 7⁄1 6" ) — — 8 6 1 2 4 1 2 2 1 2 0
Ha rdwood lumber — board feet 4 1 3 3 4 5 3 3 3 2 7 8 2 2 9 2 2 1
Ha rdwood doors (thousands) 8 5 0 7 4 0 6 4 6 6 4 3 5 9 7 5 2 2
Softwood lumber, plywood and ve n e e r 3 5
Composite panels 5
Oriented strand board 6
Ha rdwood lumber 1 1
Ha rdwood doors 1
Softwood lumber, plywood and ve n e e r 3 2
Composite panels 5
Oriented strand board 6
Ha rdwood lumber 1 2
Ha rdwood doors 1
For nearly 100 years, we’ve been a
leader in forest management and the
production of high-quality wood
products. It’s a position you’d expect
from the world’s largest private
owner of merchantable softwood
timber and North America’s largest
producer of softwood lumber.
Although we’re proud of our leader-
ship status, we also know that it
takes continual improvement to
maintain this position. That’s why
we’ve spent the past seven years
upgrading our portfolio, improving
our production capabilities, and
focusing on customer service. As a
result, we’ve positioned our
Timberlands and Wood Products
sector to perform better, produce
higher quality products and operate
with greater safety than ever before.
During 1997, market conditions
tested us. Weak demand for logs and
wood products in the last half of the
year resulted in operating earnings of
$747 million, excluding the effect of
charges related to the closure of
three manufacturing facilities, com-
pared with $805 million in 1996.
Net sales in 1997 were $5.4 billion
compared with $5.2 billion the
previous year. Despite the effect of
market conditions on our results,
we fared better than we would
have previously under similar cir-
cumstances. We also did better than
others in our industry. This level of
performance under difficult market
conditions is a direct result of the
maturing of our timber portfolio
and our focus the past seven years.
For example, by improving work
systems and eliminating redundancy
and waste, Timberlands has reduced
overhead costs. We’ve also b e n ef i t e d
f rom the Business Im p rove m e n t
Plans we’ve had in place since 1991.
Meanwhile, our Wood Products
business is now capable of pro d u c i n g ,
on a same-facility basis, 21 percent
more lumber, 40 percent more ply-
wood and 18 percent more oriented
strand board than we did in 1991.
To achieve further improvements,
we’re applying what we’ve learned
from our 1996 acquisition of the
highly efficient Cavenham properties
in Mississippi and Louisiana to our
other lumber businesses.
We’re also seeking to continually
improve our outstanding timber
base. In 1997, this resulted in expan-
s i o n of our portfolio outside North
America. We purchased a 51 percent
interest in the Nelson Forests Joint
Venture, previously owned by a sub-
sidiary of Fletcher Challenge Forests.
The Nelson Forests Joint Venture
manages more than 193,000 acres
of forestland in New Zealand and
is one of the world’s first forestry
operations to achieve ISO 14001
status. Created by the In t e r n a t i o n a l
St a n d a rds Or g a n i z a t i o n in Geneva,
ISO certification recognizes compa-
nies that integrate environmental
responsibility into daily operations.
During the year, we also began
purchasing private agricultural land
in Uruguay for establishing fast-
growing managed forests. This is the
first investment we’ve made through
the World Timberfund – a joint ven-
ture with institutional investors rep-
resented by UBS Resource
Investments International. Uruguay
features good tree-growing soils and
climate and a history of economic
and political stability. We expect the
first thinning of these managed
forests to occur in 11 years, with
final harvests expected in 20 to 25
years. Our investments in New
Zealand and Uruguay are part of the
company’s strategies to better serve
international customers.
As with all of our timberlands,
we’ll manage our properties in the
Southern Hemisphere in ways that
protect the environment and pro-
duce sustainable sources of high-
quality wood. This includes applying
the core competencies we’ve devel-
oped in High Yield Forestry over the
past 30 years. In North America,
we’re about to begin to see the first
harvests of trees grown using these
practices. Our first harvests will
begin within the next five years in
the South, with similar harvests in
the West occurring in about 10
years. Over the next 15 years, the
harvest of high-yield timber will
gradually increase by approximately
70 percent from 1995 levels due
to High Yield Forestry. In addition
to increasing our harvests and cash
flow, these forests will produce
more knot-free wood for use in
appearance-grade lumber and other
higher-value products due to o u r
practice of pruning selected tre e s .
To develop products, markets and
customers for these future harvests,
our Building Materials Distribution
businesses have steadily enhanced
their lines of appearance-grade prod-
ucts. During 1997, we placed
additional emphasis on this growth
area by introducing appearance-
grade products from a variety of
domestic and international sources.
Meeting the demand for higher-
quality products also has resulted in
the use of new technologies. For
example, our Marshfield, Wisconsin,
door business now uses the industry’s
most effective enterprise resource
planning system – DoorBuilder™
– to reduce order cycle time by 50
percent. This new system links all
of the business’ computerized
information processing systems to
electronically track ordering, pro-
duction and billing of the more
than 700,000 custom doors we
make each year. Not only does this
system improve our efficiency,
customers benefit from the reliable
delivery rate it provides. For the
past two years, we’ve delivered
virtually all of our door orders on
time and complete.
Meanwhile, our Wood Products
businesses continue to improve their
manufacturing capabilities and pro-
vide added value to customers.
In 1997, this included announcing
plans to close two plywood plants.
The closures of plywood plants in
Plymouth, North Carolina, and
Philadelphia, Mississippi, are part
of our effort to strengthen lumber-
producing facilities. As a result of
modernization and expansion plans,
we’ll increase our annual lumber-
producing capabilities by 15 percent
by the end of 1999. These modern-
ization efforts also significantly
( Milli ons o f dol l ar s)
$ 3 1 4
$ 4 1 8
$ 4 4 6
$ 2 5 7
$ 2 4 1
( Milli ons o f dol la r s)
$ 7 4 7
$ 8 0 5
$ 8 0 8
$ 1 , 0 3 4
$ 8 9 1
improve our ability to more effec-
tively use our raw materials while
enhancing overall product value.
The use of curved sawing techniques,
for example, allows us to increase the
amount of lumber per log and pro-
duce straighter lumber.
We’ve also improved the way we
work by involving our employees
and incorporating their ideas into
our practices. Their ideas help
remove production bottlenecks and
reduce unscheduled downtime in
existing facilities while helping
reduce start-up costs at new facilities.
Our oriented strand board mill in
Sutton, West Virginia, for example,
just completed its first year of opera-
tion and is ahead of the projected
start-up curve due to our capital
planning and work systems improve-
ment practices. We also see an
improvement in safety as we incre a s e
the pro d u c t i v i t y and efficiency of
our facilities. To help deploy these
practices throughout our system,
we’re working closely with our two
major unions to identify additional
opportunities for improvement.
As we look to the future, our
Timberlands and Wood Products
segment will continue its focus
on improving operations through
process reliability and a focus on
delivering value to the customer.
Through these efforts, we believe
we will create increased value for
our shareholders.
Acres owned 2,048,000 Ore g o n, Wa s h i n g t o n
Acres owned 3,123,000 Alabama, Arkansas, Georgia, Acres leased 237,000 Louisiana, Mississippi, North
3,360,000 Carolina, Oklahoma
Acres licensed 23,715,000 Alberta, British Columbia,Saskatchewan
produces dimension lumber. Western Lumber:Oregon, WashingtonSouthern Lumber:Alabama, Arkansas, Georgia, Louisiana, Mississippi, NorthCarolina, OklahomaCanadian Lumber:Alberta, British Columbia,Saskatchewan
manufactures softwood structural and “appearance” Alabama, Arkansas, Oklahoma,panels for home remodelers, builders and industrial users. Washington (veneer)
produces structural sheathing, sub- Michigan, North Carolina, Westflooring, underlayment and other panels for residential and Virginia; Alberta, Canadacommercial construction.
manufactures particleboard and medium Georgia, North Carolina, Oregon,density fiberboard used primarily in furniture, laminating, Wisconsincountertops, millwork and door manufacturing.
is the world’s leading producer of hardwood Arkansas, Michigan, Oklahoma, lumber and components for use in manufacturing cabinets Oregon, Pe n n s y l vania, Wa s h i n g t o n ,and furniture. Wisconsin
is the top door manufacturer in the United WisconsinStates and produces architectural doors used mainly in offices, schools and hospitals.
provides chain/regional lumber Alabama, Arizona, California,accounts, industrial/home improvement warehouse retailers, Colorado, Florida, Georgia,and millwork and manufactured-housing customers with Idaho, Illinois, Indiana, Iowa,marketing, sales and logistics support. Kansas, Kentucky, Louisiana,
Michigan, Minnesota, Missouri, Nevada, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Tennessee, Texas, Utah, Virginia, Washington,Wisconsin; Alberta, British Columbia, Manitoba, Nova Scotia,Ontario and Quebec, Canada.
Safety is a core value at We ye r h a e u s e r
and the company’s number one
priority.
In 1997, Weyerhaeuser’s record-
able incident rate (RIR) was 4.6 per
100 employees compared with 5.1
per 100 employees in 1996, a 10
p e rc e n t decrease. Weyerhaeuser’s
target for 1998 is a RIR of 3.0, a
35 percent improvement over 1997.
> The Senior Management Team
Safety Excellence Award recognizes
units that have completed five years
and/or one million work hours
without a lost-time accident and
have achieved “stretch” safety targets.
Award winners in 1997 include the
recycling centers in Oklahoma City,
Okla., and San Jose, Calif.; the
containerboard packaging plant in
Amarillo, Texas; North Carolina
Timberlands; the customer service
center in Cleveland, Ohio; the
lumber mill in Barnesville, Ga.;
and the architectural door plant
in Marshfield, Wis.
> The customer service center in
Cleveland, Ohio, was designated an
“OSHA Star” plant site by the
U.S. Department of Labor (DOL).
The award, which is OSHA’s highest
recognition for accident prevention
and on-the-job safety performance,
acknowledges and rewards outstand-
ing achievement in creating and
maintaining a safe and healthy
workplace. After three years as a
“Star” plant site, the containerboard
mill in Valliant, Okla., was re c e rt i f i e d
for another three years. In addition,
Brown & Root (Valliant’s mill
Strong real estate markets, an
increased focus on the home-
building and land development
business, and improved operating
efficiencies combined to increase
earnings for our Real Estate and
Related Assets sector in 1997.
For the year, the sector reported
earnings of $66 million before
a gain associated with the sale
of Weyerhaeuser Mortgage
Company. This compares with
$43 million in 1996.
The Real Estate and Related
Assets sector has continually
reviewed its portfolio to ensure
it targets markets and businesses
capable of producing competitive
returns. As a result, the sector
has exited a number of smaller
markets and secondary businesses.
In addition to narrowing its
focus, the sector has made signifi-
cant improvements in operations.
Sales revenues were up slightly from
1996, reaching $1.1 billion in 1997.
Home sales increased 17 percent and
housing inve n t o ry turnover has
i m p rove d . Significantly more homes
were presold prior to completion
than in prior years. We go into 1998
with the best backlog of home sales
since the late 1980s.
With home building and land
development activities in Southern
California, Las Vegas, Houston,
Maryland, Virginia and the Puget
Sound area, the company continues
to be one of the top 20 home
builders in the United States.
Land Ma n a g e m e n t A rkansas, Georgia, No rth Carolina, Wa s h i n g t o n
Pa rdee Construction Company Ne vada, Southern California
Quadrant Corporation Wa s h i n g t o n
Trendmaker Ho m e s Te x a s
Winchester Ho m e s Ma ryland, Vi r g i n i a
We yerhaeuser Realty In ve s t o r s California, Wa s h i n g t o n
maintenance contractor), received
an equally high designation from
the DOL when it became the 12th
contractor in the nation to be
named a “Demonstration Worksite”
for job safety.
> The chlor-alkali plant in the
Longview, Wash., pulp and paper
complex re c e i ved the Chemical
Ma n u f a c t u re r s Association’s (CMA)
Lammot du Pont Safety Award. The
award is presented to the chemical
production facility with the best
five-year safety improvement trend
in OSHA recordable incidents.
> In 1997, British Columbia
Timberlands achieved one million
hours with no lost-time accidents –
a milestone reflecting over three
years of effort aimed at achieving
world-class safety status. Similarly,
employees at the pulp and paper
facilities in Prince Albert, Sask.,
Columbus, Miss., and New Bern,
N.C., worked over one million
consecutive hours during 1997
without a lost-time accident. The
Mississippi/Alabama Timberlands
team completed 11 consecutive years
without a lost-time accident.
> Western Timberlands’ Coos Bay,
Ore., operation was recognized
by the Oregon Occupational and
Safety Health Division (OR-OSHA)
as a Safety & Health Achievement
Recognition Program (SHARP)
recipient. SHARP provides incen-
tives for Oregon employers to
develop and implement effective
injury and illness prevention pro-
grams. Weyerhaeuser is the first
forest products company to receive
SHARP recognition.
> Employees at the Mount Vernon,
Ohio, and Yakima, Wash., con-
tainerboard packaging plants; the
Flint River, Ga., pulp mill; and the
Plymouth, N.C., fine paper mill
received the Jack Waechter Award
for Customer Excellence. The award
re c o g n i zes Pu l p, Paper and Pa c k a g i n g
organizations with exceptional cus-
tomer relationships.
> Weyerhaeuser’s Building Materials
Distribution (BMD) and Wood
Products businesses received
National Home Center News’ 1997
Golden Hammer Award in the lum-
ber/plywood category. It is the trade
publication’s highest award in each
of 16 building materials categories.
The award also recognized Southern,
Western and Canadian Lumber;
Plywood; Oriented Strand Board;
Composite Products; and Hardwood
Lumber for “vendor excellence in
marketing and partnership.” More
than 500 manufacturers were nomi-
nated for the awards.
> Kmart Corporation and
Weyerhaeuser joined forces several
years ago to minimize waste and
increase recovered fiber through a
national agreement. Together, they
passed a milestone of recycling one
billion pounds of used corrugated
boxes since the program’s inception.
> For three consecutive six-month
periods, the paper mill in Prince
Albert, Sask., received the highest
ratings from Xerox for quality per-
formance. The facility is one of eight
certified North American suppliers
to Xerox.
> Throughout 1997, North
Carolina Timberlands worked with
the Environmental Defense Fund
(EDF) and other participants on a
management plan designed to pro-
tect 3,000 acres of unique habitat
area within the company’s 11,000-
acre Parker Tract forestland in North
Carolina. The joint plan provides for
varying levels of forest management
based on scientific and economic
considerations.
> We yerhaeuser participated in many
cooperative programs during the
year to better understand and plan
for wildlife habitat needs, including:• Forestry for Wildlife, a program
with the Georgia Department of
Natural Resources to develop
wildlife management plans that
achieve habitat goals while support-
ing commercial forestry.• Partners in Flight, a joint effort
between the National Fish &
Wildlife Foundation and major
North American landowners to
research and manage habitat for
Neotropical bird species. • The Mississippi Gap Analysis
Program (GAP) with the Forest
and Wildlife Research Center at
Mississippi State University and
other forest landowners. This
cooperative effort shares vegetation
and wildlife data among participants
to support better resource manage-
ment decisions.• A collaboration with Wildlife
Habitat Canada to develop a biodi-
versity strategy for forestry opera-
tions on more than 1.2 million
acres (500,000 hectares) at Merritt,
B.C., and creation of biodiversity
conservation guidelines for the
company’s forest management
planning in Alberta.
> Weyerhaeuser received the 1997
American Business Ethics Award in
the “public company” category. The
award recognizes U.S. companies
that demonstrate a strong commit-
ment to ethical business practices.
Companies were evaluated on senior
management’s commitment to busi-
ness ethics, their formal ethics pro-
grams and how they respond to
crises. The award is sponsored by the
American Society of CLU & ChFC
(Chartered Life Underwriters &
Chartered Financial Consultants).
> For the third year in a row,
Weyerhaeuser ranked number one
in responsibility to the community
and environment among forest and
paper products companies, accord-
ing to Fortune magazine’s annual
Corporate Reputation Survey.
> Weyerhaeuser’s forest stewardship
efforts earned several awards during
1997. The company’s cooperative
efforts to conserve waterfowl and
wetlands habitat received the U.S.
Forest Service’s Taking Wing Award.
This award re c o g n i zes We ye r h a e u s e r’s
role in its 1996 land exchange invo l v -
ing the Ouachita National Forest,
Arkansas and Oklahoma state
agencies, and The Nature
Conservancy. The Arkansas chapter
of The Nature Conservancy also
presented Weyerhaeuser its Charles
L. Steel award for “outstanding
contributions to the environment.”
The state of Oregon presented a
Commendation for Fish and
Wildlife Stewardship to Western
Timberlands’ Springfield, Ore.,
operation for its watershed analysis
and habitat enhancement efforts.
> In 1997, Saskatchewan
Timberlands completed a new
20-year forest management plan for
Weyerhaeuser’s 12.5 million acres
(5 million hectares) of licensed
forest in Saskatchewan, Canada.
The plan is Weyerhaeuser’s first
environmental impact assessment
of forest operations in Canada.
> Weyerhaeuser foresters and scien-
tists completed 14 watershed analyses
in Oregon, Washington and British
Columbia during the year, for a total
of 47 completed on 1.3 million acres
of company-owned or managed land
since 1993. These assessments
involve cooperative work with gov-
ernment agencies, native people,
interest groups and other landowners
to examine water flows, soil, fish
habitat and other characteristics of
the basins surrounding a river or
stream. The resulting management
prescriptions help protect and
improve water quality and fish
habitat in watersheds managed for
sustainable wood production.
> During 1997, the sawmill at
Grande Cache joined the company's
other Alberta operations in achieving
ForestCare certification. ForestCare
is an industry audit program that
protects environmental, economic
and social values while sustaining
forest health. All Weyerhaeuser
Alberta operations are certified.
> The American Forest & Paper
Association (AF&PA) recognized
We ye r h a e u s e r’s chemical manage-
m e n t program in 1997 with an
Environmental and Energy
Achievement Award. In addition,
the U.S. Chemical Management
Association and Chlorine Institute
honored Weyerhaeuser as one of the
nation’s top 10 chemical companies
in terms of employee understanding
of the association’s Responsible Care
program – a code of chemical man-
agement practices for safety, product
s t ew a rdship and pollution pre ve n t i o n .
> Representatives of Weyerhaeuser’s
Flint River pulp mill in Oglethorpe,
Ga., signed a final, 15-year project
agreement with the Environmental
Protection Agency (EPA). The mill
is the first forest products facility
accepted into the EPA’s eXcellence
and Leadership program (Project XL).
In addition, Oregon and
Washington state passed “XL” legis-
lation. This will a l l ow any qualifying
business in t h e s e states to pursue
e n v i ronmentally beneficial projects
while reducing costs and gaining
regulatory flexibility.
> The Weyerhaeuser Company
Fo u n d a t i o n was recognized on
the Oprah Winfrey show for its
commitment to Habitat for
Humanity. Weyerhaeuser has
helped build nearly 50 homes
since 1988.
1 9 9 7 F I N A N C I A L R E P O R T
C O N T E N T S
30 Description of the Business of the Company
35 Financial Review
40 Report of Independent Public Accountants
41 Consolidated Statement of Earnings
42 Consolidated Balance Sheet
44 Consolidated Statement of Cash Flows
46 Consolidated Statement of Shareholders’ Interest
47 Notes to Financial Statements
64 Historical Summary
This annual report may contain statements concerning the company’s future results and performancethat are forward looking statements within the meaning of the Private Securities Litigation ReformAct of 1995. The accuracy of such statements is subject to a number of risks, uncertainties and as-sumptions that may cause actual results to differ materially from those projected, including, but notlimited to, the effect of general economic conditions, including the level of interest rates and housingstarts; market demand for the company’s products; the effect of forestry, land use, environmental andother governmental regulations; and the risk of losses from fires, floods and other natural disasters.The company is also a large exporter and is affected by changes in economic activity in Europe andAsia, particularly Japan, and by changes in currency exchange rates and restrictions on internationaltrade. These and other factors that could cause or contribute to actual results differing materiallyfrom such forward looking statements are discussed in greater detail in the company’s Securities andExchange Commission filings.
29
30
Weyerhaeuser Company (the company) was incorpo-rated in the state of Washington in January 1900 asWeyerhaeuser Timber Company. It is principally en-gaged in the growing and harvesting of timber and themanufacture, distribution and sale of forest products, realestate development and construction, and other realestate related activities.
The company has 35,800 employees, of whom 34,900are employed in its timber-based businesses, and of thisnumber, approximately 17,400 are covered by collectivebargaining agreements, which generally are negotiated ona multi-year basis.
Approximately 900 of the company’s employees areinvolved in the activities of its real estate and relatedassets segment.
The major markets, both domestic and foreign, inwhich the company sells its products are highly competi-tive, with numerous strong sellers competing in each.
Many of the company’s products also compete with sub-stitutes for wood and wood fiber products. The com-pany’s subsidiaries in the real estate and related assets seg-ment operate in highly competitive markets, competingwith numerous regional and national firms in real estatedevelopment and construction and other real estate re-lated activities.
In 1997, the company’s sales to customers outside theUnited States totaled $2.2 billion (including exports of$1.5 billion from the United States and $.7 billion ofCanadian export and domestic sales), or 20 percent oftotal consolidated sales and revenues, compared with 22percent in 1996. The company believes these sales con-tributed a higher proportion of aggregate operating prof-its (see Note 3 of Notes to Financial Statements). Allsales to customers outside the United States are subjectto risks related to international trade and to political,economic and other factors that vary from country tocountry.
D E S C R I P T I O N O F T H E B U S I N E S S O F T H E C O M P A N Y
B U S I N E S S S E G M E N T S
T I M B E R L A N D S A N D W O O D P R O D U C T S
The company is engaged in the management of 5.2 mil-lion acres of company-owned and .2 million acres ofleased commercial forestland in the United States (60percent in the South and 40 percent in the Pacific North-west), most of it highly productive and located extremelywell to serve both domestic and international markets.The company has, additionally, long-term license ar-rangements in Canada covering approximately 23.7 mil-lion acres (of which 16.5 million acres are considered tobe productive forestland). The combined total timberinventory on these U.S. and Canadian lands is approxi-mately 273 million cunits (a cunit is 100 cubic feet ofsolid wood), of which approximately 75 percent is soft-wood species. The relationship between cubic measure-ment and the quantity of end products that may be pro-duced from timber varies according to the species, sizeand quality of timber, and will change through time asthe mix of these variables changes. To sustain the timbersupply from its fee timberlands, the company is engagedin extensive planting, suppression of nonmerchantablespecies, precommercial and commercial thinning, fertili-zation and operational pruning, all of which increase theyield from its fee timberland acreage.
The company’s wood products businesses produceand sell softwood lumber, plywood and veneer; compos-ite panels; oriented strand board; hardwood lumber andplywood; doors; treated products; logs; chips and timber.
These products are sold primarily through the company’sown sales organizations. Building materials are sold towholesalers, retailers and industrial users.
The company, through its wholly owned subsidiary,Weyerhaeuser Forestlands International, is in a joint-venture partnership with institutional investors repre-sented by UBS Resource Investments International, aunit of UBS Asset Management (New York) Inc., whichmakes investments in timberlands and related assets out-side the United States. The primary focus of this partner-ship is in pine forests in the Southern Hemisphere. Thecompany is a 50 percent owner of the joint venture, thetotal size of which is expected to be approximately$400 million. The joint venture will be capitalized overtime through equal cash contributions by the companyand the investor group.
During the year, the company purchased a 51 percentinterest in an existing New Zealand joint venture locatedon the northern end of the South Island. The companypaid $190 million for timber, land, related assets and networking capital. The forested area of the joint ventureconsists of 148,000 acres of Crown Forest License cut-ting rights and approximately 45,000 acres of freeholdland. The company will be responsible for the manage-ment and marketing activities of the joint venture. RIINew Zealand Forests I Inc. continues to hold the re-maining 49 percent in the joint venture.
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Dollar amounts in millions 1997 1996 1995 1994 1993
Net sales:Raw materials (logs, chips and timber) $1,008 $1,066 $1,102 $1,091 $1,021Softwood lumber 2,094 1,988 1,648 1,880 1,704Softwood plywood and veneer 502 519 591 636 567Oriented strand board, composite and other panels 594 667 752 750 623Hardwood lumber 272 235 193 175 154Engineered wood products 284 233 207 157 100Miscellaneous products 620 532 438 303 299
$5,374 $5,240 $4,931 $4,992 $4,468
Approximate contributions to earnings (1) $ 707 $ 805 $ 808 $1,034 $ 891
(1)After special charges totaling $40 million associated with the closure of a lumber mill and two plywood facilities in 1997.
P U L P , P A P E R A N D P A C K A G I N G
The company’s pulp, paper and packaging businessesinclude: Pulp, which manufactures chemical wood pulpfor world markets; Newsprint, which manufacturesnewsprint at the company’s North Pacific Paper Corpo-ration mill and markets it to West Coast and Japanesenewspaper publishers; Paper, which manufactures andmarkets a range of both coated and uncoated fine papersthrough paper merchants and printers; ContainerboardPackaging, which manufactures linerboard and corrugat-ing medium, which is primarily used in the productionof corrugated packaging, and manufactures and marketsindustrial and agricultural packaging; Paperboard, whichmanufactures and markets bleached paperboard, used forproduction of liquid containers, to West Coast andPacific Rim customers; Recycling, which operates an ex-tensive wastepaper collection system and markets it to
company mills and worldwide customers; and Chemi-cals, which produces chlorine, caustic and tall oil, whichare used principally by the company’s pulp, paper andpackaging operations.
During 1997, the company sold its Saskatoon,Saskatchewan, Canada, chemical operation, closed itsLongview, Washington, corrugated medium machine,and restructured its recycling business through consoli-dation, closure or disposition of certain facilities.
The SCA Weyerhaeuser Packaging Holding CompanyAsia Ltd. joint venture, formed in 1996 to pursue oppor-tunities to build or buy containerboard packaging facili-ties to serve manufacturers of consumer and industrialproducts in Asia, commenced construction on two facili-ties in China in 1997.
Dollar amounts in millions 1997 1996 1995 1994 1993
Net sales:Pulp $ 986 $ 954 $1,616 $1,012 $ 823Newsprint 416 451 508 356 322Paper 842 803 1,001 664 648Paperboard and containerboard 301 281 325 240 255Packaging 1,781 1,921 1,863 1,495 1,302Recycling 189 140 266 121 77Chemicals 57 63 63 45 32Miscellaneous products 37 35 40 133 120
$4,609 $4,648 $5,682 $4,066 $3,579
Approximate contributions to earnings (1) $ 164 $ 307 $1,181 $ 211 $ 61
(1)After the gain of $21 million on the sale of Saskatoon Chemicals, Ltd., and charges totaling $49 million for the closure of a corrugated medium machine and therestructuring of the recycling business in 1997.
R E A L E S T A T E A N D R E L A T E D A S S E T S
The company, through its subsidiary, WeyerhaeuserReal Estate Company (WRECO), is engaged in develop-ing single-family housing and residential lots for sale, in-cluding development of master-planned communities.
Operations are concentrated mainly in selected metro-politan areas in Southern California, Nevada, Washing-ton, Texas, Maryland and Virginia.
The company closed an export lumber mill at CoosBay, Oregon, and plywood facilities located at Philadel-phia, Mississippi, and Plymouth, North Carolina, in
1997. These closures were part of the company’s long-term strategy to align its wood products manufacturingfacilities with changing future sources of raw materials.
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the remaining real estate activities of WeyerhaeuserFinancial Services, Inc. (WFS), have been combined withWRECO into one segment entitled real estate and relatedassets.
With the sale of Weyerhaeuser Mortgage Company inthe second quarter of 1997, the financial services seg-ment is no longer material to the company. Therefore,
Dollar amounts in millions 1997 1996 1995 1994 1993
Net sales and revenues:Single-family units $ 688 $ 573 $ 563 $ 686 $ 615Multi-family units 29 12 — 26 30Residential lots 91 76 60 65 43Commercial lots 57 50 29 7 41Commercial buildings 68 43 4 35 3Acreage 41 25 36 20 27Interest (1) 35 70 76 84 110Investment income (1) 2 1 3 2 116Loan origination and servicing fees (1) 35 100 84 88 127Other 47 59 64 104 118
$1,093 $1,009 $ 919 $1,117 $1,230
Approximate contributions to earnings (2) $ 111 $ 43 $ (277) $ 18 $ 94
(1)Interest, investment income, and loan origination and servicing fees relate principally to the company’s operations in financia l services through its subsidiariesWeyerhaeuser Mortgage Company, sold in the second quarter of 1997, and GNA Corporation, sold in 1993.(2)After a $45 million gain on the sale of Weyerhaeuser Mortgage Company in 1997, a special charge of $290 million to dispose of c ertain real estate assets in 1995,and a $42 million gain on the sale of GNA Corporation in 1993.
C O R P O R A T E A N D O T H E R
Corporate and other includes marine transportation andgeneral corporate expense.
The company sold its wholly owned wholesalenursery and garden supply products subsidiary, Shemin
Nurseries, Inc., in the first quarter of 1997. Revenuesand operating earnings of this operation were not ma-terial to the company.
Dollar amounts in millions 1997 1996 1995 1994 1993
Net sales $ 134 $ 217 $ 256 $ 223 $ 269
Approximate contributions to earnings (1) $ (186) $ (183) $ (217) $ (142) $ (46)
(1)After a $10 million gain, which is the net effect of interest income from a favorable federal income tax decision and the loss incurred in the sale of SheminNurseries in 1997, and a $70 million gain on disposal of the infant diaper business in 1993.
E N V I R O N M E N T A L M A T T E R S
In 1990 the northern spotted owl was listed as a threat-ened species under the Endangered Species Act (ESA). In1992 the marbled murrelet was listed as a threatened spe-cies under the ESA, and in 1996 the Umpqua River Cut-throat Trout was listed as a threatened species. CertainSnake River salmon runs have been listed as threatenedor endangered under the ESA, and coho salmon havebeen listed as threatened in California and parts of south-west Oregon. Petitions have been filed to list certainPacific Northwest salmon runs, steelhead trout, bulltrout and other fish populations as threatened or endan-gered under the ESA. A consequence of these listings hasbeen, and a consequence of future listings may be, reduc-tions in the sale and harvest of timber on federal timber-lands in the Pacific Northwest. Requirements to protecthabitat for threatened and endangered species on non-federal timberlands has resulted, and may in the future
result, in restrictions on timber harvest on some non-federal timberlands in the Pacific Northwest, includingsome timberlands of the company. The listing of the red-cockaded woodpecker as an endangered species under theESA had some effect on the harvest of public and privatetimber in the southeastern United States, but has hadlittle effect on the company’s operations. Other ESA-listed species (e.g., American burying beetle and gophertortoise) occur on or near some of the company’s south-ern timberlands, but have had little effect on the com-pany’s operations. Other federal ESA listings, or des-ignations of fish and wildlife species as endangered,threatened or otherwise sensitive under various statelaws, could affect future timber harvests on some of thecompany’s timberlands and could affect timber supplyand prices in some regions. In addition, statutoryrequirements with respect to the protection of wetlands
33
may affect future harvest and forest management prac-tices on some of the company’s timberlands, particularlyin southeastern states.
In April 1994, the Clinton administration (the ad-ministration) adopted its plan with respect to manage-ment of federal timberlands in the Pacific Northwest.This plan has reduced timber sales from certain federallands in western Washington, western Oregon andnorthern California by more than 75 percent from har-vest levels in the 1980s. Subsequently, the administrationhas begun similar planning efforts and adopted interimtimber sale policies for federal timberlands in the inter-mountain west and certain other regions. These reduc-tions in federal timber sales have seriously reduced logsupplies to many independent sawmills that have beenimportant suppliers of wood chips to the company’s pulpand paper mills in Washington and Oregon. Alternativesources of wood chips and recycled fiber have becomeavailable, and some companies have reduced manufactur-ing capacity or production levels in response to reducedfederal timber harvests. The company does not anticipatethat reductions in federal timber harvests will require sig-nificant curtailments of capacity or production at its cur-rent manufacturing facilities.
The administration also has stated that reduced tim-ber harvest on federal lands will provide the opportunityto clarify the uncertainty surrounding federal policies forprotection of northern spotted owls on some privatelands. On February 7, 1995, the administration pro-posed a special rule to clarify federal harvest restrictionson some private lands in Washington and California.The company believes that the regulatory changes mightultimately allow it to harvest fee timber in some areaswhere it has not been operating because of uncertaintiesregarding regulations intended to protect the northernspotted owl. Whether those regulatory changes will beimplemented is uncertain. If those regulatory changes arenot implemented, the company might not harvest sometimber that it otherwise might harvest in 1998 and 1999.
Because those regulatory changes may not be imple-mented, and in order to avoid existing uncertainty underthe ESA, the company, in February 1995, developed aHabitat Conservation Plan (HCP) and obtained from theU.S. Fish and Wildlife Service an Incidental Take Per-mit with respect to northern spotted owls on approxi-mately 209,000 acres of its Oregon coastal timberlands.That HCP establishes a protocol for the harvest of timberand the protection of the northern spotted owl on thosetimberlands and is expected to remain in effect for atleast 50 years. In December 1996, the company appliedfor an Incidental Take Permit covering approximately400,000 acres of company timberlands in westernOregon. If the related HCP and Implementation Agree-ment are approved and that permit is issued by the U.S.Fish and Wildlife Service and the National Marine Fish-eries Service, the company would be authorized to “take”all species currently listed or proposed for listing under
the ESA (including the northern spotted owl), and all ormost species that may become listed in the future, in thecourse of conducting timber harvest and other forestmanagement and land use activities on those lands.Pursuant to both of those HCPs, there are limits on theamount of land covered by the HCPs that can be trans-ferred unless the U.S. Fish and Wildlife Service approvesthe transfer or the new owner agrees to be bound by theHCP and related documents.
In 1996 the company obtained from the U.S. Fishand Wildlife Service an Incidental Take Permit for theAmerican burying beetle covering approximately 25,000acres of lands in Oklahoma that it acquired from theUnited States in an exchange with the U.S. Forest Serviceand certain nearby lands that the company alreadyowned. The company also has entered into agreementswith the U.S. Fish and Wildlife Service to reduce uncer-tainties under the ESA with respect to red-cockadedwoodpeckers on some of its timberlands in NorthCarolina and northern spotted owls on some of its tim-berlands in Washington.
The company believes the most effective way to man-age its timberlands for the growth and harvest of timberand the protection of wildlife and fish habitat is todevelop plans for the management of timber and otherresources on those lands and obtain approval of thoseplans from the appropriate federal or state agencies.Accordingly, the company is seeking to develop HCPs orother arrangements with federal and state fish and wild-life agencies for some other parts of its Pacific Northwesttimberlands that would address the protection of wildlifeand fish habitat for both listed and non-listed species.
Forest practice acts in some of the states in which thecompany has timber increasingly affect present orfuture harvest and forest management activities. Forexample, forest practice acts in Washington and Oregonlimit the size of clearcuts, require that some timber be leftunharvested in riparian areas and sometimes in otherareas to protect water quality, fish habitat and wildlife,regulate construction of forest roads and conduct ofother forest management activities, require reforestationfollowing timber harvest, and contain procedures forstate agencies to review and approve proposed forestpractice activities. Other states and some local govern-ments regulate certain forest practices through variouspermit programs. Each of the states in which the com-pany owns timberlands has developed “best managementpractices” (BMPs) to reduce the effects of forest practiceson water quality and aquatic habitats. Additional andmore stringent regulations and regulatory programs maybe adopted by various state and local governments toachieve water quality standards under the Clean WaterAct or to preserve aquatic habitats. These current orfuture forest practice acts, BMPs and other programs mayreduce the volumes of timber that can be harvested,increase operating and administrative costs, and make itmore difficult to respond to rapid changes in markets,
34
extreme weather or other unexpected circumstances.However, the company does not anticipate that it will bedisproportionately affected by these programs as com-pared with typical owners of comparable timberlands orthat these programs will significantly disrupt its plannedoperations over large areas or for extended periods.
In addition, the company participates in the Sus-tainable Forestry Initiative® sponsored by the AmericanForest & Paper Association, a code of conduct designedto supplement government regulatory programs withvoluntary landowner initiatives to further protect certainpublic resources and values. Compliance with the Sus-tainable Forestry Initiative® may require some increasesin operating costs.
The combination of the forest management and har-vest restrictions and effects described in the precedingparagraphs has increased operating costs, resulted inchanges in the value of timber and logs from thecompany’s Pacific Northwest timberlands, and contrib-uted to increases in the prices paid for wood productsand wood chips during periods of high demand. Thecompany does not know whether these effects will con-tinue. One additional effect may be the continuation ofsome reduced usage of, and some substitution of otherproducts for, lumber and plywood.
The company does not believe that the restrictionsand effects described in the above paragraphs have had,or in 1998 or 1999 will have, a significant effect on thecompany’s total harvest of timber, although they mayhave such an effect in the future.
In addition to the foregoing, the company is subject tofederal, state or provincial and local air, water and landpollution control, solid and hazardous waste manage-ment, disposal and remediation laws and regulations inall areas in which it has operations, and to market de-mands with respect to chemical content of some productsand use of recycled fiber. Compliance with these laws,regulations and demands usually involves capital expen-ditures as well as operating costs. The company cannoteasily quantify future amounts of capital expendituresrequired to comply with these laws, regulations and de-mands, or the effects on operating costs, because in someinstances compliance standards have not been developedor have not become final or definitive. In addition, com-pliance with standards frequently serves other purposessuch as extension of facility life, increase in capacity,changes in raw material requirements, or increase in eco-nomic value of assets or products. While it is difficult toisolate the environmental component of most manu-facturing capital projects, the company estimates thatcapital expenditures for environmental compliance wereapproximately $41 million (6 percent of total capital ex-penditures excluding acquisitions) in 1997. Based on itsunderstanding of current regulatory requirements, the
company expects that expenditures will range from$75 million to $85 million (10 to 11 percent of totalcapital expenditures) in 1998 and 1999.
The company is involved in the environmental inves-tigation or remediation of numerous sites, including 43superfund sites where the company has been named as apotentially responsible party. Some of the sites are onproperty presently or formerly owned by the companywhere the company has the sole obligation to remediatethe site or shares that obligation with one or more par-ties, and others are third-party sites involving severalparties who have a joint and several obligation to remedi-ate the site. The company’s liability with respect to thesesites ranges from insignificant at some sites to substantialat others, depending on the quantity, toxicity and natureof materials deposited by the company at the site and,with respect to some sites, the number and economicviability of the other responsible parties.
The company spent approximately $21 million in1997 and expects to spend $15 million in 1998 on envi-ronmental remediation of these sites. It is the company’spolicy to accrue for environmental remediation costswhen it is determined that it is probable that such an ob-ligation exists and the amount of the obligation can bereasonably estimated. Based on currently available infor-mation and analysis, the company believes that it is rea-sonably possible that costs associated with all identifiedsites may exceed current accruals by amounts that mayprove insignificant or that could range, in the aggregate,up to approximately $100 million over several years.This estimate of the upper end of the range of reasonablypossible additional costs is much less certain than theestimates upon which accruals are currently based andutilizes assumptions less favorable to the company amongthe range of reasonably possible outcomes.
An Environmental Protection Agency (EPA) regula-tion under Title 5 of the Clean Air Act requires updatedcomprehensive operating permits at many of thecompany’s manufacturing operations. The company willcontinue to prepare the permit applications in 1998 andanticipates that it will be able to obtain the necessary per-mits.
The EPA published proposed regulations onDecember 17, 1993, known as the “cluster rules,” whichwould establish maximum achievable control technologystandards for non-combustion sources under the CleanAir Act, and revised wastewater effluent limitations un-der the Clean Water Act. The original proposal has beenmodified on two occasions. The final rule was approvedby the administrator of the EPA in November 1997 andwill go into effect in early 1998. The cluster rules willrequire the company to commit approximately $80 mil-lion of additional capital to further reduce air emissionsand wastewater discharges over the next several years.
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The real estate and related assets segment earned$111 million for the year, including a $45 million gainon the sale of the company’s wholly owned subsidiary,Weyerhaeuser Mortgage Company. The $66 million op-erating earnings, excluding this gain, when comparedwith $43 million in 1996, reflects stronger real estatemarkets, an increased focus on the home building andland development businesses, and improved operatingefficiencies.
The increase in Weyerhaeuser’s costs of products sold,as a percentage of sales, to 78 percent in 1997 comparedwith last year’s 75 percent can be attributed to the priceweaknesses described above. The product inventory turn-over rate was 12.1 turns for the year compared with 10.3turns in 1996. Charges of $89 million incurred for theclosure of production facilities were a factor in the in-crease in costs and expenses for 1997 over the prior year.
The increase in costs and operating expenses in thereal estate and related assets segment is consistent withthe increased revenues from the strong real estate mar-kets. Reduced selling, general and administrative ex-penses, compared with the prior year, are due primarilyto the sale of the mortgage banking business.
Other income (expense) is an aggregation of both re-curring and occasional income and expense items and, asa result, can fluctuate from year to year. Individual itemssignificant in relation to net earnings in 1997 were: again of $45 million from the sale of the mortgage bank-ing business, interest income of $18 million from thefavorable federal income tax decision related to timbercasualty losses incurred in the eruption of MountSt. Helens in 1980, a loss of $8 million from the sale ofthe wholesale nursery business, and a gain of $21 millionfrom the sale of the Saskatoon chemical facility. Therewere no significant individual items in 1996.
1 9 9 6 C O M P A R E D W I T H 1 9 9 5
Consolidated net sales and revenues were $11.1 billion in1996, a decrease of 6 percent from the record $11.8 bil-lion posted in 1995. This decrease is the net of a $1 bil-lion decrease in the pulp, paper and packaging segmentand an increase of $309 million for timberlands andwood products. Pulp, paper, corrugated packaging andrecycled products experienced material unfavorable pricevariances offset, in part, by favorable volume variances inthe packaging business related to the acquisition of ninefacilities in late 1995. Wood products benefited fromfavorable price and volume variances in lumber.
F I N A N C I A L R E V I E W
R E S U L T S O F O P E R A T I O N S
1 9 9 7 C O M P A R E D W I T H 1 9 9 6
During 1997, the company’s consolidated net sales andrevenues were $11.2 billion compared with $11.1 billionin the prior year. Sales were relatively even from year toyear in all the operating segments, with increased vol-umes in most product lines offsetting unfavorable pricevariances. While the real estate and related assets seg-ment included only four months of revenues fromWeyerhaeuser Mortgage Company due to the sale of thisbusiness in May, the lost revenues were more than offsetby increased revenues from real estate activity.
Net earnings for the year were $342 million, or $1.72basic earnings per share, compared with $463 million, or$2.34 basic earnings per share, in 1996. The currentyear’s earnings included after-tax special items of $9 mil-lion, or 4 cents per common share, related to the chargesincurred for closures of operating facilities, offset in partby the gain on sale of businesses. Diluted earnings pershare, which is based upon the weighted average numberof shares outstanding plus shares the company may beobligated to issue to satisfy stock options, were $1.71 and$2.33 for 1997 and 1996, respectively.
1997 operating earnings in the timberlands and woodproducts segment were $707 million, net of charges to-taling $40 million for the closure of two plywood facili-ties and an export sawmill. Excluding these charges, thesegment earned $747 million compared with $805 mil-lion in 1996. The decrease from year to year is the com-bination of weak export demand for logs and lumber andlower domestic structural panel prices, offset somewhatby a stronger domestic lumber market.
The pulp, paper and packaging segment had operat-ing earnings of $164 million in 1997, which includesspecial items netting to a charge of $28 million. This in-cludes a $49 million charge for the consolidation, closureor disposition of certain recycling facilities, the closure ofa corrugated medium machine, and a gain of $21 millionfrom the sale of a chemical facility in Saskatoon,Saskatchewan, Canada. Before these special items, thesegment earned $192 million compared with $307 mil-lion in the previous year. Volume increases in all productlines were more than offset by weaker average priceswhen compared with 1996, although pulp, paper andpackaging markets improved each quarter in 1997. Thepaper and packaging markets continued this improve-ment through the fourth quarter; however, pulp marketsbegan to weaken during the quarter due to a decline indemand in Asia.
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Net earnings for 1996 were $463 million, or $2.34per common share, compared with record earnings of$799 million, or $3.93 per common share, in 1995. The1995 earnings were net of an after-tax special charge of$184 million ($290 million pretax), or 90 cents per com-mon share, in the real estate and related assets segment.Lower prices in the pulp, paper and packaging segment,which were in sharp contrast with the record 1995 levels,accounted for the decline in 1996 earnings.
The timberlands and wood products segment operat-ing earnings were $805 million, comparable to 1995earnings of $808 million, as it benefited from strong de-mand in the United States and Japan. Tight supplies anddisruptions related to countervailing duties on importsfrom Canada contributed to strong lumber results. Thepanel markets were negatively impacted by the excess ca-pacity of oriented strand board as new facilities came online in 1996.
The pulp, paper and packaging segment reported op-erating earnings of $307 million in 1996 compared witha record performance of $1.2 billion in 1995. The down-turn in pulp and paper prices, which began in the fourthquarter of 1995 as customers cut back on purchases inorder to reduce excess inventories, continued as priceswere significantly lower than the prior year.
The real estate and related assets segment earned$43 million from operations in 1996 compared with$13 million, before the special charge, in 1995. Realestate benefited from several major commercial projectclosings and increased residential property sales alongwith reduced costs as the result of the disposition ofcertain impaired properties. Improved financial servicesresults reflected the sale of capitalized servicing rights andincreased loan originations in the company’s mortgagebanking business.
Weyerhaeuser’s cost of products sold, as a percentageof sales, increased to 75 percent in 1996 compared with69 percent in 1995, reflecting the significant decline inpulp, paper and packaging pricing. Additionally, inven-tory turnover rates were lower in 1996 compared withthe higher rates experienced in the peak price periods of1995.
The real estate and related assets segment costs andoperating expenses in 1996 rose 7 percent over the 1995level, consistent with the 10 percent increase in revenuesfrom year to year. The decline in depreciation and amor-tization was directly related to the disposition of certainimpaired assets and sale of substantially all of the capital-ized servicing rights in the mortgage banking business.Selling, general and administrative expenses increasedover 1995 primarily due to the opening of additionalbranch offices in 1996 by the mortgage banking business.
Other income (expense) is an aggregation of bothrecurring and occasional non-operating income andexpense items and, as a result, may fluctuate from periodto period. No individual income or expense item in 1996was significant in relation to net earnings.
1 9 9 5 C O M P A R E D W I T H 1 9 9 4
The company’s consolidated net sales and revenuesincreased 13 percent to a record $11.8 billion in 1995compared with $10.4 billion in 1994. The pulp, paperand packaging segment accounted for $5.7 billion of thisrecord performance, 40 percent over its sales of $4.1 bil-lion in 1994, with strong year-to-year improvement in allproduct lines. These markets weakened in the fourthquarter, and this weakness persisted in 1996 as customerscontinued to reduce inventories. The timberlands andwood products segment sales of $4.9 billion approxi-mated 1994’s. The real estate and related assets segmenthad combined sales of $919 million, down from the prioryear’s $1.1 billion, largely attributable to declines insingle-family home sales.
The company also achieved record earnings of$799 million, or $3.93 per common share, in 1995,which was 36 percent over the $589 million, or $2.86per common share, recorded in 1994. The 1995 earningswere net of an after-tax charge of $184 million($290 million pretax), or 90 cents per common share, inthe real estate and related assets segment. The 1994 earn-ings included a net contribution of $.03 per commonshare for the return of countervailing duty by the U.S.government against Canadian lumber imports and theexpected cost of postretirement benefits for Canadianemployees.
Operating earnings in the timberlands and woodproducts segment were $808 million, down from therecord $1 billion for the previous year. This was attribut-able to price declines primarily in softwood lumber,caused by a drop in domestic housing starts.
The pulp, paper and packaging segment posted recordoperating earnings of $1.2 billion in 1995 comparedwith $211 million earned in 1994. Significant priceimprovement over the prior year and ongoing improve-ments in operations were the key factors in recovery inthis segment.
The company’s real estate and related assets segmentrecorded an operating loss of $277 million for the yearafter reflecting a $290 million charge to operations. Themajority of the charge was a direct result of the com-pany’s decision to accelerate the disposition of certainreal estate assets previously held for development and use.The remainder of the charge resulted from the applica-tion of those provisions of Statement of Financial
37
stock on behalf of each employee. The size of the contri-bution, if any, is decided by the board of directors eachyear on the basis of that year’s profits and the company’sperformance relative to its competition.
Excluding the revaluation charge, the decrease in costsand operating expenses of the real estate and relatedassets segment are in line with the reduced sales activity.
Other income (expense) is an aggregation of bothrecurring and occasional non-operating income andexpense items and, as a result, may fluctuate from periodto period. No individual income or expense item in 1995was significant in relation to net earnings.
Weyerhaeuser’s interest expense incurred was up$34 million over the prior year as a result of prefunding1995 debt maturities that were due late in the year as wellas an increase in the company’s combined long- andshort-term debt levels. Capitalized interest was $16 mil-lion less than the prior year as mill modernizationprojects at Longview, Washington, and Plymouth, NorthCarolina, were completed.
Accounting Standards (SFAS) No. 121 relating to thevaluation of assets held for future use where estimatedundiscounted future cash flows from those assets did notexceed the carrying value of those assets. Before theseactions, the combined segments earned $13 million com-pared with $18 million in 1994.
Weyerhaeuser’s cost of products sold as a percentageof net sales decreased to 69 percent in 1995 comparedwith 73 percent in 1994. The company continued tobenefit from its mill modernization program and imple-mentation of its business improvement plans, offset inpart by the costs associated with higher sales activity,principally in the pulp, paper and packaging segment.Depreciation expense increased over the prior year as aresult of the completion and start-up of several mill mod-ernization projects in late 1994 in the pulp, paper andpackaging segment. The expansion of the company’sPerformance Share Plan to include all employees was themajor contributor to the $109 million increase in selling,general and administrative expenses. Contributions madeby the company into this plan are invested in company
In February 1998, the company and Nippon PaperIndustries Co., Ltd. (NPI), completed the restructuringof their North Pacific Paper Corporation (NORPAC)joint venture. Through this restructuring, the ownershipof NORPAC changed from 80 percent company owner-
ship and 20 percent NPI ownership to 50 percent foreach shareholder. The company, either directly orthrough a wholly owned subsidiary, will continue toprovide marketing, support services, raw materials andstaffing to the joint venture.
S U B S E Q U E N T E V E N T
In 1994 business improvement plans were developed toimprove the annual pretax earnings of the company by$600 million by the end of 1997. Given the volatility ofprices in many of the company’s product lines andchanging material and labor costs, the improvementplans were developed, stated and are being tracked in1994 dollars. The year-to-year impact of these plans willobviously vary as prices and costs change each year.
These plans were developed by each unit of the com-pany and did not require major capital investment. Theyfocused on the manageable variables at each operatingunit that have the greatest impact on profitability, i.e.,production volume, manufacturing cost, product mixand controllable overhead.
The company achieved annualized improvements to-taling $224 million, $120 million and $276 million, asmeasured in 1994 dollars, in 1997, 1996 and 1995,respectively, with 1998 as the first full year of benefits.The rate of improvement increased in 1997 comparedwith 1996. The company exceeded its goal in Pulp,Paper and Packaging. Wood Products and Timberlandsfell slightly short of its goal as four facilities were sold andthree were closed permanently that were included in theoriginal plan.
The annualized improvements realized over the 1995to 1997 period, in 1994 dollars, are as follows:
Dollar amounts in millions 1997 1996 1995 Total
Pulp, paper andpackaging $ 129 $ 49 $146 $ 324
Timberlands andwood products 95 71 130 296
$ 224 $ 120 $276 $ 620
B U S I N E S S I M P R O V E M E N T P L A N S
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$23 million before changes in working capital was pro-vided by net income of $71 million, of which $45 mil-lion was from the gain on the sale of the mortgagebanking business. The segment’s working capital in-creased by $10 million in 1997 compared with a decreaseof $82 million in the prior year from decreases in realestate inventories and mortgages held for sale.
Cash flow from operations before changes in workingcapital by business segment was as follows:
Dollar amounts in millions 1997 1996 1995
Timberlands and woodproducts $ 993 $ 1,045 $ 1,026
Pulp, paper and packaging 556 665 1,567Real estate and related assets 23 73 67Corporate and other (473) (526) (792)
$ 1,099 $ 1,257 $ 1,868
I N V E S T I N G
Capital expenditures, excluding acquisitions, were$656 million in 1997 compared with $879 million in1996. They are currently expected to approximate$750 million, excluding acquisitions, in 1998; however,these expenditures could be increased or decreased as aconsequence of future economic conditions.
Recent capital spending, excluding acquisitions, hasbeen in the following areas:
Dollar amounts in millions 1997 1996 1995
Timberlands and woodproducts $ 314 $ 418 $ 446
Pulp, paper and packaging 315 415 501Corporate and other 27 46 49
$ 656 $ 879 $ 996
Acquisitions of plant, property and equipmentamounted to $13 million in 1997. Also, during the year,the company expended $190 million to acquire 51 per-cent of a forestry joint venture in New Zealand.
The cash needed to meet these and other companyneeds was generated from internal cash flow, issuance ofdebt, sale of businesses and short-term borrowing.
Proceeds from the sale of the wholesale nurserybusiness and the Saskatoon chemical facility provided$76 million of cash to Weyerhaeuser in 1997 while thesale of the mortgage banking business provided$192 million of cash in the real estate and related assetssegment.
L I Q U I D I T Y A N D C A P I T A L R E S O U R C E S
G E N E R A L
The company is committed to the maintenance of asound, conservative capital structure. This commitmentis based upon two considerations: the obligation to pro-tect the underlying interests of its shareholders andlenders, and the desire to have access, at all times, to ma-jor financial markets.
The important elements of the policy governing thecompany’s capital structure are as follows:
• To view separately the capital structures ofWeyerhaeuser Company, Weyerhaeuser Real EstateCompany and related subsidiaries, given the very differ-ent nature of their assets and business activities. Theamount of debt and equity associated with the capitalstructure of each will reflect the basic earnings capacity,real value and unique liquidity characteristics of the as-sets dedicated to that business.
• The combination of maturing short-term debt andthe structure of long-term debt will be managedjudiciously to minimize liquidity risk. Long-term debtmaturities are shown in Note 13 of Notes to FinancialStatements.
O P E R A T I O N S
Weyerhaeuser’s net cash provided by operations in 1997was $1 billion, essentially all from cash flow from opera-tions before changes in net working capital. This wasdown slightly from the $1.1 billion provided in 1996.These funds were provided by net income of $271 mil-lion, down from last year’s $434 million; depreciation,amortization and fee stumpage of $616 million compa-rable to the prior year; and deferred taxes of $88 millioncompared to $121 million in 1996. In addition, in 1997funds were provided from $89 million in non-cashcharges for the closure or disposition of facilities.
Working capital, net of the effects of the sale or acqui-sition of businesses and facilities, increased by $44 mil-lion in 1997, slightly higher than the $41 million in-crease a year earlier. This net increase in the current yearwas due primarily to an increase in receivables and a de-crease in accounts payable and accrued liabilities.
Net cash provided by operations in the real estate andrelated assets segment was $13 million compared with$155 million in 1996. Cash flow from operations of
39
F I N A N C I N G
During the year, Weyerhaeuser reduced its interest-bearing debt by $117 million, bringing the debt to totalcapital ratio down to 36.3 percent at year-end comparedwith 37.9 percent at the end of 1996. New borrowingsincluded two $300 million, 6.95 percent debentures, onefor 20 years and the other for 30 years. In addition,$38 million of industrial revenue bonds were sold. Long-term debt was reduced by a pay-down of $695 million incommercial paper and $78 million in scheduled debt.
The company paid $317 million in cash dividends oncommon shares in both 1997 and 1996. Although com-mon share dividends have exceeded the company’s targetratio in recent years, the intent, over time, is to pay divi-dends to common shareholders in the range of 35 to 45percent of common share earnings. Weyerhaeuser alsoreceived an intercompany dividend from WeyerhaeuserFinancial Services, Inc., which has been eliminated on aconsolidated basis.
During the year, the company repurchased 496,000common shares for $22 million as part of the 11 millionshare repurchase program implemented in 1995. Thisrepurchase program was completed in January 1998.
The real estate and related assets segment used$299 million in funds for financing activities in the year.An increase in commercial paper borrowings provided$118 million while funds were used for the $150 millionintercompany dividend and $281 million in debt reduc-tions.
To ensure its ability to meet future commitments,Weyerhaeuser Company and Weyerhaeuser Real EstateCompany have established unused bank lines of credit inthe maximum aggregate sum of $825 million. Neither ofthe entities is a guarantor of the borrowings of the otherunder any of these credit facilities.
M A R K E T R I S K O F F I N A N C I A L I N S T R U M E N T S
The company has exposure to market risk includingchanges in interest rates and currency exchange rates. Tomanage the volatility relating to these exposures, thecompany has entered into limited derivative transactionsto manage well-defined interest rate and foreign ex-change risks. The company does not hold or issue deriva-tive financial instruments for trading. The majority ofthe company’s derivative instruments are “pay fixed,receive variable” interest rate swaps with highly ratedcounterparties in which the interest payments are calcu-lated on a notional amount. The notional amounts donot represent amounts exchanged by the parties and,thus, are not a measure of exposure to the companythrough its use of derivatives. The company is exposed tocredit-related gains or losses in the event of non-performance by counterparties to these financial instru-ments; however, the company does not expect anycounterparties to fail to meet their obligations. Thecompany’s interest rate swaps are described as follows:
Dollar amounts in millions Variable Rate at December 28, 1997
Notional Amount Maturity Date Fixed Rate % % Based On Fair Value of Swap (1)
$150 1/1/98 9.38 6.00 30 day commercial paper $ —40 3/23/98 8.72 6.00 30 day commercial paper (0.2)
150 5/17/98 6.36 5.90 90 day LIBOR (0.4)50 6/8/98 (2) 5.54 5.90 90 day LIBOR 0.127 5/1/99 6.70 8.25 11.95% - Kenny index 0.575 12/6/99 (3) 6.85 5.90 30 day LIBOR (2.1)
$492 $(2.1)
(1)The amount of the obligation under each swap is based on the assumption that such swap had terminated at the end of the fiscal period, and provides for thenetting of amounts payable by and to the counterparty. In each case, the amount of such obligation is the net amount so determi ned.(2)Includes the value of an option, by the counterparty, to extend for one year at maturity date.(3)Includes the value of an option, by the counterparty, to extend for two years at maturity date.
C O N T I N G E N C I E S
The company is a party to legal proceedings and environ-mental matters generally incidental to its business.Although the final outcome of any legal proceeding orenvironmental matter is subject to a great many variablesand cannot be predicted with any degree of certainty, thecompany presently believes that the ultimate outcome
resulting from these proceedings and matters would nothave a material effect on the company’s current financialposition, liquidity or results of operations; however, inany given future reporting period, such proceedings ormatters could have a material effect on results of opera-tions.
40
A C C O U N T I N G M A T T E R S
P R O S P E C T I V E P R O N O U N C E M E N T S
During the year, the FASB issued the following pro-nouncements that will be effective in periods after theclose of the company’s 1997 fiscal year:
• SFAS No. 130, “Reporting ComprehensiveIncome.”
• SFAS No. 131, “Disclosure about Segments of anEnterprise and Related Information.”
These statements are described in Note 1, Summaryof Significant Accounting Policies, of Notes to FinancialStatements.
Y E A R 2 0 0 0
Weyerhaeuser, like all other companies using computersand microprocessors, is faced with the task of addressingthe Year 2000 problem over the next two years. TheYear 2000 challenge arises from the nearly universal prac-tice in the computer industry of using two digits ratherthan four digits to designate the calendar year (e.g.,DD/MM/YY). This can lead to incorrect results whencomputer software performs arithmetic operations, com-parisons or data field sorting involving years later than1999. The company has embarked on a comprehensiveapproach to identify where this problem may occur in its
information technology, manufacturing and facilitiessystems. The company plans to modify or replace itsaffected systems in a manner that will minimize anydetrimental effects on operations. While it is not possibleat present to quantify the overall cost of this work, thecompany presently believes that the ultimate outcomeresulting from this work will not have a material effect onthe company’s current financial position, liquidity orresults of operations; however, in any given future report-ing period, such costs could have a material effect onresults of operations.
A C C O U N T I N G A N D R E P O R T I N G S T A N D A R D S
C O M M I T T E E
During the year, the Accounting and Reporting Stan-dards Committee, comprised of four outside directors,reviewed with the company’s management and with itsindependent public accountants the scope and results ofthe company’s internal and external audit activities andthe adequacy of the company’s internal accounting con-trols. The committee also reviewed current and emergingaccounting and reporting requirements and practicesaffecting the company.
T O T H E S H A R E H O L D E R S O F W E Y E R H A E U S E R C O M P A N Y :
We have audited the accompanying consolidated balance sheets of Weyerhaeuser Company (a Washington corporation)and subsidiaries as of December 28, 1997, and December 29, 1996, and the related consolidated statements of earnings,cash flows and shareholders’ interest for each of the three years in the period ended December 28, 1997. These financialstatements are the responsibility of the company’s management. Our responsibility is to express an opinion on thesefinancial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that weplan and perform the audit to obtain reasonable assurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in thefinancial statements. An audit also includes assessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation. We believe that our audits provide a rea-sonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial positionof Weyerhaeuser Company and subsidiaries as of December 28, 1997, and December 29, 1996, and the results of theiroperations and their cash flows for each of the three years in the period ended December 28, 1997, in conformity withgenerally accepted accounting principles.
Seattle, Washington,February 11, 1998 ARTHUR ANDERSEN LLP
R E P O R T O F I N D E P E N D E N T P U B L I C A C C O U N T A N T S
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C O N S O L I D A T E D S T A T E M E N T O F E A R N I N G S
For the three-year period ended December 28, 1997Dollar amounts in millions except per-share figures 1997 1996 1995
Net sales and revenues:Weyerhaeuser $10,117 $10,105 $10,869Real estate and related assets 1,093 1,009 919
Total net sales and revenues 11,210 11,114 11,788
Costs and expenses:Weyerhaeuser:
Costs of products sold 7,866 7,610 7,516Depreciation, amortization and fee stumpage 616 601 580Selling, general and administrative expenses 647 702 724Research and development expenses 56 54 51Taxes other than payroll and income taxes 142 151 155Charges for closure or disposition of facilities 89 — —
9,416 9,118 9,026
Real estate and related assets:Costs and operating expenses 909 726 681Depreciation and amortization 12 16 41Selling, general and administrative expenses 96 173 139Taxes other than payroll and income taxes 8 11 8Charge for impairment of long-lived assets (Note 1) — — 290
1,025 926 1,159
Total costs and expenses 10,441 10,044 10,185
Operating income 769 1,070 1,603Interest expense and other:
Weyerhaeuser:Interest expense incurred 271 273 271Less interest capitalized 15 21 20Other income (expense), net (Note 4) (17) (58) (71)
Real estate and related assets:Interest expense incurred 110 132 140Less interest capitalized 69 65 76Other income (expense), net (Note 4) 84 27 27
Earnings before income taxes 539 720 1,244Income taxes (Note 5) 197 257 445
Net earnings $ 342 $ 463 $ 799
Per common share (Note 2):Basic net earnings $ 1.72 $ 2.34 $ 3.93
Diluted net earnings $ 1.71 $ 2.33 $ 3.91
Dividends paid $ 1.60 $ 1.60 $ 1.50
See notes on pages 47 through 65.
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C O N S O L I D A T E D B A L A N C E S H E E T
Dollar amounts in millions December 28, 1997 December 29, 1996
A S S E T S
WeyerhaeuserCurrent assets:
Cash and short-term investments (Note 1) $ 100 $ 33
Receivables, less allowances of $6 and $7 913 902
Inventories (Note 8) 983 1,001
Prepaid expenses 298 289
Total current assets 2,294 2,225
Property and equipment (Note 9) 6,974 7,007
Construction in progress 313 417
Timber and timberlands at cost, less fee stumpage charged to disposals 996 1,073
Investments in joint ventures 249 35
Other assets and deferred charges 245 211
11,071 10,968
Real estate and related assetsCash and short-term investments, including restricted deposits of $16 and $18 22 38
Receivables, less discounts and allowances of $6 and $9 62 99
Mortgage-related financial instruments, less discounts and allowances of $27and $7 (Notes 1 and 14) 173 621
Real estate in process of development and for sale (Note 10) 593 680
Land being processed for development 845 719
Investments in and advances to joint ventures and limited partnerships, less reservesof $6 and $27 116 115
Other assets 193 356
2,004 2,628
Total assets $13,075 $13,596
See notes on pages 47 through 65.
43
Dollar amounts in millions December 28, 1997 December 29, 1996
L I A B I L I T I E S A N D S H A R E H O L D E R S ’ I N T E R E S T
WeyerhaeuserCurrent liabilities:
Notes payable $ 25 $ 16Current maturities of long-term debt 17 80Accounts payable (Note 1) 694 725Accrued liabilities (Note 11) 648 662
Total current liabilities 1,384 1,483Long-term debt (Notes 13 and 14) 3,483 3,546Deferred income taxes (Note 5) 1,418 1,324Deferred pension and other liabilities (Notes 6 and 7) 498 493Minority interest in subsidiaries 121 113Commitments and contingencies (Note 15)
6,904 6,959
Real estate and related assetsNotes payable and commercial paper (Note 12) 228 245Long-term debt (Notes 13 and 14) 1,032 1,537Other liabilities 262 251Commitments and contingencies (Note 15)
1,522 2,033
Total liabilities 8,426 8,992
Shareholders’ interest (Note 17):Common shares: authorized 400,000,000 shares, issued 206,072,890 shares,
$1.25 par value 258 258Other capital 407 407Cumulative translation adjustment (123) (93)Retained earnings 4,397 4,372Treasury common shares, at cost: 6,586,939 and 7,736,601 (290) (340)
Total shareholders’ interest 4,649 4,604
Total liabilities and shareholders’ interest $13,075 $13,596
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C O N S O L I D A T E D S T A T E M E N T O F C A S H F L O W S
Consolidated
For the three-year period ended December 28, 1997Dollar amounts in millions 1997 1996 1995
Cash provided by (used for) operations:Net earnings (loss) $ 342 $ 463 $ 799
Non-cash charges to income:Depreciation, amortization and fee stumpage 628 617 621Deferred income taxes, net 75 181 103Charges for closure or disposition of facilities 89 — —Charge for impairment of long-lived assets — — 290
Decrease (increase) in working capital:Accounts receivable (9) 67 (33)Inventories, prepaid expenses, real estate and land (23) 68 (159)Mortgage notes held for sale and mortgage loans receivable (64) 19 (18)Accounts payable and accrued liabilities 42 (113) (102)
(Gain) loss on disposition of assets 5 1 43(Gain) loss on disposition of businesses (58) — —Other 18 (5) 12
Net cash provided by operations 1,045 1,298 1,556
Cash provided by (used for) investing activities:Property and equipment (610) (829) (928)Timber and timberlands (46) (50) (68)Investments in joint ventures (189) (12) 38Property and equipment and timber and timberlands from acquisitions (13) (448) (77)Proceeds from sale of:
Property and equipment (Note 16) 85 74 19Businesses 268 — —Mortgage and investment securities 55 106 25
Other (23) (5) 153
Net cash provided by (used for) investing activities (473) (1,164) (838)
Cash provided by (used for) financing activities:Issuances of debt 632 142 723Sale of industrial revenue bonds 38 33 150Notes and commercial paper borrowings, net (577) 534 (439)Cash dividends (317) (317) (306)Intercompany cash dividends — — —Payments on debt (359) (513) (661)Purchase of treasury common shares (22) (45) (379)Exercise of stock options 61 20 19Other 23 (1) (4)
Net cash provided by (used for) financing activities (521) (147) (897)
Net increase (decrease) in cash and short-term investments 51 (13) (179)Cash and short-term investments at beginning of year 71 84 263
Cash and short-term investments at end of year $ 122 $ 71 $ 84
Cash paid during the year for:Interest, net of amount capitalized $ 287 $ 322 $ 302
Income taxes $ 21 $ 168 $ 332
See notes on pages 47 through 65.
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Weyerhaeuser Company Real Estate and Related Assets
1997 1996 1995 1997 1996 1995
$ 271 $ 434 $ 981 $ 71 $ 29 $ (182)
616 601 580 12 16 4188 121 183 (13) 60 (80)89 — — — — —— — — — — 290
(17) 75 (60) 8 (8) 275 (30) (148) (28) 98 (11)
— — — (64) 19 (18)(32) (86) (82) 74 (27) (20)13 8 43 (8) (7) —
(13) — — (45) — —12 20 14 6 (25) (2)
1,032 1,143 1,511 13 155 45
(607) (820) (915) (3) (9) (13)(46) (50) (68) — — —
(214) (8) (19) 25 (4) 57(13) (448) (77) — — —
39 61 19 46 13 —76 — — 192 — —— — — 55 106 2522 (44) (31) (45) 39 184
(743) (1,309) (1,091) 270 145 253
618 12 583 14 130 14038 33 150 — — —
(695) 637 (159) 118 (103) (280)(317) (317) (306) — — —150 — — (150) — —(78) (174) (480) (281) (339) (181)(22) (45) (379) — — —61 20 19 — — —23 (1) (4) — — —
(222) 165 (576) (299) (312) (321)
67 (1) (156) (16) (12) (23)33 34 190 38 50 73
$ 100 $ 33 $ 34 $ 22 $ 38 $ 50
$ 244 $ 255 $ 236 $ 43 $ 67 $ 66
$ 54 $ 188 $ 346 $ (33) $ (20) $ (14)
46
C O N S O L I D A T E D S T A T E M E N T O F S H A R E H O L D E R S ’ I N T E R E S T
For the three-year period ended December 28, 1997Dollar amounts in millions 1997 1996 1995
Common stock issued:Balance at end of year $ 258 $ 258 $ 258
Other capital:Balance at beginning of year 407 415 416Stock options exercised (11) (8) (3)Other transactions (net) 11 — 2
Balance at end of year 407 407 415
Cumulative translation adjustment:Balance at beginning of year (93) (90) (107)Translation adjustment (30) (3) 17
Balance at end of year (123) (93) (90)
Retained earnings:Balance at beginning of year 4,372 4,226 3,733Net earnings 342 463 799Cash dividends on common shares (317) (317) (306)
Balance at end of year 4,397 4,372 4,226
Common stock held in treasury:Balance at beginning of year (340) (323) (10)Purchases of treasury common shares (22) (45) (379)Stock options exercised 72 28 22Used in acquisition of capital assets — — 44
Balance at end of year (290) (340) (323)
Total shareholders’ interest:Balance at end of year $ 4,649 $ 4,604 $ 4,486
Shares of common stock (in thousands):Issued at end of year 206,073 206,073 206,073
In treasury:Balance at beginning of year 7,737 7,303 455Purchases of treasury common shares 496 1,086 8,494Stock options exercised (1,646) (642) (648)Used in acquisition of capital assets — (10) (998)
Balance at end of year 6,587 7,737 7,303
Outstanding at end of year 199,486 198,336 198,770
See notes on pages 47 through 65.
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N O T E S T O F I N A N C I A L S T A T E M E N T S
N O T E 1 . S U M M A R Y O F S I G N I F I C A N T A C C O U N T I N G P O L I C I E S
C O N S O L I D A T I O N
The consolidated financial statements include the ac-counts of Weyerhaeuser Company and all of its majority-owned domestic and foreign subsidiaries. Significant in-tercompany transactions and accounts are eliminated.
Certain of the consolidated financial statements andnotes to financial statements are presented in two group-ings: (1) Weyerhaeuser (the company), principally en-gaged in the growing and harvesting of timber and themanufacture, distribution and sale of forest products,and (2) Real estate and related assets, principally engagedin real estate development and construction and otherreal estate related activities.
N A T U R E O F O P E R A T I O N S
The company’s principal business segments, which ac-count for the majority of sales, earnings and the assetbase, are:
• Timberlands and wood products, which is engagedin the management of 5.2 million acres of company-owned and .2 million acres of leased commercial forest-land in the United States (60 percent in the South and 40percent in the Pacific Northwest) and 23.7 million acresof forestland in Canada under long-term licensingarrangements (of which 16.5 million acres are consideredto be productive forestland) and the production of a fullline of solid wood products that are sold primarilythrough the company’s own sales organizations to whole-salers, retailers and industrial users in North America, thePacific Rim and Europe.
• Pulp, paper and packaging, which manufacturesand sells pulp, newsprint, paper, paperboard and con-tainerboard in North American, Pacific Rim and Euro-pean markets, and packaging products for the domesticmarkets, and which operates an extensive wastepaperrecycling system that serves company mills and world-wide markets.
F I S C A L Y E A R - E N D
The company’s fiscal year ends on the last Sunday of theyear. Fiscal years 1997 and 1996 had 52 weeks, and fiscalyear 1995 had 53 weeks.
A C C O U N T I N G P R O N O U N C E M E N T S I M P L E M E N T E D
In 1997, the company implemented the following pro-nouncements of the Financial Accounting StandardsBoard (FASB):
• Statement of Financial Accounting Standards(SFAS) No. 128, “Earnings per Share,” that establishesstandards for computing and presenting earnings pershare (EPS). It simplifies the standards in APB Opinion
No. 15 (Earnings per Share) for computing EPS by re-placing primary earnings per share with basic earningsper share and by altering the calculation of diluted EPS,which replaces fully diluted EPS.
• SFAS No. 129, “Disclosure of Information aboutCapital Structure,” that continues the existing require-ments to disclose pertinent rights and privileges of allsecurities other than common stock, but expands thenumber of companies subject to portions of its require-ments. The company’s current capital structure does notrequire any additional disclosures as a result of this pro-nouncement.
In June 1996, the FASB issued SFAS No. 125, “Ac-counting for Transfers and Servicing of Financial Assetsand Extinguishments of Liabilities,” to provide account-ing and reporting guidance for transfers and servicing offinancial assets and extinguishments of liabilities. Thestatement uses the “financial-components approach” inwhich, after a transfer of financial assets, an entity wouldrecognize all financial assets and services it controls andall liabilities it has incurred and remove financial assetsand liabilities from the balance sheet when control issurrendered or when they are extinguished, respectively.It is to be applied to transfers and servicing of financialassets and extinguishment of liabilities occurring afterDecember 31, 1996. This statement supersedes severalprevious statements, including SFAS No. 122, “Account-ing for Mortgage Servicing Rights — an amendment ofFASB Statement No. 65,” which the company hadimplemented in 1995. In 1996, the FASB issued SFASNo. 127, “Deferral of the Effective Date of Certain Pro-visions of FASB Statement No. 125 — an amendment ofFASB Statement No. 125,” which deferred for one yearthe effective date of certain provisions. The adoption ofthese statements did not have a significant impact on re-sults of operations or financial position.
P R O S P E C T I V E A C C O U N T I N G P R O N O U N C E M E N T S
In 1997, the FASB issued the following pronouncementsthat will be effective in periods after the close of thecompany’s 1997 fiscal year:
• SFAS No. 130, “Reporting Comprehensive In-come,” that establishes standards for reporting and dis-play of comprehensive income and its components (rev-enues, expenses, gains and losses) in a full set of financialstatements. This statement will require that all items thatare required to be recognized under accounting standardsas components of comprehensive income be reported in afinancial statement that is displayed with the sameprominence as other financial statements. This statement
For the three-year period ended December 28, 1997
48
is effective for fiscal years beginning after December 15,1997.
• SFAS No. 131, “Disclosure about Segments of anEnterprise and Related Information,” that will requirecompanies to determine segments based on how manage-ment makes decisions about allocating resources to seg-ments and measuring their performance. Disclosures foreach segment are similar to those required under currentstandards, with the addition of certain quarterly require-ments. This statement will also require entity-wide dis-closure about products and services, the countries inwhich the company holds material assets and reportsmaterial revenues, and its significant customers. Thisstatement is effective for fiscal years beginning afterDecember 15, 1997; however, no interim reporting isrequired in the initial year. Management is evaluating theeffect of this statement on reported segment information.
E S T I M A T E S
The preparation of financial statements in conformitywith generally accepted accounting principles requiresmanagement to make estimates and assumptions thataffect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the dateof the financial statements and the reported amounts ofrevenues and expenses during the reporting period.Actual results could differ from those estimates.
F I N A N C I A L I N S T R U M E N T S
The company has, where appropriate, estimated the fairvalue of financial instruments. These fair value amountsmay be significantly affected by the assumptions used,including the discount rate and estimates of cash flow.Accordingly, the estimates presented are not necessarilyindicative of the amounts that could be realized in a cur-rent market exchange. Where these estimates approxi-mate carrying value, no separate disclosure of fair value isshown.
Financial instruments that potentially subject thecompany to concentrations of credit risk consist ofreal estate and related assets receivables and mortgage-related financial instruments, of which $119 million and$417 million are in the western geographical region ofthe United States at December 28, 1997, andDecember 29, 1996, respectively.
D E R I V A T I V E S
The company has only limited involvement with de-rivative financial instruments and does not use them fortrading purposes. They are used to manage well-definedinterest rate and foreign exchange risks. These include:
• Foreign exchange contracts, which are hedges forforeign denominated accounts receivable and accountspayable, have gains or losses recognized at settlementdate.
• Interest rate swaps entered into with major banks orfinancial institutions in which the company pays a fixedrate and receives a floating rate with the interest pay-ments being calculated on a notional amount. The pre-miums received by the company on the sale of theseswaps are treated as deferred income and amortizedagainst interest expense over the term of the agreements.
The company is exposed to credit-related gains orlosses in the event of nonperformance by counterpartiesto financial instruments but does not expect any counter-parties to fail to meet their obligations. The companydeals only with highly rated counterparties.
The notional amounts of these derivative financialinstruments are $492 million and $807 million atDecember 28, 1997, and December 29, 1996, respec-tively. These notional amounts do not represent amountsexchanged by the parties and, thus, are not a measure ofexposure to the company through its use of derivatives.The exposure in a derivative contract is the net differencebetween what each party is required to pay based on thecontractual terms against the notional amount of thecontract, such as interest rates or exchange rates. The useof derivatives does not have a significant effect on thecompany’s results of operations or its financial position.
C A S H A N D S H O R T - T E R M I N V E S T M E N T S
For purposes of cash flow and fair value reporting, short-term investments with original maturities of 90 days orless are considered as cash equivalents. Short-term invest-ments are stated at cost, which approximates market.
I N V E N T O R I E S
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 ap-proximately half of domestic raw materials, in processand finished goods inventories. LIFO inventories were$250 million and $296 million at December 28, 1997,and December 29, 1996, respectively. The balance of do-mestic raw material and product inventories, all materialsand supplies inventories, and all foreign inventories iscosted at either the first-in, first-out (FIFO) or movingaverage cost methods. Had the FIFO method been usedto cost all inventories, the amounts at which product in-ventories are stated would have been $234 million and$239 million greater at December 28, 1997, andDecember 29, 1996, respectively.
P R O P E R T Y A N D E Q U I P M E N T
The company’s property accounts are maintained on anindividual asset basis. Betterments and replacements ofmajor units are capitalized. Maintenance, repairs andminor replacements are expensed. Depreciation is pro-vided generally on the straight-line or unit-of-productionmethod at rates based on estimated service lives. Amorti-zation of logging railroads and truck roads is provided
49
generally as timber is harvested and is based upon ratesdetermined with reference to the volume of timber esti-mated to be removed over such facilities.
The cost and related depreciation of property sold orretired is removed from the property and allowance fordepreciation accounts and the gain or loss is included inearnings.
T I M B E R A N D T I M B E R L A N D S
Timber and timberlands are carried at cost less feestumpage charged to disposals. Fee stumpage is the costof standing timber and is charged to fee timber disposalsas fee timber is harvested, lost as the result of casualty orsold. Depletion rates used to relieve timber inventory aredetermined with reference to the net carrying value oftimber and the related volume of timber estimated to berecoverable. Timber carrying costs are expensed as in-curred. The cost of timber harvested is included in thecarrying values of raw material and product inventories,and in the cost of products sold as these inventories aredisposed of.
I N V E S T M E N T S I N J O I N T V E N T U R E S
The company accounts for its investments in joint ven-tures under the equity method and provides for taxes onundistributed earnings.
A C C O U N T S P A Y A B L E
The company’s banking system provides for the dailyreplenishment of major bank accounts as checks are pre-sented for payment. Accordingly, there were negativebook cash balances of $185 million and $164 million atDecember 28, 1997, and December 29, 1996, respec-tively. Such balances result from outstanding checks thathad not yet been paid by the bank and are reflected inaccounts payable in the consolidated balance sheets.
I N C O M E T A X E S
Deferred income taxes are provided to reflect temporarydifferences between the financial and tax bases of assetsand liabilities using presently enacted tax rates and laws.
P E N S I O N P L A N S
The company has pension plans covering most of itsemployees. The U.S. plan covering salaried employeesprovides pension benefits based on the employee’s high-est monthly earnings for five consecutive years during thefinal 10 years before retirement. Plans covering hourlyemployees generally provide benefits of stated amountsfor each year of service. Contributions to U.S. plans arebased on funding standards established by the EmployeeRetirement Income Security Act of 1974 (ERISA).
P O S T R E T I R E M E N T B E N E F I T S O T H E R T H A N P E N S I O N S
In addition to providing pension benefits, the companyprovides certain health care and life insurance benefits forsome retired employees and accrues the expected future
cost of these benefits for its current eligible retirees andsome employees. All of the company’s salaried employeesand some hourly employees may become eligible forthese benefits when they retire.
R E C L A S S I F I C A T I O N S
Certain reclassifications have been made to conformprior years’ data to the current format.
R E A L E S T A T E A N D R E L A T E D A S S E T S
With the sale of the mortgage banking business in thesecond quarter of 1997, the financial services segment isno longer material to the results of the company. There-fore, the remaining activities in financial services that areprincipally real estate related have been combined withreal estate into one segment entitled real estate and re-lated assets.
Real estate held for sale is stated at the lower of cost orfair value. The determination of fair value is based on ap-praisals and market pricing of comparable assets, whenavailable, or the discounted value of estimated futurecash flows from these assets. Real estate held for develop-ment is stated at cost to the extent it does not exceed theestimated undiscounted future net cash flows, in whichcase, it is carried at fair value.
Mortgage notes held for sale (see Note 14) that wereoutstanding at December 29, 1996, were stated at thelower of cost or market, which was computed by theaggregate method (unrealized losses were offset by un-realized gains). As a result of the sale of the company’smortgage banking business during the year, there wereno mortgage notes held for sale outstanding atDecember 28, 1997.
Mortgage-backed certificates (see Note 14) are carriedat par value, adjusted for any unamortized discount orpremium. These certificates and other financial instru-ments are pledged as collateral for the collateralizedmortgage obligation (CMO) bonds and are held by banksas trustees. Principal and interest collections are used tomeet the interest payments and reduce the outstandingprincipal balance of the bonds. Related CMO bonds arethe obligation of the issuer, and neither the company norany affiliated company has guaranteed or is otherwiseobligated with respect to the bonds.
In 1995, the company implemented SFAS No. 121,“Accounting for the Impairment of Long-Lived Assetsand for Long-Lived Assets to Be Disposed Of,” whichrequires companies to change their method of valuinglong-lived assets. The company’s decision to acceleratethe disposition of certain real estate assets previously heldfor development and use along with the implementationof this pronouncement resulted in a $290 million chargeto operations in the third quarter of 1995. The majorityof the charge was a direct result of the company’s deci-sion to accelerate the disposition of those assets. Theremainder of the charge resulted from the application of
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those provisions of SFAS No. 121 relating to the valua-tion of assets held for future use where estimated undis-counted future cash flows from those assets did notexceed the carrying value of those assets.
The company’s evaluation of each asset first con-sidered the availability of appraisal information, thencomparable sales information, and finally discountedestimated cash flows. Because appraisal information wasvery limited for the assets evaluated, the majority of the
assets were valued based upon comparable sales data ordiscounted estimated cash flows. The discount rate con-sidered applicable market conditions and risks associatedwith each asset. In those cases where a discount rate wasused, it was 20 percent. Subsequent sales have demon-strated that the valuation assumptions used were rea-sonable. The carrying value of the affected assets atDecember 28, 1997, and December 29, 1996, was ap-proximately $94 million and $141 million, respectively.
Basic net earnings per common share are based on theweighted average number of common shares outstandingduring the respective periods. Diluted net earnings percommon share are based on the weighted average num-
ber of common shares outstanding and stock optionsoutstanding at the beginning of or granted during the re-spective periods.
Weighted AverageDollar amounts in millions except per-share figures Net Earnings Shares (000) Per-Share Amount
1997:Basic $342 198,967 $1.72
Stock options granted — 902
Diluted $342 199,869 $1.71
1996:Basic $463 198,318 $2.34
Stock options granted — 756
Diluted $463 199,074 $2.33
1995:Basic $799 203,525 $3.93
Stock options granted — 836
Diluted $799 204,361 $3.91
Options for which the exercise price was greater thanthe average market price of common shares for the periodwere not included in the computation of diluted earningsper share. These options to purchase shares were asfollows:
Year Options to Purchase Exercise Price
1997 150,000 $53.06
1996 1,216,400 $45.944,700 $47.13
1,178,400 $48.13
1995 1,180,400 $48.13
N O T E 2 . N E T E A R N I N G S P E R C O M M O N S H A R E
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The company is engaged in the sale of products forexport from the United States. These sales consist princi-pally of pulp, newsprint, paperboard, containerboard,logs, lumber and wood chips to Japan; pulp, container-
board, lumber and plywood to Europe; and logs to Chinaand Korea. The following table compares the company’sexport sales from the United States to customers in Japanand elsewhere with its total net sales and revenues.
• The loss of $8 million from the sale of the wholesalenursery business.
• The gain of $21 million from the sale of theSaskatoon chemical facility.
Real estate and related assets:• The gain of $45 million from the sale of the mort-
gage banking business.There were no significant other income (expense)
items in 1996 or 1995.
The following net assets, net sales and earnings before income taxes, related to operations outside the United States,principally Canada, are included in the company’s consolidated financial statements:
Dollar amounts in millions December 28, 1997 December 29, 1996
Net assets:Working capital $ 123 $ 160Timber-cutting rights 3 5Property and equipment, net 900 930Other assets 259 35
1,285 1,130Other liabilities (434) (262)
Net assets $ 851 $ 868
Dollar amounts in millions 1997 1996 1995
Net sales $1,382 $1,354 $1,614
Earnings before income taxes:Foreign entities $ 107 $ 106 $ 392U.S. entities with foreign activity 2 5 18
N O T E 3 . F O R E I G N O P E R A T I O N S A N D E X P O R T S A L E S
Other income (expense) is an aggregation of both recur-ring and occasional income and expense items and, as aresult, fluctuates from period to period. Individualincome (expense) items significant in 1997 in relation tonet earnings were:
Weyerhaeuser:• The interest income of $18 million from the favor-
able federal income tax decision related to timber casu-alty losses incurred in the eruption of Mount St. Helensin 1980.
Dollar amounts in millions 1997 1996 1995
Export sales from the United States:Customers in Japan $ 893 $ 1,185 $ 1,173Customers outside Japan 634 573 763
Total export sales 1,527 1,758 1,936
Total net sales and revenues $ 11,210 $ 11,114 $ 11,788
N O T E 4 . O T H E R I N C O M E ( E X P E N S E ) , N E T
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N O T E 5 . I N C O M E T A X E S
Earnings before income taxes are comprised of the following:
Dollar amounts in millions 1997 1996 1995
Domestic earnings $ 432 $ 614 $ 852Foreign earnings 107 106 392
$ 539 $ 720 $1,244
Provisions for income taxes include the following:
Dollar amounts in millions 1997 1996 1995
Federal:Current $ 65 $ 41 $177Deferred 86 166 92
151 207 269
State:Current 6 2 31Deferred 3 16 4
9 18 35
Foreign:Current 45 33 134Deferred (8) (1) 7
37 32 141
$197 $257 $445
A reconciliation between the federal statutory tax rate and the company’s effective tax rate follows:
1997 1996 1995
Statutory tax on income 35.0% 35% 35%State income taxes, net of federal tax benefit 1.3 2 2All other, net .2 (1) (1)
Effective income tax rate 36.5% 36% 36%
The net deferred income tax (liabilities) assets include the following components:
Dollar amounts in millions December 28, 1997 December 29, 1996
Current (included in prepaid expenses) $ 90 $ 84Noncurrent (1,418) (1,324)Real estate and related assets (included in other assets) 28 12
Total $(1,300) $(1,228)
The deferred tax (liabilities) assets are comprised of the following:
Dollar amounts in millions December 28, 1997 December 29, 1996
Depreciation $(1,352) $(1,303)Depletion (176) (143)Capitalized interest and taxes — real estate development (71) (68)Other (189) (186)
Total deferred tax (liabilities) (1,788) (1,700)
Pension and retiree health care 128 125Charges for impairment of long-lived assets 43 56Alternative minimum tax credit carryforward 63 46Other 254 245
Total deferred tax assets 488 472
$(1,300) $(1,228)
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As of December 28, 1997, the company has availableapproximately $63 million of alternative minimum taxcredit carryforward, which does not expire, and foreigntax credit carryforwards of $4 million, $1 million,$1 million and $1 million expiring in 1999, 2000, 2001and 2002, respectively.
The company intends to reinvest undistributed earn-ings of certain foreign subsidiaries; therefore, no U.S.taxes have been provided. These earnings totaled ap-proximately $827 million at the end of 1997. While it isnot practicable to determine the income tax liability thatwould result from repatriation, it is estimated that with-holding taxes payable upon repatriation would approxi-mate $41 million.
N O T E 6 . P E N S I O N P L A N S
Net annual pension cost (income) includes the following components:
Dollar amounts in millions 1997 1996 1995
Service cost-benefits earned during the period $ 54 $ 49 $ 37Interest cost on projected benefit obligation 122 111 104Actual return on plan assets (584) (414) (466)Net amortization and deferrals 399 254 323Pension expense due to sales, closures and other 1 2 —
$ (8) $ 2 $ (2)
The assumptions used were as follows:
1997 1996 1995
Discount rate 7.75% 7.75% 7.75%Rate of increase in compensation levels 4.5% 4.5% 4.5%Expected long-term rate of return on plan assets 11.5% 11.5% 11.5%
The following table sets forth the plans’ funded status and amounts recognized in the company’s consolidated balancesheet for its U.S. and Canadian pension plans:
December 28, 1997 December 29, 1996
Assets Accumulated Assets AccumulatedExceed Benefits Exceed Benefits
Accumulated Exceed Accumulated ExceedDollar amounts in millions Benefits Assets Total Benefits Assets Total
Accumulated benefit obligation:Vested $ 1,307 $ 23 $ 1,330 $ 1,337 $ 17 $ 1,354Non-vested 155 — 155 29 — 29
$ 1,462 $ 23 $ 1,485 $ 1,366 $ 17 $ 1,383
Projected benefit obligation $ 1,621 $ 39 $ 1,660 $ 1,498 $ 30 $ 1,528Fair value of plan assets (2,391) (27) (2,418) (1,933) (22) (1,955)Unrecognized prior service cost (84) (9) (93) (58) (10) (68)Unrecognized net gain (loss) 891 (4) 887 539 2 541Unrecognized net transition asset 22 (1) 21 27 (1) 26Additional minimum liability — 2 2 — — —
Accrued/(prepaid) pension cost $ 59 $ — $ 59 $ 73 $ (1) $ 72
The assets of the U.S. and Canadian pension plans, asof December 28, 1997, and December 29, 1996, consistof a highly diversified mix of equity, fixed income andreal estate securities.
Approximately 1,600 employees are covered byunion-administered multi-employer pension plans towhich the company makes negotiated contributionsbased generally on fixed amounts per hour per employee.Contributions to these plans were $7 million in 1997,$5 million in 1996 and $7 million in 1995.
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N O T E 7 . P O S T R E T I R E M E N T B E N E F I T S O T H E R T H A N P E N S I O N S
The company sponsors defined benefit postretirementplans for its U.S. employees that provide medical and lifeinsurance coverage as follows:
• Two salaried retiree medical plans that cover sub-stantially all salaried employees who retire under thecompany’s retirement plan and their spouses. Plan I cov-ers those retired or eligible to retire as of January 1, 1990,and provides full health coverage. Plan II includes thosesalaried employees not eligible for Plan I, under whichthe company provides a fixed dollar amount per year ofservice toward the premium, with the retiree paying theremainder. The company reserves the right to revise thefixed dollar amount.
• An hourly retiree medical plan that covers approxi-mately 3,500 active hourly employees and their spouses.For some, the coverage stops at age 65, while others havelifetime coverage. In some units the retiree must pay aportion of the premium, while in others the companypays the full cost. There are approximately 1,900 retiredhourly employees and their spouses currently coveredunder these programs.
• A salaried retiree life insurance plan that starts at80 percent of salary at retirement and reduces to six
thousand dollars in 20 percent increments. Approxi-mately 4,000 persons who are retired or were eligible toretire as of December 31, 1991, are subject to a differentschedule.
• An hourly retiree life insurance plan in which ap-proximately 12,400 active hourly employees are eligibleand approximately 2,600 hourly retirees have coverage.Most of these are covered by fixed dollar amount cover-age that is graded down after retirement. Some units havepay-related insurance on which the company pays thefull cost.
Weyerhaeuser sponsors various defined contributionplans for U.S. salaried and hourly employees. The basisfor determining plan contributions varies by plan. Theamounts charged to operations and contributed to theplans for participating employees were $34 million,$32 million and $28 million in 1997, 1996 and 1995, re-spectively.
The company sponsors four defined benefit post-retirement plans for its Canadian employees that providemedical and life insurance benefits. Approximately 300retired employees are covered and 2,300 active employeesare eligible for coverage in these four plans as of year-end1997.
The following table sets forth the U.S. and Canadian plans’ combined accrued postretirement benefit obligation as ofDecember 28, 1997, and December 29, 1996:
Dollar amounts in millions December 28, 1997 December 29, 1996
Accumulated postretirement benefit obligation:Retirees:
Health $ 98 $102Life 24 25
Fully eligible and other active plan participants:Health 76 86Life 15 14
213 227Unrecognized actuarial gain 53 31
Accrued postretirement benefit obligation $266 $258
Net annual postretirement benefit costs included the following components:
Dollar amounts in millions 1997 1996 1995
Service cost benefits attributed to service during the period:Health $ 4 $ 4 $ 3Life 1 1 —
Interest cost on accumulated postretirement benefit obligation:Health 13 13 16Life 3 3 3
Amortization of gain — health (2) (1) (1)
Net postretirement benefit cost $19 $20 $21
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effect of a one percent increase in the assumed health carecost trend rates would increase the accumulated post-retirement benefit obligation as of December 28, 1997,by 10.3 percent, and the aggregate of the service andinterest cost components of net annual postretirementbenefit cost for 1997 by 13 percent.
For measurement purposes, an 8.5, 8.0 and 7.5 per-cent annual rate of increase in the per capita cost ofcovered health care benefits was assumed for 1995, 1996and 1997, respectively. Beginning in 1998, the rate isassumed to decrease by 0.5 percent annually to a level of5.5 percent for the year 2001 and all years thereafter. The
N O T E 8 . I N V E N T O R I E S
Other assumptions used were as follows:
1997 1996 1995
Discount rate 7.75% 7.75% 7.75%Rate of increase in compensation levels:
Salaried 4.5% 4.5% 4.5%Hourly 3.0% 3.0% 3.0%
Dollar amounts in millions December 28, 1997 December 29, 1996
Property and equipment, at cost:Land $ 158 $ 158Buildings and improvements 1,721 1,686Machinery and equipment 9,954 9,713Rail and truck roads and other 599 596
12,432 12,153Less allowance for depreciation and amortization 5,458 5,146
$ 6,974 $ 7,007
N O T E 9 . P R O P E R T Y A N D E Q U I P M E N T
Dollar amounts in millions December 28, 1997 December 29, 1996
Logs and chips $ 103 $ 120Lumber, plywood and panels 154 148Pulp, newsprint and paper 185 202Containerboard, paperboard and packaging 107 108Other products 152 134Materials and supplies 282 289
$ 983 $1,001
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N O T E 1 0 . R E A L E S T A T E I N P R O C E S S O F D E V E L O P M E N T A N D F O R S A L E
Properties held by the company’s real estate and related assets segment include:
Dollar amounts in millions December 28, 1997 December 29, 1996
Dwelling units $207 $198Residential lots 223 264Commercial lots 79 135Commercial projects 56 31Acreage 27 49Other inventories 1 3
$593 $680
N O T E 1 1 . A C C R U E D L I A B I L I T I E S
Dollar amounts in millions December 28, 1997 December 29, 1996
Payroll — wages and salaries, incentive awards, retirement and vacation pay $268 $279Taxes — Social Security and real and personal property 53 57Interest 91 79Income taxes 42 51Other 194 196
$648 $662
N O T E 1 2 . S H O R T - T E R M D E B T
B O R R O W I N G S
Real estate and related assets segment short-term bor-rowings were $228 million with a weighted averageinterest rate of 5.7 percent at December 28, 1997, and$245 million with a weighted average interest rate of 4.7percent at December 29, 1996.
L I N E S O F C R E D I T
The company has short-term bank credit lines that pro-vide for borrowings of up to the total amount of$425 million, all of which could be availed of by thecompany and Weyerhaeuser Real Estate Company(WRECO) at December 28, 1997, and borrowings of up
to the total amount of $375 million, all of which couldbe availed of by the company, WRECO andWeyerhaeuser Mortgage Company (WMC) atDecember 29, 1996. No portions of these lines have beenavailed of by the company or WRECO at December 28,1997, and none were availed of by the company,WRECO or WMC at December 29, 1996. None of theentities referred to herein is a guarantor of the borrow-ings of the others.
At December 29, 1996, WMC had $54 million out-standing against short-term special credit lines that pro-vided for borrowings of up to $230 million. With thesale of WMC in 1997, this credit line has been repaid andcancelled.
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D E B T
Weyerhaeuser long-term debt, including the current portion, is as follows:
Dollar amounts in millions December 28, 1997 December 29, 1996
83⁄8% debentures due 2007 $ 150 $ 1507.50% debentures due 2013 250 2507.25% debentures due 2013 250 25071⁄8% debentures due 2023 250 2509.05% notes due 2003 200 20081⁄2% debentures due 2025 300 3007.95% debentures due 2025 250 2506.95% debentures due 2017 300 —6.95% debentures due 2027 300 —Industrial revenue bonds, rates from 2.5% (variable) to 9.85% (fixed), due 1998–2028 784 746Medium-term notes, rates from 6.43% to 8.91%, due 1999–2005 246 313Commercial paper/credit agreements 194 889Other 26 28
$3,500 $3,626
Portion due within one year $ 17 $ 80
Long-term debt maturities during the next five years are (millions):
1998 $ 171999 862000 2952001 782002 7
Real estate and related assets segment long-term debt, including the current portion, is as follows:
Dollar amounts in millions December 28, 1997 December 29, 1996
Notes payable, unsecured; weighted average interest rates are approximately 7.0% and 6.4% $ 652 $ 735Bank and other borrowings, unsecured; weighted average interest rates are approximately
5.9% and 5.5% 250 380Notes payable, secured; weighted average interest rates are approximately 8.2% and 8.5% 30 41Collateralized mortgage obligation bonds 100 133Commercial paper/credit agreements — 248
$1,032 $1,537
Portion due within one year $ 350 $ 723
Long-term debt maturities during the next five years are (millions):
1998 $3501999 1162000 1992001 1622002 81
N O T E 1 3 . L O N G - T E R M D E B T
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upon by WFS and the banks, and (2) a commitment feeon the unused portion of the credit. $75 million and$355 million were outstanding under this facility atDecember 28, 1997, and December 29, 1996, respec-tively.
To the extent that these credit commitments expiremore than one year after the balance sheet date and areunused, an equal amount of commercial paper is classifi-able as long-term debt. Amounts so classified are shownin the tables in this note.
No portion of these lines has been availed of by thecompany, WRECO or WFS at December 28, 1997, andnone was availed of by the company, WRECO, WMC orWFS at December 29, 1996, except as noted above.
The company’s compensating balance agreementswere not significant.
L I N E S O F C R E D I T
The company’s lines of credit include a five-year revolv-ing credit facility agreement entered into in 1997 with agroup of banks that provides for borrowings of up to thetotal amount of $400 million, all of which is available tothe company. Borrowings are at LIBOR plus a spread orother such interest rates mutually agreed to between theborrower and lending banks.
At December 29, 1996, WMC had $25 million out-standing against a one-year evergreen credit commit-ment. With the sale of WMC in 1997, this credit com-mitment has been repaid and cancelled.
Weyerhaeuser Financial Services, Inc. (WFS), a whollyowned subsidiary, has a revolving/term credit agreementthat provides for: (1) borrowings of up to $75 million atDecember 28, 1997, and $450 million at December 29,1996, at LIBOR or other such rates as may be agreed
December 28, 1997 December 29, 1996
Carrying Fair Carrying FairDollar amounts in millions Value Value Value Value
Weyerhaeuser:Financial liabilities:
Long-term debt (including current maturities) $3,500 $3,859 $3,626 $3,809
Real estate and related assets:Financial assets:
Mortgage notes held for sale — — 334 335Mortgage loans receivable 64 74 133 126Mortgage-backed certificates and other pledged financial instruments 109 117 154 165
Total financial assets 173 191 621 626
Financial liabilities:Long-term debt (including current maturities) 1,032 1,044 1,537 1,553
N O T E 1 4 . F A I R V A L U E O F F I N A N C I A L I N S T R U M E N T S
The methods and assumptions used to estimate fairvalue of each class of financial instruments for which it ispracticable to estimate that value are as follows:
• Long-term debt, including the real estate and re-lated assets segment, is estimated based on quoted marketprices for the same issues or on the discounted value ofthe future cash flows expected to be paid using incremen-tal rates of borrowing for similar liabilities.
• Mortgage notes held for sale were estimated usingthe quoted market prices for securities backed by similar
loans adjusted for differences in loan characteristics. Theestimated fair value was net of related hedge instruments,which were estimated based upon quoted market pricesfor securities.
• Mortgage loans receivable are estimated based onthe discounted value of estimated future cash flows usingcurrent rates for loans with similar terms and risks.
• Mortgage-backed certificates and other pledged fi-nancial instruments (pledged to secure collateralizedmortgage obligations) are estimated using the quotedmarket prices for securities backed by similar loans andrestricted deposits held at cost.
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N O T E 1 5 . L E G A L P R O C E E D I N G S , C O M M I T M E N T S A N D C O N T I N G E N C I E S
range, in the aggregate, up to approximately $100 mil-lion over several years. This estimate of the upper end ofthe range of reasonably possible additional costs is muchless certain than the estimates upon which accruals arecurrently based, and utilizes assumptions less favorable tothe company among the range of reasonably possible out-comes. In estimating both its current accruals for envi-ronmental remediation and the possible range of addi-tional future costs, the company has assumed that it willnot bear the entire cost of remediation of every site to theexclusion of other known potentially responsible partieswho may be jointly and severally liable. The ability ofother potentially responsible parties to participate hasbeen taken into account, based generally on each party’sfinancial condition and probable contribution on a per-site basis. No amounts have been recorded for potentialrecoveries from insurance carriers.
The company is a party to legal proceedings and envi-ronmental matters generally incidental to its business.Although the final outcome of any legal proceeding orenvironmental matter is subject to a great many variablesand cannot be predicted with any degree of certainty, thecompany presently believes that the ultimate outcomeresulting from these proceedings and matters, includingthose described in this note, would not have a materialeffect on the company’s current financial position, li-quidity or results of operations; however, in any givenfuture reporting period, such proceedings or matterscould have a material effect on results of operations.
O T H E R I T E M S
The company’s 1997 capital expenditures, excludingacquisitions, were $656 million and are expected to ap-proximate $750 million in 1998; however, the 1998expenditure level could be increased or decreased as aconsequence of future economic conditions.
During the normal course of business, the company’ssubsidiaries included in its real estate and related assetssegment have entered into certain financial commitmentscomprised primarily of guarantees made on $42 millionof partnership borrowings and limited recourse obliga-tions associated with $162 million of sold mortgageloans. The fair value of the recourse on these loans is esti-mated to be $3 million, which is based upon marketspreads for sales of similar loans without recourse orestimates of the credit risk of the associated recourseobligation.
L E G A L P R O C E E D I N G S
In November 1996, an action was filed against the com-pany in Superior Court for King County, Washington,on behalf of a purported class of all individuals and enti-ties that own property in the United States on which ex-terior hardboard siding manufactured by the companyhas been installed since 1980. The action alleges thecompany has manufactured and distributed defectivehardboard siding and has breached express warrantiesand consumer protection statutes in its sale of hardboardsiding. The action seeks compensatory damages, includ-ing prejudgment interest, and seeks damages for the costof replacing siding that rots subsequent to the entry ofany judgment. In January 1997, an action was filed, alsoin Superior Court for King County, Washington, on be-half of a purported class of all individuals, proprietor-ships, partnerships, corporations and other business enti-ties in the United States on whose homes, condomini-ums, apartment complexes or commercial buildingshardboard siding manufactured by the company has beeninstalled. The action alleges the company has breachedexpress and implied warranties in its sale of hardboardsiding and also has violated the Consumer Protection Actof the state of Washington. The action seeks damages,prejudgment interest, costs and reasonable attorney fees.In December 1997, the two cases were consolidated forthe purpose of discovery and resolution of the class certi-fication issue. Also, in December 1997, the plaintiffs inthe first of the two cases filed a motion to change the trialdate and for leave to move for class certification. InJanuary 1998, the court denied this motion. The twocases are currently set for trial in March 1998 and May1998, respectively, without class certification. The com-pany is a defendant in approximately eighteen otherhardboard siding cases, two of which purport to be classactions on behalf of purchasers of single- or multi-familyresidences that contain the company’s hardboard siding,one in Nebraska and one in Iowa.
E N V I R O N M E N T A L
It is the company’s policy to accrue for environmentalremediation costs when it is determined that it is prob-able that such an obligation exists and the amount of theobligation can be reasonably estimated. Based on cur-rently available information and analysis, the companybelieves that it is reasonably possible that costs associatedwith all identified sites may exceed current accruals byamounts that may prove insignificant or that could
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N O T E 1 6 . P R O C E E D S F R O M S A L E O F P R O P E R T Y A N D E Q U I P M E N T
In 1996, the company sold its Klamath Falls, Oregon,hardboard, particleboard and plywood manufacturingoperations; 600,000 acres of predominantly pine timber-lands; and its nursery and seed orchard facilities. Pro-ceeds from the sale of the property and equipment in thistransaction amounted to $33 million. The resulting gain
on this transaction was not material to the company’spretax income. The timberlands portion of this trans-action involved a like-kind exchange for other timber-lands, primarily private commercial timberlands insoutheastern Louisiana and southern Mississippi previ-ously owned by Cavenham Forest Industries.
N O T E 1 8 . S T O C K - B A S E D C O M P E N S A T I O N P L A N
The preferred and preference shares may be issued inone or more series with varying rights and preferencesincluding dividend rates, redemption rights, conversionterms, sinking fund provisions, values in liquidation andvoting rights. When issued, the outstanding preferredand preference shares rank senior to outstanding com-mon shares as to dividends and assets available on liqui-dation.
P R E F E R R E D A N D P R E F E R E N C E S H A R E S
The company is authorized to issue:• 7,000,000 preferred shares having a par value of
$1.00 per share, of which none were issued and outstand-ing at December 28, 1997, and December 29, 1996; and
• 40,000,000 preference shares having a par value of$1.00 per share, of which none were issued and outstand-ing at December 28, 1997, and December 29, 1996.
N O T E 1 7 . S H A R E H O L D E R S ’ I N T E R E S T
The company’s Long-Term Incentive CompensationPlan (the “Plan”) was approved at the 1992 AnnualMeeting of Shareholders. The Plan provides for the pur-chase of the company’s common stock at its market priceon the date of grant by certain key officers and otheremployees of the company and its subsidiaries who areselected from time to time by the Compensation Com-mittee of the Board of Directors. No more than 10 mil-lion shares may be issued under the Plan. The term ofoptions granted under the Plan may not exceed 10 yearsfrom the grant date. Grantees are 25 percent vested afterone year, 50 percent after two years, 75 percent afterthree years, and 100 percent after four years.
The company accounts for all options under APBOpinion No. 25 and related interpretations, under whichno compensation has been recognized. Had compensa-tion costs for the Plan been determined consistent withSFAS No. 123, “Accounting for Stock-Based Compensa-tion,” net income and earnings per share would havebeen reduced to the following pro forma amounts:
1997 1996
Net income (in millions):As reported $ 342 $ 463Pro forma 332 454
Basic earnings per share:As reported $1.72 $2.34Pro forma 1.67 2.29
Diluted earnings per share:As reported $1.71 $2.33Pro forma 1.66 2.28
Because the SFAS No. 123 method of accounting hasnot been applied to options granted prior to fiscal year1995, the resulting pro forma compensation cost maynot be representative of that to be expected in futureyears.
The fair value of each option grant is estimated on thedate of the grant using the Black-Scholes option pricingmodel with the following weighted average assumptionsused for grants:
1997 1996
Risk-free interest rate 6.42% 5.81%Expected life 4.9 years 6.4 yearsExpected volatility 26.21% 25.61%Expected dividend yield 3.44% 3.48%
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334 of the 5,848 options outstanding atDecember 28, 1997, have exercise prices between $20and $35, with a weighted average exercise price of $25.29and a weighted average remaining contractual life of 2.59years. All of these options are exercisable. The remaining5,514 options have exercise prices between $36 and $54,with a weighted average exercise price of $44.41 and aweighted average remaining contractual life of 7.35 years.3,975 of these options are exercisable with a weightedaverage exercise price of $43.59.
Changes in the number of shares subject to option aresummarized as follows:
1997 1996 1995
Shares (in thousands):Outstanding,
beginning of year 6,243 5,972 5,687Granted 1,563 1,222 1,155Exercised 1,864 925 859Forfeited 91 26 11Expired 3 — —
Outstanding, endof year 5,848 6,243 5,972
Exercisable, endof year 4,309 5,022 4,817
Weighted averageexercise price:Outstanding,
beginning of year $40.56 $38.17 $36.27Granted 46.54 45.94 39.47Exercised 36.70 32.11 27.34Forfeited 44.68 43.46 40.10Expired 37.75 — —Outstanding, end
of year 43.32 40.56 38.17Weighted average
grant date fair valueof options 11.26 11.40 10.41
N O T E 1 9 . B U S I N E S S S E G M E N T S
The company is principally engaged in the growing andharvesting of timber and the manufacture, distributionand sale of forest products. The business segments aretimberlands and wood products (including softwoodlumber, plywood and veneer; composite panels; orientedstrand board; logs; chips; timber; doors; hardwood lum-ber and plywood; and treated products); pulp, paper andpackaging (including pulp, newsprint, paper, container-board, paperboard, packaging, recycling and chemicals);and real estate and related assets.
The timber-based businesses involve a high degree ofintegration among timber operations; building materialsconversion facilities; and pulp, newsprint, paper, con-tainerboard and paperboard primary manufacturing andsecondary conversion facilities, including extensive trans-fers of raw materials, semi-finished materials and endproducts between and among these groups. Accountingfor segment profitability involves allocations of joint rawmaterials and conversion costs and the use of transferprices that attempt to approximate current market val-ues.
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The following table sets forth an analysis of the company’s operations by business segments:
Dollar amounts in millions 1997 1996 1995
Sales to and revenues from unaffiliated customers:Timberlands and wood products $ 5,374 $ 5,240 $ 4,931Pulp, paper and packaging 4,609 4,648 5,682Real estate and related assets 1,093 1,009 919Corporate and other 134 217 256
11,210 11,114 11,788
Intersegment sales and revenues:Timberlands and wood products 248 322 558Pulp, paper and packaging 95 88 168Corporate and other 35 35 33
378 445 759
Total sales and revenues 11,588 11,559 12,547Eliminations (378) (445) (759)
$11,210 $11,114 $11,788
Approximate contribution (charge) to earnings (1)(2)(3):Timberlands and wood products $ 707 $ 805 $ 808Pulp, paper and packaging 164 307 1,181Real estate and related assets 111 43 (277)Corporate and other (186) (183) (217)
796 972 1,495Interest expense (3) (341) (338) (347)Less capitalized interest 84 86 96
Earnings before income taxes 539 720 1,244Income taxes (197) (257) (445)
$ 342 $ 463 $ 799
Depreciation, amortization and fee stumpage:Timberlands and wood products $ 243 $ 227 $ 211Pulp, paper and packaging 353 355 350Real estate and related assets 12 16 41Corporate and other 20 19 19
$ 628 $ 617 $ 621
Capital expenditures (including acquisitions):Timberlands and wood products $ 315 $ 866 $ 508Pulp, paper and packaging 327 415 562Real estate and related assets 3 9 13Corporate and other 24 37 36
$ 669 $ 1,327 $ 1,119
Assets:Timberlands and wood products $ 3,804 $ 3,658 $ 2,940Pulp, paper and packaging 6,589 6,721 6,797Real estate and related assets 2,004 2,628 2,905Corporate and other 1,160 1,184 1,151
13,557 14,191 13,793Eliminations (482) (595) (540)
$13,075 $13,596 $13,253
(1)1997 results reflect special items of $14 million, which are the net of charges incurred for closures of operating facilities, offset in part by gains on salesof businesses.(2)1995 “approximate contribution to earnings” includes special charges of $290 million for real estate and related assets to dispose of certain real estate assets.(3)Interest expense of $40 million, $67 million and $64 million in 1997, 1996 and 1995, respectively, is included in the determination of “approximatecontribution to earnings” and excluded from “interest expense” for financial services businesses.
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N O T E 2 0 . S E L E C T E D Q U A R T E R L Y F I N A N C I A L I N F O R M A T I O N ( U N A U D I T E D )
Dollar amounts in millions except per-share figures First Quarter Second Quarter Third Quarter Fourth Quarter Year
Net sales:1997 $ 2,608 $ 2,909 $ 2,823 $ 2,870 $11,2101996 2,605 2,886 2,852 2,771 $11,114
Operating income:1997 104 212 233 220 7691996 287 265 286 232 1,070
Earnings before income taxes:1997 33 172 180 154 5391996 222 161 187 150 720
Net earnings:1997 21 109 114 98 3421996 142 103 120 98 463
Net earnings per common share:Basic
1997 .10 .56 .57 .49 1.721996 .72 .52 .60 .50 2.34
Diluted1997 .10 .55 .57 .49 1.711996 .71 .52 .60 .49 2.33
Dividends per common share:1997 .40 .40 .40 .40 1.601996 .40 .40 .40 .40 1.60
Market prices — high/low:1997 505⁄8 – 441⁄2 551⁄4 – 425⁄8 6315⁄16 – 515⁄8 603⁄4 – 461⁄16 6315⁄16 – 425⁄81996 491⁄2 – 3915⁄16 497⁄8 – 413⁄4 481⁄4 – 391⁄2 481⁄8 – 437⁄8 497⁄8 – 391⁄2
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N O T E 2 1 . H I S T O R I C A L S U M M A R Y
Dollar amounts in millions except per-share figures 1997 1996 1995 1994 1993
PER COMMON SHARE:Basic net earnings (loss) from continuing operations, before
extraordinary item and effect of accounting changes $ 1.72 2.34 3.93 2.86 2.58Extraordinary item (3) $ — — — — .25Effect of accounting changes $ — — — — —
Basic net earnings (loss) $ 1.72 2.34 3.93 2.86 2.83
Diluted net earnings (loss) from continuing operations, beforeextraordinary item and effect of accounting changes $ 1.71 2.33 3.91 2.85 2.56
Extraordinary item (3) $ — — — — .25Effect of accounting changes $ — — — — —
Diluted net earnings (loss) $ 1.71 2.33 3.91 2.85 2.81
Dividends paid $ 1.60 1.60 1.50 1.20 1.20Shareholders’ interest (end of year) $ 23.30 23.21 22.57 20.86 19.34
FINANCIAL POSITION:Total assets:
Weyerhaeuser $11,071 10,968 10,359 9,750 9,087Real estate and related assets $ 2,004 2,628 2,894 3,408 3,670
$13,075 13,596 13,253 13,158 12,757
Long-term debt (net of current portion):Weyerhaeuser:
Long-term debt $ 3,483 3,546 2,983 2,713 2,998Capital lease obligations $ 2 2 2 — —Convertible subordinated debentures $ — — — — —Limited recourse income debenture $ — — — — —
$ 3,485 3,548 2,985 2,713 2,998
Real estate and related assets:Long-term debt $ 682 814 1,608 1,873 2,086
Shareholders’ interest $ 4,649 4,604 4,486 4,290 3,966Percent earned on shareholders’ interest 7.4% 10.2% 18.2% 14.3% 15.2%
OPERATING RESULTS:Net sales and revenues:
Weyerhaeuser $10,117 10,105 10,869 9,281 8,315Real estate and related assets $ 1,093 1,009 919 1,117 1,230
$11,210 11,114 11,788 10,398 9,545
Net earnings (loss) from continuing operations beforeextraordinary item and effect of accounting changes:Weyerhaeuser $ 271 434 981 576 459Real estate and related assets $ 71 29 (182)(2) 13 68
$ 342(1) 463 799 589 527Extraordinary item (3) $ — — — — 52Effect of accounting changes $ — — — — —
Net earnings (loss) $ 342 463 799 589 579
STATISTICS (UNAUDITED):Number of employees 35,778 39,020 39,558 36,665 36,748Salaries and wages $ 1,706 1,781 1,779 1,610 1,585Employee benefits $ 355 370 408 357 347Total taxes $ 478 557 736 618 577Timberlands (thousands of acres):
U.S. fee ownership 5,171 5,326 5,302 5,587 5,512Long-term license arrangements 23,715 22,863 22,866 17,849 17,845
Number of shareholder accounts at year-end:Common 20,981 22,528 23,446 24,131 25,282Preferred — — — — —Preference — — — — —
Average common and common equivalent sharesoutstanding (thousands) 198,967 198,318 203,525 205,543 204,866
65
1992 1991 1990 1989 1988 1987
1.83 (.50) 1.87 1.56 2.68 2.12— — — — — —— (.30) — — — —
1.83 (.80) 1.87 1.56 2.68 2.12
1.82 (.50) 1.87 1.56 2.68 2.10— — — — — —— (.30) — — — —
1.82 (.80) 1.87 1.56 2.68 2.10
1.20 1.20 1.20 1.20 1.15 .9017.85 17.25 19.21 18.55 18.14 16.54
8,566 7,551 7,556 7,371 6,983 6,4189,720 9,435 8,800 8,605 8,401 6,499
18,286 16,986 16,356 15,976 15,384 12,917
2,659 2,195 2,168 1,502 1,644 1,540— — 7 23 37 51
193 193 193 — — —188 204 204 204 198 181
3,040 2,592 2,572 1,729 1,879 1,772
2,411 2,421 2,637 2,006 2,318 2,130
3,646 3,489 3,864 4,148 4,044 3,71410.4% (4.4)% 9.8% 8.3% 14.6% 12.8%
7,744 7,167 7,447 8,355 7,861 6,9881,522 1,606 1,619 1,826 1,467 1,397
9,266 8,773 9,066 10,181 9,328 8,385
332 (25) 340 377 516 37940 (76) 54 (36) 50 68
372 (101)(4) 394 341(5) 566 447— — — — — —— (61) — — — —
372 (162) 394 341 566 447
39,022 38,669 40,621 45,214 46,976 45,1231,580 1,476 1,531 1,563 1,423 1,277
323 321 318 325 292 250443 173 446 403 511 467
5,592 5,488 5,592 5,664 5,775 5,81318,828 13,491 13,491 13,324 13,324 12,064
26,334 26,937 28,187 29,847 30,379 32,535— — — 12 25 26— — — 443 351 106
203,373 201,578 203,673 204,331 207,785 202,544
(1)1997 results reflect net special items charges of $14 millionless related tax effect of $5 million, or $9 million.(2)1995 results reflect a special charge for disposal of certainreal estate assets of $290 million less related tax effect of $106million, or $184 million.(3)1993 results reflect an extraordinary net gain as a result ofextinguishing certain debt obligations of $86 million lessrelated tax effect of $34 million, or $52 million.(4)1991 results reflect restructuring and other charges of$445 million less related tax effect of $162 million, or$283 million.(5)1989 results reflect net special items charges of $401 millionless related tax effect of $141 million, or $260 million.
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W E Y E R H A E U S E R C O M P A N Y F O U N D A T I O N
In 1998, the Weyerhaeuser Company Foundation celebrates its 50th year of corporate philanthropy. Since 1948, theFoundation has invested more than $100 million in grants to help fund thousands of projects and has supported volun-teer efforts on hundreds of other activities – all with the goal of making a positive difference in the quality of people’s lives.
The Weyerhaeuser Company Foundation is one of the few sources of corporate giving in small communities acrossthe United States and Canada. We believe Weyerhaeuser’s success is linked to the health and well-being of the communitieswhere we do business and where our employees live, work and play. With the input of more than 90 local employee-advisory committees, the Weyerhaeuser Company Foundation carefully directs millions of dollars annually to thesecommunities.
Our grants support needs such as education, human services, community development, arts and culture, and theenvironment. The increasing number of requests we receive each year reminds us that we can only do so much with thefunds we have. What we do, however, has a significant positive impact – especially when paired with volunteer efforts.
For that reason, and to bring volunteerism into the foreground of corporate philanthropy, we’re proud to be “MakingWAVEs” (Weyerhaeuser Active Volunteer Employees). Through this program, employees make “waves” in their communi-ties by initiating volunteer projects and nominating local nonprofit organizations for cash awards. To date, more than 140projects involving hundreds of volunteers, and representing more than 125,000 volunteer hours, have been completed.
This is just one small way the Weyerhaeuser Company Foundation helps us thank the many people and communitieswhere we maintain operations, shows the neighborly face of a large company, and shares our many skills and talents.
1 9 9 7 F I N A N C I A L H I G H L I G H T S
G R A N T S A W A R D E D B Y G E O G R A P H Y
Dollars in thousands Dollar amount Percentage
Northwest (Oregon and Washington) $2,807 43%
South (Alabama, Arkansas, Georgia, Mississippi, North Carolina and Oklahoma) 1,514 23%
Other (United States, Canada and other international) 2,275 34%
Total $6,596 100%
G R A N T S A W A R D E D B Y P R I O R I T Y
Dollars in thousands Dollar amount
Education $2,162
Civic, Community, Environment 1,626
Culture and Arts 341
United Way 1,048
Other Health and Human Services 1,419
Total $6,596
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D I R E C T O R S
T E R M E X P I R E S 1 9 9 8
P H I L I P M . H A W L E Y
Hawley, 72, a director of the company since1989, is chairman and chief executive officer ofKrause Furniture, Inc. (retailing). He waschairman and chief executive officer of Broad-way Stores, Inc. (retailing) (formerly CarterHawley Hale Stores, Inc.), until his retirementin 1993. He was chairman of the CaliforniaRetailers Association in the period 1993-95.He is a director of Aeromovel USA, Inc.,Johnson & Johnson and a trustee of theHaynes Foundation.(3)(4)
S T E V E N R . R O G E L
Rogel, 55, has been president, chief executiveofficer, and a director of the company sinceDecember 1, 1997. He had previously served aspresident and chief executive officer ofWillamette Industries since 1995. He is also adirector of Fred Meyer, Inc., the CascadePacific Council Boy Scouts of America anda trustee of Pacific University.(1)
W I L L I A M D . R U C K E L S H A U S
Ruckelshaus, 65, a director of the companysince 1989, has been chairman of Browning-Ferris Industries, Inc. (waste services), sinceOctober 1988 and was chief executive officeruntil his retirement in 1995. He has beenpresident of William D. Ruckelshaus Associ-ates since 1987. He was administrator, Envi-ronmental Protection Agency, in the period1983-85 and a senior vice president ofWeyerhaeuser Company in the period 1976-83.He is also a director of Cummins EngineCompany, Inc., Coinstar, Inc., MonsantoCompany, Nordstrom, Inc., Solutia, Inc. andGargoyles, Inc.(1)(2)(4)
R I C H A R D H . S I N K F I E L D
Sinkfield, 55, a director of the company since1993, is an executive vice president and adirector of United Auto Group, Inc. (automo-bile dealership), a senior partner in the lawfirm of Rogers and Hardin in Atlanta and hasbeen a partner in the firm since 1976. He isalso a director of the Metropolitan AtlantaCommunity Foundation, Inc. and the AtlantaCollege of Art. He is a member of the Boardof Trust of Vanderbilt University and the boardof governors of the State Bar of Georgia. He isa former chairman of the board of AtlantaUrban League, Inc.(2)
T E R M E X P I R E S 1 9 9 9
M A R T H A R . I N G R A M
Ingram, 62, a director of the company since1995, has been chairman of Ingram IndustriesInc. (micro-computer, book and video distri-bution, and inland barging) since 1995, amember of the board since 1981 and was direc-tor of Public Affairs in the period 1979-95. Sheis also a director of Ingram Micro, Inc., BaxterInternational Inc. and First American Corpora-tion. Mrs. Ingram was the chairman of the1996 Tennessee Bicentennial Commission andserves on the boards of Vassar College, AshleyHall and Vanderbilt University.(2)
J O H N I . K I E C K H E F E R
Kieckhefer, 53, a director of the company since1990, has been president of Kieckhefer Associ-ates, Inc. (investment and trust management),since 1989 and was senior vice president priorto that time. He has been engaged in commer-cial cattle operations since 1967 and is a trusteeof J.W. Kieckhefer Foundation, an Arizonacharitable trust.(3)
G E O R G E H . W E Y E R H A E U S E R
Weyerhaeuser, 71, a director of the companysince 1960, has been chairman of WeyerhaeuserCompany since 1988. Mr. Weyerhaeuserjoined the company in 1949, became its presi-dent in 1966, and was its chief executive officerin the period 1966-91. He is also a director ofThe Boeing Company, Chevron Corporationand SAFECO Corporation and is a member ofThe Business Council.(1)(4)
T E R M E X P I R E S 2 0 0 0
J O H N W . C R E I G H T O N , J R .
Creighton, 65, a director of the company since1988, was company president from 1988-1997and chief executive officer from 1991-1997.He is also a director of Quality Foods Centers,Inc., and Unocal Corp., and is the nationalpresident of the Boy Scouts of America.*
W . J O H N D R I S C O L L
Driscoll, 68, a director of the company since1979, was chairman of Rock Island Company(private investment company) until hisretirement in 1994. He is also a director ofComshare Incorporated, Northern States PowerCompany, The St. Paul Companies, Inc. andJohn Nuveen & Company.(3)(4)
R T . H O N . D O N A L D F. M A Z A N K O W S K I
Mazankowski, 62, was a Member of Parlia-ment, Government of Canada, from 1968-1993, served as a Deputy Prime Minister from1986-1993 and Minister of Finance from1991-1993. He is also a director of the PowerGroup of Companies, Canadian Utilities Ltd.,Shaw Communications Inc., IMC Global, Inc.,Gulf Canada Resources Ltd., Gulf IndonesiaResources, Ltd., Golden Star Resources Ltd.and Weyerhaeuser Canada Ltd., a whollyowned subsidiary of the Company. He is also amember of the Board of Governors of Univer-sity of Alberta.(2)
(1) Member of the Executive Committee.Mr. Weyerhaeuser is chairman.
(2) Member of the Accounting andReporting Standards Committee.Mr. Ruckelshaus is chairman.
(3) Member of the CompensationCommittee. Mr. Hawley is chairman.
(4) Member of the Nominating andManagement Organization Committee.Mr. Driscoll is chairman.
*Mr. Creighton will retire from theBoard of Directors at the AnnualShareholders Meeting on April 21, 1998.
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C O R P O R A T E D A T A
T I M B E R L A N D S A N D D I S T R I B U T I O N
A R N O L D B . C U R T I S
Vice President,Hardwoods Business Group
R I C H A R D E . H A N S O N
Vice President, West
J . C A R L J E S S U P
Vice President, South
S C O T T R . M A R S H A L L
Vice President, Policy,Finance and Strategic Planning
R E X M c C U L L O U G H
Vice President,Forestry Research
J O H N P. M c M A H O N
Vice President, Timberlands,External and Regulatory Affairs
E D W A R D P. R O G E L
Vice President,Human Resources
D A V I D T . S T I L L
Vice President andGeneral Manager,Building Materials Distribution
W O O D P R O D U C T S
L E E T . A L F O R D
Vice President, MS/LA Operations
J A M E S M . B R A N S O N
Vice President, Plywood
R O D N E Y J . D E M P S T E R
Vice President,Oriented Strand Board – West
L Y N N E . E N D I C O T T
Vice President, Southern Lumber
R E Y N O L D H E R T
Vice President, Canadian Lumber
D A N I E L M . M c C O R M I C K
Vice President,Composite Products
H O W A R D S . M E C K
Vice President,Oriented Strand Board – East
D A V I D K . S H A R P
Vice President, Western Lumber
P U L P , P A P E R A N D P A C K A G I N G
C H A R L E S E . C A R P E N T E R
Vice President, Newsprintand Bleached Paperboard
M I C H A E L J . C O R D R Y
Vice President, Recycling
R I C H A R D L . E R I C K S O N
Vice President,Technology and Environment
C A R L W. G E I S T, J R .
Vice President, Pulp
G E O R G E D . H E N S O N
Vice President,Manufacturing and Total Quality
J A M E S R . K E L L E R
Vice President,Containerboard Packaging
R I C H A R D E . L O D M I L L
Vice President, Chemicals
R O B E R T F . M E Y E R
Vice President, Fine Paper
P E T E R W. S H E R L A N D
Vice President,Finance and Planning
S E N I O R O F F I C E R S
J O H N W . C R E I G H T O N , J R .
President andChief Executive Officer(through November 30, 1997)
S T E V E N R . R O G E L
President andChief Executive Officer(as of December 1, 1997)
W I L L I A M R . C O R B I N
Executive Vice President,Timberlands and Distribution
R I C H A R D C . G O Z O N
Executive Vice President,Pulp, Paper and Packaging
S T E V E N R . H I L L
Senior Vice President,Human Resources andInformation Technology
M A C K L . H O G A N S
Senior Vice President,Corporate Affairs
N O R M A N E . J O H N S O N
Senior Vice President,Research and Development
T H O M A S M . L U T H Y
Senior Vice President,Wood Products
W I L L I A M C . S T I V E R S
Senior Vice President andChief Financial Officer
W E Y E R H A E U S E R F O R E S T L A N D SI N T E R N A T I O N A L
C O N O R W. B O Y D
President
W A S H I N G T O N D . C . O F F I C E
F R E D E R I C K S . B E N S O N
Vice President, Federal andInternational Government Affairs
W E Y E R H A E U S E R ( A S I A ) L I M I T E D
H . J A M E S F I T Z G E R A L D
President
W E S T W O O D S H I P P I N G L I N E S
A R N F I N N G I S K E
President
C O R P O R A T E
C R E I G H H . A G N E W
Vice President, Government Affairsand Corporate Contributions
J O H N S . C O A T E S
Vice President andManaging Director,Pension Fund Investments
R O B E R T A . D O W D Y
Vice President andGeneral Counsel
D A V I D R . E D W A R D S
Vice President and Treasurer
C L I F F O R D R . H A L L
Vice President,Information Technology
J O H N S . L A R S E N
Vice President,Energy and Environment
M O N T Y E C . M A L E
Vice President, Communications
R O S E M A R Y F . M A T T I C K
Vice President, Procurementand Supply Management
S A N D Y D . M c D A D E
Secretary
S U S A N M . M E R S E R E A U
Vice President, Quality,Business Services and Aviation
H E N R Y M . M O N T R E Y
Vice President, Corporate R&D
L A R R Y W. P O L L O C K
Vice President andDirector of Taxes
D A R I E N E . R O S E E N
Vice President, Strategic Planning
K E N N E T H J . S T A N C A T O
Vice President and Controller
R I C H A R D J . T A G G A R T
Vice President, Investor Relations
G R E G O R Y H . Y U C K E R T
Vice President, Labor Relations
W E Y E R H A E U S E R R E A LE S T A T E C O M P A N Y
C . S T E P H E N L E W I S
President
W E Y E R H A E U S E R C A N A D A L T D .
G E O R G E H . W E Y E R H A E U S E R , J R .
President andChief Executive Officer
This re p o rt is printed entirely on We yerhaeuser papers. Soy-based inks we re usedwhich are more easily separated from the paper fiber in the repulping pro c e s s .
The cover and main text portions of the re p o rt are printed on We yerhaeuser Cougarm a n u f a c t u red at our Rothschild, Wis., fine paper mill.
The inserts of the re p o rt are printed on We yerhaeuser Choctaw Gloss manufacture dat our Columbus, Miss., fine paper mill.
The entire re p o rt can be re c ycled in most high-grade office paper re c ycling programs. Thank you for re c yc l i n g .
We yerhaeuser CompanyP. O . B ox 2 9 9 9Tacoma WA 98477-2999(253) 924-2345
h t t p : / / w w w. we ye r h a e u s e r. c o m
April 21, 1998George Hunt Walker We yerhaeuser Bu i l d i n gFederal Wa y, Wa s h .
Proxy material will be mailed on or about Ma rch 9, 1998, to each holder of re c o rd of voting share s .
C h a s e Mellon Sh a reholder Se rvices, L . L . C .O verpeck Centre85 Challenger Ro a dRidgefield Pa rk N J 0 7 6 6 0
For address changes, to request information on electronic deposit of dividends, to obtain information about your account, to obtain the quarterly earnings, or to request information on the Dividend In vestment Plan, please call:
Inside the United St a t e s(800) 561-4405(800) 231-5469 He a r i n g - i m p a i re d
Outside the United St a t e s(201) 329-8660(201) 329-8354 He a r i n g - i m p a i re d
G E N E R A L I N Q U I R I E S :
C h a s e Mellon Sh a reholder Se rvices, L . L . C .Sh a reholder Re l a t i o n sP. O. Box 3 3 1 5So. Ha c k e n s a c k N J 0 7 6 0 6
C h a s e Mellon has the ability to respond to many share h o l d e rinquiries via the Internet.
Its website address is: http://www. c h a s e m e l l o n . c o m
We yerhaeuser Company Common Stock is listed on the New Yo rk Stock Exchange (N Y S E), the Chicago St o c kExchange and the Pacific Stock Exchange. The company’sN Y S E symbol is W Y.
To order a copy of We ye r h a e u s e r’s 1997 Annual Re p o rt ,Form 10-K or the 1997 Annual En v i ronmental Pe rf o r m a n c eRe p o rt, call (800) 551-4803, or write:
We yerhaeuser CompanyCH 1K35CP. O . B ox 2 9 9 9Tacoma WA 98477-2999
A copy will be provided at no charge.